Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-23606           July 29, 1968

ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC., petitioner,

vs.
SECURITIES & EXCHANGE COMMISSION, respondent.

Gamboa and Gamboa for petitioner.

Office of the Solicitor General for respondent.

SANCHEZ, J.:

To the question — May a corporation 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? — 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.

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 incorporation.

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 November 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 of 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 Court to overturn the conclusion below. 1

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 ... by the vote
or written assent of the stockholders representing at least two-thirds of the subscribed capital
stock ... "

But prior to amendment by Republic Act 3531, an explicit prohibition existed in Section 18, thus:

... Provided, however, That the life of said corporation shall not be extended by said
amendment beyond the time fixed in the original articles: ...

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:

... 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: ...

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 Law, 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 business for which it was established. 2
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
corporation 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 and specified purposes incident to complete liquidation of its
affairs".3 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 mundane affairs cease
to exist upon his death".4 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 to do so, Alhambra was still in the process of liquidation. It is surely impermissible for us
to stretch the law — that merely empowers a corporation to act in liquidation — to inject therein the
power to extend its corporate existence.

3. Not that we are alone in this view. Fletcher has written: "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
the term of existence as original fixed by its charter or the general law, since, as a rule, the
corporation is ipso facto dissolved as soon as that time expires. So where the extension is by
amendment of the articles of incorporation, the amendment must be adopted before that time. And,
similarly, the filing and recording of a certificate of extension after that time cannot relate back to the
date of the passage of a resolution by the stockholders in favor of the extension so as to save the life
of the corporation. The contrary is true, however, and the doctrine of relation will apply, where the
delay is due to the neglect of the officer with whom the certificate is required to be filed, or to a
wrongful refusal on his part to receive it. And statutes in some states specifically provide that a
renewal may be had within a specified time before or after the time fixed for the termination of the
corporate existence".5

The logic of this position is well expressed in a foursquare case decided by the Court of Appeals of
Kentucky.6 There, pronouncement was made as follows:
 ... But section 561 (section 2147) provides that, when any corporation expires by the terms of
its articles of incorporation, it may be thereafter continued to act for the purpose of closing up
its business, but for no other purpose. The corporate life of the Home Building Association
expired on May 3, 1905. After that date, by the mandate of the statute, it could continue to
act for the purpose of closing up its business, but for no other purpose. The proposed
amendment was not made until January 16, 1908, or 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 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 back some two years and eight months. In other words, the association for
two years and eight months had only existed for the purpose of winding up its business, and,
after this length of time, it was proposed to revivify it and make it a live corporation for the
two years and eight months daring which it had not been such.

The law gives a certain length of time for the filing of records in this court, and provides that
the time may be extended by the court, but under this provision it has uniformly been held
that when the time was expired, there is nothing to extend, and that the appeal must be
dismissed... So, when the articles of a corporation have expired, it is too late to adopt an
amendment extending the life of a corporation; for, the corporation having expired, this is in
effect to create a new corporation ..."7

True it is, that the Alabama Supreme Court has stated in one case. 8 that a corporation empowered
by statute to renew its corporate existence may do so even after the expiration of its corporate life,
provided renewal is taken advantage of within the extended statutory period for purposes of
liquidation. That ruling, however, is inherently weak as persuasive authority for the situation at bar
for at least two reasons: First. That case was a suit for mandamus to compel a former corporate
officer to turn over books and records that came into his possession and control by virtue of his
office. It was there held that such officer was obliged to surrender his books and records even if the
corporation had already expired. The holding on the continued existence of the corporation was a
mere dictum. Second. Alabama's law is different. Corporations in that state were authorized not only
to extend but also to renew their corporate existence.That 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; to resume; to restore to existence, to revive; to re-establish; to recreate; to
replace; to grant or obtain an extension of Webster's New International Dict.; 34 Cyc. 1330; Carter v.
Brooklyn Life Ins. Co., 110 N.Y. 15, 21, 22, 17 N.E. 396; 54 C.J. 379. Sec". 9

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 for the existence of one which would
otherwise reach its limit at an earlier period".10 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.

Alhambra draws attention to another case11 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
affirmative. For, the corporation still exists for the settlement of its affairs.
People, ex rel. vs. Green,12 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 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: 1äwphï1.ñët

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 ...

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 Republic Act 1932 when it passed Republic 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 the expiration of the terms fixed 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 why it should not
be made to apply to other private corporations.13

The situation here presented is not one where the law under consideration is ambiguous, where
courts have to put in harness extrinsic aids such as a look at another statute to disentangle doubts. It
is an elementary rule in legal hermeneutics that where the terms of the law are clear, no statutory
construction may be permitted. Upon the basic conceptual scheme under which corporations
operate, and with Section 77 of the Corporation Law particularly in mind, we find 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.
The pari materia rule of statutory construction, in fact, commands that statutes must be harmonized
with each other.14 So harmonizing, the conclusion is clear that Section 18 of the Corporation Law, as
amended by Republic Act 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, as with
domestic insurance companies, can extend corporate existence only on or before the expiration of
the term fixed 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 in stockholdings 15 —
has already been established. Its purpose is to carry on, and it actually does carry on, 16 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 Company, Inc.) has to be wound up; and that the old corporate
name cannot be retained fully in its exact form.17 What is important though is that the
word Alhambra, the name that counts [it has goodwill], remains.

FOR THE REASONS GIVEN, the ruling of the Securities and Exchange Commission of November
18, 1963, and its order of September 8, 1964, both here under review, are hereby affirmed.

Costs against petitioner Alhambra Cigar & Cigarette Manufacturing Company, Inc. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Angeles and Fernando, JJ.,
concur.
 FIRST DIVISION

G. R. No. 137592 - December 12, 2001

ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, H.S.K. SA BANSANG
PILIPINAS, INC., Petitioner, v. IGLESIA NG DIOS KAY CRISTO JESUS, HALIGI AT SUHAY NG
KATOTOHANAN, Respondent.

YNARES-SANTIAGO, J.:

This is a petition for review assailing the Decision dated October 7, 19971 and the Resolution dated
February 16, 19992 of the Court of Appeals in CA-G.R. SP No. 40933, which affirmed the Decision of
the Securities and Exchange and Commission (SEC) in SEC-AC No. 539.3

Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church of God in Christ
Jesus, the Pillar and Ground of Truth),4 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 Commission.5 No appeal was taken from
said decision.

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 "H.S.K." stands for Haligi at Saligan ng Katotohanan.6

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 change its corporate name and be barred from
using the same or similar name on 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
petitioner's corporate name was identical or confusingly or deceptively similar to that of respondent's
corporate name.8

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:

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
PROTECT PETITIONER'S RIGHTS.9

Invoking the case of Legarda v. Court of Appeals,10 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 the scope of his general or implied
authority is regarded as an act of his client.11 An exception to the foregoing is where the reckless or
gross negligence of the counsel deprives the client of due process of law. 12 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 moved for reconsideration and lifting of the order of default.13 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 to set aside the
decision.14

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 petitioner, his efforts were palpably real,
albeit bereft of zeal.15

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 the SEC can only be construed as a
waiver of that defense.16 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 of the
corporations involved but more so for the protection of the public.17

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 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 new corporation to prevent the use
of the name.18

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 corporations are using the
same acronym H.S.K.;19 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
stands for "Haligi at Saligan ng Katotohanan."20

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 of and pertaining to the members of respondent corporation.21

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. Universal Textile Mills, Inc.,22 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
corporate name.23

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.

SO ORDERED.

Davide, Jr., C .J ., Kapunan and Pardo, JJ ., concur.

Puno,  J., on official leave.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 96161 February 21, 1992

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

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

Emeterio V. Soliven & Associates for petitioners.

Narciso A. Manantan for private respondent.

MELENCIO-HERRERA, J.:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We find basis for petitioners' plea.

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

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

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

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

No corporate name may be allowed by the Securities and Exchange Commission if

the proposed name is identical or deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by law or is patently
deceptive, confusing or contrary to existing law. Where a change in a corporate
name is approved, the commission shall issue an amended certificate of
incorporation under the amended name. (Emphasis supplied)

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

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

(2) the proposed name is either:

(a) identical; or

(b) deceptively or confusingly similar

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

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

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

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

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

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

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

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

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

To develop manufacture and deal in electrical products, including electronic,

mechanical and other similar products . . . (p. 30, Record of SEC Case No. 2743)

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

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

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

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

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

In support of its application for the registration of its Articles of Incorporation with the SEC, Private
Respondent had submitted an undertaking "manifesting its willingness to change its corporate name
in the event another person, firm or entity has acquired a prior right to the use of the said firm name
or one deceptively or confusingly similar to it." Private respondent must now be held to its
undertaking.
 As a general rule, parties organizing a corporation must choose a name at their peril;
and the use of a name similar to one adopted by another corporation, whether a
business or a nonbusiness or non-profit organization if misleading and likely to injure
it in the exercise in its corporate functions, regardless of intent, may be prevented by
the corporation having the prior right, by a suit for injunction against the new
corporation to prevent the use of the name (American Gold Star Mothers, Inc. v.
National Gold Star Mothers, Inc., 89 App DC 269, 191 F 2d 488, 27 ALR 2d 948).

WHEREFORE, the Decision of the Court of Appeals dated 31 July 1990, and its Resolution dated 20
November 1990, are SET ASIDE and a new one entered ENJOINING private respondent from using
"PHILIPS" as a feature of its corporate name, and ORDERING the Securities and Exchange
Commission to amend private respondent's Articles of Incorporation by deleting the word PHILIPS
from the corporate name of private respondent.

No costs.

SO ORDERED.

Paras, Padilla, Regalado and Nocon, JJ., concur.

 SECOND DIVISION

G.R. No. 150416             July 21, 2006

SEVENTH DAY ADVENTIST CONFERENCE CHURCH OF SOUTHERN PHILIPPINES, INC.,

and/or represented by MANASSEH C. ARRANGUEZ, BRIGIDO P. GULAY, FRANCISCO M.
LUCENARA, DIONICES O. TIPGOS, LORESTO C. MURILLON, ISRAEL C. NINAL, GEORGE G.
SOMOSOT, JESSIE T. ORBISO, LORETO PAEL and JOEL BACUBAS, petitioners,
vs.
NORTHEASTERN MINDANAO MISSION OF SEVENTH DAY ADVENTIST, INC., and/or
represented by JOSUE A. LAYON, WENDELL M. SERRANO, FLORANTE P. TY and JETHRO
CALAHAT and/or SEVENTH DAY ADVENTIST CHURCH [OF] NORTHEASTERN MINDANAO
MISSION,* Respondents.

DECISION

CORONA, J.:

This petition for review on certiorari assails the Court of Appeals (CA) decision 1 and resolution2 in
CA-G.R. CV No. 41966 affirming, with modification, the decision of the Regional Trial Court (RTC) of
Bayugan, Agusan del Sur, Branch 7 in Civil Case No. 63.

This case involves a 1,069 sq. m. lot covered by Transfer Certificate of Title (TCT) No. 4468 in
Bayugan, Agusan del Sur originally owned by Felix Cosio and his wife, Felisa Cuysona.

On April 21, 1959, the spouses Cosio donated the land to the South Philippine Union Mission of
Seventh Day Adventist Church of Bayugan Esperanza, Agusan (SPUM-SDA Bayugan). 3 Part of the
deed of donation read:

KNOW ALL MEN BY THESE PRESENTS:

That we Felix Cosio[,] 49 years of age[,] and Felisa Cuysona[,] 40 years of age, [h]usband and wife,
both are citizen[s] of the Philippines, and resident[s] with post office address in the Barrio of
Bayugan, Municipality of Esperanza, Province of Agusan, Philippines, do hereby grant, convey and
forever quit claim by way of Donation or gift unto the South Philippine [Union] Mission of Seventh
Day Adventist Church of Bayugan, Esperanza, Agusan, all the rights, title, interest, claim and
demand both at law and as well in possession as in expectancy of in and to all the place of land and
portion situated in the Barrio of Bayugan, Municipality of Esperanza, Province of Agusan,
Philippines, more particularly and bounded as follows, to wit:
1. a parcel of land for Church Site purposes only.

2. situated [in Barrio Bayugan, Esperanza].

3. Area: 30 meters wide and 30 meters length or 900 square meters.

4. Lot No. 822-Pls-225. Homestead Application No. V-36704, Title No. P-285.

5. Bounded Areas

North by National High Way; East by Bricio Gerona; South by Serapio Abijaron and West by Feliz
Cosio xxx. 4

The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Day Adventist
Church, on behalf of the donee.

Twenty-one years later, however, on February 28, 1980, the same parcel of land was sold by the
spouses Cosio to the Seventh Day Adventist Church of Northeastern Mindanao Mission (SDA-
NEMM).5 TCT No. 4468 was thereafter issued in the name of SDA-NEMM. 6

Claiming to be the alleged donee’s successors-in-interest, petitioners asserted ownership over the
property. This was opposed by respondents who argued that at the time of the donation, SPUM-SDA
Bayugan could not legally be a donee

because, not having been incorporated yet, it had no juridical personality. Neither were petitioners
members of the local church then, hence, the donation could not have been made particularly to
them.

On September 28, 1987, petitioners filed a case, docketed as Civil Case No. 63 (a suit for
cancellation of title, quieting of ownership and possession, declaratory relief and reconveyance with
prayer for preliminary injunction and damages), in the RTC of Bayugan, Agusan del Sur. After trial,
the trial court rendered a decision7 on November 20, 1992 upholding the sale in favor of
respondents.

On appeal, the CA affirmed the RTC decision but deleted the award of moral damages and
attorney’s fees.8 Petitioners’ motion for reconsideration was likewise denied. Thus, this petition.

The issue in this petition is simple: should SDA-NEMM’s ownership of the lot covered by TCT No.
4468 be upheld?9 We answer in the affirmative.

The controversy between petitioners and respondents involves two supposed transfers of the lot
previously owned by the spouses Cosio: (1) a donation to petitioners’ alleged predecessors-in-
interest in 1959 and (2) a sale to respondents in 1980.

Donation is undeniably one of the modes of acquiring ownership of real property. Likewise,
ownership of a property may be transferred by tradition as a consequence of a sale.

Petitioners contend that the appellate court should not have ruled on the validity of the donation
since it was not among the issues raised on appeal. This is not correct because an appeal generally
opens the entire case for review.
We agree with the appellate court that the alleged donation to petitioners was void.

Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor
of another person who accepts it. The donation could not have been made in favor of an entity yet
inexistent at the time it was made. Nor could it have been accepted as there was yet no one to
accept it.

The deed of donation was not in favor of any informal group of SDA members but a supposed
SPUM-SDA Bayugan (the local church) which, at the time, had neither juridical personality nor
capacity to accept such gift.

Declaring themselves a de facto corporation, petitioners allege that they should benefit from the
donation.

But there are stringent requirements before one can qualify as a de facto corporation:

(a) the existence of a valid law under which it may be incorporated;

(b) an attempt in good faith to incorporate; and

(c) assumption of corporate powers.10

While there existed the old Corporation Law (Act 1459), 11 a law under which SPUM-SDA Bayugan
could have been organized, there is no proof that there was an attempt to incorporate at that time.

The filing of articles of incorporation and the issuance of the certificate of incorporation are essential
for the existence of a de facto corporation.12 We have held that an organization not registered with
the Securities and Exchange Commission (SEC) cannot be considered a corporation in any concept,
not even as a corporation de facto.13 Petitioners themselves admitted that at the time of the donation,
they were not registered with the SEC, nor did they even attempt to organize 14 to comply with legal
requirements.

Corporate existence begins only from the moment a certificate of incorporation is issued. No such
certificate was ever issued to petitioners or their supposed predecessor-in-interest at the time of the
donation. Petitioners obviously could not have claimed succession to an entity that never came to
exist. Neither could the principle of separate juridical personality apply since there was never any
corporation15 to speak of. And, as already stated, some of the representatives of petitioner Seventh
Day Adventist Conference Church of Southern Philippines, Inc. were not even members of the local
church then, thus, they could not even claim that the donation was particularly for them. 16

"The de facto doctrine thus effects a compromise between two conflicting public interest[s]—the one
opposed to an unauthorized assumption of corporate privileges; the other in favor of doing justice to
the parties and of establishing a general assurance of security in business dealing with
corporations."17

Generally, the doctrine exists to protect the public dealing with supposed corporate entities, not to
favor the defective or non-existent corporation.18

In view of the foregoing, petitioners’ arguments anchored on their supposed de facto status hold no
water. We are convinced that there was no donation to petitioners or their supposed predecessor-in-
interest.
On the other hand, there is sufficient basis to affirm the title of SDA-NEMM. The factual findings of
the trial court in this regard were not convincingly disputed. This Court is not a trier of facts. Only
questions of law are the proper subject of a petition for review on certiorari. 19

Sustaining the validity of respondents’ title as well as their right of ownership over the property, the
trial court stated:

[W]hen Felix Cosio was shown the Absolute Deed of Sale during the hearing xxx he acknowledged
that the same was his xxx but that it was not his intention to sell the controverted property because
he had previously donated the same lot to the South Philippine Union Mission of SDA Church of
Bayugan-Esperanza. Cosio avouched that had it been his intendment to sell, he would not have
disposed of it for a mere P2,000.00 in two installments but for P50,000.00 or P60,000.00. According
to him, the P2,000.00 was not a consideration of the sale but only a form of help extended.

A thorough analysis and perusal, nonetheless, of the Deed of Absolute Sale disclosed that it
has the essential requisites of contracts pursuant to xxx Article 1318 of the Civil Code, except
that the consideration of P2,000.00 is somewhat insufficient for a [1,069-square meter] land. Would
then this inadequacy of the consideration render the contract invalid?

Article 1355 of the Civil Code provides:

Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue influence.

No evidence [of fraud, mistake or undue influence] was adduced by [petitioners].

xxx

Well-entrenched is the rule that a Certificate of Title is generally a conclusive evidence of

[ownership] of the land. There is that strong and solid presumption that titles were legally issued
and that they are valid. It is irrevocable and indefeasible and the duty of the Court is to see to it that
the title is maintained and respected unless challenged in a direct proceeding. xxx The title shall be
received as evidence in all the Courts and shall be conclusive as to all matters contained therein.

[This action was instituted almost seven years after the certificate of title in respondents’ name was
issued in 1980.]20

According to Art. 1477 of the Civil Code, the ownership of the thing sold shall be transferred to the
vendee upon the actual or constructive delivery thereof. On this, the noted author Arturo Tolentino
had this to say:

The execution of [a] public instrument xxx transfers the ownership from the vendor to the vendee
who may thereafter exercise the rights of an owner over the same 21

Here, transfer of ownership from the spouses Cosio to SDA-NEMM was made upon constructive
delivery of the property on February 28, 1980 when the sale was made through a public
instrument.22 TCT No. 4468 was thereafter issued and it remains in the name of SDA-NEMM.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioners.

SO ORDERED.

Puno, Chairperson, Sandoval-Gutierrez, Azcuna, Garcia, J.J., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-19118             January 30, 1965

MARIANO A. ALBERT, plaintiff-appellant,
vs.
UNIVERSITY PUBLISHING CO., INC., defendant-appellee.

Uy & Artiaga and Antonio M. Molina for plaintiff-appellant.

Aruego, Mamaril & Associates for defendant-appellees.

BENGZON, J.P., J.:

No less than three times have the parties here appealed to this Court.

In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff entitled to
damages (for breach of contract) but reduced the amount from P23,000.00 to P15,000.00.

Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held that the
judgment for P15,000.00 which had become final and executory, should be executed to its full
amount, since in fixing it, payment already made had been considered.

Now we are asked whether the judgment may be executed against Jose M. Aruego, supposed
President of University Publishing Co., Inc., as the real defendant.

Fifteen years ago, on September 24, 1949, Mariano A. Albert sued University Publishing Co., Inc.
Plaintiff alleged inter alia that defendant was a corporation duly organized and existing under the
laws of the Philippines; that on July 19, 1948, defendant, through Jose M. Aruego, its President,
entered into a contract with plaintifif; that defendant had thereby agreed to pay plaintiff P30,000.00
for the exclusive right to publish his revised Commentaries on the Revised Penal Code and for his
share in previous sales of the book's first edition; that defendant had undertaken to pay in eight
quarterly installments of P3,750.00 starting July 15, 1948; that per contract failure to pay one
installment would render the rest due; and that defendant had failed to pay the second installment.

Defendant admitted plaintiff's allegation of defendant's corporate existence; admitted the execution
and terms of the contract dated July 19, 1948; but alleged that it was plaintiff who breached their
contract by failing to deliver his manuscript. Furthermore, defendant counterclaimed for damages. 1äwphï1.ñët

Plaintiff died before trial and Justo R. Albert, his estate's administrator, was substituted for him.

The Court of First Instance of Manila, after trial, rendered decision on April 26, 1954, stating in the
dispositive portion —
 IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the plaintiff and
against the defendant the University Publishing Co., Inc., ordering the defendant to pay the
administrator Justo R. Albert, the sum of P23,000.00 with legal [rate] of interest from the date
of the filing of this complaint until the whole amount shall have been fully paid. The
defendant shall also pay the costs. The counterclaim of the defendant is hereby dismissed
for lack of evidence.

As aforesaid, we reduced the amount of damages to P15,000.00, to be executed in full. Thereafter,

on July 22, 1961, the court a quo ordered issuance of an execution writ against University Publishing
Co., Inc. Plaintiff, however, on August 10, 1961, petitioned for a writ of execution against Jose M.
Aruego, as the real defendant, stating, "plaintiff's counsel and the Sheriff of Manila discovered
that there is no such entity as University Publishing Co., Inc." Plaintiff annexed to his petition a
certification from the securities and Exchange Commission dated July 31, 1961, attesting: "The
records of this Commission do not show the registration of UNIVERSITY PUBLISHING CO., INC.,
either as a corporation or partnership." "University Publishing Co., Inc." countered by filing, through
counsel (Jose M. Aruego's own law firm), a "manifestation" stating that "Jose M. Aruego is not a
party to this case," and that, therefore, plaintiff's petition should be denied.

Parenthetically, it is not hard to decipher why "University Publishing Co., Inc.," through counsel,
would not want Jose M. Aruego to be considered a party to the present case: should a separate
action be now instituted against Jose M. Aruego, the plaintiff will have to reckon with the statute of
limitations.

The court a quo denied the petition by order of September 9, 1961, and from this, plaintiff has
appealed.

The fact of non-registration of University Publishing Co., Inc. in the Securities and Exchange
Commission has not been disputed. Defendant would only raise the point that "University Publishing
Co., Inc.," and not Jose M. Aruego, is the party defendant; thereby assuming that "University
Publishing Co., Inc." is an existing corporation with an independent juridical personality. Precisely,
however, on account of the non-registration it cannot be considered a corporation, not even a
corporation de facto (Hall vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose
M. Aruego; it cannot be sued independently.

The corporation-by-estoppel doctrine has not been invoked. At any rate, the same is inapplicable
here. Aruego represented a non-existent entity and induced not only the plaintiff but even the court
to believe in such representation. He signed the contract as "President" of "University Publishing
Co., Inc.," stating that this was "a corporation duly organized and existing under the laws of the
Philippines," and obviously misled plaintiff (Mariano A. Albert) into believing the same. One who has
induced another to act upon his wilful misrepresentation that a corporation was duly organized and
existing under the law, cannot thereafter set up against his victim the principle of corporation by
estoppel (Salvatiera vs. Garlitos, 56 O.G. 3069).

"University Publishing Co., Inc." purported to come to court, answering the complaint and litigating
upon the merits. But as stated, "University Publishing Co., Inc." has no independent personality; it is
just a name. Jose M. Aruego was, in reality, the one who answered and litigated, through his own
law firm as counsel. He was in fact, if not, in name, the defendant.

Even with regard to corporations duly organized and existing under the law, we have in many a case
pierced the veil of corporate fiction to administer the ends of justice.  * And in Salvatiera vs.
Garlitos, supra, p. 3073, we ruled: "A person acting or purporting to act on behalf of a corporation
which has no valid existence assumes such privileges and obligations and becomes personally
liable for contracts entered into or for other acts performed as such agent." Had Jose M. Aruego
been named as party defendant instead of, or together with, "University Publishing Co., Inc.," there
would be no room for debate as to his personal liability. Since he was not so named, the matters of
"day in court" and "due process" have arisen.

In this connection, it must be realized that parties to a suit are "persons who have a right to control
the proceedings, to make defense, to adduce and cross-examine witnesses, and to appeal from a
decision" (67 C.J.S. 887) — and Aruego was, in reality, the person who had and exercised these
rights. Clearly, then, Aruego had his day in court as the real defendant; and due process of law has
been substantially observed.

By "due process of law" we mean " "a law which hears before it condemns; which proceeds upon
inquiry, and renders judgment only after trial. ... ." (4 Wheaton, U.S. 518, 581.)"; or, as this Court has
said, " "Due process of law" contemplates notice and opportunity to be heard before judgment is
rendered, affecting one's person or property" (Lopez vs. Director of Lands, 47 Phil. 23, 32)." (Sicat
vs. Reyes, L-11023, Dec. 14, 1956.) And it may not be amiss to mention here also that the "due
process" clause of the Constitution is designed to secure justice as a living reality; not to sacrifice it
by paying undue homage to formality. For substance must prevail over form. It may now be trite, but
none the less apt, to quote what long ago we said in Alonso vs. Villamor, 16 Phil. 315, 321-322:

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in
the subtle art of movement and position, entraps and destroys the other. It is, rather, a
contest in which each contending party fully and fairly lays before the court the facts in issue
and then, brushing side as wholly trivial and indecisive all imperfections of form and
technicalities of procedure, asks that Justice be done upon the merits. Lawsuits, unlike
duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as
an aid to justice and becomes its great hindrance and chief enemy, deserves scant
consideration from courts. There should be no vested rights in technicalities.

The evidence is patently clear that Jose M. Aruego, acting as representative of a non-existent
principal, was the real party to the contract sued upon; that he was the one who reaped the benefits
resulting from it, so much so that partial payments of the consideration were made by him; that he
violated its terms, thereby precipitating the suit in question; and that in the litigation he was the real
defendant. Perforce, in line with the ends of justice, responsibility under the judgment falls on him.

We need hardly state that should there be persons who under the law are liable to Aruego for
reimbursement or contribution with respect to the payment he makes under the judgment in
question, he may, of course, proceed against them through proper remedial measures.

PREMISES CONSIDERED, the order appealed from is hereby set aside and the case remanded
ordering the lower court to hold supplementary proceedings for the purpose of carrying the judgment
into effect against University Publishing Co., Inc. and/or Jose M. Aruego. So ordered.

Bengzon, C.J., Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, Makalintal and
Zaldivar, JJ., concur.
Bautista Angelo, J., took no part.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 22106           September 11, 1924

ASIA BANKING CORPORATION, plaintiff-appellee,

vs.
STANDARD PRODUCTS, CO., INC., defendant-appellant.

Charles C. De Selms for appellant.

Gibbs & McDonough and Roman Ozaeta for appellee.

OSTRAND, J.:

This action is brought to recover the sum of P24,736.47, the balance due on the following
promissory note:

P37,757.22

MANILA, P. I.,     Nov. 28, 1921.

MANILA, P. I., Nov. 28, 1921.

On demand, after date we promise to pay to the Asia Banking Corporation, or order, the sum
of thirty-seven thousand seven hundred fifty-seven and 22/100 pesos at their office in
Manila, for value received, together with interest at the rate of ten per cent per annum.

No. ________ Due __________

THE STANDARD PRODUCTS CO., INC.

        By     (Sgd.) GEORGE H. SEAVER
                By     President

The court below rendered judgment in favor of the plaintiff for the sum demanded in the complaint,
with interest on the sum of P24,147.34 from November 1, 1923, at the rate of 10 per cent per
annum, and the costs. From this judgment the defendant appeals to this court.

At the trial of the case the plaintiff failed to prove affirmatively the corporate existence of the parties
and the appellant insists that under these circumstances the court erred in finding that the parties
were corporations with juridical personality and assigns same as reversible error.
There is no merit whatever in the appellant's contention. The general rule is that in the absence of
fraud a person who has contracted or otherwise dealt with an association in such a way as to
recognize and in effect admit its legal existence as a corporate body is thereby estopped to deny its
corporate existence in any action leading out of or involving such contract or dealing, unless its
existence is attacked for cause which have arisen since making the contract or other dealing relied
on as an estoppel and this applies to foreign as well as to domestic corporations. (14 C. J., 227;
Chinese Chamber of Commerce vs. Pua Te Ching, 14 Phil., 222.)

The defendant having recognized the corporate existence of the plaintiff by making a promissory
note in its favor and making partial payments on the same is therefore estopped to deny said
plaintiff's corporate existence. It is, of course, also estopped from denying its own corporate
existence. Under these circumstances it was unnecessary for the plaintiff to present other evidence
of the corporate existence of either of the parties. It may be noted that there is no evidence showing
circumstances taking the case out of the rules stated.

The judgment appealed from is affirmed, with the costs against the appellant. So ordered.

Street, Malcolm, Avanceña, Villamor and Romualdez, JJ., concur.

 EN BANC

[G.R. No. L-18173. April 22, 1968.]

BISAYA LAND TRANSPORTATION COMPANY, INC., Petitioner-Appellee, v. MIGUEL

CUENCO, Respondent-Appellant.

Miguel Cuenco and Efrain C. Pelaez for Appellant.

Pedro L. Albino, Nicolas Jumapao, Leoncio P. Abarquez, and Norberto J. Quisumbing

for Appellee.

SYLLABUS

1. CORPORATIONS; DISSOLUTION OF; ANNOTATION OF LIS PENDENS IN PROPERTIES OF SAID

CORPORATION. — Section 24 of Rule 14 authorizes a notice of lis pendens to be filed by the plaintiff,
as well as by the defendant when affirmative relief is claimed in his answer. In either case the action
must affect the title or the right of possession of real property. Where in the petition for quo warranto
for the dissolution of a corporation there appears no allegation which puts in issue said corporation’s
title or right of possession to real properties covered by TCT Nos. 4293 and 3425, and hence, they are
not affected by the said action, an annotation of a notice of lis pendens on the said transfers of
certificates of title finds no justification by reason of the said action.

2. ID.; ID.; ID.; PURPOSE. — A notice of lis pendens is intended for third persons, such as purchasers
or incumbrancers of the property in litigation, to the end that the transactions entered into by them
subsequent to the notation may be subject to whatever judgment may be rendered. The very purpose
of this procedural remedy circumscribes its availability to real actions, that is, actions where the title
to or possession of real property is directly affected. Thus, for instance, a purchaser of property
involved in an action may lose the same to the winning party therein by virtue of the notice of lis
pendens made prior to the purchase. This result could not conceivably arise in the present case.

3. ID.; ID.; ID.; EFFECT UPON PROPERTIES. — The fact that in case the petitioning corporation is
dissolved its assets will be liquidated and distributed among the stockholders, after paying off the
creditors, and that part of those assets as of the present consists of the properties now in question,
does not convert this proceeding into a real action involving the title to these properties so as to
justify the notation of lis pendens. The rights of stockholders to the assets will arise only after
dissolution of the corporation, and even then they cannot individually lay claim to any particular
property or any part thereof as their own except as a result of the liquidation. They have therefore no
title or possessory right to protect by the notice.

DECISION
 MAKALINTAL, J.:

In 1959 the Solicitor General, in representation of the Republic, filed a petition for quo warranto
against the Bisaya Land Transportation Co., Inc., seeking its forcible dissolution on the ground that it
had committed and was continuing to commit acts amounting to a forfeiture of its franchise, rights
and privileges. The petition was docketed as special civil case No. 39766, Court of First Instance of
Manila. Impleaded with the corporation as respondents were its officers, namely, Miguel Cuenco,
Manuel Cuenco, Lourdes Cuenco, Jose P. Velez, Federico A. Reyes and Jesus P. Velez. Alleged in nine
separate causes of action were numerous violations of law and of the articles of incorporation,
transactions and activities beyond the corporate powers, fraudulent machinations and channeling of
funds and properties for extra-corporate purposes, and acts of mismanagement on the part of the co-
respondents above-mentioned. The petitioner prayed that during the pendency of the case a receiver
be appointed for the assets of the corporation.

Miguel Cuenco filed his individual answer to the petition, admitting the allegations therein insofar as
the offending acts of the corporation and of the other individual respondents were concerned but
disclaiming any participation in such acts by him. He joined in the prayer for dissolution as well as for
the appointment of a receiver, and at the same time filed a cross-claim" in his own behalf as bonafide
stockholder and as director . . . for the benefit of cross- respondent corporation." In the eighteen
causes of action constituting the cross-claim Miguel Cuenco attributed to the individual cross-
respondents, as members of the board of directors of the corporation, the commission of acts which
"offend the law of its creation as well as several applicable statutes, rules and regulations adopted by
the Republic of the Philippines." On the cross-claim he prayed that said individual cross-respondents
be ordered to return and/or reimburse to the Corporation different sums of money aggregating several
million pesos, such return and/or reimbursement being, according to him, "a condition precedent to
the receipt of said cross-respondents of any share in the liquidating dividends of the cross-respondent
corporation once its dissolution is decreed by the court." On August 31, 1959 Miguel Cuenco, as cross-
claimant, filed a notice of lis pendens with Register of Deeds for the City of Cebu, covering real
properties of the Bisaya Land Transportation Co., Inc., with transfer certificates of title Nos. 4293 and
3425. On November 17, 1959 the corporation went to the Court of First Instance of Cebu and in the
original land registration records of said properties filed a petition for the cancellation of the notice of
lis pendens, making Miguel Cuenco the party-respondent. The latter presented his written opposition,
and after hearing the court (Hon. Jose S. Rodriguez presiding), in its decision rendered September 29,
1960, held the annotation of lis pendens to be irregular and unwarranted and so ordered its
cancellation. It is from that decision that the present appeal has been taken.

The subject of lis pendens is dealt with expressly in Rule 14 (formerly Rule 7), Section 24 of the Rules
of Court, and indirectly in Section 79 of the Land Registration Act. They provide: jgc:chanrobles.com.ph

"SEC. 24. Notice of lis pendens. — In an action affecting the title or the right of possession of real
property, the plaintiff, at the time of filing the complaint, and the defendant, at the time of filing his
answer, when affirmative relief is claimed in such answer, or at any time afterwards, may record in
the office of the registrar of deeds of the province in which the property is situated a notice of the
pendency of the action, containing the names of the parties and the object of the action or defense,
and a description of the property in that province affected thereby. From the time only of filing such
notice for record shall a purchaser, or incumbrancer of the property affected thereby, be deemed to
have constructive notice of the pendency of the action, and only of its pendency against parties
designated by their real names.

The notice of lis pendens hereinabove mentioned may be cancelled only upon order of the court, after
proper showing that the notice is for the purpose of molesting the adverse party, or that it is not
necessary to protect the rights of the party, who caused it to be recorded." cralaw virtua1aw library

"SEC. 79. No action to recover possession of real estate, or to quiet title thereto or to remove clouds
upon the title thereof, or for the partition or other proceeding of any kind in court affecting the title to
real estate or the use and occupation thereof or the buildings thereon, and no judgment or decree,
and no proceeding to vacate or reverse any judgment or decree, shall have any effect upon registered
land as against persons other than parties thereto, unless a memorandum stating the institution of
such action or proceeding and the court wherein the same is pending and the date of the institution
thereof, containing also a reference to the number of the certificate of title of the land affected, and
the volume and page of the registration book where it is entered, shall be filed and registered. This
section shall not apply to attachments, levies or execution, or to proceedings for the probate of wills
or for administration of estates of deceased persons In the Court of First Instance; provided, however,
That in case of notice of the pendency of the action has been duly registered it shall be sufficient to
register the judgment or decree in such action within sixty days after rendition thereof." cralaw virtua1aw library

Section 24 of Rule 14 authorizes a notice of lis pendens to be filed by the plaintiff, as well as by the
defendant when affirmative relief is claimed in his answer. In either case the action must affect the
title or the right of possession of real property. The same requirement is prescribed in Section 79 of
the Land Registration Act.

The crux of the question here is whether or not the petition for quo warranto filed by the Solicitor
General for the dissolution of the appellee corporation affects the latter’s title or right of possession to
the real properties subject of the lis pendens. In none of the nine causes of action included in the
Solicitor General’s petition below is there any allegation which puts in issue such title or right of
possession. The only issue raised is the propriety of the dissolution of the corporation upon the
grounds set forth in the petition. To be sure, dissolution of a corporate entity would result in the
liquidation of its assets and the termination of its title to and right to possess its properties, but this
does not mean that they are affected by the action in the sense which would justify the notation of lis
pendens.

A notice of lis pendens is intended for third persons, such as purchasers or incumbrancers of the
property in litigation, to the end that the transactions entered into by them subsequent to the notation
may be subject to whatever judgment may be rendered. The very purpose of this procedural remedy
circumscribes its availability to real actions, that is, actions where the title to or possession of real
property is directly affected. Thus, for instance, a purchaser of property involved in an action may lose
the same to the winning party therein by virtue of the notice of lis pendens made prior to the
purchase. This result could not conceivably arise in the present case. Neither the Republic nor
respondent cross-claimant Miguel Cuenco lays any claim of right or title to the lands covered by the
notice: they admit ownership thereof by the corporation; indeed the cross-claim is for the latter’s
benefit and against the other individual cross- respondents, who likewise do not claim any right or title
to the said properties. As far as the cross-claim is concerned it merely prays that the cross-
respondents be ordered to reimburse the corporation certain sums of money allegedly realized by
them as a result of their fraudulent transactions. The title to or right to possess the properties subject
of the lis pendens is nowhere in issue.

The fact that in case the petitioning corporation is dissolved its assets will be liquidated and distributed
among the stockholders, after paying off the creditors, and that part of those assets as of the present
consists of the properties now in question, does not convert this proceeding into a real action involving
the title to these properties so as to justify the notation of lis pendens. The rights of the stockholders
to the assets will arise only after dissolution of the corporation, and even then they cannot individually
lay claim to any particular property or any part thereof as their own except as a result of the
liquidation. They have therefore no title or possessory right to protect by the notice. Appellant cites
the case of Register of Deeds v. Magdalena Estate, Inc., G. R. No. L-9102, May 22, 1959. The citation
is not in point. The main issue there involved the power and jurisdiction of the Court of First Instance
of Manila, Branch IV, to order the registered owner of real property to surrender his copy of the
certificate of title so that a notice of lis pendens may be annotated thereon, considering that at the
time the power and jurisdiction of said court with respect to "consultas" from Registers of Deeds had
been transferred by Republic Act No. 1151 to the Land Registration Commissioner. The decision dealt
but briefly on the question of whether or not the notation of lis pendens was proper. This Court held
that it was, on the ground that "the complaint . . . involves a real action and not a personal one,"
since the plaintiffs claimed that they were entitled to 25 per cent of all the assets of the defendant
corporation, including the properties covered by the notice of lis pendens. There is no similar claim or
pretension in the present case. The appellee corporation is admittedly the owner of the properties, and
until it is dissolved and liquidated no question as to the title to or possession thereof will arise vis-a-
vis the stockholders as such.

WHEREFORE, the decision appealed from is affirmed, with costs.

Reyes, J.B.L., (Acting C.J.), Dizon, Bengzon, J.P., Zaldivar, Sanchez and Angeles, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-2598             June 29, 1950

C. ARNOLD HALL and BRADLEY P. HALL, petitioners,

vs.
EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN, EMMA
BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber and
Commercial Co., Inc., respondents.

Claro M. Recto for petitioners.

Ramon Diokno and Jose W. Diokno for respondents.

BENGZON, J.:

This is petition to set aside all the proceedings had in civil case No. 381 of the Court of First Instance
of Leyte and to enjoin the respondent judge from further acting upon the same.

Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents
Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged
in Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized
to engage in a general lumber business to carry on as general contractors, operators and managers,
etc. Attached to the article was an affidavit of the treasurer stating that 23,428 shares of stock had
been subscribed and fully paid with certain properties transferred to the corporation described in a
list appended thereto.

(2) Immediately after the execution of said articles of incorporation, the corporation proceeded to do
business with the adoption of by-laws and the election of its officers.

(3) On December 2, 1947, the said articles of incorporation were filed in the office of the Securities
and Exchange Commissioner, for the issuance of the corresponding certificate of incorporation.

(4) On March 22, 1948, pending action on the articles of incorporation by the aforesaid governmental
office, the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed
before the Court of First Instance of Leyte the civil case numbered 381, entitled "Fred Brown et
al. vs. Arnold C. Hall et al.", alleging among other things that the Far Eastern Lumber and
Commercial Co. was an unregistered partnership; that they wished to have it dissolved because of
bitter dissension among the members, mismanagement and fraud by the managers and heavy
financial losses.
(5) The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss,
contesting the court's jurisdiction and the sufficiently of the cause of action.

(6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and
at the request of plaintiffs, appointed of the properties thereof, upon the filing of a P20,000 bond.

(7) The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the
receiver, but the respondent judge refused to accept the offer and to discharge the receiver.
Whereupon, the present special civil action was instituted in this court. It is based upon two main
propositions, to wit:

(a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company,
because it being a de facto corporation, dissolution thereof may only be ordered in a quo
warranto proceeding instituted in accordance with section 19 of the Corporation Law.

(b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of incorporation
but only a partnership.

Discussion: The second proposition may at once be dismissed. All the parties are informed that the
Securities and Exchange Commission has not, so far, issued the corresponding certificate of
incorporation. All of them know, or sought to know, that the personality of a corporation begins to
exist only from the moment such certificate is issued — not before (sec. 11, Corporation Law). The
complaining associates have not represented to the others that they were incorporated any more
than the latter had made similar representations to them. And as nobody was led to believe anything
to his prejudice and damage, the principle of estoppel does not apply. Obviously this is not an
instance requiring the enforcement of contracts with the corporation through the rule of estoppel.

The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern
Lumber and Commercial Co., is a de facto corporation, section 19 of the Corporation Law applies,
and therefore the court had not jurisdiction to take cognizance of said civil case number 381. Section
19 reads as follows:

. . . The due incorporation of any corporations claiming in good faith to be a corporation

under this Act and its right to exercise corporate powers shall not be inquired into collaterally
in any private suit to which the corporation may be a party, but such inquiry may be had at
the suit of the Insular Government on information of the Attorney-General.

There are least two reasons why this section does not govern the situation. Not having obtained the
certificate of incorporation, the Far Eastern Lumber and Commercial Co. — even its stockholders —
may not probably claim "in good faith" to be a corporation.

Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of a
certificate of incorporation by the Director of the Bureau of Commerce and Industry which
calls a corporation into being. The immunity if collateral attack is granted to corporations
"claiming in good faith to be a corporation under this act." Such a claim is compatible with the
existence of errors and irregularities; but not with a total or substantial disregard of the law.
Unless there has been an evident attempt to comply with the law the claim to be a
corporation "under this act" could not be made "in good faith." (Fisher on the Philippine Law
of Stock Corporations, p. 75. See also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.)
Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders
of the alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de
jure corporation may be terminated in a private suit for its dissolution between stockholders, without
the intervention of the state.

There might be room for argument on the right of minority stockholders to sue for dissolution; 1 but
that question does not affect the court's jurisdiction, and is a matter for decision by the judge, subject
to review on appeal. Whkch brings us to one principal reason why this petition may not prosper,
namely: the petitioners have their remedy by appealing the order of dissolution at the proper time.

There is a secondary issue in connection with the appointment of a receiver. But it must be admitted
that receivership is proper in proceedings for dissolution of a company or corporation, and it was no
error to reject the counter-bond, the court having declared the dissolution. As to the amount of the
bond to be demanded of the receiver, much depends upon the discretion of the trial court, which in
this instance we do not believe has been clearly abused.

Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction heretofore
issued will be dissolved.

Ozaeta, Pablo, Tuason, Montemayor, and Reyes, JJ., concur.

 SECOND DIVISION

G.R. No. 125221 June 19, 1997

REYNALDO M. LOZANO, Petitioner, v. HON. ELIEZER R. DE LOS

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

PUNO, J.:

This petition for certiorari seeks to annul and set aside the decision

of the Regional Trial Court, Branch 58, Angeles City which ordered
the Municipal Circuit Trial Court, Mabalacat and Magalang,
Pampanga to dismiss Civil Case No. 1214 for lack of jurisdiction.

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

Reynaldo M. Lozano filed Civil Case No. 1214 for damages against
respondent Antonio Anda before the Municipal Circuit Trial Court
(MCTC), Mabalacat and Magalang, Pampanga. Petitioner alleged
that he was the president of the Kapatirang Mabalacat-Angeles
Jeepney Drivers' Association, Inc. (KAMAJDA) while respondent
Anda was the president of the Samahang Angeles-Mabalacat
Jeepney Operators' and Drivers' Association, Inc. (SAMAJODA); in
August 1995, upon the request of the Sangguniang Bayan of
Mabalacat, Pampanga, petitioner and private respondent agreed to
consolidate their respective associations and form the Unified
Mabalacat-Angeles Jeepney Operators' and Drivers Association, Inc.
(UMAJODA); petitioner and private respondent also agreed to elect
one set of officers who shall be given the sole authority to collect
the daily dues from the members of the consolidated association;
elections were held on October 29, 1995 and both petitioner and
private respondent ran for president; petitioner won; private
respondent protested and, alleging fraud, refused to recognize the
results of the election; private respondent also refused to abide by
their agreement and continued collecting the dues from the
members of his association despite several demands to desist.
Petitioner was thus constrained to file the complaint to restrain
private respondent from collecting the dues and to order him to pay
damages in the amount of P25,000.00 and attorney's fees of
P500.00. 1

Private respondent moved to dismiss the complaint for lack of

jurisdiction, claiming that jurisdiction was lodged with the Securities
and Exchange Commission (SEC). The MCTC denied the motion on
February 9, 1996. 2 It denied reconsideration on March 8, 1996. 3

Private respondent filed a petition for certiorari before the Regional

Trial Court, Branch 58, Angeles City. 4 The trial court found the
dispute to be intracorporate, hence, subject to the jurisdiction of the
SEC, and ordered the MCTC to dismiss Civil Case No. 1214
accordingly. 5 It denied reconsideration on May 31, 1996. 6

Hence this petition. Petitioner claims that:

THE RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF

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

The jurisdiction of the Securities and Exchange Commission (SEC) is

set forth in Section 5 of Presidential Decree No. 902-A. Section 5
reads as follows:
Sec. 5. . . . [T]he Securities and Exchange Commission [has]
original and exclusive jurisdiction to hear and decide cases
involving:

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

directors, business associates, its officers or partners, amounting to
fraud and misrepresentation which may be detrimental to the
interest of the public and/or of the stockholders, partners, members
of associations or organizations registered with the Commission.

(b) Controversies arising out of intracorporate or partnership

relations, between and among stockholders, members or
associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members,
or associates, respectively; and between such corporation,
partnership or association and the state insofar as it concerns their
individual franchise or right to exist as such entity.

(c) Controversies in the election or appointment of directors,

trustees, officers or managers of such corporations, partnerships or
associations.

(d) Petitions of corporations, partnerships or associations to be

declared in the state of suspension of payments in cases where the
corporation, partnership or association possesses sufficient property
to cover all its debts but foresees the impossibility of meeting them
when they respectively fall due or in cases where the corporation,
partnership or association has no sufficient assets to over its
liabilities, but is under the management of a Rehabilitation Receiver
or Management Committee created pursuant to this Decree.

The grant of jurisdiction to the SEC must be viewed in the light of

its nature and function under the law. 8 This jurisdiction is
determined by a concurrence of two elements: (1) the status or
relationship of the parties; and (2) the nature of the question that is
the subject of their controversy. 9

The first element requires that the controversy must arise out of
intracorporate or partnership relations between and among
stockholders, members, or associates; between any or all of them
and the corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between
such corporation, partnership or association and the State in so far
as it concerns their individual franchises. 10 The second element
requires that the dispute among the parties be intrinsically
connected with the regulation of the corporation, partnership or
association or deal with the internal affairs of the corporation,
partnership or association. 11 After all, the principal function of the
SEC is the supervision and control of corporations, partnership and
associations with the end in view that investments in these entities
may be encouraged and protected, and their entities may be
encouraged and protected, and their activities pursued for the
promotion of economic development. 12

There is no intracorporate nor partnership relation between

petitioner and private respondent. The controversy between them
arose out of their plan to consolidate their respective jeepney
drivers' and operators' associations into a single common
association. This unified association was, however, still a proposal.
It had not been approved by the SEC, neither had its officers and
members submitted their articles of consolidation is accordance with
Sections 78 and 79 of the Corporation Code. Consolidation becomes
effective not upon mere agreement of the members but only upon
issuance of the certificate of consolidation by the SEC. 13 When the
SEC, upon processing and examining the articles of consolidation, is
satisfied that the consolidation of the corporations is not
inconsistent with the provisions of the Corporation Code and
existing laws, it issues a certificate of consolidation which makes the
reorganization official. 14 The new consolidated corporation comes
into existence and the constituent corporations dissolve and cease
to exist. 15

The KAMAJDA and SAMAJODA to which petitioner and private

respondent belong are duly registered with the SEC, but these
associations are two separate entities. The dispute between
petitioner and private respondent is not within the KAMAJDA nor the
SAMAJODA. It is between members of separate and distinct
associations. Petitioner and private respondent have no
intracorporate relation much less do they have an intracorporate
dispute. The SEC therefore has no jurisdiction over the complaint.

The doctrine of corporation by estoppel 16 advanced by private

respondent cannot override jurisdictional requirements. Jurisdiction
is fixed by law and is not subject to the agreement of the
parties. 17 It cannot be acquired through or waived, enlarged or
diminished by, any act or omission of the parties, neither can it be
conferred by the acquiescence of the court. 18

Corporation by estoppel is founded on principles of equity and is

designed to prevent injustice and unfairness. 19 It applies when
persons assume to form a corporation and exercise corporate
functions and enter into business relations with third person. Where
there is no third person involved and the conflict arises only among
those assuming the form of a corporation, who therefore know that
it has not been registered, there is no corporation by estoppel. 20

IN VIEW WHEREOF, the petition is granted and the decision dated

April 18, 1996 and the order dated May 31, 1996 of the Regional
Trial Court, Branch 58, Angeles City are set aside. The Municipal
Circuit Trial Court of Mabalacat and Magalang, Pampanga is ordered
to proceed with dispatch in resolving Civil Case No. 1214. No costs.

SO ORDERED.

Regalado, Romero, Mendoza and Torres, Jr., JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-11442             May 23, 1958

MANUELA T. VDA. DE SALVATIERRA, petitioner,

vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of
Leyte, Branch II, and SEGUNDINO REFUERZO, respondents.

Jimenez, Tantuico, Jr. and Tolete for petitioner.

Francisco Astilla for respondent Segundino Refuerzo.

FELIX, J.:

This is a petition for certiorari filed by Manuela T. Vda. de Salvatierra seeking to nullify the order of
the Court of First Instance of Leyte in Civil Case No. 1912, dated March 21, 1956, relieving
Segundino Refuerzo of liability for the contract entered into between the former and the Philippine
Fibers Producers Co., Inc., of which Refuerzo is the president. The facts of the case are as follows:

Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of land located at Maghobas,
Poblacion, Burauen, Teyte. On March 7, 1954, said landholder entered into a contract of lease with
the Philippine Fibers Producers Co., Inc., allegedly a corporation "duly organized and existing under
the laws of the Philippines, domiciled at Burauen, Leyte, Philippines, and with business address
therein, represented in this instance by Mr. Segundino Q. Refuerzo, the President". It was provided
in said contract, among other things, that the lifetime of the lease would be for a period of 10 years;
that the land would be planted to kenaf, ramie or other crops suitable to the soil; that the lessor
would be entitled to 30 per cent of the net income accruing from the harvest of any, crop without
being responsible for the cost of production thereof; and that after every harvest, the lessee was
bound to declare at the earliest possible time the income derived therefrom and to deliver the
corresponding share due the lessor.

Apparently, the aforementioned obligations imposed on the alleged corporation were not complied
with because on April 5, 1955, Alanuela T. Vda, de Salvatierra filed with the Court of First Instance
of Leyte a complaint against the Philippine Fibers Producers Co., Inc., and Segundino Q. Refuerzo,
for accounting, rescission and damages (Civil Case No. 1912). She averred that sometime in April,
1954, defendants planted kenaf on 3 hectares of the leased property which crop was, at the time of
the commencement of the action, already harvested, processed and sold by defendants; that
notwithstanding that fact, defendants refused to render an accounting of the income derived
therefrom and to deliver the lessor's share; that the estimated gross income was P4,500, and the
deductible expenses amounted to P1,000; that as defendants' refusal to undertake such task was in
violation of the terms of the covenant entered into between the plaintiff and defendant corporation, a
rescission was but proper.

As defendants apparently failed to file their answer to the complaint, of which they were allegedly
notified, the Court declared them in default and proceeded to receive plaintiff's evidence. On June 8,
1955, the lower Court rendered judgment granting plaintiff's prayer, and required defendants to
render a complete accounting of the harvest of the land subject of the proceeding within 15 days
from receipt of the decision and to deliver 30 per cent of the net income realized from the last
harvest to plaintiff, with legal interest from the date defendants received payment for said crop. It
was further provide that upon defendants' failure to abide by the said requirement, the gross income
would be fixed at P4,200 or a net income of P3,200 after deducting the expenses for production, 30
per cent of which or P960 was held to be due the plaintiff pursuant to the aforementioned contract of
lease, which was declared rescinded.

No appeal therefrom having been perfected within the reglementary period, the Court, upon motion
of plaintiff, issued a writ of execution, in virtue of which the Provincial Sheriff of Leyte caused the
attachment of 3 parcels of land registered in the name of Segundino Refuerzo. No property of the
Philippine Fibers Producers Co., Inc., was found available for attachment. On January 31, 1956,
defendant Segundino Refuerzo filed a motion claiming that the decision rendered in said Civil Case
No. 1912 was null and void with respect to him, there being no allegation in the complaint pointing to
his personal liability and thus prayed that an order be issued limiting such liability to defendant
corporation. Over plaintiff's opposition, the Court a quo granted the same and ordered the Provincial
Sheriff of Leyte to release all properties belonging to the movant that might have already been
attached, after finding that the evidence on record made no mention or referred to any fact which
might hold movant personally liable therein. As plaintiff's petition for relief from said order was
denied, Manuela T. Vda. de Salvatierra instituted the instant action asserting that the trial Judge in
issuing the order complained of, acted with grave abuse of discretion and prayed that same be
declared a nullity.

From the foregoing narration of facts, it is clear that the order sought to be nullified was issued by tile
respondent Judge upon motion of defendant Refuerzo, obviously pursuant to Rule 38 of the Rules of
Court. Section 3 of said Rule, however, in providing for the period within which such a motion may
be filed, prescribes that:

SEC. 3. WHEN PETITION FILED; CONTENTS AND VERIFICATION. — A petition provided

for in either of the preceding sections of this rule must be verified, filed within sixty days after
the petitioner learns of the judgment, order, or other proceeding to be set aside, and not
more than six months after such judgment or order was entered, or such proceeding was
taken; and must be must be accompanied with affidavit showing the fraud, accident, mistake,
or excusable negligence relied upon, and the facts constituting the petitioner is good and
substantial cause of action or defense, as the case may be, which he may prove if his
petition be granted". (Rule 38)

The aforequoted provision treats of 2 periods, i.e., 60 days after petitioner learns of the judgment,
and not more than 6 months after the judgment or order was rendered, both of which must be
satisfied. As the decision in the case at bar was under date of June 8, 1955, whereas the motion
filed by respondent Refuerzo was dated January 31, 1956, or after the lapse of 7 months and 23
days, the filing of the aforementioned motion was clearly made beyond the prescriptive period
provided for by the rules. The remedy allowed by Rule 38 to a party adversely affected by a decision
or order is certainly an alert of grace or benevolence intended to afford said litigant a penultimate
opportunity to protect his interest. Considering the nature of such relief and the purpose behind it,
the periods fixed by said rule are non-extendible and never interrupted; nor could it be subjected to
any condition or contingency because it is of itself devised to meet a condition or contingency
(Palomares vs. Jimenez,* G.R. No. L-4513, January 31, 1952). On this score alone, therefore, the
petition for a writ of certiorari filed herein may be granted. However, taking note of the question
presented by the motion for relief involved herein, We deem it wise to delve in and pass upon the
merit of the same.

Refuerzo, in praying for his exoneration from any liability resulting from the non-fulfillment of the
obligation imposed on defendant Philippine Fibers Producers Co., Inc., interposed the defense that
the complaint filed with the lower court contained no allegation which would hold him liable
personally, for while it was stated therein that he was a signatory to the lease contract, he did so in
his capacity as president of the corporation. And this allegation was found by the Court a quo to be
supported by the records. Plaintiff on the other hand tried to refute this averment by contending that
her failure to specify defendant's personal liability was due to the fact that all the time she was under
the impression that the Philippine Fibers Producers Co., Inc., represented by Refuerzo was a duly
registered corporation as appearing in the contract, but a subsequent inquiry from the Securities and
Exchange Commission yielded otherwise. While as a general rule a person who has contracted or
dealt with an association in such a way as to recognize its existence as a corporate body is
estopped from denying the same in an action arising out of such transaction or dealing, (Asia
Banking Corporation vs. Standard Products Co., 46 Phil., 114; Compania Agricola de Ultramar vs.
Reyes, 4 Phil., 1; Ohta Development Co.; vs. Steamship Pompey, 49 Phil., 117), yet this doctrine
may not be held to be applicable where fraud takes a part in the said transaction. In the instant case,
on plaintiff's charge that she was unaware of the fact that the Philippine Fibers Producers Co., Inc.,
had no juridical personality, defendant Refuerzo gave no confirmation or denial and the
circumstances surrounding the execution of the contract lead to the inescapable conclusion that
plaintiff Manuela T. Vda. de Salvatierra was really made to believe that such corporation was duly
organized in accordance with law.

There can be no question that a corporation with registered has a juridical personality separate and
distinct from its component members or stockholders and officers such that a corporation cannot be
held liable for the personal indebtedness of a stockholder even if he should be its president (Walter
A. Smith Co. vs. Ford, SC-G.R. No. 42420) and conversely, a stockholder or member cannot be held
personally liable for any financial obligation be, the corporation in excess of his unpaid subscription.
But this rule is understood to refer merely to registered corporations and cannot be made applicable
to the liability of members of an unincorporated association. The reason behind this doctrine is
obvious-since an organization which before the law is non-existent has no personality and would be
incompetent to act and appropriate for itself the powers and attribute of a corporation as provided by
law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or
purport to act as its representatives or agents do so without authority and at their own risk. And as it
is an elementary principle of law that a person who acts as an agent without authority or without a
principal is himself regarded as the principal, possessed of all the rights and subject to all the
liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no
valid existence assumes such privileges and obligations and comes personally liable for contracts
entered into or for other acts performed as such, agent (Fay vs. Noble, 7 Cushing [Mass.] 188. Cited
in II Tolentino's Commercial Laws of the Philippines, Fifth Ed., P. 689-690). Considering that
defendant Refuerzo, as president of the unregistered corporation Philippine Fibers Producers Co.,
Inc., was the moving spirit behind the consummation of the lease agreement by acting as its
representative, his liability cannot be limited or restricted that imposed upon corporate shareholders.
In acting on behalf of a corporation which he knew to be unregistered, he assumed the risk of
reaping the consequential damages or resultant rights, if any, arising out of such transaction.
Wherefore, the order of the lower Court of March 21, 1956, amending its previous decision on this
matter and ordering the Provincial Sheriff of Leyte to release any and all properties of movant therein
which might have been attached in the execution of such judgment, is hereby set aside and nullified
as if it had never been issued. With costs against respondent Segundino Refuerzo. It is so ordered.

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes,
J.B.L., and Endencia, JJ., concur.