1.G.R. No.
182729               September 29, 2010KUKAN INTERNATIONAL WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and
CORPORATION, Petitioner,  by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering
vs.
HON. AMOR REYES, in her capacity as Presiding Judge of the Regional Trial Court of
Manila, Branch 21, and ROMEO M. MORALES, doing business under the name and
style "RM Morales Trophies and Plaques,"Respondents.
The Case
This Petition for Review on Certiorari under Rule 45 seeks to nullify and reverse the January
23, 2008 Decision1and the April 16, 2008 Resolution2 rendered by the Court of Appeals (CA)
in CA-G.R. SP No. 100152.
The assailed CA decision affirmed the March 12, 20073 and June 7, 20074 Orders of the
Regional Trial Court (RTC) of Manila, Branch 21, in Civil Case No. 99-93173,
entitled Romeo M. Morales, doing business under the name and style RM Morales Trophies
and Plaques v. Kukan, Inc. In the said orders, the RTC disregarded the separate corporate
identities of Kukan, Inc. and Kukan International Corporation and declared them to be one
and the same entity. Accordingly, the RTC held Kukan International Corporation, albeit not
impleaded in the underlying complaint of Romeo M. Morales, liable for the judgment award
decreed in a Decision dated November 28, 20025 in favor of Morales and against Kukan, Inc.
The Facts
Sometime in March 1998, Kukan, Inc. conducted a bidding for the supply and installation of
signages in a building being constructed in Makati City. Morales tendered the winning bid
and was awarded the PhP 5 million contract. Some of the items in the project award were
later excluded resulting in the corresponding reduction of the contract price to PhP 3,388,502.
Despite his compliance with his contractual undertakings, Morales was only paid the amount
of PhP 1,976,371.07, leaving a balance of PhP 1,412,130.93, which Kukan, Inc. refused to
pay despite demands. Shortchanged, Morales filed a Complaint6 with the RTC against Kukan,
Inc. for a sum of money, the case docketed as Civil Case No. 99-93173 and eventually raffled
to Branch 17 of the court.
Following the joinder of issues after Kukan, Inc. filed an answer with counterclaim, trial
ensued. However, starting November 2000, Kukan, Inc. no longer appeared and participated
in the proceedings before the trial court, prompting the RTC to declare Kukan, Inc. in default
and paving the way for Morales to present his evidence ex parte.
On November 28, 2002, the RTC rendered a Decision finding for Morales and against Kukan,
Inc., disposing as follows:
Kukan, Inc.:
1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN
HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per
annum from February 17, 1999 until full payment;
2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;
3. to pay the sum of TWENTY THOUSAND PESOS, (P20,000.00) as reasonable
attorney’s fees; and
4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and
SIX CENTAVOS (P7,960.06) as litigation expenses.
For lack of factual foundation, the counterclaim is DISMISSED.
IT IS SO ORDERED.7
After the above decision became final and executory, Morales moved for and secured a writ
of execution8 against Kukan, Inc. The sheriff then levied upon various personal properties
found at what was supposed to be Kukan, Inc.’s office at Unit 2205, 88 Corporate Center,
Salcedo Village, Makati City. Alleging that it owned the properties thus levied and that it was
a different corporation from Kukan, Inc., Kukan International Corporation (KIC) filed an
Affidavit of Third-Party Claim. Notably, KIC was incorporated in August 2000, or shortly
after Kukan, Inc. had stopped participating in Civil Case No. 99-93173.
In reaction to the third party claim, Morales interposed an Omnibus Motion dated April 30,
2003. In it, Morales prayed, applying the principle of piercing the veil of corporate fiction,
that an order be issued for the satisfaction of the judgment debt of Kukan, Inc. with the
properties under the name or in the possession of KIC, it being alleged that both corporations
are but one and the same entity. KIC opposed Morales’ motion. By Order of May 29, 20039as
reiterated in a subsequent order, the court denied the omnibus motion.
In a bid to establish the link between KIC and Kukan, Inc., and thus determine the true
relationship between the two, Morales filed a Motion for Examination of Judgment Debtors
dated May 4, 2005. In this motion Morales sought that subponae be issued against the
primary stockholders of Kukan, Inc., among them Michael Chan, a.k.a. Chan Kai Kit. This
too was denied by the trial court in an Order dated May 24, 2005.10
Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who
eventually granted the motion. The case was re-raffled to Branch 21, presided by public
respondent Judge Amor Reyes.
Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of Corporate
Fiction to declare KIC as having no existence separate from Kukan, Inc. This time around,
the RTC, by Order dated March 12, 2007, granted the motion, the dispositive portion of
which reads:
WHEREFORE, premises considered, the motion is hereby GRANTED. The Court hereby
declares as follows:
1. defendant Kukan, Inc. and newly created Kukan International Corp. as one and the
same corporation;
2. the levy made on the properties of Kukan International Corp. is hereby valid;
3. Kukan International Corp. and Michael Chan are jointly and severally liable to pay
the amount awarded to plaintiff pursuant to the decision of November [28], 2002
which has long been final and executory.
SO ORDERED.
From the above order, KIC moved but was denied reconsideration in another Order dated
June 7, 2007.
KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and June 7,
2007 RTC Orders.
On January 23, 2008, the CA rendered the assailed decision, the dispositive portion of which
states:
WHEREFORE, premises considered, the petition is hereby DENIED and the assailed Orders
dated March 12, 2007 and June 7, 2007 of the court a quo are both AFFIRMED. No costs.
SO ORDERED.11
The CA later denied KIC’s motion for reconsideration in the assailed resolution.
Hence, the instant petition for review, with the following issues KIC raises for the Court’s
consideration:
1. There is no legal basis for the [CA] to resolve and declare that petitioner’s
Constitutional Right to Due Process was not violated by the public respondent in
rendering the Orders dated March 12, 2007 and June 7, 2007 and in declaring
petitioner to be liable for the judgment obligations of the corporation "Kukan, Inc." to
private respondent – as petitioner is a stranger to the case and was never made a party
in the case before the trial court nor was it ever served a summons and a copy of the
complaint.
2. There is no legal basis for the [CA] to resolve and declare that the Orders dated
March 12, 2007 and June 7, 2007 rendered by public respondent declaring the
petitioner liable to the judgment obligations of the corporation "Kukan, Inc." to
private respondent are valid as said orders of the public respondent modify and/or
amend the trial court’s final and executory decision rendered on November 28, 2002.
3. There is no legal basis for the [CA] to resolve and declare that the Orders dated
March 12, 2007 and June 7, 2007 rendered by public respondent declaring the
petitioner [KIC] and the corporation "Kukan, Inc." as one and the same, and,
therefore, the Veil of Corporate Fiction between them be pierced – as the procedure
undertaken by public respondent which the [CA] upheld is not sanctioned by the
Rules of Court and/or established jurisprudence enunciated by this Honorable
Supreme Court.12
In gist, the issues to be resolved boil down to the question of, first, whether the trial court can,
after the judgment against Kukan, Inc. has attained finality, execute it against the property of
KIC; second, whether the trial court acquired jurisdiction over KIC; and third, whether the
trial and appellate courts correctly applied, under the premises, the principle of piercing the
veil of corporate fiction.
The Ruling of the Court
The petition is meritorious.
First Issue: Against Whom Can a Final and
Executory Judgment Be Executed
The preliminary question that must be answered is whether or not the trial court can, after
adjudging Kukan, Inc. liable for a sum of money in a final and executory judgment, execute
such judgment debt against the property of KIC.
The poser must be answered in the negative.
In Carpio v. Doroja,13 the Court ruled that the deciding court has supervisory control over the
execution of its judgment:
A case in which an execution has been issued is regarded as still pending so that all
proceedings on the execution are proceedings in the suit. There is no question that the court
which rendered the judgment has a general supervisory control over its process of execution,
and this power carries with it the right to determine every question of fact and law which may
be involved in the execution.
We reiterated the above holding in Javier v. Court of Appeals14 in this wise: "The said branch
has a general supervisory control over its processes in the execution of its judgment with a
right to determine every question of fact and law which may be involved in the execution."
The court’s supervisory control does not, however, extend as to authorize the alteration or
amendment of a final and executory decision, save for certain recognized exceptions, among
which is the correction of clerical errors. Else, the court violates the principle of finality of
judgment and its immutability, concepts which the Court, in Tan v. Timbal,15 defined:
As we held in Industrial Management International Development Corporation vs. NLRC:
It is an elementary principle of procedure that the resolution of the court in a given issue as
embodied in the dispositive part of a decision or order is the controlling factor as to
settlement of rights of the parties. Once a decision or order becomes final and executory, it is
removed from the power or jurisdiction of the court which rendered it to further alter or
amend it. It thereby becomes immutable and unalterable and any amendment or alteration
which substantially affects a final and executory judgment is null and void for lack of
jurisdiction, including the entire proceedings held for that purpose. An order of execution
which varies the tenor of the judgment or exceeds the terms thereof is a nullity. (Emphasis
supplied.)
Republic v. Tango16 expounded on the same principle and its exceptions:
Deeply ingrained in our jurisprudence is the principle that a decision that has acquired
finality becomes immutable and unalterable. As such, it may no longer be modified in
any respect even if the modification is meant to correct erroneous conclusions of fact or law
and whether it will be made by the court that rendered it or by the highest court of the land. x
xx
The doctrine of finality of judgment is grounded on the fundamental principle of public
policy and sound practice that, at the risk of occasional error, the judgment of courts and the
award of quasi-judicial agencies must become final on some definite date fixed by law. The
only exceptions to the general rule are the correction of clerical errors, the so-called nunc pro
tunc entries which cause no prejudice to any party, void judgments, and whenever
circumstances transpire after the finality of the decision which render its execution unjust and
inequitable. None of the exceptions obtains here to merit the review sought. (Emphasis
added.)
So, did the RTC, in breach of the doctrine of immutability and inalterability of judgment,
order the execution of its final decision in a manner as would amount to its prohibited
alteration or modification?
We repair to the dispositive portion of the final and executory RTC decision. Pertinently, it
provides:
WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and
by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering
Kukan, Inc.:
1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN
HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per
annum from February 17, 1999 until full payment;
2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;
3. to pay the sum of TWENTY THOUSAND PESOS (P20,000.00) as reasonable
attorney’s fees; and
4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and
SIX CENTAVOS (P7,960.06) as litigation expenses.
x x x x (Emphasis supplied.)
As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay the
aforementioned awards to Morales. Thus, making KIC, thru the medium of a writ of
execution, answerable for the above judgment liability is a clear case of altering a decision, an
instance of granting relief not contemplated in the decision sought to be executed. And the
change does not fall under any of the recognized exceptions to the doctrine of finality and
immutability of judgment. It is a settled rule that a writ of execution must conform to
the fallo of the judgment; as an inevitable corollary, a writ beyond the terms of the judgment
is a nullity.17
Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an
examination of the other issues raised by KIC would be proper.
Second Issue: Propriety of the RTC
Assuming Jurisdiction over KIC
The next issue turns on the validity of the execution the trial court authorized against KIC and
its property, given that it was neither made a party nor impleaded in Civil Case No. 99-93173,
let alone served with summons. In other words, did the trial court acquire jurisdiction over
KIC?
In the assailed decision, the appellate court deemed KIC to have voluntarily submitted itself
to the jurisdiction of the trial court owing to its filing of four (4) pleadings adverted to earlier,
namely: (a) the Affidavit of Third-Party Claim;18(b) the Comment and Opposition to
Plaintiff’s Omnibus Motion;19 (c) the Motion for Reconsideration of the RTC Order dated
March 12, 2007;20 and (d) the Motion for Leave to Admit Reply.21 The CA, citing Section 20,
Rule 14 of the Rules of Court, stated that "the procedural rule on service of summons can be
waived by voluntary submission to the court’s jurisdiction through any form of appearance by
the party or its counsel."22
We cannot give imprimatur to the appellate court’s appreciation of the thrust of Sec. 20, Rule
14 of the Rules in concluding that the trial court acquired jurisdiction over KIC.
Orion Security Corporation v. Kalfam Enterprises, Inc.23 explains how courts acquire
jurisdiction over the parties in a civil case:
Courts acquire jurisdiction over the plaintiffs upon the filing of the complaint. On the other
hand, jurisdiction over the defendants in a civil case is acquired either through the service of
summons upon them or through their voluntary appearance in court and their submission to
its authority. (Emphasis supplied.)
In the fairly recent Palma v. Galvez,24 the Court reiterated its holding in Orion Security
Corporation, stating: "[I]n civil cases, the trial court acquires jurisdiction over the person of
the defendant either by the service of summons or by the latter’s voluntary appearance and
submission to the authority of the former."
The court’s jurisdiction over a party-defendant resulting from his voluntary submission to its
authority is provided under Sec. 20, Rule 14 of the Rules, which states:
Section 20. Voluntary appearance. – The defendant’s voluntary appearance in the actions
shall be equivalent to service of summons. The inclusion in a motion to dismiss of other
grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a
voluntary appearance.
To be sure, the CA’s ruling that any form of appearance by the party or its counsel is deemed
as voluntary appearance finds support in the kindred Republic v. Ker & Co., Ltd.25 and De
Midgely v. Ferandos.26
Republic and De Midgely, however, have already been modified if not altogether
superseded27 by La Naval Drug Corporation v. Court of Appeals, 28 wherein the Court
essentially ruled and elucidated on the current view in our jurisdiction, to wit: "[A] special
appearance before the court––challenging its jurisdiction over the person through a motion to
dismiss even if the movant invokes other grounds––is not tantamount to estoppel or a waiver
by the movant of his objection to jurisdiction over his person; and such is not constitutive of a
voluntary submission to the jurisdiction of the court."29
In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173. Even if
it is conceded that it raised affirmative defenses through its aforementioned pleadings, KIC
never abandoned its challenge, however implicit, to the RTC’s jurisdiction over its person.
The challenge was subsumed in KIC’s primary assertion that it was not the same entity as
Kukan, Inc. Pertinently, in its Comment and Opposition to Plaintiff’s Omnibus Motion dated
May 20, 2003, KIC entered its "special but not voluntary appearance" alleging therein that
it was a different entity and has a separate legal personality from Kukan, Inc. And KIC would
consistently reiterate this assertion in all its pleadings, thus effectively resisting all along the
RTC’s jurisdiction of its person. It cannot be overemphasized that KIC could not file before
the RTC a motion to dismiss and its attachments in Civil Case No. 99-93173, precisely
because KIC was neither impleaded nor served with summons. Consequently, KIC could only
assert and claim through its affidavits, comments, and motions filed by special appearance
before the RTC that it is separate and distinct from Kukan, Inc.
Following La Naval Drug Corporation,30 KIC cannot be deemed to have waived its objection
to the court’s lack of jurisdiction over its person. It would defy logic to say that KIC
unequivocally submitted itself to the jurisdiction of the RTC when it strongly asserted that it
and Kukan, Inc. are different entities. In the scheme of things obtaining, KIC had no other
option but to insist on its separate identity and plead for relief consistent with that position.
Third Issue: Piercing the 
Veil of Corporate Fiction
The third and main issue in this case is whether or not the trial and appellate courts correctly
applied the principle of piercing the veil of corporate entity––called also as disregarding the
fiction of a separate juridical personality of a corporation––to support a conclusion that
Kukan, Inc. and KIC are but one and the same corporation with respect to the contract award
referred to at the outset. This principle finds its context on the postulate that a corporation is
an artificial being invested with a personality separate and distinct from those of the
stockholders and from other corporations to which it may be connected or related.31
In Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations
Commission,32 the Court revisited the subject principle of piercing the veil of corporate
fiction and wrote:
Under the doctrine of "piercing the veil of corporate fiction," the court looks at the
corporation as a mere collection of individuals or an aggregation of persons undertaking
business as a group, disregarding the separate juridical personality of the corporation unifying
the group. Another formulation of this doctrine is that when two business enterprises are
owned, conducted and controlled by the same parties, both law and equity will, when
necessary to protect the rights of third parties, disregard the legal fiction that two corporations
are distinct entities and treat them as identical or as one and the same.
Whether the separate personality of the corporation should be pierced hinges on
obtaining facts appropriately pleaded or proved. However, any piercing of the corporate
veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate
veil when it is misused or when necessary in the interest of justice. x x x (Emphasis supplied.)
The same principle was the subject and discussed in Rivera v. United Laboratories, Inc.:
While a corporation may exist for any lawful purpose, the law will regard it as an association
of persons or, in case of two corporations, merge them into one, when its corporate legal
entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of
corporate fiction. The doctrine applies only when such corporate fiction is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a
shield to confuse the legitimate issues, or where a corporation is the mere alter ego or
business conduit of a person, or where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation.
To disregard the separate juridical personality of a corporation, the wrongdoing must be
established clearly and convincingly. It cannot be presumed.33 (Emphasis supplied.)
Now, as before the appellate court, petitioner KIC maintains that the RTC violated its right to
due process when, in the execution of its November 28, 2002 Decision, the court authorized
the issuance of the writ against KIC for Kukan, Inc.’s judgment debt, albeit KIC has never
been a party to the underlying suit. As a counterpoint, Morales argues that KIC’s specific
concern on due process and on the validity of the writ to execute the RTC’s November 28,
2002 Decision would be mooted if it were established that KIC and Kukan, Inc. are indeed
one and the same corporation.
Morales’ contention is untenable.
The principle of piercing the veil of corporate fiction, and the resulting treatment of two
related corporations as one and the same juridical person with respect to a given transaction,
is basically applied only to determine established liability;34 it is not available to confer on the
court a jurisdiction it has not acquired, in the first place, over a party not impleaded in a case.
Elsewise put, a corporation not impleaded in a suit cannot be subject to the court’s process of
piercing the veil of its corporate fiction. In that situation, the court has not acquired
jurisdiction over the corporation and, hence, any proceedings taken against that corporation
and its property would infringe on its right to due process. Aguedo Agbayani, a recognized
authority on Commercial Law, stated as much:
23. Piercing the veil of corporate entity applies to determination of liability not of
jurisdiction. x x x
This is so because the doctrine of piercing the veil of corporate fiction comes to play
only during the trial of the case after the court has already acquired jurisdiction over the
corporation. Hence, before this doctrine can be applied, based on the evidence presented, it is
imperative that the court must first have jurisdiction over the corporation. 35 x x x (Emphasis
supplied.)
The implication of the above comment is twofold: (1) the court must first acquire jurisdiction
over the corporation or corporations involved before its or their separate personalities are
disregarded; and (2) the doctrine of piercing the veil of corporate entity can only be raised
during a full-blown trial over a cause of action duly commenced involving parties duly
brought under the authority of the court by way of service of summons or what passes as such
service.
The issue of jurisdiction or the lack of it over KIC has already been discussed. Anent the
matter of the time and manner of raising the principle in question, it is undisputed that no full-
blown trial involving KIC was had when the RTC disregarded the corporate veil of KIC. The
reason for this actuality is simple and undisputed: KIC was not impleaded in Civil Case No.
99-93173 and that the RTC did not acquire jurisdiction over it. It was dragged to the case
after it reacted to the improper execution of its properties and veritably hauled to court, not
thru the usual process of service of summons, but by mere motion of a party with whom it has
no privity of contract and after the decision in the main case had already become final and
executory. As to the propriety of a plea for the application of the principle by mere motion,
the following excerpts are instructive:
Generally, a motion is appropriate only in the absence of remedies by regular pleadings, and
is not available to settle important questions of law, or to dispose of the merits of the case. A
motion is usually a proceeding incidental to an action, but it may be a wholly distinct or
independent proceeding. A motion in this sense is not within this discussion even though the
relief demanded is denominated an "order."
A motion generally relates to procedure and is often resorted to in order to correct errors
which have crept in along the line of the principal action’s progress. Generally, where there is
a procedural defect in a proceeding and no method under statute or rule of court by which it
may be called to the attention of the court, a motion is an appropriate remedy. In many
jurisdictions, the motion has replaced the common-law pleas testing the sufficiency of the
pleadings, and various common-law writs, such as writ of error coram nobis and audita
querela. In some cases, a motion may be one of several remedies available. For example, in
some jurisdictions, a motion to vacate an order is a remedy alternative to an appeal therefrom.
Statutes governing motions are given a liberal construction.36 (Emphasis supplied.)
The bottom line issue of whether Morales can proceed against KIC for the judgment debt of
Kukan, Inc.––assuming hypothetically that he can, applying the piercing the corporate veil
principle––resolves itself into the question of whether a mere motion is the appropriate
vehicle for such purpose.
Verily, Morales espouses the application of the principle of piercing the corporate veil to hold
KIC liable on theory that Kukan, Inc. was out to defraud him through the use of the separate
and distinct personality of another corporation, KIC. In net effect, Morales’ adverted motion
to pierce the veil of corporate fiction dated January 3, 2007 stated a new cause of action, i.e.,
for the liability of judgment debtor Kukan, Inc. to be borne by KIC on the alleged identity of
the two corporations. This new cause of action should be properly ventilated in another
complaint and subsequent trial where the doctrine of piercing the corporate veil can, if
appropriate, be applied, based on the evidence adduced. Establishing the claim of Morales
and the corresponding liability of KIC for Kukan Inc.’s indebtedness could hardly be the
subject, under the premises, of a mere motion interposed after the principal action against
Kukan, Inc. alone had peremptorily been terminated. After all, a complaint is one where the
plaintiff alleges causes of action.
In any event, the principle of piercing the veil of corporate fiction finds no application to the
instant case.
As a general rule, courts should be wary of lifting the corporate veil between corporations,
however related. Philippine National Bank v. Andrada Electric Engineering
Company37 explains why:
A corporation is an artificial being created by operation of law. x x x It has a personality
separate and distinct from the persons composing it, as well as from any other legal entity to
which it may be related. This is basic.
Equally well-settled is the principle that the corporate mask may be removed or the corporate
veil pierced when the corporation is just an alter ego of a person or of another corporation.
For reasons of public policy and in the interest of justice, the corporate veil will justifiably be
impaled only when it becomes a shield for fraud, illegality or inequity committed against
third persons.
Hence, any application of the doctrine of piercing the corporate veil should be done with
caution. A court should be mindful of the milieu where it is to be applied. It must be certain
that the corporate fiction was misused to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights. The wrongdoing must be clearly and
convincingly established; it cannot be presumed. Otherwise, an injustice that was never
unintended may result from an erroneous application.
This Court has pierced the corporate veil to ward off a judgment credit, to avoid inclusion of
corporate assets as part of the estate of the decedent, to escape liability arising from a debt, or
to perpetuate fraud and/or confuse legitimate issues either to promote or to shield unfair
objectives or to cover up an otherwise blatant violation of the prohibition against forum-
shopping. Only in these and similar instances may the veil be pierced and disregarded.
(Emphasis supplied.)
In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear and
convincing proof that the separate and distinct personality of the corporation was
purposefully employed to evade a legitimate and binding commitment and perpetuate a fraud
or like wrongdoings. To be sure, the Court has, on numerous occasions, 38applied the principle
where a corporation is dissolved and its assets are transferred to another to avoid a financial
liability of the first corporation with the result that the second corporation should be
considered a continuation and successor of the first entity.
In those instances when the Court pierced the veil of corporate fiction of two corporations,
there was a confluence of the following factors:
1. A first corporation is dissolved;
2. The assets of the first corporation is transferred to a second corporation to avoid a
financial liability of the first corporation; and
3. Both corporations are owned and controlled by the same persons such that the
second corporation should be considered as a continuation and successor of the first
corporation.
In the instant case, however, the second and third factors are conspicuously absent. There is,
therefore, no compelling justification for disregarding the fiction of corporate entity
separating Kukan, Inc. from KIC. In applying the principle, both the RTC and the CA
miserably failed to identify the presence of the abovementioned factors. Consider:
The RTC disregarded the separate corporate personalities of Kukan, Inc. and KIC based on
the following premises and arguments:
While it is true that a corporation has a separate and distinct personality from its stockholder,
director and officers, the law expressly provides for an exception. When Michael Chan, the
Managing Director of defendant Kukan, Inc. (majority stockholder of the newly formed
corporation [KIC]) confirmed the award to plaintiff to supply and install interior signages in
the Enterprise Center he (Michael Chan, Managing Director of defendant Kukan, Inc.) knew
that there was no sufficient corporate funds to pay its obligation/account, thus implying bad
faith on his part and fraud in contracting the obligation. Michael Chan neither returned the
interior signages nor tendered payment to the plaintiff. This circumstance may warrant the
piercing of the veil of corporation fiction. Having been guilty of bad faith in the management
of corporate matters the corporate trustee, director or officer may be held personally liable. x
xx
Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred
from the circumstances of the case. x x x [A]nd the circumstances are: the signature of
Michael Chan, Managing Director of Kukan, Inc. appearing in the confirmation of the award
sent to the plaintiff; signature of Chan Kai Kit, a British National appearing in the Articles of
Incorporation and signature of Michael Chan also a British National appearing in the Articles
of Incorporation [of] Kukan International Corp. give the impression that they are one and the
same person, that Michael Chan and Chan Kai Kit are both majority stockholders of Kukan
International Corp. and Kukan, Inc. holding 40% of the stocks; that Kukan International
Corp. is practically doing the same kind of business as that of Kukan, Inc. 39 (Emphasis
supplied.)
As is apparent from its disquisition, the RTC brushed aside the separate corporate existence
of Kukan, Inc. and KIC on the main argument that Michael Chan owns 40% of the common
shares of both corporations, obviously oblivious that overlapping stock ownership is a
common business phenomenon. It must be remembered, however, that KIC’s properties were
the ones seized upon levy on execution and not that of Kukan, Inc. or of Michael Chan for
that matter. Mere ownership by a single stockholder or by another corporation of a substantial
block of shares of a corporation does not, standing alone, provide sufficient justification for
disregarding the separate corporate personality.40 For this ground to hold sway in this case,
there must be proof that Chan had control or complete dominion of Kukan and KIC’s
finances, policies, and business practices; he used such control to commit fraud; and the
control was the proximate cause of the financial loss complained of by Morales. The absence
of any of the elements prevents the piercing of the corporate veil.41 And indeed, the records
do not show the presence of these elements.
On the other hand, the CA held:
In the present case, the facts disclose that Kukan, Inc. entered into a contractual obligation x x
x worth more than three million pesos although it had only Php5,000.00 paid-up capital;
[KIC] was incorporated shortly before Kukan, Inc. suddenly ceased to appear and participate
in the trial; [KIC’s] purpose is related and somewhat akin to that of Kukan, Inc.; and in [KIC]
Michael Chan, a.k.a., Chan Kai Kit, holds forty percent of the outstanding stocks, while he
formerly held the same amount of stocks in Kukan Inc. These would lead to the inescapable
conclusion that Kukan, Inc. committed fraudulent representation by awarding to the private
respondent the contract with full knowledge that it was not in a position to comply with the
obligation it had assumed because of inadequate paid-up capital. It bears stressing that
shareholders should in good faith put at the risk of the business, unencumbered capital
reasonably adequate for its prospective liabilities. The capital should not be illusory or trifling
compared with the business to be done and the risk of loss.
Further, it is clear that [KIC] is a continuation and successor of Kukan, Inc. Michael Chan,
a.k.a. Chan Kai Kit has the largest block of shares in both business enterprises. The
emergence of the former was cleverly timed with the hasty withdrawal of the latter during the
trial to avoid the financial liability that was eventually suffered by the latter. The two
companies have a related business purpose. Considering these circumstances, the obvious
conclusion is that the creation of Kukan International Corporation served as a device to evade
the obligation incurred by Kukan, Inc. and yet profit from the goodwill attained by the name
"Kukan" by continuing to engage in the same line of business with the same list of
clients.42 (Emphasis supplied.)
Evidently, the CA found the meager paid-up capitalization of Kukan, Inc. and the similarity
of the business activities in which both corporations are engaged as a jumping board to its
conclusion that the creation of KIC "served as a device to evade the obligation incurred by
Kukan, Inc." The appellate court, however, left a gaping hole by failing to demonstrate that
Kukan, Inc. and its stockholders defrauded Morales. In fine, there is no showing that the
incorporation, and the separate and distinct personality, of KIC was used to defeat Morales’
right to recover from Kukan, Inc. Judging from the records, no serious attempt was made to
levy on the properties of Kukan, Inc. Morales could not, thus, validly argue that Kukan, Inc.
tried to avoid liability or had no property against which to proceed.
Morales further contends that Kukan, Inc.’s closure is evidenced by its failure to file its 2001
General Information Sheet (GIS) with the Securities and Exchange Commission. However,
such fact does not necessarily mean that Kukan, Inc. had altogether ceased operations, as
Morales would have this Court believe, for it is stated on the face of the GIS that it is only
upon a failure to file the corporate GIS for five (5) consecutive years that non-operation shall
be presumed.
The fact that Kukan, Inc. entered into a PhP 3.3 million contract when it only had a paid-up
capital of PhP 5,000 is not an indication of the intent on the part of its management to defraud
creditors. Paid-up capital is merely seed money to start a corporation or a business entity. As
in this case, it merely represented the capitalization upon incorporation in 1997 of Kukan, Inc.
Paid-up capitalization of PhP 5,000 is not and should not be taken as a reflection of the firm’s
capacity to meet its recurrent and long-term obligations. It must be borne in mind that the
equity portion cannot be equated to the viability of a business concern, for the best test is the
working capital which consists of the liquid assets of a given business relating to the nature of
the business concern.lawphil
WHEREFORE, the petition is hereby GRANTED. The CA’s January 23, 2008 Decision and
April 16, 2008 Resolution in CA-G.R. SP No. 100152 are hereby REVERSED and SET
ASIDE. The levy placed upon the personal properties of Kukan International Corporation is
hereby ordered lifted and the personal properties ordered returned to Kukan International
Corporation. The RTC of Manila, Branch 21 is hereby directed to execute the RTC Decision
dated November 28, 2002 against Kukan, Inc. with reasonable dispatch.No costs.

Neither should the level of paid-up capital of Kukan, Inc. upon its incorporation be viewed as SO ORDERED.
a badge of fraud, for it is in compliance with Sec. 13 of the Corporation Code, 43 which only
requires a minimum paid-up capital of PhP 5,000.1avvphi1

The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and 2. JAKA INVESTMENTS G.R. No. 147629
controlled as they are by the same stockholders, stands without factual basis. It is true that CORPORATION,  
Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the outstanding capital stock of both Petitioner,  
corporations. But such circumstance, standing alone, is insufficient to establish identity.   Present:
There must be at least a substantial identity of stockholders for both corporations in order to    
consider this factor to be constitutive of corporate identity.   CORONA, C.J.,
  Chairperson,
It would not avail Morales any to rely44 on General Credit Corporation v. Alsons - versus - VELASCO, JR.,
Development and Investment Corporation.45 General Credit Corporation is factually not on all   LEONARDO-DE CASTRO,
fours with the instant case. There, the common stockholders of the corporations represented   DEL CASTILLO, and
90% of the outstanding capital stock of the companies, unlike here where Michael Chan   PEREZ, JJ.
merely represents 40% of the outstanding capital stock of both KIC and Kukan, Inc., not even   Promulgated:
a majority of it. In that case, moreover, evidence was adduced to support the finding that the COMMISSIONER OF INTERNAL  
funds of the second corporation came from the first. Finally, there was proof in General REVENUE, July 28, 2010
Credit Corporation of complete control, such that one corporation was a mere dummy or alter Respondent.
ego of the other, which is absent in the instant case.

Evidently, the aforementioned case relied upon by Morales cannot justify the application of
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
the principle of piercing the veil of corporate fiction to the instant case. As shown by the
 
records, the name Michael Chan, the similarity of business activities engaged in, and
 
incidentally the word "Kukan" appearing in the corporate names provide the nexus between
Kukan, Inc. and KIC. As illustrated, these circumstances are insufficient to establish the  
identity of KIC as the alter ego or successor of Kukan, Inc. Before the Court is a petition for review of the Decision[1] of the Court of Appeals

It bears reiterating that piercing the veil of corporate fiction is frowned upon. Accordingly, dated August 22, 2000 sustaining the Court of Tax Appeals in denying petitioners (JAKA
those who seek to pierce the veil must clearly establish that the separate and distinct Investments Corporations) claim for refund of its alleged overpayment of documentary stamp
personalities of the corporations are set up to justify a wrong, protect fraud, or perpetrate a
tax and surcharges, as well as the Resolution[2] dated March 27, 2001 likewise denying
deception. In the concrete and on the assumption that the RTC has validly acquired
jurisdiction over the party concerned, Morales ought to have proved by convincing evidence petitioners Motion for Reconsideration.
that Kukan, Inc. was collapsed and thereafter KIC purposely formed and operated to defraud  
him. Morales has not to us discharged his burden.
The antecedent facts are undisputed.

Sometime in 1994, petitioner sought to invest in JAKA Equities Corporation
(JEC), which was then planning to undertake an initial public offering (IPO) and listing of its
shares of stock with the Philippine Stock Exchange. JEC increased its authorized capital stock
from One Hundred Eighty-Five Million Pesos (P185,000,000.00) to Two Billion Pesos
(P2,000,000,000.00). Petitioner proposed to subscribe to Five Hundred Eight Million Eight
Hundred Six Thousand Two Hundred Pesos (P508,806,200.00) out of the increase in the
authorized capital stock of JEC through a tax-free exchange under Section 34(c)(2) of the
National Internal Revenue Code (NIRC) of 1977, as amended, which was effected by the
execution of a Subscription Agreement and Deed of Assignment of Property in Payment of
Subscription. Under this Agreement, as payment for its subscription, petitioner will assign
and transfer to JEC the following shares of stock:
(a)  154,208,404 shares in Republic Glass Holdings Corporation (RGHC),
(b) 2,822,500 shares in Philippine Global Communications, Inc. (PGCI),
(c)  7,495,488 shares in United Coconut Planters Bank (UCPB), and
(d) 1,313,176 shares in Far East Bank and Trust Company (FEBTC). [3]
 
The intended IPO and listing of shares of JEC did not materialize. However, JEC still
decided to proceed with the increase in its authorized capital stock and petitioner agreed to
subscribe thereto, but under different terms of payment. Thus, petitioner and JEC executed
the Amended Subscription Agreement  on September 5, 1994, wherein the above-
[4]
enumerated RGHC, PGCI, and UCPB shares of stock were transferred to JEC. In lieu of the
FEBTC shares, however, the amount of Three Hundred Seventy Million Seven Hundred
Sixty-Six Thousand Pesos (P370,766,000.00) was paid for in cash by petitioner to JEC.
 
On October 14, 1994, petitioner paid One Million Three Thousand Eight Hundred
Ninety-Five Pesos and Sixty-Five Centavos (P1,003,895.65) for basic documentary stamp tax
inclusive of the 25% surcharge for late payment on the Amended Subscription Agreement,
broken down as follows:
Documentary Stamp Tax - P803,116.72
25% Surcharge - 200,778.93
Total P1,003,895.65[5]
 
On October 17, 1994, Revenue District Officer (RDO) Atty. Sixto S. Esquivias IV
(RDO Esquivias) issued three Certifications,[6] as follows:
Cert. No. Shares of Stock Documentary Stamps
 
94-10-17-07 7,495,488 UCPB shares P 23,423.14
94-10-17-08 154,208,403 RGHC shares 481,901.88
94-10-17-14 2,822,500 PGCI shares 88,203.13
P593,528.15
Petitioner, after seeing the RDOs certifications, the total amount of which was less
than the actual amount it had paid as documentary stamp tax, concluded that it had
overpaid. Petitioner subsequently sought a refund for the alleged excess documentary stamp
tax and surcharges it had paid on the Amended Subscription Agreement in the amount of
Four Hundred Ten Thousand Three Hundred Sixty-Seven Pesos (P410,367.00), the difference
between the amount of documentary stamp tax it had paid and the amount of documentary
stamp tax certified to by the RDO, through a letter-request[7] to the BIR dated October 10,
1996.
On October 11, 1996, petitioner filed a petition for refund before the Court of Tax
Appeals, docketed as C.T.A. Case No. 5428, which was denied in a Decision[8] dated January
19, 1999. The Court of Tax Appeals likewise denied petitioners Motion for Reconsideration
in its Resolution[9] dated March 1, 1999.
 
Petitioner appealed to the Court of Appeals by way of petition for review. The Court
of Appeals sustained the Court of Tax Appeals in its Decision on CA-G.R. SP No. 51834
dated August 22, 2000 as well as in its Resolution dated March 27, 2001 of petitioners
Motion for Reconsideration.
 
Hence, petitioner is now before this Court to seek the reversal of the questioned
Decision and Resolution of the Court of Appeals.
 
Petitioners main contention in this claim for refund is that the tax base for the
documentary stamp tax on the Amended Subscription Agreement should have been only the
shares of stock in RGHC, PGCI, and UCPB that petitioner had transferred to JEC as payment
for its subscription to the JEC shares, and should not have included the cash portion of its
payment, based on Section 176 of the National Internal Revenue Code of 1977, as amended
by Republic Act No. 7660, or the New Documentary Stamps Tax Law (the 1994 Tax Code),
the law applicable at the time of the transaction. Petitioner argues that the cash component of
its payment for its subscription to the JEC shares, totaling Three Hundred Seventy Million
Seven Hundred Sixty-Six Thousand Pesos (P370,766,000.00) should not have been charged
any documentary stamp tax. Petitioner claims that there was overpayment because the tax due
on the transferred shares was only Five Hundred Ninety-Three Thousand Five Hundred
Twenty-Eight and 15/100 Pesos (P593,528.15), asindicated in the certifications issued by
RDO Esquivias. Petitioner alleges that it is entitled to a refund for the overpayment, which is
the difference in the amount it had actually paid (P1,003,895.65) and the amount of
documentary stamp tax due on the transfer of said shares (P593,528.15), or a total of Four
Hundred Ten Thousand Three Hundred Sixty-Seven Pesos (P410,367.00).
 
Petitioner contends that both the Court of Appeals and the Court of Tax Appeals
erroneously relied on respondents (Commissioner of Internal Revenues) assertions that it had
paid the documentary stamp tax on the original issuance of the shares of stock of
JEC under Section 175 of the 1994 Tax Code.
 
Petitioner explains that in this instance where shares of stock are used as subscription
payment, there are two documentary stamp tax incidences, namely, the documentary stamp
tax on the original issuance of the shares subscribed (the JEC shares), which is imposed under
Section 175; and the documentary stamp tax on the shares transferred in payment of such
subscription (the transfer of the RGHC, PGCI and UCPB shares of stock from petitioner to
JEC), which is imposed under Section 176 of the 1994 Tax Code.Petitioner argues that the
documentary stamp tax imposed under Section 175 is due on original issuances of certificates
of stock and is computed based on the aggregate par value of the shares to be issued; and that
these certificates of stock are issued only upon full payment of the subscription price such
that under the Bureau of Internal Revenues (BIRs) Revised Documentary Stamp Tax
Regulations,[10] it is stated that the documentary stamp tax on the original issuance of
certificates of stock is imposed on fully paid shares of stock only. Petitioner alleges that it is
the issuing corporation which is primarily liable for the payment of the documentary stamp
tax on the original issuance of shares of stock.Petitioner further argues that the documentary
stamp tax on Section 176 of the 1994 Tax Code is imposed for every transfer of shares or
certificates of stock, computed based on the par value of the shares to be transferred, and is
due whether a certificate of stock is actually issued, indorsed or delivered pursuant to such
transfer. It is the transferor who is liable for the documentary stamp tax on the transfer of
shares.
 
Petitioner claims that the documentary stamp tax under Section 175 attaches to the
certificate/s of stock to be issued by virtue of petitioners subscription while the documentary
stamp tax under Section 176 attaches to the Amended Subscription Agreement, since it is this
instrument that evidences the transfer of the RGHC, PGCI and UCPB shares from petitioner
to JEC.
 
Petitioner contends that at the time of the execution of the Amended Subscription
Agreement, the JEC shares or certificates subscribed by petitioner could not have been issued
by JEC because the same were yet to be sourced from the increase in authorized capital stock
of JEC, which in turn had yet to be approved by the Securities and Exchange Commission
(SEC). Petitioner thus reasons that the documentary stamp tax under Section 175 could not
have accrued at the time the Amended Subscription Agreement was executed because no
right to the shares had neither been nor could be established in favor of the petitioner at such
time. Petitioner theorizes that the earliest time that the subscription could actually be executed
would be when the SEC approves the increase in the authorized capital stock of JEC. On the
other hand, upon the execution of the Amended Subscription Agreement, the assignment or
the transfer of RGHC, PGCI and UCPB shares in favor of JEC (which is evidenced by said
agreement), is deemed immediately enforceable as this is a necessary requirement of the SEC.
 
Petitioner points out that Section 175 of the 1994 Tax Code imposes a documentary
stamp tax on every original issuance of certificates of stock, whereas Republic Act No. 8424,
the Tax Reform Act of 1997 (the 1997 Tax Code), amended this provision and imposed a
documentary stamp tax on the original issuance of shares of stock. Petitioner argues that
under Section 175 of the 1994 Tax Code, there was no documentary stamp tax due on the
mere execution of a subscription agreement to shares of stock, and the tax only accrued upon
issuance of the certificates of stock. In this case, the change in wording introduced by the
1997 Tax Code cannot be made applicable to the Amended Subscription Agreement, which
was executed in 1994, because it is a well-settled doctrine in taxation that a law must have
prospective application.
 
Lastly, petitioner alleges that it is entitled to refund under the NIRC.[11]
 
In his Comment (To Petition for Review),[12] respondent avers that the lower courts
did not err in denying petitioners claim for refund, and that petitioner is raising issues in this
petition which were not raised in the lower courts.
 
Respondent maintains that the documentary stamp tax imposed in this case is on the
original issue of certificates of stock of JEC on the subscription by the petitioner of
the P508,806,200.00 shares out of the increase in the authorized capital stock of the former
pursuant to Section 175 of the NIRC. The documentary stamp tax was not imposed on the
shares of stock owned by petitioner in RGHC, PGCI, and UCPB, which merely form part of
the partial payment of the subscribed shares in JEC. Respondent avers that the amounts
indicated in the Certificates of RDO Esquivias are the amounts of documentary stamp tax
representing the equivalent of each group of shares being applied for payment.Considering
that the amount of documentary stamp tax represented by the shares of stock in the
aforementioned companies amounted only to P593,528.15, while the basic documentary
stamp tax for the entire subscription of P508,806,200.00 was computed by respondents
revenue officers to the tune of P803,116.72, exclusive of the penalties, leaving a balance
of P209,588.57, is a clear indication that the payment made with the shares of stock is
insufficient.
 
Respondent claims that the certifications were issued by RDO Esquivias purposely to
allow the registration of transfer of the shares of stock used in payment of the subscribed
shares in the name of JEC from petitioner by the Corporate Secretary of the UCPB and are
not evidence of the payment of the documentary stamp tax on the issuance of the increased
shares of stocks of JEC.[13]
 
Respondent argues that the documentary stamp tax attaches upon acceptance by the
corporation of the stockholders subscription in the capital stock of the corporation, and that
the term original issue of the certificate of stock means the point at which the stockholder
acquires and may exercise attributes of ownership over the stocks. [14] Respondent further
argues that the stocks can be alienated; the dividends or fruits derived therefrom can be
enjoyed; and they can be conveyed, pledged, or encumbered; that the certificate, irrespective
of whether or not it is in the actual constructive possession of the stockholder, is considered
issued because it is with value and, hence, the documentary stamp tax must be paid; and
concludes that a person may own shares of stock without possessing a certificate of
stock. Respondent cites Commissioner of Internal Revenue v. Construction Resources of Asia,
Inc.,[15] where the Court held:
 
The delivery of the certificates of stocks to the private respondent's
stockholders whether actual or constructive, is not essential for the
documentary and science stamps taxes to attach. What is taxed is the
privilege of issuing shares of stock and, therefore, the taxes accrue at the time
the shares are issued. The only question before us is whether or not said
 private respondents issued the certificates of stock covering the paid-in-
capital of P17,880,000.00.
 
 
Respondent claims that it is well-settled as a general rule of Corporation Law that a
subscriber for stock in a corporation or purchaser of stock becomes a stockholder as soon as
his subscription is accepted by the corporation whether a certificate of stock is issued to him
or not, and although he may have no certificate, he is thereupon entitled to all the rights and is
subject to all the liabilities of a stockholder.
 
Respondent argues, based on the above, that the contention of petitioner that the
documentary stamp tax under Section 175 of the 1994 Tax Code could not have accrued at
the time the Amended Subscription Agreement was executed since the increase in capital
stock of JEC had yet to be approved by the SEC was inaccurate. He states that it is evident
from the Amended Subscription Agreement that the subscribed shares from the increase in
JECs stock were fully paid through cash and shares of stock.
 
Respondent submits that the change in wording, from certificates to shares of stock,
introduced to Section 175 by the 1997 Tax Code, was a mere clarification and codification of
the foregoing principle or policy.
 
Respondent stresses that the documentary stamp tax can be levied or collected from
the person making, signing, issuing, accepting, or transferring the obligation or property, as
provided in Section 173 of the Tax Code.
 
In its Reply to Respondents Comment to the Petition,  petitioner contends that
[16]
respondent erroneously insists that the documentary stamp tax sought to be refunded is the
one imposed on the subscription by petitioner to P508,806,200.00 new shares of
JEC. Petitioner further contends that since the documentary stamp tax due on the issuance of
new shares or on original shares is P2.00 for every P200 under Section 175 of the Tax Code,
then the documentary stamp tax on petitioners subscription to JEC shares should amount
to P5,088,062.00, which is much higher than the P803,116.72 basic documentary stamp tax
paid under ATAP No. 1511920.[17] Petitioner argues that at the time the documentary stamp
tax was paid, before a taxpayer was allowed to pay the taxes due, a BIR revenue officer
would first compute the tax due and then issue an authority to accept payment (ATAP) and it
was very unlikely that the revenue officer could have made such a glaring mistake.
 
Petitioner alleges that there is no BIR certification requirement prior to the issuance
of original shares of stock; and that it is only upon the regular annual audit of the books of a
corporation that the BIR determines if the documentary stamp tax on new or original
issuances of shares, if any were issued, had in fact been paid. If not, then a deficiency
assessment, with penalties and surcharges, would then be made by the BIR. Petitioner further
alleges that, on the other hand, before the transfer of issued and outstanding shares to a new
owner is recorded in the books of a corporation, the capital gains tax thereon and the
documentary stamp tax on the transfer must first be paid, and a BIR certification must be
presented to the Corporate Secretary authorizing the corporation to record the transfer,
otherwise, the corporate secretary shall be subjected to penalties.
 
Petitioner claims that the three BIR certifications in this case specifically allow the
registration of the UCPB, RGHC, and PGCI shares in the name of JEC, the transferee, and
that said certifications evidence payment of the taxes due on the transfer of the shares from
petitioner to JEC, not on the original issuance of shares of JEC.
 
The parties respective memoranda contained reiterations of the allegations raised in
their respective pleadings as discussed above.
The sole issue to be resolved is whether petitioner is entitled to a partial refund
of the documentary stamp tax and surcharges it paid on the execution of the Amended
Subscription Agreement.
 
 In claims for refund, the burden of proof is on the taxpayer to prove entitlement to
such refund. As we held in Compagnie Financiere Sucres Et Denrees v. Commissioner of
Internal Revenue[18] -
 
Along with police power and eminent domain, taxation is one of the
three basic and necessary attributes of sovereignty. Thus, the State cannot be
deprived of this most essential power and attribute of sovereignty by vague
implications of law. Rather, being derogatory of sovereignty, the governing
principle is that tax exemptions are to be construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority; and he
who claims an exemption must be able to justify his claim by the clearest
grant of statute.
 
x x x Tax refunds are a derogation of the State's taxing power.
Hence, like tax exemptions, they are construed strictly against the taxpayer
and liberally in favor of the State. Consequently, he who claims a refund or
exemption from taxes has the burden of justifying the exemption by words
too plain to be mistaken and too categorical to be misinterpreted. x x x.
 
It was thus incumbent upon petitioner to show clearly its basis for claiming that it is
entitled to a tax refund. This, to our mind, the petitioner failed to do.
 
The Court of Tax Appeals construed the claim for exemption strictly against
petitioner and held that:
 
The focal issue which is presented for our consideration is whether or
not the transfer of the 1,313,176 FEBTC shares under the Amended
Subscription Agreement and Deed of Assignment of Property in Payment of
Subscription should be excluded in the taxable base for the computation of
DST, thus entitling petitioner to the refund of the amount of P410,367.00.
 
We find nothing ambiguous nor obscure in the language of
Section 173, taken in relation to Section 175 of the 1994 Tax Code x x x
insofar as the same is brought to bear upon the circumstances in the
instant case. These provisions furnish the best means of their own
exposition that a documentary stamp tax (DST) is due and payable on
documents, instruments, loan agreements and papers, acceptances,
assignments, sales and transfers which evidenced the transaction agreed
upon by the parties and should be paid by the person making, signing,
issuing, accepting or transferring the property, right or obligation.
 
Sec. 173. Stamp taxes upon documents, instruments,
and papers. Upon documents, instruments, and papers, and
upon acceptances, assignments, sales, and transfers of the
obligation, or property incident thereto, there shall be levied,
collected and paid for, and in respect of the transaction so
had or accomplished, the corresponding documentary stamp
taxes prescribed in the following sections of this Title, by the
person making, signing, issuing, accepting, or transferring
the same, whenever the document is made, signed, issued,
accepted or transferred when the obligation or right arises
from Philippine sources or the property is situated in the
Philippines, and at the same time such act is done or
transaction had: Provided, That whenever one party to the
taxable document enjoys exemption from the tax herein
imposed, the other party thereto who is not exempt shall be
the one directly liable for the tax. (as amended by R.A. No.
7660)
xxxx
Understood to mean what it plainly expressed, the DST imposition is
essentially addressed and directly brought to bear upon the DOCUMENT
evidencing the transaction of the parties which establishes its rights and
obligations.
 
In the case at bar, the rights and obligations between petitioner JAKA
Investments Corporation and JAKA Equities Corporation are established and
enforceable at the time the Amended Subscription Agreement and Deed of
Assignment of Property in Payment of Subscription were signed by the
parties and their witness, so is the right of the state to tax the aforestated
document evidencing the transaction. DST is a tax on the document itself
and therefore the rate of tax must be determined on the basis of what is
written or indicated on the instrument itself independent of any
adjustment which the parties may agree on in the future x x x. The DST
upon the taxable document should be paid at the time the contract is executed
or at the time the transaction is accomplished. The overriding purpose of the
law is the collection of taxes. So that when it paid in cash the amount
of P370,766,000.00 in substitution for, or replacement of the 1,313,176
FEBTC shares, its payment of P1,003,835.65 documentary stamps tax
pursuant to Section 175 of NIRC is in order.
  
Thus, applying the settled rule in this jurisdiction that, a claim
for refund is in the nature of a claim for exemption, thus, should be
construed in strictissimi juris against the taxpayer (Commissioner of
Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 332) and
since the petitioner failed to adduce evidence that will show that it is
exempt from DST under Section 199 or other provision of the tax code,
We rule the focal issue in the negative.[19] (Emphases ours.)
 
In the questioned Decision, the Court of Appeals concurred with the findings of the
Court of Tax Appeals and we quote with approval the relevant portions below:
 
Petitioner alleges, though, that considering that the assessment of
payment of documentary stamp tax was made payable only to the aforesaid
issuances of certificates of [stock] exclusive of that of FEBTC shares of stock
which were paid in cash, and that it has paid a total of Php1,003,895.65
inclusive of surcharges for late payment, the petitioner is entitled to a refund
of Php410,367.00. This argument does not hold water. As discussed earlier, a
documentary stamp is levied upon the privilege, the opportunity and the
facility offered at exchanges for the transaction of the business. This
being the case, and as correctly found by the tax court, the documentary
stamp tax imposition is essentially addressed and directly brought to
bear upon the document evidencing the transaction of the parties which
establishes its rights and obligations, which in the case at bar, was
established and enforceable upon the execution of the Amended Subscription
Agreement and Deed of Assignment of Property in Payment of Subscription.
Moreover, the documentary stamp tax is imposed on the entire
subscription (i.e., subscribed capital stock) which is the amount of the capital
stock subscribed whether fully paid or not.It connotes an original
subscription contract for the acquisition by a subscriber of unissued shares in
a corporation, which in this case is equivalent to a total par value of
Php508,806,200.00.
 
Besides, a tax cannot be imposed unless it is supported by the clear
and express language of a statute; on the other hand, once the tax is
unquestionably imposed, a claim of exemption from tax payments must be
clearly shown and based on language in the law too plain to be
mistaken. And since a claim for refund is in the nature of a claim for
exemption the same is likewise construed in strictissimi juris against the
taxpayer. Furthermore, it is a basic rule in taxation that the factual findings of
the Court of Tax Appeals, when supported by substantial evidence, will not
be disturbed on appeal unless it [is] shown that the said court committed
gross error in the appreciation of facts. In this case, the tax court did not
deviate from this rule.
 
 
We find no error in the above pronouncements of the Court of Appeals.
A documentary stamp tax is in the nature of an excise tax. It is not imposed upon the
business transacted but is an excise upon the privilege, opportunity or facility offered at
exchanges for the transaction of the business. It is an excise upon the facilities used in the
transaction of the business separate and apart from the business itself. Documentary stamp
taxes are levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of
specific instruments.[20]
 
Thus, we have held that documentary stamp taxes are levied independently of the
legal status of the transactions giving rise thereto. The documentary stamp taxes must be
paid upon the issuance of the said instruments, without regard to whether the contracts
which gave rise to them are rescissible, void, voidable, or unenforceable.[21]
 
The relevant provisions of the Tax Code at the time of the transaction are quoted
below:
 
Sec. 175. Stamp tax on original issue of certificates of stock. On
every original issue, whether on organization, reorganization or for any
lawful purpose, of certificates of stock by any association, company, or
corporations, there shall be collected a documentary stamp tax of Two
pesos (P2.00) on each two hundred pesos, or fractional part thereof, of
the par value of such certificates: Provided, That in the case of the original
issue of stock without par value the amount of the documentary stamp tax
herein prescribed shall be based upon the actual consideration received by the
association, company, or corporation for the issuance of such stock, and in
the case of stock dividends on the actual value represented by each share.
 
 Sec. 176. Stamp tax on sales, agreements to sell, memoranda of
sales, deliveries or transfer of due-bills, certificates of obligation, or shares
or certificates of stock. On all sales, or agreements to sell, or memoranda of
sales, or deliveries, or transfer of due-bills, certificates of obligation, or
shares or certificates of stock in any association, company or corporation, or
transfer of such securities by assignment in blank, or by delivery, or by any
paper or agreement, or memorandum or other evidences of transfer or sale
whether entitling the holder in any manner to the benefit of such due-bills,
certificates of obligation or stock, or to secure the future payment of money,
or for the future transfer of any due-bill, certificates of obligation or stock,
there shall be collected a documentary stamp tax of One peso (P1.00) on each
two hundred pesos, or fractional part thereof, of the par value of such due-
bill, certificates of obligation or stock: Provided, That only one tax shall be
collected on each sale or transfer of stock or securities from one person to
another, regardless of whether or not a certificate of stock or obligation is
issued, endorsed, or delivered in pursuance of such sale or transfer:
and Provided, further, That in the case of stock without par value the amount
of the documentary stamp herein prescribed shall be equivalent to twenty-
five per centum of the documentary stamp tax paid upon the original issue of
said stock: Provided, furthermore, That the tax herein imposed shall be
increased to One peso and fifty centavos (P1.50) beginning 1996.
 
 
We find our discussion in the case of Commissioner of Internal Revenue v. First
Express Pawnshop Company, Inc.[22] regarding these same provisions of the Tax Code to
be instructive, and we quote:
 
In Section 175 of the Tax Code, DST is imposed on the original issue
of shares of stock. The DST, as an excise tax, is levied upon the privilege, the
opportunity and the facility of issuing shares of stock. In Commissioner of
Internal Revenue v. Construction Resources of Asia, Inc., this Court
explained that the DST attaches upon acceptance of the stockholder's
subscription in the corporation's capital stock regardless of actual or
constructive delivery of the certificates of stock. Citing Philippine
Consolidated Coconut Ind., Inc. v. Collector of Internal Revenue, the Court
held:
 
The documentary stamp tax under this provision of
the law may be levied only once, that is upon the original
issue of the certificate. The crucial point therefore, in the
case before Us is the proper interpretation of the word 'issue'.
In other words, when is the certificate of stock deemed
'issued' for the purpose of imposing the documentary stamp
tax? Is it at the time the certificates of stock are printed, at
the time they are filled up (in whose name the stocks
represented in the certificate appear as certified by the proper
officials of the corporation), at the time they are released by
the corporation, or at the time they are in the possession
(actual or constructive) of the stockholders owning them?
 
xxxx
 
Ordinarily, when a corporation issues a certificate of
stock (representing the ownership of stocks in the
corporation to fully paid subscription) the certificate of stock
can be utilized for the exercise of the attributes of ownership
over the stocks mentioned on its face. The stocks can be
alienated; the dividends or fruits derived therefrom can be
enjoyed, and they can be conveyed, pledged or encumbered.
The certificate as issued by the corporation, irrespective of
whether or not it is in the actual or constructive possession of
the stockholder, is considered issued because it is with value
and hence the documentary stamp tax must be paid as
imposed by Section 212 of the National Internal Revenue
Code, as amended.
 
In Section 176 of the Tax Code, DST is imposed on the sales,
agreements to sell, memoranda of sales, deliveries or transfer of shares or
certificates of stock in any association, company, or corporation, or transfer
of such securities by assignment in blank, or by delivery, or by any paper or
agreement, or memorandum or other evidences of transfer or sale whether
entitling the holder in any manner to the benefit of such certificates of stock,
or to secure the future payment of money, or for the future transfer of
certificates of stock. In Compagnie Financiere Sucres et Denrees v.
Commissioner of Internal Revenue, this Court held that under Section 176 of
the Tax Code, sales to secure the future transfer of due-bills, certificates of
obligation or certificates of stock are subject to documentary stamp tax.
 
Revenue Memorandum Order No. 08-98 (RMO 08-98) provides the
guidelines on the corporate stock documentary stamp tax program. RMO 08-
98 states that:
 
1. All existing corporations shall file the Corporation Stock
DST Declaration, and the DST Return, if
applicable when DST is still due on the subscribed
 share issued by the corporation, on or before the  
tenth day of the month following publication of this
Order. All that petitioner submitted to back up its claim were the certifications issued by
  then RDO Esquivias. As correctly pointed out by respondent, however, the amounts in the
xxxx
STDEH RDO certificates were the amounts of documentary stamp tax representing the equivalent of
3. All existing corporations with authorization for increased each group of shares being applied for payment. The purpose for issuing such certifications
capital stock shall file their Corporate Stock DST
was to allow registration of transfer of shares of stock used in partial payment for petitioners
Declaration, together with the DST Return, if
applicable when DST is due on subscriptions subscription to the original issuance of JEC shares. It should not be used as evidence of
made after the authorization, on or before the payment of documentary stamp tax. Neither should it be the lone basis of a claim for a
tenth day of the month following the date of
authorization. (Boldfacing supplied) documentary stamp tax refund.
   
RMO 08-98, reiterating Revenue Memorandum Circular No. 47-97
(RMC 47-97), also states that what is being taxed is the privilege of issuing The fact that it was petitioner and not JEC that paid for the documentary stamp tax on
shares of stock, and, therefore, the taxes accrue at the time the shares are the original issuance of shares is of no moment, as Section 173 of the 1994 Tax Code states
issued. RMC 47-97 also defines issuance as the point in which the
that the documentary stamp tax shall be paid by the person making, signing, issuing,
stockholder acquires and may exercise attributes of ownership over the
stocks. accepting or transferring the property, right or obligation.
   
As pointed out by the CTA, Sections 175 and 176 of the Tax Code
contemplate a subscription agreement in order for a taxpayer to be liable to Lastly, we deem it appropriate to reiterate the well-established doctrine that as a
pay the DST. A subscription contract is defined as any contract for the matter of practice and principle, this Court will not set aside the conclusion reached by an
acquisition of unissued stocks in an existing corporation or a corporation still
to be formed. A stock subscription is a contract by which the subscriber agency, like the Court of Tax Appeals, especially if affirmed by the Court of Appeals. By the
agrees to take a certain number of shares of the capital stock of a corporation, very nature of its function, it has dedicated itself to the study and consideration of tax
paying for the same or expressly or impliedly promising to pay for the same.
problems and has necessarily developed an expertise on the subject, unless there has been an
(Emphases ours.)
  abuse or improvident exercise of authority on its part, which we find is not present here.[23]
   
Petitioner claims overpayment of the documentary stamp tax but its basis for such is WHEREFORE, premises considered, the petition is hereby DISMISSED.
not clear at all. While insisting that the documentary stamp tax it had paid for was not based  
on the original issuance of JEC shares as provided in Section 175 of the 1994 Tax Code, SO ORDERED.
petitioner failed in showing, even through a mere basic computation of the tax base and the
tax rate, that the documentary stamp tax was based on the transfer of shares under Section 3.G.R. No. 101897. March 5, 1993.
176 either. It would have been helpful for petitioners cause had it submitted proof of the par
LYCEUM OF THE PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS,
value of the shares of stock involved, to show the actual basis for the documentary stamp tax LYCEUM OF APARRI, LYCEUM OF CABAGAN, LYCEUM OF
computation. For comparison, the original Subscription Agreement ought to have been CAMALANIUGAN, INC., LYCEUM OF LALLO, INC., LYCEUM OF TUAO, INC.,
BUHI LYCEUM, CENTRAL LYCEUM OF CATANDUANES, LYCEUM OF
submitted as well.
SOUTHERN PHILIPPINES, LYCEUM OF EASTERN MINDANAO, INC. and originated in the field of trademark law. Its application has, however, been extended to
WESTERN PANGASINAN LYCEUM, INC., respondents. corporate names sine the right to use a corporate name to the exclusion of others is based
upon the same principle which underlies the right to use a particular trademark or tradename.
Quisumbing, Torres & Evangelista Law Offices and Ambrosio Padilla for petitioner. In Philippine Nut Industry, Inc. v. Standard Brands, Inc., the doctrine of secondary meaning
was elaborated in the following terms: " . . . a word or phrase originally incapable of
Antonio M. Nuyles and Purungan, Chato, Chato, Tarriela & Tan Law Offices for exclusive appropriation with reference to an article on the market, because geographically or
respondents. otherwise descriptive, might nevertheless have been used so long and so exclusively by one
producer with reference to his article that, in that trade and to that branch of the purchasing
Froilan Siobal for Western Pangasinan Lyceum. public, the word or phrase has come to mean that the article was his product." The question
which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate
SYLLABUS name has been for such length of time and with such exclusivity as to have become associated
or identified with the petitioner institution in the mind of the general public (or at least that
portion of the general public which has to do with schools). The Court of Appeals recognized
1. CORPORATION LAW; CORPORATE NAMES; REGISTRATION OF PROPOSED
this issue and answered it in the negative: "Under the doctrine of secondary meaning, a word
NAME WHICH IS IDENTICAL OR CONFUSINGLY SIMILAR TO THAT OF ANY
or phrase originally incapable of exclusive appropriation with reference to an article in the
EXISTING CORPORATION, PROHIBITED; CONFUSION AND DECEPTION
market, because geographical or otherwise descriptive might nevertheless have been used so
EFFECTIVELY PRECLUDED BY THE APPENDING OF GEOGRAPHIC NAMES TO
long and so exclusively by one producer with reference to this article that, in that trade and to
THE WORD "LYCEUM". — The Articles of Incorporation of a corporation must, among
that group of the purchasing public, the word or phrase has come to mean that the article was
other things, set out the name of the corporation. Section 18 of the Corporation Code
his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been referred
establishes a restrictive rule insofar as corporate names are concerned: "Section 18. Corporate
to as the distinctiveness into which the name or phrase has evolved through the substantial
name. — No corporate name may be allowed by the Securities an Exchange Commission if
and exclusive use of the same for a considerable period of time. . . . No evidence was ever
the proposed name is identical or deceptively or confusingly similar to that of any existing
presented in the hearing before the Commission which sufficiently proved that the word
corporation or to any other name already protected by law or is patently deceptive, confusing
'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If there was any of
or contrary to existing laws. When a change in the corporate name is approved, the
this kind, the same tend to prove only that the appellant had been using the disputed word for
Commission shall issue an amended certificate of incorporation under the amended name."
a long period of time. . . . In other words, while the appellant may have proved that it had
The policy underlying the prohibition in Section 18 against the registration of a corporate
been using the word 'Lyceum' for a long period of time, this fact alone did not amount to
name which is "identical or deceptively or confusingly similar" to that of any existing
mean that the said word had acquired secondary meaning in its favor because the appellant
corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing
failed to prove that it had been using the same word all by itself to the exclusion of others.
laws," is the avoidance of fraud upon the public which would have occasion to deal with the
More so, there was no evidence presented to prove that confusion will surely arise if the same
entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties
word were to be used by other educational institutions. Consequently, the allegations of the
of administration and supervision over corporations. We do not consider that the corporate
appellant in its first two assigned errors must necessarily fail." We agree with the Court of
names of private respondent institutions are "identical with, or deceptively or confusingly
Appeals. The number alone of the private respondents in the case at bar suggests strongly that
similar" to that of the petitioner institution. True enough, the corporate names of private
petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for
respondent entities all carry the word "Lyceum" but confusion and deception are effectively
applicability of the doctrine of secondary meaning. Petitioner's use of the word "Lyceum"
precluded by the appending of geographic names to the word "Lyceum." Thus, we do not
was not exclusive but was in truth shared with the Western Pangasinan Lyceum and a little
believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of
later with other private respondent institutions which registered with the SEC using
the Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum
"Lyceum" as part of their corporation names. There may well be other schools using Lyceum
of the Philippines.
or Liceo in their names, but not registered with the SEC because they have not adopted the
corporate form of organization.
2. ID.; ID.; DOCTRINE OF SECONDARY MEANING; USE OF WORD "LYCEUM," NOT
ATTENDED WITH EXCLUSIVITY. — It is claimed, however, by petitioner that the word
3. ID.; ID.; MUST BE EVALUATED IN THEIR ENTIRETY TO DETERMINE WHETHER
"Lyceum" has acquired a secondary meaning in relation to petitioner with the result that
THEY ARE CONFUSINGLY OR DECEPTIVELY SIMILAR TO ANOTHER
word, although originally a generic, has become appropriable by petitioner to the exclusion of
CORPORATE ENTITY'S NAME. — petitioner institution is not entitled to a legally
other institutions like private respondents herein. The doctrine of secondary meaning
enforceable exclusive right to use the word "Lyceum" in its corporate name and that other
institutions may use "Lyceum" as part of their corporate names. To determine whether a
given corporate name is "identical" or "confusingly or deceptively similar" with another
entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in
both names. One must evaluate corporate names in their entirety and when the name of
petitioner is juxtaposed with the names of private respondents, they are not reasonably
regarded as "identical" or "confusingly or deceptively similar" with each other.
DECISION
FELICIANO, J p:
Petitioner is an educational institution duly registered with the Securities and Exchange
Commission ("SEC"). When it first registered with the SEC on 21 September 1950, it used
the corporate name Lyceum of the Philippines, Inc. and has used that name ever since.
On 24 February 1984, petitioner instituted proceedings before the SEC to compel the private
respondents, which are also educational institutions, to delete the word "Lyceum" from their
corporate names and permanently to enjoin them from using "Lyceum" as part of their
respective names.
Some of the private respondents actively participated in the proceedings before the SEC.
These are the following, the dates of their original SEC registration being set out below
opposite their respective names:
Western Pangasinan Lyceum — 27 October 1950
Lyceum of Cabagan — 31 October 1962
Lyceum of Lallo, Inc. — 26 March 1972
Lyceum of Aparri — 28 March 1972
Lyceum of Tuao, Inc. — 28 March 1972
Lyceum of Camalaniugan — 28 March 1972
The following private respondents were declared in default for failure to file an answer
despite service of summons:
Buhi Lyceum;
Central Lyceum of Catanduanes;
Lyceum of Eastern Mindanao, Inc.; and
Lyceum of Southern Philippines
Petitioner's original complaint before the SEC had included three (3) other entities:
1. The Lyceum of Malacanay;
2. The Lyceum of Marbel; and
3. The Lyceum of Araullo
The complaint was later withdrawn insofar as concerned the Lyceum of Malacanay and the
Lyceum of Marbel, for failure to serve summons upon these two (2) entities. The case against
the Liceum of Araullo was dismissed when that school motu proprio change its corporate
name to "Pamantasan ng Araullo."
The background of the case at bar needs some recounting. Petitioner had sometime before
commenced in the SEC a proceeding (SEC-Case No. 1241) against the Lyceum of Baguio,
Inc. to require it to change its corporate name and to adopt another name not "similar [to] or
identical" with that of petitioner. In an Order dated 20 April 1977, Associate Commissioner
Julio Sulit held that the corporate name of petitioner and that of the Lyceum of Baguio, Inc.
were substantially identical because of the presence of a "dominant" word, i.e., "Lyceum," the
name of the geographical location of the campus being the only word which distinguished
one from the other corporate name. The SEC also noted that petitioner had registered as a
corporation ahead of the Lyceum of Baguio, Inc. in point of time, 1 and ordered the latter to
change its name to another name "not similar or identical [with]" the names of previously
registered entities.
The Lyceum of Baguio, Inc. assailed the Order of the SEC before the Supreme Court in a
case docketed as G.R. No. L-46595. In a Minute Resolution dated 14 September 1977, the
Court denied the Petition for Review for lack of merit. Entry of judgment in that case was
made on 21 October 1977. 2
Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote all the
educational institutions it could find using the word "Lyceum" as part of their corporate
name, and advised them to discontinue such use of "Lyceum." When, with the passage of
time, it became clear that this recourse had failed, petitioner instituted before the SEC SEC-
Case No. 2579 to enforce what petitioner claims as its proprietary right to the word
"Lyceum." The SEC hearing officer rendered a decision sustaining petitioner's claim to an
exclusive right to use the word "Lyceum." The hearing officer relied upon the SEC ruling in
the Lyceum of Baguio, Inc. case (SEC-Case No. 1241) and held that the word "Lyceum" was
capable of appropriation and that petitioner had acquired an enforceable exclusive right to the
use of that word.
On appeal, however, by private respondents to the SEC En Banc, the decision of the hearing
officer was reversed and set aside. The SEC En Banc did not consider the word "Lyceum" to
have become so identified with petitioner as to render use thereof by other institutions as
productive of confusion about the identity of the schools concerned in the mind of the general
public. Unlike its hearing officer, the SEC En Banc held that the attaching of geographical
names to the word "Lyceum" served sufficiently to distinguish the schools from one another,
especially in view of the fact that the campuses of petitioner and those of the private
respondents were physically quite remote from each other. 3
Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28 June 1991,
however, the Court of Appeals affirmed the questioned Orders of the SEC En Banc. 4
Petitioner filed a motion for reconsideration, without success.
Before this Court, petitioner asserts that the Court of Appeals committed the following errors:
1. The Court of Appeals erred in holding that the Resolution of the Supreme Court in G.R.
No. L-46595 did not constitute stare decisis as to apply to this case and in not holding that
said Resolution bound subsequent determinations on the right to exclusive use of the word
Lyceum.
2. The Court of Appeals erred in holding that respondent Western Pangasinan Lyceum, Inc.
was incorporated earlier than petitioner.
3. The Court of Appeals erred in holding that the word Lyceum has not acquired a secondary
meaning in favor of petitioner.
4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be
appropriated by the petitioner to the exclusion of others. 5
We will consider all the foregoing ascribed errors, though not necessarily seriatim. We begin
by noting that the Resolution of the Court in G.R. No. L-46595 does not, of course, constitute
res adjudicata in respect of the case at bar, since there is no identity of parties. Neither is stare
decisis pertinent, if only because the SEC En Banc itself has re-examined Associate
Commissioner Sulit's ruling in the Lyceum of Baguio case. The Minute Resolution of the
Court in G.R. No. L-46595 was not a reasoned adoption of the Sulit ruling.
The Articles of Incorporation of a corporation must, among other things, set out the name of
the corporation. 6 Section 18 of the Corporation Code establishes a restrictive rule insofar as
corporate names are concerned:
"SECTION 18. Corporate name. — No corporate name may be allowed by the Securities an
Exchange Commission if the proposed name is identical or deceptively or confusingly similar
to that of any existing corporation or to any other name already protected by law or is patently
deceptive, confusing or contrary to existing laws. When a change in the corporate name is
approved, the Commission shall issue an amended certificate of incorporation under the
amended name." (Emphasis supplied)
The policy underlying the prohibition in Section 18 against the registration of a corporate
name which is "identical or deceptively or confusingly similar" to that of any existing
corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing
laws," is the avoidance of fraud upon the public which would have occasion to deal with the
entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties
of administration and supervision over corporations. 7
We do not consider that the corporate names of private respondent institutions are "identical
with, or deceptively or confusingly similar" to that of the petitioner institution. True enough,
the corporate names of private respondent entities all carry the word "Lyceum" but confusion
and deception are effectively precluded by the appending of geographic names to the word
"Lyceum." Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by the
general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan"
would be confused with the Lyceum of the Philippines.
Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn
referred to a locality on the river Ilissius in ancient Athens "comprising an enclosure
dedicated to Apollo and adorned with fountains and buildings erected by Pisistratus, Pericles
and Lycurgus frequented by the youth for exercise and by the philosopher Aristotle and his
followers for teaching." 8 In time, the word "Lyceum" became associated with schools and
other institutions providing public lectures and concerts and public discussions. Thus today,
the word "Lyceum" generally refers to a school or an institution of learning. While the Latin
word "lyceum" has been incorporated into the English language, the word is also found in
Spanish (liceo) and in French (lycee). As the Court of Appeals noted in its Decision, Roman
Catholic schools frequently use the term; e.g., "Liceo de Manila," "Liceo de Baleno" (in
Baleno, Masbate), "Liceo de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as generic in
character as the word "university." In the name of the petitioner, "Lyceum" appears to be a
substitute for "university;" in other places, however, "Lyceum," or "Liceo" or "Lycee"
frequently denotes a secondary school or a college. It may be (though this is a question of fact
which we need not resolve) that the use of the word "Lyceum" may not yet be as widespread
as the use of "university," but it is clear that a not inconsiderable number of educational
institutions have adopted "Lyceum" or "Liceo" as part of their corporate names. Since
"Lyceum" or "Liceo" denotes a school or institution of learning, it is not unnatural to use this
word to designate an entity which is organized and operating as an educational institution.
It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary
meaning in relation to petitioner with the result that that word, although originally a generic,
has become appropriable by petitioner to the exclusion of other institutions like private
respondents herein.
The doctrine of secondary meaning originated in the field of trademark law. Its application
has, however, been extended to corporate names sine the right to use a corporate name to the
exclusion of others is based upon the same principle which underlies the right to use a
particular trademark or tradename. 10 In Philippine Nut Industry, Inc. v. Standard Brands,
Inc., 11 the doctrine of secondary meaning was elaborated in the following terms:
" . . . a word or phrase originally incapable of exclusive appropriation with reference to an
article on the market, because geographically or otherwise descriptive, might nevertheless
have been used so long and so exclusively by one producer with reference to his article that,
in that trade and to that branch of the purchasing public, the word or phrase has come to mean
that the article was his product." 12
The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in
its corporate name has been for such length of time and with such exclusivity as to have
become associated or identified with the petitioner institution in the mind of the general
public (or at least that portion of the general public which has to do with schools). The Court
of Appeals recognized this issue and answered it in the negative:
"Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive
appropriation with reference to an article in the market, because geographical or otherwise
descriptive might nevertheless have been used so long and so exclusively by one producer
with reference to this article that, in that trade and to that group of the purchasing public, the
word or phrase has come to mean that the article was his produce (Ana Ang vs. Toribio
Teodoro, 74 Phil. 56). This circumstance has been referred to as the distinctiveness into
which the name or phrase has evolved through the substantial and exclusive use of the same
for a considerable period of time. Consequently, the same doctrine or principle cannot be
made to apply where the evidence did not prove that the business (of the plaintiff) has
continued for so long a time that it has become of consequence and acquired a good will of
considerable value such that its articles and produce have acquired a well-known reputation,
and confusion will result by the use of the disputed name (by the defendant) (Ang Si Heng vs.
Wellington Department Store, Inc., 92 Phil. 448).
With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the
aforementioned requisites. No evidence was ever presented in the hearing before the
Commission which sufficiently proved that the word 'Lyceum' has indeed acquired secondary
meaning in favor of the appellant. If there was any of this kind, the same tend to prove only
that the appellant had been using the disputed word for a long period of time. Nevertheless,
its (appellant) exclusive use of the word (Lyceum) was never established or proven as in fact
the evidence tend to convey that the cross-claimant was already using the word 'Lyceum'
seventeen (17) years prior to the date the appellant started using the same word in its
corporate name. Furthermore, educational institutions of the Roman Catholic Church had
been using the same or similar word like 'Liceo de Manila,' 'Liceo de Baleno' (in Baleno,
Masbate), 'Liceo de Masbate,' 'Liceo de Albay' long before appellant started using the word
'Lyceum'. The appellant also failed to prove that the word 'Lyceum' has become so identified
with its educational institution that confusion will surely arise in the minds of the public if the
same word were to be used by other educational institutions.
In other words, while the appellant may have proved that it had been using the word 'Lyceum'
for a long period of time, this fact alone did not amount to mean that the said word had
acquired secondary meaning in its favor because the appellant failed to prove that it had been
using the same word all by itself to the exclusion of others. More so, there was no evidence
presented to prove that confusion will surely arise if the same word were to be used by other
educational institutions. Consequently, the allegations of the appellant in its first two assigned
errors must necessarily fail." 13 (Underscoring partly in the original and partly supplied)
We agree with the Court of Appeals. The number alone of the private respondents in the case
at bar suggests strongly that petitioner's use of the word "Lyceum" has not been attended with
the exclusivity essential for applicability of the doctrine of secondary meaning. It may be
noted also that at least one of the private respondents, i.e., the Western Pangasinan Lyceum,
Inc., used the term "Lyceum" seventeen (17) years before the petitioner registered its own
corporate name with the SEC and began using the word "Lyceum." It follows that if any
institution had acquired an exclusive right to the word "Lyceum," that institution would have
been the Western Pangasinan Lyceum, Inc. rather than the petitioner institution.
In this connection, petitioner argues that because the Western Pangasinan Lyceum, Inc. failed
to reconstruct its records before the SEC in accordance with the provisions of R.A. No. 62,
which records had been destroyed during World War II, Western Pangasinan Lyceum should
be deemed to have lost all rights it may have acquired by virtue of its past registration. It
might be noted that the Western Pangasinan Lyceum, Inc. registered with the SEC soon after
petitioner had filed its own registration on 21 September 1950. Whether or not Western
Pangasinan Lyceum, Inc. must be deemed to have lost its rights under its original 1933
registration, appears to us to be quite secondary in importance; we refer to this earlier
registration simply to underscore the fact that petitioner's use of the word "Lyceum" was
neither the first use of that term in the Philippines nor an exclusive use thereof. Petitioner's
use of the word "Lyceum" was not exclusive but was in truth shared with the Western
Pangasinan Lyceum and a little later with other private respondent institutions which
registered with the SEC using "Lyceum" as part of their corporation names. There may well
be other schools using Lyceum or Liceo in their names, but not registered with the SEC
because they have not adopted the corporate form of organization.
We conclude and so hold that petitioner institution is not entitled to a legally enforceable
exclusive right to use the word "Lyceum" in its corporate name and that other institutions
may use "Lyceum" as part of their corporate names. To determine whether a given corporate
name is "identical" or "confusingly or deceptively similar" with another entity's corporate
name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both names. One
must evaluate corporate names in their entirety and when the name of petitioner is juxtaposed
with the names of private respondents, they are not reasonably regarded as "identical" or
"confusingly or deceptively similar" with each other.
WHEREFORE, the petitioner having failed to show any reversible error on the part of the
public respondent Court of Appeals, the Petition for Review is DENIED for lack of merit, and
the Decision of the Court of Appeals dated 28 June 1991 is hereby AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
4. G.R. No. 63201 May 27, 1992
PHILIPPINE NATIONAL BANK, petitioner,  Entry No. 85213/T-No. 43338.
vs.
THE COURT OF FIRST INSTANCE OF RIZAL, PASIG — BRANCH XXI,
PRESIDED BY JUDGE GREGORIO G. PINEDA, CHUNG SIONG PEK @
BONIFACIO CHUNG SIONG PEK AND VICTORIA CHING GENG TY @
VICTORIA CHENG GENG TY, and THE REGISTER OF DEEDS OF RIZAL,
PASIG, METRO MANILA AND/OR HIS DEPUTIES AND AGENTS, respondents.
MEDIALDEA, J.:
This is a petition for certiorari under Rule 65 of the Rules of Court seeking to annul and set
aside the orders of respondent Court of First Instance of Rizal, Pasig, Branch 21 (now
Regional Trial Court) dated April 22, 1982, September 14, 1982 and January 12, 1983 in
LRC Case No. R-2744 on the ground that they had been issued without or in excess of
jurisdiction and with grave abuse of discretion.
The antecedent facts of this case are as follows:
Private respondents are the registered owners of three parcels of land in Pasig, Metro Manila
covered by OCT No. 853, TCT Nos. 32843 and 32897 of the Registry of Deeds of Rizal.
On March 1, 1954, private respondents entered into a contract of lease with Philippine
Blooming Mills, Co., Inc., (PBM for brevity) whereby the letter shall lease the
aforementioned parcels of land as factory site. PBM was duly organized and incorporated on
January 19, 1952 with a corporate term of twenty-five (25) years. This leasehold right of
PBM covering the parcels of land was duly annotated at the back of the above stated
certificates of title as Entry No. 9367/T-No. 32843.
The contract of lease provides that the term of the lease is for twenty years beginning from
the date of the contract and "is extendable for another term of twenty years at the option of
the LESSEE should its term of existence be extended in accordance with law." (p. 76, Rollo).
The contract also states that the lessee agrees to "use the property as factory site and for that
purpose to construct whatever buildings or improvements may be necessary or convenient
and/or . . . for any purpose it may deem fit; and before the termination of the lease to remove
all such buildings and improvements" (pp. 76-77 Rollo).
In accordance with the contract, PBM introduced on the land, buildings, machineries and
other useful improvements. These constructions and improvements were registered with the
Registry of Deeds of Rizal and annotated at the back of the respondents' certificates of title as
On October 11, 1963, PBM executed in favor of Philippine National Bank (PNB for brevity),
petitioner herein, a deed of assignment, conveying and transferring all its rights and interests
under the contract of lease which it executed with private respondents. The assignment was
for and in consideration of the loans granted by PNB to PBM. The deed of assignment was
registered and annotated at the back of the private respondents' certificates of title as Entry
No. 85215/T-No. 32843.
On November 6, 1963 and December 23, 1963 respectively, PBM executed in favor of PNB a
real estate mortgage for a loan of P100,000.00 and an addendum to real estate mortgage for
another loan of P1,590,000.00, covering all the improvements constructed by PBM on the
leased premises. These mortgages were registered and annotated at the back of respondents'
certificates as Entry No. 85214/T-No. 43338 and Entry No. 870971/T-No. 32843,
respectively.
PBM filed a petition for registration of improvements in the titles of real property owned by
private respondents docketed as Case No. 6530.
On October 7, 1981, private respondents filed a motion in the same proceedings which was
given a different case number to wit, LRC Case No. 
R-2744, because of the payment of filing fees for the motion. The motion sought to cancel the
annotations on respondents' certificates of title pertaining to the assignment by PBM to PNB
of the former's leasehold rights, inclusion of improvements and the real estate mortgages
made by PBM in favor of PNB, on the ground that the contract of lease entered into between
PBM and respondents-movants had already expired by the failure of PBM and/or its assignee
to exercise the option to renew the second 20-year lease commencing on March 1, 1974 and
also by the failure of PBM to extend its corporate existence in accordance with law. The
motion also states that since PBM failed to remove its improvements on the leased premises
before the expiration of the contract of lease, such improvements shall accrue to respondents
as owners of the land.
On April 22, 1982, respondent court issued an order directing the cancellation of the
inscriptions on respondents' certificates of title. The dispositive portion of the order provides:
WHEREFORE, the Register of Deeds having jurisdiction over the movant's
land Certificates of Title Nos. 853, 32843 and 32897 is hereby ordered, upon
the payment of the corresponding fees, to cancel therein
memoranda/inscriptions/entries Nos. 85213/T-No. 43338, 85215/T-No.
32843, 85214/T-No. 43338 and 87097/T-No. 32843.
SO ORDERED. (pp. 147-148, Rollo)
Petitioner PNB filed a motion for reconsideration of the above order of the respondent court
but the latter denied it on June 28, 1982.
On August 25, 1982, private respondents filed a motion for entry of final judgment and
issuance of a writ of execution of the order of April 22, 1982.
On September 14, 1982, respondent court granted the aforesaid motion for entry of final
judgment and ordered the Register of Deeds of Pasig, Rizal to cancel the entries on
respondents' certificates of title stated in the order of April 22, 1982.
Petitioner PNB filed an omnibus motion to set aside the entry of judgment as ordered by the
respondent court on the ground that it has no prior notice or knowledge of the order of
respondent court dated June 28, 1982 which denied its motion for reconsideration of the order
of April 22, 1982 and that while there was a certification from the Bureau of Posts that three
registry notices were sent to petitioner's counsel, there was no allegation or certification
whatsoever that said notices were actually received by the addressee.
On January 12, 1983, the respondent court denied the omnibus motion.
Hence, this petition.
Petitioner alleges that respondent court acted capriciously and arbitrarily in issuing the orders
of September 14, 1982 and January 12, 1983 which considered its previous order of April 22,
1982 as having become final on the ground that it had no notice or knowledge that the order
of June 28, 1982 denying its motion for reconsideration was issued; that the notices of
registered mail allegedly containing the order of June 28, 1982 were not received by
petitioner's counsel of record, and that the certification of the Bureau of Posts refers only to
the fact that registry notices were sent, and not to the fact that the notices were actually
received by the addressee.
In resolving this matter, the respondent court stated in the questioned order of January 12,
1983 as follows:
The respondent PNB filed a motion of May 20, 1982 to set aside the Order of
April 22, 1982. This was denied by the Order of June 28, 1982. Then the
movants filed a motion of August 25, 1982 for entry of judgment, based on
the postmaster's certification that not only one but three notices of the
registered mail containing a copy of the order of June 28, 1982 was sent to
respondent PNB's counsel at the PNB Building at Escolta, Manila which is
his address of record in this case. Consequently the entry of judgment Order
of September 14, 1982.
xxx xxx xxx
The respondent PNB's counsel at the hearing of said incidents on October 12,
1982 admitted that the aforesaid registered notices could have been received
by PNB's regular Receiving Section at the PNB Building at the Escolta but
could not have been forwarded by said Receiving Section to said counsel's
Litigation and Collection Division, Legal Department at an upper floor of the
same building. Thus the presumption that official duty was regularly
performed by the postmaster was not overcome, as most recently reiterated
by the Supreme Court in Feraren vs. Santos promulgated on April 27, 1982,
113, SCRA 707 . . . (p. 195, Rollo)
Section 8 of Rule 13 of the Rules of Court, as amended, provides that service by registered
mail is complete upon actual receipt by the addressee; but if he fails to claim his mail from
the post office within five (5) days from the date of first notice of the postmaster, service shall
take effect at the expiration of such time. The fair and just application of that exception
depends upon the conclusive proof that the first notice was sent by the postmaster to the
addressee. The best evidence of that fact would be the certification from the postmaster
(Barrameda v. Castillo, L-27211, July 6, 1977, 78 SCRA 1).
In the instant case, the respondent court found that the postmaster's certification stated that
three (3) notices of the registered mail which contained the order of June 28, 1982 denying
the motion for reconsideration of the order of April 22, 1982, were sent to petitioner PNB's
counsel at Escolta, Manila which is the address stated in the record of the case. The factual
findings of the trial court bear great weight and is binding upon this Court. Hence, as between
the denial of the petitioners' counsel that he received the notice of the registered mail and the
postmaster's certification that said notices were sent to him, the postmaster's claim should
prevail. The postmaster has the official duty to send notices of registered mail and the
presumption is that official duty was regularly performed (Aportadera, Sr. v. Court of
Appeals, G.R. No. 41358, March 16, 1988, 158 SCRA 695).
Petitioner alleges that it is not the respondent court but the Securities and Exchange
Commission which has jurisdiction over the private respondents' motions, which raised as
issue the corporate existence of PBM. Petitioner further submits that the respondent court
committed grave abuse of discretion in ordering the cancellation of entries in the certificates
of title of respondents on the following grounds: 1) the motion for cancellation would amount
to a collateral attack upon the due incorporation of PBM which cannot be done legally, 2) the
contract of lease between PBM as petitioner's assignor and private respondents did not expire
since PBM exercised its option to renew the lease with the acquiescence of private
respondents, and 3) respondent court's ruling that ownership over the improvements passed
from PBM to private respondents upon the expiration of lease violates the law and the
contract between the parties.
Even if We were to set aside the questioned orders directing the entry of finality of the order
cancelling entries in the titles, petitioner's case must still fail on the merits.
Private respondent's motion with the respondent court was for the cancellation of the entries
on their titles on the ground that the contract of lease executed between them and PBM had
expired. This action is civil in nature and is within the jurisdiction of the respondent court.
The circumstance that PBM as one of the contracting parties is a corporation whose corporate
term had expired and which fact was made the basis for the termination of the lease is not
sufficient to confer jurisdiction on the Securities and Exchange Commission over the case.
Presidential Decree No. 902-A, as amended, enumerates the cases over which the SEC has
exclusive jurisdiction and authority to resolve. The case at bar is not covered by the
enumeration.
Anent the issue of whether the cancellation of the entries on respondent's certificates of title is
valid and proper, We find that the respondent court did not act in excess of its jurisdiction, in
ordering the same.
The contract of lease expressly provides that the term of the lease shall be twenty years from
the execution of the contract but can be extended for another period of twenty years at the
option of the lessee should the corporate term be extended in accordance with law. Clearly,
the option of the lessee to extend the lease for another period of twenty years can be exercised
only if the lessee as corporation renews or extends its corporate term of existence in
accordance with the Corporation Code which is the applicable law. Contracts are to be
interpreted according to their literal meaning and should not be interpreted beyond their
obvious intendment. Thus, in the instant case, the initial term of the contract of lease which
commenced on March 1, 1954 ended on March 1, 1974. PBM as lessee continued to occupy
the leased premises beyond that date with the acquiescence and consent of the respondents as
lessor. Records show however, that PBM as a corporation had a corporate life of only twenty-
five (25) years which ended an January 19, 1977. It should be noted however that PBM
allowed its corporate term to expire without complying with the requirements provided by
law for the extension of its corporate term of existence.
Section 11 of Corporation Code provides that a corporation shall exist for a period not
exceeding fifty (50) years from the date of incorporation unless sooner dissolved or unless
said period is extended. Upon the expiration of the period fixed in the articles of
incorporation in the absence of compliance with the legal requisites for the extension of the
period, the corporation ceases to exist and is dissolved ipso facto (16 Fletcher 671 cited by
Aguedo F. Agbayani, Commercial Laws of the Philippines, Vol. 3, 1988 Edition p. 617).
When the period of corporate life expires, the corporation ceases to be a body corporate for
the purpose of continuing the business for which it was organized. But it 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 enabling it
gradually to settle and close its affairs, to dispose of and convey its property and to divide its
assets (Sec. 122, Corporation Code). There is no need for the institution of a proceeding
for quo warranto to determine the time or date of the dissolution of a corporation because the
period of corporate existence is provided in the articles of incorporation. When such period
expires and without any extension having been made pursuant to law, the corporation is
dissolved automatically insofar as the continuation of its business is concerned. The quo
warranto proceeding under Rule 66 of the Rules of Court, as amended, may be instituted by
the Solicitor General only for the involuntary dissolution of a corporation on the following
grounds: a) when the corporation has offended against a provision of an Act for its creation or
renewal; b) when it has forfeited its privileges and franchises by non-user; c) when it has
committed or omitted an act which amounts to a surrender of its corporate rights, privileges
or franchises; d) when it has mis-used a right, privilege or franchise conferred upon it by law,
or when it has exercised a right, privilege or franchise in contravention of law. Hence, there is
no need for the SEC to make an involuntary dissolution of a corporation whose corporate
term had ended because its articles of incorporation had in effect expired by its own
limitation.
Considering the foregoing in relation to the contract of lease between the parties herein, when
PBM's corporate life ended on January 19, 1977 and its 3-year period for winding up and
liquidation expired on January 19, 1980, the option of extending the lease was likewise
terminated on January 19, 1977 because PBM failed to renew or extend its corporate life in
accordance with law. From then on, the respondents can exercise their right to terminate the
lease pursuant to the stipulations in the contract.
We now come to the question of the ownership over the improvements constructed by PBM
over the leased premises, which improvements were mortgaged in favor of PNB, petitioner
herein.
The rights of the lessor and the lessee over the improvements which the latter constructed on
the leased premises is governed by Article 1678 of the Civil Code which provides:
Art. 1678. If the lessee makes, in good faith, useful improvements which are
suitable to the use for which the lease is intended, without altering the form
or substance of the property leased, the lessor upon the termination of the
lease shall pay the lessee one-half of the value of the improvements at that
time. Should the lessor refuse to reimburse said amount, the lessee may
remove the improvements, even though the principal thing may suffer
damage thereby. He shall not however, cause any more impairment upon the
property leased than is necessary. . . .
The aforequoted provision gives the lessee the right to remove the improvements if the lessor
chooses not to pay one-half of the value thereof. However, in the case at bar, the law will not
apply because the parties herein have stipulated in the contract their own terms and conditions
concerning the improvements, to wit, that the lessee, namely PBM, bound itself to remove the
improvements before the termination of the lease. Petitioner PNB, as assignee of PBM
succeeded to the obligation of the latter under the contract of lease. It could not possess rights
more than what PBM had as lessee under the contract. Hence, petitioner was duty bound to
remove the improvements before the expiration of the period of lease as what we have
already discussed in the preceding paragraphs. Its failure to do so when the lease was
terminated was tantamount to a waiver of its rights and interests over the improvements on
the leased premises.
In view of the foregoing, this Court finds that respondent court did not act with grave abuse
of discretion in directing the cancellation of entries on private respondents' certificates of title
as set forth in the questioned order.
ACCORDINGLY, the petition is DISMISSED and the assailed orders of respondent court
dated April 22, 1982, September 14, 1982 and January 12, 1983 are AFFIRMED.
SO ORDERED.
5.[G.R. No. 117188. August 7, 1997]
LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION,
INC., petitioner, vs. HON. COURT OF APPEALS, HOME INSURANCE AND
GUARANTY CORPORATION, EMDEN ENCARNACION and HORATIO
AYCARDO, respondents.
DECISION
ROMERO, J.:
May the failure of a corporation to file its by-laws within one month from the date of its
incorporation, as mandated by Section 46 of the Corporation Code, result in its automatic
dissolution?
This is the issue raised in this petition for review on certiorari of the Decision[1] of the
Court of Appeals affirming the decision of the Home Insurance and Guaranty Corporation
(HIGC).This quasi-judicial body recognized Loyola Grand Villas Homeowners Association
(LGVHA) as the sole homeowners association in Loyola Grand Villas, a duly registered
subdivision in Quezon City and Marikina City that was owned and developed by Solid
Homes, Inc. It revoked the certificates of registration issued to Loyola Grand Villas
Homeowners (North) Association Incorporated (the North Association for brevity) and
Loyola Grand Villas Homeowners (South) Association Incorporated (the South Association).
LGVHAI was organized on February 8, 1983 as the association of homeowners and
residents of the Loyola Grand Villas. It was registered with the Home Financing Corporation,
the predecessor of herein respondent HIGC, as the sole homeowners organization in the said
subdivision under Certificate of Registration No. 04-197. It was organized by the developer
of the subdivision and its first president was Victorio V. Soliven, himself the owner of the
developer. For unknown reasons, however, LGVHAI did not file its corporate by-laws.
Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They failed
to do so.[2] To the officers consternation, they discovered that there were two other
organizations within the subdivision the North Association and the South Association.
According to private respondents, a non-resident and Soliven himself, respectively headed
these associations. They also discovered that these associations had five (5) registered
homeowners each who were also the incorporators, directors and officers thereof. None of the
members of the LGVHAI was listed as member of the North Association while three (3)
members of LGVHAI were listed as members of the South Association. [3] The North
Association was registered with the HIGC on February 13, 1989 under Certificate of
Registration No. 04-1160 covering Phases West II, East III, West III and East IV. It submitted
its by-laws on December 20, 1988.
In July, 1989, when Soliven inquired about the status of LGVHAI, Atty. Joaquin A.
Bautista, the head of the legal department of the HIGC, informed him that LGVHAI had been
automatically dissolved for two reasons. First, it did not submit its by-laws within the period
required by the Corporation Code and, second, there was non-user of corporate charter
because HIGC had not received any report on the associations activities. Apparently, this
information resulted in the registration of the South Association with the HIGC on July 27,
1989 covering Phases West I, East I and East 11. It filed its by-laws on July 26, 1989.
These developments prompted the officers of the LGVHAI to lodge a complaint with the
HIGC. They questioned the revocation of LGVHAIs certificate of registration without due
notice and hearing and concomitantly prayed for the cancellation of the certificates of
registration of the North and South Associations by reason of the earlier issuance of a
certificate of registration in favor of LGVHAI.
On January 26, 1993, after due notice and hearing, private respondents obtained a
favorable ruling from HIGC Hearing Officer Danilo C. Javier who disposed of HIGC Case
No. RRM-5-89 as follows:
WHEREFORE, judgment is hereby rendered recognizing the Loyola Grand Villas
Homeowners Association, Inc., under Certificate of Registration No. 04-197 as the duly
registered and existing homeowners association for Loyola Grand Villas homeowners, and
declaring the Certificates of Registration of Loyola Grand Villas Homeowners (North)
Association, Inc. and Loyola Grand Villas Homeowners (South) Association, Inc. as hereby
revoked or cancelled; that the receivership be terminated and the Receiver is hereby ordered
to render an accounting and turn-over to Loyola Grand Villas Homeowners Association, Inc.,
all assets and records of the Association now under his custody and possession.
The South Association appealed to the Appeals Board of the HIGC. In its Resolution of
September 8, 1993, the Board[4] dismissed the appeal for lack of merit.
Rebuffed, the South Association in turn appealed to the Court of Appeals, raising two
issues. First, whether or not LGVHAIs failure to file its by-laws within the period prescribed
by Section 46 of the Corporation Code resulted in the automatic dissolution of
LGVHAI. Second, whether or not two homeowners associations may be authorized by the
HIGC in one sprawling subdivision. However, in the Decision of August 23, 1994 being
assailed here, the Court of Appeals affirmed the Resolution of the HIGC Appeals Board.
In resolving the first issue, the Court of Appeals held that under the Corporation Code, a
private corporation commences to have corporate existence and juridical personality from the
date the Securities and Exchange Commission (SEC) issues a certificate of incorporation
under its official seal. The requirement for the filing of by-laws under Section 46 of the
Corporation Code within one month from official notice of the issuance of the certificate of
incorporation presupposes that it is already incorporated, although it may file its by-laws with
its articles of incorporation. Elucidating on the effect of a delayed filing of by-laws, the Court
of Appeals said:
We also find nothing in the provisions cited by the petitioner, i.e., Sections 46 and 22,
Corporation Code, or in any other provision of the Code and other laws which provide or at
least imply that failure to file the by-laws results in an automatic dissolution of the
corporation. While Section 46, in prescribing that by-laws must be adopted within the period
prescribed therein, may be interpreted as a mandatory provision, particularly because of the
use of the word must, its meaning cannot be stretched to support the argument that automatic
dissolution results from non-compliance.
We realize that Section 46 or other provisions of the Corporation Code are silent on the result
of the failure to adopt and file the by-laws within the required period. Thus, Section 46 and
other related provisions of the Corporation Code are to be construed with Section 6 (1) of
P.D. 902-A. This section empowers the SEC to suspend or revoke certificates of registration
on the grounds listed therein. Among the grounds stated is the failure to file by-laws (see also
II Campos: The Corporation Code, 1990 ed., pp. 124-125). Such suspension or revocation,
the same section provides, should be made upon proper notice and hearing. Although P.D.
902-A refers to the SEC, the same principles and procedures apply to the public respondent
HIGC as it exercises its power to revoke or suspend the certificates of registration or
homeowners associations. (Section 2 [a], E.O. 535, series 1979, transferred the powers and
authorities of the SEC over homeowners associations to the HIGC.)
We also do not agree with the petitioners interpretation that Section 46, Corporation Code
prevails over Section 6, P.D. 902-A and that the latter is invalid because it contravenes the
former. There is no basis for such interpretation considering that these two provisions are not
inconsistent with each other. They are, in fact, complementary to each other so that one
cannot be considered as invalidating the other.
The Court of Appeals added that, as there was no showing that the registration of
LGVHAI had been validly revoked, it continued to be the duly registered homeowners
association in the Loyola Grand Villas. More importantly, the South Association did not
dispute the fact that LGVHAI had been organized and that, thereafter, it transacted business
within the period prescribed by law.
On the second issue, the Court of Appeals reiterated its previous ruling [5] that the HIGC
has the authority to order the holding of a referendum to determine which of two contending
associations should represent the entire community, village or subdivision.
Undaunted, the South Association filed the instant petition for review on certiorari. It
elevates as sole issue for resolution the first issue it had raised before the Court of Appeals,
i.e., whether or not the LGVHAIs failure to file its by-laws within the period prescribed by
Section 46 of the Corporation Code had the effect of automatically dissolving the said
corporation.
Petitioner contends that, since Section 46 uses the word must with respect to the filing of
by-laws, noncompliance therewith would result in self-extinction either due to non-
occurrence of a suspensive condition or the occurrence of a resolutory condition under the
hypothesis that (by) the issuance of the certificate of registration alone the corporate
personality is deemed already formed. It asserts that the Corporation Code provides for a
gradation of violations of requirements. Hence, Section 22 mandates that the corporation
must be formally organized and should commence transactions within two years from date of
incorporation. Otherwise, the corporation would be deemed dissolved. On the other hand, if
the corporation commences operations but becomes continuously inoperative for five years,
then it may be suspended or its corporate franchise revoked.
 Petitioner concedes that Section 46 and the other provisions of the Corporation Code do
not provide for sanctions for non-filing of the by-laws. However, it insists that no sanction
need be provided because the mandatory nature of the provision is so clear that there can be
no doubt about its being an essential attribute of corporate birth. To petitioner, its submission
is buttressed by the facts that the period for compliance is spelled out distinctly; that the
certification of the SEC/HIGC must show that the by-laws are not inconsistent with the Code,
and that a copy of the by-laws has to be attached to the articles of incorporation. Moreover,
no sanction is provided for because in the first place, no corporate identity has been
completed. Petitioner asserts that non-provision for remedy or sanction is itself the tacit
proclamation that non-compliance is fatal and no corporate existence had yet evolved, and
therefore, there was no need to proclaim its demise.[6] In a bid to convince the Court of its
arguments, petitioner stresses that:
x x x the word MUST is used in Sec. 46 in its universal literal meaning and corollary human
implication its compulsion is integrated in its very essence MUST is always enforceable by
the inevitable consequence that is, OR ELSE. The use of the word MUST in Sec. 46 is no
exception it means file the by-laws within one month after notice of issuance of certificate of
registration OR ELSE. The OR ELSE, though not specified, is inextricably a part of
MUST. Do this or if you do not you are Kaput. The importance of the by-laws to corporate
existence compels such meaning for as decreed the by-laws is `the government of the
corporation. Indeed, how can the corporation do any lawful act as such without by-laws.
Surely, no law is intended to create chaos.[7]
Petitioner asserts that P.D. No. 902-A cannot exceed the scope and power of
the Corporation Code which itself does not provide sanctions for non-filing of by-laws. For
the petitioner, it is not proper to assess the true meaning of Sec. 46 x x x on an unauthorized
provision on such matter contained in the said decree.
In their comment on the petition, private respondents counter that the requirement of
adoption of by-laws is not mandatory. They point to P.D. No. 902-A as having resolved the
issue of whether said requirement is mandatory or merely directory. Citing Chung Ka Bio v.
Intermediate Appellate Court,[8] private respondents contend that Section 6(I) of that decree
provides that non-filing of by-laws is only a ground for suspension or revocation of the
certificate of registration of corporations and, therefore, it may not result in automatic
dissolution of the corporation.Moreover, the adoption and filing of by-laws is a condition
subsequent which does not affect the corporate personality of a corporation like the
LGVHAI. This is so because Section 9 of the Corporation Code provides that the corporate
existence and juridical personality of a corporation begins from the date the SEC issues a
certificate of incorporation under its official seal. Consequently, even if the by-laws have not
yet been filed, a corporation may be considered a de facto corporation. To emphasize the fact
the LGVHAI was registered as the sole homeowners association in the Loyola Grand Villas,
private respondents point out that membership in the LGVHAI was an unconditional
restriction in the deeds of sale signed by lot buyers.
In its reply to private respondents comment on the petition, petitioner reiterates its
argument that the word must in Section 46 of the Corporation Code is mandatory. It adds that,
before the ruling in Chung Ka Bio v. Intermediate Appellate Court could be applied to this
case, this Court must first resolve the issue of whether or not the provisions of P.D. No. 902-
A prescribing the rules and regulations to implement the Corporation Code can rise above and
change the substantive provisions of the Code.
The pertinent provision of the Corporation Code that is the focal point of controversy in
this case states:
Sec. 46. Adoption of by-laws. Every corporation formed under this Code, must within one (1)
month after receipt of official notice of the issuance of its certificate of incorporation by the
Securities and Exchange Commission, adopt a code of by-laws for its government not
inconsistent with this Code. For the adoption of by-laws by the corporation, the affirmative
vote of the stockholders representing at least a majority of the outstanding capital stock, or of
at least a majority of the members, in the case of non-stock corporations, shall be
necessary. The by-laws shall be signed by the stockholders or members voting for them and
shall be kept in the principal office of the corporation, subject to the stockholders or members
voting for them and shall be kept in the principal office of the corporation, subject to
inspection of the stockholders or members during office hours; and a copy thereof, shall be
filed with the Securities and Exchange Commission which shall be attached to the original
articles of incorporation.
Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed
prior to incorporation; in such case, such by-laws shall be approved and signed by all the
incorporators and submitted to the Securities and Exchange Commission, together with the
articles of incorporation.
In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange
Commission of a certification that the by-laws are not inconsistent with this Code.
The Securities and Exchange Commission shall not accept for filing the by-laws or any
amendment thereto of any bank, banking institution, building and loan association, trust
company, insurance company, public utility, educational institution or other special
corporations governed by special laws, unless accompanied by a certificate of the appropriate
government agency to the effect that such by-laws or amendments are in accordance with
law.
As correctly postulated by the petitioner, interpretation of this provision of law begins
with the determination of the meaning and import of the word must in this section. Ordinarily,
the word must connotes an imperative act or operates to impose a duty which may be
enforced.[9] It is synonymous with ought which connotes compulsion or mandatoriness.
[10]
 However, the word must in a statute, like shall, is not always imperative. It may be
consistent with an exercise of discretion. In this jurisdiction, the tendency has been to
interpret shall as the context or a reasonable construction of the statute in which it is used
demands or requires.[11] This is equally true as regards the word must. Thus, if the language of
a statute considered as a whole and with due regard to its nature and object reveals that the
legislature intended to use the words shall and must to be directory, they should be given that
meaning.[12]
In this respect, the following portions of the deliberations of the Batasang Pambansa No.
68 are illuminating:
MR. FUENTEBELLA. Thank you, Mr. Speaker.
On page 34, referring to the adoption of by-laws, are we made to
understand here, Mr. Speaker, that by-laws must immediately be filed within
one month after the issuance? In other words, would this be mandatory or
directory in character?
MR. MENDOZA. This is mandatory.
MR. FUENTEBELLA. It being mandatory, Mr. Speaker, what would be
the effect of the failure of the corporation to file these by-laws within one
month?
MR. MENDOZA. There is a provision in the latter part of the Code which
identifies and describes the consequences of violations of any provision of this
Code. One such consequence is the dissolution of the corporation for its
inability, or perhaps, incurring certain penalties.
MR. FUENTEBELLA. But it will not automatically amount to a
dissolution of the corporation by merely failing to file the by-laws within one
month. Supposing the corporation was late, say, five days, what would be the
mandatory penalty?
MR. MENDOZA. I do not think it will necessarily result in the automatic
or ipso facto dissolution of the corporation. Perhaps, as in the case, as you
suggested, in the case of El Hogar Filipino where a quo warranto action is
brought, one takes into account the gravity of the violation committed. If the
by-laws were late the filing of the by-laws were late by, perhaps, a day or two,
I would suppose that might be a tolerable delay, but if they are delayed over a
period of months as is happening now because of the absence of a clear
requirement that by-laws must be completed within a specified period of time,
the corporation must suffer certain consequences.[13]
This exchange of views demonstrates clearly that automatic corporate dissolution for
failure to file the by-laws on time was never the intention of the legislature. Moreover, even
without resorting to the records of deliberations of the Batasang Pambansa, the law itself
provides the answer to the issue propounded by petitioner.
Taken as a whole and under the principle that the best interpreter of a statute is the
statute itself (optima statuli interpretatix est ipsum statutum),[14] Section 46 aforequoted
reveals the legislative intent to attach a directory, and not mandatory, meaning for the word
must in the first sentence thereof. Note should be taken of the second paragraph of the law
which allows the filing of the by-laws even prior to incorporation. This provision in the same
section of the Code rules out mandatory compliance with the requirement of filing the by-
laws within one (1) month after receipt of official notice of the issuance of its certificate of
incorporation by the Securities and Exchange Commission. It necessarily follows that failure
to file the by-laws within that period does not imply the demise of the corporation. By-laws
may be necessary for the government of the corporation but these are subordinate to the
articles of incorporation as well as to the Corporation Code and related statutes.[15] There are
in fact cases where by-laws are unnecessary to corporate existence or to the valid exercise of
corporate powers, thus:
In the absence of charter or statutory provisions to the contrary, by-laws are not necessary
either to the existence of a corporation or to the valid exercise of the powers conferred upon
it, certainly in all cases where the charter sufficiently provides for the government of the
body; and even where the governing statute in express terms confers upon the corporation the
power to adopt by-laws, the failure to exercise the power will be ascribed to mere nonaction
which will not render void any acts of the corporation which would otherwise be valid.
[16]
 (Italics supplied.)
As Fletcher aptly puts it:
It has been said that the by-laws of a corporation are the rule of its life, and that until by-laws
have been adopted the corporation may not be able to act for the purposes of its creation, and
that the first and most important duty of the members is to adopt them. This would seem to
follow as a matter of principle from the office and functions of by-laws. Viewed in this light,
the adoption of by-laws is a matter of practical, if not one of legal, necessity. Moreover, the
peculiar circumstances attending the formation of a corporation may impose the obligation to
adopt certain by-laws, as in the case of a close corporation organized for specific
purposes. And the statute or general laws from which the corporation derives its corporate
existence may expressly require it to make and adopt by-laws and specify to some extent
what they shall contain and the manner of their adoption. The mere fact, however, of the
existence of power in the corporation to adopt by-laws does not ordinarily and of necessity
make the exercise of such power essential to its corporate life, or to the validity of any of its
acts.[17]
Although the Corporation Code requires the filing of by-laws, it does not expressly
provide for the consequences of the non-filing of the same within the period provided for in
Section 46. However, such omission has been rectified by Presidential Decree No. 902-A, the
pertinent provisions on the jurisdiction of the SEC of which state:
SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the
following powers:
xxx xxx xxx xxx
(l) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of
registration of corporations, partnerships or associations, upon any of the grounds provided
by law, including the following:
xxx xxx xxx xxx
5. Failure to file by-laws within the required period;
xxx xxx xxx xxx
In the exercise of the foregoing authority and jurisdiction of the Commissions or by a
Commissioner or by such other bodies, boards, committees and/or any officer as may be
created or designated by the Commission for the purpose. The decision, ruling or order of any
such Commissioner, bodies, boards, committees and/or officer may be appealed to the
Commission sitting en banc within thirty (30) days after receipt by the appellant of notice of
such decision, ruling or order. The Commission shall promulgate rules of procedures to
govern the proceedings, hearings and appeals of cases falling within its jurisdiction.
The aggrieved party may appeal the order, decision or ruling of the Commission sitting en
banc to the Supreme Court by petition for review in accordance with the pertinent provisions
of the Rules of Court.
Even under the foregoing express grant of power and authority, there can be
no automatic corporate dissolution simply because the incorporators failed to abide by the
required filing of by-laws embodied in Section 46 of the Corporation Code. There is no
outright demise of corporate existence. Proper notice and hearing are cardinal components of
due process in any democratic institution, agency or society. In other words, the incorporators
must be given the chance to explain their neglect or omission and remedy the same.
That the failure to file by-laws is not provided for by the Corporation Code but in
another law is of no moment. P.D. No. 902-A, which took effect immediately after its
promulgation on March 11, 1976, is very much apposite to the Code. Accordingly, the
provisions abovequoted supply the law governing the situation in the case at bar, inasmuch as
the Corporation Code and P.D. No. 902-A are statutes in pari materia. Interpretare et
concordare legibus est optimus interpretandi. Every statute must be so construed and
harmonized with other statutes as to form a uniform system of jurisprudence.[18]
As the rules and regulations or private laws enacted by the corporation to regulate,
govern and control its own actions, affairs and concerns and its stockholders or members and
directors and officers with relation thereto and among themselves in their relation to it, [19] by-
laws are indispensable to corporations in this jurisdiction. These may not be essential to
corporate birth but certainly, these are required by law for an orderly governance and
management of corporations. Nonetheless, failure to file them within the period required by
law by no means tolls the automatic dissolution of a corporation.
In this regard, private respondents are correct in relying on the pronouncements of this
Court in Chung Ka Bio v. Intermediate Appellate Court,[20] as follows:
x x x. Moreover, failure to file the by-laws does not automatically operate to dissolve a
corporation but is now considered only a ground for such dissolution.
Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation Code,
provided that the powers of the corporation would cease if it did not formally organize and
commence the transaction of its business or the continuation of its works within two years
from date of its incorporation. Section 20, which has been reproduced with some
modifications in Section 46 of the Corporation Code, expressly declared that every
corporation formed under this Act, must within one month after the filing of the articles of
incorporation with the Securities and Exchange Commission, adopt a code of by-
laws. Whether this provision should be given mandatory or only directory effect remained a
controversial question until it became academic with the adoption of PD 902-A. Under this
decree, it is now clear that the failure to file by-laws within the required period is only a
ground for suspension or revocation of the certificate of registration of corporations.
Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under
Section 6(I) of PD 902-A, the SEC is empowered to suspend or revoke, after proper notice
and hearing, the franchise or certificate of registration of a corporation on the ground inter
alia of failure to file by-laws within the required period. It is clear from this provision that
there must first of all be a hearing to determine the existence of the ground, and secondly,
assuming such finding, the penalty is not necessarily revocation but may be only suspension
of the charter. In fact, under the rules and regulations of the SEC, failure to file the by-laws
on time may be penalized merely with the imposition of an administrative fine without
affecting the corporate existence of the erring firm.
It should be stressed in this connection that substantial compliance with conditions
subsequent will suffice to perfect corporate personality. Organization and commencement of
transaction of corporate business are but conditions subsequent and not prerequisites for
acquisition of corporate personality. The adoption and filing of by-laws is also a condition
subsequent. Under Section 19 of the Corporation Code, a corporation commences its
corporate existence and juridical personality and is deemed incorporated from the date the
Securities and Exchange Commission issues certificate of incorporation under its official
seal. This may be done even before the filing of the by-laws, which under Section 46 of the
Corporation Code, must be adopted within one month after receipt of official notice of the
issuance of its certificate of incorporation.[21]
That the corporation involved herein is under the supervision of the HIGC does not alter
the result of this case. The HIGC has taken over the specialized functions of the former Home
Financing Corporation by virtue of Executive Order No. 90 dated December 17, 1986.
[22]
 With respect to homeowners associations, the HIGC shall exercise all the powers,
authorities and responsibilities that are vested on the Securities and Exchange Commission x
x x, the provision of Act 1459, as amended by P.D. 902-A, to the contrary notwithstanding.[23]
WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the
questioned Decision of the Court of Appeals AFFIRMED. This Decision is immediately
executory.Costs against petitioner.
SO ORDERED.
6.
6. [G.R. No. 127937. July 28, 1999] NATIONAL TELECOMMUNICATIONS
COMMISSION, petitioner, vs. HONORABLE COURT OF APPEALS and
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, respondents.
At bar is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of
Court seeking to modify the October 30, 1996 Decision[1] and the January 27,
1997 Resolution[2] of the Court of Appeals[3] in CA-G.R. SP No. 34063.
The antecedent facts that matter can be culled as follows:
Sometime in 1988, the National Telecommunications Commission (NTC) served on the
Philippine Long Distance Telephone Company (PLDT) the following assessment notices and
demands for payment:
1. the amount of P7,495,161.00 as supervision and regulation fee under Section 40 (e) of the
PSA for the said year, 1988, computed at P0.50 per P100.00 of the Protestants (PLDT)
outstanding capital stock as at December 31, 1987 which then consisted of Serial Preferred
Stock amounting to P1,277,934,390.00 (Billion) and Common Stock of P221,097,785
(Million) or a total of P1,499,032,175.00 (Billion).
2. the amount of P9.0 Million as permit fee under Section 40 (f) of the PSA for the approval
of the protestants increase of its authorized capital stock from P2.7 Billion to P4.5 Billion;
and
3. the amounts of P12,261,600.00 and P33,472,030.00 as permit fees under Section 40 (g) of
the PSA in connection with the Commissions decisions in NTC Cases Nos. 86-13 and 87-008
respectively, approving the Protestants equity participation in the Fiber Optic Interpacific
Cable systems and X-5 Service Improvement and Expansion Program.[4]
In its two letter-protests[5] dated February 23, 1988 and July 14, 1988, and position
papers[6] dated November 8, 1990 and March 12, 1991, respectively, the PLDT challenged the
aforesaid assessments, theorizing inter alia that:
(a) The assessments were being made to raise revenues and not as mere reimbursements for
ctual regulatory expenses in violation of the doctrine in PLDT vs. PSC, 66 SCRA 341 [1975];
(b) The assessment under Section 40 (e) should only have been on the basis of the par
values of private respondents outstanding capital stock;
(c) Petitioner has no authority to compel private respondents payment of the assessed fees
under Section 40 (f) for the increase of its authorized capital stock since petitioner did not
render any supervisory or regulatory activity and incurred no expenses in relation thereto.
x x x[7]
On September 29, 1993, the NTC rendered a Decision [8] in NTC Case No. 90-223,
denying the protest of PLDT and disposing thus:
FOR ALL THE FOREGOING, finding PLDTs protest to be without merit, the Commission
has no alternative but to uphold the law and DENIES the protest of PLDT. Unless otherwise
restrained by a competent court of law, the Common Carrier Authorization Department
(CCAD) is hereby directed to update its assessments and collections on PLDT and all public
telecommunications carriers for the payment of the fees in accordance with the provisions of
Section 40 (e) (f) and (g) of the Revised NTC Schedule of Fees and Charges.
This decision takes effect immediately.
SO ORDERED.
On October 22, 1993, PLDT interposed a Motion for Reconsideration,[9] which was
denied by NTC in an Order[10] issued on May 3, 1994.
 On May 12, 1994, PLDT appealed the aforesaid Decision to the Court of Appeals, which
came out with its questioned Decision of October 30, 1996, modifying the disposition of NTC
as follows:
"WHEREFORE, the assailed decision and order of the respondent Commission dated
September 29, 1993 and May 03, 1994, respectively, in NTC Case No. 90-223 are hereby
MODIFIED. The Commission is ordered to recompute its assessments and demands for
payment from petitioner PLDT as follows:
A. For annual supervision and regulation fees (SRF) under Section 40 (e) of the Public
Service Act, as amended, they should be computed at fifty centavos for each one hundred
pesos or fraction thereof of the par value of the capital stock subscribed or paid excluding
stock dividends, premiums or capital in excess of par.
B. For permit fees for the approval of petitioners increase of authorized capital stock under
Section 40 (f) of the same Act, they should be computed at fifty for each one hundred pesos or
fraction thereof, regardless of any regulatory service or expense incurred by respondent.
On November 20, 1996, NTC moved for partial reconsideration of the abovementioned
Decision, with respect to the basis of the assessment under Section 40(e), i.e., par value of the
subscribed capital stock. It also sought a partial reconsideration of the fee of fifty (P0.50)
centavos for the issuance or increasing of the capital stock under Section 40 (f).[11]
With the denial of its motions for reconsideration by the Resolution of the Court of
Appeals dated January 27, 1997, petitioner found its way to this Court via the present
Petition; posing as sole issue:
WHETHER THE COURT OF APPEALS ERRED IN HOLDING THAT THE
COMPUTATION OF SUPERVISION AND REGULATION FEES UNDER SECTION
40 (F) OF THE PUBLIC SERVICE ACT SHOULD BE BASED ON THE PAR
VALUE OF THE SUBSCRIBED CAPITAL STOCK.
Simply put, the submission of NTC is that the fee under Section 40 (e) should be based
on the market value of PLDTs outstanding capital stock inclusive of stock dividends and
premium, and not on the par value of PLDTs capital stock excluding stock dividends and
premium, as contended by PLDT.
Succinct and clear is the ruling of this Court in the case of Philippine Long Distance
Telephone Company vs. Public Service Commission, 66 SCRA 341, that the basis for
computation of the fee to be charged by NTC on PLDT, is the capital stock subscribed or
paid and not, alternatively, the property and equipment.
The law in point is clear and categorical. There is no room for construction. It simply
calls for application. To repeat, the fee in question is based on the capital stock subscribed or
paid, nothing less nothing more.
It bears stressing that it is not the NTC that imposed such a fee. It is the legislature
itself. Since Congress has the power to exercise the State inherent powers of Police Power,
Eminent Domain and Taxation, the distinction between police power and the power to tax,
which could be significant if the exercising authority were mere political subdivisions (since
delegation by it to such political subdivisions of one power does not necessarily include the
other), would not be of any moment when, as in the case under consideration, Congress itself
exercises the power. All that is to be done would be to apply and enforce the law when
sufficiently definitive and not constitutional infirm.
The term capital and other terms used to describe the capital structure of a corporation
are of universal acceptance, and their usages have long been established in
jurisprudence. Briefly, capital refers to the value of the property or assets of a
corporation. The capital subscribed is the total amount of the capital that persons (subscribers
or shareholders) have agreed to take and pay for, which need not necessarily be, and can be
more than, the par value of the shares. In fine, it is the amount that the corporation receives,
inclusive of the premiums if any, in consideration of the original issuance of the shares.In the
case of stock dividends, it is the amount that the corporation transfers from its surplus profit
account to its capital account. It is the same amount that can loosely be termed as the trust
fund of the corporation. The Trust Fund doctrine considers this subscribed capital as a trust
fund for the payment of the debts of the corporation, to which the creditors may look for
satisfaction. Until the liquidation of the corporation, no part of the subscribed capital may be
returned or released to the stockholder (except in the redemption of redeemable shares)
without violating this principle. Thus, dividends must never impair the subscribed capital;
subscription commitments cannot be condoned or remitted; nor can the corporation buy its
own shares using the subscribed capital as the consideration therefor.[12]
In the same way that the Court in PLDT vs. PSC has rejected the value of the property
and equipment as being the proper basis for the fee imposed by Section 40(e) of the Public
Service Act, as amended by Republic Act No. 3792, so also must the Court disallow the idea
of computing the fee on the par value of [PLDTs] capital stock subscribed or paid excluding
stock dividends, premiums, or capital in excess of par. Neither, however, is the assessment
made by the National Telecommunications Commission on the basis of the market value of
the subscribed or paid-in capital stock acceptable since it is itself a deviation from the explicit
language of the law.
From the pleadings on hand, it can be gleaned that the assessment for supervision and
regulation fee under Section 40(e) made by NTC for 1988, computed at P0.50 per 100 of
PLDTs outstanding capital stock as of December 31, 1987, amounted to P7,495,161.00. The
same was based on the amount of P1,277,934,390.00 of serial preferred stocks and
P221,097,785.00 of common stocks or a total of P1,499,032,175.00. The assessment was
reported to include stock dividends, premium on issued common shares and premium on
preferred shares converted into common stock.[13] The actual capital paid or the amount of  
capital stock paid and for which PLDT received actual payments were not disclosed or extant
in the records before the Court. The only other item available is the amount assessed by This is a petition for review of the decision of the Court of Appeals dated July 28, 2004 and
petitioner from PLDT, which had been based on market value of the outstanding capital stock
on given dates.[14] its resolution dated January 19, 2005 in CA-G.R. SP No. 77836. The Court of Appeals

All things studiedly considered, and mindful of the aforesaid ruling of this Court in the affirmed the order of the Regional Trial Court of Manila in Civil Case No. 02-103764
case of Philippine Long Distance Telephone Company vs. Public Service Commission, it denying the motion to dismiss filed by herein petitioner Ridgewood Estate, Inc.
should be reiterated that the proper basis for the computation of subject fee under Section
 
40(e) of the Public Service Act, as amended by Republic Act No. 3792, is the capital stock
subscribed or paid and not, alternatively, the property and equipment. Petitioner is a subdivision developer that sells properties under the trade
WHEREFORE, the decision of the Court of Appeals, dated October 30, 1996, and its name Camella Homes. Respondent Expedito Belaos entered into a contract to sell with
Resolution, dated January 27, 1997, in CA G.R. SP No. 34063, as well as the decision of the petitioner for the purchase of a house and lot at Tierra Nevada, Gen. Trias, Cavite. Pursuant
National Telecommunication Commission, dated September 29, 1993, and Order, dated May
3, 1994, in NTC case No. 90-223, are hereby SET ASIDE and the National thereto, respondent issued several postdated checks in favor of petitioner as amortization for
Telecommunication Commission is hereby ordered to make a re-computation of the fee to be the property. Petitioner, however, failed to construct the house. Thus, respondent, in a letter
imposed on Philippine Long Distance Telephone Company on the basis of the latters capital
dated April 16, 2000, rescinded the contract to sell and demanded the return of the amounts
stock subscribed or paid and strictly in accordance with the foregoing disquisition and
conclusion. he had paid to petitioner, as well as the postdated checks. Petitioner remitted to respondent
No pronouncement as to costs. the sum of P299,908.00, equivalent to the down payment and six monthly amortizations

SO ORDERED. previously paid by respondent, but it nonetheless continued to encash the other postdated
checks, to the prejudice of respondent.
7.
 
RIDGEWOOD ESTATE, INC. G.R. No. 166751
(Erroneously sued as Camella Respondent filed before the Regional Trial Court of Manila a complaint for damages
Homes), Present: against Camella Homes for encashing the postdated checks despite repeated demands to
Petitioner, return them and refrain from encashing them in view of the recission of the contract to sell.
PUNO, J., Chairman,
SANDOVAL-GUTIERREZ,  
CORONA, Petitioner filed a motion to dismiss. It argued that Camella Homes is not a real party-in-
- versus - AZCUNA, and
GARCIA, JJ. interest and the complaint states no cause of action as the contract to sell was entered into by
  and between Expedito L. Belaos and Ridgewood Estate, Inc. It further argued that the
Promulgated:
complaint was defective since Camella Homes is not a natural or juridical person, hence, it is
EXPEDITO BELAOS,
Respondent. June 8, 2006 not an entity authorized by law to be a party to a civil suit.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x  
 
  The trial court denied the motion to dismiss. It applied the doctrine on corporation
DECISION by estoppel under Section 21 of the Corporation Code which states:
 
PUNO, J.:
 Section 21. Corporation by estoppel.All persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as
general partners for all debts, liabilities and damages incurred or arising as a
result thereof: Provided, however, That when any such ostensible corporation
is sued on any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a defense its lack of
corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot
resist performance thereof on the ground that there was in fact no
corporation.
 
Petitioner filed a petition for certiorari before the Court of Appeals. In addition to its
contention that Camella Homes was not a real party-in-interest, petitioner also raised the
argument that the trial court had no jurisdiction over the suit, as the subject matter of the
complaint was within the exclusive jurisdiction of the Housing and Land Use Regulatory
Board (HLURB).
 
In its decision dated July 28, 2004, the Court of Appeals dismissed the petition. It
held:
Private respondents complaint contains allegations that Ridgewood
Estates (sic) deliberately and intentionally encashed the postdated checks
despite knowledge of the contracts recission. Respondent prayed for the
award of actual, moral and exemplary damages due to his humiliation and
loss of credibility with the banking community and among his colleagues
caused by petitioners alleged malicious acts.
 
Respondent Belaos is not claiming refund or any other claim from a
subdivision developer. He does not demand for specific performance of
contractual and statutory obligations of delivering the property to him. In the
cases that reached the Supreme Court, the ruling has consistently been that
the NHA or the HLURB has jurisdiction over complaints arising from
contracts between the subdivision developer and the lot buyer or those aimed
at compelling the subdivision developer to comply with its contractual and
statutory obligations to make the subdivision a better place to live in. It has
already been admitted by both parties that the contract has already been
rescinded and that Ridgewood returned the downpayment [sic] and some of
the postdated checks. Hence, the Court a quo has jurisdiction over the action
for damages.[1]
 
Petitioner filed a motion for reconsideration which was denied by the Court of
Appeals in its resolution dated January 19, 2005.
 
Petitioner raises the following arguments in the case at bar:
1. That the honorable court failed to consider that the lower court acted with
grave abuse of discretion when the latter assumed jurisdiction over a
matter which the law already vests with the Housing and Land Use
Regulatory Board.
2. That a perusal of the order of the lower court reveals that it committed
grave abuse of discretion when it anchored itself on an erroneous finding
that Camella Homes allegedly is a corporation by estoppel.
 
3. That the Honorable Court of Appeals failed to consider that the lower
court committed grave abuse of discretion when it failed to consider that
the complaint filed by private respondent has no cause of action for
failure to implead the real party in interest.
 
4. That the Honorable Court of Appeals failed to consider that the lower
court committed grave abuse of discretion when it
ordered Camella Homes, which has no legal capacity to be sued[,] to
submit an answer.[2]
 
We affirm the decision of the Court of Appeals.
 
First, the trial court correctly assumed jurisdiction over the complaint filed by
respondent against petitioner.
 
Section 1 of Presidential Decree No. 1344 provides for the jurisdiction of HLURB
(then National Housing Authority), thus:
Sec. 1. In the exercise of its function to regulate the real estate trade
and business and in addition to its powers provided for in Presidential Decree
No. 957, the National Housing Authority shall have exclusive jurisdiction to
hear and decide the cases of the following nature:
 
 a. Unsound real estate business practices;
b. Claims involving refund and any other claims filed by subdivision
lot or condominium unit buyer against the project owner, developer, dealer,
broker or salesman; and
 
c. Cases involving specific performance of contractual and statutory
obligations filed by buyers of subdivision lot or condominium unit against
the owner, developer, dealer, broker or salesman.
 
The Court held in Roxas v. Court of Appeals[3] that the mere relationship between
the parties, i.e., that of being subdivision owner/developer and subdivision lot buyer, does not
automatically vest jurisdiction in the HLURB. For an action to fall within the exclusive
jurisdiction of the HLURB, the decisive element is the nature of the action as enumerated in
Section 1 of P.D. No. 1344. The HLURB has jurisdiction over complaints aimed at
compelling the subdivision developer to comply with its contractual and statutory obligations.
 
The complaint filed by respondent against petitioner was one for damages. It prayed
for the payment of moral, actual and exemplary damages by reason of petitioners malicious
encashment of the checks even after the rescission of the contract to sell between
them. Respondent claimed that because of petitioners malicious and fraudulent acts, he
suffered humiliation and embarrassment in several banks, causing him to lose his credibility
and good standing among his colleagues.[4] Such action falls within the jurisdiction of regular
courts, not the HLURB.
 
Second, we observe that respondents complaint was actually directed against herein
petitioner, Ridgewood Estate, Inc., although it named Camella Homes as respondent therein.
The complaint itself referred to Ridgewood Estate, Inc. as the authorized representative
of Camella Homes. Petitioner cannot use the lack of juridical personality by Camella Homes
as reason to evade its liability, if any, to petitioner. Petitioner admittedly uses the
name Camella Homes as its business name. Hence, to the buyers, CamellaHomes and
Ridgewood Estate, Inc. are one and the same. A reading of the complaint would show that
respondent was essentially suing petitioner, it being the seller of the house and lot he intended
to purchase. We agree with the Court of Appeals ruling that the remedy in this case is not the
dismissal of the case but the joinder of the proper party.[5] The appellate court correctly
explained:
Dismissal of the complaint is not the remedy since the Court a
quo properly acquired jurisdiction [over] the action for damages. In its
pleadings before the trial court, defendant CamellaHomes alleges that it is
not a juridical entity, not the real party in interest and pointed to Ridgewood
Estates [sic], Inc. as the party liable to Belaos. In its petition before [u]s,
Ridgewood Estates [sic], Inc. erroneously sued as Camella Homes presented
itself as one of the developers of Camella Homes, specifically that of Tierra
Nevada Subdivision of which respondent Belaos is a buyer, then it claims to
be the real party in interest in the controversy by admitting it entered into a
Contract to Sell with Belaos, [then] tries to exculpate Camella Homes by
alleging that the latter is not a juridical entity and alleges that it is the
HLURB which has jurisdiction over the controversy.
The Regional Trial Court did not commit grave abuse of discretion in
denying the motion to dismiss and ordering defendant Camella Homes to file
an answer. Assuming arguendo that petitioner Ridgewood is a separate entity
from Camella Homes, defendant Camella Homes may implead the
former. Private respondent Belaos may file a motion to amend his complaint
so as to implead the real party in interest. Parties may be dropped or added by
order of the court on motion of any party or on its own initiative at any stage
of the action and on such terms as are just.(Sec. 11, Rule 3 of the 1997 Rules
of Civil Procedure)[6]
 
We, therefore, find that the trial court did not err in denying petitioners motion to
dismiss.
 
IN VIEW WHEREOF, the petition is DENIED.
 
SO ORDERED.
8.SEVENTH DAY ADVENTIST G.R. No. 150416
CONFERENCE CHURCH OF
SOUTHERN PHILIPPINES, INC.,
and/or represented by MANASSEH
C. ARRANGUEZ, BRIGIDO P.  
GULAY, FRANCISCO M. LUCENARA,
x------------------------------------------x
DIONICES O. TIPGOS, LORESTO
C. MURILLON, ISRAEL C. NINAL,  
GEORGE G. SOMOSOT, JESSIE
T. ORBISO, LORETO PAEL and DECISION
JOEL BACUBAS,  
Petitioners, Present: CORONA, J.:
   
PUNO, J., Chairperson,  
SANDOVAL-GUTIERREZ,
This petition for review on certiorari assails the Court of Appeals (CA) decision[1] and
- v e r s u s - CORONA,
AZCUNA and resolution[2] in CA-G.R. CV No. 41966 affirming, with modification, the decision of the

GARCIA, JJ. 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
NORTHEASTERN MINDANAO
in Bayugan, Agusan del Sur originally owned by Felix Cosio and his wife, Felisa Cuysona.
MISSION OF SEVENTH DAY
 
ADVENTIST, INC., and/or
represented by JOSUE A. LAYON, On April 21, 1959, the spouses Cosio donated the land to the South Philippine Union
WENDELL M. SERRANO, FLORANTE Mission of Seventh Day Adventist Church of BayuganEsperanza, Agusan (SPUM-
P. TY and JETHRO CALAHAT SDA Bayugan).[3] Part of the deed of donation read:
and/or SEVENTH DAY ADVENTIST  
CHURCH [OF] NORTHEASTERN  
MINDANAO MISSION, *
KNOW ALL MEN BY THESE PRESENTS:
Respondents. Promulgated:  
July 21, 2006 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 Claiming to be the alleged donees successors-in-interest, petitioners asserted ownership over
of Seventh Day Adventist Church of Bayugan, Esperanza, Agusan, all the
the property. This was opposed by respondents who argued that at the time of the donation,
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 SPUM-SDA Bayugan could not legally be a donee
Barrio of Bayugan, Municipality of Esperanza, Province of Agusan,
Philippines, more particularly and bounded as follows, to wit:
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
1.      a parcel of land for Church Site purposes only.
particularly to them.
2.      situated [in Barrio Bayugan, Esperanza].
 
3.      Area: 30 meters wide and 30 meters length or 900 square
meters.
On September 28, 1987, petitioners filed a case, docketed as Civil Case No. 63 (a suit for
4.      Lot No. 822-Pls-225. Homestead Application No. V-36704,
Title No. P-285. cancellation of title, quieting of ownership and possession, declaratory relief

5.      Bounded Areas
North by National High Way; East by Bricio Gerona;
by Serapio Abijaron and West by Feliz Cosio xxx. [4]
 
and reconveyance with prayer for preliminary injunction and damages), in the RTC
South of Bayugan, Agusan del Sur. After trial, the trial court rendered a decision [7] 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 attorneys fees.[8] Petitioners motion for reconsideration was likewise

The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Day
denied. Thus, this petition.
Adventist Church, on behalf of the donee.
 
The issue in this petition is simple: should SDA-NEMMs ownership of the lot

Twenty-one years later, however, on February 28, 1980, the same parcel of land was covered by TCT No. 4468 be upheld?[9] We answer in the affirmative.

sold by the spouses Cosio to the Seventh Day Adventist Church of Northeastern Mindanao The controversy between petitioners and respondents involves two supposed transfers
Mission (SDA-NEMM).  TCT No. 4468 was thereafter issued in the name of SDA-NEMM.
[5]
of the lot previously owned by the spouses Cosio: (1) a donation to petitioners alleged
[6]
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 corporation[15] 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 P2,000.00was 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.