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11. G.R. No. L-27155 May 18, 1978 PHILIPPINE NATIONAL BANK, petitioner, vs.

THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., respondents. ANTONIO, J.: Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of Manila in Civil Case No. 34185, ordering petitioner, as third-party defendant, to pay respondent Rita Gueco Tapnio, as third-party plaintiff, the sum of P2,379.71, plus 12% interest per annum from September 19, 1957 until the same is fully paid, P200.00 attorney's fees and costs, the same amounts which Rita Gueco Tapnio was ordered to pay the Philippine American General Insurance Co., Inc., to be paid directly to the Philippine American General Insurance Co., Inc. in full satisfaction of the judgment rendered against Rita Gueco Tapnio in favor of the former; plus P500.00 attorney's fees for Rita Gueco Tapnio and costs. The basic action is the complaint filed by Philamgen (Philippine American General Insurance Co., Inc.) as surety against Rita Gueco Tapnio and Cecilio Gueco, for the recovery of the sum of P2,379.71 paid by Philamgen to the Philippine National Bank on behalf of respondents Tapnio and Gueco, pursuant to an indemnity agreement. Petitioner Bank was made third-party defendant by Tapnio and Gueco on the theory that their failure to pay the debt was due to the fault or negligence of petitioner. The facts as found by the respondent Court of Appeals, in affirming the decision of the Court of First Instance of Manila, are quoted hereunder: Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio as principal, in favor of the Philippine National Bank Branch at San Fernando, Pampanga, to guarantee the payment of defendant Rita Gueco Tapnio's account with said Bank. In turn, to guarantee the payment of whatever amount the bonding company would pay to the Philippine National Bank, both defendants executed the indemnity agreement, Exh. B. Under the terms and conditions of this indemnity agreement, whatever amount the plaintiff would pay would earn interest at the rate of 12% per annum, plus attorney's fees in the amount of 15 % of the whole amount due in case of court litigation. The original amount of the bond was for P4,000.00; but the amount was later reduced to P2,000.00. It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the sum of P2,000.00, plus accumulated interests unpaid, which she failed to pay despite demands. The Bank wrote a letter of demand to plaintiff, as per Exh. C; whereupon, plaintiff paid the bank on September 18, 1957, the full amount due and owing in the sum of P2,379.91, for and on account of defendant Rita Gueco's obligation. Plaintiff, in turn, made several demands, both verbal and written, upon defendants (Exhs. E and F), but to no avail. Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however, when demand was made upon her by plaintiff for her to pay her debt to the Bank, that she told the Plaintiff that she did not consider herself to be indebted to the Bank at all because she had an agreement with one Jacobo-Nazon whereby she had leased to the latter her unused export sugar quota for the 1956-1957 agricultural year, consisting of 1,000 piculs at the rate of P2.80 per picul, or for a total of P2,800.00, which was already in excess of her obligation guaranteed by plaintiff's bond, Exh. A. This lease agreement, according to her, was with the knowledge of the bank. But the Bank has placed obstacles to the consummation of the lease, and the delay caused by said obstacles forced 'Nazon to rescind the lease contract. Thus, Rita Gueco Tapnio filed her third-party complaint against the Bank to recover from the latter any and all sums of money which may be adjudged against her and in favor of the plaitiff plus moral damages, attorney's fees and costs. Insofar as the contentions of the parties herein are concerned, we quote with approval the following findings of the lower court based on the evidence presented at the trial of the case: It has been established during the trial that Mrs. Tapnio had an export sugar quota of 1,000 piculs for the agricultural year 1956-1957 which she did not need. She agreed to allow Mr. Jacobo C. Tuazon to use said quota for the consideration of P2,500.00 (Exh. "4"-Gueco). This agreement was called a contract of lease of sugar allotment. At the time of the agreement, Mrs. Tapnio was indebted to the Philippine National Bank at San Fernando, Pampanga. Her indebtedness was known as a crop loan and was secured by a mortgage on her standing crop including her sugar quota allocation for the agricultural year corresponding to said standing crop. This arrangement was necessary in order that when Mrs. Tapnio harvests, the P.N.B., having a lien on the crop, may effectively enforce collection against her. Her sugar cannot be exported without sugar quota allotment Sometimes, however, a planter harvest less sugar than her quota, so her excess quota is utilized by another who pays her for its use. This is the arrangement entered into between Mrs. Tapnio and Mr. Tuazon regarding the former's excess quota for 1956-1957 (Exh. "4"-Gueco). Since the quota was mortgaged to the P.N.B., the contract of lease had to be approved by said Bank, The same was submitted to the branch manager at San Fernando, Pampanga. The latter required the parties to raise the consideration of P2.80 per picul or a total of P2,800.00 (Exh. "2-Gueco") informing them that "the minimum lease rental acceptable to the Bank, is P2.80 per picul." In a letter addressed to the branch manager on August 10, 1956, Mr. Tuazon informed the manager that he was agreeable to raising the consideration to P2.80 per picul. He further informed the manager that he was ready to pay said amount as the funds were in his folder which was kept in the bank. Explaining the meaning of Tuazon's statement as to the funds, it was stated by him that he had an approved loan from the bank but he had not yet utilized it as he was intending to use it to pay for the quota. Hence, when he said the amount needed to pay Mrs. Tapnio was in his folder which was in the bank, he meant and the manager understood and knew he had an approved loan available to be used in payment of the quota. In said Exh. "6-Gueco", Tuazon also informed the manager that he would want for a notice from the manager as to the time when the bank needed the money so that Tuazon could sign the corresponding promissory note.

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Further Consideration of the evidence discloses that when the branch manager of the Philippine National Bank at San Fernando recommended the approval of the contract of lease at the price of P2.80 per picul (Exh. 1 1-Bank), whose recommendation was concurred in by the Vicepresident of said Bank, J. V. Buenaventura, the board of directors required that the amount be raised to 13.00 per picul. This act of the board of directors was communicated to Tuazon, who in turn asked for a reconsideration thereof. On November 19, 1956, the branch manager submitted Tuazon's request for reconsideration to the board of directors with another recommendation for the approval of the lease at P2.80 per picul, but the board returned the recommendation unacted upon, considering that the current price prevailing at the time was P3.00 per picul (Exh. 9-Bank). The parties were notified of the refusal on the part of the board of directors of the Bank to grant the motion for reconsideration. The matter stood as it was until February 22, 1957, when Tuazon wrote a letter (Exh. 10-Bank informing the Bank that he was no longer interested to continue the deal, referring to the lease of sugar quota allotment in favor of defendant Rita Gueco Tapnio. The result is that the latter lost the sum of P2,800.00 which she should have received from Tuazon and which she could have paid the Bank to cancel off her indebtedness, The court below held, and in this holding we concur that failure of the negotiation for the lease of the sugar quota allocation of Rita Gueco Tapnio to Tuazon was due to the fault of the directors of the Philippine National Bank, The refusal on the part of the bank to approve the lease at the rate of P2.80 per picul which, as stated above, would have enabled Rita Gueco Tapnio to realize the amount of P2,800.00 which was more than sufficient to pay off her indebtedness to the Bank, and its insistence on the rental price of P3.00 per picul thus unnecessarily increasing the value by only a difference of P200.00. inevitably brought about the rescission of the lease contract to the damage and prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00. The unreasonableness of the position adopted by the board of directors of the Philippine National Bank in refusing to approve the lease at the rate of P2.80 per picul and insisting on the rate of P3.00 per picul, if only to increase the retail value by only P200.00 is shown by the fact that all the accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on standing crops, assignment of leasehold rights and interests on her properties, and surety bonds, aside from the fact that from Exh. 8-Bank, it appears that she was offering to execute a real estate mortgage in favor of the Bank to replace the surety bond This statement is further bolstered by the fact that Rita Gueco Tapnio apparently had the means to pay her obligation fact that she has been granted several 1 value of almost P80,000.00 for the agricultural years from 1952 to 56. Its motion for the reconsideration of the decision of the Court of Appeals having been denied, petitioner filed the present petition. The petitioner contends that the Court of Appeals erred: (1) In finding that the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of respondent Rita Gueco Tapnio by Jacobo C. Tuazon was due to the unjustified refusal of petitioner to approve said lease contract, and its unreasonable insistence on the rental price of P3.00 instead of P2.80 per picul; and (2) In not holding that based on the statistics of sugar price and prices of sugar quota in the possession of the petitioner, the latter's Board of Directors correctly fixed the rental of price per picul of 1,000 piculs of sugar quota leased by respondent Rita Gueco Tapnio to Jacobo C. Tuazon at P3.00 per picul. Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both under its own Charter and under the Corporation Law, to safeguard and protect its rights and interests under the deed of assignment, which include the right to approve or disapprove the said lease of sugar quota and in the exercise of that authority, its Board of Directors necessarily had authority to determine and fix the rental price per picul of the sugar quota subject of the lease between private respondents and Jacobo C. Tuazon. It argued further that both under its Charter and the Corporation Law, petitioner, acting thru its Board of Directors, has the perfect right to adopt a policy with respect to fixing of rental prices of export sugar quota allocations, and in fixing the rentals at P3.00 per picul, it did not act arbitrarily since the said Board was guided by statistics of sugar price and prices of sugar quotas prevailing at the time. Since the fixing of the rental of the sugar quota is a function lodged with petitioner's Board of Directors and is a matter of policy, the respondent Court of Appeals could not substitute its own judgment for that of said Board of Directors, which acted in good faith, making as its basis therefore the prevailing market price as shown by statistics which were then in their possession. Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great injustice because as a creditor, it shall be deprived of a just claim against its debtor (respondent Rita Gueco Tapnio) as it would be required to return to respondent Philamgen the sum of P2,379.71, plus interest, which amount had been previously paid to petitioner by said insurance company in behalf of the principal debtor, herein respondent Rita Gueco Tapnio, and without recourse against respondent Rita Gueco Tapnio. We must advert to the rule that this Court's appellate jurisdiction in proceedings of this nature is limited to reviewing only errors of law, accepting 2 as conclusive the factual fin dings of the Court of Appeals upon its own assessment of the evidence. The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio and Jacobo C. Tuazon was executed on April 17, 1956. This contract was submitted to the Branch Manager of the Philippine National Bank at San Fernando, Pampanga. This arrangement was necessary because Tapnio's indebtedness to petitioner was secured by a mortgage on her standing crop including her sugar quota allocation for the agricultural year corresponding to said standing crop. The latter required the parties to raise the consideration to P2.80 per picul, the minimum lease rental acceptable to the Bank, or a total of P2,800.00. Tuazon informed the Branch Manager, thru a letter dated August 10, 1956, that he was agreeable to raising the consideration to P2.80 per picul. He further informed the manager that he was ready to pay the said sum of P2,800.00 as the funds were in his folder which was kept in the said Bank. This referred to the approved loan of Tuazon from the Bank which he intended to use in paying for the use of the sugar quota. The Branch Manager submitted the contract of lease of sugar quota allocation to the Head Office on September 7, 1956, with a recommendation for approval, which recommendation was concurred in by the Vice-President of the Bank, Mr. J. V. Buenaventura. This notwithstanding, the Board of Directors of petitioner required that the consideration be raised to P3.00 per picul. Tuazon, after being informed of the action of the Board of Directors, asked for a reconsideration thereof. On November 19, 1956, the Branch Manager submitted the request for reconsideration and again recommended the approval of the lease at P2.80 per picul, but the Board returned the recommendation unacted, stating that the current price prevailing at that time was P3.00 per picul.

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On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer interested in continuing the lease of sugar quota allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota, resulting in her loss in the sum of P2,800.00 which she should have received had the lease in favor of Tuazon been implemented. It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the consideration of the lease from P2.50 to P2.80 per picul, or a total of P2,800-00, they readily agreed. Hence, in his letter to the Branch Manager of the Bank on August 10, 1956, Tuazon informed him that the minimum lease rental of P2.80 per picul was acceptable to him and that he even offered to use the loan secured by him from petitioner to pay in full the sum of P2,800.00 which was the total consideration of the lease. This arrangement was not only satisfactory to the Branch Manager but it was also approves by Vice-President J. V. Buenaventura of the PNB. Under that arrangement, Rita Gueco Tapnio could have realized the amount of P2,800.00, which was more than enough to pay the balance of her indebtedness to the Bank which was secured by the bond of Philamgen. There is no question that Tapnio's failure to utilize her sugar quota for the crop year 1956-1957 was due to the disapproval of the lease by the Board of Directors of petitioner. The issue, therefore, is whether or not petitioner is liable for the damage caused. As observed by the trial court, time is of the essence in the approval of the lease of sugar quota allotments, since the same must be utilized during the milling season, because any allotment which is not filled during such milling season may be reallocated by the Sugar Quota Administration to 3 other holders of allotments. There was no proof that there was any other person at that time willing to lease the sugar quota allotment of private respondents for a price higher than P2.80 per picul. "The fact that there were isolated transactions wherein the consideration for the lease was P3.00 a picul", according to the trial court, "does not necessarily mean that there are always ready takers of said price. " The unreasonableness of the position adopted by the petitioner's Board of Directors is shown by the fact that the difference between the amount of P2.80 per picul offered by Tuazon and the P3.00 per picul demanded by the Board amounted only to a total sum of P200.00. Considering that all the accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on standing crops, assignment of leasehold rights and interests on her properties, and surety bonds and that she had apparently "the means to pay her obligation to the Bank, as shown by the fact that she has been granted several sugar crop loans of the total value of almost P80,000.00 for the agricultural years from 1952 to 1956", there was no reasonable basis for the Board of Directors of petitioner to have rejected the lease agreement because of a measly sum of P200.00. While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was mortgaged to the Bank, the latter certainly cannot escape its responsibility of observing, for the protection of the interest of private respondents, that degree of care, precaution and vigilance which the circumstances justly demand in approving or disapproving the lease of said sugar quota. The law makes it imperative that every person "must in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and 4 good faith, This petitioner failed to do. Certainly, it knew that the agricultural year was about to expire, that by its disapproval of the lease private respondents would be unable to utilize the sugar quota in question. In failing to observe the reasonable degree of care and vigilance which the surrounding circumstances reasonably impose, petitioner is consequently liable for the damages caused on private respondents. Under Article 21 of the New Civil Code, "any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage." The afore-cited provisions on human relations were intended to expand the concept of torts in this jurisdiction by granting adequate legal remedy for the untold number of moral wrongs which is impossible for human foresight to specifically 5 provide in the statutes. A corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the rules governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person. All of the authorities agree that a principal or master is liable for every tort which he expressly directs or authorizes, and this is just as true of a corporation as of a natural person, A corporation is liable, therefore, whenever a tortious act is committed by an officer or agent under express direction or authority from the stockholders or members acting as a body, or, 6 generally, from the directors as the governing body." WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED.

12. G.R. No. L-31061 August 17, 1976 SULO NG BAYAN INC., plaintiff-appellant, vs. GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF DEEDS OF BULACAN, defendants-appellees. ANTONIO, J.: The issue posed in this appeal is whether or not plaintiff corporation (non- stock may institute an action in behalf of its individual members for the recovery of certain parcels of land allegedly owned by said members; for the nullification of the transfer certificates of title issued in favor of defendants appellees covering the aforesaid parcels of land; for a declaration of "plaintiff's members as absolute owners of the property" and the issuance of the corresponding certificate of title; and for damages. On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against defendants-appellees to recover the ownership and possession of a large tract of land in San Jose del Monte, Bulacan, containing an area of 27,982,250 square meters, more or less, registered under the Torrens System in the name of defendants-appellees' 1 predecessors-in-interest. The complaint, as amended on June 13, 1966, specifically alleged that plaintiff is a corporation organized and existing under the laws of the Philippines, with its principal office and place of business at San Jose del Monte, Bulacan; that its membership is composed of natural persons residing at San Jose del Monte, Bulacan; that the members of the plaintiff corporation, through themselves and their predecessorsin-interest, had pioneered in the clearing of the fore-mentioned tract of land, cultivated the same since the Spanish regime and continuously possessed the said property openly and public under concept of ownership adverse against the whole world; that defendant-appellee Gregorio

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Araneta, Inc., sometime in the year 1958, through force and intimidation, ejected the members of the plaintiff corporation fro their possession of the aforementioned vast tract of land; that upon investigation conducted by the members and officers of plaintiff corporation, they found out for the first time in the year 1961 that the land in question "had been either fraudelently or erroneously included, by direct or constructive fraud, in Original Certificate of Title No. 466 of the Land of Records of the province of Bulacan", issued on May 11, 1916, which title is fictitious, non-existent and devoid of legal efficacy due to the fact that "no original survey nor plan whatsoever" appears to have been submitted as a basis thereof and that the Court of First Instance of Bulacan which issued the decree of registration did not acquire jurisdiction over the land registration case because no notice of such proceeding was given to the members of the plaintiff corporation who were then in actual possession of said properties; that as a consequence of the nullity of the original title, all subsequent titles derived therefrom, such as Transfer Certificate of Title No. 4903 issued in favor of Gregorio Araneta and Carmen Zaragoza, which was subsequently cancelled by Transfer Certificate of Title No. 7573 in the name of Gregorio Araneta, Inc., Transfer Certificate of Title No. 4988 issued in the name of, the National Waterworks & Sewerage Authority (NWSA), Transfer Certificate of Title No. 4986 issued in the name of Hacienda Caretas, Inc., and another transfer certificate of title in the name of Paradise Farms, Inc., are therefore void. Plaintiff-appellant consequently prayed (1) that Original Certificate of Title No. 466, as well as all transfer certificates of title issued and derived therefrom, be nullified; (2) that "plaintiff's members" be declared as absolute owners in common of said property and that the corresponding certificate of title be issued to plaintiff; and (3) that defendant-appellee Gregorio Araneta, Inc. be ordered to pay to plaintiff the damages therein specified. On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the amended complaint on the grounds that (1) the complaint states no cause of action; and (2) the cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based on the same grounds. Appellee National Waterworks & Sewerage Authority did not file any motion to dismiss. However, it pleaded in its answer as special and affirmative defenses lack of cause of action by the plaintiff-appellant and the barring of such action by prescription and laches. During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated October 7, 1966, praying that the case be transferred to another branch of the Court of First Instance sitting at Malolos, Bulacan, According to defendants-appellees, they were not furnished a copy of said motion, hence, on October 14, 1966, the lower court issued an Order requiring plaintiff-appellant to furnish the appellees copy of said motion, hence, on October 14, 1966, defendant-appellant's motion dated October 7, 1966 and, consequently, prayed that the said motion be denied for lack of notice and for failure of the plaintiff-appellant to comply with the Order of October 14, 1966. Similarly, defendant-appellee paradise Farms, Inc. filed, on December 2, 1966, a manifestation information the court that it also did not receive a copy of the afore-mentioned of appellant. On January 24, 1967, the trial court issued an Order dismissing the amended complaint. On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the grounds that the court had no jurisdiction to issue the Order of dismissal, because its request for the transfer of the case from the Valenzuela Branch of the Court of First Instance to the Malolos Branch of the said court has been approved by the Department of Justice; that the complaint states a sufficient cause of action because the subject matter of the controversy in one of common interest to the members of the corporation who are so numerous that the present complaint should be treated as a class suit; and that the action is not barred by the statute of limitations because (a) an action for the reconveyance of property registered through fraud does not prescribe, and (b) an action to impugn a void judgment may be brought any time. This motion was denied by the trial court in its Order dated February 22, 1967. From the afore-mentioned Order of dismissal and the Order denying its motion for reconsideration, plaintiff-appellant appealed to the Court of Appeals. On September 3, 1969, the Court of Appeals, upon finding that no question of fact was involved in the appeal but only questions of law and jurisdiction, certified this case to this Court for resolution of the legal issues involved in the controversy. I Appellant contends, as a first assignment of error, that the trial court acted without authority and jurisdiction in dismissing the amended complaint when the Secretary of Justice had already approved the transfer of the case to any one of the two branches of the Court of First Instance of Malolos, Bulacan. Appellant confuses the jurisdiction of a court and the venue of cases with the assignment of cases in the different branches of the same Court of First Instance. Jurisdiction implies the power of the court to decide a case, while venue the place of action. There is no question that respondent court has jurisdiction over the case. The venue of actions in the Court of First Instance is prescribed in Section 2, Rule 4 of the Revised Rules of 2 Court. The laying of venue is not left to the caprice of plaintiff, but must be in accordance with the aforesaid provision of the rules. The mere fact that a request for the transfer of a case to another branch of the same court has been approved by the Secretary of Justice does not divest the court originally taking cognizance thereof of its jurisdiction, much less does it change the venue of the action. As correctly observed by the trial court, the indorsement of the Undersecretary of Justice did not order the transfer of the case to the Malolos Branch of the Bulacan Court of First Instance, but only "authorized" it for the reason given by plaintiff's counsel that the transfer would be convenient for the parties. The trial court is not without power to either grant or deny the motion, especially in the light of a strong opposition thereto filed by the defendant. We hold that the court a quo acted within its authority in denying the motion for the transfer the case to Malolos notwithstanding the authorization" of the same by the Secretary of Justice. II Let us now consider the substantive aspect of the Order of dismissal. In dismissing the amended complaint, the court a quo said: The issue of lack of cause of action raised in the motions to dismiss refer to the lack of personality of plaintiff to file the instant action. Essentially, the term 'cause of action' is composed of two elements: (1) the right of the plaintiff and (2) the violation of such right by the defendant. (Moran, Vol. 1, p. 111). For these reasons, the rules require that every action must be prosecuted and defended in the name of the real party in interest and that all persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs (Sec. 2, Rule 3). In the amended complaint, the people whose rights were alleged to have been violated by being deprived and dispossessed of their land are the members of the corporation and not the corporation itself. The corporation has a separate. and distinct personality from its members, and this is not a mere technicality but a matter of substantive law. There is no allegation that the members

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have assigned their rights to the corporation or any showing that the corporation has in any way or manner succeeded to such rights. The corporation evidently did not have any rights violated by the defendants for which it could seek redress. Even if the Court should find against the defendants, therefore, the plaintiff corporation would not be entitled to the reliefs prayed for, which are recoveries of ownership and possession of the land, issuance of the corresponding title in its name, and payment of damages. Neither can such reliefs be awarded to the members allegedly deprived of their land, since they are not parties to the suit. It appearing clearly that the action has not been filed in the 3 names of the real parties in interest, the complaint must be dismissed on the ground of lack of cause of action. Viewed in the light of existing law and jurisprudence, We find that the trial court correctly dismissed the amended complaint. It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its 4 stockholders or members. The property of the corporation is its property and not that of the stockholders, as owners, although they have equities 5 in it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. Conversely, a corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation, "even in the case of a one6 man corporation. The mere fact that one is president of a corporation does not render the property which he owns or possesses the property of 7 the corporation, since the president, as individual, and the corporation are separate similarities. Similarly, stockholders in a corporation engaged in buying and dealing in real estate whose certificates of stock entitled the holder thereof to an allotment in the distribution of the land of the corporation upon surrender of their stock certificates were considered not to have such legal or equitable title or interest in the land, as would 8 support a suit for title, especially against parties other than the corporation. It must be noted, however, that the juridical personality of the corporation, as separate and distinct from the persons composing it, is but a legal 9 fiction introduced for the purpose of convenience and to subserve the ends of justice. This separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work -an injustice, or 10 where necessary to achieve equity. Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, ... the law will regard the corporation as an association of persons, or in the case of two corporations, merge them into one, the one being merely regarded as part or 11 instrumentality of the other. The same is true where a corporation is a dummy and serves no business purpose and is intended only as a blind, or 12 an alter ego or business conduit for the sole benefit of the stockholders. This doctrine of disregarding the distinct personality of the corporation 13 has been applied by the courts in those cases when the corporate entity is used for the evasion of taxes or when the veil of corporate fiction is 14 used to confuse legitimate issue of employer-employee relationship, or when necessary for the protection of creditors, in which case the veil of 15 corporate fiction may be pierced and the funds of the corporation may be garnished to satisfy the debts of a principal stockholder. The 16 aforecited principle is resorted to by the courts as a measure protection for third parties to prevent fraud, illegality or injustice. It has not been claimed that the members have assigned or transferred whatever rights they may have on the land in question to the plaintiff corporation. Absent any showing of interest, therefore, a corporation, like plaintiff-appellant herein, has no personality to bring an action for and in behalf of its stockholders or members for the purpose of recovering property which belongs to said stockholders or members in their personal capacities. It is fundamental that there cannot be a cause of action 'without an antecedent primary legal right conferred' by law upon a person. Evidently, there can be no wrong without a corresponding right, and no breach of duty by one person without a corresponding right belonging to some other 18 person. Thus, the essential elements of a cause of action are legal right of the plaintiff, correlative obligation of the defendant, an act or omission 19 of the defendant in violation of the aforesaid legal right. Clearly, no right of action exists in favor of plaintiff corporation, for as shown heretofore it does not have any interest in the subject matter of the case which is material and, direct so as to entitle it to file the suit as a real party in interest. III Appellant maintains, however, that the amended complaint may be treated as a class suit, pursuant to Section 12 of Rule 3 of the Revised Rules of Court. In order that a class suit may prosper, the following requisites must be present: (1) that the subject matter of the controversy is one of common or 20 general interest to many persons; and (2) that the parties are so numerous that it is impracticable to bring them all before the court. Under the first requisite, the person who sues must have an interest in the controversy, common with those for whom he sues, and there must be that unity of interest between him and all such other persons which would entitle them to maintain the action if suit was brought by them 21 jointly. As to what constitutes common interest in the subject matter of the controversy, it has been explained in Scott v. Donald
22 17

thus:

The interest that will allow parties to join in a bill of complaint, or that will enable the court to dispense with the presence of all the parties, when numerous, except a determinate number, is not only an interest in the question, but one in common in the subject Matter of the suit; ... a community of interest growing out of the nature and condition of the right in dispute; for, although there may not be any privity between the numerous parties, there is a common title out of which the question arises, and which lies at the foundation of the proceedings ... [here] the only matter in common among the plaintiffs, or between them and the defendants, is an interest in the Question involved which alone cannot lay a foundation for the joinder of parties. There is scarcely a suit at law, or in equity which settles a Principle or applies a principle to a given state of facts, or in which a general statute is interpreted, that does not involved a Question in which other parties are interested. ... Here, there is only one party plaintiff, and the plaintiff corporation does not even have an interest in the subject matter of the controversy, and cannot, therefore, represent its members or stockholders who claim to own in their individual capacities ownership of the said property. Moreover, as correctly stated by the appellees, a class suit does not lie in actions for the recovery of property where several persons claim Partnership of their

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respective portions of the property, as each one could alleged and prove his respective right in a different way for each portion of the land, so that 23 they cannot all be held to have Identical title through acquisition prescription. Having shown that no cause of action in favor of the plaintiff exists and that the action in the lower court cannot be considered as a class suit, it would be unnecessary and an Idle exercise for this Court to resolve the remaining issue of whether or not the plaintiffs action for reconveyance of real property based upon constructive or implied trust had already prescribed. ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-appellant.

13. G.R. No. 100866 July 14, 1992 REBECCA BOYER-ROXAS and GUILLERMO ROXAS, petitioners, vs. HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS, INC., respondents. GUTIERREZ, JR., J.: This is a petition to review the decision and resolution of the Court of Appeals in CA-G.R. No. 14530 affirming the earlier decision of the Regional Trial Court of Laguna, Branch 37, at Calamba, in the consolidated RTC Civil Case Nos. 802-84-C and 803-84-C entitled "Heirs of Eugenia V. Roxas, Inc. v. Rebecca Boyer-Roxas" and Heirs of Eugenia V. Roxas, Inc. v. Guillermo Roxas," the dispositive portion of which reads: IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendants, by ordering as it is hereby ordered that: 1) In RTC Civil Case No. 802-84-C: Rebecca Boyer-Roxas and all persons claiming under her to: a) Immediately vacate the residential house near the Balugbugan pool located inside the premises of the Hidden Valley Springs Resort at Limao, Calauan, Laguna; b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for her occupancy of the residential house until the same is vacated; c) Remove the unfinished building erected on the land of the plaintiff within ninety (90) days from receipt of this decision; d) Pay the plaintiff the amount of P100.00 per month from September 10, 1983, until the said unfinished building is removed from the land of the plaintiff; and e) Pay the costs. 2) In RTC Civil Case No. 803-84-C: Guillermo Roxas and all persons claiming under him to: a) Immediately vacate the residential house near the tennis court located within the premises of the Hidden Valley Springs Resort at Limao, Calauan, Laguna; b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for his occupancy of the said residential house until the same is vacated; and c) Pay the costs. (Rollo, p. 36) In two (2) separate complaints for recovery of possession filed with the Regional Trial Court of Laguna against petitioners Rebecca Boyer-Roxas and Guillermo Roxas respectively, respondent corporation, Heirs of Eugenia V. Roxas, Inc., prayed for the ejectment of the petitioners from buildings inside the Hidden Valley Springs Resort located at Limao, Calauan, Laguna allegedly owned by the respondent corporation. In the case of petitioner Rebecca Boyer-Roxas (Civil Case No-802-84-C), the respondent corporation alleged that Rebecca is in possession of two (2) houses, one of which is still under construction, built at the expense of the respondent corporation; and that her occupancy on the two (2) houses was only upon the tolerance of the respondent corporation. In the case of petitioner Guillermo Roxas (Civil Case No. 803-84-C), the respondent corporation alleged that Guillermo occupies a house which was built at the expense of the former during the time when Guillermo's father, Eriberto Roxas, was still living and was the general manager of the respondent corporation; that the house was originally intended as a recreation hall but was converted for the residential use of Guillermo; and that Guillermo's possession over the house and lot was only upon the tolerance of the respondent corporation. In both cases, the respondent corporation alleged that the petitioners never paid rentals for the use of the buildings and the lots and that they ignored the demand letters for them to vacate the buildings. In their separate answers, the petitioners traversed the allegations in the complaint by stating that they are heirs of Eugenia V. Roxas and therefore, co-owners of the Hidden Valley Springs Resort; and as co-owners of the property, they have the right to stay within its premises.

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The cases were consolidated and tried jointly. At the pre-trial, the parties limited the issues as follows: 1) whether plaintiff is entitled to recover the questioned premises; 2) whether plaintiff is entitled to reasonable rental for occupancy of the premises in question; 3) whether the defendant is legally authorized to pierce the veil of corporate fiction and interpose the same as a defense in an accion publiciana; 4) whether the defendants are truly builders in good faith, entitled to occupy the questioned premises; 5) whether plaintiff is entitled to damages and reasonable compensation for the use of the questioned premises; 6) whether the defendants are entitled to their counterclaim to recover moral and exemplary damages as well as attorney's fees in the two cases; 7) whether the presence and occupancy by the defendants on the premises in questioned (sic) hampers, deters or impairs plaintiff's operation of Hidden Valley Springs Resort; and 8) whether or not a unilateral and sudden withdrawal of plaintiffs tolerance allowing defendants' occupancy of the premises in questioned (sic) is unjust enrichment. (Original Records, 486) Upon motion of the plaintiff respondent corporation, Presiding Judge Francisco Ma. Guerrero of Branch 34 issued an Order dated April 25, 1986 inhibiting himself from further trying the case. The cases were re-raffled to Branch 37 presided by Judge Odilon Bautista. Judge Bautista continued the hearing of the cases. For failure of the petitioners (defendants below) and their counsel to attend the October 22, 1986 hearing despite notice, and upon motion of the respondent corporation, the court issued on the same day, October 22, 1986, an Order considering the cases submitted for decision. At this stage of the proceedings, the petitioners had not yet presented their evidence while the respondent corporation had completed the presentation of its evidence. The evidence of the respondent corporation upon which the lower court based its decision is as follows: To support the complaints, the plaintiff offered the testimonies of Maria Milagros Roxas and that of Victoria Roxas Villarta as well as Exhibits "A" to "M-3". The evidence of the plaintiff established the following: that the plaintiff, Heirs of Eugenia V Roxas, Incorporated, was incorporated on December 4, 1962 (Exh. "C") with the primary purpose of engaging in agriculture to develop the properties inherited from Eugenia V. Roxas and that of y Eufrocino Roxas; that the Articles of Incorporation of the plaintiff, in 1971, was amended to allow it to engage in the resort business (Exh. "C-1"); that the incorporators as original members of the board of directors of the plaintiff were all members of the same family, with Eufrocino Roxas having the biggest share; that accordingly, the plaintiff put up a resort known as Hidden Valley Springs Resort on a portion of its land located at Bo. Limao, Calauan, Laguna, and covered by TCT No. 32639 (Exhs. "A" and "A-l"); that improvements were introduced in the resort by the plaintiff and among them were cottages, houses or buildings, swimming pools, tennis court, restaurant and open pavilions; that the house near the Balugbugan Pool (Exh. "B-l") being occupied by Rebecca B. Roxas was originally intended as staff house but later used as the residence of Eriberto Roxas, deceased husband of the defendant Rebecca Boyer-Roxas and father of Guillermo Roxas; that this house presently being occupied by Rebecca B. Roxas was built from corporate funds; that the construction of the unfinished house (Exh. "B-2") was started by the defendant Rebecca Boyer-Roxas and her husband Eriberto Roxas; that the third building (Exh. "B-3") presently being occupied by Guillermo Roxas was originally intended as a recreation hall but later converted as a residential house; that this house was built also from corporate funds; that the said house occupied by Guillermo Roxas when it was being built had nipa roofing but was later changed to galvanized iron sheets; that at the beginning, it had no partition downstairs and the second floor was an open space; that the conversion from a recreation hall to a residential house was with the knowledge of Eufrocino Roxas and was not objected to by any of the Board of Directors of the plaintiff; that most of the materials used in converting the building into a residential house came from the materials left by Coppola, a film producer, who filmed the movie "Apocalypse Now"; that Coppola left the materials as part of his payment for rents of the rooms that he occupied in the resort; that after the said recreation hall was converted into a residential house, defendant Guillermo Roxas moved in and occupied the same together with his family sometime in 1977 or 1978; that during the time Eufrocino Roxas was still alive, Eriberto Roxas was the general manager of the corporation and there was seldom any board meeting; that Eufrocino Roxas together with Eriberto Roxas were (sic) the ones who were running the corporation; that during this time, Eriberto Roxas was the restaurant and wine concessionaire of the resort; that after the death of Eufrocino Roxas, Eriberto Roxas continued as the general manager until his death in 1980; that after the death of Eriberto Roxas in 1980, the defendants Rebecca B. Roxas and Guillermo Roxas, committed acts that impeded the plaintiff's expansion and normal operation of the resort; that the plaintiff could not even use its own pavilions, kitchen and other facilities because of the acts of the defendants which led to the filing of criminal cases in court; that cases were even filed before the Ministry of Tourism, Bureau of Domestic Trade and the Office of the President by the parties herein; that the defendants violated the resolution and orders of the Ministry of Tourism dated July 28, 1983, August 3, 1983 and November 26, 1984 (Exhs. "G", "H" and "H-l") which ordered them or the corporation they represent to desist from and to turn over immediately to the plaintiff the management and operation of the restaurant and wine outlets of the said resort (Exh. "G-l"); that the defendants also violated the decision of the Bureau of Domestic Trade dated October 23, 1983 (Exh. "C"); that on August 27, 1983, because of the acts of the defendants, the Board of Directors of the plaintiff adopted Resolution No. 83-12 series of 1983 (Exh. "F") authorizing the ejectment of the defendants from the premises occupied by them; that on September 1, 1983, demand letters were sent to Rebecca Boyer-Roxas and Guillermo Roxas (Exhs. "D" and "D-1") demanding that they vacate the respective premises they occupy; and that the dispute between the plaintiff and the defendants was brought before the barangay level and the same was not settled.

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The petitioners appealed the decision to the Court of Appeals. However, as stated earlier, the appellate court affirmed the lower court's decision. The Petitioners' motion for reconsideration was likewise denied. Hence, this petition. In a resolution dated February 5, 1992, we gave due course to the petition. The petitioners now contend: I Respondent Court erred when it refused to pierce the veil of corporate fiction over private respondent and maintain the petitioners in their possession and/or occupancy of the subject premises considering that petitioners are owners of aliquot part of the properties of private respondent. Besides, private respondent itself discarded the mantle of corporate fiction by acts and/or omissions of its board of directors and/or stockholders. II The respondent Court erred in not holding that petitioners were in fact denied due process or their day in court brought about by the gross negligence of their former counsel. III The respondent Court misapplied the law when it ordered petitioner Rebecca Boyer-Roxas to remove the unfinished building in RTC Case No. 802-84-C, when the trial court opined that she spent her own funds for the construction thereof. (CA Rollo, pp. 17-18) Were the petitioners denied due process of law in the lower court? After the cases were re-raffled to the sala of Presiding Judge Odilon Bautista of Branch 37 the following events transpired: On July 3, 1986, the lower court issued an Order setting the hearing of the cases on July 21, 1986. Petitioner Rebecca V. Roxas received a copy of the Order on July 15, 1986, while petitioner Guillermo Roxas received his copy on July 18, 1986. Atty. Conrado Manicad, the petitioners' counsel received another copy of the Order on July 11, 1986. (Original Records, p. 260) On motion of the respondent corporation's counsel, the lower court issued an Order dated July 15, 1986 cancelling the July 21, 1986 hearing and resetting the hearing to August 11, 1986. (Original records, 262-263) Three separate copies of the order were sent and received by the petitioners and their counsel. (Original Records, pp. 268, 269, 271) A motion to cancel and re-schedule the August 11, 1986 hearing filed by the respondent corporation's counsel was denied in an Order dated August 8, 1986. Again separate copies of the Order were sent and received by the petitioners and their counsel. (Original Records, pp. 276-279) At the hearing held on August 11, 1986, only Atty. Benito P. Fabie, counsel for the respondent corporation appeared. Neither the petitioners nor their counsel appeared despite notice of hearing. The lower court then issued an Order on the same date, to wit: ORDER When these cases were called for continuation of trial, Atty. Benito P. Fabie appeared before this Court, however, the defendants and their lawyer despite receipt of the Order setting the case for hearing today failed to appear. On Motion of Atty. Fabie, further cross examination of witness Victoria Vallarta is hereby considered as having been waived. The plaintiff is hereby given twenty (20) days from today within which to submit formal offer of evidence and defendants are also given ten (10) days from receipt of such formal offer of evidence to file their objection thereto. In the meantime, hearing in these cases is set to September 29, 1986 at 10:00 o'clock in the morning. (Original Records, p. 286) Copies of the Order were sent and received by the petitioners and their counsel on the following dates Rebecca Boyer-Roxas on August 20, 1986, Guillermo Roxas on August 26, 1986, and Atty. Conrado Manicad on September 19, 1986. (Original Records, pp. 288-290) On September 1, 1986, the respondent corporation filed its "Formal Offer of Evidence." In an Order dated September 29, 1986, the lower court issued an Order admitting exhibits "A" to "M-3" submitted by the respondent corporation in its "Formal Offer of Evidence . . . there being no objection . . ." (Original Records, p. 418) Copies of this Order were sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on October 9, 1986; Guillermo Roxas on October 9, 1986 and Atty. Conrado Manicad on October 4, 1986. The scheduled hearing on September 29, 1986 did not push through as the petitioners and their counsel were not present prompting Atty. Benito Fabie, the respondent corporation's counsel to move that the cases be submitted for decision. The lower court denied the motion and set the cases for hearing on October 22, 1986. However, in its Order dated September 29, 1986, the court warned that in the event the petitioners and their counsel failed to appear on the next scheduled hearing, the court shall consider the cases submitted for decision based on the evidence on record. Separate copies of this Order were sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on October 9, 1986, Guillermo Roxas on October 9, 1986; and Atty. Conrado Manicad on October 1, 1986. (Original Records, pp. 429-430) Despite notice, the petitioners and their counsel again failed to attend the scheduled October 22, 1986 hearing. Atty. Fabie representing the respondent corporation was present. Hence, in its Order dated October 22, 1986, on motion of Atty. Fabie and pursuant to the order dated September 29, 1986, the Court considered the cases submitted for decision. (Original Records, p. 436)

8|LLB IIIB CORPORATION CASES (Atty. Acosta -Dofitas)

On November 14, 1986, the respondent corporation, filed a "Manifestation", stating that ". . . it is submitting without further argument its "Opposition to the Motion for Reconsideration" for the consideration of the Honorable Court in resolving subject incident." On December 16, 1986, the lower court issued an Order, to wit: ORDER Considering that the Court up to this date has not received any Motion for Reconsideration filed by the defendants in the above-entitled cases, the Court cannot act on the Opposition to Motion for Reconsideration filed by the plaintiff and received by the Court on November 14, 1986. (Original Records, p. 446) On January 15, 1987, the lower court rendered the questioned decision in the two (2) cases. (Original Records, pp. 453-459) On January 20, 1987, Atty. Conrado Manicad, the petitioners' counsel filed an Ex-Parte Manifestation and attached thereto, a motion for reconsideration of the October 22, 1986 Order submitting the cases for decision. He prayed that the Order be set aside and the cases be re-opened for reception of evidence for the petitioners. He averred that: 1) within the reglementary period he prepared the motion for reconsideration and among other documents, the draft was sent to his law office thru his messenger; after signing the final copies, he caused the service of a copy to the respondent corporation's counsel with the instruction that the copy of the Court be filed; however, there was a miscommunication between his secretary and messenger in that the secretary mailed the copy for the respondent corporation's counsel and placed the rest in an envelope for the messenger to file the same in court but the messenger thought that it was the secretary who would file it; it was only later on when it was discovered that the copy for the Court has not yet been filed and that such failure to file the motion for reconsideration was due to excusable neglect and/or accident. The motion for reconsideration contained the following allegations: that on the date set for hearing (October 22, 1986), he was on his way to Calamba to attend the hearing but his car suffered transmission breakdown; and that despite efforts to repair said transmission, the car remained inoperative resulting in his absence at the said hearing. (Original Records, pp. 460-469) On February 3, 1987, Atty. Manicad filed a motion for reconsideration of the January 15, 1987 decision. He explained that he had to file the motion because the receiving clerk refused to admit the motion for reconsideration attached to the ex-parte manifestation because there was no proof of service to the other party. Included in the motion for reconsideration was a notice of hearing of the motion on February 3, 1987. On February 4, 1987, the respondent corporation through its counsel filed a Manifestation and Motion manifesting that they received the copy of the motion for reconsideration only today (February 4, 1987), hence they prayed for the postponement of the hearing. On the same day, February 4, 1987, the lower court issued an Order setting the hearing on February 13, 1987 on the ground that it received the motion for reconsideration late. Copies of this Order were sent separately to the petitioners and their counsel. The records show that Atty. Manicad received his copy on February 11, 1987. As regards the petitioners, the records reveal that Rebecca Boyer-Roxas did not receive her copy while as regards Guillermo Roxas, somebody signed for him but did not indicate when the copy was received. (Original Records, pp. 481-483) At the scheduled February 13, 1987 hearing, the counsels for the parties were present. However, the hearing was reset for March 6, 1987 in order to allow the respondent corporation to file its opposition to the motion for reconsideration. (Order dated February 13, 1987, Original Records, p. 486) Copies of the Order were sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on February 23, 1987; Guillermo Roxas on February 23, 1987 and Atty. Manicad on February 19, 1987. (Original Records, pp. 487, 489-490) The records are not clear as to whether or not the scheduled hearing on March 6, 1987 was held. Nevertheless, the records reveal that on March 13, 1987, the lower court issued an Order denying the motion for reconsideration. The well-settled doctrine is that the client is bound by the mistakes of his lawyer. (Aguila v. Court of First Instance of Batangas, Branch I, 160 SCRA 352 [1988]; See also Vivero v. Santos, et al., 98 Phil. 500 [1956]; Isaac v. Mendoza, 89 Phil. 279 [1951]; Montes v. Court of First Instance of Tayabas, 48 Phil. 640 [1926]; People v. Manzanilla, 43 Phil. 167 [1922]; United States v. Dungca, 27 Phil. 274 [1914]; and United States v. Umali, 15 Phil. 33 [1910]) This rule, however, has its exceptions. Thus, in several cases, we ruled that the party is not bound by the actions of his counsel in case the gross negligence of the counsel resulted in the client's deprivation of his property without due process of law. In the case of Legarda v. Court of Appeals (195 SCRA 418 [1991]), we said: In People's Homesite & Housing Corp. v. Tiongco and Escasa (12 SCRA 471 [1964]), this Court ruled as follows: Procedural technicality should not be made a bar to the vindication of a legitimate grievance. When such technicality deserts from being an aid to Justice, the courts are justified in excepting from its operation a particular case. Where there was something fishy and suspicious about the actuations of the former counsel of petitioners in the case at bar, in that he did not give any significance at all to the processes of the court, which has proven prejudicial to the rights of said clients, under a lame and flimsy explanation that the court's processes just escaped his attention, it is held that said lawyer deprived his clients of their day in court, thus entitling said clients to petition for relief from judgment despite the lapse of the reglementary period for filing said period for filing said petition. In Escudero v. Judge Dulay (158 SCRA 69 [1988]), this Court, in holding that the counsel's blunder in procedure is an exception to the rule that the client is bound by the mistakes of counsel, made the following disquisition: Petitioners contend, through their new counsel, that the judgment rendered against them by the respondent court was null and void, because they were therein deprived of their day in court and divested of their property without due process of law, through the gross ignorance, mistake and negligence of their previous counsel. They acknowledge that, while as a rule, clients are bound by the mistake of their counsel, the rule should not be applied automatically to their case, as their trial counsel's blunder in procedure and gross ignorance of existing jurisprudence changed their cause of action and violated their substantial rights. We are impressed with petitioner's contentions.

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xxx xxx xxx While this Court is cognizant of the rule that, generally, a client will suffer consequences of the negligence, mistake or lack of competence of his counsel, in the interest of Justice and equity, exceptions may be made to such rule, in accordance with the facts and circumstances of each case. Adherence to the general rule would, in the instant case, result in the outright deprivation of their property through a technicality. In its questioned decision dated November 19, 1989 the Court of Appeals found, in no uncertain terms, the negligence of the then counsel for petitioners when he failed to file the proper motion to dismiss or to draw a compromise agreement if it was true that they agreed on a settlement of the case; or in simply filing an answer; and that after having been furnished a copy of the decision by the court he failed to appeal therefrom or to file a petition for relief from the order declaring petitioners in default. In all these instances the appellate court found said counsel negligent but his acts were held to bind his client, petitioners herein, nevertheless. The Court disagrees and finds that the negligence of counsel in this case appears to be so gross and inexcusable. This was compounded by the fact, that after petitioner gave said counsel another chance to make up for his omissions by asking him to file a petition for annulment of the judgment in the appellate court, again counsel abandoned the case of petitioner in that after he received a copy of the adverse judgment of the appellate court, he did not do anything to save the situation or inform his client of the judgment. He allowed the judgment to lapse and become final. Such reckless and gross negligence should not be allowed to bind the petitioner. Petitioner was thereby effectively deprived of her day in court. (at pp. 426-427) The herein petitioners, however, are not similarly situated as the parties mentioned in the abovecited cases. We cannot rule that they, too, were victims of the gross negligence of their counsel. The petitioners are to be blamed for the October 22, 1986 order issued by the lower court submitting the cases for decision. They received notices of the scheduled hearings and yet they did not do anything. More specifically, the parties received notice of the Order dated September 29, 1986 with the warning that if they fail to attend the October 22, 1986 hearing, the cases would be submitted for decision based on the evidence on record. Earlier, at the scheduled hearing on September 29, 1986, the counsel for the respondent corporation moved that the cases be submitted for decision for failure of the petitioners and their counsel to attend despite notice. The lower court denied the motion and gave the petitioners and their counsel another chance by rescheduling the October 22, 1986 hearing. Indeed, the petitioners knew all along that their counsel was not attending the scheduled hearings. They did not take steps to change their counsel or make him attend to their cases until it was too late. On the contrary, they continued to retain the services of Atty. Manicad knowing fully well his lapses vis-a-vis their cases. They, therefore, cannot raise the alleged gross negligence of their counsel resulting in their denial of due process to warrant the reversal of the lower court's decision. In a similar case, Aguila v. Court of First Instance of Batangas, Branch 1 (supra), we ruled: In the instant case, the petitioner should have noticed the succession of errors committed by his counsel and taken appropriate steps for his replacement before it was altogether too late. He did not. On the contrary, he continued to retain his counsel through the series of proceedings that all resulted in the rejection of his cause, obviously through such counsel's "ineptitude" and, let it be added, the clients' forbearance. The petitioner's reverses should have cautioned him that his lawyer was mishandling his case and moved him to seek the help of other counsel, which he did in the end but rather tardily. Now petitioner wants us to nullify all of the antecedent proceedings and recognize his earlier claims to the disputed property on the justification that his counsel was grossly inept. Such a reason is hardly plausible as the petitioner's new counsel should know. Otherwise, all a defeated party would have to do to salvage his case is claim neglect or mistake on the part of his counsel as a ground for reversing the adverse judgment. There would be no end to litigation if these were allowed as every shortcoming of counsel could be the subject of challenge by his client through another counsel who, if he is also found wanting, would likewise be disowned by the same client through another counsel, and so on ad infinitum. This would render court proceedings indefinite, tentative and subject to reopening at any time by the mere subterfuge of replacing counsel. (at pp. 357-358) We now discuss the merits of the cases. In the first assignment of error, the petitioners maintain that their possession of the questioned properties must be respected in view of their ownership of an aliquot portion of all the properties of the respondent corporation being stockholders thereof. They propose that the veil of corporate fiction be pierced, considering the circumstances under which the respondent corporation was formed. Originally, the questioned properties belonged to Eugenia V. Roxas. After her death, the heirs of Eugenia V. Roxas, among them the petitioners herein, decided to form a corporation Heirs of Eugenia V. Roxas, Incorporated (private respondent herein) with the inherited properties as capital of the corporation. The corporation was incorporated on December 4, 1962 with the primary purpose of engaging in agriculture to develop the inherited properties. The Articles of Incorporation of the respondent corporation were amended in 1971 to allow it to engage in the resort business. Accordingly, the corporation put up a resort known as Hidden Valley Springs Resort where the questioned properties are located. These facts, however, do not justify the position taken by the petitioners. The respondent is a bona fide corporation. As such, it has a juridical personality of its own separate from the members composing it. (Western Agro Industrial Corporation v. Court of Appeals, 188 SCRA 709 [1990]; Tan Boon Bee & Co., Inc. v. Jarencio, 163 SCRA 205 [1988]; Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 [1965]) There is no dispute that title over the questioned land where the Hidden Valley Springs Resort is located is registered in the name of the corporation. The records also show that the staff house being occupied by petitioner Rebecca Boyer-Roxas and the recreation hall which was later on converted into a residential house occupied by petitioner Guillermo Roxas are owned by the respondent corporation. Regarding properties owned by a corporation, we stated in the case of Stockholders of F. Guanzon and Sons, Inc. v. Register of Deeds of Manila, (6 SCRA 373 [1962]): xxx xxx xxx

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. . . Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute personal property, they do not represent property of the corporation. The corporation has property of its own which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56 So. 235), but its holder is not the owner of any part of the capital of the corporation (Bradley v. Bauder, 36 Ohio St., 28). Nor is he entitled to the possession of any definite portion of its property or assets (Gottfried V. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in common of the corporate property (Harton v. Johnston, 166 Ala., 317, 51 So. 992). (at pp. 375-376) The petitioners point out that their occupancy of the staff house which was later used as the residence of Eriberto Roxas, husband of petitioner Rebecca Boyer-Roxas and the recreation hall which was converted into a residential house were with the blessings of Eufrocino Roxas, the deceased husband of Eugenia V. Roxas, who was the majority and controlling stockholder of the corporation. In his lifetime, Eufrocino Roxas together with Eriberto Roxas, the husband of petitioner Rebecca Boyer-Roxas, and the father of petitioner Guillermo Roxas managed the corporation. The Board of Directors did not object to such an arrangement. The petitioners argue that . . . the authority thus given by Eufrocino Roxas for the conversion of the recreation hall into a residential house can no longer be questioned by the stockholders of the private respondent and/or its board of directors for they impliedly but no leas explicitly delegated such authority to said Eufrocino Roxas. (Rollo, p. 12) Again, we must emphasize that the respondent corporation has a distinct personality separate from its members. The corporation transacts its business only through its officers or agents. (Western Agro Industrial Corporation v. Court of Appeals, supra). Whatever authority these officers or agents may have is derived from the board of directors or other governing body unless conferred by the charter of the corporation. An officer's power as an agent of the corporation must be sought from the statute, charter, the by-laws or in a delegation of authority to such officer, from the acts of the board of directors, formally expressed or implied from a habit or custom of doing business. (Vicente v. Geraldez, 52 SCRA 210 [1973]) In the present case, the record shows that Eufrocino V. Roxas who then controlled the management of the corporation, being the majority stockholder, consented to the petitioners' stay within the questioned properties. Specifically, Eufrocino Roxas gave his consent to the conversion of the recreation hall to a residential house, now occupied by petitioner Guillermo Roxas. The Board of Directors did not object to the actions of Eufrocino Roxas. The petitioners were allowed to stay within the questioned properties until August 27, 1983, when the Board of Directors approved a Resolution ejecting the petitioners, to wit: R E S O L U T I O N No. 83-12 RESOLVED, That Rebecca B. Roxas and Guillermo Roxas, and all persons claiming under them, be ejected from their occupancy of the Hidden Valley Springs compound on which their houses have been constructed and/or are being constructed only on tolerance of the Corporation and without any contract therefor, in order to give way to the Corporation's expansion and improvement program and obviate prejudice to the operation of the Hidden Valley Springs Resort by their continued interference. RESOLVED, Further that the services of Atty. Benito P. Fabie be engaged and that he be authorized as he is hereby authorized to effect the ejectment, including the filing of the corresponding suits, if necessary to do so. (Original Records, p. 327) We find nothing irregular in the adoption of the Resolution by the Board of Directors. The petitioners' stay within the questioned properties was merely by tolerance of the respondent corporation in deference to the wishes of Eufrocino Roxas, who during his lifetime, controlled and managed the corporation. Eufrocino Roxas' actions could not have bound the corporation forever. The petitioners have not cited any provision of the corporation by-laws or any resolution or act of the Board of Directors which authorized Eufrocino Roxas to allow them to stay within the company premises forever. We rule that in the absence of any existing contract between the petitioners and the respondent corporation, the corporation may elect to eject the petitioners at any time it wishes for the benefit and interest of the respondent corporation. The petitioners' suggestion that the veil of the corporate fiction should be pierced is untenable. The separate personality of the corporation may be disregarded only when the corporation is used "as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or when necessary for the protection of the creditors." (Sulong Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan Boon Bee & Co., Inc., v. Jarencio, supra and Western Agro Industrial Corporation v. Court of Appeals, supra) The circumstances in the present cases do not fall under any of the enumerated categories. In the third assignment of error, the petitioners insist that as regards the unfinished building, Rebecca Boyer-Roxas is a builder in good faith. The construction of the unfinished building started when Eriberto Roxas, husband of Rebecca Boyer-Roxas, was still alive and was the general manager of the respondent corporation. The couple used their own funds to finance the construction of the building. The Board of Directors of the corporation, however, did not object to the construction. They allowed the construction to continue despite the fact that it was within the property of the corporation. Under these circumstances, we agree with the petitioners that the provision of Article 453 of the Civil Code should have been applied by the lower courts. Article 453 of the Civil Code provides: If there was bad faith, not only on the part of the person who built, planted or sown on the land of another but also on the part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good faith. In such a case, the provisions of Article 448 of the Civil Code govern the relationship between petitioner Rebecca-Boyer-Roxas and the respondent corporation, to wit: Art. 448 The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting after payment of the indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he

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shall pay reasonable rent, if the owner of the land does not choose to appropriate the buildings or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. WHEREFORE, the present petition is partly GRANTED. The questioned decision of the Court of Appeals affirming the decision of the Regional Trial Court of Laguna, Branch 37, in RTC Civil Case No. 802-84-C is MODIFIED in that subparagraphs (c) and (d) of Paragraph 1 of the dispositive portion of the decision are deleted. In their stead, the petitioner Rebecca Boyer-Roxas and the respondent corporation are ordered to follow the provisions of Article 448 of the Civil Code as regards the questioned unfinished building in RTC Civil Case No. 802-84-C. The questioned decision is affirmed in all other respects.

14. G.R. No. 91889 August 27, 1993 MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND NEPOMUCENO REDOVAN, petitioners, vs. THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, MANUEL A. TORRES, JR., MARIA THERESA V. VELOSO AND CASTRENSE C. VELOSO, respondents. NOCON, J.: This is a petition for review on certiorari to annul and set aside the decision of the Court of Appeals affirming the decision of the Regional Trial Court of Pasay, Branch 114 Civil Cases Nos. 8198-P, and 2880-P, the dispositive portion of which reads, as follows: Wherefore, in view of all the foregoing considerations, in this Court hereby renders judgment, as follows: In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay for annulment or declaration of nullity of the decision of the Metropolitan Trial Court, Branch 46, Pasay City, in its Civil Case No. 38-81 entitled "Edgardo D. Pabalan, et al., vs. Spouses Florentino Manalastas, et al.," is dismissed for lack of merits; In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay Enterprises, Inc. for cancellation of title of Manuel A. Torres, Jr. (TCT No. 24799 of the Register of Deeds of Pasay City) and reconveyance, is dismissed for lack or merit, and, In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay are ordered to surrender and deliver possession of the parcel of land, together with all the improvements thereon, described in Transfer Certificate of Title No. 24799 of the Register of Deeds of Pasay City, in favor of therein plaintiffs Manuel A. Torres, Jr. as owner and Edgardo D. Pabalan as real estate administrator of said Manuel A. Torres, Jr.; to account for and return to said plaintiffs the rentals from dwelling unit No. 8-A of the apartment building (Dulay Apartment) from June 1980 up to the present, to indemnify plaintiffs, jointly and severally, expenses of litigation in the amount of P4,000.00 and attorney's fees in the sum of P6,000.00, for all the three (3) cases. Co-defendant Nepomuceno Redovan is ordered to pay the current and subsequent rentals on the premises leased by him to plaintiffs. The counterclaim of defendants Virgilio E. Dulay and Manuel R. Dulay Enterprises, Inc. and N. Redovan, dismissed for lack of merit. With costs 3 against the three (3) aforenamed defendants. The facts as found by the trial court are as follows: Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as members of its Board of Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and general manager, Atty. Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. Dulay with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and designated as secretary, owned a 4 property covered by TCT No. 17880 and known as Dulay Apartment consisting of sixteen (16) apartment units on a six hundred eighty-nine (689) square meters lot, more or less, located at Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay City. Petitioner corporation through its president, Manuel Dulay, obtained various loans for the construction of its hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had to borrow money from petitioner Virgilio Dulay to be able to continue the hotel project. As a result of said loan, petitioner Virgilio Dulay occupied one of the unit apartments of the subject property since property since 1973 while at the same time managing 5 the Dulay Apartment at his shareholdings in the corporation was subsequently increased by his father. On December 23, 1976, Manuel Dulay by virtue of Board Resolution 6 No 18 of petitioner corporation sold the subject property to private respondents spouses Maria Theresa and Castrense Veloso in the amount of 7 P300,000.00 as evidenced by the Deed of Absolute Sale. Thereafter, TCT No. 17880 was cancelled and TCT No. 23225 was issued to private 8 respondent Maria Theresa Veloso. Subsequently, Manuel Dulay and private respondents spouses Veloso executed a Memorandum to the Deed of 9 Absolute Sale of December 23, 1976 dated December 9, 1977 giving Manuel Dulay within (2) years or until December 9, 1979 to repurchase the subject property for P200,000.00 which was, however, not annotated either in TCT No. 17880 or TCT No. 23225. On December 24, 1976, private respondent Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the subject property to private 10 respondent Manuel A. Torres for a loan of P250,000.00 which was duly annotated as Entry No. 68139 in TCT No. 23225. Upon the failure of private respondent Maria Veloso to pay private respondent Torres, the subject property was sold on April 5, 1978 to private 11 respondent Torres as the highest bidder in an extrajudicial foreclosure sale as evidenced by the Certificate of Sheriff's Sale issued on April 20, 1978.
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On July 20, 1978, private respondent Maria Veloso executed a Deed of Absolute Assignment of the Right to Redeem in favor of Manuel Dulay assigning her right to repurchase the subject property from private respondent Torres as a result of the extra sale held on April 25, 1978. As neither private respondent Maria Veloso nor her assignee Manuel Dulay was able to redeem the subject property within the one year statutory 13 period for redemption, private respondent Torres filed an Affidavit of Consolidation of Ownership with the Registry of Deeds of Pasay City and 14 TCT No. 24799 was subsequently issued to private respondent Manuel Torres on April 23, 1979. On October 1, 1979, private respondent Torres filed a petition for the issuance of a writ of possession against private respondents spouses Veloso and Manuel Dulay in LRC Case No. 1742-P. However, when petitioner Virgilio Dulay was never authorized by the petitioner corporation to sell or mortgage the subject property, the trial court ordered private respondent Torres to implead petitioner corporation as an indispensable party but the latter moved for the dismissal of his petition which was granted in an Order dated April 8, 1980. On June 20, 1980, private respondent Torres and Edgardo Pabalan, real estate administrator of Torres, filed an action against petitioner corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay Apartment Unit No. 8-A for the recovery of possession, sum of money and damages with preliminary injunction in Civil Case, No. 8198-P with the then Court of First Instance of Rizal. On July 21, 1980, petitioner corporation filed an action against private respondents spouses Veloso and Torres for the cancellation of the Certificate of Sheriff's Sale and TCT No. 24799 in Civil Case No. 8278-P with the then Court of First Instance of Rizal. On January 29, 1981, private respondents Pabalan and Torres filed an action against spouses Florentino and Elvira Manalastas, a tenant of Dulay Apartment Unit No. 7-B, with petitioner corporation as intervenor for ejectment in Civil Case No. 38-81 with the Metropolitan Trial Court of Pasay City which rendered a decision on April 25, 1985, dispositive portion of which reads, as follows: Wherefore, judgment is hereby rendered in favor of the plaintiff (herein private respondents) and against the defendants: 1. Ordering the defendants and all persons claiming possession under them to vacate the premises. 2. Ordering the defendants to pay the rents in the sum of P500.000 a month from May, 1979 until they shall have vacated the premises with interest at the legal rate; 3. Ordering the defendants to pay attorney's fees in the sum of P2,000.00 and P1,000.00 as other expenses of litigation and for 15 them to pay the costs of the suit. Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed an action against the presiding judge of the Metropolitan Trial Court of Pasay City, private respondents Pabalan and Torres for the annulment of said decision with the Regional Trial Court of Pasay in Civil Case No. 2880-P. Thereafter, the three (3) cases were jointly tried and the trial court rendered a decision in favor of private respondents. Not satisfied with said decision, petitioners appealed to the Court of Appeals which rendered a decision on October 23, 1989, the dispositive portion of which reads, as follows: PREMISES CONSIDERED, the decision being appealed should be as it is hereby AFFIRMED in full. On November 8, 1989, petitioners filed a Motion for Reconsideration which was denied on January 26, 1990. Hence, this petition. During the pendency of this petition, private respondent Torres died on April 3, 1991 as shown in his death certificate 18 Realty & Development Corporation as his heir in his holographic will dated October 31, 1986.
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12

and named Torres-Pabalan

Petitioners contend that the respondent court had acted with grave abuse of discretion when it applied the doctrine of piercing the veil of corporate entity in the instant case considering that the sale of the subject property between private respondents spouses Veloso and Manuel Dulay has no binding effect on petitioner corporation as Board Resolution No. 18 which authorized the sale of the subject property was resolved without the approval of all the members of the board of directors and said Board Resolution was prepared by a person not designated by the corporation to be its secretary. We do not agree. Section 101 of the Corporation Code of the Philippines provides: Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide otherwise, any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if: 1. Before or after such action is taken, written consent thereto is signed by all the directors, or 2. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing; or 3. The directors are accustomed to take informal action with the express or implied acquiese of all the stockholders, or

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4. All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing. If a directors' meeting is held without call or notice, an action taken therein within the corporate powers is deemed ratified by a director who failed to attend, unless he promptly files his written objection with the secretary of the corporation after having knowledge thereof. In the instant case, petitioner corporation is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president. At any rate, corporate action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting which, in his case, petitioner Virgilio Dulay failed to do. It is relevant to note that although a corporation is an entity which has a personality distinct and separate from its individual stockholders or 19 members, the veil of corporate fiction may be pierced when it is used to defeat public convenience justify wrong, protect fraud or defend 20 crime. The privilege of being treated as an entity distinct and separate from its stockholder or members is therefore confined to its legitimate uses and is subject to certain limitations to prevent the commission of fraud or other illegal or unfair act. When the corporation is used merely as 21 an alter ego or business conduit of a person, the law will regard the corporation as the act of that person. The Supreme Court had repeatedly disregarded the separate personality of the corporation where the corporate entity was used to annul a valid contract executed by one of its members. Petitioners' claim that the sale of the subject property by its president, Manuel Dulay, to private respondents spouses Veloso is null and void as the alleged Board Resolution No. 18 was passed without the knowledge and consent of the other members of the board of directors cannot be sustained. As correctly pointed out by the respondent Court of Appeals: Appellant Virgilio E. Dulay's protestations of complete innocence to the effect that he never participated nor was even aware of any meeting or resolution authorizing the mortgage or sale of the subject premises (see par. 8, affidavit of Virgilio E. Dulay, dated May 31, 1984, p. 14, Exh. "21") is difficult to believe. On the contrary, he is very much privy to the transactions involved. To begin with, he is a incorporator and one of the board of directors designated at the time of the organization of Manuel R. Dulay Enterprise, Inc. In ordinary parlance, the said entity is loosely referred to as a "family corporation". The nomenclature, if imprecise, however, fairly reflects the cohesiveness of a group and the parochial instincts of the individual members of such an aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its incorporators being close relatives namely, three (3) children and their father whose name identifies their corporation (Articles of 22 Incorporation of Manuel R. Dulay Enterprises, Inc. Exh. "31-A"). Besides, the fact that petitioner Virgilio Dulay on June 24, 1975 executed an affidavit that he was a signatory witness to the execution of the post-dated Deed of Absolute Sale of the subject property in favor of private respondent Torres indicates that he was aware of the transaction executed between his father and private respondents and had, therefore, adequate knowledge about the sale of the subject property to private respondents. Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the subject property to private respondents by Manuel Dulay is valid and binding. As stated by the trial court: . . . the sale between Manuel R. Dulay Enterprises, Inc. and the spouses Maria Theresa V. Veloso and Castrense C. Veloso, was a corporate act of the former and not a personal transaction of Manuel R. Dulay. This is so because Manuel R. Dulay was not only president and treasurer but also the general manager of the corporation. The corporation was a closed family corporation and the only non-relative in the board of directors was Atty. Plaridel C. Jose who appeared on paper as the secretary. There is no denying the fact, however, that Maria Socorro R. Dulay at times acted as secretary. . . ., the Court can not lose sight of the fact that the Manuel R. Dulay Enterprises, Inc. is a closed family corporation where the incorporators and directors belong to one single family. It cannot be concealed that Manuel R. Dulay as president, 24 treasurer and general manager almost had absolute control over the business and affairs of the corporation. Moreover, the appellate courts will not disturb the findings of the trial judge unless he has plainly overlooked certain facts of substance and value 25 that, if considered, might affect the result of the case, which is not present in the instant case. Petitioners' contention that private respondent Torres never acquired ownership over the subject property since the latter was never in actual possession of the subject property nor was the property ever delivered to him is also without merit. Paragraph 1, Article 1498 of the New Civil Code provides: When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary do not appear or cannot clearly be inferred. Under the aforementioned article, the mere execution of the deed of sale in a public document is equivalent to the delivery of the property. Likewise, this Court had held that: It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during the period of one year after the registration of the sale. As such, he is entitled to the possession of the said property and can demand it at any time following the consolidation of ownership in his name and the issuance to him of a new transfer certificate of title. The buyer can in fact demand possession of the land even during the redemption period except that he has to post a bond in accordance with Section 7 of Act No. 3133 as amended. No such bond is required after the redemption period if the property is not redeemed. Possession of the land then 26 becomes an absolute right of the purchaser as confirmed owner. Therefore, prior physical delivery or possession is not legally required since the execution of the Deed of Sale in deemed equivalent to delivery.
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Finally, we hold that the respondent appellate court did not err in denying petitioner's motion for reconsideration despite the fact that private respondents failed to submit their comment to said motion as required by the respondent appellate court from resolving petitioners' motion for reconsideration without the comment of the private respondent which was required merely to aid the court in the disposition of the motion. The courts are as much interested as the parties in the early disposition of cases before them. To require otherwise would unnecessarily clog the courts' dockets. WHEREFORE, the petition is DENIED and the decision appealed from is hereby AFFIRMED.

15. G.R. No. L-41337 June 30, 1988 TAN BOON BEE & CO., INC., petitioner, vs. THE HONORABLE HILARION U. JARENCIO, PRESIDING JUDGE OF BRANCH XVIII of the Court of First Instance of Manila, GRAPHIC PUBLISHING, INC., and PHILIPPINE AMERICAN CAN DRUG COMPANY,respondents. PARAS, J.: This is a petition for certiorari, with prayer for preliminary injunction, to annul and set aside the March 26, 1975 Order of the then Court of First Instance of Manila, Branch XXIII, setting aside the sale of "Heidelberg" cylinder press executed by the sheriff in favor of the herein petitioner, as well as the levy on the said property, and ordering the sheriff to return the said machinery to its owner, herein private respondent Philippine American Drug Company. Petitioner herein, doing business under the name and style of Anchor Supply Co., sold on credit to herein private respondent Graphic Publishing, Inc. (GRAPHIC for short) paper products amounting to P55,214.73. On December 20, 1972, GRAPHIC made partial payment by check to petitioner in the total amount of P24,848.74; and on December 21, 1972, a promissory note was executed to cover the balance of P30,365.99. In the said promissory note, it was stipulated that the amount will be paid on monthly installments and that failure to pay any installment would make the amount immediately demandable with an interest of 12% per annum. On September 6, 1973, for failure of GRAPHIC to pay any installment, petitioner filed with the then Court of First Instance of Manila, Branch XXIII, presided over by herein respondent judge, Civil Case No. 91857 for a Sum of Money (Rollo, pp. 36-38). Respondent judge declared GRAPHIC in default for failure to file its answer within the reglementary period and plaintiff (petitioner herein) was allowed to present its evidence ex parte. In a Decision dated January 18, 1974 (Ibid., pp. 39-40), the trial court ordered GRAPHIC to pay the petitioner the sum of P30,365.99 with 12% interest from March 30, 1973 until fully paid, plus the costs of suit. On motion of petitioner, a writ of execution was issued by respondent judge; but the aforestated writ having expired without the sheriff finding any property of GRAPHIC, an alias writ of execution was issued on July 2, 1974. Pursuant to the said issued alias writ of execution, the executing sheriff levied upon one (1) unit printing machine Identified as "Original Heidelberg Cylinder Press" Type H 222, NR 78048, found in the premises of GRAPHIC. In a Notice of Sale of Execution of Personal Property dated July 29, 1974, said printing machine was scheduled for auction sale on July 26, 1974 at 10:00 o'clock at 14th St., Cor. Atlanta St., Port Area, Manila (lbid., p. 45); but in a letter dated July 19, 1974, herein private respondent, Philippine American Drug Company (PADCO for short) had informed the sheriff that the printing machine is its property and not that of GRAPHIC, and accordingly, advised the sheriff to cease and desist from carrying out the scheduled auction sale on July 26, 1974. Notwithstanding the said letter, the sheriff proceeded with the scheduled auction sale, sold the property to the petitioner, it being the highest bidder, and issued a Certificate of Sale in favor of petitioner (Rollo, p. 48). More than five (5) hours after the auction sale and the issuance of the certificate of sale, PADCO filed an "Affidavit of Third Party Claim" with the Office of the City Sheriff (Ibid., p. 47). Thereafter, on July 30,1974, PADCO filed with the Court of First Instance of Manila, Branch XXIII, a Motion to Nullify Sale on Execution (With Injunction) (Ibid., pp, 49-55), which was opposed by the petitioner (Ibid., pp. 5668). Respondent judge, in an Order dated March 26, 1975 (Ibid., pp. 64-69), ruled in favor of PADCO. The decretal portion of the said order, reads: WHEREFORE, the sale of the 'Heidelberg cylinder press executed by the Sheriff in favor of the plaintiff as well as the levy on the said property is hereby set aside and declared to be without any force and effect. The Sheriff is ordered to return the said machinery to its owner, the Philippine American Drug Co. Petitioner filed a Motion For Reconsideration (Ibid., pp. 7093) and an Addendum to Motion for Reconsideration (Ibid., pp. 94-08), but in an Order dated August 13, 1975, the same was denied for lack of merit (Ibid., p. 109). Hence, the instant petition. In a Resolution dated September 12, 1975, the Second Division of this Court resolved to require the respondents to comment, and to issue a temporary restraining order (Rollo, p. 111 ). After submission of the parties' Memoranda, the case was submitted for decision in the Resolution of November 28, 1975 (Ibid., p. 275). Petitioner, to support its stand, raised two (2) issues, to wit: I THE RESPONDENT JUDGE GRAVELY EXCEEDED, IF NOT ACTED WITHOUT JURISDICTION WHEN HE ACTED UPON THE MOTION OF PADCO, NOT ONLY BECAUSE SECTION 17, RULE 39 OF THE RULES OF COURT WAS NOT COMPLIED WITH, BUT ALSO BECAUSE THE CLAIMS OF PADCO WHICH WAS NOT A PARTY TO THE CASE COULD NOT BE VENTILATED IN THE CASE BEFORE HIM BUT IN INDEPENDENT PROCEEDING. II THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION WHEN HE REFUSED TO PIERCE THE PADCO'S (IDENTITY) AND DESPITE THE ABUNDANCE OF EVIDENCE CLEARLY SHOWING THAT PADCO WAS CONVENIENTLY SHIELDING UNDER THE THEORY OF CORPORATE PETITION. Petitioner contends that respondent judge gravely exceeded, if not, acted without jurisdiction, in nullifying the sheriffs sale not only because Section 17, Rule 39 of the Rules of Court was not complied with, but more importantly because PADCO could not have litigated its claim in the same case, but in an independent civil proceeding. This contention is well-taken.

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In the case of Bayer Philippines, Inc. vs. Agana (63 SCRA 355, 366-367 [1975]), this Court categorically ruled as follows: In other words, constitution, Section 17 of Rule 39 of the Revised Rules of Court, the rights of third-party claimants over certain properties levied upon by the sheriff to satisfy the judgment should not be decided inthe action where the third-party claims have been presented, but in the separate action instituted by the claimants. ... Otherwise stated, the court issuing a writ of execution is supposed to enforce the authority only over properties of the judgment debtor, and should a third party appeal- to claim the property levied upon by the sheriff, the procedure laid down by the Rules is that such claim should be the subject of a separate and independent action. xxx xxx xxx ... This rule is dictated by reasons of convenience, as "intervention is more likely to inject confusion into the issues between the parties in the case . . . with which the third-party claimant has nothing to do and thereby retard instead of facilitate the prompt dispatch of the controversy which is the underlying objective of the rules of pleading and practice." Besides, intervention may not be permitted after trial has been concluded and a final judgment rendered in the case. However, the fact that petitioner questioned the jurisdiction of the court during the initial hearing of the case but nevertheless actively participated in the trial, bars it from questioning now the court's jurisdiction. A party who voluntarily participated in the trial, like the herein petitioner, cannot later on raise the issue of the court's lack of jurisdiction (Philippine National Bank vs. Intermediate Appellate Court, 143 SCRA [1986]). As to the second issue (the non-piercing of PADCO's corporate Identity) the decision of respondent judge is as follows: The plaintiff, however, contends that the controlling stockholders of the Philippine American Drug Co. are also the same controlling stockholders of the Graphic Publishing, Inc. and, therefore, the levy upon the said machinery which was found in the premises occupied by the Graphic Publishing, Inc. should be upheld. This contention cannot be sustained because the two corporations were duly incorporated under the Corporation Law and each of them has a juridical personality distinct and separate from the other and the properties of one cannot be levied upon to satisfy the obligation of the other. This legal preposition is elementary and fundamental. It is true that a corporation, upon coming into being, is invested by law with a personality separate and distinct from that of the persons composing it as well as from any other legal entity to which it may be related (Yutivo & Sons Hardware Company vs. Court of Tax Appeals, 1 SCRA 160 [1961]; and Emilio Cano Enterprises, Inc. vs. CIR, 13 SCRA 290 [1965]). As a matter of fact, the doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose it is recognized and respected in all cases which are within reason and the law (Villa Rey Transit, Inc. vs. Ferrer, 25 SCRA 845 [1968]). However, this separate and distinct personality is merely a fiction created by law for convenience and to promote justice (Laguna Transportation Company vs. SSS, 107 Phil. 833 [1960]). Accordingly, this separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work an injustice, or where necessary to achieve equity or when necessary for the protection of creditors (Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347 [1976]). Corporations are composed of natural persons and the legal fiction of a separate corporate personality is not a shield for the commission of injustice and inequity (Chenplex Philippines, Inc., et al. vs. Hon. Pamatian et al., 57 SCRA 408 (19741). Likewise, this is true when the corporation is merely an adjunct, business conduit or alter ego of another corporation. In such case, the fiction of separate and distinct corporation entities should be disregarded (Commissioner of Internal Revenue vs. Norton & Harrison, 11 SCRA 714 [1964]). In the instant case, petitioner's evidence established that PADCO was never engaged in the printing business; that the board of directors and the officers of GRAPHIC and PADCO were the same; and that PADCO holds 50% share of stock of GRAPHIC. Petitioner likewise stressed that PADCO's own evidence shows that the printing machine in question had been in the premises of GRAPHIC since May, 1965, long before PADCO even acquired its alleged title on July 11, 1966 from Capitol Publishing. That the said machine was allegedly leased by PADCO to GRAPHIC on January 24, 1966, even before PADCO purchased it from Capital Publishing on July 11, 1966, only serves to show that PADCO's claim of ownership over the printing machine is not only farce and sham but also unbelievable. Considering the aforestated principles and the circumstances established in this case, respondent judge should have pierced PADCO's veil of corporate Identity. Respondent PADCO argues that if respondent judge erred in not piercing the veil of its corporate fiction, the error is merely an error of judgment and not an error of jurisdiction correctable by appeal and not by certiorari. To this argument of respondent, suffice it to say that the same is a mere technicality. In the case of Rubio vs. Mariano (52 SCRA 338, 343 [1973]), this Court ruled: While We recognize the fact that these movants the MBTC, the Phillips spouses, the Phillips corporation and the Hacienda Benito, Inc. did raise in their respective answers the issue as to the propriety of the instant petition for certiorari on the ground that the remedy should have been appeal within the reglementary period, We considered such issue as a mere technicality which would have accomplished nothing substantial except to deny to the petitioner the right to litigate the matters he raised ... Litigations should, as much as possible, be decided on their merits and not on technicality (De las Alas vs. Court of Appeals, 83 SCRA 200, 216 [1978]). Every party-litigant must be afforded the amplest opportunity for the proper and just determination of his cause, free from the unacceptable plea of technicalities (Heirs of Ceferino Morales vs. Court of Appeals, 67 SCRA 304, 310 [1975]). PREMISES CONSIDERED, the March 26,1975 Order of the then Court of First Instance of Manila, is ANNULLED and SET ASIDE, and the Temporary Restraining Order issued is hereby made permanent.

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16. G.R. No. 108734 May 29, 1996 CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe; Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents. HERMOSISIMA, JR., J.:p The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these instances will regard the corporation as a mere association of persons and, in case of two corporations, merge them into one. Thus, where a sister corporation is used as a shield to evade a corporation's subsidiary liability for damages, the corporation may not be heard to say that it has a personality separate and distinct from the other corporation. The piercing of the corporate veil comes into play. This special civil action ostensibly raises the question of whether the National Labor Relations Commission committed grave abuse of discretion when it issued a "break-open order" to the sheriff to be enforced against personal property found in the premises of petitioner's sister company. Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers. On November, 1981, private respondents were served individual written notices of termination of employment by petitioner, effective on November 30, 1981. It was stated in the individual notices that their contracts of employment had expired and the project in which they were hired had been completed. Public respondent found it to be, the fact, however, that at the time of the termination of private respondent's employment, the project in which they were hired had not yet been finished and completed. Petitioner had to engage the services of sub-contractors whose workers performed the functions of private respondents. Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner. On December 19, 1984, the Labor Arbiter rendered judgment ordering petitioner to reinstate private respondents and to pay them back wages equivalent to one year or three hundred working days. On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration filed by petitioner on the 2 ground that the said decision had already become final and executory. On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents' back wages amounted to 3 P199,800.00. On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated December 19, 1984. The writ was partially satisfied through garnishment of sums from petitioner's debtor, the Metropolitan Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the NLRC. On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private respondents to their former positions. On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner through the security guard on duty but the service was refused on the ground that petitioner no longer occupied the premises. On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of execution. The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November 2, 1989: 1. All the employees inside petitioner's premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent; 2. Levy was made upon personal properties he found in the premises; 3. Security guards with high-powered guns prevented him from removing the properties he had levied upon.
4 1

The said special sheriff recommended that a "break-open order" be issued to enable him to enter petitioner's premises so that he could proceed with the public auction sale of the aforesaid personal properties on November 7, 1989.

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On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President. On November 23, 1989, private respondents filed a "Motion for Issuance of a Break-Open Order," alleging that HPPI and petitioner corporation were owned by the same incorporator/stockholders. They also alleged that petitioner temporarily suspended its business operations in order to evade its legal obligations to them and that private respondents were willing to post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the issuance of the break-open order. In support of their claim against HPPI, private respondents presented duly certified copies of the General Informations Sheet, dated May 15, 1987, submitted by petitioner to the Securities Exchange Commission (SEC) and the General Information Sheet, dated May 25, 1987, submitted by HPPI to the Securities and Exchange Commission. The General Information Sheet submitted by the petitioner revealed the following:
1. Breakdown of Subscribed Capital Name of Stockholder Amount Subscribed HPPI P 6,999,500.00 Antonio W. Lim 2,900,000.00 Dennis S. Cuyegkeng 300.00 Elisa C. Lim 100,000.00 Teodulo R. Dino 100.00 Virgilio O. Casino 100.00 2. Board of Directors Antonio W. Lim Chairman Dennis S. Cuyegkeng Member Elisa C. Lim Member Teodulo R. Dino Member Virgilio O. Casino Member 3. Corporate Officers Antonio W. Lim President Dennis S. Cuyegkeng Assistant to the President Elisa O. Lim Treasurer Virgilio O. Casino Corporate Secretary 4. Principal Office 355 Maysan Road Valenzuela, Metro Manila. 5

On the other hand, the General Information Sheet of HPPI revealed the following:
1. Breakdown of Subscribed Capital Name of Stockholder Amount Subscribed Antonio W. Lim P 400,000.00 Elisa C. Lim 57,700.00 AWL Trading 455,000.00

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Dennis S. Cuyegkeng 40,100.00 Teodulo R. Dino 100.00 Virgilio O. Casino 100.00 2. Board of Directors Antonio W. Lim Chairman Elisa C. Lim Member Dennis S. Cuyegkeng Member Virgilio O. Casino Member Teodulo R. Dino Member 3. Corporate Officers Antonio W. Lim President Dennis S. Cuyegkeng Assistant to the President Elisa C. Lim Treasurer Virgilio O. Casino Corporate Secretary 4. Principal Office 355 Maysan Road, Valenzuela, Metro Manila. 6

On February 1, 1990, HPPI filed an Opposition to private respondents' motion for issuance of a break-open order, contending that HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged that the two corporations are engaged in two different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in construction. On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents' motion for break-open order. Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor Arbiter, issued a break-open order and directed private respondents to file a bond. Thereafter, it directed the sheriff to proceed with the auction sale of the properties already levied upon. It dismissed the third-party claim for lack of merit. Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3, 1992. Hence, the resort to the present petition. Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision despite a third-party claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporate veil should not have been applied, in this case, in the absence of any showing that it created HPPI in order to evade its liability to private respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a business which is distinct and separate from petitioner's construction business. Hence, it 7 is of no consequence that petitioner and HPPI shared the same premises, the same President and the same set of officers and subscribers. We find petitioner's contention to be unmeritorious. It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other 8 corporations to which it may be connected. But, this separate and distinct personality of a corporation is merely a fiction created by law for 9 convenience and to promote justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, 10 protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may be disregarded or 11 the veil of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another 12 corporation. The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit: 1. Stock ownership by one or common ownership of both corporations. 2. Identity of directors and officers. 3. The manner of keeping corporate books and records.

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4. Methods of conducting the business.

13

The SEC en banc explained the "instrumentality rule" which the courts have applied in disregarding the separate juridical personality of corporations as follows: Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality" may be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such domination of instances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of plaintiff's legal rights; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual 14 defendant's relationship to that operation. Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a subterfuge is purely one of fact.
15

In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it filed an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. Furthermore, the NLRC stated that: Both information sheets were filed by the same Virgilio O. Casio as the corporate secretary of both corporations. It would also not be amiss to note that both corporations had the same president, thesame board of directors, the same corporate officers, and substantially the same subscribers. From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the third-party claimant shared the same address and/or premises. Under this circumstances, (sic) it cannot be said that the property levied upon by the sheriff were not of 16 respondents. Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of back wages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation. The facts in this case are analogous to Claparols v. Court of Industrial Relations, 7 where we had the occasion to rule: Respondent court's findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the latter finally ceased to operate, were not disputed by petitioner. It is very clear that the latter corporation was a continuation and successor of the first entity . . . . Both predecessors and successor were owned and controlled by petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. This "avoiding-the-liability" scheme is very patent, considering that 90% of the subscribed shares of stock of the Claparols Steel Corporation (the second corporation) was owned by respondent . . . Claparols himself, and all the assets of the dissolved Claparols Steel and Nail plant were turned over to the emerging Claparols Steel Corporation. It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees. In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution, private respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment which provides that: Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative entry to the place where the property subject of execution is located or kept, the judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-open order.
1

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Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied with. Petitioner and the thirdparty claimant were given the opportunity to submit evidence in support of their claim. Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the Labor Arbiter. Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported by substantial evidence are binding 18 on this Court and are entitled to great respect, in the absence of showing of grave abuse of a discretion. WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and December 3, 1992, are AFFIRMED.

17. G.R. No. L-9687

June 30, 1961

LIDDELL & CO., INC., petitioner-appellant, vs. THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee. BENGZON, C.J.: Statement. This is an appeal from the decision of the Court of Tax Appeals imposing a tax deficiency liability of P1,317,629.61 on Liddell & Co., Inc. Said Company lists down several issues which may be boiled to the following: (a) Whether or not Judge Umali of the Tax Court below could validly participate in the making of the decision; (b) Whether or not Liddell & Co. Inc., and the Liddell Motors, Inc. are (practically) identical corporations, the latter being merely .the alter ego of the former; (c) Whether or not, granting the identical nature of the corporations, the assessment of tax liability, including the surcharge thereon by the Court of Tax Appeals, is correct. Undisputed Facts. The parties submitted a partial stipulation of facts, each reserving the right to present additional evidence. Said undisputed facts are substantially as follows: The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic corporation establish in the Philippines on February 1, 1946, with an authorized capital of P100,000 divided into 1000 share at P100 each. Of this authorized capital, 196 shares valued at P19,600 were subscribed and paid by Frank Liddell while the other four shares were in the name of Charles Kurz, E.J. Darras, Angel Manzano and Julian Serrano at one shares each. Its purpose was to engage in the business of importing and retailing Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet trucks.. On January 31, 1947, with the limited paid-in capital of P20,000, Liddell & Co. was able to declare a 90% stock dividend after which declaration on, Frank Liddells holding in the Company increased to 1,960 shares and the employees, Charles Kurz E.J. Darras, Angel Manzano and Julian Serrano at 10 share each. The declaration of stock dividend was followed by a resolution increasing the authorized capital of the company to P1,000.000 which the Securities & Exchange Commission approved on March 3, 1947. Upon such approval, Frank Liddell subscribed to 3,000 additional shares, for which he paid into the corporation P300,000 so that he had in his own name 4,960 shares. On May 24, 1957, Frank Liddell, on one hand and Messrs. Kurz, Darras, Manzano and Serrano on the other, executed an agreement (Exhibit A) which was further supplemented by two other agreements (Exhibits B and C) dated May 24, 1947 and June 3, 1948, wherein Frank Liddell transferred (On June 7, 1948) to various employees of Liddell & Co. shares of stock. At the annual meeting of stockholders of Liddell & Co. held on March 9, 1948, a 100% stock dividend was declared, thereby increasing the issued capital stock of aid corporation from P1,000.000 to P 3,000,000 which increase was duly approved by the Securities and Exchange Commission on June 7, 1948. Frank Liddell subscribed to and paid 20% of the increase of P400,000. He paid 25% thereof in the amount of P100,000 and the balance of P3,000,000 was merely debited to Frank Liddell-Drawing Account and credited to Subscribed Capital Stock on December 11, 1948. On March 8, 1949, stock dividends were again issued by Liddell & Co. and in accordance with the agreements, Exhibits A, B, and C, the stocks of said company stood as follows: No. of Shares 1 1 1,225

Name Frank Liddell Irene Liddell Mercedes Vecin Charles Kurz

Amount

Per Cent 72.00% .01% .01% 6.45%

13,688 P1,368,800 100 100 122,500

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E.J. Darras Angel Manzano Julian Serrano E. Hasim G. W. Kernot

1,225 1,150 710 500 500

122,500 115,000 71,000 50,000 50,000

6.45% 6.06% 3.74% 2.64% 2.64% 100.00%

19,000 P1,900,000

On November 15, 1948, in accordance with a resolution of a special meeting of the Board of Directors of Liddell & Co., stock dividends were again declared. As a result of said declaration and in accordance with the agreements, Exhibits, A, B, and C, the stockholdings in the company appeared to be: No. of Shares 1 1 2,215 2,215 1,810 1,700 830 1,490

Name Frank Liddell Irene Liddell Mercedes Vecin Charles Kurz E.J. Darras Angel Manzano Julian Serrano E. Hasim G. W. Kernot

Amount

Per Cent 65.791% .003% .003% 7.381% 7.381% 6.031% 5.670% 2.770% 4.970%

19,738 P1,973,800 100 100 221,500 221,500 181,000 170,000 83,000 149,000

30,000 P3,000,000 100.000% On the basis of the agreement Exhibit A, (May, 1947) "40%" of the earnings available for dividends accrued to Frank Liddell although at the time of the execution of aid instrument, Frank Liddell owned all of the shares in said corporation. 45% accrued to the employees, parties thereto; Kurz 121/2%; Darras 12-1/2%; A. Manzano 12-1/2% and Julian Serrano 7-1/2%. The agreement Exhibit A was also made retroactive to 1946. Frank Liddell reserved the right to reapportion the 45% dividends pertaining to the employees in the future for the purpose of including such other faithful and efficient employees as he may subsequently designate. (As a matter of fact, Frank Liddell did so designate two additional employees namely: E. Hasim and G. W. Kernot). It was for such inclusion of future faithful employees that Exhibits B-1 and C were executed. As per Exhibit C, dated May 13, 1948, the 45% given by Frank Liddell to his employees was reapportioned as follows: C. Kurz 12,%; E. J. Darras 12%; A. Manzano l2%; J. Serrano 3-1/2%; G. W. Kernot 2%. Exhibit B contains the employees' definition in detail of the manner by which they sought to prevent their share-holdings from being transferred to others who may be complete strangers to the business on Liddell & Co. From 1946 until November 22, 1948 when the purpose clause of the Articles of Incorporation of Liddell & Co. Inc., was amended so as to limit its business activities to importations of automobiles and trucks, Liddell & Co. was engaged in business as an importer and at the same time retailer of Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet trucks. On December 20, 1948, the Liddell Motors, Inc. was organized and registered with the Securities and Exchange Commission with an authorized capital stock of P100,000 of which P20,000 was subscribed and paid for as follows: Irene Liddell wife of Frank Liddell 19,996 shares and Messrs. Marcial P. Lichauco, E. K. Bromwell, V. E. del Rosario and Esmenia Silva, 1 share each. At about the end of the year 1948, Messrs. Manzano, Kurz and Kernot resigned from their respective positions in the Retail Dept. of Liddell & Co. and they were taken in and employed by Liddell Motors, Inc.: Kurz as Manager-Treasurer, Manzano as General Sales Manager for cars and Kernot as General Sales Manager for trucks. Beginning January, 1949, Liddell & Co. stopped retailing cars and trucks; it conveyed them instead to Liddell Motors, Inc. which in turn sold the vehicles to the public with a steep mark-up. Since then, Liddell & Co. paid sales taxes on the basis of its sales to Liddell Motors Inc. considering said sales as its original sales. Upon review of the transactions between Liddell & Co. and Liddell Motors, Inc. the Collector of Internal Revenue determined that the latter was but an alter ego of Liddell & Co. Wherefore, he concluded, that for sales tax purposes, those sales made by Liddell Motors, Inc. to the public were considered as the original sales of Liddell & Co. Accordingly, the Collector of Internal Revenue assessed against Liddell & Co. a sales tax deficiency, including surcharges, in the amount of P1,317,629.61. In the computation, the gross selling price of Liddell Motors, Inc. to the general public from January 1, 1949 to September 15, 1950, was made the basis without deducting from the selling price, the taxes already paid by Liddell & Co. in its sales to the Liddell Motors Inc. The Court of Tax Appeals upheld the position taken by the Collector of Internal Revenue. A. Judge Umali: Appellant urges the disqualification on of Judge Roman M. Umali to participate in the decision of the instant case because he was Chief of the Law Division, then Acting Deputy Collector and later Chief Counsel of the Bureau of Internal Revenue during the time when the 1 assessment in question was made. In refusing to disqualify himself despite admission that had held the aforementioned offices, Judge Umali stated that he had not in any way participated, nor expressed any definite opinion, on any question raised by the parties when this case was presented for resolution before the said bureau. Furthermore, after careful inspection of the records of the Bureau, he (Judge Umali as well as the

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other members of the court below), had not found any indication that he had expressed any opinion or made any decision that would tend to disqualify him from participating in the consideration of the case in the Tax Court. At this juncture, it is well to consider that petitioner did not question the truth of Judge Umali's statements. In view thereof, this Tribunal is not inclined to disqualify said judge. Moreover, in furtherance of the presumption of the judge's moral sense of responsibility this Court has adopted, and now here repeats, the ruling that the mere participation of a judge in prior proceedings relating to the subject in the capacity of an 2 administrative official does not necessarily disqualify him from acting as judge. Appellant also contends that Judge Umali signed the said decision contrary to the provision of Section 13, Republic Act No. 1125; that whereas the case was submitted for decision of the Court of Tax Appeals on July 12, 1955, and the decision of Associate Judge Luciano and Judge Nable were both signed on August 11, 1955 (that is, on the last day of the 30-day period provided for in Section 13, Republic Act No. 1125), Judge Umali signed the decision August 31, 1955 or 20 days after the lapse of the 30-day period allotted by law. By analogy it may be said that inasmuch as in Republic Act No. 1125 (law creating the Court of Tax Appeals) like the law governing the procedure in the court of Industrial Relations, there is no provision invalidating decisions rendered after the lapse of 30 days, the requirement of Section 13, 4 Republic Act No. 1125 should be construed as directory. Besides as pointed out by appellee, the third paragraph of Section 13 of Republic Act No. 1125 (quoted in the margin) confirms this view; because in providing for two thirty-day periods, the law means that decision may still be rendered within the second period of thirty days (Judge Umali signed his decision within that period). B. Identity of the two corporations: On the question whether or not Liddell Motors, Inc. is the alter ego of Liddell & Co. Inc., we are fully convinced that Liddell & Co. is wholly owned by Frank Liddell. As of the time of its organization, 98% of the capital stock belonged to Frank Liddell. The 20% paid-up subscription with which the company began its business was paid by him. The subsequent subscriptions to the capital stock were made by him and paid with his own money. These stipulations and conditions appear in Exhibit A: (1) that Frank Liddell had the authority to designate in the future the employee who could receive earnings of the corporation; to apportion among the stock holders the share in the profits; (2) that all certificates of stock in the names of the employees should be deposited with Frank Liddell duly indorsed in blank by the employees concerned; (3) that each employee was required to sign an agreement with the corporation to the effect that, upon his death or upon his retirement or separation for any cause whatsoever from the corporation, the said corporation should, within a period of sixty days therefor, have the absolute and exclusive option to purchase and acquire the whole of the stock interest of the employees so dying, resigning, retiring or separating. These stipulations in our opinion attest to the fact that Frank Liddell also owned it. He supplied the original his complete control over the corporation. As to Liddell Motors, Inc. we are fully persuaded that Frank Liddell also owned it. He supplied the original capital funds. It is not proven that his 7 wife Irene, ostensibly the sole incorporator of Liddell Motors, Inc. had money of her own to pay for her P20,000 initial subscription. Her income in the United States in the years 1943 and 1944 and the savings therefrom could not be enough to cover the amount of subscription, much less to operate an expensive trade like the retail of motor vehicles. The alleged sale of her property in Oregon might have been true, but the money received therefrom was never shown to have been saved or deposited so as to be still available at the time of the organization of the Liddell Motors, Inc. The evidence at hand also shows that Irene Liddell had scant participation in the affairs of Liddell Motors, Inc. She could hardly be said to possess business experience. The income tax forms record no independent income of her own. As a matter of fact, the checks that represented her salary and bonus from Liddell Motors, Inc. found their way into the personal account of Frank Liddell. Her frequent absences from the country negate any active participation in the affairs of the Motors company. There are quite a series of conspicuous circumstances that militate against the separate and distinct personality of Liddell Motors, Inc. from Liddell 8 & Co. We notice that the bulk of the business of Liddell & Co. was channeled through Liddell Motors, Inc. On the other hand, Liddell Motors, Inc. pursued no activities except to secure cars, trucks, and spare parts from Liddell & Co. Inc. and then sell them to the general public. These sales of vehicles by Liddell & Co. to Liddell Motors, Inc. for the most part were shown to have taken place on the same day that Liddell Motors, Inc. sold such vehicles to the public. We may even say that the cars and trucks merely touched the hands of Liddell Motors, Inc. as a matter of formality. During the first six months of 1949, Liddell & Co. issued ten (10) checks payable to Frank Liddell which were deposited by Frank Liddell in his personal account with the Philippine National Bank. During this time also, he issued in favor of Liddell Motors, Inc. six (6) checks drawn against his personal account with the same bank. The checks issued by Frank Liddell to the Liddell Motors, Inc. were significantly for the most part issued on 9 the same day when Liddell & Co. Inc. issued the checks for Frank Liddell and for the same amounts. It is of course accepted that the mere fact that one or more corporations are owned and controlled by a single stockholder is not of itself sufficient 10 ground for disregarding separate corporate entities. Authorities support the rule that it is lawful to obtain a corporation charter, even with a single substantial stockholder, to engage in a specific activity, and such activity may co-exist with other private activities of the stockholder. If the corporation is a substantial one, conducted lawfully and without fraud on another, its separate identity is to be respected. Accordingly, the mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned and controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the separate corporate identity of one from the other. There is, however, in this instant case, a peculiar consequence of the organization and activities of Liddell Motors, Inc. Under the law in force at the time of its incorporation the sales tax on original sales of cars (sections 184, 185 and 186 of the National Internal Revenue Code), was progressive, i.e. 10% of the selling price of the car if it did not exceed P5000, and 15% of the price if more than P5000 but not more than P7000, etc. This progressive rate of the sales tax naturally would tempt the taxpayer to employ a way of reducing the price of the first sale. And Liddell Motors, Inc. was the medium created by Liddell & Co. to reduce the price and the tax liability.
6 5 3

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Let us illustrate: a car with engine motor No. 212381 was sold by Liddell & Co. Inc. to Liddell Motors, Inc. on January 17, 1948 for P4,546,000.00 including tax; the price of the car was P4,133,000.23, the tax paid being P413.22, at 10%. And when this car was later sold (on the same day) by 11 Liddell Motors, Inc. to P.V. Luistro for P5500, no more sales tax was paid. In this price of P5500 was included the P413.32 representing taxes paid by Liddell & Co. Inc. in the sale to Liddell Motors, Inc. Deducting P413.32 representing taxes paid by Liddell & Co., Inc. the price of P5500, the balance of P5,087.68 would have been the net selling price of Liddell & Co., Inc. to the general public (had Liddell Motors, Inc. not participated and intervened in the sale), and 15% sales tax would have been due. In this transaction, P349.68 in the form of taxes was evaded. All the other transactions (numerous) examined in this light will inevitably reveal that the Government coffers had been deprived of a sizeable amount of taxes. As opined in the case of Gregory v. Helvering, "the legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or 13 altogether avoid them by means which the law permits, cannot be doubted." But, as held in another case, "where a corporation is a dummy, is unreal or a sham and serves no business purpose and is intended only as a blind, the corporate form may be ignored for the law cannot countenance a form that is bald and a mischievous fiction." Consistently with this view, the United States Supreme Court held that "a taxpayer may gain advantage of doing business thru a corporation if he pleases, but the revenue officers in proper cases, may disregard the separate corporate entity where it serves but as a shield for tax evasion and treat the person who actually may take the benefits of the transactions as the person accordingly taxable." Thus, we repeat: to allow a taxpayer to deny tax liability on the ground that the sales were made through an other and distinct corporation when it is proved that the latter is virtually owned by the former or that they are practically one and the same is to sanction a circumvention of our tax 15 laws. C. Tax liability computation: In the Yutivo case the same question involving the computation of the alleged deficiency sales tax has been raised. In accordance with our ruling in said case we hold as correctly stated by Judge Nable in his concurring and dissenting opinion on this case, that the deficiency sales tax should be based on the selling price obtained by Liddell Motors, Inc. to the public AFTER DEDUCTING THE TAX ALREADY PAID BY LIDDELL & CO., INC. in its sales to Liddell Motors, Inc. On the imposition of the 50% surcharge by reason of fraud, we see that the transactions between Liddell Motors Inc. and Liddell & Co., Inc. have always been embodied in proper documents, constantly subject to inspection by the tax authorities. Liddell & Co., Inc. have always made a full report of its income and receipts in its income tax returns. Paraphrasing our decision in the Yutivo case, we may now say, in filing its return on the basis of its sales to Liddell Motors, Inc. and not on those by the latter to the public, it cannot be held that the Liddell & Co., Inc. deliberately made a false return for the purpose of defrauding the government of its revenue, and should suffer a 50% surcharge. But penalty for late payment (25%) should be imposed. In view of the foregoing, the decision appealed from is hereby modified: Liddell & Co., Inc. is declared liable only for the amount of P426,811.67 with 25% surcharge for late payment and 6% interest thereon from the time the judgment becomes final. As it appears that, during the pendency of this litigation appellant paid under protest to the Government the total amount assessed by the Collector, the latter is hereby required to return the excess to the petitioner. No costs.
16 14 12

18. G.R. No. 117963 February 11, 1999 AZCOR MANUFACTURING INC., FILIPINAS PASO and/or ARTURO ZULUAGA/Owner, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (NLRC) AND CANDIDO CAPULSO, respondents. BELLOSILLO, J.: AZCOR MANUFACTURING, INC., Filipinas Paso and Arturo Zuluaga instituted this petition for certiorari under Rule 65 of the Rules of Court to assail, for having been rendered with grave abuse of discretion amounting to lack or excess of jurisdiction, the Decision of the National Labor Relations 1 Commission which reversed the decision of the Labor Arbiter dismissing the complaint of respondent Candido Capulso against petitioners. Candido Capuslo file with the Labor Arbiter a complaint for constructive illegal dismissal and illegal deduction of P50.00 per day for the period April to September 1989. Petitioners Azcor Manufacturing, Inc. (AZCOR) and Arturo Zuluaga who were respondents before the Labor Arbiter (Filipinas Paso was not yet a party then in that case) moved to dismiss the complaint on the ground that there was no employer-employee relationship between AZCOR and herein respondent Capulso; .that the latter became an employee of Filipinas Paso effective 1 March 1996 but voluntarily resigned there from a year after, Capulso later amended his complaint by impleading Filipinas Paso as additional respondent before the Labor Arbiter. On 14 January 1592, Labor Arbiter Felipe T. Garduque II denied the motion to dismiss holding that the allegation of lack of employer-employee relationship between Capulso and AZCOR was not clearly established. Thereafter, the Labor Arbiter ordered that hearings be conducted for the presentation of evidence by both parties. The evidence presented by Capulso showed that he worked for AZCOR as ceramics worker for more than two (2) years starting from 3 April 1989 to 1 June 1991 receiving a daily wage of P118.00 plus other benefits such as vacation and sick leaves. From April to September 1989 the amount of P50.00 was deducted from his salary without informing him of the reason therefor. In the second week of February 1991, upon his doctor's recommendation, Capulso verbally requested to go on sick leave due to bronchial asthma. It appeared that his illness was, directly caused by his job as ceramics worker where, for lack of the prescribed occupational safety gadgets, he

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inhaled and absorbed harmful ceramic dusts. His supervisor, Ms. Emily Apolinaria, approved his request. Later, on 1 June 1991, Capulso went back to petitioner AZCOR to resume his work after recuperating from his illness. He was not allowed to do so by his supervisors who informed him that only the owner, Arturo Zuluaga, could allow him to continue in his job. He returned five (5) times to AZCOR but when it became apparent that he 2 would not be reinstated, he immediately filed the instant complaint for illegal dismissal. Capulso presented the following documentary evidence in support of his claim: (a) His affidavit and testimony to prove that he was terminated 3 without just cause and without due process; (b) Identification card issued by AZCOR which he continued to use even after his supposed 4 5 employment by Filipinas Paso; (c) Certification of SSS premium payments; (d) SSS Member Assistance Form wherein he stated that he worked 6 7 8 with AZCOR from March 1989 to April 1991; (e) Certification of Employee Contribution with SSS; and, (f) Payslips issued by AZCOR. On the other hand, petitioners alleged that Capulso was a former employee of AZCOR who resigned on 28 February 1990 as evidenced by a letter of resignation and joined Filipinas Paso on 1 March 1990 as shown by a contract of employment; in February 1991 Capulso allegedly informed his supervisor, Ms. Emilia Apolinaria, that he intended to go on terminal leave because he was not feeling well; on 1 March 1991 he submitted a letter of resignation addressed to the President of Filipinas Paso, Manuel Montilla; and, in the early part of June 1991 Capulso tried to apply for work again with Filipinas Paso but there was no vacancy. Petitioners submitted the following documentary evidence: (a) Sworn Statement of Ms. Emilia Apolinaria and her actual testimony to prove that 9 respondent indeed resigned voluntarily from AZCOR to transfer to Filipinas Paso, and thereafter, from Filipinas Paso hug to failing health; (b) 10 Contract of Employment between Filipinas Paso and respondent which took effect 1 March 1991; (c) Letter of resignation of respondent from 11 AZCOR dated 28 February 1990, to take effect on the same date; (d) Undated letter of resignation of respondent addressed to Filipinas Paso to 12 13 14 take effect 1 March 1991; (e) BIR Form No. W-4 filed 6 June 1990; (f) Individual Income Tax Return of respondent for 1990; and, (g) BIR Form 15 1701-B which was an alphabetical list of employees of Filipinas Paso for the year ending 31 December 1990. On 29 December 1992 the Labor Arbiter rendered a decision dismissing the complaint for illegal dismissal for lack of merit, but ordered AZCOR and/or Arturo Zuluaga to refund to Capulso the sum of P200.00 representing the amount illegally deducted from his salary. On appeal by Capulso, docketed as NLRC CA No. 004476-93 (NLRC NCR 00-09-05271-91), "Capulso v. Azcor Manufacturing Inc., Filipinas Paso and/or Arturo Zuluaga/owner," the NLRC modified the Labor Arbiter's decision by: (a) declaring the dismissal of Capulso as illegal for lack of just and valid cause; (b) ordering petitioners to reinstate Capulso to his former or equivalent position without loss of Seniority rights and without diminution of benefits, and, (c) ordering petitioners to jointly and solidarily pay Capulso his backwages computed from the time of his dismissal up to the date of his actual reinstatement. The NLRC held in part. . . . the contract of employment (Exh. 2, p. 187, Rollo) issued to complainant indicates that the work to be done during the period was contracted with Filipinas Paso. The said contract was signed by, the Personnel Officer of Ascor Manufacturing Inc. Likewise, the contract period is for six (6) months, which establishes a presumption that the said contract could pass either as to cover the probationary period, or job contracting, the completion of which automatically terminates employment, whichever will work to respondent's advantage should the case be filed. However, appellant continued working with respondent after the lapse of the contract and until the alleged termination of employment of appellant. Secondly, the two resignation letters allegedly executed by appellant are exactly worded, which only shows that the same work were prepared by respondents-appellees plus after the fact that complainant denied having executed and signed the same. . . . . the letter of resignation (Exh. "3", p. 188, Rollo) supposed to have been executed by complainant-appellant shows that he resigned from Ascor Mfg., Inc. on February 28, 1990 while Exhibit "2", page 187, Rollo, which was the contract of Employment issued to Candido Capulso by the personnel officer of Ascor Mfg., Inc. shows that appellant was being hired from March 1, 1990 to August 31, 1990 by respondent Ascor Mfg., Inc. to do jobs for Filipinas Paso; A run-around of events and dates. The events that transpired clearly show that there was no interruption in the service of complainant with Ascor Mfg., Inc. from April 13 1989 up to June 1, 1991 when complainant was unceremoniously dismissed. Considering that Ascor Mfg., Inc. and Filipinas Paso orchestrated the events that appeared to be in order with the alleged execution of resignation letters which was disputed by complainant and confirmed spurious as explained above, likewise overwhelmingly show the bad faith of respondents in the treatment of their employees. Petitioners' motion for reconsideration was denied by the NLRC through its Resolution of 14 October 1994; hence, the instant-petition. Meanwhile, during the pendency of the case before this Court, Capulso succumbed to asthma and heart disease. The issue to be resolved is whether the NLRC committed grave abuse of discretion in declaring that private respondent Capulso was illegally dismissed and in holding petitioners jointly and solidarily liable to Capulso for back wages. As a rule the original and exclusive jurisdiction to review a decision or resolution of respondent NLRC in a petition for certiorari under Rule 65 of the Rules of Court does not include a correction of its evaluation of the evidence but is confined to issues of jurisdiction or grave abuse of discretion. The NLRC factual findings, if supported by substantial evidence, are entitled to great respect and even finality, unless petitioner is able to show that it simply and arbitrarily disregarded the evidence before it or had misappreciated the evidence to such an extent as to compel a contrary 16 conclusion if such evidence had been properly appreciated. We find no cogent reason to disturb the findings of the NLCR. Petitioners insist that Capulso was not really dismissed but he voluntarily resigned from AZCOR and Filipinas Paso, and that there was nothing illegal or unusual in the letters of resignation he executed. We disagree. To constitute a resignation, it must be unconditional and with the intent to operate as such. There must be an intention to relinquish a 17 portion of the term of office accompanied by an act of relinquishment. In the instant case, the fact that Capulso signified his desire to resume his

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work when he went back to petitioner AZCOR after recuperating from his illness, and actively pursued his case for illegal dismissal before the labor courts when he was refused admission by his employer, negated any intention on his part to relinquish his job at AZCOR. Moreover, a closer look at the subject resignation letters readily reveals the following: (a) the resignation letter allegedly tendered by Capulso to Filipinas Paso was identically worded with that supposedly addressed by him to AZCOR; (b) both were pre-drafted with blank spaces filled up with the purported dates of effectivity of his resignation; and, (c) it was written in English, a language which Capulso was not conversant with considering his low level of education. No other plausible explanation can be drawn from these circumstances than that the subject letters of resignation were prepared by a person or persons other than Capulso. And the fact that he categorically disowned the signatures therein and denied having executed them clearly indicates that the resignation letters were drafted, without his consent and participation. Even assuming for the sake of argument that the signatures were, genuine, we still cannot give credence to those letters in the absence of any showing that Capulso was aware that what he was signing then were in fact resignation letters or that he fully understood the contents thereof. Having introduced those resignation letters in evidence, it was incumbent upon petitioners to prove clearly and convincingly their genuineness and due execution, especially considering the serious doubts an their authenticity. Petitioners miserably failed in this respect. The Labor Arbiter held that Capulso's repudiation of the signatures affixed in the letters of resignation was weakened by the fact that he filed the case only after almost four (4) months from the date of his dismissal. But it should be noted that private respondent still wanted his job and thus, understandably, refrained from filing the illegal dismissal case against his employer so as not to jeopardize his chances of continuing with his employment. True enough, when it became apparent that he was no longer welcome at AZCOR he immediately instituted the instant case. In addition, an action for reinstatement by reason of illegal dismissal is one based on an injury which may be brought within four (4) years from the time of dismissal pursuant to Art. 1146 of the Civil Code. Hence, Capulso's case which was filed after a measly delay of four (4) months should not be treated with skepticism or cynicism. By law and settled jurisprudence, he has four (4) years to file his complaint for illegal dismissal. A delay of merely four (4) months in instituting an illegal dismissal case is more than sufficient compliance with the prescriptive period. It may betray an unlettered man's lack of awareness of his rights as a lowly worker but, certainly, he must not be penalized for his tarrying. In illegal dismissal cases like the present one, the onus of proving that the dismissal of the employee was for a valid and authorized cause rests on 18 19 the employer and failure to discharge the same would mean that the dismissal is not justified and therefore illegal. Petitioners failed in this regard. Petitioners also contend that they could not be held jointly and severally liable to Capulso for back wages since AZCOR and Filipinas Paso are separate and distinct corporations with different corporate personalities; and, the mere fact that the businesses of these corporations are interrelated and both owned and controlled by a single stockholder are not sufficient grounds to disregard their separate corporate entities. We are not persuaded. The doctrine that a corporation is a legal entity or a person in law distinct from the persons composing it is merely a legal fiction for purposes of convenience and to subserve the ends of justice. This fiction cannot be extended to a point beyond its reason and 20 policy. Where, as in this case, the corporate fiction was used as a means to perpetrate a social injustice or as a vehicle to evade obligations or confuse the legitimate issues, it would be discarded and the two (2) corporations would be merged as one, the first being merely considered as the 21 instrumentality, agency, conduit or adjunct of the other. In this particular case, there was much confusion as to the identity of Capulso's employer - whether it was AZCOR or Filipinas Paso; but, for sure, it was petitioners' own making, as shown by the following: First, Capulso had no knowledge that he was already working under petitioner Filipinas Paso since he contained to retain his AZCOR Identification card; Second, his payslips contained the name of AZCOR giving the impression that AZCOR was paying his salary; Third, he was paid the same salary and he performed the same kind of job, in the same work area, in the same location, using the same tools and under the same supervisor; Fourth, there was no gap in his employment as he continued to work from the time he was hired up to the last day of his work; Fifth, the casting department of AZCOR where Capulso was working was abolished when he, together with six (6) others, transferred to Filipinas Paso; and Sixth, the employment contract was signed by an AZCOR personnel officer, which showed that Capulso was being hired from 1 March 1990 to 31 August 1990 by AZCOR to do jobs for Filipinas Paso. The employment contract provided in part: The contract is for a specific job contract only and shall be effective for the period covered, unless sooner terminated when the job contract is completed earlier or withdrawn by client, or when the employee is dismissed for just and lawful causes provided by law and the company's rules and regulations, in which case the employment contract will automatically terminate. As correctly observed by the NLRC, the contract was only for six (6) months, which could pass either as a probationary period or a job contracting, the completion of which automatically terminated the employment. Observe further, however, that respondent continued working even after the lapse of the period in the contract - for whom it was not clear. It may be asked: Was the six (6)-month period probationary in nature, in which case, after the lapse of the period he became a regular employee of Filipinas Paso? Or was the period job-contracting in character, in which case, after the period he was deemed to have come back to AZCOR? Interestingly, petitioners likewise argue that it was grave abuse of discretion for the NLRC to hold them solidarily, liable to Capulso when the latter 22 himself testified that he was not even an employee of Filipinas Paso. After causing much confusion, petitioners have the temerity to use as evidence the ignorance of Capulso in identifying his true employer. It is evident from the foregoing discussion that Capulso was led into believing that while he was working with Filipinas Paso, his real employer was AZCOR. Petitioners never dealt with him openly and in good faith, nor was he informed of the developments within the company, i.e., his alleged transfer to Filipinas Paso and the closure of AZCOR's manufacturing operations 23 beginning 1 March 1990. Understandably, he sued AZCOR alone and was constrained to implead Filipinas Paso as additional respondent only when it became apparent that the latter also appeared to be his employer. In fine, we see in the totality of the evidence a veiled attempt by petitioners to deprive Capulso of what he had earned through hard labor by taking advantage of his low level of education and confusing. him as to who really was his true employer - such a callous and despicable treatment of a worker who had rendered faithful service to their company.

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However, considering that private respondent died during the pendency of the case before this Court, reinstatement is no longer feasible. In lieu thereof, separation pay shall be awarded. With respect to the amount of back wages, it shall be computed from the time of private respondent's illegal dismissal up to the time of his death. WHEREFORE, the petition is DISMISSED. The NLRC Decision of 12 September 1994 is MODIFIED. Petitioners AZCOR MANUFACTURING, INC., FILIPINAS PASO and ARTURO ZULUAGA are ORDERED to pay, jointly and solidarily, the heirs of private respondent Candido Capulso the amounts representing his back wages, inclusive of allowances and other benefits, and separation pay to, be computed in accordance with law.

19. G.R. No. L-20451

December 28, 1964

R. F. SUGAY and CO., INC., petitioner, vs. PABLO C. REYES, CESAR CURATA, PACIFIC PRODUCTS, INC., and WORKMEN'S COMPENSATION COMMISSION, respondents. PAREDES, J.: This is a Workmen's Compensation Case, the compensability of the injuries suffered by the claimants, Pablo C. Reyes, and Cesar Curata, being admitted by all the parties. The only issue requiring determination is, who among the three (3) persons (Romulo Sugay, R. F. Sugay & Co., Inc., and Pacific Products, Inc.) is the statutory employer of said claimants and who should be liable for their disability compensation. In the evening of January 13, 1961, respondents Pablo Reyes and Cesar Curata suffered burns of various degrees, while painting the building of the Pacific Products, Inc., caused by a fire of accidental origin, resulting in their temporary disability from work. For said injuries they filed claims for disability and medical expenses against the R. F. Sugay & Co., Inc., Romulo F. Sugay and the Pacific Products, Inc. The R. F. Sugay & Co., Inc., answered the claim, alleging that the corporation was not the employer of the claimants but it was the Pacific Products, Inc., which had an administration and supervision job contract with Romulo F. Sugay, who, aside from being the President of the corporation, bearing his name, had also a business of his own, distinct and separate from said corporation; and that the Regional Office of the Department of Labor had no jurisdiction over the subject matter. Romulo F. Sugay did not file an Answer, but voluntarily appeared during the hearing and disclaimed liability. The Answer of Pacific Products, Inc., contained the customary admissions and denials, and averred that its business was mainly in the manufacture and sale of lacquer and other painting materials. As defenses, it stated that the claimants were the employees of respondents R. F. Sugay Construction Co., Inc., and/or Romulo F. Sugay that as a result of the, fire, it incurred a loss of P2,000,000.00, occasioned by the employment of incompetent men in the painting of its factory by the Sugays. The Hearing Officer dismissed the case with respect, to R. F. Sugay & Co., Inc., and Romulo F. Sugay "for want of employer-employee relationship with the claimants, either directly or through an independent contractor" declaring: WHEREFORE, the Pacific Products, Inc., is hereby adjudged to pay through this office, the following benefits to the claimants as follows: 1. To PABLO C. REYES, the sum of P490.05 as temporary total disability benefits plus P44.53 for permanent partial disability of index finger plus P40.20 for the middle finger plus P49.48 for the ring finger; plus hospital and medical expenses of P659.70 or a total of ONE THOUSAND TWO HUNDRED EIGHTY-THREE and 96/100 PESOS (P1,283.96) as total benefits under the Act. 2. To CESAR CURATA, the sum of P415.80 as temporary total disability compensation plus P477.75 and P273.00 for impairment of his right and left feet plus P4,459.96 as medical and hospital expenses or a total of FIVE THOUSAND SIX HUNDRED TWENTY-FIVE and 80/100 PESOS (P5,625.80) as total benefits under the Act. 3. To pay to this office the sum of EIGHTEEN PESOS (P18.00) as fees for the two claims pursuant to Section 55 of the Act. The respondents, ROMULO F. SUGAY and R. F. SUGAY & CO., INC., should be as they are hereby exempted from any liability for lack of employer-employee relationship with the claimants. Pacific Products, Inc., appealed the above decision to the Commission. On August 24, 1962, Commissioner Jose Sanchez rendered judgment affirming the compensability of the injuries and the amounts due them, but modified the decision of the Hearing Officer, by finding that R. F. Sugay & Co., Inc., was the statutory employer of the claimants and should be liable to them. Pacific Products, Inc., was absolved from all responsibility. In the decision, the Associate Commissioner, made the following findings and conclusions, to wit: xxx xxx xxx

A careful study of the evidence leads us to the conclusion that, although the accident happened within the premises of the respondent Pacific Products, Inc., the responsibility for the payment of the compensation due in this case should be lodged somewhere else. In the first place, even the evidence presented by the claimants and the other two respondents clearly established the fact that the accident occurred while the claimant, were painting the Office of Pacific Products Inc., an undertaking which had nothing to do with the business of the latter. It was fairly shown that Pacific Products, Inc., was engaged in the manufacture and sale of paints, varnish and other allied products, and, therefore, the work which was then being undertaken in its office at the time of the accident has nothing to do with the nature of its business. The records disclose that the injured painter were hired, through an intermediary, by R. F. Sugay & Co., which was purposely established "to engage itself in the constructions, repairs, remodelling of all kinds of houses, residences, edifices and all such other buildings and all kinds of construction works allied thereto." (Exh. "11", Articles of Incorporation of R. F. Sugay & Co., Inc., page 241 Records of the case.) xxx xxx xxx

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The evidence adduced by the parties indicates rather clearly that, except for the fact that the Pacific Products, Inc. supplied the paint, it did not exercise any of the above-enumerated powers. The claimants were hired by one Rodolfo Babatid pursuant to the instruction received by the latter from Romulo Sugay. They were paid by Eduardo Sugay, brother of Romulo and Secretary of R. F. Sugay & Co., and were under the control of these persons during the time they were painting the office of Pacific Products, Inc. Following the rulings enunciated in the 1 abovecited decisions of the Supreme Court. we are constrained to disagree with the Hearing Officer's decision in so far as it held that respondent Pacific Products, Inc. should be solely responsible for the payment of the compensation he awarded in favor of the claimants. Neither can we see the reason of the Hearing Officer in ordering said respondent to pay the compensation in this case after ruling categorically that "the herein claimants were casual employees of Pacific Products, Inc." A casual employee,' by the way, is one "whose employment is purely casual and is not for the purposes of the occupation or business of the employer." (Section 39[b] Workmen's. Compensation Act, as amended.) xxx xxx xxx

... In a situation like this, much weight should be given to the testimony of a person who does not stand to lose or gain from the outcome of the case. Rodolfo Babatid, who was presented by both the respondent Romulo Sugay and the claimants, swore on the witness stand that he has been for a long time, an employee of the firm R. F. Sugay & Co. and that he hired the other painters pursuant to Sugay as president of said firm. This witness, and the two claimants were in unison in declaring that they were paid by the firm, thru its secretary Eduardo Sugay, who directly supervised them in their work. That the claimants were of the belief that they were hired by R. F. Sugay & Co., thru Mr. Babatid, is also shown by their declarations under oath that they were paid thru the company payroll; which they signed. ... . These two persons, as already adverted to above, expressed their honest belief that they were connected with R. F. Sugay & Co., having been hired by one who was known to be a trusted employee of said business establishment. Under this set of facts it may be said that R. F. Sugay & Co., is now estopped from denying any relationship with the claimants because, thru its responsible officials, it made others believe that the painters hired by Mr. Babatid were being employed by it. Without insinuating that the dual role played by Romulo F. Sugay was intended to be used as a subterfuge of the corporation to cloak the responsibilities of the corporation under his presidency, we must state that such dual roles cannot be allowed to confuse the facts relating to employer-employee relationships. The Commission en banc, on September 19, 1962, denied the motion for reconsideration stating that there was "nothing to warrant a modification much less a reversal, of the decision sought to be reviewed." In the appeal of R. F. Sugay & Co., to this Court, it is insisted that Pacific Products, Inc. was the employer of the claimants. At the outset, We would wish to point out that this case is an appeal from the decision of the Workmen's Compensation Commission. Needless to state, in this class of proceedings, only questions of law should be raised, the findings of facts made by the Commission, being conclusive and binding upon this Court. (Bernardo vs. Pascual, L-13260, October 31, 1960.) Indeed, We are authorized to inquire into the facts, but only when the conclusions thereupon are not supported by the evidence. In the case at bar, however, We find that the findings of facts made by the Commissioner and concurred in by the Commission en banc are fully supported by the evidence on record which clearly points out that R. F. Sugay & Co., is the statutory employer of the claimants. The decisive elements showing that it is the employer, are present, such as selection and engagement; payment of wages; power of dismissal, and control (Viaa vs. Alejo-Alagadan, et al., May 31, 1956). These powers were lodged in R. F. Sugay & Co. On this very score alone, the petition for review should be dismissed. There was a faint attempt by the petitioning corporation, to evade liability, by advancing the theory that Romulo P. Sugay, its President, was the one who entered into a contract of administration and supervision for the painting of the factory of the Pacific Products, Inc., and making it appear that said Romulo F. Sugay acted as an agent of the Pacific Products, Inc., and as such, the latter should be made answerable to the compensation due to the claimants. We, however, agree with the Commission that "the dual roles of Romulo F. Sugay should not be allowed to confuse the facts relating to employer-employee relationship." It is a legal truism that when the veil of corporate fiction is made as a shield to perpetrate a fraud and/or confuse legitimate issues (here, the relation of employer-employee), the same should be pierced. Verily the R. F. Sugay & Co., Inc. is a business conduit of R. F. Sugay. IN VIEW HEREOF, the writ is denied, and the judgment appealed from, is hereby affirmed, in all respects. Costs taxed against petitioner R. F. Sugay & Co., Inc., in both instances.

20. G.R. No. L-2294

May 25, 1951

FILIPINAS COMPAIA DE SEGUROS, petitioner, vs. CHRISTERN, HUENEFELD and CO., INC., respondent. PARAS, C.J.: On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of corresponding premium, obtained from the petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of P1000,000, covering merchandise contained in a building located at No. 711 Roman Street, Binondo Manila. On February 27, 1942, or during the Japanese military occupation, the building and insured merchandise were burned. In due time the respondent submitted to the petitioner its claim under the policy. The salvage goods were sold at public auction and, after deducting their value, the total loss suffered by the respondent was fixed at P92,650. The petitioner refused to pay the claim on the ground that the policy in favor of the respondent had ceased to be in force on the date the United States declared war against Germany, the respondent Corporation (though organized under and by virtue of the laws of the Philippines) being controlled by the German subjects and the petitioner being a company under American jurisdiction when said policy was issued on October 1, 1941. The petitioner, however, in pursuance of the order of the Director of Bureau of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the respondent the sum of P92,650 on April 19, 1943.

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The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose of recovering from the respondent the sum of P92,650 above mentioned. The theory of the petitioner is that the insured merchandise were burned up after the policy issued in 1941 in favor of the respondent corporation has ceased to be effective because of the outbreak of the war between the United States and Germany on December 10, 1941, and that the payment made by the petitioner to the respondent corporation during the Japanese military occupation was under pressure. After trial, the Court of First Instance of Manila dismissed the action without pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the Court of First Instance of Manila was affirmed, with costs. The case is now before us on appeal by certiorari from the decision of the Court of Appeals. The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an enemy when the United States declared war against Germany, relying on English and American cases which held that a corporation is a citizen of the country or state by and under the laws of which it was created or organized. It rejected the theory that nationality of private corporation is determine by the character or citizenship of its controlling stockholders. There is no question that majority of the stockholders of the respondent corporation were German subjects. This being so, we have to rule that said respondent became an enemy corporation upon the outbreak of the war between the United States and Germany. The English and American cases relied upon by the Court of Appeals have lost their force in view of the latest decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148-153, in which the controls test has been adopted. In "Enemy Corporation" by Martin Domke, a paper presented to the Second International Conference of the Legal Profession held at the Hague (Netherlands) in August. 1948 the following enlightening passages appear: Since World War I, the determination of enemy nationality of corporations has been discussion in many countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by enemies, namely managed under the influence of individuals or corporations, themselves considered as enemies. It was the English courts which first the Daimler case applied this new concept of "piercing the corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established after the First World War. The United States of America did not adopt the control test during the First World War. Courts refused to recognized the concept whereby American-registered corporations could be considered as enemies and thus subject to domestic legislation and administrative measures regarding enemy property. World War II revived the problem again. It was known that German and other enemy interests were cloaked by domestic corporation structure. It was not only by legal ownership of shares that a material influence could be exercised on the management of the corporation but also by long term loans and other factual situations. For that reason, legislation on enemy property enacted in various countries during World War II adopted by statutory provisions to the control test and determined, to various degrees, the incidents of control. Court decisions were rendered on the basis of such newly enacted statutory provisions in determining enemy character of domestic corporation. The United States did not, in the amendments of the Trading with the Enemy Act during the last war, include as did other legislations the applications of the control test and again, as in World War I, courts refused to apply this concept whereby the enemy character of an American or neutral-registered corporation is determined by the enemy nationality of the controlling stockholders. Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice in the treatment of foreign-owned property in the United States allowed to large degree the determination of enemy interest in domestic corporations and thus the application of the control test. Court decisions sanctioned such administrative practice enacted under the First War Powers Act of 1941, and more recently, on December 8, 1947, the Supreme Court of the United States definitely approved of the control theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss corporation allegedly controlled by German interest, the Court: "The property of all foreign interest was placed within the reach of the vesting power (of the Alien Property Custodian) not to appropriate friendly or neutral assets but to reach enemy interest which masqueraded under those innocent fronts. . . . The power of seizure and vesting was extended to all property of any foreign country or national so that no innocent appearing device could become a Trojan horse." It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed decision. However, we may add that, * in Haw Pia vs. China Banking Corporation, 45 Off Gaz., (Supp. 9) 299, we already held that China Banking Corporation came within the meaning of the word "enemy" as used in the Trading with the Enemy Acts of civilized countries not only because it was incorporated under the laws of an enemy country but because it was controlled by enemies. The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a public enemy may be insured." It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy. Effect of war, generally. All intercourse between citizens of belligerent powers which is inconsistent with a state of war is prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or trading with the enemy; all acts which will increase, or tend to increase, its income or resources; all acts of voluntary submission to it; or receiving its protection; also all acts concerning the transmission of money or goods; and all contracts relating thereto are thereby nullified. It further prohibits insurance upon trade with or by the enemy, upon the life or lives of aliens engaged in service with the enemy; this for the reason that the subjects of one country cannot be permitted to lend their assistance to protect by insurance the commerce or property of belligerent, alien subjects, or to do anything detrimental too their country's interest. The purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent that one country should destroy its enemy's property and repay in insurance the value of what has been so destroyed, or that it should in such manner increase the resources of the enemy, or render it aid, and the commencement of war determines, for like reasons, all trading intercourse with the enemy, which prior thereto may have been lawful. All individuals therefore, who compose the belligerent powers, exist, as to each other, in a state of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.) In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified term it is plain that when the parties become alien enemies, the contractual tie is broken and the contractual rights of the parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)

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The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforcible, and since the insured goods were burned after December 10, 1941, and during the war, the respondent was not entitled to any indemnity under said policy from the petitioner. However, elementary rules of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by the respondent for the period covered by its policy from December 11, 1941, should be returned by the petitioner. The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the policy in question became null and void upon the declaration of war between the United States and Germany on December 10, 1941, and its judgment in favor of the respondent corporation was predicated on its conclusion that the policy did not cease to be in force. The Court of Appeals necessarily assumed that, even if the payment by the petitioner to the respondent was involuntary, its action is not tenable in view of the ruling on the validity of the policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted to by the appellee was not unjust but the exercise of its lawful right to claim for and received the payment of the insurance policy," and that the ruling of the Bureau of Financing to the effect that "the appellee was entitled to payment from the appellant was, well founded." Factually, there can be no doubt that the Director of the Bureau of Financing, in ordering the petitioner to pay the claim of the respondent, merely obeyed the instruction of the Japanese Military Administration, as may be seen from the following: "In view of the findings and conclusion of this office contained in its decision on Administrative Case dated February 9, 1943 copy of which was sent to your office and the concurrence therein of the Financial Department of the Japanese Military Administration, and following the instruction of said authority, you are hereby ordered to pay the claim of Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be made by means of crossed check." (Emphasis supplied.) It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on this case. However, the petitioner will be entitled to recover only the equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in accordance with the rate fixed in the Ballantyne scale. Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to the petitioner the sum of P77,208.33, Philippine currency, less the amount of the premium, in Philippine currency, that should be returned by the petitioner for the unexpired term of the policy in question, beginning December 11, 1941. Without costs. So ordered.

21. G.R. No. 80352 September 29, 1989 BENJAMIN G. INDINO, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (SECOND DIVISION), and DASMARIAS INDUSTRIAL & STEELWORKS CORPORATION and/or PHILIPPINE NATIONAL CONSTRUCTION CORPORATION (PNCC), Formerly CONSTRUCTION DEVELOPMENT CORPORATION OF THE PHILIPPINES (CDCP), respondents. SARMIENTO, J.: The main issue in this petition for certiorari assailing the two resolutions dated August 20, 1987 and October 5, 1987 of the respondent National Labor Relations Commission (NLRC) in NLRC Case No. 10-3268-85, is the validity of the petitioner's separation from the employ of private respondent Dasmarinas Industrial and Steelworks Corporation (DISC). The petitioner, Benjamin G. Indino, joined the Philippine National Construction Corporation (PNCC) as a project personnel officer on December 12, 1974. On January 6, 1981, he was transferred to private respondent DISC, a sister corporation of PNCC, which assigned him to its Philphos Project in Isabel, Leyte. On July 27, 1983, while the petitioner was on a paid vacation leave, he received a "letter-memorandum" from Roman B. Lopez, DISC personnel manager, informing him that his services were no longer needed at the Philphos Project in Leyte. The "letter- memorandum" reads: Date July 27, 1983 The significant business reverses being experienced by the company makes (sic) it imperative to take drastic measures to reduce both its work force and operating costs. We regret to inform you, therefore, that your employment with DISC shall be terminated at the close of business hours on August 27,1983, or after thirty (30) days from your receipt hereof. Relatively, you can elect to submit a formal resignation in which case you shall also be entitled to separation pay and other benefits applicable under existing policies. You may also take advantage of your earned leave during the period July 27,1983 to August 27, 1983. The Personnel Administration Department (PAD), will be gIad to answer your questions pertaining to your formal separation. Please accomplish the necessary clearance on or before July 30, 1983. SGD. ROMAN B. LOPEZ Personnel Manager
3 1 2

Immediately after receipt of the "letter-memorandum," the petitioner filed with the NLRC a complaint for illegal dismissal against private 4 respondent DISC; it was docketed as NLRC-NCR CASE No. 7- 3590-83. The case, however, was prematurely terminated upon a joint motion to dismiss, dated September 30, 1983, filed by the parties, and which reads:

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Comes (sic) now both parties in the above-entitled case and unto this Honorable Commission respectfully state: 1. That both parties mutually agreed to settle their differences and petitioner/complainant agreed to return to work tomorrow October 1, 1983. On the other hand, respondent accepted his willingness to return to work at any project or office where he may be assigned; 2. That complainant likewise agreed to be paid only fifty percent (50%) of his back wages/salaries and other allowances by the respondent starting July 27, 1983 up to September 30, 1983, and by this Joint Motion to Dismiss both parties are foregoing and condoning whatever claims each party may have against each other under NLRC-NCR CASE No. 7-3590-83; 3. That both parties hereby mutually and jointly move for the dismissal of the above-entitled case. Makati, Metro Manila September 30, 1983. SGD. BENJAMIN G. INDINO SGD. ORLANDO B. TIONGSON Complainant President Dasmarias Industrial & Steelworks Corp. Assisted by: SGD. JOSE A. CABATUANDO JR. Counsel for the respondent
5

On the basis of that agreement, the petitioner was reinstated on October 1, 1983 at respondent DISC's central office, occupying the position of 6 Project Administrative Officer III. Barely two months after his reinstatement, however, or on December 14, 1983, the petitioner received another "letter-memorandum" from respondent DISC, again terminating his services. The "letter-memorandum" states: December 14,1983 As we have completed most of our major projects and about to complete the Philippine Phosphate Fertilizer Project plus the fact that there has been a low project in sales/marketing due to critical economic situation, the company is forced to take drastic measures to reduce both its work force and operating costs. We regret to inform you, therefore, that your employment with DISC shall be terminated at the close of business hours on January 15, 1984, or thirty (30) days from your receipt hereof. Relatively, you can elect to submit a formal resignation in which case you shall also be entitled to separation pay and other benefits applicable under existing policies. You may also take advantage of your earned leaves during the period December 15, 1983 to January 15,1984. The Personnel Administration Department (PAD) will be glad to answer your questions pertaining to your formal separation. Please accomplish the necessary clearance on or before January 15, 1984. (SGD.) ROMAN B. LOPEZ Personnel Manager
7

Accordingly, pursuant to this "formal separation," the petitioner received from DISC the amount of P20,458.52 as separation benefits.

The petitioner, however, refused to accept his termination; on October 7, 1985, he filed a complaint for illegal dismissal, unpaid wages, moral 9 and exemplary damages, and attorney's fees against respondent DISC. Later, he amended his complaint and impleaded the Philippine 10 National Construction Corporation (PNCC) as additional respondent. On February 10, 1987, Labor Arbiter Ricardo C. Nora, to whom the case was assigned, dismissed the petitioner's complaint for lack of merit. Dissatisfied with the labor arbiter's decision, the petitioner appealed to the respondent NLRC. The latter, however, finding no error in the appealed judgment, issued a resolution on August 10, 1987 affirming the same and denying the petitioner's appeal. A motion for reconsideration seasonably filed by the petitioner was denied on October 5, 1987. Hence, this petition. The petitioner insists that his removal was unjustified and illegal and was carried out to circumvent the compromise agreement he had earlier entered into with respondent DISC which provided, among others, his reinstatement in any of the offices or projects of respondent DISC. The aforementioned compromise agreement, he avers, is already the law between them and precludes his separation or dismissal. Moreover, the petitioner points out, the reason for his separation in the "letter-memorandum" of December 14, 1983 is but a rehash of that in the first "letter-memorandum" of July 27, 1983. The petitioner concludes that the later move by DISC at ostensible retrenchment had been made in bad faith and manifested its thinly-veiled desire to dismiss him. The petitioner likewise makes capital of the failure of the respondent DISC to show that it was incurring, or at least about to incur, losses, which would warrant its retrenchment policy. As such, his removal from employment was unjustified and amounted to an illegal dismissal. Finally, the petitioner substantiates the inclusion of the Philippine National Construction Corporation (PNCC) as a party respondent in the case with the fact that PNCC was originally his employer but which later

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transferred him to respondent DISC, the PNCC sister company. This, according to the petitioner, shows the link between the two respondents and for purposes of this case, deprives them of their separate personality. We find the petition impressed with merit. The failure of the respondent DISC to show proof of its actual or imminent losses that would justify drastic cuts in personnel or costs, is fatal to its cause. Article 283 (then Article 284) of the Labor Code provides that an "employer may also terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the 11 establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this title." Clearly, under the said provision of law, the right of an employer to terminate the services of any employee is predicated on the existence of any of the following causes: (1) installation of labor- saving devices; (2) redundancy; (3) retrenchment to prevent losses; and (4) the closing or cessation of 12 operation of the establishment or undertaking, unless the closing is for the purpose of circumventing the provisions of law. Thus, while 13 14 business reverses can be a just cause for terminating employees, they must be sufficiently proven by the employer. This is precisely mandated under par. (b) of Article 277 (formerly 278) of the Labor Code which states, among others, that "(T) he burden of proving that the termination was for a valid or authorized cause shall rest on the employer." Admittedly, the assassination of' Senator Benigno "Ninoy" Aquino on August 21, 1983 produced extremely adverse political, social, and economic conditions that resulted in widespread business failures. Not all enterprises, however, experienced severe economic setbacks; a number, in fact, flourished during that financially bleak period. It is almost an inflexible rule that employers who contemplate terminating the services of their workers cannot be so arbitrary and ruthless as to find flimsy excuses for their decisions. This must be so considering that the dismissal of an employee from work involves not only the loss of 15 his position but more important, his means of livelihood. Applying this caveat to the case at bar, it was therefore incumbent for respondent DISC, before putting into effect any retrenchment process on its work force, to show by convincing evidence that it was being wrecked by serious financial problems. Simply stating its state of insolvency or its impending doom will not be sufficient. To do so would render the security of tenure of workers and employees illusory. In a grander scale, to hold as valid and legal the respondent DISC's act would be disastrous to labor. Any employer desirous of ridding itself of its employees could then easily do so without need to adduce proof in support of its action. We can not countenance this. Security of tenure is a right guaranteed to employees and workers by the Constitution and should not 16 be denied on the basis of mere speculation. Another point that makes the respondent DISC's cause suspect is that, as correctly pointed out by the petitioner, the reason it gave in its "letter-memorandum" dated December 14, 1983 terminating his services was simply a rehash of its (DISC'S) "letter-memorandum" dated July 27, 1983, which ultimately produced the compromise agreement between the parties. It will be noted that on July 27, 1983, the event (Ninoy Aquino's assassination) that led to the near collapse of the national economy, had not yet taken place. Respondent DISC's use of basically the same reason thus shows its all-too-apparent effort to remove the petitioner from its payroll. Taken in the light of the then just recently concluded compromise agreement between the parties, the act of DISC in subsequently dismissing the petitioner just two months-and-a-half after his reinstatement appears as having been made in bad faith. Surely, if the basis for the second "letter-memorandum" is the same as that of the first, there is no reason why the petitioner could not be retained as in the first instance. The ground of DISC's retrenchment policy being basically no different from the first, it is therefore covered by the compromise agreement reached by the parties earlier. Finally, considering that the petitioner started his employment originally with the Philippine National Construction Company (PNCC) but was only transferred later to its sister company, the respondent DISC, the inclusion of the former as party respondent in this action is justified and proper. The so-called separate and distinct personality of PNCC could be validly ignored inasmuch as it would unjustly prejudice the petitioner vis-a-vis whatever benefits he may receive by reason of his illegal dismissal. This has been demonstrated by the amount of the separation pay given to the petitioner by respondent DISC which appears to correspond only to the period in which the former was in the employ of the latter. The period when the petitioner was still in the employ of PNCC was apparently ignored. This omission should not be allowed inasmuch as there is no showing that PNCC gave the petitioner separation benefits before he was transferred to DISC. It should always be borne in mind that the fiction of law that a corporation, as a juridical entity, has a distinct and separate personality, was envisaged for convenience and to 17 serve justice; therefore, it should not be used as a subterfuge to commit injustice and circumvent labor laws. WHEREFORE, the petition is granted, the assailed resolutions of the National Labor Relations Commission dated August 20, 1987 and October 5, 1987 are ANNULLED and SET ASIDE. The respondent Dasmarinas Industrial & Steelworks Corporation is hereby ORDERED to REINSTATE the petitioner to his former position without loss of seniority rights and privileges, and to PAY the petitioner three (3) years back wages without any qualifications. Costs against the respondent Dasmarinas Industrial & Steelworks Corporation.

22. G.R. No. 101897. March 5, 1993. LYCEUM OF THE PHILIPPINES, INC., petitioner, VS. COURT OF APPEALS, LYCEUM OF APARRI, LYCEUM OF CABAGAN, LYCEUM OF CAMALANIUGAN, INC., LYCEUM OF LALLO, INC., LYCEUM OF TUAO, INC., BUHI LYCEUM, CENTRAL LYCEUM OF CATANDUANES, LYCEUM OF SOUTHERN PHILIPPINES, LYCEUM OF EASTERN MINDANAO, INC. and WESTERN PANGASINAN LYCEUM, INC., respondents.

SYLLABUS 1. CORPORATION LAW; CORPORATE NAMES; REGISTRATION OF PROPOSED NAME WHICH IS IDENTICAL OR CONFUSINGLY SIMILAR TO THAT OF ANY EXISTING CORPORATION, PROHIBITED; CONFUSION AND DECEPTION EFFECTIVELY PRECLUDED BY THE APPENDING OF GEOGRAPHIC NAMES TO THE WORD "LYCEUM". The Articles of Incorporation of a corporation must, among other things, set out the name of the corporation. Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate names are concerned: "Section 18. Corporate name. No corporate

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name may be allowed by the Securities an Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name." The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical or deceptively or confusingly similar" to that of any existing corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over corporations. We do not consider that the corporate names of private respondent institutions are "identical with, or deceptively or confusingly similar" to that of the petitioner institution. True enough, the corporate names of private respondent entities all carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of geographic names to the word "Lyceum." Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines. 2. ID.; ID.; DOCTRINE OF SECONDARY MEANING; USE OF WORD "LYCEUM," NOT ATTENDED WITH EXCLUSIVITY. It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning in relation to petitioner with the result that word, although originally a generic, has become appropriable by petitioner to the exclusion of other institutions like private respondents herein. The doctrine of secondary meaning originated in the field of trademark law. Its application has, however, been extended to corporate names sine the right to use a corporate name to the exclusion of others is based upon the same principle which underlies the right to use a particular trademark or tradename. In Philippine Nut Industry, Inc. v. Standard Brands, Inc., the doctrine of secondary meaning was elaborated in the following terms: " . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on the market, because geographically or otherwise descriptive, might nevertheless have been used so long and so exclusively by one producer with reference to his article that, in that trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was his product." The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name has been for such length of time and with such exclusivity as to have become associated or identified with the petitioner institution in the mind of the general public (or at least that portion of the general public which has to do with schools). The Court of Appeals recognized this issue and answered it in the negative: "Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive appropriation with reference to an article in the market, because geographical or otherwise descriptive might nevertheless have been used so long and so exclusively by one producer with reference to this article that, in that trade and to that group of the purchasing public, the word or phrase has come to mean that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been referred to as the distinctiveness into which the name or phrase has evolved through the substantial and exclusive use of the same for a considerable period of time. . . . No evidence was ever presented in the hearing before the Commission which sufficiently proved that the word 'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If there was any of this kind, the same tend to prove only that the appellant had been using the disputed word for a long period of time. . . . In other words, while the appellant may have proved that it had been using the word 'Lyceum' for a long period of time, this fact alone did not amount to mean that the said word had acquired secondary meaning in its favor because the appellant failed to prove that it had been using the same word all by itself to the exclusion of others. More so, there was no evidence presented to prove that confusion will surely arise if the same word were to be used by other educational institutions. Consequently, the allegations of the appellant in its first two assigned errors must necessarily fail." We agree with the Court of Appeals. The number alone of the private respondents in the case at bar suggests strongly that petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for applicability of the doctrine of secondary meaning. Petitioner's use of the word "Lyceum" was not exclusive but was in truth shared with the Western Pangasinan Lyceum and a little later with other private respondent institutions which registered with the SEC using "Lyceum" as part of their corporation names. There may well be other schools using Lyceum or Liceo in their names, but not registered with the SEC because they have not adopted the corporate form of organization. 3. ID.; ID.; MUST BE EVALUATED IN THEIR ENTIRETY TO DETERMINE WHETHER THEY ARE CONFUSINGLY OR DECEPTIVELY SIMILAR TO ANOTHER CORPORATE ENTITY'S NAME. petitioner institution is not entitled to a legally enforceable exclusive right to use the word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of their corporate names. To determine whether a given corporate name is "identical" or "confusingly or deceptively similar" with another entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate names in their entirety and when the name of petitioner is juxtaposed with the names of private respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other. DECISION FELICIANO, J: Petitioner is an educational institution duly registered with the Securities and Exchange Commission ("SEC"). When it first registered with the SEC on 21 September 1950, it used the corporate name Lyceum of the Philippines, Inc. and has used that name ever since. On 24 February 1984, petitioner instituted proceedings before the SEC to compel the private respondents, which are also educational institutions, to delete the word "Lyceum" from their corporate names and permanently to enjoin them from using "Lyceum" as part of their respective names. Some of the private respondents actively participated in the proceedings before the SEC. These are the following, the dates of their original SEC registration being set out below opposite their respective names: Western Pangasinan Lyceum 27 October 1950 Lyceum of Cabagan 31 October 1962 Lyceum of Lallo, Inc. 26 March 1972 Lyceum of Aparri 28 March 1972 Lyceum of Tuao, Inc. 28 March 1972 Lyceum of Camalaniugan 28 March 1972

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The following private respondents were declared in default for failure to file an answer despite service of summons: Buhi Lyceum; Central Lyceum of Catanduanes; Lyceum of Eastern Mindanao, Inc.; and Lyceum of Southern Philippines Petitioner's original complaint before the SEC had included three (3) other entities: 1. The Lyceum of Malacanay; 2. The Lyceum of Marbel; and 3. The Lyceum of Araullo The complaint was later withdrawn insofar as concerned the Lyceum of Malacanay and the Lyceum of Marbel, for failure to serve summons upon these two (2) entities. The case against the Liceum of Araullo was dismissed when that school motu proprio change its corporate name to "Pamantasan ng Araullo." The background of the case at bar needs some recounting. Petitioner had sometime before commenced in the SEC a proceeding (SEC-Case No. 1241) against the Lyceum of Baguio, Inc. to require it to change its corporate name and to adopt another name not "similar [to] or identical" with that of petitioner. In an Order dated 20 April 1977, Associate Commissioner Julio Sulit held that the corporate name of petitioner and that of the Lyceum of Baguio, Inc. were substantially identical because of the presence of a "dominant" word, i.e., "Lyceum," the name of the geographical location of the campus being the only word which distinguished one from the other corporate name. The SEC also noted that petitioner had registered as a corporation ahead of the Lyceum of Baguio, Inc. in point of time, 1 and ordered the latter to change its name to another name "not similar or identical [with]" the names of previously registered entities. The Lyceum of Baguio, Inc. assailed the Order of the SEC before the Supreme Court in a case docketed as G.R. No. L-46595. In a Minute Resolution dated 14 September 1977, the Court denied the Petition for Review for lack of merit. Entry of judgment in that case was made on 21 October 1977. Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote all the educational institutions it could find using the word "Lyceum" as part of their corporate name, and advised them to discontinue such use of "Lyceum." When, with the passage of time, it became clear that this recourse had failed, petitioner instituted before the SEC SEC-Case No. 2579 to enforce what petitioner claims as its proprietary right to the word "Lyceum." The SEC hearing officer rendered a decision sustaining petitioner's claim to an exclusive right to use the word "Lyceum." The hearing officer relied upon the SEC ruling in the Lyceum of Baguio, Inc. case (SEC-Case No. 1241) and held that the word "Lyceum" was capable of appropriation and that petitioner had acquired an enforceable exclusive right to the use of that word. On appeal, however, by private respondents to the SEC En Banc, the decision of the hearing officer was reversed and set aside. The SEC En Banc did not consider the word "Lyceum" to have become so identified with petitioner as to render use thereof by other institutions as productive of confusion about the identity of the schools concerned in the mind of the general public. Unlike its hearing officer, the SEC En Banc held that the attaching of geographical names to the word "Lyceum" served sufficiently to distinguish the schools from one another, especially in view of the fact that the campuses of petitioner and those of the private respondents were physically quite remote from each other. 3 Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28 June 1991, however, the Court of Appeals affirmed the questioned Orders of the SEC En Banc. 4 Petitioner filed a motion for reconsideration, without success. Before this Court, petitioner asserts that the Court of Appeals committed the following errors: 1. The Court of Appeals erred in holding that the Resolution of the Supreme Court in G.R. No. L-46595 did not constitute stare decisis as to apply to this case and in not holding that said Resolution bound subsequent determinations on the right to exclusive use of the word Lyceum. 2. The Court of Appeals erred in holding that respondent Western Pangasinan Lyceum, Inc. was incorporated earlier than petitioner. 3. The Court of Appeals erred in holding that the word Lyceum has not acquired a secondary meaning in favor of petitioner. 4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be appropriated by the petitioner to the exclusion of others. 5 We will consider all the foregoing ascribed errors, though not necessarily seriatim. We begin by noting that the Resolution of the Court in G.R. No. L-46595 does not, of course, constitute res adjudicata in respect of the case at bar, since there is no identity of parties. Neither is stare decisis pertinent, if only because the SEC En Banc itself has re-examined Associate Commissioner Sulit's ruling in the Lyceum of Baguio case. The Minute Resolution of the Court in G.R. No. L-46595 was not a reasoned adoption of the Sulit ruling. The Articles of Incorporation of a corporation must, among other things, set out the name of the corporation. 6 Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate names are concerned: "SECTION 18. Corporate name. No corporate name may be allowed by the Securities an Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive,

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confusing or contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name." (Emphasis supplied) The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical or deceptively or confusingly similar" to that of any existing corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over corporations. 7 We do not consider that the corporate names of private respondent institutions are "identical with, or deceptively or confusingly similar" to that of the petitioner institution. True enough, the corporate names of private respondent entities all carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of geographic names to the word "Lyceum." Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines. Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn referred to a locality on the river Ilissius in ancient Athens "comprising an enclosure dedicated to Apollo and adorned with fountains and buildings erected by Pisistratus, Pericles and Lycurgus frequented by the youth for exercise and by the philosopher Aristotle and his followers for teaching." 8 In time, the word "Lyceum" became associated with schools and other institutions providing public lectures and concerts and public discussions. Thus today, the word "Lyceum" generally refers to a school or an institution of learning. While the Latin word "lyceum" has been incorporated into the English language, the word is also found in Spanish (liceo) and in French (lycee). As the Court of Appeals noted in its Decision, Roman Catholic schools frequently use the term; e.g., "Liceo de Manila," "Liceo de Baleno" (in Baleno, Masbate), "Liceo de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as generic in character as the word "university." In the name of the petitioner, "Lyceum" appears to be a substitute for "university;" in other places, however, "Lyceum," or "Liceo" or "Lycee" frequently denotes a secondary school or a college. It may be (though this is a question of fact which we need not resolve) that the use of the word "Lyceum" may not yet be as widespread as the use of "university," but it is clear that a not inconsiderable number of educational institutions have adopted "Lyceum" or "Liceo" as part of their corporate names. Since "Lyceum" or "Liceo" denotes a school or institution of learning, it is not unnatural to use this word to designate an entity which is organized and operating as an educational institution. It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning in relation to petitioner with the result that that word, although originally a generic, has become appropriable by petitioner to the exclusion of other institutions like private respondents herein. The doctrine of secondary meaning originated in the field of trademark law. Its application has, however, been extended to corporate names sine the right to use a corporate name to the exclusion of others is based upon the same principle which underlies the right to use a particular trademark or tradename. 10 In Philippine Nut Industry, Inc. v. Standard Brands, Inc., 11 the doctrine of secondary meaning was elaborated in the following terms: " . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on the market, because geographically or otherwise descriptive, might nevertheless have been used so long and so exclusively by one producer with reference to his article that, in that trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was his product." 12 The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name has been for such length of time and with such exclusivity as to have become associated or identified with the petitioner institution in the mind of the general public (or at least that portion of the general public which has to do with schools). The Court of Appeals recognized this issue and answered it in the negative: "Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive appropriation with reference to an article in the market, because geographical or otherwise descriptive might nevertheless have been used so long and so exclusively by one producer with reference to this article that, in that trade and to that group of the purchasing public, the word or phrase has come to mean that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been referred to as the distinctiveness into which the name or phrase has evolved through the substantial and exclusive use of the same for a considerable period of time. Consequently, the same doctrine or principle cannot be made to apply where the evidence did not prove that the business (of the plaintiff) has continued for so long a time that it has become of consequence and acquired a good will of considerable value such that its articles and produce have acquired a well-known reputation, and confusion will result by the use of the disputed name (by the defendant) (Ang Si Heng vs. Wellington Department Store, Inc., 92 Phil. 448). With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the aforementioned requisites. No evidence was ever presented in the hearing before the Commission which sufficiently proved that the word 'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If there was any of this kind, the same tend to prove only that the appellant had been using the disputed word for a long period of time. Nevertheless, its (appellant) exclusive use of the word (Lyceum) was never established or proven as in fact the evidence tend to convey that the cross-claimant was already using the word 'Lyceum' seventeen (17) years prior to the date the appellant started using the same word in its corporate name. Furthermore, educational institutions of the Roman Catholic Church had been using the same or similar word like 'Liceo de Manila,' 'Liceo de Baleno' (in Baleno, Masbate), 'Liceo de Masbate,' 'Liceo de Albay' long before appellant started using the word 'Lyceum'. The appellant also failed to prove that the word 'Lyceum' has become so identified with its educational institution that confusion will surely arise in the minds of the public if the same word were to be used by other educational institutions. In other words, while the appellant may have proved that it had been using the word 'Lyceum' for a long period of time, this fact alone did not amount to mean that the said word had acquired secondary meaning in its favor because the appellant failed to prove that it had been using the same word all by itself to the exclusion of others. More so, there was no evidence presented to prove that confusion will surely arise if the same word were to be used by other educational institutions. Consequently, the allegations of the appellant in its first two assigned errors must necessarily fail." 13 (Underscoring partly in the original and partly supplied) We agree with the Court of Appeals. The number alone of the private respondents in the case at bar suggests strongly that petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for applicability of the doctrine of secondary meaning. It may be noted also that at least one of the private respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term "Lyceum" seventeen (17) years before the petitioner registered its own corporate name with the SEC and began using the word "Lyceum." It follows that if any institution had acquired an exclusive right to the word "Lyceum," that institution would have been the Western Pangasinan Lyceum, Inc. rather than the petitioner institution.

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In this connection, petitioner argues that because the Western Pangasinan Lyceum, Inc. failed to reconstruct its records before the SEC in accordance with the provisions of R.A. No. 62, which records had been destroyed during World War II, Western Pangasinan Lyceum should be deemed to have lost all rights it may have acquired by virtue of its past registration. It might be noted that the Western Pangasinan Lyceum, Inc. registered with the SEC soon after petitioner had filed its own registration on 21 September 1950. Whether or not Western Pangasinan Lyceum, Inc. must be deemed to have lost its rights under its original 1933 registration, appears to us to be quite secondary in importance; we refer to this earlier registration simply to underscore the fact that petitioner's use of the word "Lyceum" was neither the first use of that term in the Philippines nor an exclusive use thereof. Petitioner's use of the word "Lyceum" was not exclusive but was in truth shared with the Western Pangasinan Lyceum and a little later with other private respondent institutions which registered with the SEC using "Lyceum" as part of their corporation names. There may well be other schools using Lyceum or Liceo in their names, but not registered with the SEC because they have not adopted the corporate form of organization. We conclude and so hold that petitioner institution is not entitled to a legally enforceable exclusive right to use the word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of their corporate names. To determine whether a given corporate name is "identical" or "confusingly or deceptively similar" with another entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate names in their entirety and when the name of petitioner is juxtaposed with the names of private respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other. WHEREFORE, the petitioner having failed to show any reversible error on the part of the public respondent Court of Appeals, the Petition for Review is DENIED for lack of merit, and the Decision of the Court of Appeals dated 28 June 1991 is hereby AFFIRMED. No pronouncement as to costs.

23. G.R. No. 96161 February 21, 1992 PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC.,petitioners, vs. COURT OF APPEALS, SECURITIES & EXCHANGE COMMISSION and STANDARD PHILIPS CORPORATION,respondents. MELENCIO-HERRERA, J.: Petitioners challenge the Decision of the Court of Appeals, dated 31 July 1990, in CA-GR Sp. No. 20067, upholding the Order of the Securities and Exchange Commission, dated 2 January 1990, in SEC-AC No. 202, dismissing petitioners' prayer for the cancellation or removal of the word "PHILIPS" from private respondent's corporate name. Petitioner Philips Export B.V. (PEBV), a foreign corporation organized under the laws of the Netherlands, although not engaged in business here, is the registered owner of the trademarks PHILIPS and PHILIPS SHIELD EMBLEM under Certificates of Registration Nos. R-1641 and R-1674, respectively issued by the Philippine Patents Office (presently known as the Bureau of Patents, Trademarks and Technology Transfer). Petitioners Philips Electrical Lamps, Inc. (Philips Electrical, for brevity) and Philips Industrial Developments, Inc. (Philips Industrial, for short), authorized users of the trademarks PHILIPS and PHILIPS SHIELD EMBLEM, were incorporated on 29 August 1956 and 25 May 1956, respectively. All petitioner corporations belong to the PHILIPS Group of Companies. Respondent Standard Philips Corporation (Standard Philips), on the other hand, was issued a Certificate of Registration by respondent Commission on 19 May 1982. On 24 September 1984, Petitioners filed a letter complaint with the Securities & Exchange Commission (SEC) asking for the cancellation of the word "PHILIPS" from Private Respondent's corporate name in view of the prior registration with the Bureau of Patents of the trademark "PHILIPS" and the logo "PHILIPS SHIELD EMBLEM" in the name of Petitioner, PEBV, and the previous registration of Petitioners Philips Electrical and Philips Industrial with the SEC. As a result of Private Respondent's refusal to amend its Articles of Incorporation, Petitioners filed with the SEC, on 6 February 1985, a Petition (SEC Case No. 2743) praying for the issuance of a Writ of Preliminary Injunction, alleging, among others, that Private Respondent's use of the word PHILIPS amounts to an infringement and clear violation of Petitioners' exclusive right to use the same considering that both parties engage in the same business. In its Answer, dated 7 March 1985, Private Respondent countered that Petitioner PEBV has no legal capacity to sue; that its use of its corporate name is not at all similar to Petitioners' trademark PHILIPS when considered in its entirety; and that its products consisting of chain rollers, belts, bearings and cutting saw are grossly different from Petitioners' electrical products. After conducting hearings with respect to the prayer for Injunction; the SEC Hearing Officer, on 27 September 1985, ruled against the issuance of such Writ. On 30 January 1987, the same Hearing Officer dismissed the Petition for lack of merit. In so ruling, the latter declared that inasmuch as the SEC found no sufficient ground for the granting of injunctive relief on the basis of the testimonial and documentary evidence presented, it cannot order the removal or cancellation of the word "PHILIPS" from Private Respondent's corporate name on the basis of the same evidence adopted in toto during trial on the merits. Besides, Section 18 of the Corporation Code (infra) is applicable only when the corporate names in question are identical. Here, there is no confusing similarity between Petitioners' and Private Respondent's corporate names as those of the Petitioners contain at least two words different from that of the Respondent. Petitioners' Motion for Reconsideration was likewise denied on 17 June 1987. On appeal, the SEC en banc affirmed the dismissal declaring that the corporate names of Petitioners and Private Respondent hardly breed confusion inasmuch as each contains at least two different words and, therefore, rules out any possibility of confusing one for the other.

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On 30 January 1990, Petitioners sought an extension of time to file a Petition for Review on Certiorari before this Court, which Petition was later referred to the Court of Appeals in a Resolution dated 12 February 1990. In deciding to dismiss the petition on 31 July 1990, the Court of 1 Appeals swept aside Petitioners' claim that following the ruling in Converse Rubber Corporation v. Universal Converse Rubber Products, Inc., et al, (G. R. No. L-27906, January 8, 1987, 147 SCRA 154), the word PHILIPS cannot be used as part of Private Respondent's corporate name as the same constitutes a dominant part of Petitioners' corporate names. In so holding, the Appellate Court observed that the Converse case is not foursquare with the present case inasmuch as the contending parties in Converse are engaged in a similar business, that is, the manufacture of rubber shoes. Upholding the SEC, the Appellate Court concluded that "private respondents' products consisting of chain rollers, belts, bearings and cutting saw are unrelated and non-competing with petitioners' products i.e. electrical lamps such that consumers would not in any probability mistake one as the source or origin of the product of the other." The Appellate Court denied Petitioners' Motion for Reconsideration on 20 November 1990, hence, this Petition which was given due course on 22 April 1991, after which the parties were required to submit their memoranda, the latest of which was received on 2 July 1991. In December 1991, the SEC was also required to elevate its records for the perusal of this Court, the same not having been apparently before respondent Court of Appeals. We find basis for petitioners' plea. As early as Western Equipment and Supply Co. v. Reyes, 51 Phil. 115 (1927), the Court declared that a corporation's right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect against the world in the same manner as it may protect its tangible property, real or personal, against trespass or conversion. It is regarded, to a certain extent, as a property right and one which cannot be impaired or defeated by subsequent appropriation by another corporation in the same field (Red Line Transportation Co. vs. Rural Transit Co., September 8, 1934, 20 Phil 549). A name is peculiarly important as necessary to the very existence of a corporation (American Steel Foundries vs. Robertson, 269 US 372, 70 L ed 317, 46 S Ct 160; Lauman vs. Lebanon Valley R. Co., 30 Pa 42; First National Bank vs. Huntington Distilling Co. 40 W Va 530, 23 SE 792). Its name is one of its attributes, an element of its existence, and essential to its identity (6 Fletcher [Perm Ed], pp. 3-4). The general rule as to corporations is that each corporation must have a name by which it is to sue and be sued and do all legal acts. The name of a corporation in this respect designates the corporation in the same manner as the name of an individual designates the person (Cincinnati Cooperage Co. vs. Bate. 96 Ky 356, 26 SW 538; Newport Mechanics Mfg. Co. vs. Starbird. 10 NH 123); and the right to use its corporate name is as much a part of the corporate franchise as any other privilege granted (Federal Secur. Co. vs. Federal Secur. Corp., 129 Or 375, 276 P 1100, 66 ALR 934; Paulino vs. Portuguese Beneficial Association, 18 RI 165, 26 A 36). A corporation acquires its name by choice and need not select a name identical with or similar to one already appropriated by a senior corporation while an individual's name is thrust upon him (See Standard Oil Co. of New Mexico, Inc. v. Standard Oil Co. of California, 56 F 2d 973, 977). A corporation can no more use a corporate name in violation of the rights of others than an individual can use his name legally acquired so as to mislead the public and injure another (Armington vs. Palmer, 21 RI 109. 42 A 308). Our own Corporation Code, in its Section 18, expressly provides that: No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing law.Where a change in a corporate name is approved, the commission shall issue an amended certificate of incorporation under the amended name. (Emphasis supplied) The statutory prohibition cannot be any clearer. To come within its scope, two requisites must be proven, namely: (1) that the complainant corporation acquired a prior right over the use of such corporate name; and (2) the proposed name is either: (a) identical; or (b) deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law; or (c) patently deceptive, confusing or contrary to existing law. The right to the exclusive use of a corporate name with freedom from infringement by similarity is determined by priority of adoption (1 Thompson, p. 80 citing Munn v. Americana Co., 82 N. Eq. 63, 88 Atl. 30; San Francisco Oyster House v. Mihich, 75 Wash. 274, 134 Pac. 921). In this regard, there is no doubt with respect to Petitioners' prior adoption of' the name ''PHILIPS" as part of its corporate name. Petitioners Philips Electrical and Philips Industrial were incorporated on 29 August 1956 and 25 May 1956, respectively, while Respondent Standard Philips was issued a Certificate of Registration on 12 April 1982, twenty-six (26) years later (Rollo, p. 16). Petitioner PEBV has also used the trademark "PHILIPS" on electrical lamps of all types and their accessories since 30 September 1922, as evidenced by Certificate of Registration No. 1651. The second requisite no less exists in this case. In determining the existence of confusing similarity in corporate names, the test is whether the similarity is such as to mislead a person, using ordinary care and discrimination. In so doing, the Court must look to the record as well as the names themselves (Ohio Nat. Life Ins. Co. v. Ohio Life Ins. Co., 210 NE 2d 298). While the corporate names of Petitioners and Private Respondent are not identical, a reading of Petitioner's corporate names, to wit: PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL

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DEVELOPMENT, INC., inevitably leads one to conclude that "PHILIPS" is, indeed, the dominant word in that all the companies affiliated or associated with the principal corporation, PEBV, are known in the Philippines and abroad as the PHILIPS Group of Companies. Respondents maintain, however, that Petitioners did not present an iota of proof of actual confusion or deception of the public much less a single purchaser of their product who has been deceived or confused or showed any likelihood of confusion. It is settled, however, that proof of actual confusion need not be shown. It suffices that confusion is probably or likely to occur (6 Fletcher [Perm Ed], pp. 107-108, enumerating a long line of cases). It may be that Private Respondent's products also consist of chain rollers, belts, bearing and the like, while petitioners deal principally with electrical products. It is significant to note, however, that even the Director of Patents had denied Private Respondent's application for registration of the trademarks "Standard Philips & Device" for chain, rollers, belts, bearings and cutting saw. That office held that PEBV, "had shipped to its subsidiaries in the Philippines equipment, machines and their parts which fall under international class where "chains, rollers, belts, bearings and cutting saw," the goods in connection with which Respondent is seeking to register 'STANDARD PHILIPS' . . . also belong" ( Inter Partes Case No. 2010, June 17, 1988, SEC Rollo). Furthermore, the records show that among Private Respondent's primary purposes in its Articles of Incorporation (Annex D, Petition p. 37, Rollo) are the following: To buy, sell, barter, trade, manufacture, import, export, or otherwise acquire, dispose of, and deal in and deal with any kind of goods, wares, and merchandise such as but not limited to plastics, carbon products, office stationery and supplies, hardware parts, electrical wiring devices, electrical component parts, and/or complement of industrial, agricultural or commercial machineries, constructive supplies, electrical supplies and other merchandise which are or may become articles of commerce except food, drugs and cosmetics and to carry on such business as manufacturer, distributor, dealer, indentor, factor, manufacturer's representative capacity for domestic or foreign companies. For its part, Philips Electrical also includes, among its primary purposes, the following: To develop manufacture and deal in electrical products, including electronic, mechanical and other similar products . . . (p. 30, Record of SEC Case No. 2743) Given Private Respondent's aforesaid underlined primary purpose, nothing could prevent it from dealing in the same line of business of electrical devices, products or supplies which fall under its primary purposes. Besides, there is showing that Private Respondent not only manufactured and sold ballasts for fluorescent lamps with their corporate name printed thereon but also advertised the same as, among others, Standard Philips (TSN, before the SEC, pp. 14, 17, 25, 26, 37-42, June 14, 1985; pp. 16-19, July 25, 1985). As aptly pointed out by Petitioners, [p]rivate respondent's choice of "PHILIPS" as part of its corporate name [STANDARD PHILIPS CORPORATION] . . . tends to show said respondent's intention to ride on the popularity and established goodwill of said petitioner's business throughout the world" (Rollo, p. 137). The subsequent appropriator of the name or one confusingly similar thereto usually seeks an unfair advantage, a free ride of another's goodwill (American Gold Star Mothers, Inc. v. National Gold Star Mothers, Inc., et al, 89 App DC 269, 191 F 2d 488). In allowing Private Respondent the continued use of its corporate name, the SEC maintains that the corporate names of Petitioners PHILIPS ELECTRICAL LAMPS. INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC. contain at least two words different from that of the corporate name of respondent STANDARD PHILIPS CORPORATION, which words will readily identify Private Respondent from Petitioners and vice-versa. True, under the Guidelines in the Approval of Corporate and Partnership Names formulated by the SEC, the proposed name "should not be similar to one already used by another corporation or partnership. If the proposed name contains a word already used as part of the firm name or style of a registered company; the proposed name must contain two other words different from the company already registered" (Emphasis ours). It is then pointed out that Petitioners Philips Electrical and Philips Industrial have two words different from that of Private Respondent's name. What is lost sight of, however, is that PHILIPS is a trademark or trade name which was registered as far back as 1922. Petitioners, therefore, have the exclusive right to its use which must be free from any infringement by similarity. A corporation has an exclusive right to the use of its name, which may be protected by injunction upon a principle similar to that upon which persons are protected in the use of trademarks and tradenames (18 C.J.S. 574). Such principle proceeds upon the theory that it is a fraud on the corporation which has acquired a right to that name and perhaps carried on its business thereunder, that another should attempt to use the same name, or the same name with a slight variation in such a way as to induce persons to deal with it in the belief that they are dealing with the corporation which has given a reputation to the name (6 Fletcher [Perm Ed], pp. 39-40, citingBorden Ice Cream Co. v. Borden's Condensed Milk Co., 210 F 510). Notably, too, Private Respondent's name actually contains only a single word, that is, "STANDARD", different from that of Petitioners inasmuch as the inclusion of the term "Corporation" or "Corp." merely serves the Purpose of distinguishing the corporation from partnerships and other business organizations. The fact that there are other companies engaged in other lines of business using the word "PHILIPS" as part of their corporate names is no defense and does not warrant the use by Private Respondent of such word which constitutes an essential feature of Petitioners' corporate name previously adopted and registered and-having acquired the status of a well-known mark in the Philippines and internationally as well (Bureau of Patents Decision No. 88-35 [TM], June 17, 1988, SEC Records). In support of its application for the registration of its Articles of Incorporation with the SEC, Private Respondent had submitted an undertaking "manifesting its willingness to change its corporate name in the event another person, firm or entity has acquired a prior right to the use of the said firm name or one deceptively or confusingly similar to it." Private respondent must now be held to its undertaking. As a general rule, parties organizing a corporation must choose a name at their peril; and the use of a name similar to one adopted by another corporation, whether a business or a nonbusiness or non-profit organization if misleading and likely to injure it in the exercise in its corporate functions, regardless of intent, may be prevented by the corporation having the prior right, by a suit for injunction against the new corporation to prevent the use of the name (American Gold Star Mothers, Inc. v. National Gold Star Mothers, Inc., 89 App DC 269, 191 F 2d 488, 27 ALR 2d 948).

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WHEREFORE, the Decision of the Court of Appeals dated 31 July 1990, and its Resolution dated 20 November 1990, are SET ASIDE and a new one entered ENJOINING private respondent from using "PHILIPS" as a feature of its corporate name, and ORDERING the Securities and Exchange Commission to amend private respondent's Articles of Incorporation by deleting the word PHILIPS from the corporate name of private respondent. No costs.

24. G.R. No. L-28351 July 28, 1977 UNIVERSAL MILLS CORPORATION, petitioner, vs. UNIVERSAL TEXTILE MILLS, INC., respondent. BARREDO, J.: Appeal from the order of the Securities and Exchange Commission in S.E.C. Case No. 1079, entitled In the Matter of the Universal Textile Mills, Inc. vs. Universal Mills Corporation, a petition to have appellant change its corporate name on the ground that such name is "confusingly and deceptively similar" to that of appellee, which petition the Commission granted. According to the order, "the Universal Textile Mills, Inc. was organ on December 29, 1953, as a textile manufacturing firm for which it was issued a certificate of registration on January 8, 1954. The Universal Mills Corporation, on the other hand, was registered in this Commission on October 27, 1954, under its original name, Universal Hosiery Mills Corporation, having as its primary purpose the "manufacture and production of hosieries and wearing apparel of all kinds." On May 24, 1963, it filed an amendment to its articles of incorporation changing its name to Universal Mills Corporation, its present name, for which this Commission issued the certificate of approval on June 10, 1963. The immediate cause of this present complaint, however, was the occurrence of a fire which gutted respondent's spinning mills in Pasig, Rizal. Petitioner alleged that as a result of this fire and because of the similarity of respondent's name to that of herein complainant, the news items appearing in the various metropolitan newspapers carrying reports on the fire created uncertainty and confusion among its bankers, friends, stockholders and customers prompting petitioner to make announcements, clarifying the real Identity of the corporation whose property was burned. Petitioner presented documentary and testimonial evidence in support of this allegation. On the other hand, respondent's position is that the names of the two corporations are not similar and even if there be some similarity, it is not confusing or deceptive; that the only reason that respondent changed its name was because it expanded its business to include the manufacture of fabrics of all kinds; and that the word 'textile' in petitioner's name is dominant and prominent enough to distinguish the two. It further argues that petitioner failed to present evidence of confusion or deception in the ordinary course of business; that the only supposed confusion proved by complainant arose out of an extraordinary occurrence a disastrous fire. (pp. 16-&17, Record.) Upon these premises, the Commission held: From the facts proved and the jurisprudence on the matter, it appears necessary under the circumstances to enjoin the respondent Universal Mills Corporation from further using its present corporate name. Judging from what has already happened, confusion is not only apparent, but possible. It does not matter that the instance of confusion between the two corporate names was occasioned only by a fire or an extraordinary occurrence. It is precisely the duty of this Commission to prevent such confusion at all times and under all circumstances not only for the purpose of protecting the corporations involved but more so for the protection of the public. In today's modern business life where people go by tradenames and corporate images, the corporate name becomes the more important. This Commission cannot close its eyes to the fact that usually it is the sound of all the other words composing the names of business corporations that sticks to the mind of those who deal with them. The word "textile" in Universal Textile Mills, Inc.' can not possibly assure the exclusion of all other entities with similar names from the mind of the public especially so, if the business they are engaged in are the same, like in the instant case. This Commission further takes cognizance of the fact that when respondent filed the amendment changing its name to Universal Mills Corporation, it correspondingly filed a written undertaking dated June 5, 1963 and signed by its President, Mr. Mariano Cokiat, promising to change its name in the event that there is another person, firm or entity who has obtained a prior right to the use of such name or one similar to it. That promise is still binding upon the corporation and its responsible officers. (pp. 17-18, Record.) It is obvious that the matter at issue is within the competence of the Securities and Exchange Commission to resolve in the first instance in the exercise of the jurisdiction it used to possess under Commonwealth Act 287 as amended by Republic Act 1055 to administer the application and enforcement of all laws affecting domestic corporations and associations, reserving to the courts only conflicts of judicial nature, and, of course, the Supreme Court's authority to review the Commissions actuations in appropriate instances involving possible denial of due process and grave abuse of discretion. Thus, in the case at bar, there being no claim of denial of any constitutional right, all that We are called upon to determine is whether or not the order of the Commission enjoining petitioner to its corporate name constitutes, in the light of the circumstances found by the Commission, a grave abuse of discretion. We believe it is not. Indeed, it cannot be said that the impugned order is arbitrary and capricious. Clearly, it has rational basis. The corporate names in question are not Identical, but they are indisputably so similar that even under the test of "reasonable care and observation as the public generally are capable of using and may be expected to exercise" invoked by appellant, We are apprehensive confusion will usually arise, considering that under the second amendment of its articles of incorporation on August 14, 1964, appellant included among its primary purposes the "manufacturing, dyeing, finishing and selling of fabrics of all kinds" in which respondent had been engaged for more than a decade ahead of petitioner. Factually, the Commission found existence of such confusion, and there is evidence to support its conclusion. Since respondent is not claiming damages in this proceeding, it is, of course, immaterial whether or not appellant has acted in good faith, but We cannot perceive why of all names, it had to choose a name already being used by another firm engaged in practically the same business for more than a decade enjoying

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well earned patronage and goodwill, when there are so many other appropriate names it could possibly adopt without arousing any suspicion as to its motive and, more importantly, any degree of confusion in the mind of the public which could mislead even its own customers, existing or prospective. Premises considered, there is no warrant for our interference. As this is purely a case of injunction, and considering the time that has elapsed since the facts complained of took place, this decision should not be deemed as foreclosing any further remedy which appellee may have for the protection of its interests. WHEREFORE, with the reservation already mentioned, the appealed decision is affirmed. Costs against petitioners.

25. G.R. No. L-54580 December 29, 1987 ARMCO STEEL CORPORATION (OF THE PHILIPPINES), petitioner, vs. SECURITIES AND EXCHANGE COMMISSION, ARMCO STEEL CORPORATION (of Ohio, U.S.A.) and ARMCO MARSTEEL ALLOY CORPORATION, respondents. GANCAYCO, J.: On July 1, 1965 ARMCO Steel Corporation, a corporation organized in Ohio, U.S.A., hereinafter called ARMCO-OHIO, obtained from the Philippine Patent Office, Certificate of Registration No. 11750 for its trademark consisting of the word "ARMCO" and a triangular device for "ferrous metals and ferrous metal castings and forgings." On April 14, 1971, pursuant to trademark rules, the petitioner filed with the said patent office an "Affidavit of Use" for said trademark, which was subsequently accepted and for which the Patent Office issued the corresponding notice of acceptance of "Affidavit of Use." ARMCO Marsteel-Alloy Corporation was also incorporated on July 11, 1972 under its original name Marsteel Alloy Company, Inc. but on March 28, 1973 its name was changed to ARMCO-Marsteel Alloy Corporation hereinafter called ARMCO-Marsteel, by amendment of its Articles of Incorporation after the ARMCO-Ohio purchased 40% of its capital stock. Both said corporations are engaged in the manufacture of steel products. Its article of incorporation in part reads as follows as to its purposes: "to manufacture, process ... and deal in all kinds, form, and combinations of iron, steel or other metals and all or any products or articles particularly consisting of iron, steel or other metals .... . On the other hand ARMCO Steel Corporation was incorporated in the Philippines on April 25, 1973, hereinafter called ARMCO-Philippines. A pertinent portion of its articles of incorporation provides as among its purposes: "to contract, fabricate ... manufacture ... regarding pipelines, steel frames ... ." ARMCO-Ohio and ARMCO-Marsteel then filed a petition in the Securities and Exchange Commission (SEC) to compel ARMCO-Philippines to change its corporate name on the ground that it is very similar, if not exactly the same as the name of one of the petitioners, which is docketed as SEC Case No. 1187. In due course an order was issued by the SEC on February 14, 1975 granting the petition, the dispositive part of which reads as follows: In view of the foregoing, the respondent, ARMCO STEEL CORPORATION, is hereby ordered to take out 'ARMCO' and substitute another word in lieu thereof in its corporate name by amending the articles of incorporation to that effect, within thirty (30) days from date of receipt of a copy of this Order; after which, three (3) copies of the amended articles of incorporation, duly certified by a majority of the board of directors and countersigned by the president and secretary of the corporation, shall be submitted to this Commission, together with the corresponding filing fees, as required by law. 1 A motion for reconsideration of the said order was filed by said respondent on March 6. 1975 but this was denied in, an order of April 16, 1965 as the motion was filed out of time, a copy of the questioned order having been received by respondent on February 18, 1975 so that said order had 2 become final and executory. A motion for reconsideration filed by respondent to set aside said order of April 16, 1965 was also denied by the SEC 3 on June 23, 1975. An appeal was interposed by respondent to the Court of Appeals which was docketed as CA G.R. No. 04448-R but the appeal was dismissed in a resolution of January 13, 1976, on the ground that the appeal was perfected beyond the reglementary period allowed by law. On March 22, 1976 said respondent amended its articles of incorporation by changing its name to "ARMCO structures, Inc." which was filed with and approved by the SEC. Nevertheless, in an order of January 6, 1977, the SEC issued an order requiring respondent, its directors and officers to comply with the aforesaid 5 order of the Commission of February 14, 1975 within ten (10) days from notice thereof. A manifestation and motion was filed by respondent informing SEC that it had already changed its corporate name with the approval of the SEC to ARMCO Structures, Inc. in substantial compliance with the said order or in the alternative prayed for a hearing to determine if there is a confusing similarity between the names of the petitioners on one hand and the ARMCO Structures, Inc. on the other. Petitioners then filed a comment to said manifestation alleging that the change of name of said respondent was not done in good faith and is not in accordance with the order of the Commission of February 14, 1975 so that drastic action should be taken against the respondent and its officers. Subsequently, petitioners filed a motion to cite said respondent, its directors and officers in contempt for disobeying the orders of February 14, 1975 and January 6, 1977. In an order of August 31, 1977, the SEC finding that the respondent, its directors, and officers have not complied with the final order of February 14, 1975 required them to appeal before the Commission on September 22, 1977 at 10:00 o'clock in the morning to 6 show cause why they should not be punished for contempt by the Commission. After the hearing the parties submitted their respective memoranda. In another order of January 17, 1979, the SEC finding that the respondent did not make the proper disclosure of the circumstances when it amended its articles of incorporation and submitted the same for the approval of the

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SEC thus said respondent, its directors, and officers were ordered within ten (10) days from notice to comply with the order of February 14, 1975. An appeal was interposed by the respondent to the SEC en banc. The Commission en banc in an order of December 14, 1979 dismissed the appeal 7 for lack of merit. Hence, the herein petition for review filed by ARMCO-Philippines wherein it seeks the reversal of the orders of the SEC of December 14, 1979 and August 6, 1980 and that the order of February 14, 1975 be declared functus oficio for having been substantially complied with by the petitioner. The grounds of the petition are as follows: I THE SECURITIES AND EXCHANGE COMMISSION ERRED WHEN IT DID NOT CONSIDER ITS ORDER DATED FEBRUARY 14,1975 FUNCTUS OFFICIO PURSUANT TO THE LEGAL MAXIM CESSANTE LEGIS RATIONE CESSAT ET IPSA LEX' AFTER PETITIONER HAD SUBSTANTIALLY COMPLIED IN GOOD FAITH WITH SAID ORDER AND SAID COMPLIANCE HAD ACHIEVED THE PURPOSE OF THE ORDER, BY CHANGING ITS CORPORATE NAME WITH THE APPROVAL OF SAID COMMISSION. II THE COMMISSION ERRED WHEN IT DID NOT FIND THAT ITS APPROVAL OF PETITIONER'S AMENDED ARTICLES OF INCORPORATION CHANGING PETITIONER'S CORPORATE NAME FROM "ARMCO STEEL CORPORATION" TO "ARMCO STRUCTURES, INCORPORATED" WAS REGULAR AND LEGAL. III THE COMMISSION ERRED WHEN IT DID NOT FIND THAT PRIVATE RESPONDENTS WERE NO LONGER ENTITLED TO THE RELIEF AWARDED BY THE ORDER DATED FEBRUARY 14,1975 CONSIDERING THAT SAID ORDER HAD BECOME FUNCTUS OFFICIO AND FURTHER ENFORCEMENT THEREOF WILL BE INEQUITABLE AS IT WILL DEPRIVE PETITIONER OF EQUAL PROTECTION OF LAWS. IV THE COMMISSION ERRED WHEN, THERE BEING A DISPUTE AS TO WHETHER OR NOT THE PURPOSE OF THE ORDER DATED FEBRUARY 14,1975 HAD BEEN COMPLIED WITH AND WHETHER THERE WAS STILL CONFUSING SIMILARITY BETWEEN THE CORPORATE NAMES OF RESPONDENTS AND THE NEW NAME OF PETITIONER, IT DID NOT GRANT PETITIONER'S PRAYER THAT A HEART NG BE HELD TO THRESH THE ISSUE." The Court finds no merit in the petition. The order of the public respondent SEC of February 14, 1975 which has long become final and executory clearly spells out that petitioner must "take out ARMCO and substitute another word in lieu thereof in its corporate name by amending the articles of incorporation to that effect, ... ." Far from complying with said order petitioner amended its corporate name into ARMCO Structures, Inc., and secured its approval by the SEC on March 22, 1976. That this amendment was made by petitioner without the knowledge of the proper authorities of the SEC is home by the fact that thereafter on January 6, 1977 an order was issued by the SEC requiring petitioner, its board of directors, and officers to comply with the order of the Commission of February 14, 1975. When the attention of the SEC was called by petitioner that the change of corporate name had been undertaken by it to ARMCO Structures, Inc. and asked that it be considered as a substantial compliance with the order of February 14, 1975, the SEC in its order of January 17, 1979 speaking through its hearing officer Antonio R. Manabat ruled as follows: The Order of February 14, 1975, cannot but be clearer than what it purports to require or demand from respondent. Under in no distinct terms, it enjoins the removal or deletion of the word 'Armco' from respondent's corporate name, which was not so complied with. The Commission, therefore, cannot give its imprimatur to the new corporate name because there was no compliance at all. The fact that the Securities and Exchange Commission issued its certificate of filing of amended articles of incorporation on March 22, 1976, is nothing but an illusory approval of the change of corporate name and a self-induced protection from the Commission to further exact compliance of the Order of February 14, 1975. Craftily, the Securities and Exchange Commission and/or its administrative personnel were made to issue such certificate during its unguarded moment. Verily, the certificate could not have been issued were it not for such lapses or had respondent been in good faith by making the proper disclosures of the circumstances which led it to amend its articles of incorporation. Correctly pointed out by petitioners, a 'new determination as to whether or not there is confusing similarity between petitioners' names and that of 'Armco Structures, Incorporated,' cannot be ordered without transgression on the rule of, or the decisional law on, finality of 8 judgment. The Court finds that the said amendment in the corporate name of petitioner is not in substantial compliance with the order of February 14, 1975. Indeed it is in contravention therewith. To repeat, the order was for the removal of the word "ARMCO" from the corporate name of the petitioner which it failed to do. And even if this change of corporate name was erroneously accepted and approved in the SEC it cannot thereby legalize nor change what is clearly unauthorized if not contemptuous act of petitioner in securing the registration of a new corporate name against the very order of the SEC of February 14, 1975. Certainly the said order of February 14, 1975 is not rendered functus oficio thereby. Had petitioner revealed at the time of the registration of its amended corporate name that there was the said order, the registration of the amended corporate name could not have been accepted and approved by the persons in-charge of the registration. The actuations in this respect of petitioner are far from regular much less in good faith. The arguments of the petitioner that the SEC had approved the registration of several other entities with one principal word common to all as "ARMCO," and that there is no confusing similarity between the corporate names of respondents and the new name of petitioner, would indeed in effect be reopening the final and executory order of the SEC of February 14, 1975 which had already foreclosed the issue. Indeed, in said final order the SEC made the following findings which are conclusive and well-taken: The only question for resolution in this case is whether therespondent's name ARMCO STEEL CORPORATION is similar, if not Identical with that of petitioner, ARMCO STEEL CORPORATION (of Ohio, U.S.A.) and of petitioner, ARMCO-MARSTEEL ALLOY CORPORATION, as to create uncertainty and confusion in the minds of the public. By mere looking at the names it is clear that the name of petitioner, ARMCO STEEL CORPORATION (of Ohio, U.S.A.), and that of the respondent, ARMCO STEEL CORPORATION, are not only similar but Identical and the words "of Ohio, U.S.A.," are being used only to Identify petitioner ARMCO STEEL-OHIO as a U.S. corporation.

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It is indisputable that ARMCO-STEEL-OHIO, having patented the term 'Armco' as part of its trademark on its steel products, is entitled to protection in the use thereof in the Philippines. The term "Armco" is now being used on the products being manufactured and sold in this country by Armco-Marsteel by virtue of its tie-up with ARMCO-STEEL-OHIO. Clearly, the two companies have the right to the exclusive use and enjoyment of said term. ARMCO STEEL-PHILIPPINES, has not only an Identical name but also a similar line of business, as shown above, as that of ARMCO STEEL- OHIO. People who are buying and using products bearing the trademark "Armco" might be led to believe that such products are manufactured by the respondent, when in fact, they might actually be produced by the petitioners. Thus, the goodwill that should grow and inure to the benefit of petitioners could be impaired and prejudiced by the continued use of the same term by the respondent. Obviously, the petition for review is designed to further delay if not simply evade compliance with the said final and executory SEC order. Petitioner also seeks a review of the orders of execution of the SEC of the said February 14, 1975 order. An order or resolution granting execution of the final 9 judgment cannot be appealed otherwise there will be no end to the litigation. 10 WHEREFORE, the petition is DISMISSED for lack of merit with costs against petitioner. This decision is immediately executory.

26. G.R. No. 51765 March 3, 1997 REPUBLIC PLANTERS BANK, petitioner, vs. HON. ENRIQUE A. AGANA, SR., as Presiding Judge, Court of First Instance of Rizal, Branch XXVIII, Pasay City, ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION and ADALIA F. ROBES, respondents. HERMOSISIMA, JR., J.: This is a petition for certiorari seeking the annulment of the Decision of the then Court of First Instance of Rizal for having been rendered in grave abuse of discretion. Private respondents Robes-Francisco Realty and Development Corporation (hereafter, "the Corporation") and Adalia F. Robes filed in the court a quo, an action for specific performance to compel petitioner to redeem 800 preferred shares of stock with a face value of P8,000.00 and to pay 1% quarterly interest thereon as quarterly dividend owing them under the terms and conditions of the certificates of stock. The court a quo rendered judgment in favor of private respondents; hence, this instant petition. Herein parties debate only legal issues, no issues of fact having been raised by them in the court a quo. For ready reference, however, the following narration of pertinent transactions and events is in order: On September 18, 1961, private respondent Corporation secured a loan from petitioner in the amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were issued to private respondent Corporation, through its officers then, private respondent Adalia F. Robes and one Carlos F. Robes. In other words, instead of giving the legal tender totaling to the full amount of the loan, which is P120,000.00, petitioner lent such amount partially in the form of money and partially in the form of stock certificates numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the name of private respondent Adalia F. Robes and Carlos F. Robes, who subsequently, however, endorsed his shares in favor of Adalia F. Robes. Said certificates of stock bear the following terms and conditions: The Preferred Stock shall have the following rights, preferences, qualifications and limitations, to wit: 1. Of the right to receive a quarterly dividend of One Per Centum (1%), cumulative and participating. xxx xxx xxx 2. That such preferred shares may be redeemed, by the system of drawing lots, at any time after two (2) years from the date of issue at the option of the Corporation. . . . On January 31, 1979, private respondents proceeded against petitioner and filed a Complaint anchored on private respondents' alleged rights to collect dividends under the preferred shares in question and to have petitioner redeem the same under the terms and conditions of the stock certificates. Private respondents attached to their complaint, a letter-demand dated January 5, 1979 which, significantly, was not formally offered in evidence. Petitioner filed a Motion to Dismiss private respondents' Complaint on the following grounds: (1) that the trial court had no jurisdiction over the subject-matter of the action; (2) that the action was unenforceable under substantive law; and (3) that the action was barred by the statute of limitations and/or laches. Petitioner's Motion to Dismiss was denied by the trial court in an Order dated March 16, 1979. Petitioner then filed its Answer on May 2, 5 1979. Thereafter, the trial court gave the parties ten (10) days from July 30, 1979 to submit their respective memoranda after the submission of 6 which the case would be deemed submitted for resolution. On September 7, 1979, the trial court rendered the herein assailed decision in favor of private respondents. In ordering petitioner to pay private respondents the face value of the stock certificates as redemption price, plus 1% quarterly interest thereon until full payment, the trial court ruled:
4 3 1 2

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There being no issue of fact raised by either of the parties who filed their respective memoranda delineating their respective contentions, a judgment on the pleadings, conformably with an earlier order of the Court, appears to be in order. From a further perusal of the pleadings, it appears that the provision of the stock certificates in question to the effect that the plaintiffs shall have the right to receive a quarterly dividend of One Per Centum (1%), cumulative and participating, clearly and unequivocably [sic] indicates that the same are "interest bearing stocks" which are stocks issued by a corporation under an agreement to pay a certain rate of interest thereon (5 Thompson, Sec. 3439). As such, plaintiffs become entitled to the payment thereof as a matter of right without necessity of a prior declaration of dividend. On the question of the redemption by the defendant of said preferred shares of stock, the very wordings of the terms and conditions in said stock certificates clearly allows the same. To allow the herein defendant not to redeem said preferred shares of stock and/or pay the interest due thereon despite the clear import of said provisions by the mere invocation of alleged Central Bank Circulars prohibiting the same is tantamount to an impairment of the obligation of contracts enshrined in no less than the fundamental law itself. Moreover, the herein defendant is considered in estoppel from taking shelter behind a General Banking Act provision to the effect that it cannot buy its own shares of stocks considering that the very terms and conditions in said stock certificates allowing their redemption are its own handiwork. As to the claim by the defendant that plaintiffs' cause of action is barred by prescription, suffice it to state that the running of the prescriptive 7 period was considered interrupted by the written extrajudicial demands made by the plaintiffs from the defendant. Aggrieved by the decision of the trial court, petitioner elevated the case before us essentially on pure questions of law. Petitioner's statement of the issues that it submits for us to adjudicate upon, is as follows: A. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ORDERING PETITIONER TO PAY RESPONDENT ADALIA F. ROBES THE AMOUNT OF P8213.69 AS INTERESTS FROM 1961 TO 1979 ON HER PREFERRED SHARES. B. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ORDERING PETITIONER TO REDEEM RESPONDENT ADALIA F. ROBES' PREFERRED SHARES FOR P8,000.00. C. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN DISREGARDING THE ORDER OF THE CENTRAL BANK TO PETITIONER TO DESIST FROM REDEEMING ITS PREFERRED SHARES AND FROM PAYING DIVIDENDS THEREON . . . . D. THE TRIAL COURT ERRED IN NOT HOLDING THAT THE COMPLAINT DOES NOT STATE A CAUSE OF ACTION. E. THE TRIAL COURT ERRED IN NOT HOLDING THAT THE CLAIM OF RESPONDENT ADALIA F. ROBES IS BARRED BY PRESCRIPTION OR LACHES. The petition is meritorious. Before passing upon the merits of this petition, it may be pertinent to provide an overview on the nature of preferred shares and the redemption thereof, considering that these issues lie at the heart of the dispute. A preferred share of stock, on one hand, is one which entitles the holder thereof to certain preferences over the holders of common stock. The 9 preferences are designed to induce persons to subscribe for shares of a corporation. Preferred shares take a multiplicity of forms. The most common forms may be classified into two: (1) preferred shares as to assets; and (2) preferred shares as to dividends. The former is a share which 10 gives the holder thereof preference in the distribution of the assets of the corporation in case of liquidation; the latter is a share the holder of which is entitled to receive dividends on said share to the extent agreed upon before any dividends at all are paid to the holders of common 11 stock. There is no guaranty, however, that the share will receive any dividends. Under the old Corporation Law in force at the time the contract between the petitioner and the private respondents was entered into, it was provided that "no corporation shall make or declare any dividend except from the surplus profits arising from its business, or distribute its capital stock or property other than actual profits among its members or 12 stockholders until after the payment of its debts and the termination of its existence by limitation or lawful dissolution." Similarly, the present 13 Corporation Code provides that the board of directors of a stock corporation may declare dividends only out of unrestricted retained 14 earnings. The Code, in Section 43, adopting the change made in accounting terminology, substituted the phrase "unrestricted retained earnings," which may be a more precise term, in place of "surplus profits arising from its business" in the former law. Thus, the declaration of dividends is dependent upon the availability of surplus profit or unrestricted retained earnings, as the case may be. Preferences granted to preferred stockholders, moreover, do not give them a lien upon the property of the corporation nor make them creditors of the corporation, the right of the former being always subordinate to the latter. Dividends are thus payable only when there are profits earned by the corporation and as a general rule, even if there are existing profits, the board of directors has the discretion to determine whether or not dividends are to be 15 declared. Shareholders, both common and preferred, are considered risk takers who invest capital in the business and who can look only to what 16 is left after corporate debts and liabilities are fully paid. Redeemable shares, on the other hand, are shares usually preferred, which by their terms are redeemable at a fixed date, or at the option of either 17 issuing corporation, or the stockholder, or both at a certain redemption price. A redemption by the corporation of its stock is, in a sense, a 18 repurchase of it for cancellation. The present Code allows redemption of shares even if there are no unrestricted retained earnings on the books of the corporation. This is a new provision which in effect qualifies the general rule that the corporation cannot purchase its own shares except out 19 of current retained earnings. However, while redeemable shares may be redeemed regardless of the existence of unrestricted retained earnings, this is subject to the condition that the corporation has, after such redemption, assets in its books to cover debts and liabilities inclusive of capital
8

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stock. Redemption, therefore, may not be made where the corporation is insolvent or if such redemption will cause insolvency or inability of the 20 corporation to meet its debts as they mature. We come now to the merits of the case. The petitioner argues that it cannot be compelled to redeem the preferred shares issued to the private respondent. We agree. Respondent judge, in ruling that petitioner must redeem the shares in question, stated that: On the question of the redemption by the defendant of said preferred shares of stock, the very wordings of the terms and 21 conditions in said stock certificates clearly allows the same. What respondent judge failed to recognize was that while the stock certificate does allow redemption, the option to do so was clearly vested in the petitioner bank. The redemption therefore is clearly the type known as "optional". Thus, except as otherwise provided in the stock certificate, the redemption rests entirely with the corporation and the stockholder is without right to either compel or refuse 22 the redemption of its stock. Furthermore, the terms and conditions set forth therein use the word "may". It is a settled doctrine in statutory construction that the word "may" denotes discretion, and cannot be construed as having a mandatory effect. We fail to see how respondent judge can ignore what, in his words, are the "very wordings of the terms and conditions in said stock certificates" and construe what is clearly a mere option to be his legal basis for compelling the petitioner to redeem the shares in question. The redemption of said shares cannot be allowed. As pointed out by the petitioner, the Central Bank made a finding that said petitioner has been 23 suffering from chronic reserve deficiency, and that such finding resulted in a directive, issued on January 31, 1973 by then Gov. G.S. Licaros of the Central Bank, to the President and Acting Chairman of the Board of the petitioner bank prohibiting the latter from redeeming any preferred share, 24 on the ground that said redemption would reduce the assets of the Bank to the prejudice of its depositors and creditors. Redemption of preferred shares was prohibited for a just and valid reason. The directive issued by the Central Bank Governor was obviously meant to preserve the status quo, and to prevent the financial ruin of a banking institution that would have resulted in adverse repercussions, not only to its depositors and creditors, but also to the banking industry as a whole. The directive, in limiting the exercise of a right granted by law to a corporate entity, may thus be considered as an exercise of police power. The respondent judge insists that the directive constitutes an impairment of the obligation of contracts. It has, however, been settled that the Constitutional guaranty of non-impairment of obligations of contract is limited by the exercise of 25 the police power of the state, the reason being that public welfare is superior to private rights. The respondent judge also stated that since the stock certificate granted the private respondents the right to receive a quarterly dividend of One Per Centum (1%) cumulative and participating, it "clearly and unequivocably (sic) indicates that the same are "interest bearing stocks" or stocks issued by a corporation under an agreement to pay a certain rate of interest thereon. As such, plaintiffs (private respondents herein) become 26 entitled to the payment thereof as a matter of right without necessity of a prior declaration of dividend." There is no legal basis for this observation. Both Sec. 16 of the Corporation Law and Sec. 43 of the present Corporation Code prohibit the issuance of any stock dividend without the approval of stockholders, representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. These provisions underscore the fact that payment of dividends to a stockholder is not a matter of right but a matter of consensus. Furthermore, "interest bearing stocks", on which the corporation agrees absolutely to pay interest before dividends are paid to common 27 stockholders, is legal only when construed as requiring payment of interest as dividends from net earnings or surplus only. Clearly, the respondent judge, in compelling the petitioner to redeem the shares in question and to pay the corresponding dividends, committed grave abuse of discretion amounting to lack or excess of jurisdiction in ignoring both the terms and conditions specified in the stock certificate, as well as the clear mandate of the law. Anent the issue of prescription, this Court so holds that the claim of private respondent is already barred by prescription as well as laches. Art. 1144 of the New Civil Code provides that a right of action that is founded upon a written contract prescribes in ten (10) years. The letter-demand made by the private respondents to the petitioner was made only on January 5, 1979, or almost eighteen years after receipt of the written contract in the form of the stock certificate. As noted earlier, this letter-demand, significantly, was not formally offered in evidence, nor were any other evidence of demand presented. Therefore, we conclude that the only time the private respondents saw it fit to assert their rights, if any, to the preferred shares of stock, was after the lapse of almost eighteen years. The same clearly indicates that the right of the private respondents to any relief under the law has already prescribed. Moreover, the claim of the private respondents is also barred by laches. Laches has been defined as the failure or neglect, for an unreasonable length of time, to do that which by exercising due diligence could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has 28 abandoned it or declined to assert it. Considering that the terms and conditions set forth in the stock certificate clearly indicate that redemption of the preferred shares may be made at any time after the lapse of two years from the date of issue, private respondents should have taken it upon themselves, after the lapse of the said period, to inquire from the petitioner the reason why the said shares have not been redeemed. As it is, not only two years had lapsed, as agreed upon, but an additional sixteen years passed before the private respondents saw it fit to demand their right. The petitioner, at the time it issued said preferred shares to the private respondents in 1961, could not have known that it would be suffering from chronic reserve deficiency twelve years later. Had the private respondents been vigilant in asserting their rights, the redemption could have been effected at a time when the petitioner bank was not suffering from any financial crisis. WHEREFORE, the instant petition, being impressed with merit, is hereby GRANTED. The challenged decision of respondent judge is set aside and the complaint against the petitioner is dismissed. Costs against the private respondents.

27.G.R. No. 117097 March 21, 1997 SAMAHAN NG OPTOMETRISTS SA PILIPINAS, ILOCOS SUR-ABRA CHAPTER, EDUARDO MA. GUIRNALDA, DANTE G. PACQUING and OCTAVIO A. DE PERALTA, petitioners, vs. ACEBEDO INTERNATIONAL CORPORATION and the HON. COURT OF APPEALS, respondents.

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HERMOSISIMA, JR., J.: Before us is a petition seeking the review and ultimately the reversal of the decision of the Court of Appeals which rejected what petitioners vehemently claim to be a prohibition, under Republic Act (R.A.) No. 1998, popularly known as the old Optometry Law, against the employment by corporations, usually optical shops and eyeware stores, of optometrists, such practice, according to petitioners, being an indirect violation of the rule against corporations exercising professions reserved only to natural persons. Petitioners understandably did not welcome the herein assailed 3 decision because they have, earlier, obtained a decision favorable to them from the Regional Trial Court of Candon, Ilocos Sur, Branch 23, presided over by Judge Gabino Balbin, Jr. The said judge had, in the main, ruled that the operations of private respondent Acebedo International Corporation involves the practice of optometry which is precluded by R.A. No. 1998. The undisputed facts of the case, as found by the respondent Court of Appeals and quoted by petitioners, are as follows: On February 22, 1991, . . . [private respondent] filed an application with the Office of the Mayor of Candon, Ilocos Sur, for the issuance of a permit for the opening and operation of a branch of the Acebedo Optical in that municipality. The application was opposed by the . . . [petitioner] Samahan ng Optometrists sa Pilipinas (SOP) which contended that . . . [private respondent] is a juridical entity not qualified to practice optometry. On March 6, 1991, . . . [private respondent] filed its answer, arguing it is not the corporation, but the optometrists employed by it, who would be practicing optometry. On April 17, 1991, the Mayor of Candon created a committee, composed of public respondents Eduardo Ma. Guirnalda, Dante G. Pacquing and Octavio de Peralta, to pass on [private respondent's] application. On September 26, 1991 the committee rendered a decision denying [private respondent's] application for a mayor's permit to operate a branch in Candon and ordering . . . [private respondent] to close its establishment within fifteen (15) days from receipt of the decision. Acebedo moved for a reconsideration but its motion was denied on November 14, 1991. . . . [Private respondent] was ordered to close its establishment within ten (10) days from receipt of the order. On December 9, 1991, . . . [private respondent] filed with the Court of Appeals a petition for certiorari (CA G.R SP No. 26782), questioning the decision of respondent committee. Its petition, however, was referred to the court a quo, which on December 4 16, 1992, dismissed Acebedo's petition. Hence, . . . [the] appeal [to the respondent Court of Appeals]. The singular issue, admittedly extensively debated and intensely contested not only by the members of the optometry profession and the players in the business of selling optical ware, supplies, substances and instruments but also by the members of the Senate during the deliberations respecting R. A. 8050, otherwise known as Revised New Optometry Law, is this: May corporations, engaged in the business of selling optical wares, supplies, substances and instruments which, as an incident to and in the ordinary course of the business hire optometrists, be said to be practicing the profession of optometry which, by legal mandate, may only be engaged in by natural persons possessed of specific legal qualifications? The trial court resolved this issue in the affirmative. In so finding, it explained, thus: The denial of the application of Acebedo rested on the grounds that it is operating an optical shop and it is practicing optometry where its charter does not grant to it authority to practice the former. Acebedo submits that the findings of the Commission have no basis both in law and in fact. It argues that the hiring of optometrists by the petitioner is merely incidental to its main business which is the sale of optical products. Acebedo contends further that its employees have a personality separate and distinct from that of Acebedo which is a juridical entity, and it cannot therefore be considered as engaged in optometry. The Court disagrees. Quoted for the enlightenment of both parties is a portion of the contested Decision, to wit: The visit revealed the following: 1. The establishment was manned by three personnel: Dr. Salvador Pagarigan, optometrist; Miss Lilibeth Begonia, receptionist; and a Laboratory technician, who refused to give his name; 2. There were several shelves containing eyeglasses; 3. There were benches where, according to Miss Begonia, would-be clients can sit while waiting for their turn to be examined; 4. An examination room complete with an optical chair and optical charts; and, 5. An optical laboratory. The Court is very much aware of the existence of several shops owned by Acebedo. They are operating up to the present. But the Court has to rely in this case on the findings of the Commission created by the Mayor of Candon in the absence of proof that the same was arrived at hastily and without regard for the rights of the parties. In fact, the contested Decision was issued only after an ocular inspection was conducted and the parties have submitted their respective memorandum.
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The findings of the Commission reveal that the operation of Acebedo's local shop involves the practice of optometry. If indeed Acebedo is engaged in the sale of optical products, the absence of sales clerks more than demonstrate its real business. In the contested Decision, the floor plan of the shop was even commented on as that of an optical shop. As noted by the members of the Commission, there was also a banner in front of the shop prominently display advertising free consultations (libreng consulta sa mata). These facts, taken together, denote that Acebedo was operating in Candon an optical shop contrary to law. While it is also true that a corporation has a personality separate and distinct from that of its personnel, the veil of corporate fiction cannot be used for the purpose of some illegal activity. The veil of corporate fiction can be pierced, as in this case, and the acts of the personnel of the 5 corporation will be considered as those of the corporation. Acebedo then is engaged in the practice of optometry. Disagreeing with the foregoing decision of the trial court, private respondent appealed therefrom and asked the respondent Court of Appeals to reverse the same on the ground that the court a quo erred in concluding that private respondent was engaged in the practice of optometry by operating an optical shop. Respondent appellate court found that private respondent's contentions merited the reversal of the court a quo'sdecision. The respondent court, speaking through Court of Appeals Presiding Justice, now Supreme Court Associate Justice Vicente V. Mendoza, ratiocinated in this wise: First. . . . [Private respondent] maintains that it is not practicing optometry nor is it operating an optical clinic. The contention has merit. The amended Articles of Incorporation of . . . [private respondent] in part states: PRIMARY PURPOSES 1. To own, maintain, conduct, operate and carry on the business of dispensing opticians and optical establishments, and in the course of the business, to buy, sell, ship, store and otherwise use, deal in, acquire and dispose of every kind of optical, ophthalmic and scientific instrument, glass, lens, optical solutions or equipment necessary or convenient to the operation and conduct of the general business of dispensing opticians. SECONDARY PURPOSES xxx xxx xxx 3. To do all and everything necessary, suitable or proper for the accomplishment of any of the purposes, the attainment of any of the objects, or in the exercise of any of the powers herein set forth, either alone or in conjunction with other corporations, firms or individuals and either as principal or agents and to do every other act or acts, thing or things, incidental or appurtenant to or growing out of or connected with the abovementioned objects, purposes or powers. Clearly, the corporation is not an optical clinic. Nor is it but rather the optometrists employed by it who are engaged in the practice of optometry. Petitioner-appellant simply dispenses optical and ophthalmic instruments and supplies. Indeed, the Optometry Law (Rep. Act No. 1998), which . . . [petitioners] cite, does not prohibit corporations, like . . . [private respondent] from employing licensed optometrists. What it prohibits is the practice of the profession without license by those engaged in it. This is clear from sec. 2 of the law which provides: No person shall practice or attempt to practice optometry as defined in this Act, without holding a valid certificate of registration as optometrist issued to him by the Board of Examiners in Optometry herein created and in accordance with the provisions hereof: Provided, that valid certificates of registration as optometrists shall be issued to optometrists of good moral character now registered in accordance with the provisions of chapter thirty-three of the Revised Administrative Code, who shall, by application within a period of one year from the effectivity of this Act, be exempt from the provisions of sections eleven, twelve and twenty-three of this Act. . . . The prohibition is thus addressed to natural persons who are required to have "a valid certificate of registration as optometrist" and who must be of "good moral character". The prohibition can have no application to . . . [private respondent] which is not itself engaged in the practice of optometry. As the Professional Regulation Commission said, "Acebedo Optical, Acebedo Optical Clinic, Acebedo Optical Co., Inc. and Acebedo International, Inc. are not natural persons who can take the Optometrist licensure examinations. They are not, and cannot be registered as 6 Optometrist under RA 1998 [The Optometry Law]. Petitioners filed a Motion for Reconsideration of the aforegoing decision. It was, however, denied by respondent appellate court. Hence, this petition anchored on the following sole ground: ISSUE WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT PRIVATE RESPONDENT ACEBEDO INTERNATIONAL CORPORATION DOES NOT VIOLATE THE OPTOMETRY LAW (RA NO. 1998) WHEN IT EMPLOYS OPTOMETRISTS TO ENGAGE IN THE PRACTICE OF OPTOMETRY UNDER ITS NAME AND FOR ITS BEHALF The herein petitioner most respectfully submits that the private respondent Acebedo International Corporation flagrantly violates R.A. No. 1998 and the Corporation Code of the Philippines when it employs optometrists to engage in the practice of optometry under its name and for 7 its behalf. We hold that the petition lacks merit.

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Private respondent does not deny that it employs optometrists whose role in the operations of its optical shops is to administer the proper eye examination in order to determine the correct type and grade of lenses to prescribe to persons purchasing the same from private respondent's optical shops. Petitioners vehemently insist that in so employing said optometrists, private respondent is in effect itself practicing optometry. Such practice, petitioners conclude, is in violation of RA. No. 1998, which, it must be noted at this juncture, has been repealed and superseded by R.A. 8050. Petitioners' contentions are, however, untenable. The fact that private respondent hires optometrists who practice their profession in the course of their employment in private respondent's optical shops, does not translate into a practice of optometry by private respondent itself. Private respondent is a corporation created and organized for the purpose of conducting the business of selling optical lenses or eyeglasses, among others. The clientele of private respondent understably, would largely be composed of persons with defective vision and thus need the proper lenses to correct the same and enable them to gain normal vision. The determination of the proper lenses to sell to private respondent's clientele entails the employment of optometrists who have been precisely trained for that purpose. Private respondent's business is not the determination itself of the proper lenses needed by persons with defective vision. Private respondent's business, rather, is the buying and importing of eyeglasses and lenses and other similar or allied instruments from suppliers thereof and selling the same to consumers. For petitioners' argument to hold water, there need be clear showing that R.A. No. 1998 prohibits a corporation from hiring optometrists, for only then would it be undeniably evident that the intention of the legislature is to preclude the formation of the so-called optometry corporations because such is tantamount to the practice of the profession of optometry which is legally exercisable only by natural persons and professional 8 partnerships. We have carefully reviewed R.A. No. 1998 however, and we find nothing therein that supports petitioner's insistent claims. It is significant to note that even under R.A. No. 8050, known as the Revised Optometry Law, we find no prohibition against the hiring by corporations of optometrists. The pertinent provisions of R.A. No. 8050 regarding the practice of optometry, are reproduced below for ready reference: THE PRACTICE OF OPTOMETRY Sec. 4. Acts Constituting the practice of Optometry. Any of the following acts constitute the practice of optometry: a) The examination of the human eye through the employment of subjective and objective procedures, including the use of specific topical diagnostic pharmaceutical agents or drugs and instruments, tools, equipment, implements, visual aids, apparatuses, machines, ocular exercises and related devices, for the purpose of determining the condition and acuity of human vision to correct and improve the same in accordance with subsections (b), (c) and (d) hereof; vision to correct and improve the same in accordance with subsections (b), (c) and (d) hereof; b) The prescription and dispensing of ophthalmic lenses, prisms, contact lenses and their accessories and solutions, frames and their accessories, and supplies for the purpose of correcting and treating defects, deficiencies and abnormalities of vision. c) The conduct of ocular exercises and vision training, the provision of orthoptics and other devices and procedures to aid and correct abnormalities of human vision, and the installation of prosthetic devices; d) The counseling of patients with regard to vision and eye care and hygiene; e) The establishment of offices, clinics, and similar places where optometric services are offered; and f) The collection of professional fees for the performance of any of the acts mentioned in paragraphs (a), (b), (c) and (d) of this section. Sec. 5. Prohibition Against the Unauthorized Practice of Optometry. No person shall practice optometry as defined in Section 3 of this Act nor perform any of the acts, constituting the practice of optometry as setforth in Section 4 hereof, without having been first admitted to the practice of this profession under the provisions of this Act and its implementing rules and regulations: Provided, That this prohibition shall not apply to regularly licensed and duly registered physicians who have received post-graduate training in the diagnosis and treatment of eye diseases: Provided, however, That the examination of the human eye by duly registered physicians in connection with the physical examination of patients shall not be considered as practice of optometry:Provided, further, That public health workers trained and involved in the government's blindness prevention program may conduct only visual acuity test and visual screening. Sec. 6. Disclosure of Authority to Practice. An optometrist shall be required to indicate his professional license number and the date of its expiration in the documents he issues or signs in connection with the practice of his profession. He shall also display his certificate of registration in a conspicuous area of his clinic or office. All told, there is no law that prohibits the hiring by corporations of optometrists or considers the hiring by corporations of optometrists as a practice by the corporation itself of the profession of optometry. WHEREFORE, the instant petition is hereby DISMISSED.
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