Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-43350 December 23, 1937
CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant,
vs.
TEODORO SANDIKO, defendant-appellee.
Arsenio P. Dizon for appellant.
Sumulong, Lavides and Sumulong for appellee.
LAUREL, J.:
This is an appeal from a judgment of the Court of First Instance of Manila absolving the defendant
from the plaintiff's complaint.
Manuel Tabora is the registered owner of four parcels of land situated in the barrio of Linao, town of
Aparri, Province of Cagayan, as evidenced by transfer certificate of title No. 217 of the land records
of Cagayan, a copy of which is in evidence as Exhibit 1. To guarantee the payment of a loan in the
sum of P8,000, Manuel Tabora, on August 14, 1929, executed in favor of the Philippine National
Bank a first mortgage on the four parcels of land above-mentioned. A second mortgage in favor of
the same bank was in April of 1930 executed by Tabora over the same lands to guarantee the
payment of another loan amounting to P7,000. A third mortgage on the same lands was executed on
April 16, 1930 in favor of Severina Buzon to whom Tabora was indebted in the sum of P2,9000.
These mortgages were registered and annotations thereof appear at the back of transfer certificate
of title No. 217.
On May 31, 1930, Tabora executed a public document entitled "Escritura de Transpaso de
Propiedad Inmueble" (Exhibit A) by virtue of which the four parcels of land owned by him was sold to
the plaintiff company, said to under process of incorporation, in consideration of one peso (P1)
subject to the mortgages in favor of the Philippine National Bank and Severina Buzon and, to the
condition that the certificate of title to said lands shall not be transferred to the name of the plaintiff
company until the latter has fully and completely paid Tabora's indebtedness to the Philippine
National Bank.
The plaintiff company filed its article incorporation with the Bureau of Commerce and Industry on
October 22, 1930 (Exhibit 2). A year later, on October 28, 1931, the board of directors of said
company adopted a resolution (Exhibit G) authorizing its president, Jose Ventura, to sell the four
parcels of lands in question to Teodoro Sandiko for P42,000. Exhibits B, C and D were thereafter
made and executed. Exhibit B is a deed of sale executed before a notary public by the terms of
which the plaintiff sold ceded and transferred to the defendant all its right, titles, and interest in and
to the four parcels of land described in transfer certificate in turn obligated himself to shoulder the
three mortgages hereinbefore referred to. Exhibit C is a promisory note for P25,300. drawn by the
defendant in favor of the plaintiff, payable after one year from the date thereof. Exhibit D is a deed of
mortgage executed before a notary public in accordance with which the four parcels of land were
given a security for the payment of the promissory note, Exhibit C. All these three instrument were
dated February 15, 1932.

The defendant having failed to pay the sum stated in the promissory note, plaintiff, on January 25,
1934, brought this action in the Court of First Instance of Manila praying that judgment be rendered
against the defendant for the sum of P25,300, with interest at legal rate from the date of the filing of
the complaint, and the costs of the suits. After trial, the court below, on December 18, 1934,
rendered judgment absolving the defendant, with costs against the plaintiff. Plaintiff presented a
motion for new trial on January 14, 1935, which motion was denied by the trial court on January 19
of the same year. After due exception and notice, plaintiff has appealed to this court and makes an
assignment of various errors.
In dismissing the complaint against the defendant, the court below, reached the conclusion that
Exhibit B is invalid because of vice in consent and repugnancy to law. While we do not agree with
this conclusion, we have however voted to affirm the judgment appealed from the reasons which we
shall presently state.
The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff herein, was
affected on May 31, 1930 (Exhibit A) and the actual incorporation of said company was affected later
on October 22, 1930 (Exhibit 2). In other words, the transfer was made almost five months before
the incorporation of the company. Unquestionably, a duly organized corporation has the power to
purchase and hold such real property as the purposes for which such corporation was formed may
permit and for this purpose may enter into such contracts as may be necessary (sec. 13, pars. 5 and
9, and sec. 14, Act No. 1459). But before a corporation may be said to be lawfully organized, many
things have to be done. Among other things, the law requires the filing of articles of incorporation
(secs. 6 et seq., Act. No. 1459). Although there is a presumption that all the requirements of law
have been complied with (sec. 334, par. 31 Code of Civil Procedure), in the case before us it can not
be denied that the plaintiff was not yet incorporated when it entered into a contract of sale, Exhibit A.
The contract itself referred to the plaintiff as "una sociedad en vias de incorporacion." It was not even
a de facto corporation at the time. Not being in legal existence then, it did not possess juridical
capacity to enter into the contract.
Corporations are creatures of the law, and can only come into existence in the manner
prescribed by law. As has already been stated, general law authorizing the formation of
corporations are general offers to any persons who may bring themselves within their
provisions; and if conditions precedent are prescribed in the statute, or certain acts are
required to be done, they are terms of the offer, and must be complied with substantially
before legal corporate existence can be acquired. (14 C. J., sec. 111, p. 118.)
That a corporation should have a full and complete organization and existence as an entity
before it can enter into any kind of a contract or transact any business, would seem to be self
evident. . . . A corporation, until organized, has no being, franchises or faculties. Nor do
those engaged in bringing it into being have any power to bind it by contract, unless so
authorized by the charter there is not a corporation nor does it possess franchise or faculties
for it or others to exercise, until it acquires a complete existence. (Gent vs. Manufacturers
and Merchant's Mutual Insurance Company, 107 Ill., 652, 658.)
Boiled down to its naked reality, the contract here (Exhibit A) was entered into not between Manuel
Tabora and a non-existent corporation but between the Manuel Tabora as owner of the four parcels
of lands on the one hand and the same Manuel Tabora, his wife and others, as mere promoters of a
corporations on the other hand. For reasons that are self-evident, these promoters could not have
acted as agent for a projected corporation since that which no legal existence could have no agent.
A corporation, until organized, has no life and therefore no faculties. It is, as it were, a child in ventre
sa mere. This is not saying that under no circumstances may the acts of promoters of a corporation
be ratified by the corporation if and when subsequently organized. There are, of course, exceptions

(Fletcher Cyc. of Corps., permanent edition, 1931, vol. I, secs. 207 et seq.), but under the peculiar
facts and circumstances of the present case we decline to extend the doctrine of ratification which
would result in the commission of injustice or fraud to the candid and unwary.(Massachusetts rule,
Abbott vs. Hapgood, 150 Mass., 248; 22 N. E. 907, 908; 5 L. R. A., 586; 15 Am. St. Rep., 193; citing
English cases; Koppel vs. Massachusetts Brick Co., 192 Mass., 223; 78 N. E., 128; Holyoke
Envelope Co., vs. U. S. Envelope Co., 182 Mass., 171; 65 N. E., 54.) It should be observed that
Manuel Tabora was the registered owner of the four parcels of land, which he succeeded in
mortgaging to the Philippine National Bank so that he might have the necessary funds with which to
convert and develop them into fishery. He appeared to have met with financial reverses. He formed
a corporation composed of himself, his wife, and a few others. From the articles of incorporation,
Exhibit 2, it appears that out of the P48,700, amount of capital stock subscribed, P45,000 was
subscribed by Manuel Tabora himself and P500 by his wife, Rufina Q. de Tabora; and out of the
P43,300, amount paid on subscription, P42,100 is made to appear as paid by Tabora and P200 by
his wife. Both Tabora and His wife were directors and the latter was treasurer as well. In fact, to this
day, the lands remain inscribed in Tabora's name. The defendant always regarded Tabora as the
owner of the lands. He dealt with Tabora directly. Jose Ventura, president of the plaintiff corporation,
intervened only to sign the contract, Exhibit B, in behalf of the plaintiff. Even the Philippine National
Bank, mortgagee of the four parcels of land, always treated Tabora as the owner of the same.
(SeeExhibits E and F.) Two civil suits (Nos. 1931 and 38641) were brought against Tabora in the
Court of First Instance of Manila and in both cases a writ of attachment against the four parcels of
land was issued. The Philippine National Bank threatened to foreclose its mortgages. Tabora
approached the defendant Sandiko and succeeded in the making him sign Exhibits B, C, and D and
in making him, among other things, assume the payment of Tabora's indebtedness to the Philippine
National Bank. The promisory note, Exhibit C, was made payable to the plaintiff company so that it
may not attached by Tabora's creditors, two of whom had obtained writs of attachment against the
four parcels of land.
If the plaintiff corporation could not and did not acquire the four parcels of land here involved, it
follows that it did not possess any resultant right to dispose of them by sale to the defendant,
Teodoro Sandiko.
Some of the members of this court are also of the opinion that the transfer from Manuel Tabora to
the Cagayan Fishing Development Company, Inc., which transfer is evidenced by Exhibit A, was
subject to a condition precedent (condicion suspensiva), namely, the payment of the mortgage debt
of said Tabora to the Philippine National Bank, and that this condition not having been complied with
by the Cagayan Fishing Development Company, Inc., the transfer was ineffective. (Art. 1114, Civil
Code; Wise & Co. vs. Kelly and Lim, 37 Phil., 696; Manresa, vol. 8, p. 141.) However, having arrived
at the conclusion that the transfer by Manuel Tabora to the Cagayan Fishing Development Company,
Inc. was null because at the time it was affected the corporation was non-existent, we deem it
unnecessary to discuss this point.
lawphil.net

The decision of the lower court is accordingly affirmed, with costs against the appellant. So Ordered.
Villa-Real, Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.

McArthur v. Times Printing Co. case brief summary

51 N.W. 216 (1892)

CASE SYNOPSIS
Defendant appealed a Hennepin County District Court (Minnesota) denial of its request for a new trial on plaintiff's
claims for damages for breach of an employment contract.
CASE FACTS
Plaintiff alleged that defendant contracted with him for a period of one year and that defendant discharged him in
violation of its contract. Defendant argued that plaintiff's employment was from week to week and that he was
discharged with good cause. Trial court found for plaintiff, as the evidence showed that a promoter had made the
contract on behalf of defendant while defendant was contemplating organization of corporation. Evidence further
showed that after organization, defendant's board never took any formal action with regards to the contract, but
that all of its stockholders, directors, and officers knew of the contract and they retained plaintiff without
implementing any new contracts. The defendant appealed the decision.
DISCUSSION
The court affirmed judgment, holding that while defendant was not bound by the contract made by its promoter
before its organization, after its organization, it made the contract on its own by acquiescing in plaintiff's
employment by retaining him without other contracts.
CONCLUSION
Denial of defendant's request for a new trial on plaintiff's claims of breach of employment contract affirmed. Court
held while defendant was not bound by contracts made by promoters before organization of corporation; after
organization, it made the contract its own by acquiescing in plaintiff's employment and retaining him without

other contracts. - See more at: http://www.lawschoolcasebriefs.net/2013/11/mcarthur-v-times-printing-co-casebrief.html#sthash.PXG00dIg.dpuf

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-48627 June 30, 1987
FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners
vs.
THE HONORABLE COURT OF APPEALS and ALBERTO V. ARELLANO, respondents.

CRUZ, J.:
We gave limited due course to this petition on the question of the solidary liability of the petitioners
with their co-defendants in the lower court 1 because of the challenge to the following paragraph in the dispositive portion of
the decision of the respondent court: *

1. Defendants are hereby ordered to jointly and severally pay the plaintiff the amount
of P50,000.00 for the preparation of the project study and his technical services that
led to the organization of the defendant corporation, plus P10,000.00 attorney's
fees; 2

The petitioners claim that this order has no support in fact and law because they had no contract
whatsoever with the private respondent regarding the above-mentioned services. Their position is
that as mere subsequent investors in the corporation that was later created, they should not be held
solidarily liable with the Filipinas Orient Airways, a separate juridical entity, and with Barretto and
Garcia, their co-defendants in the lower court, ** who were the ones who requested the said services from the private
respondent. 3

We are not concerned here with the petitioners' co-defendants, who have not appealed the decision
of the respondent court and may, for this reason, be presumed to have accepted the same. For
purposes of resolving this case before us, it is not necessary to determine whether it is the
promoters of the proposed corporation, or the corporation itself after its organization, that shall be
responsible for the expenses incurred in connection with such organization.
The only question we have to decide now is whether or not the petitioners themselves
are also and personallyliable for such expenses and, if so, to what extent.
The reasons for the said order are given by the respondent court in its decision in this wise:
As to the 4th assigned error we hold that as to the remuneration due the plaintiff for
the preparation of the project study and the pre-organizational services in the amount
of P50,000.00, not only the defendant corporation but the other defendants including
defendants Caram should be jointly and severally liable for this amount. As we above
related it was upon the request of defendants Barretto and Garcia that plaintiff
handled the preparation of the project study which project study was presented to
defendant Caram so the latter was convinced to invest in the proposed airlines. The
project study was revised for purposes of presentation to financiers and the banks. It
was on the basis of this study that defendant corporation was actually organized and
rendered operational. Defendants Garcia and Caram, and Barretto became members
of the Board and/or officers of defendant corporation. Thus, not only the defendant
corporation but all the other defendants who were involved in the preparatory stages
of the incorporation, who caused the preparation and/or benefited from the project
study and the technical services of plaintiff must be liable. 4
It would appear from the above justification that the petitioners were not really involved in the initial
steps that finally led to the incorporation of the Filipinas Orient Airways. Elsewhere in the decision,
Barretto was described as "the moving spirit." The finding of the respondent court is that the project
study was undertaken by the private respondent at the request of Barretto and Garcia who, upon its
completion, presented it to the petitioners to induce them to invest in the proposed airline. The study
could have been presented to other prospective investors. At any rate, the airline was eventually
organized on the basis of the project study with the petitioners as major stockholders and, together
with Barretto and Garcia, as principal officers.
The following portion of the decision in question is also worth considering:
... Since defendant Barretto was the moving spirit in the pre-organization work of
defendant corporation based on his experience and expertise, hence he was logically
compensated in the amount of P200,000.00 shares of stock not as industrial partner
but more for his technical services that brought to fruition the defendant corporation.
By the same token, We find no reason why the plaintiff should not be similarly
compensated not only for having actively participated in the preparation of the project
study for several months and its subsequent revision but also in his having been
involved in the pre-organization of the defendant corporation, in the preparation of

the franchise, in inviting the interest of the financiers and in the training and
screening of personnel. We agree that for these special services of the plaintiff the
amount of P50,000.00 as compensation is reasonable. 5
The above finding bolsters the conclusion that the petitioners were not involved in the initial stages
of the organization of the airline, which were being directed by Barretto as the main promoter. It was
he who was putting all the pieces together, so to speak. The petitioners were merely among the
financiers whose interest was to be invited and who were in fact persuaded, on the strength of the
project study, to invest in the proposed airline.
Significantly, there was no showing that the Filipinas Orient Airways was a fictitious corporation and
did not have a separate juridical personality, to justify making the petitioners, as principal
stockholders thereof, responsible for its obligations. As a bona fide corporation, the Filipinas Orient
Airways should alone be liable for its corporate acts as duly authorized by its officers and directors.
In the light of these circumstances, we hold that the petitioners cannot be held personally liable for
the compensation claimed by the private respondent for the services performed by him in the
organization of the corporation. To repeat, the petitioners did not contract such services. It was only
the results of such services that Barretto and Garcia presented to them and which persuaded them
to invest in the proposed airline. The most that can be said is that they benefited from such services,
but that surely is no justification to hold them personally liable therefor. Otherwise, all the other
stockholders of the corporation, including those who came in later, and regardless of the amount of
their share holdings, would be equally and personally liable also with the petitioners for the claims of
the private respondent.
The petition is rather hazy and seems to be flawed by an ambiguous ambivalence. Our impression is
that it is opposed to the imposition of solidary responsibility upon the Carams but seems to be
willing, in a vague, unexpressed offer of compromise, to accept joint liability. While it is true that it
does here and there disclaim total liability, the thrust of the petition seems to be against the
imposition of solidary liability only rather than against any liability at all, which is what it should have
categorically argued.
Categorically, the Court holds that the petitioners are not liable at all, jointly or jointly and severally,
under the first paragraph of the dispositive portion of the challenged decision. So holding, we find it
unnecessary to examine at this time the rules on solidary obligations, which the parties-needlessly,
as it turns out have belabored unto death.
WHEREFORE, the petition is granted. The petitioners are declared not liable under the challenged
decision, which is hereby modified accordingly. It is so ordered.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-20993

September 28, 1968

RIZAL LIGHT & ICE CO., INC., petitioner,

vs.
THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC SERVICE
COMMISSION, respondents.
---------------------------G.R. No. L-21221

September 28, 1968

RIZAL LIGHT & ICE CO., INC., petitioner,

vs.
THE PUBLIC SERVICE COMMISSION and MORONG ELECTRIC CO., INC., respondents.
Amado A. Amador, Jr. for petitioner.
Atilano C. Bautista and Pompeyo F. Olivas for respondents.

ZALDIVAR, J.:
These two cases, being interrelated, are decided together.
Case G.R. No. L-20993 is a petition of the Rizal Light & Ice Co., Inc. to review and set aside the
orders of respondent Public Service Commission, 1 dated August 20, 1962, and February 15, 1963, in
PSC Case No. 39716, cancelling and revoking the certificate of public convenience and necessity
and forfeiting the franchise of said petitioner. In the same petition, the petitioner prayed for the
issuance of a writ of preliminary injunction ex parte suspending the effectivity of said orders and/or
enjoining respondents Commission and/or Municipality of Morong, Rizal, from enforcing in any way
the cancellation and revocation of petitioner's franchise and certificate of public convenience during
the pendency of this appeal. By resolution of March 12, 1963, this Court denied the petition for
injunction, for lack of merit.

Case G. R. L-21221 is likewise a petition of the Rizal Light & Ice Co., Inc. to review and set aside the
decision of the Commission dated March 13, 1963 in PSC Case No. 62-5143 granting a certificate of
public convenience and necessity to respondent Morong Electric Co., Inc. 2 to operate an electric
light, heat and power service in the municipality of Morong, Rizal. In the petition Rizal Light & Ice
Co., Inc. also prayed for the issuance of a writ of preliminary injunction ex parte suspending the
effectivity of said decision. Per resolution of this Court, dated May 6, 1963, said petition for injunction
was denied.
The facts, as they appear in the records of both cases, are as follows:
Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with business address at Morong,
Rizal. On August 15, 1949, it was granted by the Commission a certificate of public convenience and
necessity for the installation, operation and maintenance of an electric light, heat and power service
in the municipality of Morong, Rizal.
In an order dated December 19, 1956, the Commission required the petitioner to appear before it on
February 18, 1957 to show cause why it should not be penalized for violation of the conditions of its
certificate of public convenience and the regulations of the Commission, and for failure to comply
with the directives to raise its service voltage and maintain them within the limits prescribed in the
Revised Order No. 1 of the Commission, and to acquire and install a kilowattmeter to indcate the
load in kilowatts at any particular time of the generating unit. 3
For failure of the petitioner to appear at the hearing on February 18, 1957, the Commission ordered
the cancellation and revocation of petitioner's certificate of public convenience and necessity and the
forfeiture of its franchise. Petitioner moved for reconsideration of said order on the ground that its
manager, Juan D. Francisco, was not aware of said hearing. Respondent municipality opposed the
motion alleging that petitioner has not rendered efficient and satisfactory service and has not
complied with the requirements of the Commission for the improvement of its service. The motion
was set for hearing and Mr. Pedro S. Talavera, Chief, Industrial Division of the Commission, was
authorized to conduct the hearing for the reception of the evidence of the parties. 4
Finding that the failure of the petitioner to appear at the hearing set for February 18, 1957 the sole
basis of the revocation of petitioner's certificate was really due to the illness of its manager, Juan
D. Francisco, the Commission set aside its order of revocation. Respondent municipality moved for
reconsideration of this order of reinstatement of the certificate, but the motion was denied.
In a petition dated June 25, 1958, filed in the same case, respondent municipality formally asked the
Commission to revoke petitioner's certificate of public convenience and to forfeit its franchise on the
ground, among other things, that it failed to comply with the conditions of said certificate and
franchise. Said petition was set for hearing jointly with the order to show cause. The hearings had
been postponed several times.
Meanwhile, inspections had been made of petitioner's electric plant and installations by the
engineers of the Commission, as follows: April 15, 1958 by Engineer Antonio M. Alli; September 18,
1959, July 12-13, 1960, and June 21-24, 1961, by Engineer Meliton S. Martinez. The inspection on
June 21-24, 1961 was made upon the request of the petitioner who manifested during the hearing
on December 15, 1960 that improvements have been made on its service since the inspection on
July 12-13, 1960, and that, on the basis of the inspection report to be submitted, it would agree to
the submission of the case for decision without further hearing.

When the case was called for hearing on July 5, 1961, petitioner failed to appear. Respondent
municipality was then allowed to present its documentary evidence, and thereafter the case was
submitted for decision.
On July 7, 1961, petitioner filed a motion to reopen the case upon the ground that it had not been
furnished with a copy of the report of the June 21-24, 1961 inspection for it to reply as previously
agreed. In an order dated August 25, 1961, petitioner was granted a period of ten (10) days within
which to submit its written reply to said inspection report, on condition that should it fail to do so
within the said period the case would be considered submitted for decision. Petitioner failed to file
the reply. In consonance with the order of August 25, 1961, therefore, the Commission proceeded to
decide the case. On July 29, 1962 petitioner's electric plant was burned.
In its decision, dated August 20, 1962, the Commission, on the basis of the inspection reports of its
aforenamed engineers, found that the petitioner had failed to comply with the directives contained in
its letters dated May 21, 1954 and September 4, 1954, and had violated the conditions of its
certificate of public convenience as well as the rules and regulations of the Commission. The
Commission concluded that the petitioner "cannot render the efficient, adequate and satisfactory
electric service required by its certificate and that it is against public interest to allow it to continue its
operation." Accordingly, it ordered the cancellation and revocation of petitioner's certificate of public
convenience and the forfeiture of its franchise.
On September 18, 1962, petitioner moved for reconsideration of the decision, alleging that before its
electric plant was burned on July 29, 1962, its service was greatly improved and that it had still
existing investment which the Commission should protect. But eight days before said motion for
reconsideration was filed, or on September 10, 1962, Morong Electric, having been granted a
municipal franchise on May 6, 1962 by respondent municipality to install, operate and maintain an
electric heat, light and power service in said municipality approved by the Provincial Board of
Rizal on August 31, 1962 filed with the Commission an application for a certificate of public
convenience and necessity for said service. Said application was entitled "Morong Electric Co., Inc.,
Applicant", and docketed as Case No. 62-5143.
Petitioner opposed in writing the application of Morong Electric, alleging among other things, that it is
a holder of a certificate of public convenience to operate an electric light, heat and power service in
the same municipality of Morong, Rizal, and that the approval of said application would not promote
public convenience, but would only cause ruinous and wasteful competition. Although the opposition
is dated October 6, 1962, it was actually received by the Commission on November 8, 1962, or
twenty four days after the order of general default was issued in open court when the application
was first called for hearing on October 15, 1962. On November 12, 1962, however, the petitioner
filed a motion to lift said order of default. But before said motion could be resolved, petitioner filed
another motion, dated January 4, 1963, this time asking for the dismissal of the application upon the
ground that applicant Morong Electric had no legal personality when it filed its application on
September 10, 1962, because its certificate of incorporation was issued by the Securities and
Exchange Commission only on October 17, 1962. This motion to dismiss was denied by the
Commission in a formal order issued on January 17, 1963 on the premise that applicant Morong
Electric was a de facto corporation. Consequently, the case was heard on the merits and both
parties presented their respective evidence. On the basis of the evidence adduced, the Commission,
in its decision dated March 13, 1963, found that there was an absence of electric service in the
municipality of Morong and that applicant Morong Electric, a Filipino-owned corporation duly
organized and existing under the laws of the Philippines, has the financial capacity to maintain said
service. These circumstances, considered together with the denial of the motion for reconsideration
filed by petitioner in Case No. 39715 on February, 15, 1963, such that as far as the Commission was
concerned the certificate of the petitioner was already declared revoked and cancelled, the

Commission approved the application of Morong Electric and ordered the issuance in its favor of the
corresponding certificate of public convenience and necessity.
1awphl.nt

On March 8, 1963, petitioner filed with this Court a petition to review the decision in Case No. 39715
(now G. R. No. L-20993). Then on April 26, 1963, petitioner also filed a petition to review the
decision in Case No. 62-5143 (now G. R. No. L-21221).
In questioning the decision of the Commission in Case No. 39715, petitioner contends: (1) that the
Commission acted without or in excess of its jurisdiction when it delegated the hearing of the case
and the reception of evidence to Mr. Pedro S. Talavera who is not allowed by law to hear the same;
(2) that the cancellation of petitioner's certificate of public convenience was unwarranted because no
sufficient evidence was adduced against the petitioner and that petitioner was not able to present
evidence in its defense; (3) that the Commission failed to give protection to petitioner's investment;
and (4) that the Commission erred in imposing the extreme penalty of revocation of the certificate.
In questioning the decision in Case No. 62-5143, petitioner contends: (1) that the Commission erred
in denying petitioner's motion to dismiss and proceeding with the hearing of the application of the
Morong Electric; (2) that the Commission erred in granting Morong Electric a certificate of public
convenience and necessity since it is not financially capable to render the service; (3) that the
Commission erred when it made findings of facts that are not supported by the evidence adduced by
the parties at the trial; and (4) that the Commission erred when it did not give to petitioner protection
to its investment a reiteration of the third assignment of error in the other case.
1awphl.nt

We shall now discuss the appeals in these two cases separately.

G.R. No. L-20993
1. Under the first assignment of error, petitioner contends that while Mr. Pedro S. Talavera, who
conducted the hearings of the case below, is a division chief, he is not a lawyer. As such, under
Section 32 of Commonwealth Act No. 146, as amended, the Commission should not have delegated
to him the authority to conduct the hearings for the reception of evidence of the parties.
We find that, really, Mr. Talavera is not a lawyer. 5 Under the second paragraph of Section 32 of
Commonwealth Act No. 146, as amended, 6 the Commission can only authorize a division chief to
hear and investigate a case filed before it if he is a lawyer. However, the petitioner is raising this
question for the first time in this appeal. The record discloses that petitioner never made any
objection to the authority of Mr. Talavera to hear the case and to receive the evidence of the parties.
On the contrary, we find that petitioner had appeared and submitted evidence at the hearings
conducted by Mr. Talavera, particularly the hearings relative to the motion for reconsideration of the
order of February 18, 1957 cancelling and revoking its certificate. We also find that, through counsel,
petitioner had entered into agreements with Mr. Talavera, as hearing officer, and the counsel for
respondent municipality, regarding procedure in order to abbreviate the proceedings. 7 It is only after
the decision in the case turned out to be adverse to it that petitioner questioned the proceedings held
before Mr. Talavera.
This Court in several cases has ruled that objection to the delegation of authority to hear a case filed
before the Commission and to receive the evidence in connection therewith is a procedural, not a
jurisdictional point, and is waived by failure to interpose timely the objection and the case had been
decided by the Commission. 8 Since petitioner has never raised any objection to the authority of Mr.
Talavera before the Commission, it should be deemed to have waived such procedural defect, and
consonant with the precedents on the matter, petitioner's claim that the Commission acted without or
in excess of jurisdiction in so authorizing Mr. Talavera should be dismissed. 9

2. Anent the second assigned error, the gist of petitioner's contention is that the evidence
consisting of inspection reports upon which the Commission based its decision is insufficient and
untrustworthy in that (1) the authors of said reports had not been put to test by way of crossexamination; (2) the reports constitute only one side of the picture as petitioner was not able to
present evidence in its defense; (3) judicial notice was not taken of the testimony of Mr. Harry B.
Bernardino, former mayor of respondent municipality, in PSC Case No. 625143 (the other case, G.
R. No. L-21221) to the effect that the petitioner had improved its service before its electric power
plant was burned on July 29, 1962 which testimony contradicts the inspection reports; and (4) the
Commission acted both as prosecutor and judge passing judgment over the very same evidence
presented by it as prosecutor a situation "not conducive to the arrival at just and equitable
decisions."
Settled is the rule that in reviewing the decision of the Public Service Commission this Court is not
required to examine the proof de novo and determine for itself whether or not the preponderance of
evidence really justifies the decision. The only function of this Court is to determine whether or not
there is evidence before the Commission upon which its decision might reasonably be based. This
Court will not substitute its discretion for that of the Commission on questions of fact and will not
interfere in the latter's decision unless it clearly appears that there is no evidence to support
it. 10 Inasmuch as the only function of this Court in reviewing the decision of the Commission is to
determine whether there is sufficient evidence before the Commission upon which its decision can
reasonably be based, as it is not required to examine the proof de novo, the evidence that should be
made the basis of this Court's determination should be only those presented in this case before the
Commission. What then was the evidence presented before the Commission and made the basis of
its decision subject of the present appeal? As stated earlier, the Commission based its decision on
the inspection reports submitted by its engineers who conducted the inspection of petitioner's electric
service upon orders of the Commission. 11 Said inspection reports specify in detail the deficiencies
incurred, and violations committed, by the petitioner resulting in the inadequacy of its service. We
consider that said reports are sufficient to serve reasonably as bases of the decision in question. It
should be emphasized, in this connection that said reports, are not mere documentary proofs
presented for the consideration of the Commission, but are the results of the Commission's own
observations and investigations which it can rightfully take into consideration, 12 particularly in this
case where the petitioner had not presented any evidence in its defense, and speaking of petitioner's
failure to present evidence, as well as its failure to cross-examine the authors of the inspection
reports, petitioner should not complain because it had waived not only its right to cross-examine but
also its right to present evidence. Quoted hereunder are the pertinent portions of the transcripts of
the proceedings where the petitioner, through counsel, manifested in clear language said waiver and
its decision to abide by the last inspection report of Engineer Martinez:
Proceedings of December 15, 1960
COMMISSION:
It appears at the last hearing of this case on September 23, 1960, that an engineer of this
Commission has been ordered to make an inspection of all electric services in the province of Rizal
and on that date the engineer of this Commission is still undertaking that inspection and it appears
that the said engineer had actually made that inspection on July 12 and 13, 1960. The engineer has
submitted his report on November 18, 1960 which is attached to the records of this case.
ATTY. LUQUE (Councel for Petitioner):
... (W)e respectfully state that while the report is, as I see it attached to the records, clear and very
thorough, it was made sometime July of this year and I understand from the respondent that there is

some improvement since this report was made ... we respectfully request that an up-to-date
inspection be made ... . An inspector of this Commission can be sent to the plant and considering
that the engineer of this Commission, Engineer Meliton Martinez, is very acquainted to the points
involved we pray that his report will be used by us for the reason that he is a technical man and he
knows well as he has done a good job and I think our proposition would expedite the matter. We
sincerely believe that the inspection report will be the best evidence to decide this matter.
xxx

xxx

xxx

ATTY. LUQUE:
... This is a very important matter and to show the good faith of respondent in this case we will not
even cross-examine the engineer when he makes a new report. We will agree to the findings and,
your honor please, considering as we have manifested before that Engineer Martinez is an
experienced engineer of this Commission and the points reported by Engineer Martinez on the
situation of the plant now will prevent the necessity of having a hearing, of us bringing new evidence
and complainant bringing new evidence. ... .
xxx

xxx

xxx

COMMISSION (to Atty. Luque):

Q
Does the Commission understand from the counsel for applicant that if the motion is
granted he will submit this order to show cause for decision without any further hearing and
the decision will be based on the report of the engineer of this Commission?
A
We respectfully reply in this manner that we be allowed or be given an opportunity
just to read the report and 99%, we will agree that the report will be the basis of that
decision. We just want to find out the contents of the report, however, we request that we be
furnished with a copy of the report before the hearing so that we will just make a
manifestation that we will agree.
COMMISSION (to Atty. Luque):
Q
In order to prevent the delay of the disposition of this case the Commission will allow
counsel for the applicant to submit his written reply to the report that the engineer of this
Commission. Will he submit this case without further hearing upon the receipt of that written
reply?
A

Yes, your honor.

Proceedings of August 25, 1961

ATTY. LUQUE (Counsel for petitioner):
In order to avoid any delay in the consideration of this case we are respectfully move (sic) that
instead of our witnesses testifying under oath that we will submit a written reply under oath together
with the memorandum within fifteen (15) days and we will furnish a copy and upon our submission of
said written reply under oath and memorandum we consider this case submitted. This suggestion is
to abbreviate the necessity of presenting witnesses here which may prolong the resolution of this
case.

ATTY. OLIVAS (Counsel for respondent municipality):

I object on the ground that there is no resolution by this Commission on the action to reopen the
case and second this case has been closed.
ATTY. LUQUE:
With regard to the testimony on the ground for opposition we respectfully submit to this Commission
our motion to submit a written reply together with a memorandum. Also as stated to expedite the
case and to avoid further hearing we will just submit our written reply. According to our records we
are furnished with a copy of the report of July 17, 1961. We submit your honor.
xxx

xxx

xxx

COMMISSION:
To give applicant a chance to have a day in court the Commission grants the request of applicant
that it be given 10 days within which to submit a written reply on the report of the engineer of the
Commission who inspected the electric service, in the municipality of Morong, Rizal, and after the
submission of the said written reply within 10 days from today this case will be considered submitted
for decision.
The above-quoted manifestation of counsel for the petitioner, specifically the statement referring to
the inspection report of Engineer Martinez as the "best evidence to decide this matter," can serve as
an argument against petitioner's claim that the Commision should have taken into consideration the
testimony of Mr. Bernardino. But the primary reasons why the Commission could not have taken
judicial cognizance of said testimony are: first, it is not a proper subject of judicial notice, as it is not a
"known" fact that is, well established and authoritatively settled, without qualification and
contention; 13 second, it was given in a subsequent and distinct case after the petitioner's motion for
reconsideration was heard by the Commission en banc and submitted for decision, 14 and third, it was
not brought to the attention of the Commission in this case through an appropriate pleading. 15
Regarding the contention of petitioner that the Commission had acted both as prosecutor and judge,
it should be considered that there are two matters that had to be decided in this case, namely, the
order to show cause dated December 19, 1956, and the petition or complaint by respondent
municipality dated June 25, 1958. Both matters were heard jointly, and the record shows that
respondent municipality had been allowed to present its evidence to substantiate its complaint. It can
not be said, therefore, that in this case the Commission had acted as prosecutor and judge. But
even assuming, for the sake of argument, that there was a commingling of the prosecuting and
investigating functions, this exercise of dual function is authorized by Section 17(a) of
Commonwealth Act No. 146, as amended, under which the Commission has power "to investigate,
upon its own initiative or upon complaint in writing, any matter concerning any public service as
regards matters under its jurisdiction; to, require any public service to furnish safe, adequate, and
proper service as the public interest may require and warrant; to enforce compliance with any
standard, rule, regulation, order or other requirement of this Act or of the Commission ... ." Thus, in
the case of Collector of Internal Revenue vs. Estate of F. P. Buan, L-11438, July 31, 1958, this Court
held that the power of the Commission to cancel and revoke a certificate of public convenience and
necessity may be exercised by it even without a formal charge filed by any interested party, with the
only limitation that the holder of the certificate should be given his day in court.
It may not be amiss to add that when prosecuting and investigating duties are delegated by statute
to an administrative body, as in the case of the Public Service Commission, said body may take

steps it believes appropriate for the proper exercise of said duties, particularly in the manner of
informing itself whether there is probable violation of the law and/or its rules and regulations. It may
initiate an investigation, file a complaint, and then try the charge as preferred. So long as the
respondent is given a day in court, there can be no denial of due process, and objections to said
procedure cannot be sustained.
3. In its third assignment of error, petitioner invokes the "protection-of-investment rule" enunciated by
this Court inBatangas Transportation Co. vs. Orlanes 16 in this wise:
The Government having taken over the control and supervision of all public utilities, so long
as an operator under a prior license complies with the terms and conditions of his license
and reasonable rules and regulations for its operation and meets the reasonable demands of
the public, it is the duty of the Commission to protect rather than to destroy his investment by
the granting of the second license to another person for the same thing over the same route
of travel. The granting of such a license does not serve its convenience or promote the
interests of the public.
The above-quoted rule, however, is not absolute, for nobody has exclusive right to secure a
franchise or a certificate of public convenience. 17 Where, as in the present case, it has been shown
by ample evidence that the petitioner, despite ample time and opportunity given to it by the
Commission, had failed to render adequate, sufficient and satisfactory service and had violated the
important conditions of its certificate as well as the directives and the rules and regulations of the
Commission, the rule cannot apply. To apply that rule unqualifiedly is to encourage violation or
disregard of the terms and conditions of the certificate and the Commission's directives and
regulations, and would close the door to other applicants who could establish, operate and provide
adequate, efficient and satisfactory service for the benefit and convenience of the inhabitants. It
should be emphasized that the paramount consideration should always be the public interest and
public convenience. The duty of the Commission to protect investment of a public utility operator
refers only to operators of good standing those who comply with the laws, rules and regulations
and not to operators who are unconcerned with the public interest and whose investments have
failed or deteriorated because of their own fault. 18
4. The last assignment of error assails the propriety of the penalty imposed by the Commission on
the petitioner that is, the revocation of the certificate and the forfeiture of the franchise. Petitioner
contends that the imposition of a fine would have been sufficient, as had been done by the
Commission in cases of a similar nature.
It should be observed that Section 16(n) of Commonwealth Act No. 146, as amended, confers upon
the Commission ample power and discretion to order the cancellation and revocation of any
certificate of public convenience issued to an operator who has violated, or has willfully and
contumaciously refused to comply with, any order, rule or regulation of the Commission or any
provision of law. What matters is that there is evidence to support the action of the Commission. In
the instant case, as shown by the evidence, the contumacious refusal of the petitioner since 1954 to
comply with the directives, rules and regulations of the Commission, its violation of the conditions of
its certificate and its incapability to comply with its commitment as shown by its inadequate service,
were the circumstances that warranted the action of the Commission in not merely imposing a fine
but in revoking altogether petitioner's certificate. To allow petitioner to continue its operation would
be to sacrifice public interest and convenience in favor of private interest.
A grant of a certificate of public convenience confers no property rights but is a mere license
or privilege, and such privilege is forfeited when the grantee fails to comply with his
commitments behind which lies the paramount interest of the public, for public necessity

cannot be made to wait, nor sacrificed for private convenience. (Collector of Internal
Revenue v. Estate of F. P. Buan, et al., L-11438 and Santiago Sambrano, et al. v. PSC, et al.,
L-11439 & L-11542-46, July 31, 1958)
(T)he Public Service Commission, ... has the power to specify and define the terms and
conditions upon which the public utility shall be operated, and to make reasonable rules and
regulations for its operation and the compensation which the utility shall receive for its
services to the public, and for any failure to comply with such rules and regulations or the
violation of any of the terms and conditions for which the license was granted, the
Commission has ample power to enforce the provisions of the license or even to revoke it,
for any failure or neglect to comply with any of its terms and provisions. (Batangas Trans. Co.
v. Orlanes, 52 Phil. 455, 460; emphasis supplied)
Presumably, the petitioner has in mind Section 21 of Commonwealth Act No. 146, as amended,
which provides that a public utility operator violating or failing to comply with the terms and
conditions of any certificate, or any orders, decisions or regulations of the Commission, shall be
subject to a fine and that the Commission is authorized and empowered to impose such fine, after
due notice and hearing. It should be noted, however, that the last sentence of said section states
that the remedy provided therein "shall not be a bar to, or affect any other remedy provided in this
Act but shall be cumulative and additional to such remedy or remedies." In other words, the
imposition of a fine may only be one of the remedies which the Commission may resort to, in its
discretion. But that remedy is not exclusive of, or has preference over, the other remedies. And this
Court will not substitute its discretion for that of the Commission, as long as there is evidence to
support the exercise of that discretion by the Commission.
G. R. No. L-21221
Coming now to the other case, let it be stated at the outset that before any certificate may be
granted, authorizing the operation of a public service, three requisites must be complied with,
namely: (1) the applicant must be a citizen of the Philippines or of the United States, or a corporation
or co-partnership, association or joint-stock company constituted and organized under the laws of
the Philippines, sixty per centum at least of the stock or paid-up capital of which belongs entirely to
citizens of the Philippines or of the United States; 19 (2) the applicant must be financially capable of
undertaking the proposed service and meeting the responsibilities incident to its operation; 20 and (3)
the applicant must prove that the operation of the public service proposed and the authorization to
do business will promote the public interest in a proper and suitable manner. 21
As stated earlier, in the decision appealed from, the Commission found that Morong Electric is a
corporation duly organized and existing under the laws of the Philippines, the stockholders of which
are Filipino citizens, that it is financially capable of operating an electric light, heat and power
service, and that at the time the decision was rendered there was absence of electric service in
Morong, Rizal. While the petitioner does not dispute the need of an electric service in Morong,
Rizal, 22 it claims, in effect, that Morong Electric should not have been granted the certificate of public
convenience and necessity because (1) it did not have a corporate personality at the time it was
granted a franchise and when it applied for said certificate; (2) it is not financially capable of
undertaking an electric service, and (3) petitioner was rendering efficient service before its electric
plant was burned, and therefore, being a prior operator its investment should be protected and no
new party should be granted a franchise and certificate of public convenience and necessity to
operate an electric service in the same locality.
1. The bulk of petitioner's arguments assailing the personality of Morong Electric dwells on the
proposition that since a franchise is a contract, 23 at least two competent parties are necessary to the

execution thereof, and parties are not competent except when they are in being. Hence, it is
contended that until a corporation has come into being, in this jurisdiction, by the issuance of a
certificate of incorporation by the Securities and Exchange Commission (SEC) it cannot enter into
any contract as a corporation. The certificate of incorporation of the Morong Electric was issued by
the SEC on October 17, 1962, so only from that date, not before, did it acquire juridical personality
and legal existence. Petitioner concludes that the franchise granted to Morong Electric on May 6,
1962 when it was not yet in esse is null and void and cannot be the subject of the Commission's
consideration. On the other hand, Morong Electric argues, and to which argument the Commission
agrees, that it was a de factocorporation at the time the franchise was granted and, as such, it was
not incapacitated to enter into any contract or to apply for and accept a franchise. Not having been
incapacitated, Morong Electric maintains that the franchise granted to it is valid and the approval or
disapproval thereof can be properly determined by the Commission.
Petitioner's contention that Morong Electric did not yet have a legal personality on May 6, 1962 when
a municipal franchise was granted to it is correct. The juridical personality and legal existence of
Morong Electric began only on October 17, 1962 when its certificate of incorporation was issued by
the SEC. 24 Before that date, or pending the issuance of said certificate of incorporation, the
incorporators cannot be considered as de facto corporation.25 But the fact that Morong Electric had
no corporate existence on the day the franchise was granted in its name does not render the
franchise invalid, because later Morong Electric obtained its certificate of incorporation and then
accepted the franchise in accordance with the terms and conditions thereof. This view is sustained
by eminent American authorities. Thus, McQuiuin says:
The fact that a company is not completely incorporated at the time the grant is made to it by
a municipality to use the streets does not, in most jurisdictions, affect the validity of the grant.
But such grant cannot take effect until the corporation is organized. And in Illinois it has been
decided that the ordinance granting the franchise may be presented before the corporation
grantee is fully organized, where the organization is completed before the passage and
acceptance. (McQuillin, Municipal Corporations, 3rd Ed., Vol. 12, Chap. 34, Sec. 34.21)
Fletcher says:
While a franchise cannot take effect until the grantee corporation is organized, the franchise
may, nevertheless, be applied for before the company is fully organized.
A grant of a street franchise is valid although the corporation is not created until afterwards.
(Fletcher, Cyclopedia Corp. Permanent Edition, Rev. Vol. 6-A, Sec. 2881)
And Thompson gives the reason for the rule:
(I)n the matter of the secondary franchise the authorities are numerous in support of the
proposition that an ordinance granting a privilege to a corporation is not void because the
beneficiary of the ordinance is not fully organized at the time of the introduction of the
ordinance. It is enough that organization is complete prior to the passage and acceptance of
the ordinance. The reason is that a privilege of this character is a mere license to the
corporation until it accepts the grant and complies with its terms and conditions. (Thompson
on Corporations, Vol. 4, 3rd Ed., Sec. 2929) 26
The incorporation of Morong Electric on October 17, 1962 and its acceptance of the franchise as
shown by its action in prosecuting the application filed with the Commission for the approval of said
franchise, not only perfected a contract between the respondent municipality and Morong Electric
but also cured the deficiency pointed out by the petitioner in the application of Morong EIectric. Thus,

the Commission did not err in denying petitioner's motion to dismiss said application and in
proceeding to hear the same. The efficacy of the franchise, however, arose only upon its approval by
the Commission on March 13, 1963. The reason is that
Under Act No. 667, as amended by Act No. 1022, a municipal council has the power to grant
electric franchises, subject to the approval of the provincial board and the President.
However, under Section 16(b) of Commonwealth Act No. 146, as amended, the Public
Service Commission is empowered "to approve, subject to constitutional limitations any
franchise or privilege granted under the provisions of Act No. 667, as amended by Act No.
1022, by any political subdivision of the Philippines when, in the judgment of the
Commission, such franchise or privilege will properly conserve the public interests and the
Commission shall in so approving impose such conditions as to construction, equipment,
maintenance, service, or operation as the public interests and convenience may reasonably
require, and to issue certificates of public convenience and necessity when such is required
or provided by any law or franchise." Thus, the efficacy of a municipal electric franchise
arises, therefore, only after the approval of the Public Service Commission. (Almendras vs.
Ramos, 90 Phil. 231) .
The conclusion herein reached regarding the validity of the franchise granted to Morong Electric is
not incompatible with the holding of this Court in Cagayan Fishing Development Co., Inc. vs.
Teodoro Sandiko 27upon which the petitioner leans heavily in support of its position. In said case this
Court held that a corporation should have a full and complete organization and existence as an
entity before it can enter into any kind of a contract or transact any business. It should be pointed
out, however, that this Court did not say in that case that the rule is absolute or that under no
circumstances may the acts of promoters of a corporation be ratified or accepted by the corporation
if and when subsequently organized. Of course, there are exceptions. It will be noted that American
courts generally hold that a contract made by the promoters of a corporation on its behalf may be
adopted, accepted or ratified by the corporation when organized. 28
2. The validity of the franchise and the corporate personality of Morong Electric to accept the same
having been shown, the next question to be resolved is whether said company has the financial
qualification to operate an electric light, heat and power service. Petitioner challenges the financial
capability of Morong Electric, by pointing out the inconsistencies in the testimony of Mr. Jose P. Ingal,
president of said company, regarding its assets and the amount of its initial investment for the
electric plant. In this connection it should be stated that on the basis of the evidence presented on
the matter, the Commission has found the Morong Electric to be "financially qualified to install,
maintain and operate the proposed electric light, heat and power service." This is essentially a
factual determination which, in a number of cases, this Court has said it will not disturb unless
patently unsupported by evidence. An examination of the record of this case readily shows that the
testimony of Mr. Ingal and the documents he presented to establish the financial capability of
Morong Electric provide reasonable grounds for the above finding of the Commission.
It is now a very well-settled rule in this jurisdiction that the findings and conclusions of fact
made by the Public Service Commission, after weighing the evidence adduced by the parties
in a public service case, will not be disturbed by the Supreme Court unless those findings
and conclusions appear not to be reasonably supported by evidence. (La Mallorca and
Pampanga Bus Co. vs. Mercado, L-19120, November 29, 1965)
For purposes of appeal, what is decisive is that said testimonial evidence provides
reasonable support for the Public Service Commission's findings of financial capacity on the
part of applicants, rendering such findings beyond our power to disturb. (Del Pilar Transit vs.
Silva, L-21547, July 15, 1966)

It may be worthwhile to mention in this connection that per inspection report dated January 20,
1964 29 of Mr. Meliton Martinez of the Commission, who inspected the electric service of Morong on
January 15-16, 1964, Morong Electric "is serving electric service to the entire area covered by its
approved plan and has constructed its line in accordance with the plans and specifications approved
by the Commission." By reason thereof, it was recommended that the requests of Morong Electric
(1) for the withdrawal of its deposit in the amount of P1,000.00 with the Treasurer of the Philippines,
and (2) for the approval of Resolution No. 160 of the Municipal Council of Morong, Rizal, exempting
the operator from making the additional P9,000.00 deposit mentioned in its petition, dated
September 16, 1963, be granted. This report removes any doubt as to the financial capability of
Morong Electric to operate and maintain an electric light, heat and power service.
3. With the financial qualification of Morong Electric beyond doubt, the remaining question to be
resolved is whether, or not, the findings of fact of the Commission regarding petitioner's service are
supported by evidence. It is the contention of the petitioner that the Commission made some findings
of fact prejudicial to its position but which do not find support from the evidence presented in this
case. Specifically, petitioner refers to the statements or findings that its service had "turned from bad
to worse," that it miserably failed to comply with the oft-repeated promises to bring about the needed
improvement, that its equipment is unserviceable, and that it has no longer any plant site and,
therefore, has discredited itself. Petitioner further states that such statements are not only devoid of
evidentiary support but contrary to the testimony of its witness, Mr. Harry Bernardino, who testified
that petitioner was rendering efficient and satisfactory service before its electric plant was burned on
July 29, 1962.
On the face of the decision appealed from, it is obvious that the Commission in describing the kind of
service petitioner was rendering before its certificate was ordered revoked and cancelled, took
judicial notice of the records of the previous case (PSC Case No. 39715) where the quality of
petitioner's service had been squarely put in issue. It will be noted that the findings of the
Commission were made notwithstanding the fact that the aforementioned testimony of Mr.
Bernardino had been emphasized and pointed out in petitioner's Memorandum to the
Commission. 30 The implication is simple: that as between the testimony of Mr. Bernardino and the
inspection reports of the engineers of the Commission, which served as the basis of the revocation
order, the Commission gave credence to the latter. Naturally, whatever conclusion or finding of fact
that the Commission arrived at regarding the quality of petitioner's service are not borne out by the
evidence presented in this case but by evidence in the previous case. 31 In this connection, we
repeat, the conclusion, arrived at by the Commission after weighing the conflicting evidence in the
two related cases, is a conclusion of fact which this Court will not disturb.
And it has been held time and again that where the Commission has reached a conclusion of
fact after weighing the conflicting evidence, that conclusion must be respected, and the
Supreme Court will not interfere unless it clearly appears that there is no evidence to support
the decision of the Commission. (La Mallorca and Pampanga Bus Co., Inc. vs. Mercado, L19120, November 29, 1965 citing Pangasinan Trans. Co., Inc. vs. Dela Cruz, 96 Phil. 278)
For that matter, petitioner's pretension that it has a prior right to the operation of an electric service in
Morong, Rizal, is not tenable; and its plea for protection of its investment, as in the previous case,
cannot be entertained.
WHEREFORE, the two decisions of the Public Service Commission, appealed from, should be, as
they are hereby affirmed, with costs in the two cases against petitioner Rizal Light & Ice Co., Inc. It is
so ordered.

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

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 22106

September 11, 1924

ASIA BANKING CORPORATION, plaintiff-appellee,

vs.
STANDARD PRODUCTS, CO., INC., defendant-appellant.
Charles C. De Selms for appellant.
Gibbs & McDonough and Roman Ozaeta for appellee.
OSTRAND, J.:
This action is brought to recover the sum of P24,736.47, the balance due on the following
promissory note:
P37,757.22
MANILA, P. I.,

Nov. 28, 1921.

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

On demand, after date we promise to pay to the Asia Banking Corporation, or order, the sum
of thirty-seven thousand seven hundred fifty-seven and 22/100 pesos at their office in
Manila, for value received, together with interest at the rate of ten per cent per annum.
No. ________ Due __________
THE STANDARD PRODUCTS CO., INC.
By (Sgd.) GEORGE H. SEAVER
By

President

The court below rendered judgment in favor of the plaintiff for the sum demanded in the complaint,
with interest on the sum of P24,147.34 from November 1, 1923, at the rate of 10 per cent per
annum, and the costs. From this judgment the defendant appeals to this court.
At the trial of the case the plaintiff failed to prove affirmatively the corporate existence of the parties
and the appellant insists that under these circumstances the court erred in finding that the parties
were corporations with juridical personality and assigns same as reversible error.
There is no merit whatever in the appellant's contention. The general rule is that in the absence of
fraud a person who has contracted or otherwise dealt with an association in such a way as to
recognize and in effect admit its legal existence as a corporate body is thereby estopped to deny its
corporate existence in any action leading out of or involving such contract or dealing, unless its
existence is attacked for cause which have arisen since making the contract or other dealing relied
on as an estoppel and this applies to foreign as well as to domestic corporations. (14 C. J., 227;
Chinese Chamber of Commerce vs. Pua Te Ching, 14 Phil., 222.)
The defendant having recognized the corporate existence of the plaintiff by making a promissory
note in its favor and making partial payments on the same is therefore estopped to deny said
plaintiff's corporate existence. It is, of course, also estopped from denying its own corporate
existence. Under these circumstances it was unnecessary for the plaintiff to present other evidence
of the corporate existence of either of the parties. It may be noted that there is no evidence showing
circumstances taking the case out of the rules stated.
The judgment appealed from is affirmed, with the costs against the appellant. So ordered.
Street, Malcolm, Avancea, Villamor and Romualdez, JJ., concur.

Cranson vs IBM Corp

HORNEY, J., delivered the opinion of the Court.

On the theory that the Real Estate Service Bureau was neither a de jure nor a de facto corporation and
that Albion C. Cranson, Jr., was a partner in the business conducted by the Bureau and as such was
personally liable for its debts, the International Business Machines Corporation brought this action against
Cranson for the balance due on electric typewriters purchased by the Bureau. At the same time it moved
for summary judgment and supported the motion by affidavit. In due course, Cranson filed a general issue
plea and an affidavit in opposition to summary judgment in which he asserted in effect that the Bureau
was a de facto corporation and that he was not personally liable for its debts.
The agreed statement of facts shows that in April 1961, Cranson was asked to invest in a new business
corporation which was about to be created. Towards this purpose he met with other interested individuals
and an attorney and agreed to purchase stock and become an officer and director. Thereafter, upon being
advised by the attorney that the corporation had been formed under the laws of Maryland, he paid for and
received a stock certificate evidencing ownership of shares in the corporation, and was shown the
corporate seal and minute book. The business of the new venture was conducted as if it were a
corporation, through corporate bank accounts, with auditors maintaining corporate books and records,
and under a lease
[234 Md. 480]

entered into by the corporation for the office from which it operated its business.
Cranson was elected president and all transactions conducted by him for the
corporation, including the dealings with I.B.M., were made as an officer of the
corporation. At no time did he assume any personal obligation or pledge his
individual credit to I.B.M. Due to an oversight on the part of the attorney, of which
Cranson was not aware, the certificate of incorporation, which had been signed and
acknowledged prior to May 1, 1961, was not filed until November 24, 1961.
Between May 17 and November 8, the Bureau purchased eight typewriters from
I.B.M., on account of which partial payments were made, leaving a balance due of
$4,333.40, for which this suit was brought.
Although a question is raised as to the propriety of making use of a motion for summary judgment as the
means of determining the issues presented by the pleadings, we think the motion was appropriate. Since
there was no genuine dispute as to the material facts, the only question was whether I.B.M. was entitled
to judgment as a matter of law. The trial court found that it was, but we disagree.
The fundamental question presented by the appeal is whether an officer 1 of a defectively incorporated
association may be subjected to personal liability under the circumstances of this case. We think not.
Traditionally, two doctrines have been used by the courts to clothe an officer of a defectively incorporated
association with the corporate attribute of limited liability. The first, often referred to as the doctrine of de
facto corporations, has been applied in those cases where there are elements showing: (1) the existence
of law authorizing incorporation: (2) an effort in good faith to incorporate under the existing law; and (3)
actual user or exercise of corporate powers. Ballantine, Private Corporations, 23; 8
Fletcher, Cyclopedia of the Law of Private
[234 Md. 481]

Corporations, 3777; 13 Am. Jur., Corporations, 49-56; 18 C.J.S., Corporations,

99. The second, the doctrine of estoppel to deny the corporate existence, is
generally employed where the person seeking to hold the officer personally liable
has contracted or otherwise dealt with the association in such a manner as to
recognize and in effect admit its existence as a corporate body. Ballantine, op.cit.,
29; Machen,Modern Law of Corporations, 278-282; 18 C.J.S., op.cit., 109.
It is not at all clear what Maryland has done with respect to the two doctrines. There have been no recent
cases in this State on the subject and some of the seemingly irreconcilable earlier cases offer little to
clarify the problem.2
In one line of cases, the Court, in determining the rights and liabilities of a defectively organized
corporation, or a member or stockholder thereof, seems to have drawn a distinction between those acts
or requirements which are a condition precedent to corporate existence and those acts prescribed by law
to be done after incorporation. In so doing, it has been generally held that where there had been a failure
to comply with a requirement which the law declared to be a condition precedent to the existence of the
corporation, the corporation was not a legal entity and was therefore precluded from suing or being sued
as such. Boyce v. M.E. Church, 46 Md. 359 (1877); Regester v. Medcalf, 71 Md. 528, 18 Atl. 966
(1889);Bonaparte v. Lake Roland R.R. Co., 75 Md. 340, 23 Atl. 784 (1892); Jones v. Linden Building
Asso., 79 Md. 73, 29 Atl. 76 (1894); Maryland Tube Works v. West End Imp. Co., 87 Md. 207, 39 Atl. 620
(1898);Cleaveland v. Mullin, 96 Md. 598,
[234 Md. 482]

54 Atl. 665 (1903); National Shutter Bar Co. v. Zimmerman, 110 Md. 313, 73 Atl. 19
(1909). These cases appear to stand for the proposition that substantial compliance
with those formalities of the corporation law, which are made a condition precedent
to corporate existence, was not only necessary for the creation of a corporation de
jure, but was also a prerequisite to the existence of a de facto corporation or a
corporation by estoppel.
In the Boyce case, an action in assumpsit against a defectively incorporated religious society, the Court
(at p. 373 and p. 374), in holding that the society was not estopped to deny its corporate existence, said:

"We think it would be extending the doctrine of estoppel to an extent, not justified
by the principles of public policy, to allow it to operate through the conduct of the
parties concerned, to create substantially a de factocorporation, with just such
powers as the parties may by their acts give to it.* * *"The statute law of the State,
expressly requiring certain prescribed acts to be done to constitute a corporation, to
permit parties indirectly, or upon the principle of estoppel, virtually to create a
corporation for any purpose, or to have acts so construed, would be in manifest
opposition to the statute law, and clearly against its policy, and justified upon no
sound principle in the administration of justice."
In the Maryland Tube case, an action by a corporation for specific performance of a contract to convey
land which it had entered into prior to its becoming a legal entity, the Court, having cited (at p. 217) the
statements in Jones v. Aspen Hardware Co., 40 Pac. 457 (Colo. 1895),3 with approval for the
[234 Md. 483]

proposition that "`the doctrine of estoppel cannot be successfully invoked, unless

the corporation has at least a de facto existence,'" that "`a de facto corporation can
never be recognized in violation of a positive law'" and that "`there is a broad

distinction between those acts made necessary by the statute as a prerequisite to

the exercise of corporate powers, and those acts required of individuals seeking
incorporation but not made prerequisite to the exercise of such powers,'" went on to
say (at p. 218) that "these principles were clearly recognized and applied" in
the Boyce case.
In the National Shutter Bar case, an action by a corporation for an alleged libel which had occurred before
the performance of a condition precedent necessary for legal incorporation, it was held citing
theMaryland Tube case for the proposition that statutory conditions precedent must have been complied
with to give existence to corporations formed under general laws that the corporation had no legal
existence at the time of the alleged libel. In referring to the Boyce case, it was said (at p. 320) that "it has
been held by our predecessors that a corporation cannot be actually or virtually created by estoppel in
Maryland." And, on the basis of the statements in Jones v. Aspen Hardware Co., supra (also relied on in
the Maryland Tube case), it was concluded that the corporation could not maintain the action.
On the other hand, where the corporation has obtained legal existence but has failed to comply with a
condition subsequent to corporate existence, this Court has held that such nonperformance afforded the
State the right to institute proceedings for the forfeiture of the charter, but that such neglect or omission
could never be set up by the corporation itself, or by its members and stockholders, as a defense to an
action to enforce their liabilities. C. & O. Canal Co. v. B. & O. Railroad Co., 4 G. & J. 1 (1832); Hammond
v. Straus, 53 Md. 1 (1880); Murphy v. Wheatley, 102 Md. 501, 63 Atl. 62 (1906).
[234 Md. 484]

In the Hammond case, an action by a creditor against a stockholder of a state bank

on his statutory liability, the Court, after stating that a corporation or a stockholder
could not defeat an action by showing noncompliance with the requirements of the
corporation law unless the acts required are conditions precedent to corporate
existence, said (at p. 15):
"By holding otherwise, parties might avail themselves of the powers and privileges
of a corporation, without in any manner subjecting themselves to its duties and
obligations, and might set up their own neglect of duty, of wilful omission to comply
with the requirements of the statute, as means of discharge from all their just
obligations under the law. This is forbidden by every principle of law and justice, and
hence such a defense could never be tolerated."
It seems clear therefore that when a defect in the incorporation process resulted from a failure to comply
with a condition subsequent, the doctrine of estoppel may be applied for the benefit of a creditor to estop
the corporation, or the members or stockholders thereof, from denying its corporate existence. See Brune
(Herbert M., Jr.), Maryland Corporation Law and Practice (rev. ed.), 339.
In another line of Maryland cases which determined the rights and liabilities of a defectively organized
corporation, or a member or stockholder thereof, the Court, apparently disregarding the distinction made
between those requirements which are conditions precedent and those which are conditions subsequent
to corporate existence, has generally precluded, on the grounds of estoppel or collateral attack, inquiry
into the question of corporate existence. Maltby v. Northwestern Va. R.R. Co., 16 Md. 422 (1860); Franz
v. Teutonia Building Asso., 24 Md. 259 (1866); Grape Sugar & Vinegar Mfg. Co. v. Small, 40 Md. 395
(1874);Laflin & Rand Powder Co. v. Sinsheimer, 46 Md. 315 (1877); Keene v. Van Reuth, 48 Md. 184
(1878);Bartlett v. Wilbur, 53 Md. 485 (1880); Pott & Co. v. Schmucker, 84 Md. 535, 36 Atl. 592 (1897). In
theGrape Sugar case, an action against a defectively organized corporation to
[234 Md. 485]

recover the balance due for work done and materials furnished, the Court said (at p.
400):
"The second prayer proceeds upon the assumption that the [corporation] is not
liable, provided the work was done prior to the recording of the certificate of
incorporation. It is true, that under the general incorporation law of this State, the
recording of the certificate was necessary to constitute the [corporation] a body
politic. If, however, the contract was made with the [creditor] through * * * [the]
President of the [corporation], after the certificate had been signed by the members
of the proposed corporation, but before it was recorded, and the company, after its
incorporation was complete, accepted the work done under the contract, it will be
estopped, both in law and equity, from denying its liability, on account of the same."
Cf. Hammond v. Straus, supra. And see to the contrary Boyce v. M.E. Church, supra, which might be
distinguishable in that it involved an effort to impose liability on a religious society and not a business
corporation.
In the Laflin & Rand case, decided in the same year (1877) as the Boyce case, the Court, in an action
against certain members of a corporation to make them individually liable for goods sold and delivered to
the corporation, said (at p. 321):

"[The company] has been clothed with all the forms of a corporation by the laws of
a neighboring State, and was in the exercise and use of the franchises conferred
upon it. It was a corporation de facto at the time the goods were sold and delivered
to it * * * and its existence as a corporation cannot be collaterally drawn into
question.

[234 Md. 486]

"To permit a recovery against the defendants, and thereby to say that they are to be
regarded in law as a voluntary unincorporated association, would be a departure
from all the cases. The debt was not created with them individually, but with a
company actingunder a formal incorporation, and in the exercise of its corporate
powers. This [creditor] dealt with it and gave it credit as a corporation. If its assets
are not ample to pay, it is the misfortune of the creditor." 4
See also the Franz case at p. 270 (of 24 Md.) and the Bartlett case at p. 498 (of 53 Md.) for similar
statements of the law. From these cases it appears that where the parties have assumed corporate
existence and dealt with each other on that basis, the Court will apply the estoppel doctrine on the theory
that the parties by recognizing the organization as a corporation were thereafter prevented from raising a
question as to its corporate existence.
When summarized, the law in Maryland pertaining to the de facto and estoppel doctrines reveals that the
cases seem to fall into one or the other of two categories. In one line of cases, the Court, choosing to
disregard the nature of the dealings between the parties, refused to recognize both doctrines where there
had been a failure to comply with a condition precedent to corporate existence, but, whenever such
noncompliance concerned a condition subsequent to incorporation, the Court often applied the estoppel
doctrine. In the other line of cases, the Court, choosing to make no distinction between defects which
[234 Md. 487]

were conditions precedent and those which were conditions subsequent,

emphasized the course of conduct between the parties and applied the estoppel

doctrine when there had been substantial dealings between them on a corporate
basis.
Whether or not the decisions in the Boyce and Maryland Tube cases had the effect of repudiating the de
facto doctrine in this state, as some of the text writers seem to think, is a question we do not reach in this
case and therefore need not consider at this time. On the other hand, since it is clear that the Maryland
Tube and National Shutter Bar cases are inconsistent with other Maryland cases insofar as they held (in
relying on the statements in Jones v. Aspen Hardware Co., supra) that the doctrine of estoppel cannot be
invoked unless a corporation has at least a de facto existence, both cases Maryland
Tube and National Shutter Bar should be, and are hereby, overruled to the extent of the inconsistency.
There is, as we see it, a wide difference between creating a corporation by means of the de facto doctrine
and estopping a party, due to his conduct in a particular case, from setting up the claim of no
incorporation. Although some cases tend to assimilate the doctrines of incorporation de facto and by
estoppel, each is a distinct theory and they are not dependent on one another in their application. See 8
Fletcher, op.cit., 3763; France on Corporations (2nd ed.), 29; 18 C.J.S., op.cit., 111h. Where there is
a concurrence of the three elements necessary for the application of the de facto corporation doctrine,
there exists an entity which is a corporation de jure against all persons but the state. On the other hand,
the estoppel theory is applied only to the facts of each particular case and may be invoked even where
there is no corporation de facto.Accordingly, even though one or more of the requisites of a de
facto corporation are absent, we think that this factor does not preclude the application of the estoppel
doctrine5 in a proper case, such as the one at bar.
[234 Md. 488]

I.B.M. contends that the failure of the Bureau to file its certificate of incorporation
debarred all corporate existence. But, in spite of the fact that the omission might
have prevented the Bureau from being either a corporation de jure or de
facto,6 Jones v. Linden Building Asso., supra, we think that I.B.M. having dealt with
the Bureau as if it were a corporation and relied on its credit rather than that of
Cranson, is estopped to assert that the Bureau was not incorporated at the time the
typewriters were purchased. Laflin & Rand Powder Co. v. Sinsheimer, supra. See
also Tulane Improvement Co. v. S.A. Chapman & Co., 56 So. 509 (La. 1911). In 1
Clark and Marshall, Private Corporations, 89, it is stated:
[234 Md. 489]

"The doctrine in relation to estoppel is based upon the ground that it would
generally be inequitable topermit the corporate existence of an association to be
denied by persons who have represented it to be a corporation, or held it out as a
corporation, or by any persons who have recognized it as a corporation by dealing
with it as such; and by the overwhelming weight of authority, therefore, a person
may be estopped to deny the legal incorporation of an association which is not even
a corporation de facto."
In cases similar to the one at bar, involving a failure to file articles of incorporation, the courts of other
jurisdictions have held that where one has recognized the corporate existence of an association, he is
estopped to assert the contrary with respect to a claim arising out of such dealings. See, for
example,Tarbell v. Page, 24 Ill. 46 (1860); Magnolia Shingle Co. v. J. Zimmern's Co., 58 So. 90 (Ala.
1912);Lockwood v. Wynkoop, 144 N.W. 846 (Mich. 1914); John Lucas Co. v. Bernhardt's Estate, 100 So.
399 (La. 1924).
Since I.B.M. is estopped to deny the corporate existence of the Bureau, we hold that Cranson was not
liable for the balance due on account of the typewriters.

Judgment reversed; the appellee to pay the costs.

EN BANC
[G.R. No. L-11442. May 23, 1958.]
MANUELA T. VDA. DE SALVATIERRA, Petitioner, v. HON. LORENZO C. GARLITOS, in his capacity as
Judge of the Court of First Instance of Leyte, Branch II, and SEGUNDINO
REFUERZO, Respondents.
Jimenez, Tantuico, Jr. & Tolete for Petitioner.
Francisco Astilla for respondent Segundino Refuerzo.
SYLLABUS
1. PLEADING AND PRACTICE; PETITION FOR RELIEF; WHEN TO FILE PETITION. Rule 38, Section 3, of the
Rules of Court treats of 2 periods within which a petition for relief may be filed. The petition must be filed
within 60 days after the petitioner learns of the judgment and not more than 6 months after the judgment
or order was rendered, both of which must be satisfied.
2. CORPORATION LAW; LIABILITY OF PERSON DEALING WITH ASSOCIATION AS A CORPORATE BODY;
WHEN ESTOPPEL MAY NOT BE INVOKED. While as a general rule, a person who deals with an association
in such a way to recognize its existence as a corporate body is estopped from denying the same in an action
arising out of such transaction, yet this doctrine may not be held to be applicable where fraud takes a part in
the said transaction. In the instant case, on plaintiffs charge that she was unaware of the fact that the
defendant corporation had no juridical personality, its president gave no confirmation or denial of the same
and the circumstance surrounding the execution of the contract lead to the inescapable conclusion that
plaintiff was really made to believe that such corporation was duly organized in accordance with law.
3. ID.; LIABILITY OF MEMBERS WHO ACT AS AGENTS OF AN UNINCORPORATED ASSOCIATION. A
corporation when registered has a juridical personality separate and distinct from its component members or
stockholders and officers, such that a corporation cannot be held liable for the personal in indebtedness of a
stockholder even if he should be its president (Walter A. Smith Co. v. Ford, SC-G. R. No. 42420) and
conversely, a stockholder cannot be held personally liable for any financial obligation by the corporation in
excess of his unpaid subscription. But this rule is understood to refer merely to registered corporations and
cannot be made applicable to the liability of members of an unincorporated association. The reason behind

this doctrine is obvious - an unincorporated association has no personality and would be incompetent to act
and appropriate for itself the power and attributes of a corporation as provided by law, it cannot create
agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as it is an elementary principle
of law that a person who acts as an agent without authority or without a principal is himself regarded as the
principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence assumes such privileges and
obligations and becomes personally liable for contracts entered into or for other acts performed as such
agent (Fay v. Noble, 7 Cushing [Mass. ] 188. Cited in II Tolentinos Commercial Laws of the Philippines, Fifth
Ed., p. 689-690).
DECISION
FELIX, J.:
This is a petition for certiorari filed by Manuela T. Vda. de Salvatierra seeking to nullify the order of the Court
of First Instance of Leyte in Civil Case No. 1912, dated March 21, 1956, relieving Segundino Refuerzo of
liability for the contract entered into between the former and the Philippine Fibers Producers Co., Inc., of
which Refuerzo is the president. The facts of the case are as follows:
chanrob1es virtual 1aw library

Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of land located at Maghobas, Poblacin,
Burauen, Leyte. On March 7, 1954, said landholder entered into a contract of lease with the Philippine Fibers
Producers Co., Inc., allegedly a corporation "duly organized and existing under the laws of the Philippines,
domiciled at Burauen, Leyte, Philippines, and with business address therein, represented in this instance by
Mr. Segundino Q. Refuerzo, the President." It was provided in said contract, among other things, that the
lifetime of the lease would be for a period of 10 years; that the land would be planted to kenaf, ramie or
other crops suitable to the soil; that the lessor would be entitled to 30 per cent of the net income accruing
from the harvest of any crop without being responsible for the cost of production thereof; and that after
every harvest, the lessee was bound to declare at the earliest possible time the income derived therefrom
and to deliver the corresponding share due the lessor.
Apparently, the aforementioned obligations imposed on the alleged corporation were not complied with
because on April 5, 1955, Manuela T. Vda. de Salvatierra filed with the Court of First Instance of Leyte a
complaint against the Philippine Fibers Producers Co., Inc., and Segundino Q. Refuerzo, for accounting,
rescission and damages (Civil Case No. 1912). She averred that sometime in April, 1954, defendants
planted kenaf on 3 hectares of the leased property which crop was, at the time of the commencement of the
action, already harvested, processed and sold by defendants; that notwithstanding that fact, defendants
refused to render an accounting of the income derived therefrom and to deliver the lessors share; that the
estimated gross income was P4,500, and the deductible expenses a mounted to P1,000; that as defendants
refusal to undertake such task was in violation of the terms of the covenant entered into between the
plaintiff and defendant corporation, a rescission was but proper.
As defendants apparently failed to file their answer to the complaint, of which they were allegedly notified,
the Court declared them in default and proceeded to receive plaintiffs evidence. On June 8, 1955, the lower
Court rendered judgment granting plaintiffs prayer, and required defendants to render a complete
accounting of the harvest of the land subject of the proceeding within 15 days from receipt of the decision
and to deliver 30 per cent of the net income realized from the last harvest to plaintiff, with legal interest
from the date defendants received payment for said crop. It was further provided that upon defendants
failure to abide by the said requirement, the gross income would be fixed at P4,200 or a net income of
P3,200 after deducting the expenses for productions, 30 per cent of which or P960 was held to be due the
plaintiff pursuant to the aforementioned contract of lease, which was declared rescinded.
No appeal therefrom having been perfected within the reglementary period, the Court, upon motion of
plaintiff, issued a writ of execution, in virtue of which the Provincial Sheriff of Leyte caused the attachment
of 3 parcels of land registered in the name of Segundino Refuerzo. No property of the Philippine Fibers
Producers Co., Inc., was found available for attachment.
On January 31, 1956, defendant Segundino Refuerzo filed a motion claiming that the decision rendered in
said Civil Case No. 1912 was null and void with respect to him, there being no allegation in the complaint

pointing to his personal liability and thus prayed that an order be issued limiting such liability to defendant
corporation. Over plaintiffs opposition, the Court a quo granted the same and ordered the Provincial Sheriff
of Leyte to release all properties belonging to the movant that might have already been attached, after
finding that the evidence on record made no mention or referred to any fact which might hold movant
personally liable therein. As plaintiffs petition for relief from said order was denied, Manuela T. Vda. de
Salvatierra instituted the instant action asserting that the trial Judge in issuing the order complained of,
acted with grave abuse of discretion and prayed that same be declared a nullity.
From the foregoing narration of facts, it is clear that the order sought to be nullified was issued by the
respondent Judge upon motion of defendant Refuerzo, obviously pursuant to Rule 38 of the Rules of Court.
Section 3 of said Rule, however, in providing for the period within which such a motion may be filed,
prescribes that:
chanrob1e s virtual 1aw library

SEC. 3. WHEN PETITION FILED; CONTENTS AND VERIFICATION. A petition provided for in either of the
preceding sections of this rule must be verified, filed within sixty days after the petitioner learns of the
judgment, order, or other proceeding to be set aside, and not more than six months after such judgment or
order was entered, or such proceeding was taken; and must be accompanied with affidavit showing the
fraud, accident, mistake, or excusable negligence relied upon, and the facts constituting the petitioners
good and substantial cause of action or defense, as the case may be, which he may prove if his petition be
granted." (Rule 33)
The aforequoted provision treats of 2 periods, i.e., 60 days after petitioner learns of the judgment, and not
more than 6 months after the judgment or order was rendered, both of which must be satisfied. As the
decision in the case at bar was under date of June 8, 1955, whereas the motion filed by respondent Refuerzo
was dated January 31, 1956, or after the lapse of 7 months and 23 days, the filing of the aforementioned
motion was clearly made beyond the prescriptive period provided for by the rules. The remedy allowed by
Rule 38 to a party adversely affected by a decision or order is certainly an act of grace or benevolence
intended to afford said litigant a penultimate opportunity to protect his interest. Considering the nature of
such relief and the purpose behind it, the periods fixed by said rule are non-extendible and never
interrupted; nor could it be subjected to any condition or contingency because it is of itself devised to meet
a condition or contingency (Palomares v. Jimenez, * G. R. No. L-4513, January 31, 1952). On this score
alone, therefore, the petition for a writ ofcertiorari filed herein may be granted. However, taking note of the
question presented by the motion for relief involved herein, We deem it wise to delve in and pass upon the
merit of the same.
Refuerzo, in praying for his exoneration from any liability resulting from the non-fulfillment of the obligation
imposed on defendant Philippine Fibers Producers Co., Inc, interposed the defense that the complaint filed
with the lower court contained no allegation which would hold him liable personally, for while it was stated
therein that he was a signatory to the lease contract, he did so in his capacity as president of the
corporation. And this allegation was found by the Court a quo to be supported by the records. Plaintiff on the
other hand tried to refute this averment by contending that her failure to specify defendants personal
liability was due to the fact that all the time she was under the impression that the Philippine Fibers
Producers Co., Inc., represented by Refuerzo was a duly registered corporation as appearing in the contract,
but a subsequent inquiry from the Securities & Exchange Commission yielded otherwise. While as a general
rule a person who has contracted or dealt with an association in such a way as to recognize its existence as
a corporate body is estopped from denying the same in an action arising out of such transaction or dealing,
(Asia Banking Corporation v. Standard Products Co., 46 Phil., 144; Compaia Agricola de Ultramar v. Reyes,
4 Phil., 1; Ohta Development Co. v. Steamship Pompey, 49 Phil., 117), yet this doctrine may not be held to
be applicable where fraud takes a part in the said transaction. In the instant case, on plaintiffs charge that
she was unaware of the fact that the Philippine Fibers Producers Co., Inc., had no juridical personality,
defendant Refuerzo gave no confirmation or denial and the circumstances surrounding the execution of the
contract lead to the inescapable conclusion that plaintiff Manuela T. Vda. de Salvatierra was really made to
believe that such corporation was duly organized in accordance with law.
There can be no question that a corporation when registered has a juridical personality separate and distinct
from its component members or stockholders and officers such that a corporation cannot be held liable for
the personal indebtedness of a stockholder even if he should be its president (Walter A. Smith Co. v. Ford,
SC-G. R. No. 42420) and conversely, a stockholder or member cannot be held personally liable for any
financial obligation by the corporation in excess of his unpaid subscription. But this rule is understood to
refer merely to registered corporations and cannot be made applicable to the liability of members of an
unincorporated association. The reason behind this doctrine is obvious since an organization which before
the law is non-existent has no personality and would be incompetent to act and appropriate for itself the

powers and attribute of a corporation as provided by law; it cannot create agents or confer authority on
another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so
without authority and at their own risk. And as it is an elementary principle of law that a person who acts as
an agent without authority or without a principal is himself regarded as the principal, possessed of all the
rights and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and obligations and becomes personally
liable for contracts entered into or for other acts performed as such agent (Fay v. Noble, 7 Cushing [Mass. ]
188. Cited in II Tolentinos Commercial Laws of the Philippines, Fifth Ed., p. 689-690). Considering that
defendant Refuerzo, as president of the unregistered corporation Philippine Fibers Producers Co., Inc., was
the moving spirit behind the consummation of the lease agreement by acting as its representative, his
liability cannot be limited or restricted to that imposed upon corporate shareholders. In acting on behalf of a
corporation which he knew to be unregistered, he assumed the risk of reaping the consequential damages or
resultant rights, if any, arising out of such transaction.
Wherefore, the order of the lower Court of March 21, 1956, amending its previous decision on this matter
and ordering the Provincial Sheriff of Leyte to release any and all properties of movant therein which might
have been attached in the execution of such judgment, is hereby set aside and nullified as if it had never
been issued. With costs against respondent Segundino Refuerzo. It is so ordered.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J. B. L., and
Endencia, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19118

June 16, 1965

MARIANO A. ALBERT, plaintiff-appellant,

vs.
UNIVERSITY PUBLISHING CO., INC., defendant-appellee.
Uy and Artiaga and Antonio M. Molina for plaintiff-appellant.
Aruego, Mamaril and Associates for defendant-appellee.
R E S O L U T I O N*
BENGZON, J.P., J.:
Defendant-appellee University Publishing Co., Inc. has two prayers before us: First, that said
defendant-appellee be granted leave to present original papers not included in the records of this
case because they were never presented in the trial of the case; and second, that the decision
promulgated by this Court on January 30, 1965 be reconsidered.
For a proper appraisal of all the facts and circumstances of this case it becomes necessary and
convenient to trace the origin of the same.
Plaintiff Albert, almost sixteen (16) years ago, sued University Publishing Co., Inc. for breach of
contract. On April 18, 1958, in L-9300, this court awarded the sum of P15,000.00 as damages. On
October 24, 1960, in L-15275, to clarify whether the P7,000.00 paid on account should be deducted
therefrom, this Court decided that the amount should be paid in full because said partial payment
was already taken into consideration when it fixed P15,000.00 as damages.
From the inception until the time when the decision in L-15275 was to be executed, corporate
existence on the part of University Publishing Co., Inc. seems to have been taken for granted, for it
was not put in issue in either of the cases abovementioned. However, when the Court of First
Instance of Manila issued on July 22, 1961 an order of execution against University Publishing Co.,
Inc., plaintiff, speaking also for the Sheriff of Manila, reported to the Court by petition of August 10,
1961 that there is no such entity as University Publishing Co., Inc., thereupon praying that, Jose M.
Aruego being the real defendant, the writ of execution be issued against him. Attached to said
petition was a certification from the Securities and Exchange Commission dated July 31, 1961
attesting: "The records of this Commission do not show the registration of UNIVERSITY
PUBLISHING CO., INC., either as a corporation or partnership." The issue of its corporate existence
was then clearly and squarely presented before the court.
University Publishing Co., Inc., instead of informing the lower court that it had in its possession
copies of its certificate of registration its by-laws, and all other pertinent papers material to the point
in dispute corporate existence chose to remain silent thereon. It merely countered the
aforesaid petition by filing through counsel (Jose M. Aruego's own law firm) a manifestation stating
that Jose M. Aruego is not a party to this case and, therefore, plaintiff's petition should be denied.
After the court a quo denied the request that a writ of execution be issued against Jose M. Aruego,

plaintiff brought this present appeal on the issue of the corporate existence of University Publishing
Co., Inc., as determinative of the responsibility of Jose M. Aruego, the person or official who had
always moved and acted for and in behalf of University Publishing Co., Inc.
It may be worth noting again that Jose M. Aruego started the negotiation which culminated in the
contract between the parties, signing said contract as president of University Publishing Co., Inc.
Likewise he was the one who made partial payments up to the amount of P7,000.00 for, and in
behalf of University Publishing Co., Inc. He also appeared not only as a witness but as lawyer,
signing some pleadings or motions in defense of University Publishing Co., Inc., although in other
instances it is one of his associates or members of his law firm who did so. Known is the fact that
even a duly existing corporation can only move and act through natural persons. In this case it was
Jose M. Aruego who moved and acted as or for University, Publishing Co., Inc.
It is elemental that the courts can only decide the merits of a given suit according to the records that
are in the case. It is true that in the two previous cases decided by this Court, the first, awarding
damages (L-9300), the second, clarifying the amount of P15,000.00 awarded as such (L-15275), the
corporate existence of University Publishing Co., Inc. as a legal entity was merely taken for granted.
However, when the said issue was squarely presented before the court, and University Publishing
Co., Inc. chose to keep the courts in the dark by withholding pertinent documents and papers in its
possession and control, perforce this Court had to decide the points raised according to the records
of the case and whatever related matters necessarily included therein. Hence, as a consequence of
the certification of the Securities and Exchange Commission that its records "do not show the
registration of University Publishing Co., Inc., either as a corporation or partnership," this Court
concluded that by virtue of its non-registration, it can not be considered a corporation. We further
said that it has therefore no personality separate from Jose M. Aruego and that Aruego was in reality
the one who answered and litigated through his own law firm counsel. Stated otherwise, we found
that Aruego was in fact, if not in name, the defendant. 1 Indeed, the judge of the court of first instance
wrote in his decision thus: "Defendant Aruego (all along the judge who pens this decision considered
that the defendant here is the president of the University Publishing Co., Inc. since it was he who
really made the contract with Justice Albert) 2" And this portion of the decision made by the court a
quo was never questioned by the defendant.
The above statement made by the court a quo in its decision compelled this Court to carefully
examine the facts surrounding the dispute starting from the time of the negotiation of the business
proposition, followed by the signing of the contract; considered the benefits received; took into
account the partial payments made, the litigation conducted, the decisions rendered and the appeals
undertaken. After thus considering the facts and circumstances, keeping in mind that even with
regard to corporations shown as duly registered and existing, we have in many a case pierced the
veil of corporate fiction to administer the ends of justice, 3 we held Aruego personally responsible for
his acts on behalf of University Publishing Co., Inc.
Defendant would reply that in all those cases where the Court pierced the veil of corporate fiction the
officials held liable were made party defendants. As stated, defendant-appellee could not even
pretend to possess corporate fiction in view to its non-registration per the evidence so that
from the start Aruego was the real defendant. Since the purpose of formally impleading a party is to
assure him a day in court, once the protective mantle of due process of law has in fact been
accorded a litigant, whatever the imperfection in form, the real litigant may be held liable as a party.
Jose M. Aruego definitely had his day in court, and due process of law was enjoyed by him as a
matter of fact as revealed by the records of the case. 4

The dispositive portion of the decision the reconsideration of which is being sought is the following:
"Premises considered, the order appealed from is hereby set aside and the case remanded ordering
the lower court to hold supplementary proceedings for the purpose of carrying the judgment into
effect against University Publishing Co., Inc. and/or Jose M. Aruego."
According to several cases a litigant is not allowed to speculate on the decision the court may render
in the case.5 The University Publishing Co., Inc. speculated on a favorable decision based on the
issue that Jose M. Aruego, not being a formal party defendant in this case, a writ of execution
against him was not in order. It, therefore, preferred to suppress vital documents under its
possession and control rather than to rebut the certification issued by the Securities and Exchange
Commission that according to its records University Publishing Co., Inc. was not registered. If the
lower court's order is sustained, collection of damages becomes problematical. If a new suit is filed
against Aruego, prescription might be considered as effective defense, aside from the prospect of
another ten years of pending litigation. Such are the possible reasons for adopting the position of
speculation of our decision. Our ruling appeared to be unfavorable to such speculation. It was only
after the receipt of the adverse decision promulgated by this Court that University Publishing Co.,
Inc., disclosed its registration papers. For purposes of this case only and according to its particular
facts and circumstances, we rule that in view of the late disclosure of said papers by the University
Publishing Co., Inc., the same can no longer considered at this stage of the proceedings.
Specifically said original papers are:
1. Original Certificate of Registration of the University Publishing Co., Inc., signed by then
Director of Commerce, Cornelio Balmaceda, showing that said company was duly registered
as a corporation with the Mercantile Registry of the then Bureau of Commerce (predecessor
of the Securities and Exchange Commission) as early as August 7, 1936;
2. Original copy of the Articles of Incorporation of the University Publishing Co., Inc
consisting of five (5) pages, showing that said corporation was incorporated as early as
August 1, 1936, Manila, Philippines, with an authorized capital stock of TEN THOUSAND
PESOS (P10,000), TWO THOUSAND PESOS (P2,000.00) of which was fully subscribed
and FIVE HUNDRED PESOS (P500.00), fully paid up; that it had a corporate existence of
fifty (50) years and the original incorporators of the same are: Jose M. Aruego, Jose A.
Adeva, Delfin T. Bruno Enrique Rimando and Federico Mangahas;
3. The original copy of the By-Laws of the University Publishing Co., Inc. consisting of eleven
(11) pages, showing that it exercised its franchise as early as September 4, 1936;
4. A certificate of Reconstitution of Records issued by the Securities and Exchange
Commission recognized the corporate existence of the University Publishing, Co., Inc. as
early as August 7, 1936.
Defendant-appellee could have presented the foregoing papers before the lower court to counter the
evidence of non-registration, but defendant-appellee did not do so. It could have reconstituted its
records at that stage of the proceedings, instead of only on April 1, 1965, after decision herein was
promulgated.
It follows, therefore, that defendant-appellee may not now be allowed to submit the abovementioned
papers to form part of the record. Sec. 7 of Rule 48, Rules of Court (in relation to Sec. 1. Rule 42),
invoked by movant, states:

SEC. 7. Original papers may be required. Whenever it is necessary or proper in the opinion
of the court that original papers of any kind should be inspected in the court on appeal, it
may make such order for the transmission, safekeeping, and return of such original papers
as may seem proper, and the court may receive and consider such original papers in
connection with the record.
The provision obviously refers to papers the originals of which are of record in the lower court, which
the appellate court may require to be transmitted for inspection. The original papers in question not
having been presented before the lower court as part of its record, the same cannot be transmitted
on appeal under the aforesaid section. In contrast, the certification as to University Publishing Co.,
Inc.'s non-registration forms part of the record in the lower court.
For original papers not part of the lower court's record, the applicable rule is Sec. 1 of Rule 59 on
New Trial. Under said Rule, the papers in question cannot be admitted, because they are not "newly
discovered evidence ," for with due diligence movant could have presented them in the lower court,
since they were in its possession and control.
As far as this case is concerned, therefore, University Publishing Co., Inc. must be deemed as
unregistered, since by defendant-appellee's choice the record shows it to be so. Defendant-appellee
apparently sought to delay the execution by remaining unregistered per the certification of the
Securities and Exchange Commission. It was only when execution was to be carried out, anyway,
against it and/or its president and almost 19 years after the approval of the law authorizing
reconstitution that it reconstituted its records to show its registration, thereby once more
attempting to delay the payment of plaintiff's claim, long since adjudged meritorious. Deciding,
therefore, as we must, this particular case on its record as submitted by the parties, defendantappellee's proffered evidence of its corporate existence cannot at this stage be considered to alter
the decision reached herein. This is not to preclude in future cases the consideration of properly
submitted evidence as to defendant-appellee's corporate existence.
WHEREFORE, the motion for reconsideration and for leave to file original papers not in the record,
is hereby denied. It is so ordered.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala, Makalintal and
Zaldivar, JJ., concur.
Barrera, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-58028 April 18, 1989
CHIANG KAI SHEK SCHOOL, petitioner,
vs.
COURT OF APPEALS and FAUSTINA FRANCO OH, respondents.

CRUZ, J.:
An unpleasant surprise awaited Fausta F. Oh when she reported for work at the Chiang Kai Shek
School in Sorsogon on the first week of July, 1968. She was told she had no assignment for the next
semester. Oh was shocked. She had been teaching in the school since 1932 for a continuous period
of almost 33 years. And now, out of the blue, and for no apparent or given reason, this abrupt
dismissal.
Oh sued. She demanded separation pay, social security benefits, salary differentials, maternity
benefits and moral and exemplary damages. 1 The original defendant was the Chiang Kai Shek School but when it filed a
motion to dismiss on the ground that it could not be sued, the complaint was amended. 2 Certain officials of the school were also impleaded
to make them solidarily liable with the school.

The Court of First Instance of Sorsogon dismissed the complaint.

3 On appeal, its decision was set aside by the

respondent court, which held the school suable and liable while absolving the other defendants. 4 The motion for reconsideration having
been denied, 5 the school then came to this Court in this petition for review on certiorari.

The issues raised in the petition are:

1. Whether or not a school that has not been incorporated may be sued by reason alone of its long
continued existence and recognition by the government,
2. Whether or not a complaint filed against persons associated under a common name will justify a
judgment against the association itself and not its individual members.
3. Whether or not the collection of tuition fees and book rentals will make a school profit-making and
not charitable.
4. Whether or not the Termination Pay Law then in force was available to the private respondent who
was employed on a year-to-year basis.

5. Whether or not the awards made by the respondent court were warranted.
We hold against the petitioner on the first question. It is true that Rule 3, Section 1, of the Rules of
Court clearly provides that "only natural or juridical persons may be parties in a civil action." It is also
not denied that the school has not been incorporated. However, this omission should not prejudice
the private respondent in the assertion of her claims against the school.
As a school, the petitioner was governed by Act No. 2706 as amended by C.A. No. 180, which
provided as follows:
Unless exempted for special reasons by the Secretary of Public Instruction, any
private school or college recognized by the government shall be incorporated under
the provisions of Act No. 1459 known as the Corporation Law, within 90 days after
the date of recognition, and shall file with the Secretary of Public Instruction a copy of
its incorporation papers and by-laws.
Having been recognized by the government, it was under obligation to incorporate under the
Corporation Law within 90 days from such recognition. It appears that it had not done so at the time
the complaint was filed notwithstanding that it had been in existence even earlier than 1932. The
petitioner cannot now invoke its own non-compliance with the law to immunize it from the private
respondent's complaint.
There should also be no question that having contracted with the private respondent every year for
thirty two years and thus represented itself as possessed of juridical personality to do so, the
petitioner is now estopped from denying such personality to defeat her claim against it. According to
Article 1431 of the Civil Code, "through estoppel an admission or representation is rendered
conclusive upon the person making it and cannot be denied or disproved as against the person
relying on it."
As the school itself may be sued in its own name, there is no need to apply Rule 3, Section 15,
under which the persons joined in an association without any juridical personality may be sued with
such association. Besides, it has been shown that the individual members of the board of trustees
are not liable, having been appointed only after the private respondent's dismissal. 6
It is clear now that a charitable institution is covered by the labor laws

7 although the question was still unsettled

when this case arose in 1968. At any rate, there was no law even then exempting such institutions from the operation of the labor laws
(although they were exempted by the Constitution from ad valorem taxes). Hence, even assuming that the petitioner was a charitable
institution as it claims, the private respondent was nonetheless still entitled to the protection of the Termination Pay Law, which was then in
force.

While it may be that the petitioner was engaged in charitable works, it would not necessarily follow
that those in its employ were as generously motivated. Obviously, most of them would not have the
means for such charity. The private respondent herself was only a humble school teacher receiving a
meager salary of Pl80. 00 per month.
At that, it has not been established that the petitioner is a charitable institution, considering
especially that it charges tuition fees and collects book rentals from its students. 8 While this alone may not
indicate that it is profit-making, it does weaken its claim that it is a non-profit entity.

The petitioner says the private respondent had not been illegally dismissed because her teaching
contract was on a yearly basis and the school was not required to rehire her in 1968. The argument
is that her services were terminable at the end of each year at the discretion of the school.
Significantly, no explanation was given by the petitioner, and no advance notice either, of her relief

after teaching year in and year out for all of thirty-two years, the private respondent was simply told
she could not teach any more.
The Court holds, after considering the particular circumstance of Oh's employment, that she had
become a permanent employee of the school and entitled to security of tenure at the time of her
dismissal. Since no cause was shown and established at an appropriate hearing, and the notice then
required by law had not been given, such dismissal was invalid.
The private respondent's position is no different from that of the rank-and-file employees involved
in Gregorio Araneta University Foundation v. NLRC, 9 of whom the Court had the following to say:
Undoubtedly, the private respondents' positions as deans and department heads of
the petitioner university are necessary in its usual business. Moreover, all the private
respondents have been serving the university from 18 to 28 years. All of them rose
from the ranks starting as instructors until they became deans and department heads
of the university. A person who has served the University for 28 years and who
occupies a high administrative position in addition to teaching duties could not
possibly be a temporary employee or a casual.
The applicable law is the Termination Pay Law, which provided:
SECTION 1. In cases of employment, without a definite period, in a commercial,
industrial, or agricultural establishment or enterprise, the employer or the employee
may terminate at any time the employment with just cause; or without just cause in
the case of an employee by serving written notice on the employer at least one
month in advance, or in the case of an employer, by serving such notice to the
employee at least one month in advance or one-half month for every year of service
of the employee, whichever, is longer, a fraction of at least six months being
considered as one whole year.
The employer, upon whom no such notice was served in case of termination of
employment without just cause may hold the employee liable for damages.
The employee, upon whom no such notice was served in case of termination of
employment without just cause shall be entitled to compensation from the date of
termination of his employment in an I amount equivalent to his salaries or wages
correspond to the required period of notice. ... .
The respondent court erred, however, in awarding her one month pay instead of only one-half month
salary for every year of service. The law is quite clear on this matter. Accordingly, the separation pay
should be computed at P90.00 times 32 months, for a total of P2,880.00.
Parenthetically, R.A. No. 4670, otherwise known as the Magna Carta for Public School Teachers,
confers security of tenure on the teacher upon appointment as long as he possesses the required
qualification. 10 And under the present policy of the Department of Education, Culture and Sports, a teacher becomes permanent and
automatically acquires security of tenure upon completion of three years in the service. 11

While admittedly not applicable to the case at bar, these I rules nevertheless reflect the attitude of
the government on the protection of the worker's security of tenure, which is now guaranteed by no
less than the Constitution itself. 12

We find that the private respondent was arbitrarily treated by the petitioner, which has shown no
cause for her removal nor had it given her the notice required by the Termination Pay Law. As the
respondent court said, the contention that she could not report one week before the start of classes
is a flimsy justification for replacing her.13 She had been in its employ for all of thirty-two years. Her record was apparently
unblemished. There is no showing of any previous strained relations between her and the petitioner. Oh had every reason to assume, as she
had done in previous years, that she would continue teaching as usual.

It is easy to imagine the astonishment and hurt she felt when she was flatly and without warning told
she was dismissed. There was not even the amenity of a formal notice of her replacement, with
perhaps a graceful expression of thanks for her past services. She was simply informed she was no
longer in the teaching staff. To put it bluntly, she was fired.
For the wrongful act of the petitioner, the private respondent is entitled to moral damages.

14 As a
proximate result of her illegal dismissal, she suffered mental anguish, serious anxiety, wounded feelings and even besmirched reputation as
an experienced teacher for more than three decades. We also find that the respondent court did not err in awarding her exemplary damages
because the petitioner acted in a wanton and oppressive manner when it dismissed her. 15

The Court takes this opportunity to pay a sincere tribute to the grade school teachers, who are
always at the forefront in the battle against illiteracy and ignorance. If only because it is they who
open the minds of their pupils to an unexplored world awash with the magic of letters and numbers,
which is an extraordinary feat indeed, these humble mentors deserve all our respect and
appreciation.
WHEREFORE, the petition is DENIED. The appealed decision is AFFIRMED except for the award of
separation pay, which is reduced to P2,880.00. All the other awards are approved. Costs against the
petitioner.
This decision is immediately executory.
SO ORDERED.

G.R. No. 136448 November 3, 1999

LIM TONG LIM, petitioner,
vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow money to pursue a
business and to divide the profits or losses that may arise therefrom, even if it is shown that they
have not contributed any capital of their own to a "common fund." Their contribution may be in the
form of credit or industry, not necessarily cash or fixed assets. Being partner, they are all liable for
debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of
an unincorporated association or ostensible corporation may lie in a person who may not have
directly transacted on its behalf, but reaped benefits from that contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998
Decision of the Court of Appeals in CA-GR CV
41477, 1 which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same
is hereby affirmed. 2
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the
CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on
September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject to
the modifications as hereinafter made by reason of the special and unique facts and
circumstances and the proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the
fishing nets covered by the Agreement plus P68,000.00 representing
the unpaid price of the floats not covered by said Agreement;
b. 12% interest per annum counted from date of plaintiff's invoices
and computed on their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No.
14407 for P385,377.80 dated February 9, 1990;
ii. Accrued interest for P27,904.02 on Invoice No.
14413 for P146,868.00 dated February 13, 1990;

iii. Accrued interest of P12,920.00 on Invoice No.

14426 for P68,000.00 dated February 19, 1990;
c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing
P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage
charges on the nets counted from September 20, 1990 (date of
attachment) to September 12, 1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or
for the unpaid price of nets and floats in the amount of P532,045.00 and
P68,000.00, respectively, or for the total amount P600,045.00, this Court
noted that these items were attached to guarantee any judgment that may be
rendered in favor of the plaintiff but, upon agreement of the parties, and, to
avoid further deterioration of the nets during the pendency of this case, it was
ordered sold at public auction for not less than P900,000.00 for which the
plaintiff was the sole and winning bidder. The proceeds of the sale paid for by
plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced
the attached property as a guaranty for any judgment that plaintiff may be
able to secure in this case with the ownership and possession of the nets and
floats awarded and delivered by the sheriff to plaintiff as the highest bidder in
the public auction sale. It has also been noted that ownership of the nets
[was] retained by the plaintiff until full payment [was] made as stipulated in
the invoices; hence, in effect, the plaintiff attached its own properties. It [was]
for this reason also that this Court earlier ordered the attachment bond filed
by plaintiff to guaranty damages to defendants to be cancelled and for the
P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor
of defendants.
From the foregoing, it would appear therefore that whatever judgment the
plaintiff may be entitled to in this case will have to be satisfied from the
amount of P900,000.00 as this amount replaced the attached nets and floats.
Considering, however, that the total judgment obligation as computed above
would amount to only P840,216.92, it would be inequitable, unfair and unjust
to award the excess to the defendants who are not entitled to damages and
who did not put up a single centavo to raise the amount of P900,000.00 aside
from the fact that they are not the owners of the nets and floats. For this
reason, the defendants are hereby relieved from any and all liabilities arising
from the monetary judgment obligation enumerated above and for plaintiff to
retain possession and ownership of the nets and floats and for the
reimbursement of the P900,000.00 deposited by it with the Clerk of Court.
SO ORDERED. 3
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a
Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine
Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a

business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement.
The total price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were
also sold to the Corporation. 4
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents
filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of
preliminary attachment. The suit was brought against the three in their capacities as general
partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as
shown by a Certification from the Securities and Exchange Commission. 5 On September 20, 1990,
the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing
nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting
a reasonable time within which to pay. He also turned over to respondent some of the nets which
were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his
right to cross-examine witnesses and to present evidence on his behalf, because of his failure to
appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim
and Crossclaim and moved for the lifting of the Writ of Attachment. 6 The trial court maintained the Writ,
and upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine
Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds of
P900,000. 7
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear
Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners,
were jointly liable to pay respondent. 8
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the
testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the
three 9 in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon,
Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a
declaration of ownership of fishing boats; (d) an injunction and (e) damages. 10 The Compromise
Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4)
vessels sold in the amount of P5,750,000.00 including the fishing net.
This P5,750,000.00 shall be applied as full payment for
P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong
Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher
price than P5,750,000.00 whatever will be the excess will be divided
into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than
P5,750,000.00 whatever the deficiency shall be shouldered and paid
to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3
Peter Yao. 11
The trial court noted that the Compromise Agreement was silent as to the nature of their obligations,
but that joint liability could be presumed from the equal distribution of the profit and loss. 21
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.

Ruling of the Court of Appeals

In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing
business and may thus be held liable as a such for the fishing nets and floats purchased by and for
the use of the partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong
Lim undertook a partnership for a specific undertaking, that is for commercial fishing .
. . . Oviously, the ultimate undertaking of the defendants was to divide the profits
among themselves which is what a partnership essentially is . . . . By a contract of
partnership, two or more persons bind themselves to contribute money, property or
industry to a common fund with the intention of dividing the profits among themselves
(Article 1767, New Civil Code). 13
Hence, petitioner brought this recourse before this Court.

14

The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the
following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE
AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A
SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG
THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR
OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM
PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN
IMPUTING LIABILITY TO PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND
ATTACHMENT OF PETITIONER LIM'S GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats from respondent,
the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to
have entered into a partnership.
This Court's Ruling
The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership
and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased from respondent, petitioner
controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He
asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he

disclaims any direct participation in the purchase of the nets, alleging that the negotiations were
conducted by Chua and Yao only, and that he has not even met the representatives of the
respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao,
for the "Contract of Lease " dated February 1, 1990, showed that he had merely leased to the two
the main asset of the purported partnership the fishing boat F/B Lourdes. The lease was for six
months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts
clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767
of the Civil Code which provides:
Art. 1767 By the contract of partnership, two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed based on the
following factual findings: 15
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in
commercial fishing to join him, while Antonio Chua was already Yao's partner;
(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to
acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35
million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong
Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a
Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to
serve as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry
docking and other expenses for the boats would be shouldered by Chua and Yao;
(6) That because of the "unavailability of funds," Jesus Lim again extended a loan to
the partnership in the amount of P1 million secured by a check, because of which,
Yao and Chua entrusted the ownership papers of two other boats, Chua's FB Lady
Anne Mel and Yao's FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua
bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest
Fishing Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC,
Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of
nullity of commercial documents; (b) reformation of contracts; (c) declaration of
ownership of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed
between the parties-litigants the terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to
engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a
loan secured from Jesus Lim who was petitioner's brother. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and
to divide equally among them the excess or loss. These boats, the purchase and the repair of which
were financed with borrowed money, fell under the term "common fund" under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or
industry. That the parties agreed that any loss or profit from the sale and operation of the boats
would be divided equally among them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to
that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were
obviously acquired in furtherance of their business. It would have been inconceivable for Lim to
involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment,
without which the business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership
engaged in the fishing business. They purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and operations thereof would be
divided among them.
We stress that under Rule 45, a petition for review like the present case should involve only
questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this
Court, absent any cogent proof that the present action is embraced by one of the exceptions to the
rule. 16 In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the
bounds of a petition for review under Rule 45.
Compromise Agreement
Not the Sole Basis of Partnership
Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership
was the Compromise Agreement. He also claims that the settlement was entered into only to end the
dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are
baseless. The Agreement was but an embodiment of the relationship extant among the parties prior
to its execution.
A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise
all relevant facts. Both lower courts have done so and have found, correctly, a preexisting
partnership among the parties. In implying that the lower courts have decided on the basis of one
piece of document alone, petitioner fails to appreciate that the CA and the RTC delved into the
history of the document and explored all the possible consequential combinations in harmony with
law, logic and fairness. Verily, the two lower courts' factual findings mentioned above nullified
petitioner's argument that the existence of a partnership was based only on the Compromise
Agreement.
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua
and Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of

Lease and the registration papers showing that he was the owner of the boats, including F/B
Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale
of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided
among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale
proved that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and
Yao, in which debts were undertaken in order to finance the acquisition and the upgrading of the
vessels which would be used in their fishing business. The sale of the boats, as well as the division
among the three of the balance remaining after the payment of their loans, proves beyond cavil
that F/B Lourdes, though registered in his name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties acquired from a loan in the name of the
person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the
creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd for petitioner to sell his property to pay a
debt he did not incur, if the relationship among the three of them was merely that of lessor-lessee,
instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to
Chua and Yao, and not to him. Again, we disagree.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be
estopped from denying its corporate existence. "The reason behind this doctrine is obvious an
unincorporated association has no personality and would be incompetent to act and appropriate for
itself the power and attributes of a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or purport to act as its representatives or
agents do so without authority and at their own risk. And as it is an elementary principle of law that a
person who acts as an agent without authority or without a principal is himself regarded as the
principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence assumes such privileges
and obligations and becomes personally liable for contracts entered into or for other acts performed
as such agent. 17

The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In
the first instance, an unincorporated association, which represented itself to be a corporation, will be
estopped from denying its corporate capacity in a suit against it by a third person who relied in good
faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility
for a contract it entered into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated, nonetheless
treated it as a corporation and received benefits from it, may be barred from denying its corporate
existence in a suit brought against the alleged corporation. In such case, all those who benefited
from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may
be held liable for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for
the nets it sold. The only question here is whether petitioner should be held jointly 18 liable with Chua
and Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the ostensible
corporation should be held liable. Since his name does not appear on any of the contracts and since he
never directly transacted with the respondent corporation, ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat
which has earlier been proven to be an asset of the partnership. He in fact questions the attachment
of the nets, because the Writ has effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a
corporation. Although it was never legally formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law
on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be
without valid existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having
reaped the benefits of the contract entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is covered by the scope of the doctrine
of corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor: 19
A litigation is not a game of technicalities in which one, more deeply schooled and
skilled in the subtle art of movement and position, entraps and destroys the other. It
is, rather, a contest in which each contending party fully and fairly lays before the
court the facts in issue and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that justice be done upon
the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality,
when it deserts its proper office as an aid to justice and becomes its great hindrance
and chief enemy, deserves scant consideration from courts. There should be no
vested rights in technicalities.
Third Issue:
Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We
agree with the Court of Appeals that this issue is now moot and academic. As previously
discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name of
petitioner, only to assure payment of the debt he and his partners owed. The nets and the floats
were specifically manufactured and tailor-made according to their own design, and were bought and

used in the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the payment
of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the
nets remained with Respondent Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., pls. see concurring opinion.
Separate Opinions
VITUG, J., concurring opinion;
I share the views expressed in the ponencia of an esteemed colleague, Mr. Justice Artemio V.
Panganiban, particularly the finding that Antonio Chua, Peter Yao and petitioner Lim Tong Lim have
incurred the liabilities of general partners. I merely would wish to elucidate a bit, albeit briefly, the
liability of partners in a general partnership.
When a person by his act or deed represents himself as a partner in an existing partnership or with
one or more persons not actual partners, he is deemed an agent of such persons consenting to such
representation and in the same manner, if he were a partner, with respect to persons who rely upon
the representation. 1 The association formed by Chua, Yao and Lim, should be, as it has been deemed,
a de facto partnership with all the consequent obligations for the purpose of enforcing the rights of third
persons. The liability of general partners (in a general partnership as so opposed to a limited partnership)
is laid down in Article 1816 2 which posits that all partners shall be liable pro rata beyond the partnership
assets for all the contracts which may have been entered into in its name, under its signature, and by a
person authorized to act for the partnership. This rule is to be construed along with other provisions of the
Civil Code which postulate that the partners can be held solidarily liable with the partnership specifically in
these instances (1) where, by any wrongful act or omission of any partner acting in the ordinary course
of the business of the partnership or with the authority of his co-partners, loss or injury is caused to any
person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor
to the same extent as the partner so acting or omitting to act; (2) where one partner acting within the
scope of his apparent authority receives money or property of a third person and misapplies it; and (3)
where the partnership in the course of its business receives money or property of a third person and the
money or property so received is misapplied by any partner while it is in the custody of the
partnership 3 consistently with the rules on the nature of civil liability in delicts and quasi-delicts.

[G.R. No. 119002. October 19, 2000]

INTERNATIONAL
EXPRESS
TRAVEL
&
TOUR
SERVICES,
INC., petitioner, vs. HON. COURT OF APPEALS, HENRI KAHN,
PHILIPPINE FOOTBALL FEDERATION, respondents.
DECISION
KAPUNAN, J.:

On June 30 1989, petitioner International Express Travel and Tour

Services, Inc., through its managing director, wrote a letter to the Philippine
Football Federation (Federation), through its president private respondent
Henri Kahn, wherein the former offered its services as a travel agency to the
latter.[1] The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and
officials of the Federation to the South East Asian Games in Kuala Lumpur as
well as various other trips to the People's Republic of China and
Brisbane. The total cost of the tickets amounted to P449,654.83. For the
tickets received, the Federation made two partial payments, both in
September of 1989, in the total amount of P176,467.50.[2]
On 4 October 1989, petitioner wrote the Federation, through the private
respondent a demand letter requesting for the amount of P265,894.33.[3] On
30 October 1989, the Federation, through the Project Gintong Alay, paid the
amount of P31,603.00.[4]
On 27 December 1989, Henri Kahn issued a personal check in the amount
of P50,000 as partial payment for the outstanding balance of the Federation.
[5]
Thereafter, no further payments were made despite repeated demands.
This prompted petitioner to file a civil case before the Regional Trial Court
of Manila. Petitioner sued Henri Kahn in his personal capacity and as
President of the Federation and impleaded the Federation as an alternative
defendant. Petitioner sought to hold Henri Kahn liable for the unpaid balance

for the tickets purchased by the Federation on the ground that Henri Kahn
allegedly guaranteed the said obligation.[6]
Henri Kahn filed his answer with counterclaim. While not denying the
allegation that the Federation owed the amount P207,524.20, representing the
unpaid balance for the plane tickets, he averred that the petitioner has no
cause of action against him either in his personal capacity or in his official
capacity as president of the Federation. He maintained that he did not
guarantee payment but merely acted as an agent of the Federation which has
a separate and distinct juridical personality.[7]
On the other hand, the Federation failed to file its answer, hence, was
declared in default by the trial court.[8]
In due course, the trial court rendered judgment and ruled in favor of the
petitioner and declared Henri Kahn personally liable for the unpaid obligation
of the Federation. In arriving at the said ruling, the trial court rationalized:
Defendant Henri Kahn would have been correct in his contentions had it been duly
established that defendant Federation is a corporation. The trouble, however, is that
neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving
the corporate existence of the defendant Federation. In paragraph 2 of its complaint,
plaintiff asserted that "Defendant Philippine Football Federation is a sports association
xxx." This has not been denied by defendant Henri Kahn in his Answer. Being the
President of defendant Federation, its corporate existence is within the personal
knowledge of defendant Henri Kahn. He could have easily denied specifically the
assertion of the plaintiff that it is a mere sports association, if it were a domestic
corporation. But he did not.
xxx
A voluntary unincorporated association, like defendant Federation has no power to
enter into, or to ratify, a contract. The contract entered into by its officers or agents on
behalf of such association is not binding on, or enforceable against it. The officers or
agents are themselves personally liable.
x x x[9]
The dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the
plaintiff the principal sum of P207,524.20, plus the interest thereon at the legal rate
computed from July 5, 1990, the date the complaint was filed, until the principal
obligation is fully liquidated; and another sum of P15,000.00 for attorney's fees.

The complaint of the plaintiff against the Philippine Football Federation and the
counterclaims of the defendant Henri Kahn are hereby dismissed.
With the costs against defendant Henri Kahn. [10]
Only Henri Kahn elevated the above decision to the Court of Appeals. On
21 December 1994, the respondent court rendered a decision reversing the
trial court, the decretal portion of said decision reads:
WHEREFORE, premises considered, the judgment appealed from is hereby
REVERSED and SET ASIDE and another one is rendered dismissing the complaint
against defendant Henri S. Kahn.[11]
In finding for Henri Kahn, the Court of Appeals recognized the juridical
existence of the Federation. It rationalized that since petitioner failed to prove
that Henri Kahn guaranteed the obligation of the Federation, he should not be
held liable for the same as said entity has a separate and distinct personality
from its officers.
Petitioner filed a motion for reconsideration and as an alternative prayer
pleaded that the Federation be held liable for the unpaid obligation. The same
was denied by the appellate court in its resolution of 8 February 1995, where it
stated that:
As to the alternative prayer for the Modification of the Decision by expressly
declaring in the dispositive portion thereof the Philippine Football Federation (PFF) as
liable for the unpaid obligation, it should be remembered that the trial court dismissed
the complaint against the Philippine Football Federation, and the plaintiff did not
appeal from this decision. Hence, the Philippine Football Federation is not a party to
this appeal and consequently, no judgment may be pronounced by this Court against
the PFF without violating the due process clause, let alone the fact that the judgment
dismissing the complaint against it, had already become final by virtue of the
plaintiff's failure to appeal therefrom. The alternative prayer is therefore similarly
DENIED.[12]
Petitioner now seeks recourse to this Court and alleges that the
respondent court committed the following assigned errors:[13]
A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER HAD DEALT WITH THE PHILIPPINE FOOTBALL FEDERATION
(PFF) AS A CORPORATE ENTITY AND IN NOT HOLDING THAT PRIVATE
RESPONDENT HENRI KAHN WAS THE ONE WHO REPRESENTED THE PFF AS
HAVING A CORPORATE PERSONALITY.

B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE

RESPONDENT HENRI KAHN PERSONALLY LIABLE FOR THE OBLIGATION OF
THE UNINCORPORATED PFF, HAVING NEGOTIATED WITH PETITIONER AND
CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL
PAYMENT AND ASSURED PETITIONER OF FULLY SETTLING THE
OBLIGATION.
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT
PERSONALLY LIABLE, THE HONORABLE COURT OF APPEALS ERRED IN NOT
EXPRESSLY DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE
FOR THE OBLIGATION.

The resolution of the case at bar hinges on the determination of the

existence of the Philippine Football Federation as a juridical person. In the
assailed decision, the appellate court recognized the existence of the
Federation. In support of this, the CA cited Republic Act 3135, otherwise
known as the Revised Charter of the Philippine Amateur Athletic Federation,
and Presidential Decree No. 604 as the laws from which said Federation
derives its existence.
As correctly observed by the appellate court, both R.A. 3135 and P.D. No.
604 recognized the juridical existence of national sports associations. This
may be gleaned from the powers and functions granted to these
associations. Section 14 of R.A. 3135 provides:
SEC. 14. Functions, powers and duties of Associations. - The National Sports'
Association shall have the following functions, powers and duties:
1. To adopt a constitution and by-laws for their internal organization and government;
2. To raise funds by donations, benefits, and other means for their purposes.
3. To purchase, sell, lease or otherwise encumber property both real and personal, for
the accomplishment of their purpose;
4. To affiliate with international or regional sports' Associations after due consultation
with the executive committee;
xxx
13. To perform such other acts as may be necessary for the proper accomplishment of
their purposes and not inconsistent with this Act.
Section 8 of P.D. 604, grants similar functions to these sports associations:

SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National
sports associations shall have the following functions, powers, and duties:
1. Adopt a Constitution and By-Laws for their internal organization and government
which shall be submitted to the Department and any amendment thereto shall take
effect upon approval by the Department: Provided, however, That no team, school,
club, organization, or entity shall be admitted as a voting member of an association
unless 60 per cent of the athletes composing said team, school, club, organization, or
entity are Filipino citizens;
2. Raise funds by donations, benefits, and other means for their purpose subject to the
approval of the Department;
3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for
the accomplishment of their purpose;
4. Conduct local, interport, and international competitions, other than the Olympic and
Asian Games, for the promotion of their sport;
5. Affiliate with international or regional sports associations after due consultation
with the Department;
xxx
13. Perform such other functions as may be provided by law.
The above powers and functions granted to national sports associations
clearly indicate that these entities may acquire a juridical personality. The
power to purchase, sell, lease and encumber property are acts which may
only be done by persons, whether natural or artificial, with juridical
capacity. However, while we agree with the appellate court that national sports
associations may be accorded corporate status, such does not automatically
take place by the mere passage of these laws.
It is a basic postulate that before a corporation may acquire juridical
personality, the State must give its consent either in the form of a special law
or a general enabling act. We cannot agree with the view of the appellate
court and the private respondent that the Philippine Football Federation came
into existence upon the passage of these laws. Nowhere can it be found in
R.A. 3135 or P.D. 604 any provision creating the Philippine Football
Federation. These laws merely recognized the existence of national sports
associations and provided the manner by which these entities may acquire
juridical personality. Section 11 of R.A. 3135 provides:

SEC. 11. National Sports' Association; organization and recognition. - A National

Association shall be organized for each individual sports in the Philippines in the
manner hereinafter provided to constitute the Philippine Amateur Athletic Federation.
Applications for recognition as a National Sports' Association shall be filed with the
executive committee together with, among others, a copy of the constitution and bylaws and a list of the members of the proposed association, and a filing fee of ten
pesos.
The Executive Committee shall give the recognition applied for if it is satisfied that
said association will promote the purposes of this Act and particularly section three
thereof. No application shall be held pending for more than three months after the
filing thereof without any action having been taken thereon by the executive
committee. Should the application be rejected, the reasons for such rejection shall be
clearly stated in a written communication to the applicant. Failure to specify the
reasons for the rejection shall not affect the application which shall be considered as
unacted upon: Provided, however, That until the executive committee herein provided
shall have been formed, applications for recognition shall be passed upon by the duly
elected members of the present executive committee of the Philippine Amateur
Athletic Federation. The said executive committee shall be dissolved upon the
organization of the executive committee herein provided: Provided, further, That the
functioning executive committee is charged with the responsibility of seeing to it that
the National Sports' Associations are formed and organized within six months from
and after the passage of this Act.
Section 7 of P.D. 604, similarly provides:
SEC. 7. National Sports Associations. - Application for accreditation or recognition as
a national sports association for each individual sport in the Philippines shall be filed
with the Department together with, among others, a copy of the Constitution and ByLaws and a list of the members of the proposed association.
The Department shall give the recognition applied for if it is satisfied that the national
sports association to be organized will promote the objectives of this Decree and has
substantially complied with the rules and regulations of the
Department: Provided, That the Department may withdraw accreditation or
recognition for violation of this Decree and such rules and regulations formulated by
it.
The Department shall supervise the national sports association: Provided, That the
latter shall have exclusive technical control over the development and promotion of
the particular sport for which they are organized.

Clearly the above cited provisions require that before an entity may be
considered as a national sports association, such entity must be recognized
by the accrediting organization, the Philippine Amateur Athletic Federation
under R.A. 3135, and the Department of Youth and Sports Development
under P.D. 604. This fact of recognition, however, Henri Kahn failed to
substantiate. In attempting to prove the juridical existence of the Federation,
Henri Kahn attached to his motion for reconsideration before the trial court a
copy of the constitution and by-laws of the Philippine Football
Federation. Unfortunately, the same does not prove that said Federation has
indeed been recognized and accredited by either the Philippine Amateur
Athletic Federation or the Department of Youth and Sports
Development. Accordingly, we rule that the Philippine Football Federation is
not a national sports association within the purview of the aforementioned
laws and does not have corporate existence of its own.
Thus being said, it follows that private respondent Henry Kahn should be
held liable for the unpaid obligations of the unincorporated Philippine Football
Federation. It is a settled principal in corporation law that any person acting or
purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and becomes personally liable for contract entered
into or for other acts performed as such agent. [14] As president of the
Federation, Henri Kahn is presumed to have known about the corporate
existence or non-existence of the Federation. We cannot subscribe to the
position taken by the appellate court that even assuming that the Federation
was defectively incorporated, the petitioner cannot deny the corporate
existence of the Federation because it had contracted and dealt with the
Federation in such a manner as to recognize and in effect admit its existence.
[15]
The doctrine of corporation by estoppel is mistakenly applied by the
respondent court to the petitioner. The application of the doctrine applies to a
third party only when he tries to escape liability on a contract from which he
has benefited on the irrelevant ground of defective incorporation. [16] In the case
at bar, the petitioner is not trying to escape liability from the contract but rather
is the one claiming from the contract.
WHEREFORE, the decision appealed from is REVERSED and SET
ASIDE. The decision of the Regional Trial Court of Manila, Branch 35, in Civil
Case No. 90-53595 is hereby REINSTATED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 104175 June 25, 1993

YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS (THIRTEENTH DIVISION) AND GEORGE CHIONG
ROXAS,respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioners.
Antonio Nuyles for private respondent.

QUIASON, J.:
Petitioners seek to set aside the decision of respondent Court of Appeals in CA-G.R. SP No. 25237,
which reversed the Order dated February 8, 1991 issued by the Regional Trial Court, Branch 11,
Cebu City in Civil Case No. CEB 6967. The order of the trial court denied the motion to dismiss filed
by respondent George C. Roxas of the complaint for collection filed by petitioners.
It appears that sometime on October 28, 1987, Young Auto Supply Co. Inc. (YASCO) represented by
Nemesio Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in
Consolidated Marketing & Development Corporation (CMDC) to Roxas. The purchase price was

P8,000,000.00 payable as follows: a downpayment of P4,000,000.00 and the balance of

P4,000,000.00 in four post dated checks of P1,000,000.00 each.
Immediately after the execution of the agreement, Roxas took full control of the four markets of
CMDC. However, the vendors held on to the stock certificates of CMDC as security pending full
payment of the balance of the purchase price.
The first check of P4,000,000.00, representing the down-payment, was honored by the drawee bank
but the four other checks representing the balance of P4,000,000.00 were dishonored. In the
meantime, Roxas sold one of the markets to a third party. Out of the proceeds of the sale, YASCO
received P600,000.00, leaving a balance of P3,400,000.00 (Rollo, p. 176).
Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds of the
sale of the CMDC shares to Nemesio Garcia.
On June 10, 1988, petitioners filed a complaint against Roxas in the Regional Trial Court, Branch 11,
Cebu City, praying that Roxas be ordered to pay petitioners the sum of P3,400,00.00 or that full
control of the three markets be turned over to YASCO and Garcia. The complaint also prayed for the
forfeiture of the partial payment of P4,600,000.00 and the payment of attorney's fees and costs
(Rollo, p. 290).
Roxas filed two motions for extension of time to submit his answer. But despite said motion, he failed
to do so causing petitioners to file a motion to have him declared in default. Roxas then filed, through
a new counsel, a third motion for extension of time to submit a responsive pleading.
On August 19, 1988, the trial court declared Roxas in default. The order of default was, however,
lifted upon motion of Roxas.
On August 22, 1988, Roxas filed a motion to dismiss on the grounds that:
1. The complaint did not state a cause of action due to non-joinder of indispensable
parties;
2. The claim or demand set forth in the complaint had been waived, abandoned or
otherwise extinguished; and
3. The venue was improperly laid (Rollo, p. 299).
After a hearing, wherein testimonial and documentary evidence were presented by both parties, the
trial court in an Order dated February 8, 1991 denied Roxas' motion to dismiss. After receiving said
order, Roxas filed another motion for extension of time to submit his answer. He also filed a motion
for reconsideration, which the trial court denied in its Order dated April 10, 1991 for being proforma (Rollo, p. 17). Roxas was again declared in default, on the ground that his motion for
reconsideration did not toll the running of the period to file his answer.
On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not
accompanied with the required affidavit or merit. But without waiting for the resolution of the motion,
he filed a petition for certiorari with the Court of Appeals.

The Court of Appeals sustained the findings of the trial court with regard to the first two grounds
raised in the motion to dismiss but ordered the dismissal of the complaint on the ground of improper
venue (Rollo, p. 49).
A subsequent motion for reconsideration by petitioner was to no avail.
Petitioners now come before us, alleging that the Court of Appeals
erred in:
1. holding the venue should be in Pasay City, and not in Cebu City (where both
petitioners/plaintiffs are residents;
2. not finding that Roxas is estopped from questioning the choice of venue (Rollo, p.
19).
The petition is meritorious.
In holding that the venue was improperly laid in Cebu City, the Court of Appeals relied on the
address of YASCO, as appearing in the Deed of Sale dated October 28, 1987, which is "No. 1708
Dominga Street, Pasay City." This was the same address written in YASCO's letters and several
commercial documents in the possession of Roxas (Decision, p. 12; Rollo, p. 48).
In the case of Garcia, the Court of Appeals said that he gave Pasay City as his address in three
letters which he sent to Roxas' brothers and sisters (Decision, p. 12; Rollo, p. 47). The appellate
court held that Roxas was led by petitioners to believe that their residence is in Pasay City and that
he had relied upon those representations (Decision, p. 12, Rollo, p. 47).
The Court of Appeals erred in holding that the venue was improperly laid in Cebu City.
In the Regional Trial Courts, all personal actions are commenced and tried in the province or city
where the defendant or any of the defendants resides or may be found, or where the plaintiff or any
of the plaintiffs resides, at the election of the plaintiff [Sec. 2(b) Rule 4, Revised Rules of Court].
There are two plaintiffs in the case at bench: a natural person and a domestic corporation. Both
plaintiffs aver in their complaint that they are residents of Cebu City, thus:
1.1. Plaintiff Young Auto Supply Co., Inc., ("YASCO") is a domestic corporation duly
organized and existing under Philippine laws with principal place of business at M. J.
Cuenco Avenue, Cebu City. It also has a branch office at 1708 Dominga Street,
Pasay City, Metro Manila.
Plaintiff Nemesio Garcia is of legal age, married, Filipino citizen and with business
address at Young Auto Supply Co., Inc., M. J. Cuenco Avenue, Cebu City. . . .
(Complaint, p. 1; Rollo, p. 81).
The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:
THIRD That the place where the principal office of the corporation is to be
established or located is at Cebu City, Philippines (as amended on December 20,
1980 and further amended on December 20, 1984) (Rollo, p. 273).

A corporation has no residence in the same sense in which this term is applied to a natural person.
But for practical purposes, a corporation is in a metaphysical sense a resident of the place where its
principal office is located as stated in the articles of incorporation (Cohen v. Benguet Commercial
Co., Ltd., 34 Phil. 256 [1916] Clavecilla Radio System v. Antillon, 19 SCRA 379 [1967]). The
Corporation Code precisely requires each corporation to specify in its articles of incorporation the
"place where the principal office of the corporation is to be located which must be within the
Philippines" (Sec. 14 [3]). The purpose of this requirement is to fix the residence of a corporation in a
definite place, instead of allowing it to be ambulatory.
In Clavencilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court explained why actions
cannot be filed against a corporation in any place where the corporation maintains its branch offices.
The Court ruled that to allow an action to be instituted in any place where the corporation has branch
offices, would create confusion and work untold inconvenience to said entity. By the same token, a
corporation cannot be allowed to file personal actions in a place other than its principal place of
business unless such a place is also the residence of a co-plaintiff or a defendant.
If it was Roxas who sued YASCO in Pasay City and the latter questioned the venue on the ground
that its principal place of business was in Cebu City, Roxas could argue that YASCO was in estoppel
because it misled Roxas to believe that Pasay City was its principal place of business. But this is not
the case before us.
With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its
principal place of business is located, it becomes unnecessary to decide whether Garcia is also a
resident of Cebu City and whether Roxas was in estoppel from questioning the choice of Cebu City
as the venue.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals appealed from is
SET ASIDE and the Order dated February 8, 1991 of the Regional Trial Court is REINSTATED.
SO ORDERED.

G.R. No. 96161 February 21, 1992

PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL
DEVELOPMENT, INC.,petitioners,
vs.
COURT OF APPEALS, SECURITIES & EXCHANGE COMMISSION and STANDARD PHILIPS
CORPORATION,respondents.
Emeterio V. Soliven & Associates for petitioners.
Narciso A. Manantan for private respondent.

MELENCIO-HERRERA, J.:
Petitioners challenge the Decision of the Court of Appeals, dated 31 July 1990, in CA-GR Sp. No.
20067, upholding the Order of the Securities and Exchange Commission, dated 2 January 1990, in
SEC-AC No. 202, dismissing petitioners' prayer for the cancellation or removal of the word
"PHILIPS" from private respondent's corporate name.
Petitioner Philips Export B.V. (PEBV), a foreign corporation organized under the laws of the
Netherlands, although not engaged in business here, is the registered owner of the trademarks
PHILIPS and PHILIPS SHIELD EMBLEM under Certificates of Registration Nos. R-1641 and R1674, respectively issued by the Philippine Patents Office (presently known as the Bureau of
Patents, Trademarks and Technology Transfer). Petitioners Philips Electrical Lamps, Inc. (Philips
Electrical, for brevity) and Philips Industrial Developments, Inc. (Philips Industrial, for short),
authorized users of the trademarks PHILIPS and PHILIPS SHIELD EMBLEM, were incorporated on
29 August 1956 and 25 May 1956, respectively. All petitioner corporations belong to the PHILIPS
Group of Companies.
Respondent Standard Philips Corporation (Standard Philips), on the other hand, was issued a
Certificate of Registration by respondent Commission on 19 May 1982.
On 24 September 1984, Petitioners filed a letter complaint with the Securities & Exchange
Commission (SEC) asking for the cancellation of the word "PHILIPS" from Private Respondent's
corporate name in view of the prior registration with the Bureau of Patents of the trademark
"PHILIPS" and the logo "PHILIPS SHIELD EMBLEM" in the name of Petitioner, PEBV, and the
previous registration of Petitioners Philips Electrical and Philips Industrial with the SEC.
As a result of Private Respondent's refusal to amend its Articles of Incorporation, Petitioners filed
with the SEC, on 6 February 1985, a Petition (SEC Case No. 2743) praying for the issuance of a
Writ of Preliminary Injunction, alleging, among others, that Private Respondent's use of the word
PHILIPS amounts to an infringement and clear violation of Petitioners' exclusive right to use the
same considering that both parties engage in the same business.
In its Answer, dated 7 March 1985, Private Respondent countered that Petitioner PEBV has no legal
capacity to sue; that its use of its corporate name is not at all similar to Petitioners' trademark
PHILIPS when considered in its entirety; and that its products consisting of chain rollers, belts,
bearings and cutting saw are grossly different from Petitioners' electrical products.

After conducting hearings with respect to the prayer for Injunction; the SEC Hearing Officer, on 27
September 1985, ruled against the issuance of such Writ.
On 30 January 1987, the same Hearing Officer dismissed the Petition for lack of merit. In so ruling,
the latter declared that inasmuch as the SEC found no sufficient ground for the granting of injunctive
relief on the basis of the testimonial and documentary evidence presented, it cannot order the
removal or cancellation of the word "PHILIPS" from Private Respondent's corporate name on the
basis of the same evidence adopted in toto during trial on the merits. Besides, Section 18 of the
Corporation Code (infra) is applicable only when the corporate names in question are identical.
Here, there is no confusing similarity between Petitioners' and Private Respondent's corporate
names as those of the Petitioners contain at least two words different from that of the Respondent.
Petitioners' Motion for Reconsideration was likewise denied on 17 June 1987.
On appeal, the SEC en banc affirmed the dismissal declaring that the corporate names of Petitioners
and Private Respondent hardly breed confusion inasmuch as each contains at least two different
words and, therefore, rules out any possibility of confusing one for the other.
On 30 January 1990, Petitioners sought an extension of time to file a Petition for Review
on Certiorari before this Court, which Petition was later referred to the Court of Appeals in a
Resolution dated 12 February 1990.
In deciding to dismiss the petition on 31 July 1990, the Court of
Appeals 1 swept aside Petitioners' claim that following the ruling in Converse Rubber Corporation v.
Universal Converse Rubber Products, Inc., et al, (G. R. No. L-27906, January 8, 1987, 147 SCRA 154),
the word PHILIPS cannot be used as part of Private Respondent's corporate name as the same
constitutes a dominant part of Petitioners' corporate names. In so holding, the Appellate Court observed
that the Converse case is not four-square with the present case inasmuch as the contending parties
in Converse are engaged in a similar business, that is, the manufacture of rubber shoes. Upholding the
SEC, the Appellate Court concluded that "private respondents' products consisting of chain rollers, belts,
bearings and cutting saw are unrelated and non-competing with petitioners' products i.e. electrical lamps
such that consumers would not in any probability mistake one as the source or origin of the product of the
other."
The Appellate Court denied Petitioners' Motion for Reconsideration on 20 November 1990, hence,
this Petition which was given due course on 22 April 1991, after which the parties were required to
submit their memoranda, the latest of which was received on 2 July 1991. In December 1991, the
SEC was also required to elevate its records for the perusal of this Court, the same not having been
apparently before respondent Court of Appeals.
We find basis for petitioners' plea.
As early as Western Equipment and Supply Co. v. Reyes, 51 Phil. 115 (1927), the Court declared
that a corporation's right to use its corporate and trade name is a property right, a right in rem, which
it may assert and protect against the world in the same manner as it may protect its tangible
property, real or personal, against trespass or conversion. It is regarded, to a certain extent, as a
property right and one which cannot be impaired or defeated by subsequent appropriation by
another corporation in the same field (Red Line Transportation Co. vs. Rural Transit Co., September
8, 1934, 20 Phil 549).
A name is peculiarly important as necessary to the very existence of a corporation (American Steel
Foundries vs. Robertson, 269 US 372, 70 L ed 317, 46 S Ct 160; Lauman vs. Lebanon Valley R.
Co., 30 Pa 42; First National Bank vs. Huntington Distilling Co. 40 W Va 530, 23 SE 792). Its name is

one of its attributes, an element of its existence, and essential to its identity (6 Fletcher [Perm Ed],
pp. 3-4). The general rule as to corporations is that each corporation must have a name by which it
is to sue and be sued and do all legal acts. The name of a corporation in this respect designates the
corporation in the same manner as the name of an individual designates the person (Cincinnati
Cooperage Co. vs. Bate. 96 Ky 356, 26 SW 538; Newport Mechanics Mfg. Co. vs. Starbird. 10 NH
123); and the right to use its corporate name is as much a part of the corporate franchise as any
other privilege granted (Federal Secur. Co. vs. Federal Secur. Corp., 129 Or 375, 276 P 1100, 66
ALR 934; Paulino vs. Portuguese Beneficial Association, 18 RI 165, 26 A 36).
A corporation acquires its name by choice and need not select a name identical with or similar to one
already appropriated by a senior corporation while an individual's name is thrust upon him
(See Standard Oil Co. of New Mexico, Inc. v. Standard Oil Co. of California, 56 F 2d 973, 977). A
corporation can no more use a corporate name in violation of the rights of others than an individual
can use his name legally acquired so as to mislead the public and injure another (Armington vs.
Palmer, 21 RI 109. 42 A 308).
Our own Corporation Code, in its Section 18, expressly provides that:
No corporate name may be allowed by the Securities and Exchange Commission if
the proposed name is identical or deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by law or is patently
deceptive, confusing or contrary to existing law.Where a change in a corporate name
is approved, the commission shall issue an amended certificate of incorporation
under the amended name. (Emphasis supplied)
The statutory prohibition cannot be any clearer. To come within its scope, two requisites must be
proven, namely:
(1) that the complainant corporation acquired a prior right over the use of such corporate name; and
(2) the proposed name is either:
(a) identical; or
(b) deceptively or confusingly similar
to that of any existing corporation or to any other name already protected by law; or
(c) patently deceptive, confusing or contrary to existing law.
The right to the exclusive use of a corporate name with freedom from infringement by similarity is
determined by priority of adoption (1 Thompson, p. 80 citing Munn v. Americana Co., 82 N. Eq. 63,
88 Atl. 30; San Francisco Oyster House v. Mihich, 75 Wash. 274, 134 Pac. 921). In this regard, there
is no doubt with respect to Petitioners' prior adoption of' the name ''PHILIPS" as part of its corporate
name. Petitioners Philips Electrical and Philips Industrial were incorporated on 29 August 1956 and
25 May 1956, respectively, while Respondent Standard Philips was issued a Certificate of
Registration on 12 April 1982, twenty-six (26) years later (Rollo, p. 16). Petitioner PEBV has also
used the trademark "PHILIPS" on electrical lamps of all types and their accessories since 30
September 1922, as evidenced by Certificate of Registration No. 1651.

The second requisite no less exists in this case. In determining the existence of confusing similarity
in corporate names, the test is whether the similarity is such as to mislead a person, using ordinary
care and discrimination. In so doing, the Court must look to the record as well as the names
themselves (Ohio Nat. Life Ins. Co. v. Ohio Life Ins. Co., 210 NE 2d 298). While the corporate names
of Petitioners and Private Respondent are not identical, a reading of Petitioner's corporate names, to
wit: PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL
DEVELOPMENT, INC., inevitably leads one to conclude that "PHILIPS" is, indeed, the dominant
word in that all the companies affiliated or associated with the principal corporation, PEBV, are
known in the Philippines and abroad as the PHILIPS Group of Companies.
Respondents maintain, however, that Petitioners did not present an iota of proof of actual confusion
or deception of the public much less a single purchaser of their product who has been deceived or
confused or showed any likelihood of confusion. It is settled, however, that proof of actual confusion
need not be shown. It suffices that confusion is probably or likely to occur (6 Fletcher [Perm Ed], pp.
107-108, enumerating a long line of cases).
It may be that Private Respondent's products also consist of chain rollers, belts, bearing and the like,
while petitioners deal principally with electrical products. It is significant to note, however, that even
the Director of Patents had denied Private Respondent's application for registration of the
trademarks "Standard Philips & Device" for chain, rollers, belts, bearings and cutting saw. That office
held that PEBV, "had shipped to its subsidiaries in the Philippines equipment, machines and their
parts which fall under international class where "chains, rollers, belts, bearings and cutting saw," the
goods in connection with which Respondent is seeking to register 'STANDARD PHILIPS' . . . also
belong" ( Inter Partes Case No. 2010, June 17, 1988, SEC Rollo).
Furthermore, the records show that among Private Respondent's primary purposes in its Articles of
Incorporation (Annex D, Petition p. 37, Rollo) are the following:
To buy, sell, barter, trade, manufacture, import, export, or otherwise acquire, dispose
of, and deal in and deal with any kind of goods, wares, and merchandise such as but
not limited to plastics, carbon products, office stationery and supplies, hardware
parts, electrical wiring devices, electrical component parts, and/or complement
of industrial, agricultural or commercial machineries, constructive supplies, electrical
supplies and other merchandise which are or may become articles of commerce
except food, drugs and cosmetics and to carry on such business as manufacturer,
distributor, dealer, indentor, factor, manufacturer's representative capacity for
domestic or foreign companies. (emphasis ours)
For its part, Philips Electrical also includes, among its primary purposes, the following:
To develop manufacture and deal in electrical products, including electronic,
mechanical and other similar products . . . (p. 30, Record of SEC Case No. 2743)
Given Private Respondent's aforesaid underlined primary purpose, nothing could prevent it from
dealing in the same line of business of electrical devices, products or supplies which fall under its
primary purposes. Besides, there is showing that Private Respondent not only manufactured and
sold ballasts for fluorescent lamps with their corporate name printed thereon but also advertised the
same as, among others, Standard Philips (TSN, before the SEC, pp. 14, 17, 25, 26, 37-42, June 14,
1985; pp. 16-19, July 25, 1985). As aptly pointed out by Petitioners, [p]rivate respondent's choice of
"PHILIPS" as part of its corporate name [STANDARD PHILIPS CORPORATION] . . . tends to show
said respondent's intention to ride on the popularity and established goodwill of said petitioner's
business throughout the world" (Rollo, p. 137). The subsequent appropriator of the name or one

confusingly similar thereto usually seeks an unfair advantage, a free ride of another's goodwill
(American Gold Star Mothers, Inc. v. National Gold Star Mothers, Inc., et al, 89 App DC 269, 191 F
2d 488).
In allowing Private Respondent the continued use of its corporate name, the SEC maintains that the
corporate names of Petitioners PHILIPS ELECTRICAL LAMPS. INC. and PHILIPS INDUSTRIAL
DEVELOPMENT, INC. contain at least two words different from that of the corporate name of
respondent STANDARD PHILIPS CORPORATION, which words will readily identify Private
Respondent from Petitioners and vice-versa.
True, under the Guidelines in the Approval of Corporate and Partnership Names formulated by the
SEC, the proposed name "should not be similar to one already used by another corporation or
partnership. If the proposed name contains a word already used as part of the firm name or style of
a registered company; the proposed name must contain two other words different from the company
already registered" (Emphasis ours). It is then pointed out that Petitioners Philips Electrical and
Philips Industrial have two words different from that of Private Respondent's name.
What is lost sight of, however, is that PHILIPS is a trademark or trade name which was registered as
far back as 1922. Petitioners, therefore, have the exclusive right to its use which must be free from
any infringement by similarity. A corporation has an exclusive right to the use of its name, which may
be protected by injunction upon a principle similar to that upon which persons are protected in the
use of trademarks and tradenames (18 C.J.S. 574). Such principle proceeds upon the theory that it
is a fraud on the corporation which has acquired a right to that name and perhaps carried on its
business thereunder, that another should attempt to use the same name, or the same name with a
slight variation in such a way as to induce persons to deal with it in the belief that they are dealing
with the corporation which has given a reputation to the name (6 Fletcher [Perm Ed], pp. 3940, 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).

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

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.
Quisumbing, Torres & Evangelista Law Offices and Ambrosio Padilla for petitioner.
Antonio M. Nuyles and Purungan, Chato, Chato, Tarriela & Tan Law Offices for respondents.
Froilan Siobal for Western Pangasinan Lyceum.
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 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 p:
Petitioner is an educational institution duly registered with the Securities and Exchange Commission
("SEC"). When it first registered with the SEC on 21 September 1950, it used the corporate name
Lyceum of the Philippines, Inc. and has used that name ever since.
On 24 February 1984, petitioner instituted proceedings before the SEC to compel the private
respondents, which are also educational institutions, to delete the word "Lyceum" from their
corporate names and permanently to enjoin them from using "Lyceum" as part of their respective
names.
Some of the private respondents actively participated in the proceedings before the SEC. These are
the following, the dates of their original SEC registration being set out below opposite their
respective names:
Western Pangasinan Lyceum 27 October 1950
Lyceum of Cabagan 31 October 1962
Lyceum of Lallo, Inc. 26 March 1972
Lyceum of Aparri 28 March 1972
Lyceum of Tuao, Inc. 28 March 1972
Lyceum of Camalaniugan 28 March 1972
The following private respondents were declared in default for failure to file an answer despite
service of summons:
Buhi Lyceum;
Central Lyceum of Catanduanes;

Lyceum of Eastern Mindanao, Inc.; and

Lyceum of Southern Philippines
Petitioner's original complaint before the SEC had included three (3) other entities:
1. The Lyceum of Malacanay;
2. The Lyceum of Marbel; and
3. The Lyceum of Araullo
The complaint was later withdrawn insofar as concerned the Lyceum of Malacanay and the Lyceum
of Marbel, for failure to serve summons upon these two (2) entities. The case against the Liceum of
Araullo was dismissed when that school motu proprio change its corporate name to "Pamantasan ng
Araullo."
The background of the case at bar needs some recounting. Petitioner had sometime before
commenced in the SEC a proceeding (SEC-Case No. 1241) against the Lyceum of Baguio, Inc. to
require it to change its corporate name and to adopt another name not "similar [to] or identical" with
that of petitioner. In an Order dated 20 April 1977, Associate Commissioner Julio Sulit held that the
corporate name of petitioner and that of the Lyceum of Baguio, Inc. were substantially identical
because of the presence of a "dominant" word, i.e., "Lyceum," the name of the geographical location
of the campus being the only word which distinguished one from the other corporate name. The SEC
also noted that petitioner had registered as a corporation ahead of the Lyceum of Baguio, Inc. in
point of time, 1 and ordered the latter to change its name to another name "not similar or identical
[with]" the names of previously registered entities.
The Lyceum of Baguio, Inc. assailed the Order of the SEC before the Supreme Court in a case
docketed as G.R. No. L-46595. In a Minute Resolution dated 14 September 1977, the Court denied
the Petition for Review for lack of merit. Entry of judgment in that case was made on 21 October
1977. 2
Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote all the educational
institutions it could find using the word "Lyceum" as part of their corporate name, and advised them
to discontinue such use of "Lyceum." When, with the passage of time, it became clear that this
recourse had failed, petitioner instituted before the SEC SEC-Case No. 2579 to enforce what
petitioner claims as its proprietary right to the word "Lyceum." The SEC hearing officer rendered a
decision sustaining petitioner's claim to an exclusive right to use the word "Lyceum." The hearing
officer relied upon the SEC ruling in the Lyceum of Baguio, Inc. case (SEC-Case No. 1241) and held
that the word "Lyceum" was capable of appropriation and that petitioner had acquired an enforceable
exclusive right to the use of that word.
On appeal, however, by private respondents to the SEC En Banc, the decision of the hearing officer
was reversed and set aside. The SEC En Banc did not consider the word "Lyceum" to have become
so identified with petitioner as to render use thereof by other institutions as productive of confusion
about the identity of the schools concerned in the mind of the general public. Unlike its hearing
officer, the SEC En Banc held that the attaching of geographical names to the word "Lyceum" served
sufficiently to distinguish the schools from one another, especially in view of the fact that the
campuses of petitioner and those of the private respondents were physically quite remote from each
other. 3

Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28 June 1991, however,
the Court of Appeals affirmed the questioned Orders of the SEC En Banc. 4 Petitioner filed a motion
for reconsideration, without success.
Before this Court, petitioner asserts that the Court of Appeals committed the following errors:
1. The Court of Appeals erred in holding that the Resolution of the Supreme Court in G.R. No. L46595 did not constitute stare decisis as to apply to this case and in not holding that said Resolution
bound subsequent determinations on the right to exclusive use of the word Lyceum.
2. The Court of Appeals erred in holding that respondent Western Pangasinan Lyceum, Inc. was
incorporated earlier than petitioner.
3. The Court of Appeals erred in holding that the word Lyceum has not acquired a secondary
meaning in favor of petitioner.
4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be appropriated by
the petitioner to the exclusion of others. 5
We will consider all the foregoing ascribed errors, though not necessarily seriatim. We begin by
noting that the Resolution of the Court in G.R. No. L-46595 does not, of course, constitute res
adjudicata in respect of the case at bar, since there is no identity of parties. Neither is stare decisis
pertinent, if only because the SEC En Banc itself has re-examined Associate Commissioner Sulit's
ruling in the Lyceum of Baguio case. The Minute Resolution of the Court in G.R. No. L-46595 was
not a reasoned adoption of the Sulit ruling.
The Articles of Incorporation of a corporation must, among other things, set out the name of the
corporation. 6 Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate
names are concerned:
"SECTION 18. Corporate name. No corporate name may be allowed by the Securities an
Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that
of any existing corporation or to any other name already protected by law or is patently deceptive,
confusing or contrary to existing laws. When a change in the corporate name is approved, the
Commission shall issue an amended certificate of incorporation under the amended name."
(Emphasis supplied)
The policy underlying the prohibition in Section 18 against the registration of a corporate name which
is "identical or deceptively or confusingly similar" to that of any existing corporation or which is
"patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud
upon the public which would have occasion to deal with the entity concerned, the evasion of legal
obligations and duties, and the reduction of difficulties of administration and supervision over
corporations. 7
We do not consider that the corporate names of private respondent institutions are "identical with, or
deceptively or confusingly similar" to that of the petitioner institution. True enough, the corporate
names of private respondent entities all carry the word "Lyceum" but confusion and deception are
effectively precluded by the appending of geographic names to the word "Lyceum." Thus, we do not
believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the
Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the
Philippines.

Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn referred to a
locality on the river Ilissius in ancient Athens "comprising an enclosure dedicated to Apollo and
adorned with fountains and buildings erected by Pisistratus, Pericles and Lycurgus frequented by the
youth for exercise and by the philosopher Aristotle and his followers for teaching." 8 In time, the word
"Lyceum" became associated with schools and other institutions providing public lectures and
concerts and public discussions. Thus today, the word "Lyceum" generally refers to a school or an
institution of learning. While the Latin word "lyceum" has been incorporated into the English
language, the word is also found in Spanish (liceo) and in French (lycee). As the Court of Appeals
noted in its Decision, Roman Catholic schools frequently use the term; e.g., "Liceo de Manila,"
"Liceo de Baleno" (in Baleno, Masbate), "Liceo de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact
as generic in character as the word "university." In the name of the petitioner, "Lyceum" appears to
be a substitute for "university;" in other places, however, "Lyceum," or "Liceo" or "Lycee" frequently
denotes a secondary school or a college. It may be (though this is a question of fact which we need
not resolve) that the use of the word "Lyceum" may not yet be as widespread as the use of
"university," but it is clear that a not inconsiderable number of educational institutions have adopted
"Lyceum" or "Liceo" as part of their corporate names. Since "Lyceum" or "Liceo" denotes a school or
institution of learning, it is not unnatural to use this word to designate an entity which is organized
and operating as an educational institution.
It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning in
relation to petitioner with the result that that word, although originally a generic, has become
appropriable by petitioner to the exclusion of other institutions like private respondents herein.
The doctrine of secondary meaning originated in the field of trademark law. Its application has,
however, been extended to corporate names sine the right to use a corporate name to the exclusion
of others is based upon the same principle which underlies the right to use a particular trademark or
tradename. 10 In Philippine Nut Industry, Inc. v. Standard Brands, Inc., 11 the doctrine of secondary
meaning was elaborated in the following terms:
" . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on
the market, because geographically or otherwise descriptive, might nevertheless have been used so
long and so exclusively by one producer with reference to his article that, in that trade and to that
branch of the purchasing public, the word or phrase has come to mean that the article was his
product." 12
The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its
corporate name has been for such length of time and with such exclusivity as to have become
associated or identified with the petitioner institution in the mind of the general public (or at least that
portion of the general public which has to do with schools). The Court of Appeals recognized this
issue and answered it in the negative:
"Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive
appropriation with reference to an article in the market, because geographical or otherwise
descriptive might nevertheless have been used so long and so exclusively by one producer with
reference to this article that, in that trade and to that group of the purchasing public, the word or
phrase has come to mean that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56).
This circumstance has been referred to as the distinctiveness into which the name or phrase has
evolved through the substantial and exclusive use of the same for a considerable period of time.
Consequently, the same doctrine or principle cannot be made to apply where the evidence did not
prove that the business (of the plaintiff) has continued for so long a time that it has become of
consequence and acquired a good will of considerable value such that its articles and produce have

acquired a well-known reputation, and confusion will result by the use of the disputed name (by the
defendant) (Ang Si Heng vs. Wellington Department Store, Inc., 92 Phil. 448).
With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the aforementioned
requisites. No evidence was ever presented in the hearing before the Commission which sufficiently
proved that the word 'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If
there was any of this kind, the same tend to prove only that the appellant had been using the
disputed word for a long period of time. Nevertheless, its (appellant) exclusive use of the word
(Lyceum) was never established or proven as in fact the evidence tend to convey that the crossclaimant was already using the word 'Lyceum' seventeen (17) years prior to the date the appellant
started using the same word in its corporate name. Furthermore, educational institutions of the
Roman Catholic Church had been using the same or similar word like 'Liceo de Manila,' 'Liceo de
Baleno' (in Baleno, Masbate), 'Liceo de Masbate,' 'Liceo de Albay' long before appellant started
using the word 'Lyceum'. The appellant also failed to prove that the word 'Lyceum' has become so
identified with its educational institution that confusion will surely arise in the minds of the public if
the same word were to be used by other educational institutions.
In other words, while the appellant may have proved that it had been using the word 'Lyceum' for a
long period of time, this fact alone did not amount to mean that the said word had acquired
secondary meaning in its favor because the appellant failed to prove that it had been using the same
word all by itself to the exclusion of others. More so, there was no evidence presented to prove that
confusion will surely arise if the same word were to be used by other educational institutions.
Consequently, the allegations of the appellant in its first two assigned errors must necessarily fail."
13 (Underscoring partly in the original and partly supplied)
We agree with the Court of Appeals. The number alone of the private respondents in the case at bar
suggests strongly that petitioner's use of the word "Lyceum" has not been attended with the
exclusivity essential for applicability of the doctrine of secondary meaning. It may be noted also that
at least one of the private respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term
"Lyceum" seventeen (17) years before the petitioner registered its own corporate name with the SEC
and began using the word "Lyceum." It follows that if any institution had acquired an exclusive right
to the word "Lyceum," that institution would have been the Western Pangasinan Lyceum, Inc. rather
than the petitioner institution.
In this connection, petitioner argues that because the Western Pangasinan Lyceum, Inc. failed to
reconstruct its records before the SEC in accordance with the provisions of R.A. No. 62, which
records had been destroyed during World War II, Western Pangasinan Lyceum should be deemed to
have lost all rights it may have acquired by virtue of its past registration. It might be noted that the
Western Pangasinan Lyceum, Inc. registered with the SEC soon after petitioner had filed its own
registration on 21 September 1950. Whether or not Western Pangasinan Lyceum, Inc. must be
deemed to have lost its rights under its original 1933 registration, appears to us to be quite
secondary in importance; we refer to this earlier registration simply to underscore the fact that
petitioner's use of the word "Lyceum" was neither the first use of that term in the Philippines nor an
exclusive use thereof. Petitioner's use of the word "Lyceum" was not exclusive but was in truth
shared with the Western Pangasinan Lyceum and a little later with other private respondent
institutions which registered with the SEC using "Lyceum" as part of their corporation names. There
may well be other schools using Lyceum or Liceo in their names, but not registered with the SEC
because they have not adopted the corporate form of organization.
We conclude and so hold that petitioner institution is not entitled to a legally enforceable exclusive
right to use the word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as
part of their corporate names. To determine whether a given corporate name is "identical" or

"confusingly or deceptively similar" with another entity's corporate name, it is not enough to ascertain
the presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate names in their
entirety and when the name of petitioner is juxtaposed with the names of private respondents, they
are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other.
WHEREFORE, the petitioner having failed to show any reversible error on the part of the public
respondent Court of Appeals, the Petition for Review is DENIED for lack of merit, and the Decision of
the Court of Appeals dated 28 June 1991 is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.

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
become final and executory. 2 A motion for reconsideration filed by respondent to set aside said order of
April 16, 1965 was also denied by the SEC on June 23, 1975. 3 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 order of the Commission of February 14, 1975
within ten (10) days from notice thereof. 5
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 show cause why they should not be punished for contempt by the
Commission. 6
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 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 for
lack of merit. 7
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 judgment. 8
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, ARMCOMARSTEEL 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.
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
judgment cannot be appealed 9otherwise 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.
SO ORDERED.

[G.R. No. 129552. June 29, 2005]

P.C. JAVIER & SONS, INC., SPS. PABLO C. JAVIER, SR. and
ROSALINA F. JAVIER, petitioners, vs. HON. COURT OF
APPEALS, PAIC SAVINGS & MORTGAGE BANK, INC., SHERIFFS
GRACE BELVIS, SOFRONIO VILLARIN, PIO MARTINEZ and
NICANOR BLANCO, respondents.
DECISION
CHICO-NAZARIO, J.:

Before Us is an appeal by certiorari under Rule 45 of the Rules of Court

which seeks to set aside the decision [1] of the Court of Appeals dated 31
January 1997 which affirmed in totothe decision of Branch 62 of the Regional
Trial Court (RTC) of Makati City, dismissing the complaint for Annulment of
Mortgage and Foreclosure with Preliminary Injunction, Prohibition and
Damages filed by petitioners, and its Resolution[2] dated 20 June 1997 denying
petitioners motion for reconsideration.
A complaint[3] for Annulment of Mortgage and Foreclosure with Preliminary
Injunction, Prohibition and Damages was filed by petitioners P.C. Javier &
Sons, Inc. and spouses Pablo C. Javier, Sr. and Rosalina F. Javier against
PAIC Savings & Mortgage Bank, Inc., Grace S. Belvis, Acting
Ex Officio Regional Sheriff of Pasig, Metro Manila and Sofronio M. Villarin,
Deputy Sheriff-in-Charge, before Branch 62 of the RTC of Makati City, on 07
May 1984. The case was docketed as Civil Case No. 7184.
On 10 May 1984, a Supplemental Complaint [4] was filed to include
additional defendants, namely: Pio Martinez, Acting Ex Officio Regional Sheriff
of Antipolo, Rizal, and Nicanor D. Blanco, Deputy Sheriff-in-Charge.
The facts that gave rise to the aforesaid complaint, as found by Branch 62
of the RTC of Makati City, and adopted by the respondent court, are as
follows:

In February, 1981, Plaintiff P.C. Javier and Sons Services, Inc., Plaintiff Corporation,
for short, applied with First Summa Savings and Mortgage Bank, later on renamed as
PAIC Savings and Mortgage Bank, Defendant Bank, for short, for a loan
accommodation under the Industrial Guarantee Loan Fund (IGLF) for P1.5 Million.
On March 21, 1981, Plaintiff Corporation through Plaintiff Pablo C. Javier, Plaintiff
Javier for short, was advised that its loan application was approved and that the same
shall be forwarded to the Central Bank (CB) for processing and release (Exhibit A also
Exhibit 8).
The CB released the loan to Defendant Bank in two (2) tranches of P750,000 each.
The first tranche was released to the Plaintiff Corporation on May 18, 1981 in the
amount of P750,000.00 and the second tranche was released to Plaintiff Corporation
on November 21, 1981 in the amount of P750,000.00. From the second tranche
release, the amount of P250,000.00 was deducted and deposited in the name of
Plaintiff Corporation under a time deposit.
Plaintiffs claim that the loan releases were delayed; that the amount of P250,000.00
was deducted from the IGLF loan of P1.5 Million and placed under time deposit; that
Plaintiffs were never allowed to withdraw the proceeds of the time deposit because
Defendant Bank intended this time deposit as automatic payments on the accrued
principal and interest due on the loan. Defendant Bank, however, claims that only the
final proceeds of the loan in the amount of P750,000.00 was delayed the same having
been released to Plaintiff Corporation only on November 20, 1981, but this was
because of the shortfall in the collateral cover of Plaintiffs loan; that this second
tranche of the loan was precisely released after a firm commitment was made by
Plaintiff Corporation to cover the collateral deficiency through the opening of a time
deposit using a portion of the loan proceeds in the amount of P250,000.00 for the
purpose; that in compliance with their commitment to submit additional security and
open time deposit, Plaintiff Javier in fact opened a time deposit for P250,000.00 and
on February 15, 1983, executed a chattel mortgage over some machineries in favor of
Defendant Bank; that thereafter, Plaintiff Corporation defaulted in the payment of its
IGLF loan with Defendant Bank hence Defendant Bank sent a demand letter dated
November 22, 1983, reminding Plaintiff Javier to make payments because their
accounts have been long overdue; that on May 2, 1984, Defendant Bank sent another
demand letter to Plaintiff spouses informing them that since they have defaulted in
paying their obligation, their mortgage will now be foreclosed; that when Plaintiffs
still failed to pay, Defendant Bank initiated extrajudicial foreclosure of the real estate
mortgage executed by Plaintiff spouses and accordingly the auction sale of the
property covered by TCT No. 473216 was scheduled by the ExOfficio Sheriff on
May 9, 1984.[5]

The instant complaint was filed to forestall the extrajudicial foreclosure

sale of a piece of land covered by Transfer Certificate of Title (TCT) No.
473216[6] mortgaged by petitioner corporation in favor of First Summa Savings
and Mortgage Bank which bank was later renamed as PAIC Savings and
Mortgage Bank, Inc.[7] It likewise asked for the nullification of the Real Estate
Mortgages it entered into with First Summa Savings and Mortgage Bank. The
supplemental complaint added several defendants who scheduled for public
auction other real estate properties contained in the same real estate
mortgages and covered by TCTs No. N-5510, No. 426872, No. 506346 and
Original Certificate of Title No. 10146.[8]
Several extrajudicial foreclosures of the mortgaged properties were
scheduled but were temporarily restrained by the RTC notwithstanding the
denial[9] of petitioners prayer for a writ of preliminary injunction. In an
Order[10] dated 10 December 1990, the RTC ordered respondents-sheriffs to
maintain the status quo and to desist from further proceeding with the
extrajudicial foreclosure of the mortgaged properties.
Among the issues raised by petitioners at the RTC are whether or not First
Summa Savings and Mortgage Bank and PAIC Savings and Mortgage Bank,
Inc. are one and the same entity, and whether or not their obligation is already
due and demandable at the time respondent bank commenced to
extrajudicially foreclose petitioners properties in April 1984.
The RTC declared that First Summa Savings and Mortgage Bank and
PAIC Savings and Mortgage Bank, Inc. are one and the same entity and that
petitioner corporation is liable to respondent bank for the unpaid balance of its
Industrial Guarantee Loan Fund (IGLF) loans. The RTC further ruled that
respondent bank was justified in extrajudicially foreclosing the real estate
mortgages executed by petitioner corporation in its favor because the loans
were already due and demandable when it commenced foreclosure
proceedings in April 1984.
In its decision dated 06 July 1993, the RTC disposed of the case as
follows:
Premises considered, judgment is hereby rendered dismissing the Complaint against
Defendant Bank and ordering Plaintiffs to pay Defendant Bank jointly and severally,
the following:
1.
The principal amount of P700,453.45 under P.N. No. 713 plus all the accrued
interests, liquidated damages and other fees due thereon from March 18, 1983 until
fully paid as provided in said PN;

2.
The principal amount of P749,879.38 under P.N. No. 841 plus all the accrued
interests, liquidated damages and other fees due thereon from September 1, 1982 until
fully paid as provided in such PN;
3.

The amount of P40,000.00 as actual damages;

4.

The amount of P30,000.00 as exemplary damages;

5.

The amount of P50,000.00 as attorneys fees; plus

6.

Cost of suit.[11]

Petitioners filed a Motion for Reconsideration[12] which was opposed[13] by

respondent bank. The motion was denied in an Order dated 11 May 1994.
Petitioners appealed the decision to the Court of Appeals. The latter
affirmed in toto the decision of the lower court. It also denied petitioners
motion for reconsideration.
Hence, this appeal by certiorari.
Petitioners assigned the following as errors:
a.
PUBLIC RESPONDENT COURT GRAVELY ERRED WHEN IT
SUSTAINED THE DISMISSAL OF PETITIONERS COMPLAINT AND IN
AFFIRMING THE RIGHT OF THE RESPONDENT BANK TO COLLECT THE
IGLF LOANS IN LIEU OF FIRST SUMMA SAVINGS AND MORTGAGE BANK
WHICH ORIGINALLY GRANTED SAID LOANS.
COROLLARY TO THE ABOVE ARGUMENT, THE PUBLIC RESPONDENT
COURT ALSO GRAVELY ERRED WHEN IT RULED THAT THE PETITIONERS
CANNOT WITHHOLD THEIR PAYMENT TO THE RESPONDENT BANK
NOTWITHSTANDING THE ADMITTED INABILITY OF THE RESPONDENT
BANK TO FURNISH THE PETITIONERS THE SAID REQUESTED
DOCUMENTS.
b.
PUBLIC RESPONDENT COURT GRAVELY ERRED WHEN IT
SUSTAINED THE COLLECTION OF THE ENTIRE PROCEEDS OF THE IGLF
LOANS OF P1,500,000.00 DESPITE THE FACT THAT THE P250,000.00 OF THIS
LOAN WAS WITHHELD BY THE FIRST SUMMA SAVINGS AND MORTGAGE
BANK TO BECOME PART OF THE COLLATERALS TO THE SAID
P1,500,000.00 LOAN.

c.
PUBLIC RESPONDENT COURT GRAVELY ERRED WHEN IT
SUSTAINED THE DAMAGES AWARDED TO THE RESPONDENT BANK
DESPITE THE ABSENCE OF MALICE OR BAD FAITH ON THE PART OF THE
PETITIONERS IN FILING THIS CASE AGAINST THE RESPONDENT BANK.
On the first assigned error, petitioners argue that they are legally justified
to withhold their amortized payments to the respondent bank until such time
they would have been properly notified of the change in the corporate name of
First Summa Savings and Mortgage Bank. They claim that they have never
received any formal notice of the alleged change of corporate name of First
Summa Savings and Mortgage Bank to PAIC Savings & Mortgage Bank, Inc.
They further claim that the only and first time they received formal evidence of
a change in the corporate name of First Summa Savings and Mortgage Bank
surfaced when respondent bank presented its witness, Michael Caguioa, on
03 April 1990, where he presented the Securities and Exchange Commission
(SEC) Certificate of Filing of the Amended Articles of Incorporation of First
Summa Savings and Mortgage Bank,[14] the Central Bank (CB) Certificate of
Authority[15] to change the name of First Summa Savings and Mortgage Bank
to PAIC Savings and Mortgage Bank, Inc., and the CB Circular Letter[16] dated
27 June 1983.
Their argument does not hold water. Their defense that they should first
be formally notified of the change of corporate name of First Summa Savings
and Mortgage Bank to PAIC Savings and Mortgage Bank, Inc., before they will
continue paying their loan obligations to respondent bank presupposes that
there exists a requirement under a law or regulation ordering a bank that
changes its corporate name to formally notify all its debtors. After going over
the Corporation Code and Banking Laws, as well as the regulations and
circulars of both the SEC and the Bangko Sentral ng Pilipinas (BSP), we find
that there is no such requirement. This being the case, this Court cannot
impose on a bank that changes its corporate name to notify a debtor of such
change absent any law, circular or regulation requiring it. Such act would be
judicial legislation. The formal notification is, therefore, discretionary on the
bank. Unless there is a law, regulation or circular from the SEC or BSP
requiring the formal notification of all debtors of banks of any change in
corporate name, such notification remains to be a mere internal policy that
banks may or may not adopt.
In the case at bar, though there was no evidence showing that petitioners
were furnished copies of official documents showing the First Summa Savings
and Mortgage Banks change of corporate name to PAIC Savings and
Mortgage Bank, Inc., evidence abound that they had notice or knowledge

thereof. Several documents establish this fact. First, letter[17] dated 16 July
1983 signed by Raymundo V. Blanco, Accountant of petitioner corporation,
addressed to PAIC Savings and Mortgage Bank, Inc. Part of said letter reads:
In connection with your inquiry as to the utilization of funds we obtained from
the former First Summa Savings and Mortgage Bank, . . . Second, Board
Resolution[18] of petitioner corporation signed by Pablo C. Javier, Sr. on 24
August 1983 authorizing him to execute a Chattel Mortgage over certain
machinery in favor of PAIC Savings and Mortgage Bank, Inc. Third,
Secretarys Certificate[19]signed by Fortunato E. Gabriel, Corporate Secretary
of petitioner corporation, on 01 September 1983, certifying that a board
resolution was passed authorizing Mr. Pablo C. Javier, Sr. to execute a chattel
mortgage on the corporations equipment that will serve as collateral to cover
the IGLF loan with PAIC Savings and Mortgage Bank, Inc. Fourth, undated
letter[20] signed by Pablo C. Javier, Sr. and addressed to PAIC Savings and
Mortgage Bank, Inc., authorizing Mr. Victor F. Javier, General Manager of
petitioner corporation, to secure from PAIC Savings and Mortgage Bank, Inc.
certain documents for his signature.
From the foregoing documents, it cannot be denied that petitioner
corporation was aware of First Summa Savings and Mortgage Banks change
of corporate name to PAIC Savings and Mortgage Bank, Inc. Knowing fully
well of such change, petitioner corporation has no valid reason not to pay
because the IGLF loans were applied with and obtained from First Summa
Savings and Mortgage Bank. First Summa Savings and Mortgage Bank and
PAIC Savings and Mortgage Bank, Inc., are one and the same bank to which
petitioner corporation is indebted. A change in the corporate name does not
make a new corporation, whether effected by a special act or under a general
law. It has no effect on the identity of the corporation, or on its property, rights,
or liabilities.[21] The corporation, upon such change in its name, is in no sense
a new corporation, nor the successor of the original corporation. It is the
same corporation with a different name, and its character is in no respect
changed.[22]
Anent the second assigned error, this Court rules that respondent court did
not err when it sustained the collection of the entire proceeds of the IGLF
loans amounting to P1,500,000.00 despite the withholding of P250,000.00 to
become part of the collaterals to the said P1,500,000.00 IGLF loan.
Petitioners contend that the collaterals they submitted were more than
sufficient to cover the P1,500,000.00 IGLF loan. Such contention is
untenable. Petitioner corporation was required to place P250,000.00 in a time
deposit with respondent bank for the simple reason that the collateral it put up
was insufficient to cover the IGLF loans it has received. It admitted the

shortfall of its collateral when it authorized petitioner Pablo C. Javier, Sr., via a
board resolution,[23] to execute a chattel mortgage over certain machinery in
favor of PAIC Savings and Mortgage Bank, Inc. which was certified by its
corporate secretary.[24] If the collateral it put up was sufficient, why then did it
execute another chattel mortgage?
In his order dated 07 September 1984, Hon. Rafael T. Mendoza found that
the loanable value of the lands, buildings, machinery and equipment
amounted only to P934,000.00. The order reads in part:
The terms and conditions of the IGLF loan extended to plaintiff corporation are
governed by the loan and security documents evidencing said loan. Although the loan
agreement was approved by the defendant bank, the same has to be processed and be
finally approved by the Central Bank of the Philippines, in pursuance to the IGLF
program, of which the defendant bank is an accredited participant. The defendant had
to await Central Banks advise (sic) regarding the final approval of the loan before the
release of the proceeds thereof. The proceeds of the loan was released to the plaintiff
on 6 April and November 20, 1981, and the final proceeds was released only on
November 20, 1981, on account of short fall in the collateral covered by the lands and
buildings as well as the machineries and equipment then subject of the existing
mortgages in favor of the defendant bank, having only a loanable value of
P934,000.00, and only after a firm commitment made by plaintiff corporation to the
defendant bank to correct the collateral deficiency thru the execution of a chattel
mortgage on additional machineries, equipment and tools and thru the opening of a
time deposit with PAIC Bank using a portion of the loan proceeds in the amount of
P250,000.00 to answer for its obligation to the defendant bank under the IGLF loan
was the final proceeds of the loan released in favor of the plaintiffs. The delay in the
release of the final proceeds of the IGLF loan was due to the aforestated collateral
deficiency.[25]
As declared by the respondent court, the finding in said order was not
disputed in the appeal before it. It said that what was contained in petitioners
brief was that their loans were overcollateralized, and fail to specify why or in
what manner it was so.[26] Having failed to raise this issue before the
respondent court, petitioners thus cannot raise this issue before this Court.
Moreover, since the issue of whether or not the collateral put up by petitioners
is sufficient is factual, the same is not proper for this Courts consideration.
The basic rule is that factual questions are beyond the province of the
Supreme Court in a petition for review.[27]
Petitioners maintain that to collect the P250,000.00 from them would be a
clear case of unjust enrichment because they have not availed or used said
amount for the same was unlawfully withheld from them.

We do not agree. The fundamental doctrine of unjust enrichment is the

transfer of value without just cause or consideration. The elements of this
doctrine are: enrichment on the part of the defendant; impoverishment on the
part of the plaintiff; and lack of cause. The main objective is to prevent one to
enrich himself at the expense of another.[28] It is commonly accepted that this
doctrine simply means that a person shall not be allowed to profit or enrich
himself inequitably at another's expense.[29] In the instant case, there is no
unjust enrichment to speak of. The amount of P225,905.79 was applied as
payment for petitioner corporations loan which was taken from the
P250,000.00, together with its accrued interest, that was placed in time
deposit with First Summa Savings and Mortgage Bank. The use of said
amount as payment was approved by petitioner Pablo C. Javier, Sr. on 17
March 1983.[30] As further found by the RTC in its decision, the balance of the
time deposit was withdrawn by petitioners.[31]
Petitioner corporation faults respondent bank, then known as First Summa
Savings and Mortgage Bank, for requiring it to put up as additional collateral
the amount of P250,000.00 inasmuch as the CB never required it to do so. It
added that respondent bank took advantage of its urgent and immediate need
at the time for the proceeds of the IGLF loans that it had no choice but to
comply with respondent banks requirement to put in time deposits the said
amount as additional collateral.
We agree with respondent court that the questioning of the propriety of the
placing of the P250,000.00 in time deposits[32] with respondent bank as
additional collateral was belatedly made. As above-discussed, the
requirement to give additional collateral was warranted because the collateral
petitioner corporation put up failed to cover its IGLF loans. If petitioner
corporation was really bent on questioning the reasonableness of putting up
the aforementioned amount as additional collateral, it should have done
immediately after it made the time deposits on 26 November 1981. This, it did
not do. It questioned the placing of the time deposits only on 08 February
1984[33] or long after defendant bank had already demanded full payment of
the loans, then amounting to P2,045,401.79 as of 22 November 1983. It is
too late in the day for petitioner corporation to question the placing of the
P250,000.00 in time deposits after it failed to pay its loan obligations as
scheduled, making them due and demandable, and after a demand for full
payment has been made. We will not allow petitioner corporation to have
ones cake and eat it too.
As regards the payments made by petitioner corporation, respondent court
has this to say:

The trial court held, based on plaintiffs own exhibits, that plaintiff[s] made the
following payments:
On Promissory Note No. 713:
Date
(Per PN Schedule)
July 6, 1981
October 6, 1981
January 6, 1982

Actual Date of
Payment
August 3, 1981
October 28, 1981
January 22, 1982
March 17, 1983
TOTAL

Amount

P 28,125.00
28,836.13
29,227.38
225,905.79
P 312,094.30

And on Promissory Note No. 841:

Date
(Per PN
Schedule)
February 20, 1982
May 20, 1982
August 20, 1982

Actual Date of
Payment

Amount

April 13, 1982

P 28,569.30
July 7, 1982
29,254.31
August 31, 1982
36,795.44
TOTAL
P 94,619.05

Plaintiff-appellant[s] does not dispute the finding, which is obvious from the
foregoing summary, that plaintiff[s] stopped payments on March 17, 1983 on
Promissory Note No. 713, and on August 31, 1982 on Promissory Note No. 841.
By simply looking at the amortization schedule attached to the two promissory notes,
it is clear that plaintiff[s] already defaulted on its loan obligations when the defendant
Bank gave notice of the foreclosure proceedings on April 28, 1984. On amortization
payments alone, plaintiff[s] should have paid a total of P459,339 as of April 6, 1984
on Promissory [Note] No. 713, and a total of P328,173.00 as of February 20, 1984 on
Promissory Note [No.] 841. No extended computation is necessary to demonstrate
that, even without imputing the liquidated damages equivalent to 2% a month on the
delayed payments (see second paragraph of the promissory notes), the plaintiffs were
grossly deficient in amortization payments, and already in default when the
foreclosure proceedings were commenced. Further, we note that under the terms of
the promissory note, failure to pay an installment when due shall entitle the bank or
its assign to declare all the obligations as immediately due and payable (second
paragraph).[34]

As to the third assigned error, petitioners argue that there being no malice
or bad faith on their part when they filed the instant case, no damages should
have been awarded to respondent bank.
We cannot sustain such argument. The presence of malice or bad faith is
very evident in the case before us. By the documents it executed, petitioner
corporation was well aware that First Summa Savings and Mortgage Bank
changed its corporate name to PAIC Savings and Mortgage Bank, Inc.
Despite knowledge that First Summa Savings and Mortgage Bank and PAIC
Savings and Mortgage Bank, Inc., are one and the same entity, it pretended
otherwise. It used this purported ignorance as an excuse to renege on its
obligation to pay its loans after they became due and after demands for
payment were made, claiming that it never obtained the loans from
respondent bank.
No good faith was shown by petitioner corporation. If it were in good faith
in complying with its loan obligations since it believed that respondent bank
had no right to the payment, it should have made a valid consignation in
court. This, it did not do. If petitioner corporation were at a loss as to who
should receive the payment, it could have easily taken steps and inquired
from the SEC, CB of the Philippines or from the bank itself from which it
received the loans and to where it made previous payments. Further, the fact
that it was respondent bank that was demanding payment for loans already
due and demandable and not First Summa Savings and Mortgage Bank is
sufficient to make petitioner corporation wonder why this is so. It never took
any initiative to clear the matter. Instead, it paid no attention to the valid
demands of respondent bank.
The awarding of actual and compensatory damages, as well as attorneys
fees, is justified under the circumstances. We quote with approval the
reasons given by the RTC for the grant of the same:
Considering that Defendant Bank had been prevented at least four (4) times from
foreclosing the mortgages (i.e., Temporary Restraining Orders of May 9 and 19 and
October 22, 1984 and status quo order of December 10, 1990 enjoining the
extrajudicial foreclosure sales of May 9 and 16 and October 23, 1984 and December
20, 1990, respectively), it is proper that Defendant Bank be reimbursed its actual
expenses. The amount of P40,000.00 is reasonable reimbursement for the publication
and other expenses incurred in the four (4) extrajudicial foreclosures which were
enjoined by the Court. Considering the wanton and reckless filing of this clearly
unfounded and baseless legal action and the fact that Defendant Bank had to defend
itself against such suit, attorneys fees in the amount of P50,000.00 should be paid by
the Plaintiffs to the Defendant Bank. Defendant Bank failed to adduce indubitable

proof on the moral and exemplary damages that it seeks. Nevertheless, since such
proof is not absolutely necessary and primarily as an example for the public good to
deter others from filing a similar clearly unfounded legal action, Defendant Bank
should be entitled to an award of exemplary damages. [35]
This Court finds that petitioners failed to comply with what is incumbent
upon them to pay their loans when they became due. The lame excuse
they belatedly advanced for their non-payment cannot and should not prevent
respondent bank from exercising its right to foreclose the real estate
mortgages executed in its favor.
WHEREFORE, premises considered, the Court of Appeals decision dated
31 January 1997 and its resolution dated 20 June 1997 are hereby
AFFIRMED in toto. Costs against petitioners.
SO ORDERED.

[G.R. No. 122174. October 3, 2002]

INDUSTRIAL
REFRACTORIES
CORPORATION
OF
THE
PHILIPPINES, petitioner, vs. COURT OF APPEALS, SECURITIES

AND
EXCHANGE
COMMISSION
and
REFRACTORIES
CORPORATION OF THE PHILIPPINES, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:

Filed before us is a petition for review on certiorari under Rule 45 of the

Rules of Court assailing the Decision of the Court of Appeals in CA-G.R. SP
No. 35056, denying due course and dismissing the petition filed by Industrial
Refractories Corp. of the Philippines (IRCP).
Respondent Refractories Corporation of the Philippines (RCP) is a
corporation duly organized on October 13, 1976 for the purpose of engaging
in the business of manufacturing, producing, selling, exporting and otherwise
dealing in any and all refractory bricks, its by-products and derivatives. On
June 22, 1977, it registered its corporate and business name with the Bureau
of Domestic Trade.
Petitioner IRCP on the other hand, was incorporated on August 23, 1979
originally under the name Synclaire Manufacturing Corporation. It amended
its Articles of Incorporation on August 23, 1985 to change its corporate name
to Industrial Refractories Corp. of the Philippines. It is engaged in the
business of manufacturing all kinds of ceramics and other products, except
paints and zincs.
Both companies are the only local suppliers of monolithic gunning mix.

[1]

Discovering that petitioner was using such corporate name, respondent

RCP filed on April 14, 1988 with the Securities and Exchange Commission
(SEC) a petition to compel petitioner to change its corporate name on the
ground that its corporate name is confusingly similar with that of petitioners
such that the public may be confused or deceived into believing that they are
one and the same corporation.
[2]

The SEC decided in favor of respondent RCP and rendered judgment on

July 23, 1993 with the following dispositive portion:
WHEREFORE, judgment is hereby rendered in favor of the petitioner and against
the respondent declaring the latters corporate name Industrial Refractories
Corporation of the Philippines as deceptively and confusingly similar to that of
petitioners corporate name Refractories Corporation of the
Philippines. Accordingly, respondent is hereby directed to amend its Articles of
Incorporation by deleting the name Refractories Corporation of the Philippines in its
corporate name within thirty (30) days from finality of this Decision. Likewise,

respondent is hereby ordered to pay the petitioner the sum of P50,000.00 as attorneys
fees.
[3]

Petitioner appealed to the SEC En Banc, arguing that it does not have any
jurisdiction over the case, and that respondent RCP has no right to the
exclusive use of its corporate name as it is composed of generic or common
words.
[4]

In its Decision dated July 23, 1993, the SEC En Banc modified the
appealed decision in that petitioner was ordered to delete or drop from its
corporate name only the word Refractories.
[5]

Petitioner IRCP elevated the decision of the SEC En Banc through a

petition for review on certiorari to the Court of Appeals which then rendered
the herein assailed decision. The appellate court upheld the jurisdiction of the
SEC over the case and ruled that the corporate names of petitioner IRCP and
respondent RCP are confusingly or deceptively similar, and that respondent
RCP has established its prior right to use the word Refractories as its
corporate name. The appellate court also found that the petition was filed
beyond the reglementary period.
[6]

[7]

Hence, herein petition which we must deny.

Petitioner contends that the petition before the Court of Appeals was
timely filed. It must be noted that at the time the SEC En Banc rendered its
decision on May 10, 1994, the governing rule on appeals from quasi-judicial
agencies like the SEC was Supreme Court Circular No. 1-91. As provided
therein, the remedy should have been a petition for review filed before the
Court of Appeals within fifteen (15) days from notice, raising questions of fact,
of law, or mixed questions of fact and law. A motion for reconsideration
suspends the running of the period.
[8]

[9]

In the case at bench, there is a discrepancy between the dates provided

by petitioner and respondent. Petitioner alleges the following dates of receipt
and filing:
[10]

June 10, 1994

Receipt of SECs Decision dated May 10, 1994
June 20, 1994
Filing of Motion for Reconsideration
September 1, 1994 Receipt of SECs Order dated August 3, 1994
denying petitioners motion for reconsideration
September 2, 1994 Filing of Motion for extension of time
September 6, 1994 Filing of Petition

Respondent RCP, however, asserts that the foregoing dates are incorrect
as the certifications issued by the SEC show that petitioner received the
SECs Decision dated May 10, 1994 on June 9, 1994, filed the motion for
reconsideration via registered mail on June 25, 1994, and received the Order
dated August 3, 1994 on August 15, 1994. Thus, the petition was filed
twenty-one (21) days beyond the reglementary period provided in Supreme
Court Circular No. 1-91.
[11]

[12]

If reckoned from the dates supplied by petitioner, then the petition was
timely filed. On the other hand, if reckoned from the dates provided by
respondent RCP, then it was filed way beyond the reglementary period. On
this score, we agree with the appellate courts finding that petitioner failed to
rebut respondent RCPs allegations of material dates of receipt and filing. In
addition, the certifications were executed by the SEC officials based on their
official records which enjoy the presumption of regularity. As such, these
are prima facie evidence of the facts stated therein. And based on such
dates, there is no question that the petition was filed with the Court of Appeals
beyond the fifteen (15) day period. On this ground alone, the instant petition
should be denied as the SEC En Bancs decision had already attained finality
and the SECs findings of fact, when supported by substantial evidence, is
final.
[13]

[14]

[15]

[16]

[17]

Nevertheless, to set the matters at rest, we shall delve into the other
issues posed by petitioner.
Petitioners arguments, substantially, are as follows: (1) jurisdiction is
vested with the regular courts as the present case is not one of the instances
provided in P.D. 902-A; (2) respondent RCP is not entitled to use the generic
name refractories; (3) there is no confusing similarity between their
corporate names; and (4) there is no basis for the award of attorneys fees.
[18]

Petitioners argument on the SECs jurisdiction over the case is utterly

myopic. The jurisdiction of the SEC is not merely confined to the adjudicative
functions provided in Section 5 of P.D. 902-A, as amended. By express
mandate, it has absolute jurisdiction, supervision and control over all
corporations. It also exercises regulatory and administrative powers to
implement and enforce the Corporation Code, one of which is Section 18,
which provides:
[19]

[20]

[21]

SEC. 18. Corporate name. -- No corporate name may be allowed by the Securities
and Exchange Commission if the proposed name is identical or deceptively or
confusingly similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to existing

laws. When a change in the corporate name is approved, the Commission shall issue
an amended certificate of incorporation under the amended name.
It is the SECs duty to prevent confusion in the use of corporate names not
only for the protection of the corporations involved but more so for the
protection of the public, and it has authority to de-register at all times and
under all circumstances corporate names which in its estimation are likely to
generate confusion. Clearly therefore, the present case falls within the ambit
of the SECs regulatory powers.
[22]

[23]

Likewise untenable is petitioners argument that there is no confusing or

deceptive similarity between petitioner and respondent RCPs corporate
names. Section 18 of the Corporation Code expressly prohibits the use of
a corporate name which is identical or deceptively or confusingly similar to
that of any existing corporation or to any other name already protected by law
or is patently deceptive, confusing or contrary to existing laws. The policy
behind the foregoing prohibition is to avoid fraud upon the public that will have
occasion to deal with the entity concerned, the evasion of legal obligations
and duties, and the reduction of difficulties of administration and supervision
over corporation.
[24]

Pursuant thereto, the Revised Guidelines in the Approval of Corporate and

Partnership Names specifically requires that: (1) a corporate name shall not
be identical, misleading or confusingly similar to one already registered by
another corporation with the Commission; and (2) if the proposed name is
similar to the name of a registered firm, the proposed name must contain at
least one distinctive word different from the name of the company already
registered.
[25]

[26]

[27]

As held in Philips Export B.V. vs. Court of Appeals, to fall within the
prohibition of the law, two requisites must be proven, to wit:
[28]

(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.

As regards the first requisite, it has been held that the right to the
exclusive use of a corporate name with freedom from infringement by
similarity is determined by priority of adoption. In this case, respondent
RCP was incorporated on October 13, 1976 and since then has been using
the corporate name Refractories Corp. of the Philippines. Meanwhile,
[29]

petitioner was incorporated on August 23, 1979 originally under the name
Synclaire Manufacturing Corporation. It only started using the name
Industrial Refractories Corp. of the Philippines when it amended its Articles
of Incorporation on August 23, 1985, or nine (9) years after respondent RCP
started using its name. Thus, being the prior registrant, respondent RCP has
acquired the right to use the word Refractories as part of its corporate name.
Anent the second requisite, in determining the existence of confusing
similarity in corporate names, the test is whether the similarity is such as to
mislead a person using ordinary care and discrimination and the Court must
look to the record as well as the names themselves. Petitioners corporate
name is Industrial Refractories Corp. of the Phils., while respondents is
Refractories Corp. of the Phils. Obviously, both names contain the identical
words Refractories, Corporation and Philippines. The only word that
distinguishes petitioner from respondent RCP is the word Industrial which
merely identifies a corporations general field of activities or operations. We
need not linger on these two corporate names to conclude that they are
patently similar that even with reasonable care and observation, confusion
might arise. It must be noted that both cater to the same clientele, i.e. the
steel industry. In fact, the SEC found that there were instances when different
steel companies were actually confused between the two, especially since
they also have similar product packaging. Such findings are accorded not
only great respect but even finality, and are binding upon this Court, unless it
is shown that it had arbitrarily disregarded or misapprehended evidence
before it to such an extent as to compel a contrary conclusion had such
evidence been properly appreciated. And even without such proof of actual
confusion between the two corporate names, it suffices that confusion is
probable or likely to occur.
[30]

[31]

[32]

[33]

[34]

Refractory materials are described as follows:

Refractories are structural materials used at high temperatures to [sic] industrial
furnaces. They are supplied mainly in the form of brick of standard sizes and of
special shapes. Refractories also include refractory cements, bonding mortars, plastic
firebrick, castables, ramming mixtures, and other bulk materials such as dead-burned
grain magneside, chrome or ground ganister and special clay.
[35]

While the word refractories is a generic term, its usage is not widespread
and is limited merely to the industry/trade in which it is used, and its
continuous use by respondent RCP for a considerable period has made the
term so closely identified with it. Moreover, as held in the case of Ang
Kaanib sa Iglesia ng Dios kay Kristo Hesus, H.S.K. sa Bansang Pilipinas,
[36]

Inc. vs. Iglesia ng Dios kay Cristo Jesus, Haligi at Suhay ng

Katotohanan, petitioners appropriation of respondent's corporate name
cannot find justification under the generic word rule. A contrary ruling would
encourage other corporations to adopt verbatim and register an existing and
protected corporate name, to the detriment of the public.
[37]

[38]

Finally, we find the award of P50,000.00 as attorney's fees to be fair and

reasonable. Article 2208 of the Civil Code allows the award of such fees
when its claimant is compelled to litigate with third persons or to incur
expenses to protect its just and valid claim. In this case, despite its
undertaking to change its corporate name in case another firm has acquired a
prior right to use such name, it refused to do so, thus compelling respondent
to undergo litigation and incur expenses to protect its corporate name.
[39]

WHEREFORE, the instant

hereby DENIED for lack of merit.

petition

for

review

on certiorari is

Costs against petitioner.

SO ORDERED.

G.R. No. 84197 July 28, 1989

PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents.

G.R. No. 84157 July 28, 1989

JACOB S. LIM, petitioner,
vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER
MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and MODESTO CERVANTES
and CONSTANCIO MAGLANA,respondents.
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and Cervanteses.
Leonardo B. Lucena for Constancio Maglana.

GUTIERREZ, JR., J.:

The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R.
CV No. 66195 which modified the decision of the then Court of First Instance of Manila in Civil Case
No. 66135. The plaintiffs complaint (petitioner in G.R. No. 84197) against all defendants
(respondents in G.R. No. 84197) was dismissed but in all other respects the trial court's decision
was affirmed.
The dispositive portion of the trial court's decision reads as follows:
WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim
to pay plaintiff the amount of P311,056.02, with interest at the rate of 12% per annum
compounded monthly; plus 15% of the amount awarded to plaintiff as attorney's fees
from July 2,1966, until full payment is made; plus P70,000.00 moral and exemplary
damages.
It is found in the records that the cross party plaintiffs incurred additional
miscellaneous expenses aside from Pl51,000.00,,making a total of P184,878.74.
Defendant Jacob S. Lim is further required to pay cross party plaintiff, Bormaheco,
the Cervanteses one-half and Maglana the other half, the amount of Pl84,878.74 with
interest from the filing of the cross-complaints until the amount is fully paid; plus
moral and exemplary damages in the amount of P184,878.84 with interest from the
filing of the cross-complaints until the amount is fully paid; plus moral and exemplary
damages in the amount of P50,000.00 for each of the two Cervanteses.
Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses,
and another P20,000.00 to Constancio B. Maglana as attorney's fees.
xxx xxx xxx
WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against
defendants Bormaheco, the Cervanteses and Constancio B. Maglana, is dismissed.
Instead, plaintiff is required to indemnify the defendants Bormaheco and the

Cervanteses the amount of P20,000.00 as attorney's fees and the amount of

P4,379.21, per year from 1966 with legal rate of interest up to the time it is paid.
Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of
P20,000.00 as attorney's fees and costs.
No moral or exemplary damages is awarded against plaintiff for this action was filed
in good faith. The fact that the properties of the Bormaheco and the Cervanteses
were attached and that they were required to file a counterbond in order to dissolve
the attachment, is not an act of bad faith. When a man tries to protect his rights, he
should not be saddled with moral or exemplary damages. Furthermore, the rights
exercised were provided for in the Rules of Court, and it was the court that ordered it,
in the exercise of its discretion.
No damage is decided against Malayan Insurance Company, Inc., the third-party
defendant, for it only secured the attachment prayed for by the plaintiff Pioneer. If an
insurance company would be liable for damages in performing an act which is clearly
within its power and which is the reason for its being, then nobody would engage in
the insurance business. No further claim or counter-claim for or against anybody is
declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owneroperator of Southern Air Lines (SAL) a single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and
executed a sales contract (Exhibit A) for the sale and purchase of two (2) DC-3A Type aircrafts and
one (1) set of necessary spare parts for the total agreed price of US $109,000.00 to be paid in
installments. One DC-3 Aircraft with Registry No. PIC-718, arrived in Manila on June 7,1965 while
the other aircraft, arrived in Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197)
as surety executed and issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its
principal, Lim, for the balance price of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and
Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions)
contributed some funds used in the purchase of the above aircrafts and spare parts. The funds were
supposed to be their contributions to a new corporation proposed by Lim to expand his airline
business. They executed two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of
Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the
Cervanteses. The indemnity agreements stipulated that the indemnitors principally agree and bind
themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against
any/all damages, losses, costs, damages, taxes, penalties, charges and expenses of whatever kind
and nature which Pioneer may incur in consequence of having become surety upon the bond/note
and to pay, reimburse and make good to Pioneer, its successors and assigns, all sums and amounts
of money which it or its representatives should or may pay or cause to be paid or become liable to
pay on them of whatever kind and nature.
On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of
Pioneer as deed of chattel mortgage as security for the latter's suretyship in favor of the former. It
was stipulated therein that Lim transfer and convey to the surety the two aircrafts. The deed (Exhibit
D) was duly registered with the Office of the Register of Deeds of the City of Manila and with the Civil

Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law
(Republic Act No. 776), respectively.
Lim defaulted on his subsequent installment payments prompting JDA to request payments from the
surety. Pioneer paid a total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the
Sheriff of Davao City. The Cervanteses and Maglana, however, filed a third party claim alleging that
they are co-owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of
preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging
that they were not privies to the contracts signed by Lim and, by way of counterclaim, sought for
damages for being exposed to litigation and for recovery of the sums of money they advanced to Lim
for the purchase of the aircrafts in question.
After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed
Pioneer's complaint against all other defendants.
As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint
against all the defendants was dismissed. In all other respects the trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT
DISMISSED THE APPEAL OF PETITIONER ON THE SOLE GROUND THAT
PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF THE
REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT IT CANNOT
REPRESENT A REINSURER TO RECOVER THE AMOUNT FROM HEREIN
PRIVATE RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT. (Rollo - G. R.
No. 84197, p. 10)
The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had
reinsured its risk of liability under the surety bond in favor of JDA and subsequently
collected the proceeds of such reinsurance in the sum of P295,000.00. Defendants'
alleged obligation to Pioneer amounts to P295,000.00, hence, plaintiffs instant action
for the recovery of the amount of P298,666.28 from defendants will no longer
prosper. Plaintiff Pioneer is not the real party in interest to institute the instant action
as it does not stand to be benefited or injured by the judgment.
Plaintiff Pioneer's contention that it is representing the reinsurer to recover the
amount from defendants, hence, it instituted the action is utterly devoid of merit.
Plaintiff did not even present any evidence that it is the attorney-in-fact of the
reinsurance company, authorized to institute an action for and in behalf of the latter.
To qualify a person to be a real party in interest in whose name an action must be

prosecuted, he must appear to be the present real owner of the right sought to be
enforced (Moran, Vol. I, Comments on the Rules of Court, 1979 ed., p. 155). It has
been held that the real party in interest is the party who would be benefited or injured
by the judgment or the party entitled to the avails of the suit (Salonga v. Warner
Barnes & Co., Ltd., 88 Phil. 125, 131). By real party in interest is meant a present
substantial interest as distinguished from a mere expectancy or a future, contingent,
subordinate or consequential interest (Garcia v. David, 67 Phil. 27; Oglleaby v.
Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers v. Germans, 1 NW
2d 424; Weber v. City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).
Based on the foregoing premises, plaintiff Pioneer cannot be considered as the real
party in interest as it has already been paid by the reinsurer the sum of P295,000.00
the bulk of defendants' alleged obligation to Pioneer.
In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from
its reinsurer, the former was able to foreclose extra-judicially one of the subject
airplanes and its spare engine, realizing the total amount of P37,050.00 from the sale
of the mortgaged chattels. Adding the sum of P37,050.00, to the proceeds of the
reinsurance amounting to P295,000.00, it is patent that plaintiff has been overpaid in
the amount of P33,383.72 considering that the total amount it had paid to JDA totals
to only P298,666.28. To allow plaintiff Pioneer to recover from defendants the
amount in excess of P298,666.28 would be tantamount to unjust enrichment as it has
already been paid by the reinsurance company of the amount plaintiff has paid to
JDA as surety of defendant Lim vis-a-vis defendant Lim's liability to JDA. Well settled
is the rule that no person should unjustly enrich himself at the expense of another
(Article 22, New Civil Code). (Rollo-84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent court based its finding that petitioner
was paid by its reinsurer in the aforesaid amount, as this matter has never been raised by any of the
parties herein both in their answers in the court below and in their respective briefs with respondent
court; (Rollo, p. 11) (2) even assuming hypothetically that it was paid by its reinsurer, still none of the
respondents had any interest in the matter since the reinsurance is strictly between the petitioner
and the re-insurer pursuant to section 91 of the Insurance Code; (3) pursuant to the indemnity
agreements, the petitioner is entitled to recover from respondents Bormaheco and Maglana; and (4)
the principle of unjust enrichment is not applicable considering that whatever amount he would
recover from the co-indemnitor will be paid to the reinsurer.
The records belie the petitioner's contention that the issue on the reinsurance money was never
raised by the parties.
A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were:
xxx xxx xxx
1. Has Pioneer a cause of action against defendants with respect to so much of its
obligations to JDA as has been paid with reinsurance money?
2. If the answer to the preceding question is in the negative, has Pioneer still any
claim against defendants, considering the amount it has realized from the sale of the
mortgaged properties? (Record on Appeal, p. 359, Annex B of G.R. No. 84157).
In resolving these issues, the trial court made the following findings:

It appearing that Pioneer reinsured its risk of liability under the surety bond it had
executed in favor of JDA, collected the proceeds of such reinsurance in the sum of
P295,000, and paid with the said amount the bulk of its alleged liability to JDA under
the said surety bond, it is plain that on this score it no longer has any right to collect
to the extent of the said amount.
On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing
defendants for the amount paid to it by the reinsurers, notwithstanding that the cause
of action pertains to the latter, Pioneer says: The reinsurers opted instead that the
Pioneer Insurance & Surety Corporation shall pursue alone the case.. . . . Pioneer
Insurance & Surety Corporation is representing the reinsurers to recover the
amount.' In other words, insofar as the amount paid to it by the reinsurers Pioneer is
suing defendants as their attorney-in-fact.
But in the first place, there is not the slightest indication in the complaint that Pioneer
is suing as attorney-in- fact of the reinsurers for any amount. Lastly, and most
important of all, Pioneer has no right to institute and maintain in its own name an
action for the benefit of the reinsurers. It is well-settled that an action brought by an
attorney-in-fact in his own name instead of that of the principal will not prosper, and
this is so even where the name of the principal is disclosed in the complaint.
Section 2 of Rule 3 of the Old Rules of Court provides that 'Every
action must be prosecuted in the name of the real party in interest.'
This provision is mandatory. The real party in interest is the party who
would be benefitted or injured by the judgment or is the party entitled
to the avails of the suit.
This Court has held in various cases that an attorney-in-fact is not a
real party in interest, that there is no law permitting an action to be
brought by an attorney-in-fact. Arroyo v. Granada and Gentero, 18
Phil. Rep. 484; Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep. 12;
Filipinos Industrial Corporation v. San Diego G.R. No. L- 22347,1968,
23 SCRA 706, 710-714.
The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has
collected P295,000.00 from the reinsurers, the uninsured portion of what it paid to
JDA is the difference between the two amounts, or P3,666.28. This is the amount for
which Pioneer may sue defendants, assuming that the indemnity agreement is still
valid and effective. But since the amount realized from the sale of the mortgaged
chattels are P35,000.00 for one of the airplanes and P2,050.00 for a spare engine, or
a total of P37,050.00, Pioneer is still overpaid by P33,383.72. Therefore, Pioneer has
no more claim against defendants. (Record on Appeal, pp. 360-363).
The payment to the petitioner made by the reinsurers was not disputed in the appellate court.
Considering this admitted payment, the only issue that cropped up was the effect of payment made
by the reinsurers to the petitioner. Therefore, the petitioner's argument that the respondents had no
interest in the reinsurance contract as this is strictly between the petitioner as insured and the
reinsuring company pursuant to Section 91 (should be Section 98) of the Insurance Code has no
basis.

In general a reinsurer, on payment of a loss acquires the same rights by subrogation

as are acquired in similar cases where the original insurer pays a loss (Universal Ins.
Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd 925).
The rules of practice in actions on original insurance policies are in general
applicable to actions or contracts of reinsurance. (Delaware, Ins. Co. v. Pennsylvania
Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing
the loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co.
(101 Phil. 1031 [1957]) which we subsequently applied in Manila Mahogany Manufacturing
Corporation v. Court of Appeals(154 SCRA 650 [1987]):
Note that if a property is insured and the owner receives the indemnity from the
insurer, it is provided in said article that the insurer is deemed subrogated to the
rights of the insured against the wrongdoer and if the amount paid by the insurer
does not fully cover the loss, then the aggrieved party is the one entitled to recover
the deficiency. Evidently, under this legal provision, the real party in interest with
regard to the portion of the indemnity paid is the insurer and not the insured.
(Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the
reinsurer.
Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's
complaint as against the respondents for the reason that the petitioner was not the real party in
interest in the complaint and, therefore, has no cause of action against the respondents.
Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors should not
have been dismissed on the premise that the evidence on record shows that it is entitled to recover
from the counter indemnitors. It does not, however, cite any grounds except its allegation that
respondent "Maglanas defense and evidence are certainly incredible" (p. 12, Rollo) to back up its
contention.
On the other hand, we find the trial court's findings on the matter replete with evidence to
substantiate its finding that the counter-indemnitors are not liable to the petitioner. The trial court
stated:
Apart from the foregoing proposition, the indemnity agreement ceased to be valid
and effective after the execution of the chattel mortgage.
Testimonies of defendants Francisco Cervantes and Modesto Cervantes.

Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved,
agreed to issue the bond provided that the same would be mortgaged to it, but this
was not possible because the planes were still in Japan and could not be mortgaged
here in the Philippines. As soon as the aircrafts were brought to the Philippines, they
would be mortgaged to Pioneer Insurance to cover the bond, and this indemnity
agreement would be cancelled.
The following is averred under oath by Pioneer in the original complaint:
The various conflicting claims over the mortgaged properties have
impaired and rendered insufficient the security under the chattel
mortgage and there is thus no other sufficient security for the claim
sought to be enforced by this action.
This is judicial admission and aside from the chattel mortgage there is no other
security for the claim sought to be enforced by this action, which necessarily means
that the indemnity agreement had ceased to have any force and effect at the time
this action was instituted. Sec 2, Rule 129, Revised Rules of Court.
Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on
the planes and spare parts, no longer has any further action against the defendants
as indemnitors to recover any unpaid balance of the price. The indemnity agreement
was ipso jure extinguished upon the foreclosure of the chattel mortgage. These
defendants, as indemnitors, would be entitled to be subrogated to the right of Pioneer
should they make payments to the latter. Articles 2067 and 2080 of the New Civil
Code of the Philippines.
Independently of the preceding proposition Pioneer's election of the remedy of
foreclosure precludes any further action to recover any unpaid balance of the price.
SAL or Lim, having failed to pay the second to the eight and last installments to JDA
and Pioneer as surety having made of the payments to JDA, the alternative remedies
open to Pioneer were as provided in Article 1484 of the New Civil Code, known as
the Recto Law.
Pioneer exercised the remedy of foreclosure of the chattel mortgage both by
extrajudicial foreclosure and the instant suit. Such being the case, as provided by the
aforementioned provisions, Pioneer shall have no further action against the
purchaser to recover any unpaid balance and any agreement to the contrary is void.'
Cruz, et al. v. Filipinas Investment & Finance Corp. No. L- 24772, May 27,1968, 23
SCRA 791, 795-6.
The operation of the foregoing provision cannot be escaped from through the
contention that Pioneer is not the vendor but JDA. The reason is that Pioneer is
actually exercising the rights of JDA as vendor, having subrogated it in such rights.
Nor may the application of the provision be validly opposed on the ground that these
defendants and defendant Maglana are not the vendee but indemnitors. Pascual, et
al. v. Universal Motors Corporation, G.R. No. L- 27862, Nov. 20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the change of their maturity
dates discharged these defendants from any liability as alleged indemnitors. The

change of the maturity dates of the obligations of Lim, or SAL extinguish the original
obligations thru novations thus discharging the indemnitors.
The principal hereof shall be paid in eight equal successive three
months interval installments, the first of which shall be due and
payable 25 August 1965, the remainder of which ... shall be due and
payable on the 26th day x x x of each succeeding three months and
the last of which shall be due and payable 26th May 1967.
However, at the trial of this case, Pioneer produced a memorandum executed by
SAL or Lim and JDA, modifying the maturity dates of the obligations, as follows:
The principal hereof shall be paid in eight equal successive three
month interval installments the first of which shall be due and payable
4 September 1965, the remainder of which ... shall be due and
payable on the 4th day ... of each succeeding months and the last of
which shall be due and payable 4th June 1967.
Not only that, Pioneer also produced eight purported promissory notes bearing
maturity dates different from that fixed in the aforesaid memorandum; the due date of
the first installment appears as October 15, 1965, and those of the rest of the
installments, the 15th of each succeeding three months, that of the last installment
being July 15, 1967.
These restructuring of the obligations with regard to their maturity dates, effected
twice, were done without the knowledge, much less, would have it believed that
these defendants Maglana (sic). Pioneer's official Numeriano Carbonel would have it
believed that these defendants and defendant Maglana knew of and consented to
the modification of the obligations. But if that were so, there would have been the
corresponding documents in the form of a written notice to as well as written
conformity of these defendants, and there are no such document. The consequence
of this was the extinguishment of the obligations and of the surety bond secured by
the indemnity agreement which was thereby also extinguished. Applicable by
analogy are the rulings of the Supreme Court in the case of Kabankalan Sugar Co. v.
Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co. v. Hizon David, 45
Phil. 532, 538.
Art. 2079. An extension granted to the debtor by the creditor without
the consent of the guarantor extinguishes the guaranty The mere
failure on the part of the creditor to demand payment after the debt
has become due does not of itself constitute any extension time
referred to herein, (New Civil Code).'
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co.,
Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the
same. Consequently, Pioneer has no more cause of action to recover from these
defendants, as supposed indemnitors, what it has paid to JDA. By virtue of an
express stipulation in the surety bond, the failure of JDA to present its claim to
Pioneer within ten days from default of Lim or SAL on every installment, released
Pioneer from liability from the claim.

Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru
the indemnity.
Art. 1318. Payment by a solidary debtor shall not entitle him to
reimbursement from his co-debtors if such payment is made after the
obligation has prescribed or became illegal.
These defendants are entitled to recover damages and attorney's fees from Pioneer
and its surety by reason of the filing of the instant case against them and the
attachment and garnishment of their properties. The instant action is clearly
unfounded insofar as plaintiff drags these defendants and defendant Maglana.'
(Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157).
We find no cogent reason to reverse or modify these findings.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-investors whose agreement was
to do business through the corporate vehicle but who failed to incorporate the entity
in which they had chosen to invest? How are the losses to be treated in situations
where their contributions to the intended 'corporation' were invested not through the
corporate form? This Petition presents these fundamental questions which we
believe were resolved erroneously by the Court of Appeals ('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a result of the failure of respondents
Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de
facto partnership among them was created, and that as a consequence of such relationship all must
share in the losses and/or gains of the venture in proportion to their contribution. The petitioner,
therefore, questions the appellate court's findings ordering him to reimburse certain amounts given
by the respondents to the petitioner as their contributions to the intended corporation, to wit:
However, defendant Lim should be held liable to pay his co-defendants' cross-claims
in the total amount of P184,878.74 as correctly found by the trial court, with interest
from the filing of the cross-complaints until the amount is fully paid. Defendant Lim
should pay one-half of the said amount to Bormaheco and the Cervanteses and the
other one-half to defendant Maglana. It is established in the records that defendant
Lim had duly received the amount of Pl51,000.00 from defendants Bormaheco and
Maglana representing the latter's participation in the ownership of the subject
airplanes and spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred
additional expenses, hence, the total sum of P 184,878.74.
We first state the principles.
While it has been held that as between themselves the rights of the stockholders in a
defectively incorporated association should be governed by the supposed charter
and the laws of the state relating thereto and not by the rules governing partners
(Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is

ordinarily held that persons who attempt, but fail, to form a corporation and who carry
on business under the corporate name occupy the position of partners inter se
(Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where
persons associate themselves together under articles to purchase property to carry
on a business, and their organization is so defective as to come short of creating a
corporation within the statute, they become in legal effect partners inter se, and their
rights as members of the company to the property acquired by the company will be
recognized (Smith v. Schoodoc Pond Packing Co., 84 A. 268,109 Me. 555; Whipple
v. Parker, 29 Mich. 369). So, where certain persons associated themselves as a
corporation for the development of land for irrigation purposes, and each conveyed
land to the corporation, and two of them contracted to pay a third the difference in the
proportionate value of the land conveyed by him, and no stock was ever issued in the
corporation, it was treated as a trustee for the associates in an action between them
for an accounting, and its capital stock was treated as partnership assets, sold, and
the proceeds distributed among them in proportion to the value of the property
contributed by each (Shorb v. Beaudry, 56 Cal. 446). However, such a relation does
not necessarily exist, for ordinarily persons cannot be made to assume the relation of
partners, as between themselves, when their purpose is that no partnership shall
exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29
L.Ed. 688), and it should be implied only when necessary to do justice between the
parties; thus, one who takes no part except to subscribe for stock in a proposed
corporation which is never legally formed does not become a partner with other
subscribers who engage in business under the name of the pretended corporation,
so as to be liable as such in an action for settlement of the alleged partnership and
contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation between certain
stockholders and other stockholders, who were also directors, will not be implied in
the absence of an agreement, so as to make the former liable to contribute for
payment of debts illegally contracted by the latter (Heald v. Owen, 44 N.W. 210, 79
Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics supplied).
In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to
appear during the pretrial despite notification. In his answer, the petitioner denied having received
any amount from respondents Bormaheco, the Cervanteses and Maglana. The trial court and the
appellate court, however, found through Exhibit 58, that the petitioner received the amount of
P151,000.00 representing the participation of Bormaheco and Atty. Constancio B. Maglana in the
ownership of the subject airplanes and spare parts. The record shows that defendant Maglana gave
P75,000.00 to petitioner Jacob Lim thru the Cervanteses.
It is therefore clear that the petitioner never had the intention to form a corporation with the
respondents despite his representations to them. This gives credence to the cross-claims of the
respondents to the effect that they were induced and lured by the petitioner to make contributions to
a proposed corporation which was never formed because the petitioner reneged on their agreement.
Maglana alleged in his cross-claim:
... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and
Maglana to expand his airline business. Lim was to procure two DC-3's from Japan
and secure the necessary certificates of public convenience and necessity as well as
the required permits for the operation thereof. Maglana sometime in May 1965, gave
Cervantes his share of P75,000.00 for delivery to Lim which Cervantes did and Lim
acknowledged receipt thereof. Cervantes, likewise, delivered his share of the
undertaking. Lim in an undertaking sometime on or about August 9,1965, promised
to incorporate his airline in accordance with their agreement and proceeded to
acquire the planes on his own account. Since then up to the filing of this answer, Lim

has refused, failed and still refuses to set up the corporation or return the money of
Maglana. (Record on Appeal, pp. 337-338).
while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, crossclaim and third party complaint:
Sometime in April 1965, defendant Lim lured and induced the answering defendants
to purchase two airplanes and spare parts from Japan which the latter considered as
their lawful contribution and participation in the proposed corporation to be known as
SAL. Arrangements and negotiations were undertaken by defendant Lim. Down
payments were advanced by defendants Bormaheco and the Cervanteses and
Constancio Maglana (Exh. E- 1). Contrary to the agreement among the defendants,
defendant Lim in connivance with the plaintiff, signed and executed the alleged
chattel mortgage and surety bond agreement in his personal capacity as the alleged
proprietor of the SAL. The answering defendants learned for the first time of this
trickery and misrepresentation of the other, Jacob Lim, when the herein plaintiff
chattel mortgage (sic) allegedly executed by defendant Lim, thereby forcing them to
file an adverse claim in the form of third party claim. Notwithstanding repeated oral
demands made by defendants Bormaheco and Cervanteses, to defendant Lim, to
surrender the possession of the two planes and their accessories and or return the
amount advanced by the former amounting to an aggregate sum of P 178,997.14 as
evidenced by a statement of accounts, the latter ignored, omitted and refused to
comply with them. (Record on Appeal, pp. 341-342).
Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto
partnership was created among the parties which would entitle the petitioner to a reimbursement of
the supposed losses of the proposed corporation. The record shows that the petitioner was acting on
his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes
and spare parts.
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.

G.R. No. L-28113

March 28, 1969

THE MUNICIPALITY OF MALABANG, LANAO DEL SUR, and AMER MACAORAO

BALINDONG, petitioners,
vs.
PANGANDAPUN BENITO, HADJI NOPODIN MACAPUNUNG, HADJI HASAN MACARAMPAD,
FREDERICK V. DUJERTE MONDACO ONTAL, MARONSONG ANDOY, MACALABA INDAR
LAO. respondents.
L. Amores and R. Gonzales for petitioners.
Jose W. Diokno for respondents.
CASTRO, J.:
The petitioner Amer Macaorao Balindong is the mayor of Malabang, Lanao del Sur, while the
respondent Pangandapun Bonito is the mayor, and the rest of the respondents are the councilors, of
the municipality of Balabagan of the same province. Balabagan was formerly a part of the
municipality of Malabang, having been created on March 15, 1960, by Executive Order 386 of the
then President Carlos P. Garcia, out of barrios and sitios 1 of the latter municipality.
The petitioners brought this action for prohibition to nullify Executive Order 386 and to restrain the
respondent municipal officials from performing the functions of their respective office relying on the
ruling of this Court inPelaez v. Auditor General 2 and Municipality of San Joaquin v. Siva. 3
In Pelaez this Court, through Mr. Justice (now Chief Justice) Concepcion, ruled: (1) that section 23
of Republic Act 2370 [Barrio Charter Act, approved January 1, 1960], by vesting the power to
create barrios in the provincial board, is a "statutory denial of the presidential authority to create a
new barrio [and] implies a negation of thebigger power to create municipalities," and (2) that section
68 of the Administrative Code, insofar as it gives the President the power to create municipalities, is
unconstitutional (a) because it constitutes an undue delegation of legislative power and (b) because
it offends against section 10 (1) of article VII of the Constitution, which limits the President's power
over local governments to mere supervision. As this Court summed up its discussion: "In short, even
if it did not entail an undue delegation of legislative powers, as it certainly does, said section 68, as
part of the Revised Administrative Code, approved on March 10, 1917, must be deemed repealed by
the subsequent adoption of the Constitution, in 1935, which is utterly incompatible and inconsistent
with said statutory enactment."
On the other hand, the respondents, while admitting the facts alleged in the petition, nevertheless
argue that the rule announced in Pelaez can have no application in this case because unlike the
municipalities involved inPelaez, the municipality of Balabagan is at least a de facto corporation,
having been organized under color of a statute before this was declared unconstitutional, its officers
having been either elected or appointed, and the municipality itself having discharged its corporate
functions for the past five years preceding the institution of this action. It is contended that as a de
facto corporation, its existence cannot be collaterally attacked, although it may be inquired into
directly in an action for quo warranto at the instance of the State and not of an individual like the
petitioner Balindong.
It is indeed true that, generally, an inquiry into the legal existence of a municipality is reserved to
the State in a proceeding for quo warranto or other direct proceeding, and that only in a few
exceptions may a private person exercise this function of government. 4 But the rule disallowing
collateral attacks applies only where the municipal corporation is at least a de
facto corporations. 5 For where it is neither a corporation de jure nor de facto, but a nullity, the rule is

that its existence may be, questioned collaterally or directly in any action or proceeding by any one
whose rights or interests ate affected thereby, including the citizens of the territory incorporated
unless they are estopped by their conduct from doing so. 6
And so the threshold question is whether the municipality of Balabagan is a de facto corporation.
As earlier stated, the claim that it is rests on the fact that it was organized before the promulgation of
this Court's decision inPelaez. 7
Accordingly, we address ourselves to the question whether a statute can lend color of validity to an
attempted organization of a municipality despite the fact that such statute is subsequently declared
unconstitutional.
lawphi1.et

This has been a litigiously prolific question, sharply dividing courts in the United States. Thus, some
hold that ade facto corporation cannot exist where the statute or charter creating it is unconstitutional
because there can be no de facto corporation where there can be no de jure one, 8 while others hold
otherwise on the theory that a statute is binding until it is condemned as unconstitutional. 9
An early article in the Yale Law Journal offers the following analysis:
It appears that the true basis for denying to the corporation a de facto status lay in the
absence of any legislative act to give vitality to its creation. An examination of the cases
holding, some of them unreservedly, that a de facto office or municipal corporation can exist
under color of an unconstitutional statute will reveal that in no instance did the invalid act
give life to the corporation, but that either in other valid acts or in the constitution itself the
office or the corporation was potentially created....
The principle that color of title under an unconstitutional statute can exist only where there
is some other valid law under which the organization may be effected, or at least an
authority in potentia by the state constitution, has its counterpart in the negative propositions
that there can be no color of authority in an unconstitutional statute that plainly so appears
on its face or that attempts to authorize the ousting of a de jure or de facto municipal
corporation upon the same territory; in the one case the fact would imply the imputation of
bad faith, in the other the new organization must be regarded as a mere usurper....
As a result of this analysis of the cases the following principles may be deduced which
seem to reconcile the apparently conflicting decisions:
I. The color of authority requisite to the organization of a de facto municipal
corporation may be:
1. A valid law enacted by the legislature.
2. An unconstitutional law, valid on its face, which has either (a) been upheld
for a time by the courts or (b) not yet been declared void; provided that a
warrant for its creation can be found in some other valid law or in the
recognition of its potential existence by the general laws or constitution of the
state.
II. There can be no de facto municipal corporation unless either directly or potentially,
such a de jurecorporation is authorized by some legislative fiat.

III. There can be no color of authority in an unconstitutional statute alone, the

invalidity of which is apparent on its face.
IV. There can be no de facto corporation created to take the place of an existing de
jure corporation, as such organization would clearly be a usurper.10
In the cases where a de facto municipal corporation was recognized as such despite the fact that
the statute creating it was later invalidated, the decisions could fairly be made to rest on the
consideration that there was some other valid law giving corporate vitality to the organization.
Hence, in the case at bar, the mere fact that Balabagan was organized at a time when the statute
had not been invalidated cannot conceivably make it a de facto corporation, as, independently of the
Administrative Code provision in question, there is no other valid statute to give color of authority to
its creation. Indeed, in Municipality of San Joaquin v. Siva, 11 this Court granted a similar petition for
prohibition and nullified an executive order creating the municipality of Lawigan in Iloilo on the basis
of the Pelaez ruling, despite the fact that the municipality was created in 1961, before section 68 of
the Administrative Code, under which the President had acted, was invalidated. 'Of course the issue
of de facto municipal corporation did not arise in that case.
In Norton v. Shelby Count, 12 Mr. Justice Field said: "An unconstitutional act is not a law; it confers
no rights; it imposes no duties; it affords no protection; it creates no office; it is, in legal
contemplation, as inoperative as though it had never been passed." Accordingly, he held that bonds
issued by a board of commissioners created under an invalid statute were unenforceable.
Executive Order 386 "created no office." This is not to say, however, that the acts done by the
municipality of Balabagan in the exercise of its corporate powers are a nullity because the executive
order "is, in legal contemplation, as inoperative as though it had never been passed." For the
existence of Executive, Order 386 is "an operative fact which cannot justly be ignored." As Chief
Justice Hughes explained in Chicot County Drainage District v. Baxter State Bank: 13
The courts below have proceeded on the theory that the Act of Congress, having been
found to be unconstitutional, was not a law; that it was inoperative, conferring no rights and
imposing no duties, and hence affording no basis for the challenged decree. Norton v.
Shelby County, 118 U.S. 425, 442; Chicago, I. & L. Ry. Co. v. Hackett, 228 U.S. 559, 566. It
is quite clear, however, that such broad statements as to the effect of a determination of
unconstitutionality must be taken with qualifications. The actual existence of a statute, prior
to such a determination, is an operative fact and may have consequences which cannot
justly be ignored. The past cannot always be erased by a new judicial declaration. The effect
of the subsequent ruling as to invalidity may have to be considered in various aspects
with respect to particular relations, individual and corporate, and particular conduct, private
and official. Questions of rights claimed to have become vested, of status of prior
determinations deemed to have finality and acted upon accordingly, of public policy in the
light of the nature both of the statute and of its previous application, demand examination.
These questions are among the most difficult of those which have engaged the attention of
courts, state and federal, and it is manifest from numerous decisions that an all-inclusive
statement of a principle of absolute retroactive invalidity cannot be justified.
There is then no basis for the respondents' apprehension that the invalidation of the executive
order creating Balabagan would have the effect of unsettling many an act done in reliance upon the
validity of the creation of that municipality. 14

ACCORDINGLY, the petition is granted, Executive Order 386 is declared void, and the respondents
are hereby permanently restrained from performing the duties and functions of their respective
offices. No pronouncement as to costs.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez and Capistrano, JJ., concur.
Teehankee and Barredo, JJ., took no part.

G.R. No. L-2598

June 29, 1950

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

vs.
EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN, EMMA
BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber and
Commercial Co., Inc.,respondents.
Claro M. Recto for petitioners.
Ramon Diokno and Jose W. Diokno for respondents.
BENGZON, J.:
This is petition to set aside all the proceedings had in civil case No. 381 of the Court of First Instance
of Leyte and to enjoin the respondent judge from further acting upon the same.
Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents
Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged
in Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized
to engage in a general lumber business to carry on as general contractors, operators and managers,
etc. Attached to the article was an affidavit of the treasurer stating that 23,428 shares of stock had
been subscribed and fully paid with certain properties transferred to the corporation described in a
list appended thereto.
(2) Immediately after the execution of said articles of incorporation, the corporation proceeded to do
business with the adoption of by-laws and the election of its officers.

(3) On December 2, 1947, the said articles of incorporation were filed in the office of the Securities
and Exchange Commissioner, for the issuance of the corresponding certificate of incorporation.
(4) On March 22, 1948, pending action on the articles of incorporation by the aforesaid governmental
office, the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed
before the Court of First Instance of Leyte the civil case numbered 381, entitled "Fred Brown et
al. vs. Arnold C. Hall et al.", alleging among other things that the Far Eastern Lumber and
Commercial Co. was an unregistered partnership; that they wished to have it dissolved because of
bitter dissension among the members, mismanagement and fraud by the managers and heavy
financial losses.
(5) The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss,
contesting the court's jurisdiction and the sufficiently of the cause of action.
(6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and
at the request of plaintiffs, appointed of the properties thereof, upon the filing of a P20,000 bond.
(7) The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the
receiver, but the respondent judge refused to accept the offer and to discharge the receiver.
Whereupon, the present special civil action was instituted in this court. It is based upon two main
propositions, to wit:
(a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company,
because it being ade facto corporation, dissolution thereof may only be ordered in a quo
warranto proceeding instituted in accordance with section 19 of the Corporation Law.
(b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of incorporation
but only a partnership.
Discussion: The second proposition may at once be dismissed. All the parties are informed that the
Securities and Exchange Commission has not, so far, issued the corresponding certificate of
incorporation. All of them know, or sought to know, that the personality of a corporation begins to
exist only from the moment such certificate is issued not before (sec. 11, Corporation Law). The
complaining associates have not represented to the others that they were incorporated any more
than the latter had made similar representations to them. And as nobody was led to believe anything
to his prejudice and damage, the principle of estoppel does not apply. Obviously this is not an
instance requiring the enforcement of contracts with the corporation through the rule of estoppel.
The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern
Lumber and Commercial Co., is a de facto corporation, section 19 of the Corporation Law applies,
and therefore the court had not jurisdiction to take cognizance of said civil case number 381. Section
19 reads as follows:
. . . The due incorporation of any corporations claiming in good faith to be a corporation
under this Act and its right to exercise corporate powers shall not be inquired into collaterally
in any private suit to which the corporation may be a party, but such inquiry may be had at
the suit of the Insular Government on information of the Attorney-General.
There are least two reasons why this section does not govern the situation. Not having obtained the
certificate of incorporation, the Far Eastern Lumber and Commercial Co. even its stockholders
may not probably claim "in good faith" to be a corporation.

Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of a
certificate of incorporation by the Director of the Bureau of Commerce and Industry which
calls a corporation into being. The immunity if collateral attack is granted to corporations
"claiming in good faith to be a corporation under this act." Such a claim is compatible with the
existence of errors and irregularities; but not with a total or substantial disregard of the law.
Unless there has been an evident attempt to comply with the law the claim to be a
corporation "under this act" could not be made "in good faith." (Fisher on the Philippine Law
of Stock Corporations, p. 75. See also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.)
Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders
of the alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de
jure corporation may be terminated in a private suit for its dissolution between stockholders, without
the intervention of the state.
There might be room for argument on the right of minority stockholders to sue for dissolution; 1 but
that question does not affect the court's jurisdiction, and is a matter for decision by the judge, subject
to review on appeal. Whkch brings us to one principal reason why this petition may not prosper,
namely: the petitioners have their remedy by appealing the order of dissolution at the proper time.
There is a secondary issue in connection with the appointment of a receiver. But it must be admitted
that receivership is proper in proceedings for dissolution of a company or corporation, and it was no
error to reject the counter-bond, the court having declared the dissolution. As to the amount of the
bond to be demanded of the receiver, much depends upon the discretion of the trial court, which in
this instance we do not believe has been clearly abused.
Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction heretofore
issued will be dissolved.
Ozaeta, Pablo, Tuason, Montemayor, and Reyes, JJ., concur.