G.R. No.

108576 January 20, 1999

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE COURT OF APPEALS,

COURT OF TAX APPEALS and A. SORIANO CORP., respondents.

MARTINEZ, J.

FACTS: In 1973, after examining ANSCOR's books of account and records, Revenue
examiners issued a report proposing that ANSCOR be assessed for deficiency withholding
tax-at-source, pursuant to Sections 53 and 54 of the 1939 Revenue Code, 30 for the year
1968 and the second quarter of 1969 based on the transactions of exchange 31 and
redemption of stocks. 31 The Bureau of Internal Revenue (BIR) made the corresponding
assessments despite the claim of ANSCOR that it availed of the tax amnesty under
Presidential Decree
(P.D.) 23 32 which were amended by P.D.'s 67 and 157. 33 However, petitioner ruled that the
invoked decrees do not cover Sections 53 and 54 in relation to Article 83(b) of the 1939
Revenue Act under which ANSCOR was assessed. 34 ANSCOR's subsequent protest on the
assessments was denied in 1983 by petitioner. 35

Subsequently, ANSCOR filed a petition for review with the CTA assailing the tax
assessments on the redemptions and exchange of stocks. In its decision, the Tax Court
reversed petitioner's ruling. In a petition for review the CA as mentioned, affirmed the ruling
of the CTA. 37 Hence, this petition.

ISSUE: Whether or not the amount distributed in the redemption should be treated as the
equivalent of a "taxable dividend”. 

RULING: Yes. ANSCOR invoked two reasons to justify the redemptions — (1) the alleged
"filipinization" program and (2) the reduction of foreign exchange remittances in case cash
dividends are declared. It is the "net effect rather than the motives and plans of the
taxpayer or his corporation" 104 that is the fundamental guide in administering Sec. 83(b).

The two purposes invoked by ANSCOR, under the facts of this case are no excuse for its tax
liability. First, the alleged "filipinization" plan cannot be considered legitimate as it was not
implemented until the BIR started making assessments on the proceeds of the redemption.
Such corporate plan was not stated in nor supported by any Board Resolution but a mere
afterthought interposed by the counsel of ANSCOR. Being a separate entity, the corporation
can act only through its Board of Directors. 117 The Board Resolutions authorizing the
redemptions state only one purpose — reduction of foreign exchange remittances in case
cash dividends are declared. Not even this purpose can be given credence. Records show
that despite the existence of enormous corporate profits no cash dividend was ever declared
by ANSCOR from 1945 until the BIR started making assessments in the early 1970's.
Although a corporation under certain exceptions, has the prerogative when to issue
dividends, yet when no cash dividends was issued for about three decades, this
circumstance negates the legitimacy of ANSCOR's alleged purposes. Moreover, to issue
stock dividends is to increase the shareholdings of ANSCOR's foreign stockholders contrary
to its "filipinization" plan. This would also increase rather than reduce their need for foreign
exchange remittances in case of cash dividend declaration, considering that ANSCOR is a
family corporation where the majority shares at the time of redemptions were held by Don
Andres' foreign heirs.
Secondly, assuming arguendo, that those business purposes are legitimate, the same
cannot be a valid excuse for the imposition of tax. Otherwise, the taxpayer's liability to pay
income tax would be made to depend upon a third person who did not earn the income
being taxed. Furthermore, even if the said purposes support the redemption and justify the
issuance of stock dividends, the same has no bearing whatsoever on the imposition of the
tax herein assessed because the proceeds of the redemption are deemed taxable dividends
since it was shown that income was generated therefrom.
G.R. No. 158805               April 16, 2009

VALLEY GOLF & COUNTRY CLUB, INC., Petitioner, vs. ROSA O. VDA. DE

CARAM, Respondent.

TINGA, J.

FACTS: Congressman Fermin Z. Caram, Jr. (Caram), 2 the husband of the present respondent,
subscribed to purchased and paid for in full one share (Golf Share) in the capital stock of Valley Golf.
He was issued Stock Certificate for the Golf Share.

Valley Golf subsequently allege that Caram stopped paying his monthly dues, which were
continually assessed until 31 June 1987. Valley Golf claims to have sent five (5) letters to Caram
concerning his delinquent account . The fourth letter informed Caram that should he fail to settle his
delinquencies, then totaling ₱7,525.45, within ten (10) days from receipt thereof Valley Golf would
exercise its right to sell the Golf Share to satisfy the outstanding amount.

The Golf Share was sold at public auction after the Board of Directors had authorized the sale. 10As it
turned out, Caram had died on 6 October 1986. Respondent initiated intestate proceedings before
the Regional Trial Court (RTC) of Iloilo City to settle her husband’s estate. 11 Unaware of the pending
controversy over the Golf Share, the Caram family and the RTC included the same as part of
Caram’s estate. It was only through a letter that the heirs of Caram learned of the sale of the Golf
Share following their inquiry with Valley Golf about the share. Respondent filed an action for
reconveyance of the share with damages before the Securities and Exchange Commission (SEC)
against Valley Golf.

ISSUE: Whether or not Valley Golf correctly sold for auction the Golf Share of the decease and
terminate him of his membership.

RULING:

No. It may be conceded that the actions of Valley Golf were, technically speaking, in accord with the
provisions of its by-laws on termination of membership, vaguely defined as these are. Yet especially
since the termination of membership in Valley Golf is inextricably linked to the deprivation of property
rights over the Golf Share, the emergence of such adverse consequences make legal and equitable
standards come to force.

Valley Golf acted in clear bad faith when it sent the final notice to Caram under the pretense they
believed him to be still alive, when in fact they had very well known that he had already died. Valley
Golf could have very well addressed that notice to the estate of Caram, as it had done with the third
and fourth notices. That it did not do so signifies that Valley Golf was bent on selling the Golf Share,
impervious to potential complications that would impede its intentions, such as the need to pursue
the claim before the estate proceedings of Caram. By pretending to assume that Caram was then
still alive, Valley Golf would have been able to capialize on his previous unresponsiveness to their
notices and proceed in feigned good faith with the sale.  Whatever the reason Caram was unable to
lawphil.net

respond to the earlier notices, the fact remains that at the time of the final notice, Valley Golf knew
that Caram, having died and gone, would not be able to settle the obligation himself, yet they
persisted in sending him notice to provide a color of regularity to the resulting sale.
That reason alone, evocative as it is of the absence of substantial justice in the sale of the Golf
Share, is sufficient to nullify the sale and sustain the rulings of the SEC and the Court of Appeals

G.R. No. 165443               April 16, 2009

CALATAGAN GOLF CLUB, INC. Petitioner, vs. SIXTO CLEMENTE, JR., Respondent.

TINGA, J.

FACTS:

Clemente applied to purchase one share of stock of Calatagan. When Clemente became a
member the monthly charge stood at ₱400.00. He paid ₱3,000.00 for his monthly dues and
another ₱5,400.00. Then he ceased paying the dues. Ten (10) months later, Calatagan
made the initial step to collect Clemente’s back accounts by sending demand letters.
Calatagan declared Clemente delinquent for having failed to pay his monthly dues for more
than sixty (60) days. Subsequently, Calatagan’s board of directors adopted a resolution
authorizing the foreclosure of shares of delinquent members, including Clemente’s; and the
public auction of these shares.

Calatagan sent a third and final letter to Clemente, this time signed by its Corporate
Secretary, Atty. Benjamin Tanedo, Jr. The letter contains a warning that unless Clemente
settles his outstanding dues, his share would be included among the delinquent shares to be
sold at public auction.

Clemente learned of the sale of his share only in November of 1997. 11 He filed a claim with
the SEC seeking the restoration of his shareholding in Calatagan with damages.

ISSUE: Whether or not the shares of Clemente were validly sold.

RULING:

No. At the root of the sale of delinquent stock is the non-payment of the subscription price
for the share of stock itself. The stockholder or subscriber has yet to fully pay for the value
of the share or shares subscribed. In this case, Clemente had already fully paid for the
share in Calatagan and no longer had any outstanding obligation to deprive him of full title
to his share. Perhaps the analogy could have been made if Clemente had not yet fully paid
for his share and the non-stock corporation, pursuant to an article or by-law provision
designed to address that situation, decided to sell such share as a consequence. But that is
not the case here.

The utter bad faith exhibited by Calatagan brings into operation Articles 19, 20 and 21 of
the Civil Code,16 under the Chapter on Human Relations. These provisions, which the Court
of Appeals did apply, enunciate a general obligation under law for every person to act fairly
and in good faith towards one another. A non-stock corporation like Calatagan is not
exempt from that obligation in its treatment of its members. The obligation of a corporation
to treat every person honestly and in good faith extends even to its shareholders or
members, even if the latter find themselves contractually bound to perform certain
obligations to the corporation. A certificate of stock cannot be a charter of dehumanization.
G.R. No. 71837 July 26, 1988

CHUNG KA BIO, WELLINGTON CHUNG, CHUNG SIONG PEK, VICTORIANO CHUNG,

and MANUEL CHUNG TONG OH, petitioners, vs. INTERMEDIATE APPELLATE COURT
et. al respondents.

CRUZ, J.

FACTS: The Philippine Blooming Mills Company, Inc. was incorporated for a term of 25
years. 1 On May 1977, the members of its board of directors executed a deed of assignment
of all of the accounts receivables, properties, obligations and liabilities of the old PBM in
favor of Chung Siong Pek in his capacity as treasurer of the new PBM, then in the process of
reincorporation. 2 

Petitioners, all stockholders of the old PBM, filed with the SEC a petition for liquidation (but
not for dissolution) of both the old PBM and the new PBM. Dismissed for lack of a cause of
action, the case, was reinstated on appeal to the SEC en banc. This order was appealed to
the Intermediate Appellate Court.

The decision affirmed the orders issued by the SEC.

ISSUE: Whether or not the board of directors of an already dissolved corporation does not
have the inherent power, without the express consent of the stockholders, to convey all its
assets to a new corporation.

RULING: There is the presumption of regularity which must operate in favor of the private
respondents, who insist that the proper authorization as required by the Corporation Law
was duly obtained at a meeting called for the purpose. Otherwise, the new PBM would not
have been issued a certificate of incorporation, which should also be presumed to have been
done regularly. It must also be noted that under Section 28-1/2, "any stockholder who did
not vote to authorize the action of the board of directors may, within forty days after the
date upon which such action was authorized, object thereto in writing and demand payment
for his shares." The record does not show, nor have the petitioners alleged or proven, that
they filed a written objection and demanded payment of their shares during the
reglementary forty-day period. This circumstance should bolster the private respondents'
claim that the authorization was unanimous.

What the Court finds especially intriguing in this case is the fact that although the deed of
assignment was executed in 1977, it was only in 1981 that it occurred to the petitioners to
question its validity. All of four years had elapsed before the petitioners filed their action for
liquidation of both the old and the new corporations, and during this period, the new PBM
was in full operation, openly and quite visibly conducting the same business undertaken
earlier by the old dissolved PBM. Additionally, one of the petitioners, Chung Siong Pek was
one of the directors who executed the deed of assignment in favor of the old PBM and it was
he also who received the deeded assets on behalf and as treasurer of the new
PBM. 15 Surely, these circumstances must operate to bar the petitioners now from
questioning the deed of assignment after this long period of inaction in the protection of the
rights they are now belatedly asserting. Laches has operated against them.
G.R. No. 184008, August 03, 2016

INDIAN CHAMBER OF COMMERCE PHILS., INC., Petitioner, v. FILIPINO INDIAN

CHAMBER OF COMMERCE IN THE PHILIPPINES, INC., Respondent.

JARDELEZA, J.

FACTS: On January 2005, Mr. Naresh Mansukhani (Mansukhani) reserved the   corporate  
name   "Filipino   Indian   Chamber   of Commerce   in  the Philippines, Inc." (FICCPI), with
the Company Registration and Monitoring Department (CRMD) of the SEC. 8 In an opposition
Ram Sitaldas (Sitaldas), claiming to be a representative of the defunct FICCPI, alleged that
the corporate name has been used by the defunct FICCPI since 1951, and that the
reservation by another person who is not its member or representative is
illegal.9chanrobleslaw

CRMD rendered a decision granting Mansukhani's reservation, holding that he possesses the
better right over the corporate name.11 The CRMD ruled that the defunct FICCPI has no legal
personality to oppose the reservation of the corporate name by Mansukhani. After the
expiration of the defunct FICCPFs corporate existence, without any act on its part to extend
its term, its right over the name ended.

Meanwhile, Mr. Pracash Dayacanl, who allegedly represented the defunct FICCPI, filed an
application with the CRMD for the reservation of the corporate name "Indian Chamber of
Commerce Phils., Inc." (ICCPI).23 Upon knowledge, Mansukhani, in a letter formally opposed
the application. CRMD denied Mansukhani's opposition. SEC En Banc reversed the CRMD's
decision. Citing Section 18 of the Corporation Code, 30 the SEC En Banc made a finding that
"both from the standpoint of their corporate names and the purposes for which they were
established, there exist[s] a similarity that could inevitably lead to confusion.

ISSUE: Whether or not the name of the respondent is confusing similar with petitioner.

RULING: Section 18 of the Coiporation Code expressly prohibits the use of a corporate
name which is identical or deceptively or confusingly similar to that of any existing
corporation. ChanRoblesVirtualawlibrary
In Philips Export B. V. v. Court of Appeals, 45 this Court ruled that to fall within the
prohibition, two requisites must be proven, to wit: (1) that the complainant corporation
acquired a prior right over the use of such corporate name; and (2) the proposed name is
either (a)     identical; or
(b)    deceptively or confusingly similar to that of any existing corporation or to any other
name already protected by law; or (c)     patently deceptive,  confusing or contrary to
existing law.46
These two requisites are present in this case.

ICCPI's name is identical and

deceptively or confusingly similar to
that of FICCPI

The second requisite in the Philips Export case likewise obtains in two respects: the
proposed name is (a) identical or (b) deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by law.

G.R. No. 176579               June 28, 2011

WILSON P. GAMBOA, Petitioner, vs. FINANCE SECRETARY MARGARITO B. TEVES et.

al

CARPIO, J.

FACTS: In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm,

acquired the remaining 54 percent of the outstanding capital stock of PTIC. Meanwhile,
Inter-Agency Privatization Council (IPC) of the Philippine Government announced that it
would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of
PTIC, through a public bidding.

Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC
stockholder and buy the 111,415 PTIC shares by matching the bid price of Parallax. On
February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale
and Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding
capital stock of PTIC, with the Philippine Government. With the sale, First Pacific’s
common shareholdings in PLDT increased from 30.7 percent to 37 percent,
thereby increasing the common shareholdings of foreigners in PLDT to about
81.47 percent. This violates Section 11, Article XII of the 1987 Philippine Constitution
which limits foreign ownership of the capital of a public utility to not more than 40 percent. 3

ISSUE: Whether or not the term "capital" in Section 11, Article XII of the Constitution refers
to the total common shares only or to the total outstanding capital stock of PLDT, a public
utility.

RULING: Yes. Section 11, Article XII of the 1987 Constitution provides that, no
franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens; . . .”

In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a

stockholder of record of PLDT, contended that the term "capital" in the 1987 Constitution
refers to shares entitled to vote or the common shares. The forty percent (40%) foreign
equity limitation in public utilities prescribed by the Constitution refers to ownership of
shares of stock entitled to vote, i.e., common shares, considering that it is through voting
that control is being exercised. Thus, the 40% foreign ownership limitation should be
interpreted to apply to both the beneficial ownership and the controlling interest.

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities
prescribed by the Constitution refers to ownership of shares of stock entitled to vote, i.e.,
common shares. Furthermore, ownership of record of shares will not suffice but it must be
shown that the legal and beneficial ownership rests in the hands of Filipino citizens.
Consequently, in the case of petitioner PLDT, since it is already admitted that the voting
interests of foreigners which would gain entry to petitioner PLDT by the acquisition of
SMART shares through the Questioned Transactions is equivalent to 82.99%, and the
nominee arrangements between the foreign principals and the Filipino owners is likewise
admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution.

G.R. No. 207246, November 22, 2016

JOSE M. ROY III, Petitioner, v. CHAIRPERSON TERESITA HERBOSA,THE SECURITIES

AND EXCHANGE COMMISSION, AND PHILILIPPINE LONG DISTANCE TELEPHONE
COMPANY, Respondents.

CAGUIOA, J.

FACTS: SEC issued SEC-MC No. 8 entitled "Guidelines on Compliance with the Filipino-
Foreign Ownership Requirements Prescribed in the Constitution and/or Existing Laws by
Corporations Engaged in Nationalized and Partly Nationalized Activities." The memorandum
circular provides that:

All covered corporations shall, at all times, observe the constitutional or statutory
ownership requirement. For purposes of determining compliance therewith, the
required percentage of Filipino ownership shall be applied to BOTH (a) the total
number of outstanding shares of stock entitled to vote in the election of directors;
AND (b) the total number of outstanding shares of stock, whether or not entitled to
vote in the election of directors.

Corporations covered by special laws which provide specific citizenship requirements

shall comply with the provisions of said law.14
Petitioner Roy, as a lawyer and taxpayer, filed the Petition, 15 assailing the validity of SEC-
MC No. 8 for having been issued by the SEC with grave abuse of discretion. Petitioner Roy
seeks to apply the 60-40 Filipino ownership requirement separately to each class of shares
of a public utility corporation, whether common, preferred nonvoting, preferred voting or
any other class of shares. Petitioner Roy also questions the ruling of the SEC that
respondent Philippine Long Distance Telephone Company ("PLDT") is compliant with the
constitutional rule on foreign ownership. He prays that the Court declare SEC-MC No. 8
unconstitutional and direct the SEC to issue new guidelines regarding the determination of
compliance with Section 11, Article XII of the Constitution in accordance with Gamboa.

ISSUE: Whether or not the SEC gravely abused its discretion in ruling that PLDT is
compliant with the constitutional limitation on foreign ownership.

RULING: The Court dispose the issue for being without merit. In its Consolidated Comment
the SEC already clarified that it "has not yet issued a definitive ruling anent PLDT's
compliance with the limitation on foreign ownership imposed under the Constitution and
relevant laws and in fact, a careful perusal of SEC-MC No. 8 readily reveals that all existing
covered corporations which are non-compliant with Section 2 thereof were given a period of
one (1) year from the effectivity of the same within which to comply with said ownership
requirement. 35 Thus, in the absence of a definitive ruling by the SEC on PLDT's compliance
with the capital requirement pursuant to the Gamboa Decision and Resolution, any question
relative to the inexistent ruling is premature.
G.R. No. 164686, October 22, 2014

FOREST HILLS GOLF AND COUNTRY CLUB, INC. , Petitioner vs. GARDPRO, INC.,
Respondent

BERSAMIN, J.

FACTS: Petitioner Forest Hills Golf and Country Club, Inc., a non-profit stock corporation,
was established to promote social, recreational and athletic activities among its members. It
was an exclusive and private club organized for the sole benefit of its members. In March
1993, Fil-Estate Properties, Inc., a party to a Project Agreement to develop the Forest Hills
Residential Estates and the Forest Hills Golf and Country Club, undertook to market the golf
club shares of Forest Hills for a fee. In July 1995, Fil-Estate Properties, Inc. (FEPI) assigned
its rights and obligations under the Project Agreement to Fil- Estate Golf and Development,
Inc. (FEGDI).2

In 1996, Gardpro, Inc. (Gardpro) bought class "C" common shares of stock, which were
special corporate shares that entitled the registered owner to designate two nominees or
representatives for membership in the Club.4

Gardpro designated Fernando R. Martin and Rolando N. Reyes to be its corporate nominees.
Forest Hills charged them membership fees of ₱50,000.00 each, prompting Martin to
immediately call up Albert and complain about being thus charged despite having been
assured that no such fees would be collected from them. With Albert assuring that the fees
were temporary,5 both nominees of Gardpro paid the fees. At that time, the ₱45,000.00
membership fees of corporate members were increased to ₱75,000.00 per nominee by
virtue of the resolution of the Board of Directors.

ISSUE: Whether or not under the by-laws of the club, it is authorized to collect new
membership fees for replacement nominees of Class "C" members.

RULING: No. Replacement nominees of Gardpro

were not required to pay membership fees. Forest Hills was not authorized under its
articles of incorporation and by-laws to collect new membership fees for the replacement
nominees of Gardpro.

There is no question that Gardpro held class "C" common stocks that entitled it to two
memberships in the Club.1âwphi1 Its nominees could be admitted as regular members upon
approval of the Board of Directors but only one nominee for each class "C" share as
designated in the resolution could vote as such. A regular member was then entitled to use
all the facilities and privileges of the Club. In that regard, Gardpro could only designate as
its nominees/representatives its officers whose functions and office were defined by its own
by-laws.
 48

FIRST DIVISION

G.R. No. 156819               December 11, 2003

ALICIA E. GALA, GUIA G. DOMINGO and RITA G. BENSON, petitioners,

vs.
ELLICE AGRO-INDUSTRIAL CORPORATION, MARGO MANAGEMENT AND
DEVELOPMENT CORPORATION, RAUL E. GALA, VITALIANO N. AGUIRRE II, ADNAN
V. ALONTO, ELIAS N. CRESENCIO, MOISES S. MANIEGO, RODOLFO B. REYNO,
RENATO S. GONZALES, VICENTE C. NOLAN, NESTOR N. BATICULON, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court, seeking the reversal of the
decision dated November 8, 2002 1 and the resolution dated December 27, 2002 2 of the
Court of Appeals in CA-G.R. SP No. 71979.

On March 28, 1979, the spouses Manuel and Alicia Gala, their children Guia Domingo, Ofelia
Gala, Raul Gala, and Rita Benson, and their encargados Virgilio Galeon and Julian Jader
formed and organized the Ellice Agro-Industrial Corporation. 3 The total subscribed capital
stock of the corporation was apportioned as follows:

Name Number of Shares Amount

Manuel R. Gala 11, 700 1,170,000.00

Alicia E. Gala 23,200 2,320,000.00

Guia G. Domingo 16 1,600.00

Ofelia E. Gala 40 4,000.00

Raul E. Gala 40 4,000.00

Rita G. Benson 2 200.00

Virgilio Galeon 1 100.00

Julian Jader 1 100.00

TOTAL 35,000 P3,500,000.004

As payment for their subscriptions, the Gala spouses transferred several parcels of land
located in the provinces of Quezon and Laguna to Ellice. 5

In 1982, Manuel Gala, Alicia Gala and Ofelia Gala subscribed to an additional 3,299 shares,
10,652.5 shares and 286.5 shares, respectively. 6

On June 28, 1982, Manuel Gala and Alicia Gala acquired an additional 550 shares and 281
shares, respectively. 7

Subsequently, on September 16, 1982, Guia Domingo, Ofelia Gala, Raul Gala, Virgilio
Galeon and Julian Jader incorporated the Margo Management and Development Corporation
(Margo). 8 The total subscribed capital stock of Margo was apportioned as follows:

Name Number of Shares Amount

Raul E. Gala 6,640 66,400.00
Ofelia E. Gala 6,640 66,400.00
Guia G. Domingo 6,640 66,400.00
Virgilio Galeon 40 40.00
Julian Jader 40 40.00
TOTAL 20,000 P200,000.009

On November 10, 1982, Manuel Gala sold 13,314 of his shares in Ellice to Margo. 10

Alicia Gala transferred 1,000 of her shares in Ellice to a certain Victor de Villa on March 2,
1983. That same day, de Villa transferred said shares to Margo. 11 A few months later, on
August 28, 1983, Alicia Gala transferred 854.3 of her shares to Ofelia Gala, 500 to Guia
Domingo and 500 to Raul Gala. 12

Years later, on February 8, 1988, Manuel Gala transferred all of his remaining holdings in
Ellice, amounting to 2,164 shares, to Raul Gala. 13

On July 20, 1988, Alicia Gala transferred 10,000 of her shares to Margo. 14

Thus, as of the date on which this case was commenced, the stockholdings in Ellice were
allocated as follows:

Name Number of Shares Amount

Margo 24,312.5 2,431,250.00
Alicia Gala 21,480.2 2,148,020.00
Raul Gala 2,704.5 270,450.00
Ofelia Gala 980.8 98,080.00
Gina Domingo 516 51,600.00
Rita Benson 2 200.00
Virgilio Galeon 1 100.00
Julian Jader 1 100.00
Adnan Alonto 1 100.00
Elias Cresencio 1 100.00
TOTAL 50,000 P5,000,000.00

On June 23, 1990, a special stockholders’ meeting of Margo was held, where a new board of
directors was elected. 15 That same day, the newly-elected board elected a new set of
officers. Raul Gala was elected as chairman, president and general manager. During the
meeting, the board approved several actions, including the commencement of proceedings
to annul certain dispositions of Margo’s property made by Alicia Gala. The board also
resolved to change the name of the corporation to MRG Management and Development
Corporation. 16

Similarly, a special stockholders’ meeting of Ellice was held on August 24, 1990 to elect a
new board of directors. In the ensuing organizational meeting later that day, a new set of
corporate officers was elected. Likewise, Raul Gala was elected as chairman, president and
general manager.

On March 27, 1990, respondents filed against petitioners with the Securities and Exchange
Commission (SEC) a petition for the appointment of a management committee or receiver,
accounting and restitution by the directors and officers, and the dissolution of Ellice Agro-
Industrial Corporation for alleged mismanagement, diversion of funds, financial losses and
the dissipation of assets, docketed as SEC Case No. 3747. 17 The petition was amended to
delete the prayer for the appointment of a management committee or receiver and for the
dissolution of Ellice. Additionally, respondents prayed that they be allowed to inspect the
corporate books and documents of Ellice. 18

In turn, petitioners initiated a complaint against the respondents on June 26, 1991,
docketed as SEC Case No. 4027, praying for, among others, the nullification of the elections
of directors and officers of both Margo Management and Development Corporation and Ellice
Industrial Corporation; the nullification of all board resolutions issued by Margo from June
23, 1990 up to the present and all board resolutions issued by Ellice from August 24, 1990
up to the present; and the return of all titles to real property in the name of Margo and
Ellice, as well as all corporate papers and records of both Margo and Ellice which are in the
possession and control of the respondents. 19

The two cases were consolidated in an Order dated November 23, 1993. 20

Meanwhile, during the pendency of the SEC cases, the shares of stock of Alicia and Ofelia
Gala in Ellice were levied and sold at public auction to satisfy a judgment rendered against
them by he Regional Trial Court of Makati, Branch 66, in Civil Case No. 42560,
entitled "Regines Condominium v. Ofelia (Gala) Panes and Alicia Gala." 21

On November 3, 1998, the SEC rendered a Joint Decision in SEC Cases Nos. 3747 and
4027, the dispositive portion of which states:

WHEREFORE, premises considered, judgment is hereby rendered, as follows:

1. Dismissing the petition in SEC Case No. 3747,

2. Issuing the following orders in SEC Case No. 4027;

(a) Enjoining herein respondents to perform corporate acts of both Ellice and Margo, as
directors and officers thereof.

(b) Nullifying the election of the new sets of Board of Directors and Officers of Ellice and
Margo from June 23, 1990 to the present, and that of Ellice from August 24, 1990 to the
present.

(c) Ordering the respondent Raul Gala to return all the titles of real properties in the names
of Ellice and Margo which were unlawfully taken and held by him.

(d) Directing the respondents to return to herein petitioners all corporate papers, records of
both Ellice and Margo which are in their possession and control.

SO ORDERED. 22

Respondents appealed to the SEC En Banc, which, on July 4, 2002, rendered its Decision,
the decretal portion of which reads:

WHEREFORE, the Decision of the Hearing Officer dated November 3, 1998 is hereby
REVERSED and SET ASIDE and a new one hereby rendered granting the appeal, upholding
the Amended Petition in SEC Case No. 3747, and dismissing the Petition with Prayer for
Issuance of Preliminary Restraining Order and granting the Compulsory Counterclaim in SEC
Case No. 4027.

Accordingly, appellees Alicia Gala and Guia G. Domingo are ordered as follows:

(1) jointly and solidarily pay ELLICE and/or MARGO the amount of P700,000.00
representing the consideration for the unauthorized sale of a parcel of land to Lucky Homes
and Development Corporation (Exhs. "N" and "CCC");

(2) jointly and severally pay ELLICE and MARGO the proceeds of sales of agricultural
products averaging P120,000.00 per month from February 17, 1988;

(3) jointly and severally indemnify the appellants P90,000.00 as attorney’s fees;

(4) jointly and solidarily pay the costs of suit;

(5) turn over to the individual appellants the corporate records of ELLICE and MARGO in
their possession; and

(6) desist and refrain from interfering with the management of ELLICE and MARGO.

SO ORDERED. 23

Petitioners filed a petition for review with the Court of Appeals which dismissed the petition
for review and affirmed the decision of the SEC En Banc. 24

Hence, this petition, raising the following issues:

I

WHETHER OR NOT THE LOWER COURT ERRED IN NOT DECLARING AS ILLEGAL AND
CONTRARY TO PUBLIC POLICY THE PURPOSES AND MANNER IN WHICH RESPONDENT
CORPORATIONS WERE ORGANIZED – WHICH WERE, E.G. TO (1) "PREVENT THE GALA
ESTATE FROM BEING BROUGHT UNDER THE COVERAGE (SIC)" OF THE COMPREHENSIVE
AGRARIAN REFORM PROGRAM (CARP) AND (2) PURPORTEDLY FOR "ESTATE PLANNING."

II

WHETHER OR NOT THE LOWER COURT ERRED (1) IN SUSPICIOUSLY RESOLVING THE CASE
WITHIN TWO (2) DAYS FROM RECEIPT OF RESPONDENTS’ COMMENT; AND (2)
IN NOT MAKING A DETERMINATION OF THE ISSUES OF FACTS AND INSTEAD RITUALLY
CITING THE FACTUAL FINDINGS OF THE COMMISSION A QUO WITHOUT DISCUSSION AND
ANALYSIS;

III

WHETHER OR NOT THE LOWER COURT ERRED IN RULING THAT THE ORGANIZATION OF
RESPONDENT CORPORATIONS WAS NOT ILLEGAL FOR DEPRIVING PETITIONER RITA G.
BENSON OF HER LEGITIME.

IV

WHETHER OR NOT THE LOWER COURT ERRED IN NOT PIERCING THE VEILS OF CORPORATE
FICTION OF RESPONDENTS CORPORATIONS ELLICE AND MARGO.  25

In essence, petitioners want this Court to disregard the separate juridical personalities of
Ellice and Margo for the purpose of treating all property purportedly owned by said
corporations as property solely owned by the Gala spouses.

The petitioners’ first contention in support of this theory is that the purposes for which Ellice
and Margo were organized should be declared as illegal and contrary to public policy. They
claim that the respondents never pursued exemption from land reform coverage in good
faith and instead merely used the corporations as tools to circumvent land reform laws and
to avoid estate taxes. Specifically, they point out that respondents have not shown that the
transfers of the land in favor of Ellice were executed in compliance with the requirements of
Section 13 of R.A. 3844.26 Furthermore, they alleged that respondent corporations were run
without any of the conventional corporate formalities. 27

At the outset, the Court holds that petitioners’ contentions impugning the legality of the
purposes for which Ellice and Margo were organized, amount to collateral attacks which are
prohibited in this jurisdiction. 28

The best proof of the purpose of a corporation is its articles of incorporation and by-laws.
The articles of incorporation must state the primary and secondary purposes of the
corporation, while the by-laws outline the administrative organization of the corporation,
which, in turn, is supposed to insure or facilitate the accomplishment of said purpose. 29

In the case at bar, a perusal of the Articles of Incorporation of Ellice and Margo shows no
sign of the allegedly illegal purposes that petitioners are complaining of. It is well to note
that, if a corporation’s purpose, as stated in the Articles of Incorporation, is lawful, then the
SEC has no authority to inquire whether the corporation has purposes other than those
stated, and mandamus will lie to compel it to issue the certificate of incorporation. 30

Assuming there was even a grain of truth to the petitioners’ claims regarding the legality of
what are alleged to be the corporations’ true purposes, we are still precluded from granting
them relief. We cannot address here their concerns regarding circumvention of land reform
laws, for the doctrine of primary jurisdiction precludes a court from arrogating unto itself
the authority to resolve a controversy the jurisdiction over which is initially lodged with an
administrative body of special competence.31 Since primary jurisdiction over any violation of
Section 13 of Republic Act No. 3844 that may have been committed is vested in the
Department of Agrarian Reform Adjudication Board (DARAB), 32 then it is with said
administrative agency that the petitioners must first plead their case. With regard to their
claim that Ellice and Margo were meant to be used as mere tools for the avoidance of estate
taxes, suffice it say that the legal right of a taxpayer to reduce the amount of what
otherwise could be his taxes or altogether avoid them, by means which the law permits,
cannot be doubted. 33

The petitioners’ allegation that Ellice and Margo were run without any of the typical
corporate formalities, even if true, would not merit the grant of any of the relief set forth in
their prayer. We cannot disregard the corporate entities of Ellice and Margo on this ground.
At most, such allegations, if proven to be true, should be addressed in an administrative
case before the SEC. 34

Thus, even if Ellice and Margo were organized for the purpose of exempting the properties
of the Gala spouses from the coverage of land reform legislation and avoiding estate taxes,
we cannot disregard their separate juridical personalities.

Next, petitioners make much of the fact that the Court of Appeals promulgated its assailed
Decision a mere two days from the time the respondents filed their Comment. They alleged
that the appellate court could not have made a deliberate study of the factual questions in
the case, considering the sheer volume of evidence available. 35 In support of this allegation,
they point out that the Court of Appeals merely adopted the factual findings of the SEC En
Banc verbatim, without deliberation and analysis. 36

In People v. Mercado, 37 we ruled that the speed with which a lower court disposes of a case
cannot thus be attributed to the injudicious performance of its function. Indeed, magistrates
are not supposed to study a case only after all the pertinent pleadings have been filed. It is
a mark of diligence and devotion to duty that jurists study a case long before the deadline
set for the promulgation of their decision has arrived. The two-day period between the filing
of petitioners’ Comment and the promulgation of the decision was sufficient time to consider
their arguments and to incorporate these in the decision. As long as the lower court does
not sacrifice the orderly administration of justice in favor of a speedy but reckless
disposition of a case, it cannot be taken to task for rendering its decision with due dispatch.
The Court of Appeals in this intra-corporate controversy committed no reversible error and,
consequently, its decision should be affirmed. 38 Verily, if such swift disposition of a case is
considered a non-issue in cases where the life or liberty of a person is at stake, then we see
no reason why the same principle cannot apply when only private rights are involved.

Furthermore, well-settled is the rule that the factual findings of the Court of Appeals are
conclusive on the parties and are not reviewable by the Supreme Court. They carry even
more weight when the Court of Appeals affirms the factual findings of a lower fact-finding
body.39 Likewise, the findings of fact of administrative bodies, such as the SEC, will not be
interfered with by the courts in the absence of grave abuse of discretion on the part of said
agencies, or unless the aforementioned findings are not supported by substantial
evidence. 40

However, in the interest of equity, this Court has reviewed the factual findings of the SEC
En Banc, which were affirmed in toto by the Court of Appeals, and has found no cogent
reason to disturb the same. Indeed, we are convinced that the arguments raised by the
petitioners are nothing but unwarranted conclusions of law. Specifically, they insist that the
Gala spouses never meant to part with the ownership of the shares which are in the names
of their children and encargados, and that all transfers of property to these individuals are
supposedly void for being absolutely simulated for lack of consideration. 41 However, as
correctly held by the SEC En Banc, the transfers were only relatively simulated, inasmuch as
the evident intention of the Gala spouses was to donate portions of their property to their
children and encargados. 42

In an attempt to bolster their theory that the organization of the respondent corporations
was illegal, the petitioners aver that the legitime pertaining to petitioners Rita G. Benson
and Guia G. Domingo from the estate of their father had been subject to unwarranted
reductions as a result thereof. In sum, they claim that stockholdings in Ellice which the late
Manuel Gala had assigned to them were insufficient to cover their legitimes, since Benson
was only given two shares while Domingo received only sixteen shares out of a total
number of 35,000 issued shares. 43

Moreover, the reliefs sought by petitioners should have been raised in a proceeding for
settlement of estate, rather than in the present intra-corporate controversy. If they are
genuinely interested in securing that part of their late father’s property which has been
reserved for them in their capacity as compulsory heirs, then they should simply exercise
their actio ad supplendam legitimam, or their right of completion of legitime. 44 Such relief
must be sought during the distribution and partition stage of a case for the settlement of
the estate of Manuel Gala, filed before a court which has taken jurisdiction over the
settlement of said estate. 45

Finally, the petitioners pray that the veil of corporate fiction that shroud both Ellice and
Margo be pierced, consistent with their earlier allegation that both corporations were formed
for purposes contrary to law and public policy. In sum, they submit that the respondent
corporations are mere business conduits of the deceased Manuel Gala and thus may be
disregarded to prevent injustice, the distortion or hiding of the truth or the "letting in" of a
just defense. 46

However, to warrant resort to the extraordinary remedy of piercing the veil of corporate
fiction, there must be proof that the corporation is being used as a cloak or cover for fraud
or illegality, or to work injustice, 47 and the petitioners have failed to prove that Ellice and
Margo were being used thus. They have not presented any evidence to show how the
separate juridical entities of Ellice and Margo were used by the respondents to commit
fraudulent, illegal or unjust acts. Hence, this contention, too, must fail.

On June 5, 2003, the petitioners filed a Reply, where, aside from reiterating the contentions
raised in their Petition, they averred that there is no proof that either capital gains taxes or
documentary stamp taxes were paid in the series of transfers of Ellice and Margo shares.
Thus, they invoke Sections 176 and 201 of the National Internal Revenue Code, which
would bar the presentation or admission into evidence of any document that purports to
transfer any benefit derived from certificates of stock if the requisite documentary stamps
have not been affixed thereto and cancelled.

Curiously, the petitioners never raised this issue before the SEC Hearing Officer, the SEC En
Banc or the Court of Appeals. Thus, we are precluded from passing upon the same for, as a
rule, no question will be entertained on appeal unless it has been raised in the court below,
for points of law, theories, issues and arguments not brought to the attention of the lower
court need not be, and ordinarily will not be, considered by a reviewing court, as they
cannot be raised for the first time at that late stage. Basic considerations of due process
impel this rule.48 Furthermore, even if these allegations were proven to be true, such facts
would not render the underlying transactions void, for these instruments would not be the
sole means, much less the best means, by which the existence of these transactions could
be proved. For this purpose, the books and records of a corporation, which include the stock
and transfer book, are generally admissible in evidence in favor of or against the
corporation and its members. They can be used to prove corporate acts, a corporation’s
financial status and other matters, including one’s status as a stockholder. Most
importantly, these books and records are, ordinarily, the best evidence of corporate acts
and proceedings.49 Thus, reference to these should have been made before the SEC Hearing
Officer, for this Court will not entertain this belated questioning of the evidence now.

It is always sad to see families torn apart by money matters and property
disputes.1âwphi1 The concept of a close corporation organized for the purpose of running a
family business or managing family property has formed the backbone of Philippine
commerce and industry. Through this device, Filipino families have been able to turn their
humble, hard-earned life savings into going concerns capable of providing them and their
families with a modicum of material comfort and financial security as a reward for years of
hard work. A family corporation should serve as a rallying point for family unity and
prosperity, not as a flashpoint for familial strife. It is hoped that people reacquaint
themselves with the concepts of mutual aid and security that are the original driving forces
behind the formation of family corporations and use these tenets in order to facilitate more
civil, if not more amicable, settlements of family corporate disputes.

WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated November
8, 2002 and the Resolution dated December 27, 2002, both of the Court of Appeals, are
AFFIRMED. Costs against petitioners.

SO ORDERED.

Davide, Jr., C.J., Panganiban, Carpio, and Azcuna, JJ., concur.

 49

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 104720            April 4, 2001

PILIPINAS LOAN COMPANY, INC., petitioner,

vs.
HON. SECURITES AND EXCHANGE COMMISSION AND FILIPINAS PAWNSHOP,
INC.,1 respondents.

GONZAGA-REYES, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the
Decision2 of the Court of Appeals in CA-G.R. SP No. 25782 entitled "Pilipinas Loan Company,
Inc. vs. Honorable Securities and Exchange Commission and Filipinas Pawnshop, Inc." dated
October 31, 1991 and Resolution dated March 19, 1992 which denied the motion for
reconsideration of herein petitioner Pilipinas Loan Company, Inc. (petitioner).

Private respondent Filipinas Pawnshop, Inc. (private respondent) is a duly organized

corporation registered with the Securities and Exchange Commission (SEC) on February 9,
1959 with its principal place of business located along Pedro Gil St Paco, Metro Manila. The
articles of incorporation of private respondent states that its primary purpose is to extend
loans at legal interest on the security of either personal properties or on the security of real
properties, and to finance installment sales of motor vehicles, home appliances and other
chattels.

Petitioner is a lending corporation duly registered with the SEC on July 27, 1989 with some
of its places of business located along Pedro Gil, Sta. Ana, Manila and Onyx St., cor.
Augusto Francisco St., San Andres, Paco, Manila. Based on its articles of incorporation, the
primary purpose of petitioner is:

"To act as a lending investor or, otherwise, to engage in the practice of lending
money or extending loans on the security of real or personal, tangible or intangible
properties whether as pledge, real or chattel mortgage or otherwise, xxx without
however, engaging in pawnbroking as defined under PD 114."

On September 11, 1990, private respondent filed a complaint against petitioner with the
Prosecution and Enforcement Department (PED) of the SEC docketed as PED CASE No. 90-
0737. The complaint alleged that: (1) petitioner, contrary to the restriction set by the
Commission, has been operating and doing business as a pawnbroker, pawnshop or
"sanglaan" in the same neighborhood where private respondent has had its own pawnshop
for 30 years in violation of its primary purpose and without the imprimatur of the Central
Bank to engage in the pawnshop business thereby causing unjust and unfair competition
with private respondent; and (2) the business name of petitioner, "PILIPINAS" Loan, bears
similarity in spelling and phonetics with the corporate name of private respondent,
"FILIPINAS" Pawnshop, creating constant confusion in the minds of the public and the
customers of private respondent. In the same complaint, private respondent urged the SEC
to: (1) order petitioner to change its business name, Pilipinas Loan, and cease from using it
in the near future; (2) order Pilipinas Loan to cease and desist from engaging in the
business of pawnbroking as defined under PD No. 114; and (3) impose upon the director,
officers, employees or persons responsible such penalties as may be proper under the law.

On October 18, 1990, petitioner filed its Comment/Answer questioning the power of the SEC
to take cognizance of the complaint involving (1) a supposed violation of the Pawnshop
Regulations Act which is more properly within the jurisdiction of the Central Bank; and (2)
the determination of whether a corporate name is confusingly similar to another which is
within the jurisdiction of the regular courts. Petitioner denied that it is engaged in the
pawnshop business, alleging that it is a lending investor duly registered with the Central
Bank.

On October 18, 1991, private respondent filed its reply to the Comment/Answer.

On April 8, 1991, the PED of the SEC issued an Order directing petitioner to amend its
articles of incorporation by changing the word "Pilipinas" in its corporate name, and to cease
and desist from further engaging in the business of pawnshop or "sanglaan".

On August 13, 1991, the SEC en banc rendered a Decision affirming with modification the
aforementioned Order. The Decision ordered petitioner to (1) amend its articles of
incorporation by deleting the word "pledge" in its primary purpose and the word "Pilipinas"
as part of its corporate name and substituting another word in lieu thereof within fifteen
(15) days from receipt of the decision; and (2) to cease and desist from further engaging in
business as a "pawnshop" or "pawnbroker" or "sanglaan" as defined in Presidential Decree
No. 114, otherwise known as the Pawnshop Regulation Act, until the proper license shall
have been secured from the Central Bank of the Philippines.

Aggrieved, petitioner filed a petition for review before the Court of Appeals docketed as CA
G.R. SP No. 25782.

On October 31, 1991 the Court of Appeals rendered a Decision affirming with modification
the decision of the SEC. The dispositive portion of the now assailed decision reads:

"WHEREFORE, premises considered, the decision appealed from is hereby modified,

setting aside that portion ordering petitioner to amend its articles of incorporation by
deleting the word "pledge" in its primary purposes and the word "Pilipinas" as part of
its corporate name. However, petitioner Pilipinas Loan Co., Inc., its directors, officers
agents or other persons acting in its behalf are forthwith ordered to CEASE AND
DESIST from further engaging in business as a pawnshop or "pawnbroker" or
"sanglaan" as defined in Presidential Decree No. 114, otherwise known as the
Pawnshop Regulation Act until the proper license shall have been secured from the
Central Bank of the Philippines. In all other respects, the decision is affirmed." 3

On March 19, 1992, the Court of Appeals issued a Resolution denying the motion for
reconsideration filed by petitioner.
Hence, this petition for review anchored on these grounds:

"1. Respondent Court of Appeals gravely erred in not holding that the determination
by the Central Bank of alleged violation of PD No. 114 is a condition precedent to the
exercise by respondent Securities and Exchange Commission of its regulatory power
over petitioner.

2. Respondent Court of Appeals gravely erred in not ruling that the finding by
respondent SEC is not supported by substantial evidence and that petitioner was
denied of its right to due process.

3. Respondent Court of Appeals erred in holding that the activities of petitioner

constitute pawnbroking."4

While petitioner concedes that the SEC has jurisdiction to determine whether the condition
or restriction in the articles of incorporation of a corporation has been violated, petitioner
disputes the authority of the SEC to determine whether a registered entity is violating PD
114. Petitioner maintains that PD 114 vests this authority solely in the Central Bank.

In upholding the jurisdiction of the SEC, the Court of Appeals ruled that there is nothing in
PD 114 that grants exclusively to the Central Bank the authority to determine if there has
been a violation of said decree. Petitioner insists that this interpretation is erroneous on the
ground that it runs counter to the time-honored maxim of expressio unius est exclusio
alterius. The express and specific mention of the Central Bank in PD 114 allegedly implies
the exclusion of other governmental agencies from making a determination of violations of
the provisions of said decree. In support of its argument, petitioner cites Section 17 of PD
114 that provides:

"Section 17. Grant of authority to the Central Bank. The Central Bank is hereby
authorized (a) to issue rules and regulations to implement the provisions contained
therein; (b) to require from pawnshops reports of condition and such other reports
necessary to determine compliance with the provisions of this Decree; (c) to exercise
visitorial powers whenever deemed necessary; (d) to impose such administrative
sanctions including the imposition of fines for violations of this Decree and
regulations issued by the Central Bank in pursuance thereto."

Petitioner points out that in the enforcement of PD 114, the Central Bank is possessed with
investigatory or inquisitorial powers which include the power to inspect, or to secure, or to
require the disclosure of information by means of accounts, records, reports, statements,
testimony of witnesses, production of documents, etc. Allegedly, it is only after the Central
Bank has made a determination of whether petitioner is engaged in pawnbroking that the
SEC can exercise its regulatory powers over petitioner. Petitioner thus insists that the
jurisdiction of the SEC is limited to matters intrinsically connected with the regulation of
corporations, partnerships and associations and those dealing with the internal affairs of
such entities. The SEC allegedly cannot arrogate unto itself the power to look into violations
of PD 114 when such power rests solely with the Central Bank.

The petition is without merit.

Petitioner conjures a supposed conflict of jurisdiction between the Central Bank and the SEC
by insisting that it is only the Central Bank that has jurisdiction over violations of PD 114.
The argument is misplaced. Basic is the rule that it is the allegations in the complaint that
vests jurisdiction.5 A case in point is Philippine Woman’s Christian Temperance Union, Inc.
vs. Abiertas House of Friendship, Inc.6 wherein we held that when the thrust of a complaint
is on the ultra vires act of a corporation, that is the complained act of a corporation is
contrary to its declared corporate purposes, the SEC has jurisdiction to entertain the
complaint before it.

It must be recalled that the complaint of private respondent alleged that the articles of
incorporation of petitioner contained this prohibition: "without, however, engaging in
pawnbroking as defined in PD 114" and despite this restriction, petitioner allegedly
continued to actually operate and do business as a pawnshop. The complaint thus treats of
a violation of petitioner’s primary franchise. Section 5 of PD 114, the same law invoked by
petitioner, mandates that a corporation desiring to engage in the pawnshop business must
first register with the SEC. Without question, the complaint filed by private respondent
against petitioner called upon the SEC to exercise its adjudicatory and supervisory powers.
By law, the SEC has absolute jurisdiction, supervision and control over all corporations that
are enfranchised to act as corporate entities. 7 A violation by a corporation of its franchise is
properly within the jurisdiction of the SEC.

A corporation, under the Corporation Code, has only such powers as are expressly granted
to it by law and by its articles of incorporation, 8 those which may be incidental to such
conferred powers, those reasonably necessary to accomplish its purposes and those which
may be incident to its existence.9 In the case at bar, the limit of the powers of petitioner as
a corporation is very clear, it is categorically prohibited from "engaging in pawnbroking as
defined under PD 114". Hence, in determining what constitutes pawnbrokerage, the relevant
law to consider is PD 114. This reference to PD 114 is also in line with Article 2123 of the
Civil Code that states that:

"Art. 2123. With regard to pawnshops and other establishments, which are engaged
in making loans secured by pledges, the special laws and regulations concerning
them shall be observed, and subsidiarily, the provisions of this Title."

Indispensable therefore to the determination of whether or not petitioner had violated its
articles of incorporation, was an inquiry by the SEC if petitioner was holding out itself to the
public as a pawnshop. It must be stressed that the determination of whether petitioner
violated PD 114 was merely incidental to the regulatory powers of the SEC, to see to it that
a corporation does not go beyond the powers granted to it by its articles of incorporation.

Jurisprudence has laid down the principle that it is the certificate of incorporation that gives
juridical personality to a corporation and places it within SEC jurisdiction. 10 The case
of Orosa, Jr. vs. Court of Appeals11 teaches that this jurisdiction of the SEC is not affected
even if the authority to operate a certain specialized activity is withdrawn by the appropriate
regulatory body other than the SEC. With more reason that we cannot sustain the
submission of petitioner that a declaration by the Central Bank that it violated PD 114 is a
condition precedent before the SEC can take cognizance of the complaint against petitioner.

Aside from the supervision and control powers granted by Section 3 of PD 902-A to the SEC,
Section 5 thereof provides that:

"Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of
 associations registered with it as expressly granted under existing laws and decrees,
it shall have original and exclusive jurisdiction to hear and decide cases involving:

‘a) Devices and schemes employed by or any acts of the board of directors,
business associates, its officers or partners, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public
and/or of the stockholders, partners, members of associations or
organizations registered with the commission’". (Emphasis ours)

Clearly, the recital in the complaint of private respondent that petitioner is engaged in the
pawnshop business when it is not authorized to do so by its articles of incorporation
amounts to fraud, detrimental not only to the corporation but also to the stockholders and
the public. The relationship involved in this controversy is a category of relationship over
which the SEC has exclusive jurisdiction, thus:

"(a) between the corporation, partnership or association and the public; (b) between
the corporation, partnership or association and its stockholders, partners, members
or officers; (c) between the corporation, partnership or association and the state in
so far as its franchise, permit or license to operate is concerned; and (d) among the
stockholders, partners or associates themselves".12

We agree with the Court of Appeals that petitioner cannot invoke the jurisdiction of the
Central Bank in view of its own avowal that it is not a pawnshop and neither is it engaged in
the business as a pawnshop. The Court of Appeals correctly ruled that:

"It must be noted that upon close scrutiny, PD No. 114 provides that the supervisory
powers of the Central Bank extends merely to pawnshops registered with it in
accordance with Sec. 6 of the same law. In connection with this, we take judicial
notice of the Rules and Regulations for Pawnshops (CB Circular No. 374) enacted
pursuant to the authority given to the Central Bank to issue rules and regulations to
implement the provisions of PD 114, where it provides the following:

‘Sec. 11. Powers of Pawnshop.- A duly organized and licensed pawnshop has,

in general, the power to engage in the business of lending money on the
security of personal property within the framework and limitations of PD No.
114 and this circular, subject to the regulatory and supervisory powers of the
Central Bank.

‘Sec. 36. Examination, Inspection, or Investigation. - The official of the

Central Bank in charge of non-bank financial intermediary and his duly
designated representatives are hereby authorized to conduct an examination,
inspection, or investigation of books, records, business affairs, administration,
and financial condition of any pawnshop, whenever said official deems it
necessary for the effective implementation of Presidential Decree No. 114 and
of this Circular. xxx’

Furthermore, under CB Circular No. 381 providing for the Procedure For Processing
Complaints Against Pawnshops, it is provided that:

‘The Monetary Board, Central Bank of the Philippines, pursuant to its Chapter
and Presidential Decree No. 114, entitled, The Pawnshop Regulation Act, has
 promulgated the following procedures for processing complaints against
pawnshops;

1. Complaints against pawnshops must be filed with the Office of Non Bank
Financial Intermediaries (ONBFI), Central Bank of the Philippines, in writing
and signed under oath by the complainant;’

The foregoing must have also impelled Director Olaso of the Central Bank to send
private respondent a reply letter (Exh. C) apprising it that only over pawnshops, and
not lending institutions, does the Central Bank exercise supervisory powers.
Considering that petitioner is admittedly not a registered pawnshop operator, any
complaint filed against it is not cognizable by the Central Bank." 13 (Emphasis
supplied)

The mere fact that a portion of the SEC decision stated that copies of the same be furnished
the Central Bank does not necessarily mean that the SEC recognized the jurisdiction of the
Central Bank over PD 114 violations. Obviously, the SEC had already assumed jurisdiction
over the case and had in fact disposed of it, the transmission of a copy of said decision to
the Central Bank was mainly to apprise the latter of the disposition of the case so that it
may accordingly act on it.

Petitioner bewails the alleged violation of substantive due process when the SEC rendered
the assailed decision based on evidence which petitioner claims it did not receive. The SEC
allegedly reached the conclusion that petitioner is engaged in pawnshop activities based on
the photographs attached by private respondent to its position paper. The photographs in
question show that petitioner used a billboard with the inscription "SANGLAAN" in front of its
office. Petitioner however claims that it was not furnished a copy of the position paper of
private respondent and that these photographs were not presented during the hearing
before the PED. Except for said photographs, petitioner points out that private respondent
did not adduce any other evidence to substantiate its claim that petitioner is engaged in
pawnshop activities. Petitioner asserts that the photographs cannot be considered as
substantial evidence.

We are not persuaded. Due process is not necessarily tantamount to a full-blown trial. The
essence of due process is simply the opportunity to be heard or as applied to administrative
proceedings, an opportunity to explain one’s side or an opportunity to seek a
reconsideration of the ruling or action taken. 14 The records of this case show that petitioner
was accorded every opportunity to be heard during the conference before the PED wherein
the parties were required to file their position papers, and on appeal before the SEC en
banc.

Contrary to the claim of petitioner, the Court of Appeals found that the evidence presented
by private respondent was duly appended to the position paper submitted to the PED and to
the SEC en banc. Assuming arguendo that petitioner was not furnished a copy of the
photographs, it is now too late in the day for petitioner to raise this matter before us when
it could have submitted this issue before the hearing officer and the SEC en banc. The
records fail to support petitioner’s insistence that it raised this issue before the SEC. In its
appeal before the SEC, petitioner merely harped on the fact that in ruling for private
respondent, the hearing officer relied only on the photographs without mentioning that
petitioner did not receive a copy of said photographs. Plainly then, the SEC could not have
addressed this issue for the simple reason that it was not duly informed of this matter, a
situation which was petitioner’s own making.
We reject petitioner’s claim that the SEC relied solely on the photographs in reaching the
conclusion that petitioner is engaged in pawnshop activities. Aside from the questioned
photographs, other evidence such as affidavits of the past customers of petitioner and the
supposed "promissory note" between petitioner and its customers were also submitted to
the SEC. The SEC and the Court of Appeals were one in ruling that the so-called "promissory
note" was more of a pawn ticket than an instrument of indebtedness. We see no cogent
reason to set aside the factual findings of the SEC, also upheld by the Court of Appeals,
based on the settled rule that the findings of fact of the SEC must be respected as long as
they are supported by substantial evidence, as in this case.15

The Court of Appeals appreciated the entire evidence, consisting of the affidavits, the
promissory note and photographs, in this manner:

"A careful examination and analysis of the records of this case indicates that
petitioner has indeed engaged in the business of pawnbroking. It is not argued that
petitioner do (sic) lend money on the security of personal property. What must be
observed though are the very prominent words "SANGLAAN" found on its billboards
(Exhs. F and G) which cannot but give the impression to the public that its
establishment is more of a pawnshop than a lending institution servicing different
kinds of loans. The word "SANGLAAN", especially in big cities, have come to be
associated with pawnshops and it denotes the idea of a place where one presents
personal property for a loan, which is the exclusive domain of a pawnshop. Thus, the
use of such word by petitioner was more calculated to attract customers who will
acquire loans on the security of personal properties alone. That this activity is in fact
undertaken can be readily deduced from the graphic and unmistakable set-up (Exhs.
J and K) of petitioner’s place of business which is a picture of a typical pawnshop
where a person transacts through small glass openings labeled ‘sangla’ and ‘tubos’.
Moreover, the supposed "promissory note" evidencing a customer’s transaction with
petitioner, is more of a pawnticket than what it represents. We hereby quote with
approval the argument advanced by private respondent on this point.

"1. The contents of the ‘pawnshop tickets’ issued by respondent PILIPINAS LOAN as
"promissory notes" are basically pawnshop tickets which as provided in the
Pawnshop Regulation Act, PD No. 114 are the following:

a) Name and residence of the pawner;

b) Date when loan is granted;

c) Amount of the principal loan;

d) Interest rate in percentage;

e) Period of maturity;

f) Description of the pawn

g) Signature of the pawnbroker or his authorized representative;

h) Signature of the pawner; and

 i) Other terms and conditions.

2. The only document required to be executed by the customers (pawners) of

respondent Pilipinas Loan is the aforesaid "Promissory Loan", which is the only
document also commonly required in pawnshops or "sanglaan"; whereas genuine
lending investors require a set of documents xxx.

3. The respondent Pilipinas Loan always takes possession of the "pawn" or articles
pawned to secure the loan; whereas, if it is truly operating as a Lending Investor it
does not have to take possession of the article pledged or mortgaged because the
borrower’s capacity to pay is established, normally with a co-maker.

xxx           xxx           xxx"16

Thus, the totality of the evidence substantially establishes the conclusion that petitioner
contravened its articles of incorporation when it held itself out to the public as a pawnshop.

WHEREFORE, in view of the foregoing, the petition is DENIED. Costs against petitioner.

SO ORDERED.

Melo (Chairman), Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.

 50

Republic of the Philippines

SUPREME COURT

THIRD DIVISION

G.R. No. 161026 October 24, 2005

HYATT ELEVATORS AND ESCALATORS CORPORATION, Petitioner,

vs.
GOLDSTAR ELEVATORS, PHILS., INC.,* Respondent.

DECISION

PANGANIBAN, J.:

Well established in our jurisprudence is the rule that the residence of a corporation is the
place where its principal office is located, as stated in its Articles of Incorporation.

The Case

Before us is a Petition for Review 1 on Certiorari, under Rule 45 of the Rules of Court,
assailing the June 26, 2003 Decision 2 and the November 27, 2003 Resolution 3 of the Court
of Appeals (CA) in CA-GR SP No. 74319. The decretal portion of the Decision reads as
follows:

"WHEREFORE, in view of the foregoing, the assailed Orders dated May 27, 2002 and
October 1, 2002 of the RTC, Branch 213, Mandaluyong City in Civil Case No. 99-600, are
hereby SET ASIDE. The said case is hereby ordered DISMISSED on the ground of
improper venue."4

The assailed Resolution denied petitioner’s Motion for Reconsideration.

The Facts

The relevant facts of the case are summarized by the CA in this wise:

"Petitioner [herein Respondent] Goldstar Elevator Philippines, Inc. (GOLDSTAR for brevity)
is a domestic corporation primarily engaged in the business of marketing, distributing,
selling, importing, installing, and maintaining elevators and escalators, with address at 6th
Floor, Jacinta II Building, 64 EDSA, Guadalupe, Makati City.
"On the other hand, private respondent [herein petitioner] Hyatt Elevators and Escalators
Company (HYATT for brevity) is a domestic corporation similarly engaged in the business of
selling, installing and maintaining/servicing elevators, escalators and parking equipment,
with address at the 6th Floor, Dao I Condominium, Salcedo St., Legaspi Village, Makati, as
stated in its Articles of Incorporation.

"On February 23, 1999, HYATT filed a Complaint for unfair trade practices and damages
under Articles 19, 20 and 21 of the Civil Code of the Philippines against LG Industrial
Systems Co. Ltd. (LGISC) and LG International Corporation (LGIC), alleging among others,
that: in 1988, it was appointed by LGIC and LGISC as the exclusive distributor of LG
elevators and escalators in the Philippines under a ‘Distributorship Agreement’; x x x LGISC,
in the latter part of 1996, made a proposal to change the exclusive distributorship agency to
that of a joint venture partnership; while it looked forward to a healthy and fruitful
negotiation for a joint venture, however, the various meetings it had with LGISC and LGIC,
through the latter’s representatives, were conducted in utmost bad faith and with
malevolent intentions; in the middle of the negotiations, in order to put pressures upon it,
LGISC and LGIC terminated the Exclusive Distributorship Agreement; x x x [A]s a
consequence, [HYATT] suffered ₱120,000,000.00 as actual damages, representing loss of
earnings and business opportunities, ₱20,000,000.00 as damages for its reputation and
goodwill, ₱1,000,000.00 as and by way of exemplary damages, and ₱500,000.00 as and by
way of attorney’s fees.

"On March 17, 1999, LGISC and LGIC filed a Motion to Dismiss raising the following
grounds: (1) lack of jurisdiction over the persons of defendants, summons not having been
served on its resident agent; (2) improper venue; and (3) failure to state a cause of action.
The [trial] court denied the said motion in an Order dated January 7, 2000.

"On March 6, 2000, LGISC and LGIC filed an Answer with Compulsory Counterclaim ex
abundante cautela. Thereafter, they filed a ‘Motion for Reconsideration and to Expunge
Complaint’ which was denied.

"On December 4, 2000, HYATT filed a motion for leave of court to amend the complaint,
alleging that subsequent to the filing of the complaint, it learned that LGISC transferred all
its organization, assets and goodwill, as a consequence of a joint venture agreement with
Otis Elevator Company of the USA, to LG Otis Elevator Company (LG OTIS, for brevity).
Thus, LGISC was to be substituted or changed to LG OTIS, its successor-in-interest.
Likewise, the motion averred that x x x GOLDSTAR was being utilized by LG OTIS and LGIC
in perpetrating their unlawful and unjustified acts against HYATT. Consequently, in order to
afford complete relief, GOLDSTAR was to be additionally impleaded as a party-defendant.
Hence, in the Amended Complaint, HYATT impleaded x x x GOLDSTAR as a party-defendant,
and all references to LGISC were correspondingly replaced with LG OTIS.

"On December 18, 2000, LG OTIS (LGISC) and LGIC filed their opposition to HYATT’s motion
to amend the complaint. It argued that: (1) the inclusion of GOLDSTAR as party-defendant
would lead to a change in the theory of the case since the latter took no part in the
negotiations which led to the alleged unfair trade practices subject of the case; and (b)
HYATT’s move to amend the complaint at that time was dilatory, considering that HYATT
was aware of the existence of GOLDSTAR for almost two years before it sought its inclusion
as party-defendant.
"On January 8, 2001, the [trial] court admitted the Amended Complaint. LG OTIS (LGISC)
and LGIC filed a motion for reconsideration thereto but was similarly rebuffed on October 4,
2001.

"On April 12, 2002, x x x GOLDSTAR filed a Motion to Dismiss the amended complaint,
raising the following grounds: (1) the venue was improperly laid, as neither HYATT nor
defendants reside in Mandaluyong City, where the original case was filed; and (2) failure to
state a cause of action against [respondent], since the amended complaint fails to allege
with certainty what specific ultimate acts x x x Goldstar performed in violation of x x x
Hyatt’s rights. In the Order dated May 27, 2002, which is the main subject of the present
petition, the [trial] court denied the motion to dismiss, ratiocinating as follows:

‘Upon perusal of the factual and legal arguments raised by the movants-defendants, the
court finds that these are substantially the same issues posed by the then defendant LG
Industrial System Co. particularly the matter dealing [with] the issues of improper venue,
failure to state cause of action as well as this court’s lack of jurisdiction. Under the
circumstances obtaining, the court resolves to rule that the complaint sufficiently states a
cause of action and that the venue is properly laid. It is significant to note that in the
amended complaint, the same allegations are adopted as in the original complaint with
respect to the Goldstar Philippines to enable this court to adjudicate a complete
determination or settlement of the claim subject of the action it appearing preliminarily as
sufficiently alleged in the plaintiff’s pleading that said Goldstar Elevator Philippines Inc., is
being managed and operated by the same Korean officers of defendants LG-OTIS Elevator
Company and LG International Corporation.’

"On June 11, 2002, [Respondent] GOLDSTAR filed a motion for reconsideration thereto. On
June 18, 2002, without waiving the grounds it raised in its motion to dismiss, [it] also filed
an ‘Answer Ad Cautelam’. On October 1, 2002, [its] motion for reconsideration was denied.

"From the aforesaid Order denying x x x Goldstar’s motion for reconsideration, it filed the x
x x petition for certiorari [before the CA] alleging grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of the [trial] court in issuing the assailed Orders
dated May 27, 2002 and October 1, 2002."5

Ruling of the Court of Appeals

The CA ruled that the trial court had committed palpable error amounting to grave abuse of
discretion when the latter denied respondent’s Motion to Dismiss. The appellate court held
that the venue was clearly improper, because none of the litigants "resided" in Mandaluyong
City, where the case was filed.

According to the appellate court, since Makati was the principal place of business of both
respondent and petitioner, as stated in the latter’s Articles of Incorporation, that place was
controlling for purposes of determining the proper venue. The fact that petitioner had
abandoned its principal office in Makati years prior to the filing of the original case did not
affect the venue where personal actions could be commenced and tried.

Hence, this Petition.6

The Issue
In its Memorandum, petitioner submits this sole issue for our consideration:

"Whether or not the Court of Appeals, in reversing the ruling of the Regional Trial Court,
erred as a matter of law and jurisprudence, as well as committed grave abuse of discretion,
in holding that in the light of the peculiar facts of this case, venue was improper[.]" 7

This Court’s Ruling

The Petition has no merit.

Sole Issue:

Venue

The resolution of this case rests upon a proper understanding of Section 2 of Rule 4 of the
1997 Revised Rules of Court:

"Sec. 2. Venue of personal actions. – All other actions may be commenced and tried where
the plaintiff or any of the principal plaintiff resides, or where the defendant or any of the
principal defendant resides, or in the case of a non-resident defendant where he may be
found, at the election of the plaintiff."

Since both parties to this case are corporations, there is a need to clarify the meaning of
"residence." The law recognizes two types of persons: (1) natural and (2) juridical.
Corporations come under the latter in accordance with Article 44(3) of the Civil Code. 8

Residence is the permanent home -- the place to which, whenever absent for business or
pleasure, one intends to return.9 Residence is vital when dealing with venue.10 A
corporation, however, has no residence in the same sense in which this term is applied to a
natural person. This is precisely the reason why the Court in Young Auto Supply Company
v. Court of Appeals 11 ruled that "for practical purposes, a corporation is in a metaphysical
sense a resident of the place where its principal office is located as stated in the articles of
incorporation."12 Even before this ruling, it has already been established that the residence
of a corporation is the place where its principal office is established. 13

This Court has also definitively ruled that for purposes of venue, the term "residence" is
synonymous with "domicile."14 Correspondingly, the Civil Code provides:

"Art. 51. When the law creating or recognizing them, or any other provision does not fix the
domicile of juridical persons, the same shall be understood to be the place where their legal
representation is established or where they exercise their principal functions." 15

It now becomes apparent that the residence or domicile of a juridical person is fixed by "the
law creating or recognizing" it. Under Section 14(3) of the Corporation Code, the place
where the principal office of the corporation is to be located is one of the required contents
of the articles of incorporation, which shall be filed with the Securities and Exchange
Commission (SEC).

In the present case, there is no question as to the residence of respondent. What needs to
be examined is that of petitioner. Admittedly, 16 the latter’s principal place of business is
Makati, as indicated in its Articles of Incorporation. Since the principal place of business of a
corporation determines its residence or domicile, then the place indicated in petitioner’s
articles of incorporation becomes controlling in determining the venue for this case.

Petitioner argues that the Rules of Court do not provide that when the plaintiff is a
corporation, the complaint should be filed in the location of its principal office as indicated in
its articles of incorporation.17 Jurisprudence has, however, settled that the place where the
principal office of a corporation is located, as stated in the articles, indeed establishes its
residence.18 This ruling is important in determining the venue of an action by or against a
corporation,19 as in the present case.

Without merit is the argument of petitioner that the locality stated in its Articles of
Incorporation does not conclusively indicate that its principal office is still in the same place.
We agree with the appellate court in its observation that the requirement to state in the
articles the place where the principal office of the corporation is to be located "is not a
meaningless requirement. That proviso would be rendered nugatory if corporations were to
be allowed to simply disregard what is expressly stated in their Articles of Incorporation." 20

Inconclusive are the bare allegations of petitioner that it had closed its Makati office and
relocated to Mandaluyong City, and that respondent was well aware of those circumstances.
Assuming arguendo that they transacted business with each other in the Mandaluyong office
of petitioner, the fact remains that, in law, the latter’s residence was still the place indicated
in its Articles of Incorporation. Further unacceptable is its faulty reasoning that the ground
for the CA’s dismissal of its Complaint was its failure to amend its Articles of Incorporation
so as to reflect its actual and present principal office. The appellate court was clear enough
in its ruling that the Complaint was dismissed because the venue had been improperly laid,
not because of the failure of petitioner to amend the latter’s Articles of Incorporation.

Indeed, it is a legal truism that the rules on the venue of personal actions are fixed for the
convenience of the plaintiffs and their witnesses. Equally settled, however, is the principle
that choosing the venue of an action is not left to a plaintiff’s caprice; the matter is
regulated by the Rules of Court. 21 Allowing petitioner’s arguments may lead precisely to
what this Court was trying to avoid in Young Auto Supply Company v. CA:22 the creation of
confusion and untold inconveniences to party litigants. Thus enunciated the CA:

"x x x. To insist that the proper venue is the actual principal office and not that stated in its
Articles of Incorporation would indeed create confusion and work untold inconvenience.
Enterprising litigants may, out of some ulterior motives, easily circumvent the rules on
venue by the simple expedient of closing old offices and opening new ones in another place
that they may find well to suit their needs."23

We find it necessary to remind party litigants, especially corporations, as follows:

"The rules on venue, like the other procedural rules, are designed to insure a just and
orderly administration of justice or the impartial and evenhanded determination of every
action and proceeding. Obviously, this objective will not be attained if the plaintiff is given
unrestricted freedom to choose the court where he may file his complaint or petition.

"The choice of venue should not be left to the plaintiff’s whim or caprice. He may be
impelled by some ulterior motivation in choosing to file a case in a particular court even if
not allowed by the rules on venue."24
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and
Resolution AFFIRMED. Costs against petitioner.

SO ORDERED.

51

FIRST DIVISION

G.R. No. 205548, February 07, 2018

DE LA SALLE MONTESSORI INTERNATIONAL OF MALOLOS, INC., Petitioner, v. DE LA

SALLE BROTHERS, INC., DE LA SALLE UNIVERSITY, INC., LA SALLE ACADEMY, INC.,
DE LA SALLE-SANTIAGO ZOBEL SCHOOL, INC. (FORMERLY NAMED DE LA SALLE-
SOUTH INC.), DE LA SALLE CANLUBANG, INC. (FORMERLY NAMED DE LA SALLE
UNIVERSITY-CANLUBANG, INC.), Respondents.

DECISION

JARDELEZA, J.:

Petitioner De La Salle Montessori International of Malolos, Inc. filed this petition for review
on certiorari1 under Rule 45 of the Rules of Court to challenge the Decision 2 of the Court of
Appeals (CA) dated September 27, 2012 in CA-G.R. SP No. 116439 and its
Resolution3 dated January 21, 2013 which denied petitioner's motion for reconsideration.
The CA affirmed the Decision 4 of the Securities and Exchange Commission (SEC) En
Banc dated September 30, 2010, which in turn affirmed the Order 5 of the SEC Office of the
General Counsel (OGC) dated May 12, 2010 directing petitioner to change or modify its
corporate name.

Petitioner reserved with the SEC its corporate name De La Salle Montessori International
Malolos, Inc. from June 4 to August 3, 2007, 6 after which the SEC indorsed petitioner's
articles of incorporation and by-laws to the Department of Education (DepEd) for comments
and recommendation.7 The DepEd returned the indorsement without
objections.8 Consequently, the SEC issued a certificate of incorporation to petitioner. 9
Afterwards, DepEd Region III, City of San Fernando, Pampanga granted petitioner
government recognition for its pre-elementary and elementary courses on June 30,
2008,10 and for its secondary courses on February 15, 2010. 11

On January 29, 2010, respondents De La Salle Brothers, Inc., De La Salle University, Inc.,
La Salle Academy, Inc., De La Salle-Santiago Zobel School, Inc. (formerly De La Salle-
South, Inc.), and De La Salle Canlubang, Inc. (formerly De La Salle University-Canlubang,
Inc.) filed a petition with the SEC seeking to compel petitioner to change its corporate
name. Respondents claim that petitioner's corporate name is misleading or confusingly
similar to that which respondents have acquired a prior right to use, and that respondents'
consent to use such name was not obtained. According to respondents, petitioner's use of
the dominant phrases "La Salle" and "De La Salle" gives an erroneous impression that De La
Salle Montessori International of Malolos, Inc. is part of the "La Salle" group, which violates
Section 18 of the Corporation Code of the Philippines. Moreover, being the prior registrant,
respondents have acquired the use of said phrases as part of their corporate names and
have freedom from infringement of the same. 12

On May 12, 2010, the SEC OGC issued an Order 13 directing petitioner to change or modify
its corporate name. It held, among others, that respondents have acquired the right to the
exclusive use of the name "La Salle" with freedom from infringement by priority of adoption,
as they have all been incorporated using the name ahead of petitioner. Furthermore, the
name "La Salle" is not generic in that it does not particularly refer to the basic or inherent
nature of the services provided by respondents. Neither is it descriptive in the sense that it
does not forthwith and clearly convey an immediate idea of what respondents' services are.
In fact, it merely gives a hint, and requires imagination, thought and perception to reach a
conclusion as to the nature of such services. Hence, the SEC OGC concluded that
respondents' use of the phrase "De La Salle" or "La Salle" is arbitrary, fanciful, whimsical
and distinctive, and thus legally protectable. As regards petitioner's argument that its use of
the name does not result to confusion, the SEC OGC held otherwise, noting that confusion is
probably or likely to occur considering not only the similarity in the parties' names but also
the business or industry they are engaged in, which is providing courses of study in pre-
elementary, elementary and secondary education.14 The SEC OGC disagreed with
petitioner's argument that the case of Lyceum of the Philippines, Inc. v. Court of
Appeals15 (Lyceum of the Philippines) applies since the word "lyceum" is clearly descriptive
of the very being and defining purpose of an educational corporation, unlike the term "De La
Salle" or "La Salle." 16 Hence, the Court held in that case that the Lyceum of the Philippines,
Inc. cannot claim exclusive use of the name "lyceum."

Petitioner filed an appeal before the SEC En Banc, which rendered a Decision 17 on
September 30, 2010 affirming the Order of the SEC OGC. It held, among others, that
the Lyceum of the Philippines case does not apply since the word "lyceum" is a generic word
that pertains to a category of educational institutions and is widely used around the world.
Further, the Lyceum of the Philippines failed to prove that "lyceum" acquired secondary
meaning capable of exclusive appropriation. Petitioner also failed to establish that the term
"De La Salle" is generic for the principle enunciated in Lyceum of the Philippines to apply.18

Petitioner consequently filed a petition for review with the CA. On September 27, 2012, the
CA rendered its Decision19 affirming the Order of the SEC OGC and the Decision of the
SEC En Banc in toto.

Hence, this petition, which raises the lone issue of "[w]hether or not the [CA] acted with
grave abuse of discretion amounting to lack or in excess of jurisdiction when it erred in not
applying the doctrine laid down in the case of [Lyceum of the Philippines], that LYCEUM is
not attended with exclusivity." 20

The Court cannot at the outset fail to note the erroneous wording of the issue. Petitioner
alleged grave abuse of discretion while also attributing error of judgment on the part of the
CA in not applying a certain doctrine. Certainly, these grounds do not coincide in the same
remedy. A petition for review on certiorari under Rule 45 of the Rules of Court is a separate
remedy from a petition for certiorari under Rule 65. A petition for review on certiorari under
Rule 45 brings up for review errors of judgment, while a petition for certiorari under Rule 65
covers errors of jurisdiction or grave abuse of discretion amounting to excess or lack of
jurisdiction. Grave abuse of discretion is not an allowable ground under Rule
45.21 Nonetheless, as the petition argues on the basis of errors of judgment allegedly
committed by the CA, the Court will excuse the error in terminology.

The main thrust of the petition is that the CA erred in not applying the ruling in the Lyceum
of the Philippines case which petitioner argues have "the same facts and events" 22 as in this
case.

We DENY the petition and uphold the Decision of the CA.

As early as Western Equipment and Supply Co. v. Reyes,23 the Court declared that a
corporation's right to use its corporate and trade name is a property right, a right in rem,
which it may assert and protect against the world in the same manner as it may protect its
tangible property, real or personal, against trespass or conversion. 24 It is regarded, to a
certain extent, as a property right and one which cannot be impaired or defeated by
subsequent appropriation by another corporation in the same field. 25 Furthermore, in Philips
Export B.V. v. Court of Appeals,26 we held:

A name is peculiarly important as necessary to the very existence of a corporation x x x. Its

name is one of its attributes, an element of its existence, and essential to its identity x x x.
The general rule as to corporations is that each corporation must have a name by which it is
to sue and be sued and do all legal acts. The name of a corporation in this respect
designates the corporation in the same manner as the name of an individual designates the
person x x x; and the right to use its corporate name is as much a part of the corporate
franchise as any other privilege granted x x x.

A corporation acquires its name by choice and need not select a name identical with or
similar to one already appropriated by a senior corporation while an individual's name is
thrust upon him x x x. A corporation can no more use a corporate name in violation of the
rights of others than an individual can use his nan1e legally acquired so as to mislead the
public and injure another x x x.27
Recognizing the intrinsic importance of corporate names, our Corporation Code established
a restrictive rule insofar as corporate names are concerned. 28 Thus, Section 18 thereof
provides:
Sec. 18. Corporate name. - No corporate name may be allowed by the Securities and
Exchange Commission if the proposed name is identical or deceptively or confusingly similar
to that of any existing corporation or to any other name already protected by law or is
patently deceptive, confusing or contrary to existing laws. When a change in the corporate
name is approved, the Commission shall issue an amended certificate of incorporation under
the amended name.
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. 29

Indeed, parties organizing a corporation must choose a name at their peril; and the use of a
name similar to one adopted by another corporation, whether a business or a non-profit
organization, if misleading or likely to injure in the exercise of its corporate functions,
regardless of intent, may be prevented by the corporation having a prior right, by a suit for
injunction against the new corporation to prevent the use of the name. 30

In Philips Export B.V. v. Court of Appeals,31 the Court held that to fall within the prohibition
of Section 18, two requisites must be proven, to wit: (1) that the complainant corporation
acquired a prior right over the use of such corporate name; and (2) the proposed name is
either: (a) identical, or (b) deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law; or (c) patently deceptive,
confusing or contrary to existing law. 32

With respect to the first requisite, the Court has held that the right to the exclusive use of a
corporate name with freedom from infringement by similarity is determined by priority of
adoption.33

In this case, respondents' corporate names were registered on the following dates: (1) De
La Salle Brothers, Inc. on October 9, 1961 under SEC Registration No. 19569; (2) De La
Salle University, Inc. on December 19, 1975 under SEC Registration No. 65138; (3) La Salle
Academy, Inc. on January 26, 1960 under SEC Registration No. 16293; (4) De La Salle -
Santiago Zobel School, Inc. on October 7, 1976 under SEC Registration No. 69997; and (5)
De La Salle Canlubang, Inc. on August 5, 1998 under SEC Registration No. Al998-01021. 34

On the other hand, petitioner was issued a Certificate of Registration only on July 5, 2007
under Company Registration No. CN200710647.35 It being clear that respondents are the
prior registrants, they certainly have acquired the right to use the words "De La Salle" or
"La Salle" as part of their corporate names.

The second requisite is also satisfied since there is a confusing similarity between
petitioner's and respondents' corporate names. While these corporate names are not
identical, it is evident that the phrase "De La Salle" is the dominant phrase used.

Petitioner asserts that it has the right to use the phrase "De La Salle" in its corporate name
as respondents did not obtain the right to its exclusive use, nor did the words acquire
secondary meaning. It endeavoured to demonstrate that no confusion will arise from its use
of the said phrase by stating that its complete name, "De La Salle Montessori International
of Malolos, Inc.," contains four other distinctive words that are not found in respondents'
corporate names. Moreover, it obtained the words "De La Salle" from the French word
meaning "classroom," while respondents obtained it from the French priest named Saint
Jean Baptiste de La Salle. Petitioner also compared its logo to that of respondent De La
Salle University and argued that they are different. Further, petitioner argued that it does
not charge as much fees as respondents, that its clients knew that it is not part of
respondents' schools, and that it never misrepresented nor claimed to be an affiliate of
respondents. Additionally, it has gained goodwill and a name worthy of trust in its own
right.36

We are not persuaded.

In determining the existence of confusing similarity in corporate names, the test is whether
the similarity is such as to mislead a person using ordinary care and discrimination. In so
doing, the Court must look to the record as well as the names themselves. 37

Petitioner's assertion that the words "Montessori International of Malolos, Inc." are four
distinctive words that are not found in respondents' corporate names so that their corporate
name is not identical, confusingly similar, patently deceptive or contrary to existing
laws,38 does not avail. As correctly held by the SEC OGC, all these words, when used with
the name "De La Salle," can reasonably mislead a person using ordinary care and discretion
into thinking that petitioner is an affiliate or a branch of, or is likewise founded by, any or all
of the respondents, thereby causing confusion. 39

Petitioner's argument that it obtained the words "De La Salle" from the French word
meaning "classroom," while respondents obtained it from the French priest named Saint
Jean Baptiste de La Salle, 40 similarly does not hold water. We quote with approval the ruling
of the SEC En Banc on this matter. Thus:
Generic terms are those which constitute "the common descriptive name of an article or
substance," or comprise the "genus of which the particular product is a species," or are
"commonly used as the name or description of a kind of goods," or "characters," or "refer to
the basic nature of the wares or services provided rather than to the more idiosyncratic
characteristics of a particular product," and are not legally protectable. It has been held that
if a mark is so commonplace that it cannot be readily distinguished from others, then it is
apparent that it cannot identify a particular business; and he who first adopted it cannot be
injured by any subsequent appropriation or imitation by others, and the public will not be
deceived.

Contrary to [petitioner's] claim, the word salle only means "room" in French. The word la,
on the other hand, is a definite article ("the") used to modify salle. Thus, since salle is
nothing more than a room, [respondents'] use of the term is actually suggestive.

A suggestive mark is therefore a word, picture, or other symbol that suggests, but does not
directly describe something about the goods or services in connection with which it is used
as a mark and gives a hint as to the quality or nature of the product. Suggestive
trademarks therefore can be distinctive and are registrable.

The appropriation of the term "la salle" to associate the words with the lofty ideals of
education and learning is in fact suggestive because roughly translated, the words only
mean "the room." Thus, the room could be anything - a room in a house, a room in a
building, or a room in an office.

xxx

In fact, the appropriation by [respondents] is fanciful, whimsical and arbitrary because there
is no inherent connection between the words la salle and education, and it is through
[respondents'] painstaking efforts that the term has become associated with one of the top
educational institutions in the country. Even assuming arguendo that la salle means
"classroom" in French, imagination is required in order to associate the term with an
educational institution and its particular brand of service.41
We affirm that the phrase "De La Salle" is not merely a generic term. Respondents' use of
the phrase being suggestive and may properly be regarded as fanciful, arbitrary and
whimsical, it is entitled to legal protection. 42 Petitioner's use of the phrase "De La Salle" in
its corporate name is patently similar to that of respondents that even with reasonable care
and observation, confusion might arise. The Court notes not only the similarity in the
parties' names, but also the business they are engaged in. They are all private educational
institutions offering pre-elementary, elementary and secondary courses. 43 As aptly observed
by the SEC En Banc, petitioner's name gives the impression that it is a branch or affiliate of
respondents.44 It is settled that proof of actual confusion need not be shown. It suffices that
confusion is probable or likely to occur. 45

Finally, the Court's ruling in Lyceum of the Philippines 46 does not apply.

In that case, the Lyceum of the Philippines, Inc., an educational institution registered with
the SEC, commenced proceedings before the SEC to compel therein private respondents
who were all educational institutions, to delete the word "Lyceum" from their corporate
names and permanently enjoin them from using the word as part of their respective names.

The Court there held that the word "Lyceum" today generally refers to a school or institution
of learning. It is as generic in character as the word "university." Since "Lyceum" 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. Moreover, the Lyceum of the
Philippines, Inc.'s use of the word "Lyceum" for a long period of time did not amount to
mean that the word had acquired secondary meaning in its favor because it failed to prove
that it had been using the word all by itself to the exclusion of others. More so, there was no
evidence presented to prove that the word has been so identified with the Lyceum of the
Philippines, Inc. as an educational institution that confusion will surely arise if the same
word were to be used by other educational institutions. 47

Here, the phrase "De La Salle" is not generic in relation to respondents. It is not descriptive
of respondent's business as institutes of learning, unlike the meaning ascribed to "Lyceum."
Moreover, respondent De La Salle Brothers, Inc. was registered in 1961 and the De La Salle
group had been using the name decades before petitioner's corporate registration. In
contrast, there was no evidence of the Lyceum of the Philippines, Inc.'s exclusive use of the
word "Lyceum," as in fact another educational institution had used the word 17 years before
the former registered its corporate name with the SEC. Also, at least nine other educational
institutions included the word in their corporate names. There is thus no similarity between
the Lyceum of the Philippines case and this case that would call for a similar ruling.

The enforcement of the protection accorded by Section 18 of the Corporation Code to

corporate names is lodged exclusively in the SEC. By express mandate, the SEC has
absolute jurisdiction, supervision and control over all corporations. It is the SEC's duty to
prevent confusion in the use of corporate names not only for the protection of the
corporations involved, but more so for the protection of the public. It has authority to de-
register at all times, and under all circumstances, corporate names which in its estimation
are likely to generate confusion. 48

Clearly, the only determination relevant to this case is that one made by the SEC in the
exercise of its express mandate under the law. 49

Time and again, we have held that findings of fact of quasi-judicial agencies, like the SEC,
are generally accorded respect and even finality by this Court, if supported by substantial
evidence, in recognition of their expertise on the specific matters under their consideration,
more so if the same has been upheld by the appellate court, as in this case. 50

WHEREFORE, the Petition is DENIED. The assailed Decision of the CA dated September
27, 2012 is AFFIRMED.
SO ORDERED.

Sereno, C.J., (Chairperson), Leonardo-De Castro, Del Castillo, and Tijam, JJ., concur.