CORPORATE CONTRACT LAW

G.R. No. L-69259 January 26, 1988

DELPHER TRADES CORPORATION, and DELPHIN PACHECO, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC., respondents.

GUTIERREZ, JR., J.:

The petitioners question the decision of the Intermediate Appellate Court which sustained the private
respondent's contention that the deed of exchange whereby Delfin Pacheco and Pelagia Pacheco conveyed a
parcel of land to Delpher Trades Corporation in exchange for 2,500 shares of stock was actually a deed of sale
which violated a right of first refusal under a lease contract.
Briefly, the facts of the case are summarized as follows:
In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square
meters of real estate Identified as Lot. No. 1095, Malinta Estate, in the Municipality of Polo
(now Valenzuela), Province of Bulacan (now Metro Manila) which is covered by Transfer
Certificate of Title No. T-4240 of the Bulacan land registry.
On April 3, 1974, the said co-owners leased to Construction Components International Inc. the
same property and providing that during the existence or after the term of this lease the lessor
should he decide to sell the property leased shall first offer the same to the lessee and the letter
has the priority to buy under similar conditions (Exhibits A to A-5)
On August 3, 1974, lessee Construction Components International, Inc. assigned its rights and
obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed
conformity and consent of lessors Delfin Pacheco and Pelagia Pacheco (Exhs. B to B-6
inclusive)
The contract of lease, as well as the assignment of lease were annotated at the back of the title, as
per stipulation of the parties (Exhs. A to D-3 inclusive)
On January 3, 1976, a deed of exchange was executed between lessors Delfin and Pelagia
Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the latter
the leased property (TCT No.T-4240) together with another parcel of land also located in
Malinta Estate, Valenzuela, Metro Manila (TCT No. 4273) for 2,500 shares of stock of defendant
corporation with a total value of P1,500,000.00 (Exhs. C to C-5, inclusive) (pp. 44-45, Rollo)
On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the
lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of
Lot. No. 1095 in its favor under conditions similar to those whereby Delpher Trades Corporation acquired the
property from Pelagia Pacheco and Delphin Pacheco.
After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The dispositive portion of the
decision reads:
ACCORDINGLY, the judgment is hereby rendered declaring the valid existence of the plaintiffs
preferential right to acquire the subject property (right of first refusal) and ordering the
defendants and all persons deriving rights therefrom to convey the said property to plaintiff who
may offer to acquire the same at the rate of P14.00 per square meter, more or less, for Lot 1095
whose area is 27,169 square meters only. Without pronouncement as to attorney's fees and costs.
(Appendix I; Rec., pp. 246- 247). (Appellant's Brief, pp. 1-2; p. 134, Rollo)
The lower court's decision was affirmed on appeal by the Intermediate Appellate Court.
The defendants-appellants, now the petitioners, filed a petition for certiorari to review the appellate court's
decision.
We initially denied the petition but upon motion for reconsideration, we set aside the resolution denying the
petition and gave it due course.
The petitioners allege that:
The denial of the petition will work great injustice to the petitioners, in that:
1. Respondent Hydro Pipes Philippines, Inc, ("private respondent") will acquire from petitioners
a parcel of industrial land consisting of 27,169 square meters or 2.7 hectares (located right after
the Valenzuela, Bulacan exit of the toll expressway) for only P14/sq. meter, or a total
of P380,366, although the prevailing value thereof is approximately P300/sq. meter or P8.1
Million;
2. Private respondent is allowed to exercise its right of first refusal even if there is no "sale" or
transfer of actual ownership interests by petitioners to third parties; and
3. Assuming arguendo that there has been a transfer of actual ownership interests, private
respondent will acquire the land not under "similar conditions" by which it was transferred to
petitioner Delpher Trades Corporation, as provided in the same contractual provision invoked by
private respondent. (pp. 251-252, Rollo)
The resolution of the case hinges on whether or not the "Deed of Exchange" of the properties executed by the
Pachecos on the one hand and the Delpher Trades Corporation on the other was meant to be a contract of sale
which, in effect, prejudiced the private respondent's right of first refusal over the leased property included in the
"deed of exchange."
Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco testified that Delpher
Trades Corporation is a family corporation; that the corporation was organized by the children of the two
spouses (spouses Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles)
who owned in common the parcel of land leased to Hydro Pipes Philippines in order to perpetuate their control
over the property through the corporation and to avoid taxes; that in order to accomplish this end, two pieces of
real estate, including Lot No. 1095 which had been leased to Hydro Pipes Philippines, were transferred to the
corporation; that the leased property was transferred to the corporation by virtue of a deed of exchange of
property; that in exchange for these properties, Pelagia and Delfin acquired 2,500 unissued no par value shares
of stock which are equivalent to a 55% majority in the corporation because the other owners only owned 2,000
shares; and that at the time of incorporation, he knew all about the contract of lease of Lot. No. 1095 to Hydro
Pipes Philippines. In the petitioners' motion for reconsideration, they refer to this scheme as "estate planning."
(p. 252, Rollo)
Under this factual backdrop, the petitioners contend that there was actually no transfer of ownership of the
subject parcel of land since the Pachecos remained in control of the property. Thus, the petitioners allege:
"Considering that the beneficial ownership and control of petitioner corporation remained in the hands of the
original co-owners, there was no transfer of actual ownership interests over the land when the same was
transferred to petitioner corporation in exchange for the latter's shares of stock. The transfer of ownership, if
anything, was merely in form but not in substance. In reality, petitioner corporation is a mere alter ego or
conduit of the Pacheco co-owners; hence the corporation and the co-owners should be deemed to be the same,
there being in substance and in effect an Identity of interest." (p. 254, Rollo)
The petitioners maintain that the Pachecos did not sell the property. They argue that there was no sale and that
they exchanged the land for shares of stocks in their own corporation. "Hence, such transfer is not within the
letter, or even spirit of the contract. There is a sale when ownership is transferred for a price certain in money or
its equivalent (Art. 1468, Civil Code) while there is a barter or exchange when one thing is given in
consideration of another thing (Art. 1638, Civil Code)." (pp. 254-255, Rollo)
On the other hand, the private respondent argues that Delpher Trades Corporation is a corporate entity separate
and distinct from the Pachecos. Thus, it contends that it cannot be said that Delpher Trades Corporation is the
Pacheco's same alter ego or conduit; that petitioner Delfin Pacheco, having treated Delpher Trades Corporation
as such a separate and distinct corporate entity, is not a party who may allege that this separate corporate
existence should be disregarded. It maintains that there was actual transfer of ownership interests over the
leased property when the same was transferred to Delpher Trades Corporation in exchange for the latter's shares
of stock.
We rule for the petitioners.
After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing stock directly
from the corporation or from individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil, 649, citing
Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in exchange for their properties, the Pachecos acquired
2,500 original unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently, the
Pachecos became stockholders of the corporation by subscription "The essence of the stock subscription is an
agreement to take and pay for original unissued shares of a corporation, formed or to be formed." (Rohrlich 243,
cited in Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980
Edition, p. 430) It is significant that the Pachecos took no par value shares in exchange for their properties.
A no-par value share does not purport to represent any stated proportionate interest in the capital
stock measured by value, but only an aliquot part of the whole number of such shares of the
issuing corporation. The holder of no-par shares may see from the certificate itself that he is only
an aliquot sharer in the assets of the corporation. But this character of proportionate interest is
not hidden beneath a false appearance of a given sum in money, as in the case of par value
shares. The capital stock of a corporation issuing only no-par value shares is not set forth by a
stated amount of money, but instead is expressed to be divided into a stated number of shares,
such as, 1,000 shares. This indicates that a shareholder of 100 such shares is an aliquot sharer in
the assets of the corporation, no matter what value they may have, to the extent of 100/1,000 or
1/10. Thus, by removing the par value of shares, the attention of persons interested in the
financial condition of a corporation is focused upon the value of assets and the amount of its
debts. (Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines,
Vol. III, 1980 Edition, p. 107).
Moreover, there was no attempt to state the true or current market value of the real estate. Land valued at
P300.00 a square meter was turned over to the family's corporation for only P14.00 a square meter.
It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have control of the
corporation. Their equity capital is 55% as against 45% of the other stockholders, who also belong to the same
family group.
In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to
invest their properties and change the nature of their ownership from unincorporated to incorporated form by
organizing Delpher Trades Corporation to take control of their properties and at the same time save on
inheritance taxes.
As explained by Eduardo Neria:
xxx xxx xxx
ATTY. LINSANGAN:
Q Mr. Neria, from the point of view of taxation, is there any benefit to the spouses
Hernandez and Pacheco in connection with their execution of a deed of exchange
on the properties for no par value shares of the defendant corporation?
A Yes, sir.
COURT:
Q What do you mean by "point of view"?
A To take advantage for both spouses and corporation in entering in the deed of
exchange.
ATTY. LINSANGAN:
Q (What do you mean by "point of view"?) What are these benefits to the spouses
of this deed of exchange?
 A Continuous control of the property, tax exemption benefits, and other inherent
benefits in a corporation.
Q What are these advantages to the said spouses from the point of view of
taxation in entering in the deed of exchange?
A Having fulfilled the conditions in the income tax law, providing for tax free
exchange of property, they were able to execute the deed of exchange free from
income tax and acquire a corporation.
Q What provision in the income tax law are you referring to?
A I refer to Section 35 of the National Internal Revenue Code under par. C-sub-
par. (2) Exceptions regarding the provision which I quote: "No gain or loss shall
also be recognized if a person exchanges his property for stock in a corporation of
which as a result of such exchange said person alone or together with others not
exceeding four persons gains control of said corporation."
Q Did you explain to the spouses this benefit at the time you executed the deed of
exchange?
A Yes, sir
Q You also, testified during the last hearing that the decision to have no par value
share in the defendant corporation was for the purpose of flexibility. Can you
explain flexibility in connection with the ownership of the property in question?
A There is flexibility in using no par value shares as the value is determined by
the board of directors in increasing capitalization. The board can fix the value of
the shares equivalent to the capital requirements of the corporation.
Q Now also from the point of taxation, is there any flexibility in the holding by
the corporation of the property in question?
A Yes, since a corporation does not die it can continue to hold on to the property
indefinitely for a period of at least 50 years. On the other hand, if the property is
held by the spouse the property will be tied up in succession proceedings and the
consequential payments of estate and inheritance taxes when an owner dies.
Q Now what advantage is this continuity in relation to ownership by a particular
person of certain properties in respect to taxation?
A The property is not subjected to taxes on succession as the corporation does not
die.
Q So the benefit you are talking about are inheritance taxes?
A Yes, sir. (pp. 3-5, tsn., December 15, 1981)
The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by
the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or
altogether avoid them, by means which the law permits, cannot be doubted." (Liddell & Co., Inc. v. The
collector of Internal Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596).
The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be
considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third
party. The Pacheco family merely changed their ownership from one form to another. The ownership remained
in the same hands. Hence, the private respondent has no basis for its claim of a light of first refusal under the
lease contract.
WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and resolution of the then
Intermediate Appellate Court are REVERSED and SET ASIDE. The amended complaint in Civil Case No. 885-
V-79 of the then Court of First Instance of Bulacan is DISMISSED. No costs.
SO ORDERED.
Fernan (Chairman), Bidin and Cortes, JJ., concur.
Feliciano, J., took no part.

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.

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

C. ARNOLD HALL and BRADLEY P. HALL, petitioners,
vs.
EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN, EMMA
BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber and
Commercial Co., Inc.,respondents.
Claro M. Recto for petitioners.
Ramon Diokno and Jose W. Diokno for respondents.
BENGZON, J.:
This is petition to set aside all the proceedings had in civil case No. 381 of the Court of First Instance of Leyte
and to enjoin the respondent judge from further acting upon the same.
Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents Fred
Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the
article of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general
lumber business to carry on as general contractors, operators and managers, etc. Attached to the article was an
affidavit of the treasurer stating that 23,428 shares of stock had been subscribed and fully paid with certain
properties transferred to the corporation described in a list appended thereto.
(2) Immediately after the execution of said articles of incorporation, the corporation proceeded to do business
with the adoption of by-laws and the election of its officers.
(3) On December 2, 1947, the said articles of incorporation were filed in the office of the Securities and
Exchange Commissioner, for the issuance of the corresponding certificate of incorporation.
(4) On March 22, 1948, pending action on the articles of incorporation by the aforesaid governmental office, the
respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed before the Court of
First Instance of Leyte the civil case numbered 381, entitled "Fred Brown et al. vs. Arnold C. Hall et al.",
alleging among other things that the Far Eastern Lumber and Commercial Co. was an unregistered partnership;
that they wished to have it dissolved because of bitter dissension among the members, mismanagement and
fraud by the managers and heavy financial losses.
(5) The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss, contesting
the court's jurisdiction and the sufficiently of the cause of action.
(6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and at the
request of plaintiffs, appointed of the properties thereof, upon the filing of a P20,000 bond.
(7) The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the receiver,
but the respondent judge refused to accept the offer and to discharge the receiver. Whereupon, the present
special civil action was instituted in this court. It is based upon two main propositions, to wit:
(a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company, because it being
a de facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding instituted in
accordance with section 19 of the Corporation Law.
(b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of incorporation but only a
partnership.
Discussion: The second proposition may at once be dismissed. All the parties are informed that the Securities
and Exchange Commission has not, so far, issued the corresponding certificate of incorporation. All of them
know, or sought to know, that the personality of a corporation begins to exist only from the moment such
certificate is issued not before (sec. 11, Corporation Law). The complaining associates have not represented
to the others that they were incorporated any more than the latter had made similar representations to them. And
as nobody was led to believe anything to his prejudice and damage, the principle of estoppel does not apply.
Obviously this is not an instance requiring the enforcement of contracts with the corporation through the rule of
estoppel.
The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern Lumber and
Commercial Co., is a de facto corporation, section 19 of the Corporation Law applies, and therefore the court
had not jurisdiction to take cognizance of said civil case number 381. Section 19 reads as follows:
. . . The due incorporation of any corporations claiming in good faith to be a corporation under this Act
and its right to exercise corporate powers shall not be inquired into collaterally in any private suit to
which the corporation may be a party, but such inquiry may be had at the suit of the Insular Government
on information of the Attorney-General.
There are least two reasons why this section does not govern the situation. Not having obtained the certificate of
incorporation, the Far Eastern Lumber and Commercial Co. even its stockholders may not probably claim
"in good faith" to be a corporation.
Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of a certificate of
incorporation by the Director of the Bureau of Commerce and Industry which calls a corporation into
being. The immunity if collateral attack is granted to corporations "claiming in good faith to be a
corporation under this act." Such a claim is compatible with the existence of errors and irregularities; but
not with a total or substantial disregard of the law. Unless there has been an evident attempt to comply
with the law the claim to be a corporation "under this act" could not be made "in good faith." (Fisher on
the Philippine Law of Stock Corporations, p. 75. See also Humphreys vs. Drew, 59 Fla., 295; 52 So.,
362.)
Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders of the
alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may
be terminated in a private suit for its dissolution between stockholders, without the intervention of the state.
There might be room for argument on the right of minority stockholders to sue for dissolution;1 but that
question does not affect the court's jurisdiction, and is a matter for decision by the judge, subject to review on
appeal. Whkch brings us to one principal reason why this petition may not prosper, namely: the petitioners have
their remedy by appealing the order of dissolution at the proper time.
There is a secondary issue in connection with the appointment of a receiver. But it must be admitted that
receivership is proper in proceedings for dissolution of a company or corporation, and it was no error to reject
the counter-bond, the court having declared the dissolution. As to the amount of the bond to be demanded of the
receiver, much depends upon the discretion of the trial court, which in this instance we do not believe has been
clearly abused.
Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction heretofore issued
will be dissolved.
Ozaeta, Pablo, Tuason, Montemayor, and Reyes, JJ., concur.
 [G.R. No. 125221. June 19, 1997]
REYNALDO M. LOZANO, petitioner, vs. HON. ELIEZER R. DE LOS SANTOS, Presiding Judge, RTC,
Br. 58, Angeles City; and ANTONIO ANDA, respondents.
DECISION
PUNO, J.:
This petition for certiorari seeks to annul and set aside the decision of the Regional Trial Court, Branch 58,
Angeles City which ordered the Municipal Circuit Trial Court, Mabalacat and Magalang, Pampanga to dismiss
Civil Case No. 1214 for lack of jurisdiction.
The facts are undisputed. On December 19, 1995, petitioner Reynaldo M. Lozano filed Civil Case No. 1214
for damages against respondent Antonio Anda before the Municipal Circuit Trial Court (MCTC), Mabalacat
and Magalang, Pampanga. Petitioner alleged that he was the president of the Kapatirang Mabalacat-Angeles
Jeepney Drivers' Association, Inc. (KAMAJDA) while respondent Anda was the president of the Samahang
Angeles-Mabalacat Jeepney Operators' and Drivers' Association, Inc. (SAMAJODA); in August 1995, upon the
request of the Sangguniang Bayan of Mabalacat, Pampanga, petitioner and private respondent agreed to
consolidate their respective associations and form the Unified Mabalacat-Angeles Jeepney Operators' and
Drivers' Association, Inc. (UMAJODA); petitioner and private respondent also agreed to elect one set of
officers who shall be given the sole authority to collect the daily dues from the members of the consolidated
association; elections were held on October 29, 1995 and both petitioner and private respondent ran for
president; petitioner won; private respondent protested and, alleging fraud, refused to recognize the results of
the election; private respondent also refused to abide by their agreement and continued collecting the dues from
the members of his association despite several demands to desist. Petitioner was thus constrained to file the
complaint to restrain private respondent from collecting the dues and to order him to pay damages in the amount
of P25,000.00 and attorney's fees of P500.00.[1]
Private respondent moved to dismiss the complaint for lack of jurisdiction, claiming that jurisdiction was
lodged with the Securities and Exchange Commission (SEC). The MCTC denied the motion on February 9,
1996.[2] It denied reconsideration on March 8, 1996.[3]
Private respondent filed a petition for certiorari before the Regional Trial Court, Branch 58, Angeles
City.[4] The trial court found the dispute to be intracorporate, hence, subject to the jurisdiction of the SEC, and
ordered the MCTC to dismiss Civil Case No. 1214 accordingly.[5] It denied reconsideration on May 31, 1996.[6]
Hence this petition. Petitioner claims that:
"THE RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION AND SERIOUS ERROR OF LAW IN CONCLUDING THAT THE
SECURITIES AND EXCHANGE COMMISSION HAS JURISDICTION OVER A CASE OF DAMAGES
BETWEEN HEADS/PRESIDENTS OF TWO (2) ASSOCIATIONS WHO INTENDED TO
CONSOLIDATE/MERGE THEIR ASSOCIATIONS BUT NOT YET [SIC] APPROVED AND REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION."[7]
The jurisdiction of the Securities and Exchange Commission (SEC) is set forth in Section 5 of Presidential
Decree No. 902-A. Section 5 reads as follows:
"Section 5. x x x [T]he Securities and Exchange Commission [has] original and exclusive jurisdiction to hear
and decide cases involving:
(a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or
partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or
of the stockholders, partners, members of associations or organizations registered with the Commission.
(b) Controversies arising out of intracorporate or partnership relations, between and among stockholders,
members or associates; between any or all of them and the corporation, partnership or association of which they
are stockholders, members, or associates, respectively; and between such corporation, partnership or association
and the state insofar as it concerns their individual franchise or right to exist as such entity.
(c) Controversies in the election or appointment of directors, trustees, officers or managers of such corporations,
partnerships or associations.
(d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments
in cases where the corporation, partnership or association possesses sufficient property to cover all its debts but
foresees the impossibility of meeting them when they respect very fall due or in cases where the corporation,
partnership or association has no sufficient assets to cover its liabilities, but is under the management of a
Rehabilitation Receiver or Management Committee created pursuant to this Decree."
The grant of jurisdiction to the SEC must be viewed in the light of its nature and function under the law. [8] This
jurisdiction is determined by a concurrence of two elements: (1) the status or relationship of the parties; and (2)
the nature of the question that is the subject of their controversy.[9]
The first element requires that the controversy must arise out of intracorporate or partnership relations
between and among stockholders, members, or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members or associates, respectively; and between
such corporation, partnership or association and the State in so far as it concerns their individual
franchises.[10] The second element requires that the dispute among the parties be intrinsically connected with the
regulation of the corporation, partnership or association or deal with the internal affairs of the corporation,
partnership or association.[11] After all, the principal function of the SEC is the supervision and control of
corporations, partnerships and associations with the end in view that investments in these entities may be
encouraged and protected, and their activities pursued for the promotion of economic development.[12]
There is no intracorporate nor partnership relation between petitioner and private respondent. The
controversy between them arose out of their plan to consolidate their respective jeepney drivers' and operators'
associations into a single common association. This unified association was, however, still a proposal. It had not
been approved by the SEC, neither had its officers and members submitted their articles of consolidation in
accordance with Sections 78 and 79 of the Corporation Code. Consolidation becomes effective not upon mere
agreement of the members but only upon issuance of the certificate of consolidation by the SEC. [13] When the
SEC, upon processing and examining the articles of consolidation, is satisfied that the consolidation of the
corporations is not inconsistent with the provisions of the Corporation Code and existing laws, it issues a
certificate of consolidation which makes the reorganization official.[14] The new consolidated corporation comes
into existence and the constituent corporations dissolve and cease to exist.[15]
The KAMAJDA and SAMAJODA to which petitioner and private respondent belong are duly registered
with the SEC, but these associations are two separate entities. The dispute between petitioner and private
respondent is not within the KAMAJDA nor the SAMAJODA. It is between members of separate and distinct
associations. Petitioner and private respondent have no intracorporate relation much less do they have an
intracorporate dispute. The SEC therefore has no jurisdiction over the complaint.
The doctrine of corporation by estoppel[16] advanced by private respondent cannot override jurisdictional
requirements. Jurisdiction is fixed by law and is not subject to the agreement of the parties.[17] It cannot be
acquired through or waived, enlarged or diminished by, any act or omission of the parties, neither can it be
conferred by the acquiescence of the court.[18]
Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and
unfairness.[19] It applies when persons assume to form a corporation and exercise corporate functions and enter
into business relations with third persons. Where there is no third person involved and the conflict arises only
among those assuming the form of a corporation, who therefore know that it has not been registered, there is no
corporation by estoppel.[20]
IN VIEW WHEREOF, the petition is granted and the decision dated April 18, 1996 and the order dated
May 31, 1996 of the Regional Trial Court, Branch 58, Angeles City are set aside.The Municipal Circuit Trial
Court of Mabalacat and Magalang, Pampanga is ordered to proceed with dispatch in resolving Civil Case No.
1214. No costs.
SO ORDERED.
Regalado, (Chairman), Romero, Mendoza, and Torres, Jr., JJ., concur.
SEVENTH DAY ADVENTIST G.R. No. 150416
CONFERENCE CHURCH OF
SOUTHERN PHILIPPINES, INC.,
and/or represented by MANASSEH
C. ARRANGUEZ, BRIGIDO P.
GULAY, FRANCISCO M. LUCENARA,
DIONICES O. TIPGOS, LORESTO
C. MURILLON, ISRAEL C. NINAL,
GEORGE G. SOMOSOT, JESSIE
T. ORBISO, LORETO PAEL and
JOEL BACUBAS,
Petitioners, Present:

PUNO, J., Chairperson,

SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.

NORTHEASTERN MINDANAO
MISSION OF SEVENTH DAY
ADVENTIST, INC., and/or
represented by JOSUE A. LAYON,
WENDELL M. SERRANO, FLORANTE
P. TY and JETHRO CALAHAT
and/or SEVENTH DAY ADVENTIST
CHURCH [OF] NORTHEASTERN
MINDANAO MISSION,*
Respondents. Promulgated:
July 21, 2006

x------------------------------------------x

DECISION

CORONA, J.:
This petition for review on certiorari assails the Court of Appeals (CA) decision[1] and resolution[2] in CA-G.R.
CV No. 41966 affirming, with modification, the decision of the Regional Trial Court (RTC)
of Bayugan, Agusan del Sur, Branch 7 in Civil Case No. 63.

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

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

KNOW ALL MEN BY THESE PRESENTS:

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

1. a parcel of land for Church Site purposes only.

2. situated [in Barrio Bayugan, Esperanza].
3. Area: 30 meters wide and 30 meters length or 900 square meters.
4. Lot No. 822-Pls-225. Homestead Application No. V-36704, Title No. P-285.
5. Bounded Areas
North by National High Way; East by Bricio Gerona; South by Serapio Abijaron and West
by Feliz Cosio xxx. [4]

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

Twenty-one years later, however, on February 28, 1980, the same parcel of land was sold by the
spouses Cosio to the Seventh Day Adventist Church of Northeastern Mindanao Mission (SDA-NEMM).[5] TCT
No. 4468 was thereafter issued in the name of SDA-NEMM.[6]
Claiming to be the alleged donees successors-in-interest, petitioners asserted ownership over the property. This
was opposed by respondents who argued that at the time of the donation, SPUM-
SDA Bayugan could not legally be a donee

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

On September 28, 1987, petitioners filed a case, docketed as Civil Case No. 63 (a suit for cancellation of title,
quieting of ownership and possession, declaratory relief and reconveyance with prayer for preliminary
injunction and damages), in the RTC of Bayugan, Agusan del Sur. After trial, the trial court rendered a
decision[7] on November 20, 1992 upholding the sale in favor of respondents.

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

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

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

Donation is undeniably one of the modes of acquiring ownership of real property. Likewise, ownership

of a property may be transferred by tradition as a consequence of a sale.

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

We agree with the appellate court that the alleged donation to petitioners was void.

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

The deed of donation was not in favor of any informal group of SDA members but a supposed SPUM-
SDA Bayugan (the local church) which, at the time, had neither juridical personality nor capacity to accept such
gift.
 Declaring themselves a de facto corporation, petitioners allege that they should benefit from the
donation.

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

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

(b) an attempt in good faith to incorporate; and
(c) assumption of corporate powers.[10]

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

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

Corporate existence begins only from the moment a certificate of incorporation is issued. No such
certificate was ever issued to petitioners or their supposed predecessor-in-interest at the time of the donation.
Petitioners obviously could not have claimed succession to an entity that never came to exist. Neither could the
principle of separate juridical personality apply since there was never any corporation [15] to speak of. And, as
already stated, some of the representatives of petitioner Seventh Day Adventist Conference Church of Southern
Philippines, Inc. were not even members of the local church then, thus, they could not even claim that the
donation was particularly for them.[16]

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

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

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

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

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

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

Article 1355 of the Civil Code provides:

Except in cases specified by law, lesion or inadequacy of cause

shall not invalidate a contract, unless there has been fraud, mistake
or undue influence.

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

xxx

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

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

[This action was instituted almost seven years after the certificate of title in respondents name
was issued in 1980.][20]
 According to Art. 1477 of the Civil Code, the ownership of the thing sold shall be transferred to the
vendee upon the actual or constructive delivery thereof. On this, the noted author Arturo Tolentino had this to
say:

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

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

WHEREFORE, the petition is hereby DENIED.

Costs against petitioners.

SO ORDERED.

[G.R. No. 136448. November 3, 1999]

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
DECISION
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 partners, 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 plaintiffs 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 of 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 attorneys 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 of 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 respondent 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.[12]
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 x x x. Obviously, the ultimate undertaking
of the defendants was to divide the profits among themselves which is what a partnership essentially is x x
x. 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 LIMS GOODS.
 In determining whether petitioner may be held liable for the fishing nets and floats purchased 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 Courts 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:
Article 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 Yaos 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, Chuas FB Lady Anne Mel and Yaos 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 petitioners 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 courts 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 petitioners 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 petitioners 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.
Section 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 rapiers 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, (Chairman), Purisima, and Gonzaga-Reyes, JJ., concur.
Vitug, J., Pls. see concurring opinion.

G.R. No. 156759 June 5, 2013

ALLEN A. MACASAET, NICOLAS V. QUIJANO, JR., ISAIAS ALBANO, LILY REYES, JANET
BAY, JESUS R. GALANG, AND RANDY HAGOS, Petitioners,
vs.
FRANCISCO R. CO, JR., Respondent.
DECISION
BERSAMIN, J.:
To warrant the substituted service of the summons and copy of the complaint, the serving officer must first
attempt to effect the same upon the defendant in person. Only after the attempt at personal service has become
futile or impossible within a reasonable time may the officer resort to substituted service.
The Case
Petitioners defendants in a suit for libel brought by respondent appeal the decision promulgated on March 8,
20021 and the resolution promulgated on January 13, 2003,2 whereby the Court of Appeals (CA) respectively
dismissed their petition for certiorari, prohibition and mandamus and denied their motion for reconsideration.
Thereby, the CA upheld the order the Regional Trial Court (RTC), Branch 51, in Manila had issued on March
12, 2001 denying their motion to dismiss because the substituted service of the summons and copies of the
complaint on each of them had been valid and effective.3
Antecedents
On July 3, 2000, respondent, a retired police officer assigned at the Western Police District in Manila, sued
Abante Tonite, a daily tabloid of general circulation; its Publisher Allen A. Macasaet; its Managing Director
Nicolas V. Quijano; its Circulation Manager Isaias Albano; its Editors Janet Bay, Jesus R. Galang and Randy
Hagos; and its Columnist/Reporter Lily Reyes (petitioners), claiming damages because of an allegedly libelous
article petitioners published in the June 6, 2000 issue of Abante Tonite. The suit, docketed as Civil Case No. 00-
97907, was raffled to Branch 51 of the RTC, which in due course issued summons to be served on each
defendant, including Abante Tonite, at their business address at Monica Publishing Corporation, 301-305 3rd
Floor, BF Condominium Building, Solana Street corner A. Soriano Street, Intramuros, Manila.4
In the morning of September 18, 2000, RTC Sheriff Raul Medina proceeded to the stated address to effect the
personal service of the summons on the defendants. But his efforts to personally serve each defendant in the
address were futile because the defendants were then out of the office and unavailable. He returned in the
afternoon of that day to make a second attempt at serving the summons, but he was informed that petitioners
were still out of the office. He decided to resort to substituted service of the summons, and explained why in his
sheriffs return dated September 22, 2005,5 to wit:
SHERIFFS RETURN
This is to certify that on September 18, 2000, I caused the service of summons together with copies of
complaint and its annexes attached thereto, upon the following:
1. Defendant Allen A. Macasaet, President/Publisher of defendant AbanteTonite, at Monica Publishing
Corporation, Rooms 301-305 3rd Floor, BF Condominium Building, Solana corner A. Soriano Streets,
Intramuros, Manila, thru his secretary Lu-Ann Quijano, a person of sufficient age and discretion
working therein, who signed to acknowledge receipt thereof. That effort (sic) to serve the said summons
personally upon said defendant were made, but the same were ineffectual and unavailing on the ground
that per information of Ms. Quijano said defendant is always out and not available, thus, substituted
service was applied;
2. Defendant Nicolas V. Quijano, at the same address, thru his wife Lu-Ann Quijano, who signed to
acknowledge receipt thereof. That effort (sic) to serve the said summons personally upon said defendant
were made, but the same were ineffectual and unavailing on the ground that per information of (sic) his
wife said defendant is always out and not available, thus, substituted service was applied;
3. Defendants Isaias Albano, Janet Bay, Jesus R. Galang, Randy Hagos and Lily Reyes, at the same
address, thru Rene Esleta, Editorial Assistant of defendant AbanteTonite, a person of sufficient age and
discretion working therein who signed to acknowledge receipt thereof. That effort (sic) to serve the said
summons personally upon said defendants were made, but the same were ineffectual and unavailing on
the ground that per information of (sic) Mr. Esleta said defendants is (sic) always roving outside and
gathering news, thus, substituted service was applied.
Original copy of summons is therefore, respectfully returned duly served.
Manila, September 22, 2000.
On October 3, 2000, petitioners moved for the dismissal of the complaint through counsels special appearance
in their behalf, alleging lack of jurisdiction over their persons because of the invalid and ineffectual substituted
service of summons. They contended that the sheriff had made no prior attempt to serve the summons
personally on each of them in accordance with Section 6 and Section 7, Rule 14 of the Rules of Court. They
further moved to drop Abante Tonite as a defendant by virtue of its being neither a natural nor a juridical person
that could be impleaded as a party in a civil action.
At the hearing of petitioners motion to dismiss, Medina testified that he had gone to the office address of
petitioners in the morning of September 18, 2000 to personally serve the summons on each defendant; that
petitioners were out of the office at the time; that he had returned in the afternoon of the same day to again
attempt to serve on each defendant personally but his attempt had still proved futile because all of petitioners
were still out of the office; that some competent persons working in petitioners office had informed him that
Macasaet and Quijano were always out and unavailable, and that Albano, Bay, Galang, Hagos and Reyes were
always out roving to gather news; and that he had then resorted to substituted service upon realizing the
impossibility of his finding petitioners in person within a reasonable time.
On March 12, 2001, the RTC denied the motion to dismiss, and directed petitioners to file their answers to the
complaint within the remaining period allowed by the Rules of Court,6 relevantly stating:
Records show that the summonses were served upon Allen A. Macasaet, President/Publisher of defendant
AbanteTonite, through LuAnn Quijano; upon defendants Isaias Albano, Janet Bay, Jesus R. Galang, Randy
Hagos and Lily Reyes, through Rene Esleta, Editorial Assistant of defendant Abante Tonite (p. 12, records). It
is apparent in the Sheriffs Return that on several occasions, efforts to served (sic) the summons personally
upon all the defendants were ineffectual as they were always out and unavailable, so the Sheriff served the
summons by substituted service.
Considering that summonses cannot be served within a reasonable time to the persons of all the defendants,
hence substituted service of summonses was validly applied. Secretary of the President who is duly authorized
to receive such document, the wife of the defendant and the Editorial Assistant of the defendant, were
considered competent persons with sufficient discretion to realize the importance of the legal papers served
upon them and to relay the same to the defendants named therein (Sec. 7, Rule 14, 1997 Rules of Civil
Procedure).
WHEREFORE, in view of the foregoing, the Motion to Dismiss is hereby DENIED for lack of merit..
Accordingly, defendants are directed to file their Answers to the complaint within the period still open to them,
pursuant to the rules.
SO ORDERED.
Petitioners filed a motion for reconsideration, asserting that the sheriff had immediately resorted to substituted
service of the summons upon being informed that they were not around to personally receive the summons, and
that Abante Tonite, being neither a natural nor a juridical person, could not be made a party in the action.
On June 29, 2001, the RTC denied petitioners motion for reconsideration.7 It stated in respect of the service of
summons, as follows:
The allegations of the defendants that the Sheriff immediately resorted to substituted service of summons upon
them when he was informed that they were not around to personally receive the same is untenable. During the
hearing of the herein motion, Sheriff Raul Medina of this Branch of the Court testified that on September 18,
2000 in the morning, he went to the office address of the defendants to personally serve summons upon them
but they were out. So he went back to serve said summons upon the defendants in the afternoon of the same
day, but then again he was informed that the defendants were out and unavailable, and that they were always
out because they were roving around to gather news. Because of that information and because of the nature of
the work of the defendants that they are always on field, so the sheriff resorted to substituted service of
summons. There was substantial compliance with the rules, considering the difficulty to serve the summons
personally to them because of the nature of their job which compels them to be always out and unavailable.
Additional matters regarding the service of summons upon defendants were sufficiently discussed in the Order
of this Court dated March 12, 2001.
Regarding the impleading of Abante Tonite as defendant, the RTC held, viz:
"Abante Tonite" is a daily tabloid of general circulation. People all over the country could buy a copy of
"Abante Tonite" and read it, hence, it is for public consumption. The persons who organized said publication
obviously derived profit from it. The information written on the said newspaper will affect the person, natural as
well as juridical, who was stated or implicated in the news. All of these facts imply that "Abante Tonite" falls
within the provision of Art. 44 (2 or 3), New Civil Code. Assuming arguendo that "Abante Tonite" is not
registered with the Securities and Exchange Commission, it is deemed a corporation by estoppels considering
that it possesses attributes of a juridical person, otherwise it cannot be held liable for damages and injuries it
may inflict to other persons.
Undaunted, petitioners brought a petition for certiorari, prohibition, mandamusin the CA to nullify the orders of
the RTC dated March 12, 2001 and June 29, 2001.
Ruling of the CA
On March 8, 2002, the CA promulgated its questioned decision,8 dismissing the petition for certiorari,
prohibition, mandamus, to wit:
We find petitioners argument without merit. The rule is that certiorari will prosper only if there is a showing of
grave abuse of discretion or an act without or in excess of jurisdiction committed by the respondent Judge. A
judicious reading of the questioned orders of respondent Judge would show that the same were not issued in a
capricious or whimsical exercise of judgment. There are factual bases and legal justification for the assailed
orders. From the Return, the sheriff certified that "effort to serve the summons personally xxx were made, but
the same were ineffectual and unavailing xxx.
and upholding the trial courts finding that there was a substantial compliance with the rules that allowed the
substituted service.
Furthermore, the CA ruled:
Anent the issue raised by petitioners that "Abante Tonite is neither a natural or juridical person who may be a
party in a civil case," and therefore the case against it must be dismissed and/or dropped, is untenable.
The respondent Judge, in denying petitioners motion for reconsideration, held that:
xxxx
Abante Tonites newspapers are circulated nationwide, showing ostensibly its being a corporate entity, thus the
doctrine of corporation by estoppel may appropriately apply.
An unincorporated association, which represents itself to be a corporation, will be estopped from denying its
corporate capacity in a suit against it by a third person who relies in good faith on such representation.
There being no grave abuse of discretion committed by the respondent Judge in the exercise of his jurisdiction,
the relief of prohibition is also unavailable.
WHEREFORE, the instant petition is DENIED. The assailed Orders of respondent Judge are AFFIRMED.
SO ORDERED.9
On January 13, 2003, the CA denied petitioners motion for reconsideration.10
Issues
Petitioners hereby submit that:
1. THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN HOLDING THAT THE
TRIAL COURT ACQUIRED JURISDICTION OVER HEREIN PETITIONERS.
2. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR BY SUSTAINING THE
INCLUSION OF ABANTE TONITE AS PARTY IN THE INSTANT CASE.11
Ruling
The petition for review lacks merit.
Jurisdiction over the person, or jurisdiction in personam the power of the court to render a personal judgment
or to subject the parties in a particular action to the judgment and other rulings rendered in the action is an
element of due process that is essential in all actions, civil as well as criminal, except in actions in rem or quasi
in rem. Jurisdiction over the defendantin an action in rem or quasi in rem is not required, and the court acquires
jurisdiction over an actionas long as it acquires jurisdiction over the resthat is thesubject matter of the action.
The purpose of summons in such action is not the acquisition of jurisdiction over the defendant but mainly to
satisfy the constitutional requirement of due process.12
The distinctions that need to be perceived between an action in personam, on the one hand, and an action inrem
or quasi in rem, on the other hand, are aptly delineated in Domagas v. Jensen,13 thusly:
The settled rule is that the aim and object of an action determine its character. Whether a proceeding is in rem,
or in personam, or quasi in rem for that matter, is determined by its nature and purpose, and by these only. A
proceeding in personam is a proceeding to enforce personal rights and obligations brought against the person
and is based on the jurisdiction of the person, although it may involve his right to, or the exercise of ownership
of, specific property, or seek to compel him to control or dispose of it in accordance with the mandate of the
court. The purpose of a proceeding in personam is to impose, through the judgment of a court, some
responsibility or liability directly upon the person of the defendant. Of this character are suits to compel a
defendant to specifically perform some act or actions to fasten a pecuniary liability on him. An action in
personam is said to be one which has for its object a judgment against the person, as distinguished from a
judgment against the property to determine its state. It has been held that an action in personam is a proceeding
to enforce personal rights or obligations; such action is brought against the person. As far as suits for injunctive
relief are concerned, it is well-settled that it is an injunctive act in personam. In Combs v. Combs, the appellate
court held that proceedings to enforce personal rights and obligations and in which personal judgments are
rendered adjusting the rights and obligations between the affected parties is in personam. Actions for recovery
of real property are in personam.
On the other hand, a proceeding quasi in rem is one brought against persons seeking to subject the property of
such persons to the discharge of the claims assailed. In an action quasi in rem, an individual is named as
defendant and the purpose of the proceeding is to subject his interests therein to the obligation or loan burdening
the property. Actions quasi in rem deal with the status, ownership or liability of a particular property but which
are intended to operate on these questions only as between the particular parties to the proceedings and not to
ascertain or cut off the rights or interests of all possible claimants. The judgments therein are binding only upon
the parties who joined in the action.
As a rule, Philippine courts cannot try any case against a defendant who does not reside and is not found in the
Philippines because of the impossibility of acquiring jurisdiction over his person unless he voluntarily appears
in court; but when the case is an action in rem or quasi in rem enumerated in Section 15, Rule 14 of the Rules of
Court, Philippine courts have jurisdiction to hear and decide the case because they have jurisdiction over the
res, and jurisdiction over the person of the non-resident defendant is not essential. In the latter instance,
extraterritorial service of summons can be made upon the defendant, and such extraterritorial service of
summons is not for the purpose of vesting the court with jurisdiction, but for the purpose of complying with the
requirements of fair play or due process, so that the defendant will be informed of the pendency of the action
against him and the possibility that property in the Philippines belonging to him or in which he has an interest
may be subjected to a judgment in favor of the plaintiff, and he can thereby take steps to protect his interest if
he is so minded. On the other hand, when the defendant in an action in personam does not reside and is not
found in the Philippines, our courts cannot try the case against him because of the impossibility of acquiring
jurisdiction over his person unless he voluntarily appears in court.14
As the initiating party, the plaintiff in a civil action voluntarily submits himself to the jurisdiction of the court
by the act of filing the initiatory pleading. As to the defendant, the court acquires jurisdiction over his person
either by the proper service of the summons, or by a voluntary appearance in the action.15
Upon the filing of the complaint and the payment of the requisite legal fees, the clerk of court forthwith issues
the corresponding summons to the defendant.16 The summons is directed to the defendant and signed by the
clerk of court under seal. It contains the name of the court and the names of the parties to the action; a direction
that the defendant answers within the time fixed by the Rules of Court; and a notice that unless the defendant so
answers, the plaintiff will take judgment by default and may be granted the relief applied for.17 To be attached
to the original copy of the summons and all copies thereof is a copy of the complaint (and its attachments, if
any) and the order, if any, for the appointment of a guardian ad litem.18
The significance of the proper service of the summons on the defendant in an action in personam cannot be
overemphasized. The service of the summons fulfills two fundamental objectives, namely: (a) to vest in the
court jurisdiction over the person of the defendant; and (b) to afford to the defendant the opportunity to be heard
on the claim brought against him.19 As to the former, when jurisdiction in personam is not acquired in a civil
action through the proper service of the summons or upon a valid waiver of such proper service, the ensuing
trial and judgment are void.20 If the defendant knowingly does an act inconsistent with the right to object to the
lack of personal jurisdiction as to him, like voluntarily appearing in the action, he is deemed to have submitted
himself to the jurisdiction of the court.21 As to the latter, the essence of due process lies in the reasonable
opportunity to be heard and to submit any evidence the defendant may have in support of his defense. With the
proper service of the summons being intended to afford to him the opportunity to be heard on the claim against
him, he may also waive the process.21 In other words, compliance with the rules regarding the service of the
summons is as much an issue of due process as it is of jurisdiction.23
Under the Rules of Court, the service of the summons should firstly be effected on the defendant himself
whenever practicable. Such personal service consists either in handing a copy of the summons to the defendant
in person, or, if the defendant refuses to receive and sign for it, in tendering it to him.24 The rule on personal
service is to be rigidly enforced in order to ensure the realization of the two fundamental objectives earlier
mentioned. If, for justifiable reasons, the defendant cannot be served in person within a reasonable time, the
service of the summons may then be effected either (a) by leaving a copy of the summons at his residence with
some person of suitable age and discretion then residing therein, or (b) by leaving the copy at his office or
regular place of business with some competent person in charge thereof.25 The latter mode of service is known
as substituted service because the service of the summons on the defendant is made through his substitute.
It is no longer debatable that the statutory requirements of substituted service must be followed strictly,
faithfully and fully, and any substituted service other than that authorized by statute is considered
ineffective.26 This is because substituted service, being in derogation of the usual method of service, is
extraordinary in character and may be used only as prescribed and in the circumstances authorized by
statute.27 Only when the defendant cannot be served personally within a reasonable time may substituted service
be resorted to. Hence, the impossibility of prompt personal service should be shown by stating the efforts made
to find the defendant himself and the fact that such efforts failed, which statement should be found in the proof
of service or sheriffs return.28Nonetheless, the requisite showing of the impossibility of prompt personal
service as basis for resorting to substituted service may be waived by the defendant either expressly or
impliedly.29
There is no question that Sheriff Medina twice attempted to serve the summons upon each of petitioners in
person at their office address, the first in the morning of September 18, 2000 and the second in the afternoon of
the same date. Each attempt failed because Macasaet and Quijano were "always out and not available" and the
other petitioners were "always roving outside and gathering news." After Medina learned from those present in
the office address on his second attempt that there was no likelihood of any of petitioners going to the office
during the business hours of that or any other day, he concluded that further attempts to serve them in person
within a reasonable time would be futile. The circumstances fully warranted his conclusion. He was not
expected or required as the serving officer to effect personal service by all means and at all times, considering
that he was expressly authorized to resort to substituted service should he be unable to effect the personal
service within a reasonable time. In that regard, what was a reasonable time was dependent on the
circumstances obtaining. While we are strict in insisting on personal service on the defendant, we do not cling
to such strictness should the circumstances already justify substituted service instead. It is the spirit of the
procedural rules, not their letter, that governs.30
In reality, petitioners insistence on personal service by the serving officer was demonstrably superfluous. They
had actually received the summonses served through their substitutes, as borne out by their filing of several
pleadings in the RTC, including an answer with compulsory counterclaim ad cautelam and a pre-trial brief ad
cautelam. They had also availed themselves of the modes of discovery available under the Rules of Court. Such
acts evinced their voluntary appearance in the action.
Nor can we sustain petitioners contention that Abante Tonite could not be sued as a defendant due to its not
being either a natural or a juridical person. In rejecting their contention, the CA categorized Abante Tonite as a
corporation by estoppel as the result of its having represented itself to the reading public as a corporation
despite its not being incorporated. Thereby, the CA concluded that the RTC did not gravely abuse its discretion
in holding that the non-incorporation of Abante Tonite with the Securities and Exchange Commission was of no
consequence, for, otherwise, whoever of the public who would suffer any damage from the publication of
articles in the pages of its tabloids would be left without recourse. We cannot disagree with the CA, considering
that the editorial box of the daily tabloid disclosed that basis, nothing in the box indicated that Monica
Publishing Corporation had owned Abante Tonite.
WHEREFORE, the Court AFFIRMS the decision promulgated on March 8, 2002; and ORDERS petitioners to
pay the costs of suit.
SO ORDERED.

G.R. No. 203993 April 20, 2015

PRISCILO B. PAZ,* Petitioner,
vs.
NEW INTERNATIONAL ENVIRONMENTAL UNIVERSALITY, INC., Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated January 31, 2012 and the
Resolution3dated October 2, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 00903-MIN, which
affirmed the Decision4dated May 19, 2006 of the Regional Trial Court of Davao City, Branch 33 (RTC) in Civil
Case No. 29,292-2002, declaring petitioner Captain Priscilo B. Paz (petitioner) liable for breach of contract.
 The Facts
On March 1, 2000, petitioner, as the officer-in-charge of the Aircraft Hangar at the Davao International Airport,
Davao City, entered into a Memorandum of Agreement5 (MOA) with Captain Allan J. Clarke (Capt. Clarke),
President of International Environmental University, whereby for a period of four (4) years, unless pre-
terminated by both parties with six (6) months advance notice, the former shall allow the latter to use the
aircraft hangar space at the said Airport "exclusively for company aircraft/helicopter."6 Said hangar space was
previously leased to Liberty Aviation Corporation, which assigned the same to petitioner.7
On August 19, 2000, petitioner complained in a letter8 addressed to "MR. ALLAN J. CLARKE, International
Environmental Universality, Inc. x x x" that the hangar space was being used "for trucks and equipment,
vehicles maintenance and fabrication," instead of for "company helicopter/aircraft" only, and thereby threatened
to cancel the MOA if the "welding, grinding, and fabrication jobs" were not stopped immediately.9
On January 16, 2001, petitioner sent another letter10 to "MR. ALLAN J. CLARKE, International Environmental
Universality, Inc. x x x," reiterating that the hangar space "must be for aircraft use only," and that he will
terminate the MOA due to the safety of the aircrafts parked nearby. He further offered a vacant space along the
airport road that was available and suitable for Capt. Clarkes operations.11
On July 19, 2002, petitioner sent a third letter,12 this time, addressed to "MR. ALLAN JOSEPH CLARKE,
CEO, New International Environmental University, Inc. x x x," demanding that the latter vacate the premises
due to the damage caused by an Isuzu van driven by its employee to the left wing of an aircraft parked inside
the hangar space, which Capt. Clarke had supposedly promised to buy, but did not.13
On July 23, 2002, petitioner sent a final letter14 addressed to "MR. ALLAN J. CLARKE, Chairman, CEO, New
International Environmental University, Inc. x x x," strongly demanding the latter to immediately vacate the
hangar space. He further informed Capt. Clarke that the company will "apply for immediate electrical
disconnection with the Davao Light and Power Company (DLPC)[,] so as to compel [the latter] to desist from
continuing with [the] works" thereon.15
On September 4, 2002, respondent New International Environmental Universality, Inc.16 (respondent) filed a
complaint17 against petitioner for breach of contract before the RTC, docketed as Civil Case No. 29,292-
2002,18claiming that: (a) petitioner had disconnected its electric and telephone lines; (b) upon petitioners
instruction, security guards prevented its employees from entering the leased premises by blocking the hangar
space with barbed wire; and (c) petitioner violated the terms of the MOA when he took over the hangar space
without giving respondent the requisite six (6)-month advance notice of termination.19
In his defense, petitioner alleged, among others, that: (a) respondent had no cause of action against him as the
MOA was executed between him and Capt. Clarke in the latters personal capacity; (b) there was no need to
wait for the expiration of the MOA because Capt. Clarke performed highly risky works in the leased premises
that endangered other aircrafts within the vicinity; and (c) the six (6)-month advance notice of termination was
already given in the letters he sent to Capt. Clarke.20
On March 25, 2003, the RTC issued a Writ of Preliminary Injunction21 ordering petitioner to: (a) immediately
remove all his aircrafts parked within the leased premises; (b) allow entry of respondent by removing the steel
gate installed thereat; and (c) desist and refrain from committing further acts of dispossession and/or
interference in respondents occupation of the hangar space.
For failure of petitioner to comply with the foregoing writ, respondent filed on October 24, 2003 a petition for
indirect contempt22 before the RTC, docketed as Civil Case No. 30,030-2003, which was tried jointly with Civil
Case No. 29,292-2002.23
The RTC Ruling
24
After due trial, the RTC rendered a Decision dated May 19, 2006 finding petitioner: (a) guilty of indirect
contempt for contumaciously disregarding its Order25 dated March 6, 2003, by not allowing respondent to
possess and occupy the leased premises pending final decision in the main case; and (b) liable for breach of
contract for illegally terminating the MOA even before the expiration of the term thereof.26 He was, thus,
ordered to pay a fine of P5,000.00, and to pay respondent nominal damages of P100,000.00 and attorneys fees
of P50,000.00 with legal interest, and costs of suit.27
On the challenge to respondents juridical personality, the RTC quoted the Order28 dated April 11, 2005 of the
SEC explaining that respondent was issued a Certificate of Incorporation on September 3, 2001 as New
International Environmental Universality, Inc. but that, subsequently, when it amended its Articles of
Incorporation on November 14, 2001 and July 11, 2002, the SEC Extension Office in Davao City erroneously
used the name New International Environmental University, Inc.29 The latter name was used by respondent
when it filed its amended complaint on September 11, 2002 and the petition for indirect contempt against
petitioner on October 24, 2003 believing that it was allowed to do so, as it was only on April 11, 2005 when the
SEC directed it to revert to its correct name.30
The RTC further declared that the MOA, which was "made and executed by and between CAPT. [PRISCILO]
B. PAZ, Officer-In-Charge of Aircraft Hangar at Davao International Airport, Davao City, Philippines,
hereinafter called as FIRST PARTY [a]nd CAPT. ALLAN J. CLARKE[,] President of INTERNATIONAL
ENVIRONMENTAL UNIVERSITY with office address at LIBERTY AVIATION HANGAR, Davao
International Airport, Davao City, Philippines, hereinafter called as SECOND PARTY,"31 was executed by the
parties not only in their personal capacities but also in representation of their respective corporations or
entities.32
On the issue of the violation of the terms of the MOA, the RTC found respondent to have been effectively
evicted from the leased premises between July and August of2002, or long before the expiration of the term
thereof in 2004, when petitioner: (a) placed a gate/fence that prevented ingress to and egress from the leased
premises; (b) parked a plane inside and outside the leased premises; (c) disconnected the electrical and
telephone connections of respondent; and (d) locked respondents employees out.33 Despite the service of the
injunctive writ upon petitioner, respondent was not allowed to possess and occupy the leased premises, as in
fact, the trial court even had to order on March 8, 2004 the inventory of the items locked inside the bodega of
said premises that was kept off-limits to respondent. Hence, petitioner was declared guilty of indirect
contempt.34
Aggrieved, petitioner elevated his case on appeal before the CA, arguing that the trial court should have
dismissed outright the cases against him for failure of respondent to satisfy the essential requisites of being a
party to an action, i.e., legal personality, legal capacity to sue or be sued, and real interest in the subject matter
of the action.35
The CA Ruling
Finding that the errors ascribed by petitioner to the trial court only touched the civil action for breach of
contract, the appellate court resolved the appeal against him in a Decision36 dated January 31, 2012, and
affirmed the RTCs finding of petitioners liability for breach of contract.37
The CA ruled that, while there was no corporate entity at the time of the execution of the MOA on March
1,2000 when Capt. Clarke signed as "President of International Environmental University," petitioner is
nonetheless estopped from denying that he had contracted with respondent as a corporation, having recognized
the latter as the "Second Party" in the MOA that "will use the hangar space exclusively for company
aircraft/helicopter."38Petitioner was likewise found to have issued checks to respondent from May 3, 2000 to
October 13, 2000, which belied his claim of contracting with Capt. Clarke in the latters personal capacity.[[39]
Petitioner moved for the reconsideration40 of the foregoing Decision, raising as an additional issue the death41 of
Capt. Clarke which allegedly warranted the dismissal of the case.42 However, the motion was denied in a
Resolution43 dated October 2, 2012 where the CA held that Capt. Clarke was merely an agent of respondent,
who is the real party in the case. Thus, Capt. Clarkes death extinguished only the agency between him and
respondent, not the appeal against petitioner.44
Undaunted, petitioner is now before the Court via the instant petition,45 claiming that: (a) the CA erred in not
settling his appeal for both the breach of contract and indirect contempt cases in a single proceeding and,
consequently, the review of said cases before the Court should be consolidated,46 and (b) the CA should have
dismissed the cases against him for (1) lack of jurisdiction of the trial court in view of the failure to implead
Capt. Clarke as an indispensable party;47 (2) lack of legal capacity and personality on the part of
respondent;48 and (3) lack of factual and legal bases for the assailed RTC Decision.49
The Courts Ruling
The petition lacks merit.
First, on the matter of the consolidation50 of the instant case with G.R. No. 202826 entitled "Priscilo B. Paz v.
New International Environmental University," the petition for review of the portion of the RTC Decision
finding petitioner guilty of indirect contempt,51 the Court had earlier denied said motion in a Resolution52 dated
July 24, 2013 on the ground that G.R. No. 202826 had already been denied53 with finality.54 Thus, any further
elucidation on the issue would be a mere superfluity.
Second, whether or not Capt. Clarke should have been impleaded as an indispensable party was correctly
resolved by the CA which held that the former was merely an agent of respondent.55 While Capt. Clarkes name
and signature appeared on the MOA, his participation was, nonetheless, limited to being a representative of
respondent. As a mere representative, Capt. Clarke acquired no rights whatsoever, nor did he incur any
liabilities, arising from the contract between petitioner and respondent. Therefore, he was not an indispensable
party to the case at bar.56
It should be emphasized, as it has been time and again, that this Court is not a trier of facts, and is thus not duty-
bound to analyze again and weigh the evidence introduced in and considered by the tribunals.57 When supported
by substantial evidence, the findings of fact by the CA are conclusive and binding on the parties and are not
reviewable by this Court, unless the case falls under any of the exceptions,58 none of which was established
herein.
The CA had correctly pointed out that, from the very language itself of the MOA entered into by petitioner
whereby he obligated himself to allow the use of the hangar space "for company aircraft/helicopter," petitioner
cannot deny that he contracted with respondent.59 Petitioner further acknowledged this fact in his final letter
dated July 23, 2002, where he reiterated and strongly demanded the former to immediately vacate the hangar
space his "company is occupying/utilizing."60
Section 2161 of the Corporation Code62 explicitly provides that 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.
Clearly, petitioner is bound by his obligation under the MOA not only on estoppel but by express provision of
law. As aptly raised by respondent in its Comment63 to the instant petition, it is futile to insist that petitioner
issued the receipts for rental payments in respondents name and not with Capt. Clarkes, whom petitioner
allegedly contracted in the latters personal capacity, only because it was upon the instruction of an
employee.64 Indeed, it is disputably presumed that a person takes ordinary care of his concerns,65 and that all
private transactions have been fair and regular.66 Hence, it is assumed that petitioner, who is a pilot, knew what
he was doing with respect to his business with respondent.
Petitioners pleadings, however, abound with clear indications of a business relationship gone sour. In his third
letter dated July 19, 2002, petitioner lamented the fact that Capt. Clarkes alleged promise to buy an aircraft had
not materialized.67 He likewise insinuated that Capt. Clarke's real motive in staying in the leased premises was
the acquisition of petitioner's right to possess and use the hangar space.68
Be that as it may, it is settled that courts have no power to relieve parties from obligations they voluntarily
assumed, simply because their contracts turn out to be disastrous deals or unwise investments.69
The lower courts, therefore, did not err in finding petitioner liable for breach of contract for effectively evicting
respondent from the leased premises even before the expiration of the term of the lease.1wphi1 The Court
reiterates with approval the ratiocination of the RTC that, if it were true that respondent was violating the terms
and conditions of the lease, "[petitioner] should have gone to court to make the [former] refrain from its 'illegal'
activities or seek rescission of the [MOA], rather than taking the law into his own hands."70
WHEREFORE, the petition is DENIED. The Decision dated January 31, 2012 and the Resolution dated
October 2, 2012 of the Court of Appeals in CA-G.R. CV No. 00903-MIN are hereby AFFIRMED.
SO ORDERED.

ARTICLES OF INCORPORATION
G.R. No. 41570 September 6, 1934
RED LINE TRANSPORTATION CO., petitioner-appellant,
vs.
RURAL TRANSIT CO., LTD., respondent-appellee.
L. D. Lockwood for appellant.
Ohnick and Opisso for appellee.
BUTTE, J.:
This case is before us on a petition for review of an order of the Public Service Commission entered December
21, 1932, granting to the Rural Transit Company, Ltd., a certificate of public convenience to operate a
transportation service between Ilagan in the Province of Isabela and Tuguegarao in the Province of Cagayan,
and additional trips in its existing express service between Manila Tuguegarao.
On June 4, 1932, the Rural Transit Company, Ltd., a Philippine corporation, filed with the Public Company
Service Commission an application in which it is stated in substance that it is the holder of a certificate or public
convenience to operate a passenger bus service between Manila and Tuguegarao; that it is the only operator of
direct service between said points and the present authorized schedule of only one trip daily is not sufficient;
that it will be also to the public convenience to grant the applicant a certificate for a new service between
Tuguegarao and Ilagan.
On July 22, 1932, the appellant, Red Line Transportation Company, filed an opposition to the said application
alleging in substance that as to the service between Tuguegarao and Ilagan, the oppositor already holds a
certificate of public convenience and is rendering adequate and satisfactory service; that the granting of the
application of the Rural Transit Company, Ltd., would not serve public convenience but would constitute a
ruinous competition for the oppositor over said route.
After testimony was taken, the commission, on December 21, 1932, approved the application of the Rural
Transit Company, Ltd., and ordered that the certificate of public convenience applied for be "issued to the
applicant Rural Transit Company, Ltd.," with the condition, among others, that "all the other terms and
conditions of the various certificates of public convenience of the herein applicant and herein incorporated are
made a part hereof."
On January 14, 1933, the oppositor Red Line Transportation Company filed a motion for rehearing and
reconsideration in which it called the commission's attention to the fact that there was pending in the Court of
First Instance of Manila case N. 42343, an application for the voluntary dissolution of the corporation, Rural
Transit Company, Ltd. Said motion for reconsideration was set down for hearing on March 24, 1933. On March
23, 1933, the Rural Transit Company, Ltd., the applicant, filed a motion for postponement. This motion was
verified by M. Olsen who swears "that he was the secretary of the Rural Transit Company, Ltd., in the above
entitled case." Upon the hearing of the motion for reconsideration, the commission admitted without objection
the following documents filed in said case No. 42343 in the Court of First Instance of Manila for the dissolution
of the Rural Transit Company, Ltd. the petition for dissolution dated July 6, 1932, the decision of the said Court
of First Instance of Manila, dated February 28, 1933, decreeing the dissolution of the Rural Transit Company,
Ltd.
At the trial of this case before the Public Service Commission an issue was raised as to who was the real party
in interest making the application, whether the Rural Transit Company, Ltd., as appeared on the face of the
application, or the Bachrach Motor Company, Inc., using name of the Rural Transit Company, Ltd., as a trade
name. The evidence given by the applicant's secretary, Olsen, is certainly very dubious and confusing, as may
be seen from the following:
Q. Will you please answer the question whether it is the Bachrach Motor Company operating
under the trade name of the Rural Transit Company, Limited, or whether it is the Rural Transit
Company, Limited in its own name this application was filed?
A. The Bachrach Motor Company is the principal stockholder.
Q. Please answer the question.
 ESPELETA. Objecion porque la pregunta ya ha sido contestada.
JUEZ. Puede contestar.
A. I do not know what the legal construction or relationship existing between the two.
JUDGE. I do not know what is in your mind by not telling the real applicant in this case?
A. It is the Rural Transit Company, Ltd.
JUDGE. As an entity by itself and not by the Bachrach Motor Company?
A. I do not know. I have not given that phase of the matter much thought, as in previous
occassion had not necessitated.
JUDGE. In filing this application, you filed it for the operator on that line? Is it not!
A. Yes, sir.
JUDGE. Who is that operator?
A. The Rural Transit Company, Ltd.
JUDGE. By itself, or as a commercial name of the Bachrach Motor Company?
A. I cannot say.
ESPELETA. The Rural Transit Company, Ltd., is a corporation duly established in accordance with the
laws of the Philippine Islands.
JUDGE. According to the records of this commission the Bachrach Motor Company is the owner of the
certificates and the Rural Transit Company, Ltd., is operating without any certificate.
JUDGE. If you filed this application for the Rural Transit Company, Ltd., and afterwards it is found out
that the Rural Transit Company, Ltd., is not an operator, everything will be turned down.
JUDGE. My question was, when you filed this application you evidently made it for the operator?
A. Yes, sir.
JUDGE. Who was that operator you had in mind?
A. According to the status of the ownership of the certificates of the former Rural Transit
Company, the operator was the operator authorized in case No. 23217 to whom all of the assets of the
former Rural Transit Company were sold.
JUDGE. Bachrach Motor Company?
A. All actions have been prosecuted in the name of the Rural Transit Company, Ltd.
JUDGE. You mean the Bachrach Motor Company, Inc., doing business under the name of the Rural
Transit Company, Ltd.?
A. Yes, sir.
LOCKWOOD. I move that this case be dismissed, your Honor, on the ground that this application was
made in the name of one party but the real owner is another party.
ESPELETA. We object to that petition.
JUDGE. I will have that in mind when I decide the case. If I agree with you everything would be
finished.
The Bachrach Motor Company, Inc., entered no appearance and ostensibly took no part in the hearing of the
application of the Rural Transit Company, Ltd. It may be a matter of some surprise that the commission did not
on its own motion order the amendment of the application by substituting the Bachrach Motor Company, Inc.,
as the applicant. However, the hearing proceeded on the application as filed and the decision of December 2,
1932, was rendered in favor of the Rural Transit Company, Ltd., and the certificate ordered to be issued in its
name, in the face of the evidence that the said corporation was not the real party in interest. In its said decision,
the commission undertook to meet the objection by referring to its resolution of November 26, 1932, entered in
another case. This resolution in case No. 23217 concludes as follows:
Premises considered we hereby authorize the Bachrach Motor Co., Inc., to continue using the name of
"Rural Transit Co., Ltd.," as its trade name in all the applications, motions or other petitions to be filed
 in this commission in connection with said business and that this authority is given retroactive effect as
of the date, of filing of the application in this case, to wit, April 29, 1930.
We know of no law that empowers the Public Service Commission or any court in this jurisdiction to authorize
one corporation to assume the name of another corporation as a trade name. Both the Rural Transit Company,
Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and the very law of their creation and
continued existence requires each to adopt and certify a distinctive name. The incorporators "constitute a body
politic and corporate under the name stated in the certificate." (Section 11, Act No. 1459, as amended.) A
corporation has the power "of succession by its corporate name." (Section 13, ibid.) The name of a corporation
is therefore essential to its existence. It cannot change its name except in the manner provided by the statute. By
that name alone is it authorized to transact business. The law gives a corporation no express or implied authority
to assume another name that is unappropriated: still less that of another corporation, which is expressly set apart
for it and protected by the law. If any corporation could assume at pleasure as an unregistered trade name the
name of another corporation, this practice would result in confusion and open the door to frauds and evasions
and difficulties of administration and supervision. The policy of the law expressed in our corporation statute and
the Code of Commerce is clearly against such a practice. (Cf. Scarsdale Pub. Co. Colonial Press vs. Carter, 116
New York Supplement, 731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate Courts], 428,
434.)
The order of the commission of November 26, 1932, authorizing the Bachrach Motor Co., Incorporated, to
assume the name of the Rural Transit Co., Ltd. likewise in corporated, as its trade name being void, and
accepting the order of December 21, 1932, at its face as granting a certificate of public convenience to the
applicant Rural Transit Co., Ltd., the said order last mentioned is set aside and vacated on the ground that the
Rural Transit Company, Ltd., is not the real party in interest and its application was fictitious.
In view of the dissolution of the Rural Transit Company, Ltd. by judicial decree of February 28, 1933, we do
not see how we can assess costs against said respondent, Rural Transit Company, Ltd.
Malcolm, Villa-Real, Imperial and Goddard, JJ., concur.

[G.R. No. 117890. September 18, 1997]

PISON-ARCEO AGRICULTURAL and DEVELOPMENT CORPORATION, petitioner, vs. NATIONAL
LABOR RELATIONS COMMISSION and NATIONAL FEDERATION OF SUGAR
WORKERS-FOOD and GENERAL TRADE (NFSW-FGT)/ JESUS PASCO, MARTIN
BONARES, EVANGELINE PASCO, TERESITA NAVA, FELIXBERTO NAVA, JOHNNY
GARRIDO, EDUARDO NUEZ and DELMA NUEZ, respondents.
DECISION
PANGANIBAN, J.:
In the proceedings before the labor arbiter, only the unregistered trade name of the employer-corporation
and its administrator/manager were impleaded and subsequently held liable for illegal dismissal, backwages and
separation pay. On appeal, however, the National Labor Relations Commission motu proprio included the
corporate name of the employer as jointly and severally liable for the workers claims. Because of such
inclusion, the corporation now raises issues of due process and jurisdiction before this Court.
The Case
Assailed in this petition for certiorari under Rule 65 of the Rules of Court is the Decision [1] of Public
Respondent National Labor Relations Commission[2] in NLRC Case No. V-0334-92[3]promulgated on
September 27, 1993 and its Resolution[4] promulgated on September 12, 1994 denying
reconsideration. Affirming the decision[5] dated September 2, 1992 of Executive Labor Arbiter Oscar S. Uy, the
impugned NLRC Decision disposed thus:[6]
WHEREFORE, judgment is hereby rendered affirming the decision of Executive Labor Arbiter Oscar S. Uy,
dated September 2, 1992, subject to the amendments and modification stated above and ordering the
respondent-appellant, Jose Edmundo Pison and the respondent Pison-Arceo Agricultural and Development
Corporation to pay jointly and severally the claims for backwages and separation pay of the complainant-
appellees in the above-entitled case, except the claims of Danny Felix and Helen Felix, in the amount specified
below:
Name Backwages Separation Pay Total
1. Jesus Pasco P14,729.00 P12,818.06 P27,547.06
2. Evangeline 14,729.00 12,874.81 27,603.81
Pasco
3. Martin Bonares 14,729.00 9,035.06 23,764.06
4. Mariolita Bonares 14,729.00 8,455.00 23,184.00
5. Felixberto Nava 14,729.00 13,505.31 28,234.31
6. Teresita NAva 14,729.00 3,417.31 18,146.31
7. Johnny Garrido 8,489.00 4,463.94 12,952.94
8. Eduardo Nuez 8,489.00 11,399.44 19,888.44
9. Delma Nuez 8,489.00 9,507.94 17,996.94
In addition, the respondent-appellant and the respondent corporation are ordered to pay attorneys fees
equivalent to ten (10%) percent of the total award.
The dispositive portion of the assailed Resolution, on the other hand, reads:[7]
WHEREFORE, the decision in question is hereby modified in the sense that the monetary award of Mariolita
Bonares be [sic] deleted. Except for such modification, the rest of the decision stands.
Arguing that the National Labor Relations Commission did not have jurisdiction over it because it was not
a party before the labor arbiter, petitioner elevated this matter before this Court via a petition for certiorari under
Rule 65.
Acting on petitioners prayer[8], this Court (First Division) issued on January 18, 1995 a temporary
restraining order enjoining the respondents from executing the assailed Decision and Resolution.
The Facts
[9]
As gathered from the complaint and other submissions of the parties filed with Executive Labor Arbiter
Oscar S. Uy, the facts of the case are as follows:
Together with Complainants Danny and Helen Felix, private respondents -- Jesus Pasco, Evangeline Pasco,
Martin Bonares, Teresita Nava, Felixberto Nava, Johnny Garrido, Eduardo Nuez and Delma Nuez, all
represented by Private Respondent National Federation of Sugar Workers-Food and General Trade (NSFW-
FGT) -- filed on June 13, 1988 a complaint for illegal dismissal, reinstatement, payment of backwages and
attorneys fees against Hacienda Lanutan/Jose Edmundo Pison. Complainants alleged that they were previously
employed as regular sugar farm workers of Hacienda Lanutan in Talisay, Negros Occidental. On the other hand,
Jose Edmundo Pison claimed that he was merely the administrator of Hacienda Lanutan which was owned by
Pison-Arceo Agricultural and Development Corporation.
As earlier stated, the executive labor arbiter rendered on September 2, 1992 a decision in favor of the
workers-complainants, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering respondent Jose Edmundo
Pison/Hda. Lanutan, Talisay, Negros Occidental, to PAY the following complainants their backwages (one
year) plus separation pay in the following amounts, to wit:
BACKWAGES SEPARATION PAY TOTAL
1. J. Pasco -P14,729.00 P12,818.06 P27,547.06
2. E. Pasco - 14,729.00 12,784.81 27,603,81
3. Bonares - 14,729.00 8,404.56 23,133.56
4. F. Nava - 14,729.00 13,505.31 28,234.31
5. T. Nava - 14,729.00 3,427.31 18,146.31
6. J. Garido - 8,489.00 4,463.94 12,952.94
7. E. Nuez - 8,489.00 11,399.44 19,888.44
8. D. Nuez - 8,489.00 9,507.94 17,996.94
plus ten percent (10%) of the total award as attorneys fees in the amount of P17,550.34 or in the total amount of
ONE HUNDRED NINETY THREE THOUSAND FIFTY THREE AND 71/100 (P193,053.71), all these
amounts to be deposited with this Office within ten (10) days from receipt of this decision. The claim of
complainants Danny and Helen Felix are hereby DENIED for lack of merit.
In affirming the decision of the executive labor arbiter, public respondent ordered respondent-appellant,
Jose Edmundo Pison and the respondent Pison-Arceo Agricultural and Development Corporation to pay jointly
and severally the claims for backwages and separation pay of private respondents. The motion for
reconsideration dated October 14, 1993 was apparently filed by Jose Edmundo Pison for and on his own behalf
only. However, Pison did not elevate his case before this Court. The sole petitioner now before us is Pison-
Arceo Agricultural and Development Corporation, the owner of Hacienda Lanutan.
The Issue
Petitioner submits only one issue for our resolution:[10]
Public Respondent NLRC acted without or in excess of jurisdiction or with grave abuse of discretion when it
included motu proprio petitioner corporation as a party respondent and ordered said corporation liable to pay
jointly and severally, with Jose Edmundo Pison the claims of private respondents.
In essence, petitioner alleges deprivation of due process.
The Courts Ruling
The petition lacks merit.
Petitioner contends that it was never served any summons; hence, public respondent did not acquire
jurisdiction over it. It argues that from the time the complaint was filed before the Regional Arbitration Branch
No. VI up to the time the said case was appealed by Jose Edmundo Pison to the NLRC, Cebu, petitioner
Corporation was never impleaded as one of the parties x x x. It was only in the public respondents assailed
Decision of September 27, 1993 that petitioner Corporation was wrongly included as party respondent without
its knowledge. Copies of the assailed Decision and Resolution were not sent to petitioner but only to Jose
Edmundo Pison, on the theory that the two were one and the same. Petitioner avers that Jose Edmundo Pison is
only a minority stockholder of Hacienda Lanutan, which in turn is one of the businesses of
petitioner.[11] Petitioner further argues that it did not voluntarily appear before said tribunal and that it was not
given (any) opportunity to be heard;[12] thus, the assailed Decision and Resolution in this case are void for
having been issued without jurisdiction.[13]
In its memorandum, petitioner adds that Eden vs. Ministry of Labor and Employment,[14] cited by public
respondent, does not apply to this case. In Eden, petitioners were duly served with notices of hearings, while in
the instant case, the petitioner was never summoned nor was served with notice of hearings as a respondent in
the case.[15]
At the outset, we must stress that in quasi-judicial proceedings, procedural rules governing service of
summons are not strictly construed. Substantial compliance thereof is sufficient.[16]Also, in labor cases,
punctilious adherence to stringent technical rules may be relaxed in the interest of the working man; it should
not defeat the complete and equitable resolution of the rights and obligations of the parties. This Court is ever
mindful of the underlying spirit and intention of the Labor Code to ascertain the facts of each case speedily and
objectively without regard to technical rules of law and procedure, all in the interest of due
process.[17] Furthermore, the Labor Code itself, as amended by RA 6715,[18] provides for the specific power of
the Commission to correct, amend, or waive any error, defect or irregularity whether in the substance or in the
form of the proceedings before it[19] under Article 218 (c) as follows:
(c) To conduct investigation for the determination of a question, matter or controversy within its jurisdiction,
proceed to hear and determine the disputes in the absence of any party thereto who has been summoned or
served with notice to appear, conduct its proceedings or any part thereof in public or in private, adjourn its
hearings to any time and place, refer technical matters or accounts to an expert and to accept his report as
evidence after hearing of the parties upon due notice, direct parties to be joined in or excluded from the
proceedings, correct, amend, or waive any error, defect or irregularity whether in substance or in form, give all
such directions as it may deem necessary or expedient in the determination of the dispute before it, and dismiss
any matter or refrain from further hearing or from determining the dispute or part thereof, where it is trivial or
where further proceedings by the Commission are not necessary or desirable; xxx (Underscoring supplied.)
In this case, there are legal and factual reasons to hold petitioner jointly and severally liable with Jose
Edmundo Pison.
Jurisdiction Acquired over Petitioner
Consistent with the foregoing principles applicable to labor cases, we find that jurisdiction was acquired
over the petitioner. There is no dispute that Hacienda Lanutan, which was owned SOLELY by petitioner, was
impleaded and was heard. If at all, the non-inclusion of the corporate name of petitioner in the case before the
executive labor arbiter was a mere procedural error which did not at all affect the jurisdiction of the labor
tribunals.[20] Petitioner was adequately represented in the proceedings conducted at the regional arbitration
branch by no less than Hacienda Lanutans administrator, Jose Edmundo Pison, who verified and signed
his/Hacienda Lanutans position paper and other pleadings submitted before the labor arbiter.It can thus be said
that petitioner, acting through its corporate officer Jose Edmundo Pison, traversed private respondents
complaint and controverted their claims. Further unrebutted by petitioner are the following findings of public
respondent:[21]
It should further be noted that two responsible employees of the said corporation, namely, Teresita Dangcasil,
the secretary of the administrator/manager, and Fernando Gallego, the hacienda overseer, had submitted their
affidavits, both dated July 20, 1988, as part of the evidence for the respondent, and that, as shown by the
records, the lawyer who appeared as the legal counsel of the respondent-appellant, specifically, Atty. Jose Ma.
Torres, of the Torres and Valencia Law Office in Bacolod City, (Rollo, p. 17) was also the legal counsel of the
said corporation. (Rollo, p. 23)
Also, it is undisputed that summons and all notices of hearing were duly served upon Jose Edmundo
Pison. Since Pison is the administrator and representative of petitioner in its property (Hacienda Lanutan) and
recognized as such by the workers therein, we deem the service of summons upon him as sufficient and
substantial compliance with the requirements for service of summons and other notices in respect of petitioner
corporation. Insofar as the complainants are concerned, Jose Edmundo Pison was their employer and/or their
employers representative. In view of the peculiar circumstances of this case, we rule that Jose Pisons knowledge
of the labor case and effort to resist it can be deemed knowledge and action of the corporation. Indeed, to apply
the normal precepts on corporate fiction and the technical rules on service of summons would be to overturn the
bias of the Constitution and the laws in favor of labor.
Hence, it is fair to state that petitioner, through its administrator and manager, Jose Edmundo Pison, was
duly notified of the labor case against it and was actually afforded an opportunity to be heard. That it refused to
take advantage of such opportunity and opted to hide behind its corporate veil will not shield it from the
encompassing application of labor laws.As we held in Bautista vs. Secretary of Labor and Employment:[22]
Moreover, since the proceeding was not judicial but merely administrative, the rigid requirements of procedural
laws were not strictly enforceable. It is settled that --
While the administrative tribunals exercising quasi-judicial powers are free from the rigidity of certain
procedural requirements they are bound by law and practice to observe the fundamental and essential
requirements of due process in justiciable cases presented before them. However, the standard of due process
that must be met in administrative tribunals allows a certain latitude as long as the element of fairness is not
ignored. (fn: Adamson & Adamson, Inc. vs. Amores, 152 SCRA 237).
xxx
It is of course also sound and settled rule that administrative agencies performing quasi-judicial functions are
unfettered by the rigid technicalities of procedure observed in the courts of law, and this is so that disputes
brought before such bodies may be resolved in the most expeditious and inexpensive manner possible. (fn: Rizal
Workers Union vs. Ferrer-Calleja, 186 SCRA 431).
Given all these circumstances, we feel that the lack of summons upon the petitioners is not sufficient
justification for annulling the acts of the public respondents.
Contrary to petitioners contention, the principles laid down in Eden are relevant to this case. In that case, a
religious organization, SCAFI,[23] denied responsibility for the monetary claims of several employees, as these
were filed against SCAPS[24] and its officer in charge -- the employees believed that SCAPS was their
employer. In rejecting such defense, this Court ruled:[25]
With regard to the contention that SCAPS and SCAFI are two different entities, this lacks merit. The change
from SCAPS to SCAFI was a mere modification, if not rectification of the caption as to respondent in the
MOLE case, when it was pointed out in the complainants position paper that SCAPS belongs to or is integral
with SCAFI as gleaned from the brochure, Annex A of said position paper, which is already part of the records
of the case and incorporated in the Comment by way of reference. The brochure stated that SCAPS is the
implementing and service arm of SCAFI, with Bishop Gaviola as National Director of SCAPS and Board
Chairman of SCAFI, both their address: 2655 F.B. Harrison, St., Pasay City. Thus, the real party in interest is
SCAFI, more so because it has the juridical personality that can sue and be sued. The change in caption from
SCAPS to SCAFI however does not absolve SCAPS from liability, for SCAFI includes SCAPS, SCAPS -- the
arm, SCAFI, -- the organism to which the arm is an integral part of the rise and fall of SCAPS, and vice-
versa. Thus, SCAFI has never been a stranger to the case. Jurisprudence is to the effect that:
An action may be entertained, notwithstanding the failure to include an indispensable party where it appears
that the naming of the party would be a formality. (Baguio vs. Rodriguez, L-11078, May 27, 1959)
Comparable to Eden, Hacienda Lanutan is an arm of petitioner, the organism of which it is an integral
part. Ineluctably, the real party in interest in this case is petitioner, not Hacienda Lanutan which is merely its
non-juridical arm. In dealing with private respondents, petitioner represented itself to be Hacienda
Lanutan. Hacienda Lanutan is roughly equivalent to its trade name or even nickname or alias. The names may
have been different, but the IDENTITY of the petitioner is not in dispute. Thus, it may be sued under the name
by which it made itself known to the workers.
Liability of Jose Edmundo Pison
Jose Edmundo Pison did not appeal from the Decision of public respondent. It thus follows that he is bound
by the said judgment. A party who has not appealed an adverse decision cannot obtain from the appellate court
any affirmative relief other than those granted, if there is any, in the decision of the lower court or
administrative body.[26]
WHEREFORE, premises considered, the petition is hereby DISMISSED, for its failure to show grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of the National Labor Relations
Commission. The assailed Decision and Resolution are AFFIRMED. The temporary restraining order issued on
January 19, 1995 is hereby LIFTED. Costs against petitioner.
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 R-1674, respectively issued by the
Philippine Patents Office (presently known as the Bureau of Patents, Trademarks and Technology Transfer).
Petitioners Philips Electrical Lamps, Inc. (Philips Electrical, for brevity) and Philips Industrial Developments,
Inc. (Philips Industrial, for short), authorized users of the trademarks PHILIPS and PHILIPS SHIELD
EMBLEM, were incorporated on 29 August 1956 and 25 May 1956, respectively. All petitioner corporations
belong to the PHILIPS Group of Companies.
Respondent Standard Philips Corporation (Standard Philips), on the other hand, was issued a Certificate of
Registration by respondent Commission on 19 May 1982.
On 24 September 1984, Petitioners filed a letter complaint with the Securities & Exchange Commission (SEC)
asking for the cancellation of the word "PHILIPS" from Private Respondent's corporate name in view of the
prior registration with the Bureau of Patents of the trademark "PHILIPS" and the logo "PHILIPS SHIELD
EMBLEM" in the name of Petitioner, PEBV, and the previous registration of Petitioners Philips Electrical and
Philips Industrial with the SEC.
As a result of Private Respondent's refusal to amend its Articles of Incorporation, Petitioners filed with the SEC,
on 6 February 1985, a Petition (SEC Case No. 2743) praying for the issuance of a Writ of Preliminary
Injunction, alleging, among others, that Private Respondent's use of the word PHILIPS amounts to an
infringement and clear violation of Petitioners' exclusive right to use the same considering that both parties
engage in the same business.
In its Answer, dated 7 March 1985, Private Respondent countered that Petitioner PEBV has no legal capacity to
sue; that its use of its corporate name is not at all similar to Petitioners' trademark PHILIPS when considered in
its entirety; and that its products consisting of chain rollers, belts, bearings and cutting saw are grossly different
from Petitioners' electrical products.
After conducting hearings with respect to the prayer for Injunction; the SEC Hearing Officer, on 27 September
1985, ruled against the issuance of such Writ.
On 30 January 1987, the same Hearing Officer dismissed the Petition for lack of merit. In so ruling, the latter
declared that inasmuch as the SEC found no sufficient ground for the granting of injunctive relief on the basis
of the testimonial and documentary evidence presented, it cannot order the removal or cancellation of the word
"PHILIPS" from Private Respondent's corporate name on the basis of the same evidence adopted in toto during
trial on the merits. Besides, Section 18 of the Corporation Code (infra) is applicable only when the corporate
names in question are identical. Here, there is no confusing similarity between Petitioners' and Private
Respondent's corporate names as those of the Petitioners contain at least two words different from that of the
Respondent. Petitioners' Motion for Reconsideration was likewise denied on 17 June 1987.
On appeal, the SEC en banc affirmed the dismissal declaring that the corporate names of Petitioners and Private
Respondent hardly breed confusion inasmuch as each contains at least two different words and, therefore, rules
out any possibility of confusing one for the other.
On 30 January 1990, Petitioners sought an extension of time to file a Petition for Review on Certiorari before
this Court, which Petition was later referred to the Court of Appeals in a Resolution dated 12 February 1990.
In deciding to dismiss the petition on 31 July 1990, the Court of
Appeals 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.
39-40, citingBorden Ice Cream Co. v. Borden's Condensed Milk Co., 210 F 510). Notably, too, Private
Respondent's name actually contains only a single word, that is, "STANDARD", different from that of
Petitioners inasmuch as the inclusion of the term "Corporation" or "Corp." merely serves the Purpose of
distinguishing the corporation from partnerships and other business organizations.
The fact that there are other companies engaged in other lines of business using the word "PHILIPS" as part of
their corporate names is no defense and does not warrant the use by Private Respondent of such word which
constitutes an essential feature of Petitioners' corporate name previously adopted and registered and-having
acquired the status of a well-known mark in the Philippines and internationally as well (Bureau of Patents
Decision No. 88-35 [TM], June 17, 1988, SEC Records).
In support of its application for the registration of its Articles of Incorporation with the SEC, Private
Respondent had submitted an undertaking "manifesting its willingness to change its corporate name in the event
another person, firm or entity has acquired a prior right to the use of the said firm name or one deceptively or
confusingly similar to it." Private respondent must now be held to its undertaking.
As a general rule, parties organizing a corporation must choose a name at their peril; and the use
of a name similar to one adopted by another corporation, whether a business or a nonbusiness or
non-profit organization if misleading and likely to injure it in the exercise in its corporate
functions, regardless of intent, may be prevented by the corporation having the prior right, by a
suit for injunction against the new corporation to prevent the use of the name (American Gold
Star Mothers, Inc. v. National Gold Star Mothers, Inc., 89 App DC 269, 191 F 2d 488, 27 ALR
2d 948).
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. L-46595 did not
constitute stare decisis as to apply to this case and in not holding that said Resolution bound subsequent
determinations on the right to exclusive use of the word Lyceum.
2. The Court of Appeals erred in holding that respondent Western Pangasinan Lyceum, Inc. was incorporated
earlier than petitioner.
3. The Court of Appeals erred in holding that the word Lyceum has not acquired a secondary meaning in favor
of petitioner.
4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be appropriated by the
petitioner to the exclusion of others. 5
We will consider all the foregoing ascribed errors, though not necessarily seriatim. We begin by noting that the
Resolution of the Court in G.R. No. L-46595 does not, of course, constitute res adjudicata in respect of the case
at bar, since there is no identity of parties. Neither is stare decisis pertinent, if only because the SEC En Banc
itself has re-examined Associate Commissioner Sulit's ruling in the Lyceum of Baguio case. The Minute
Resolution of the Court in G.R. No. L-46595 was not a reasoned adoption of the Sulit ruling.
The Articles of Incorporation of a corporation must, among other things, set out the name of the corporation. 6
Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate names are concerned:
"SECTION 18. Corporate name. No corporate name may be allowed by the Securities an Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to
existing laws. When a change in the corporate name is approved, the Commission shall issue an amended
certificate of incorporation under the amended name." (Emphasis supplied)
The policy underlying the prohibition in Section 18 against the registration of a corporate name which is
"identical or deceptively or confusingly similar" to that of any existing corporation or which is "patently
deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the public
which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and
the reduction of difficulties of administration and supervision over corporations. 7
We do not consider that the corporate names of private respondent institutions are "identical with, or
deceptively or confusingly similar" to that of the petitioner institution. True enough, the corporate names of
private respondent entities all carry the word "Lyceum" but confusion and deception are effectively precluded
by the appending of geographic names to the word "Lyceum." Thus, we do not believe that the "Lyceum of
Aparri" can be mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of
Camalaniugan" would be confused with the Lyceum of the Philippines.
Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn referred to a locality
on the river Ilissius in ancient Athens "comprising an enclosure dedicated to Apollo and adorned with fountains
and buildings erected by Pisistratus, Pericles and Lycurgus frequented by the youth for exercise and by the
philosopher Aristotle and his followers for teaching." 8 In time, the word "Lyceum" became associated with
schools and other institutions providing public lectures and concerts and public discussions. Thus today, the
word "Lyceum" generally refers to a school or an institution of learning. While the Latin word "lyceum" has
been incorporated into the English language, the word is also found in Spanish (liceo) and in French (lycee). As
the Court of Appeals noted in its Decision, Roman Catholic schools frequently use the term; e.g., "Liceo de
Manila," "Liceo de Baleno" (in Baleno, Masbate), "Liceo de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact
as generic in character as the word "university." In the name of the petitioner, "Lyceum" appears to be a
substitute for "university;" in other places, however, "Lyceum," or "Liceo" or "Lycee" frequently denotes a
secondary school or a college. It may be (though this is a question of fact which we need not resolve) that the
use of the word "Lyceum" may not yet be as widespread as the use of "university," but it is clear that a not
inconsiderable number of educational institutions have adopted "Lyceum" or "Liceo" as part of their corporate
names. Since "Lyceum" or "Liceo" denotes a school or institution of learning, it is not unnatural to use this
word to designate an entity which is organized and operating as an educational institution.
It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning in relation to
petitioner with the result that that word, although originally a generic, has become appropriable by petitioner to
the exclusion of other institutions like private respondents herein.
The doctrine of secondary meaning originated in the field of trademark law. Its application has, however, been
extended to corporate names sine the right to use a corporate name to the exclusion of others is based upon the
same principle which underlies the right to use a particular trademark or tradename. 10 In Philippine Nut
Industry, Inc. v. Standard Brands, Inc., 11 the doctrine of secondary meaning was elaborated in the following
terms:
" . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on the market,
because geographically or otherwise descriptive, might nevertheless have been used so long and so exclusively
by one producer with reference to his article that, in that trade and to that branch of the purchasing public, the
word or phrase has come to mean that the article was his product." 12
The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name
has been for such length of time and with such exclusivity as to have become associated or identified with the
petitioner institution in the mind of the general public (or at least that portion of the general public which has to
do with schools). The Court of Appeals recognized this issue and answered it in the negative:
"Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive appropriation
with reference to an article in the market, because geographical or otherwise descriptive might nevertheless
have been used so long and so exclusively by one producer with reference to this article that, in that trade and to
that group of the purchasing public, the word or phrase has come to mean that the article was his produce (Ana
Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been referred to as the distinctiveness into which
the name or phrase has evolved through the substantial and exclusive use of the same for a considerable period
of time. Consequently, the same doctrine or principle cannot be made to apply where the evidence did not prove
that the business (of the plaintiff) has continued for so long a time that it has become of consequence and
acquired a good will of considerable value such that its articles and produce have acquired a well-known
reputation, and confusion will result by the use of the disputed name (by the defendant) (Ang Si Heng vs.
Wellington Department Store, Inc., 92 Phil. 448).
With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the aforementioned requisites. No
evidence was ever presented in the hearing before the Commission which sufficiently proved that the word
'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If there was any of this kind, the
same tend to prove only that the appellant had been using the disputed word for a long period of time.
Nevertheless, its (appellant) exclusive use of the word (Lyceum) was never established or proven as in fact the
evidence tend to convey that the cross-claimant was already using the word 'Lyceum' seventeen (17) years prior
to the date the appellant started using the same word in its corporate name. Furthermore, educational institutions
of the Roman Catholic Church had been using the same or similar word like 'Liceo de Manila,' 'Liceo de
Baleno' (in Baleno, Masbate), 'Liceo de Masbate,' 'Liceo de Albay' long before appellant started using the word
'Lyceum'. The appellant also failed to prove that the word 'Lyceum' has become so identified with its
educational institution that confusion will surely arise in the minds of the public if the same word were to be
used by other educational institutions.
In other words, while the appellant may have proved that it had been using the word 'Lyceum' for a long period
of time, this fact alone did not amount to mean that the said word had acquired secondary meaning in its favor
because the appellant failed to prove that it had been using the same word all by itself to the exclusion of others.
More so, there was no evidence presented to prove that confusion will surely arise if the same word were to be
used by other educational institutions. Consequently, the allegations of the appellant in its first two assigned
errors must necessarily fail." 13 (Underscoring partly in the original and partly supplied)
We agree with the Court of Appeals. The number alone of the private respondents in the case at bar suggests
strongly that petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for
applicability of the doctrine of secondary meaning. It may be noted also that at least one of the private
respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term "Lyceum" seventeen (17) years before
the petitioner registered its own corporate name with the SEC and began using the word "Lyceum." It follows
that if any institution had acquired an exclusive right to the word "Lyceum," that institution would have been
the Western Pangasinan Lyceum, Inc. rather than the petitioner institution.
In this connection, petitioner argues that because the Western Pangasinan Lyceum, Inc. failed to reconstruct its
records before the SEC in accordance with the provisions of R.A. No. 62, which records had been destroyed
during World War II, Western Pangasinan Lyceum should be deemed to have lost all rights it may have
acquired by virtue of its past registration. It might be noted that the Western Pangasinan Lyceum, Inc. registered
with the SEC soon after petitioner had filed its own registration on 21 September 1950. Whether or not Western
Pangasinan Lyceum, Inc. must be deemed to have lost its rights under its original 1933 registration, appears to
us to be quite secondary in importance; we refer to this earlier registration simply to underscore the fact that
petitioner's use of the word "Lyceum" was neither the first use of that term in the Philippines nor an exclusive
use thereof. Petitioner's use of the word "Lyceum" was not exclusive but was in truth shared with the Western
Pangasinan Lyceum and a little later with other private respondent institutions which registered with the SEC
using "Lyceum" as part of their corporation names. There may well be other schools using Lyceum or Liceo in
their names, but not registered with the SEC because they have not adopted the corporate form of organization.
We conclude and so hold that petitioner institution is not entitled to a legally enforceable exclusive right to use
the word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of their corporate
names. To determine whether a given corporate name is "identical" or "confusingly or deceptively similar" with
another entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both
names. One must evaluate corporate names in their entirety and when the name of petitioner is juxtaposed with
the names of private respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively
similar" with each other.
WHEREFORE, the petitioner having failed to show any reversible error on the part of the public respondent
Court of Appeals, the Petition for Review is DENIED for lack of merit, and the Decision of the Court of
Appeals dated 28 June 1991 is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.

PURPOSE CLAUSE

G.R. No. 9321 September 24, 1914

NORBERTO ASUNCION, ET AL., petitioners-appellants,
vs.
MANUEL DE YRIARTE, respondent-appellee.
Modesto Reyes for appellants.
Attorney-General Villamor for appellee.
MORELAND, J.:
This is an action to obtain a writ of mandamus to compel the chief of the division of achieves of the Executive
Bureau to file a certain articles of incorporation.
The chief of the division of archives, the respondent, refused to file the articles of incorporation, hereinafter
referred to, upon the ground that the object of the corporation, as stated in the articles, was not lawful and that,
in pursuance of section 6 of Act No. 1459, they were not registerable.
The proposed incorporators began an action in the Court of First Instance of the city of Manila to compel the
chief of the division of archives to receive and register said articles of incorporation and to do any and all acts
necessary for the complete incorporation of the persons named in the articles. The court below found in favor of
the defendant and refused to order the registration of the articles mentioned, maintaining ad holding that the
defendant, under the Corporation Law, had authority to determine both the sufficiency of the form of the
articles and the legality of the object of the proposed corporation. This appeal is taken from that judgment.
The first question that arises is whether or not the chief of the division of archives has authority, under the
Corporation for registration, to decide not only as to the sufficiency of the form of the articles, but also as to the
lawfulness of the purpose of the proposed corporation.
It is strongly urged on the part of the appellants that the duties of the defendant are purely ministerial and that
he has no authority to pass upon the lawfulness of the object for which the incorporators propose to organize.
No authorities are cited to support this proposition and we are of the opinion that it is not sound.
Section 6 of the Corporation Law reads in part as follows:
Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippine Islands,
may form a private corporation for any lawful purpose by filing with the division of archives, patents,
copyrights, and trademarks if the Executive Bureau articles of incorporation duly executed and
acknowledged before a notary public, . . . .
Simply because the duties of an official happens to be ministerial, it does not necessarily follow that he may
not, in the administration of his office, determine questions of law. We are of the opinion that it is the duty of
the division of archives, when articles of incorporation are presented for registration, to determine whether the
objects of the corporation as expressed in the articles are lawful. We do not believe that, simply because articles
of incorporation presented foe registration are perfect in form, the division of archives must accept and register
them and issue the corresponding certificate of incorporation no matter what the purpose of the corporation may
be as expressed in the articles. We do not believe it was intended that the division of archives should issue a
certificate of incorporation to, and thereby put the seal of approval of the Government upon, a corporation
which was organized for base of immoral purposes. That such corporation might later, if it sought to carry out
such purposes, be dissolved, or its officials imprisoned or itself heavily fined furnished no reason why it should
have been created in the first instance. It seems to us to be not only the right but the duty of the divisions of
archives to determine the lawfulness of the objects and purposes of the corporation before it issues a certificate
of incorporation.
It having determined that the division of archives, through its officials, has authority to determine not only the
sufficiency as to form of the articles of incorporation offered for registration, but also the lawfulness of the
purposes of leads us to the determination of the question whether or not the chief of the division of archives,
who is the representative thereof and clothed by it with authority to deal subject to mandamus in the
performance of his duties.
We are of the opinion that he may be mandamused if he act in violation of law or if he refuses, unduly, to
comply with the law. While we have held that defendant has power to pass upon the lawfulness of the purposes
of the proposed corporation and that he may, in the fulfillment of his duties, determine the question of law
whether or not those purposes are lawful and embraced within that class concerning which the law permits
corporations to be formed, that does not necessarily mean, as we have already intimated, that his duties are not
ministerial. On the contrary, there is no incompatibility in holding, as we do hold, that his duties are ministerial
and that he has no authority to exercise discretion in receiving and registering articles of incorporation. He may
exercise judgment that is, the judicial function in the determination of the question of law referred to, but
he may not use discretion. The question whether or not the objects of a proposed corporation are lawful is one
that can be decided one way only. If he err in the determination of that question and refuse to file articles which
should be filed under the law, the decision is subject to review and correction and, upon proper showing, he will
be ordered to file the articles. This is the same kind of determination which a court makes when it decides a case
upon the merits, the court makes when it decides a case upon the merits. When a case is presented to a court
upon the merits, the court can decide only one way and be right. As a matter of law, there is only one way and
be right. As a matter of law, there is only one course to pursue. In a case where the court or other official has
discretion in the resolution of a question, then, within certain limitations, he may decide the question either way
and still be right. Discretion, it may be said generally, is a faculty conferred upon a court or other official by
which he may decide a question either way and still be right. The power conferred upon the division of archives
with respect to the registration of articles of incorporation is not of that character. It is of the same character as
the determination of a lawsuit by a court upon the merits. It can be decided only one way correctly.
If, therefore, the defendant erred in determining the question presented when the articles were offered for
registration, then that error will be corrected by this court in this action and he will be compelled to register the
articles as offered. If, however, he did not commit an error, but decided that question correctly, then, of course,
his action will be affirmed to the extent that we will deny the relief prayed for.
The next question leads us to the determination of whether or not the purposes of the corporation as stated in the
articles of incorporation are lawful within the meaning of the Corporation Law.
The purpose of the incorporation as stated in the articles is: "That the object of the corporation is (a) to organize
and regulate the management, disposition, administration and control which the barrio of Pulo or San Miguel or
its inhabitants or residents have over the common property of said residents or inhabitants or property belonging
to the whole barrio as such; and (b) to use the natural products of the said property for institutions, foundations,
and charitable works of common utility and advantage to the barrio or its inhabitants."
The municipality of Pasig as recognized by law contains within its limits several barrios or small settlements,
like Pulo or San Miguel, which have no local government of their own but are governed by the municipality of
Pasig through its municipal president and council. The president and members of the municipal council are
elected by a general vote of the municipality, the qualified electors of all the barrios having the right to
participate.
The municipality of Pasig is a municipal corporation organized by law. It has the control of all property of the
municipality. The various barrios of the municipality have no right to own or hold property, they not being
recognized as legal entities by any law. The residents of the barrios participate in the advantages which accrue
to the municipality from public property and receive all the benefits incident to residence in a municipality
organized by law. If there is any public property situated in the barrio of Pulo or San Miguel not belonging to
the general government or the province, it belongs to the municipality of Pasig and the sole authority to manage
and administer the same resides in that municipality. Until the present laws upon the subject are charged no
other entity can be the owner of such property or control or administer it.
The object of the proposed corporation, as appears from the articles offered for registration, is to make of the
barrio of Pulo or San Miguel a corporation which will become the owner of and have the right to control and
administer any property belonging to the municipality of Pasig found within the limits of that barrio. This
clearly cannot be permitted. Otherwise municipalities as now established by law could be deprived of the
property which they now own and administer. Each barrio of the municipality would become under the scheme
proposed, a separate corporation, would take over the ownership, administration, and control of that portion of
the municipal territory within its limits. This would disrupt, in a sense, the municipalities of the Islands by
dividing them into a series of smaller municipalities entirely independent of the original municipality.
What the law does not permit cannot be obtained by indirection. The object of the proposed corporation is
clearly repugnant to the provisions of the Municipal Code and the governments of municipalities as they have
been organized thereunder. (Act No. 82, Philippine Commission.)
The judgment appealed from is affirmed, with costs against appellants.

[G.R. No. 156819. December 11, 2003]

ALICIA E. GALA, GUIA G. DOMINGO and RITA G. BENSON, petitioners, vs. ELLICE AGRO-
INDUSTRIAL CORPORATION, MARGO MANAGEMENT AND DEVELOPMENT
CORPORATION, RAUL E. GALA, VITALIANO N. AGUIRRE II, ADNAN V. ALONTO,
ELIAS N. CRESENCIO, MOISES S. MANIEGO, RODOLFO B. REYNO, RENATO S.
GONZALES, VICENTE C. NOLAN, NESTOR N. BATICULON, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review under Rule 45 of the Rules of Court, seeking the reversal of the decision
dated November 8, 2002[1] and the resolution dated December 27, 2002[2] of the Court of Appeals in CA-G.R.
SP No. 71979.
On March 28, 1979, the spouses Manuel and Alicia Gala, their children Guia Domingo, Ofelia Gala, Raul
Gala, and Rita Benson, and their encargados Virgilio Galeon and Julian Jaderformed and organized
the Ellice Agro-Industrial Corporation.[3] The total subscribed capital stock of the corporation was apportioned
as follows:
Name Number of Shares Amount
Manuel R. Gala 11, 700 1,170,000.00
Alicia E. Gala 23,200 2,320,000.00
Guia G. Domingo 16 1,600.00
Ofelia E. Gala 40 4,000.00
Raul E. Gala 40 4,000.00
Rita G. Benson 2 200.00
Virgilio Galeon 1 100.00
Julian Jader 1 100.00
TOTAL 35,000 P3,500,000.00[4]
As payment for their subscriptions, the Gala spouses transferred several parcels of land located in the
provinces of Quezon and Laguna to Ellice. [5]
 In 1982, Manuel Gala, Alicia Gala and Ofelia Gala subscribed to an additional 3,299 shares, 10,652.5
shares and 286.5 shares, respectively. [6]
On June 28, 1982, Manuel Gala and Alicia Gala acquired an additional 550 shares and 281 shares,
respectively. [7]
Subsequently, on September 16, 1982, Guia Domingo, Ofelia Gala, Raul Gala, Virgilio Galeon and
Julian Jader incorporated the Margo Management and Development Corporation (Margo). [8] The total
subscribed capital stock of Margo was apportioned as follows:
Name Number of Shares Amount
Raul E. Gala 6,640 66,400.00
Ofelia E. Gala 6,640 66,400.00
Guia G. Domingo 6,640 66,400.00
Virgilio Galeon 40 40.00
Julian Jader 40 40.00
TOTAL 20,000 P200,000.00[9]
On November 10, 1982, Manuel Gala sold 13,314 of his shares in Ellice to Margo. [10]
Alicia Gala transferred 1,000 of her shares in Ellice to a certain Victor de Villa on March 2, 1983. That
same day, de Villa transferred said shares to Margo. [11] A few months later, on August 28, 1983, Alicia Gala
transferred 854.3 of her shares to Ofelia Gala, 500 to Guia Domingo and 500 to Raul Gala. [12]
Years later, on February 8, 1988, Manuel Gala transferred all of his remaining holdings in Ellice,
amounting to 2,164 shares, to Raul Gala. [13]
On July 20, 1988, Alicia Gala transferred 10,000 of her shares to Margo. [14]
Thus, as of the date on which this case was commenced, the stockholdings in Ellice were allocated as
follows:
Name Number of Shares Amount
Margo 24,312.5 2,431,250.00
Alicia Gala 21,480.2 2,148,020.00
Raul Gala 2,704.5 270,450.00
Ofelia Gala 980.8 98,080.00
Gina Domingo 516 51,600.00
Rita Benson 2 200.00
Virgilio Galeon 1 100.00
Julian Jader 1 100.00
Adnan Alonto 1 100.00
Elias Cresencio 1 100.00
TOTAL 50,000 P5,000,000.00
On June 23, 1990, a special stockholders meeting of Margo was held, where a new board of directors was
elected. [15] That same day, the newly-elected board elected a new set of officers. Raul Gala was elected as
chairman, president and general manager. During the meeting, the board approved several actions, including the
commencement of proceedings to annul certain dispositions of Margos property made by Alicia Gala. The
board also resolved to change the name of the corporation to MRG Management and Development
Corporation. [16]
Similarly, a special stockholders meeting of Ellice was held on August 24, 1990 to elect a new board of
directors. In the ensuing organizational meeting later that day, a new set of corporate officers was
elected. Likewise, Raul Gala was elected as chairman, president and general manager.
 On March 27, 1990, respondents filed against petitioners with the Securities and Exchange Commission
(SEC) a petition for the appointment of a management committee or receiver, accounting and restitution by the
directors and officers, and the dissolution of Ellice Agro-Industrial Corporation for alleged mismanagement,
diversion of funds, financial losses and the dissipation of assets, docketed as SEC Case No. 3747. [17] The
petition was amended to delete the prayer for the appointment of a management committee or receiver and for
the dissolution of Ellice. Additionally, respondents prayed that they be allowed to inspect the corporate books
and documents of Ellice. [18]
In turn, petitioners initiated a complaint against the respondents on June 26, 1991, docketed as SEC Case
No. 4027, praying for, among others, the nullification of the elections of directors and officers of both Margo
Management and Development Corporation and Ellice Industrial Corporation; the nullification of all board
resolutions issued by Margo from June 23, 1990 up to the present and all board resolutions issued
by Ellice from August 24, 1990 up to the present; and the return of all titles to real property in the name of
Margo and Ellice, as well as all corporate papers and records of both Margo and Ellice which are in the
possession and control of the respondents. [19]
The two cases were consolidated in an Order dated November 23, 1993. [20]
Meanwhile, during the pendency of the SEC cases, the shares of stock of Alicia and Ofelia Gala
in Ellice were levied and sold at public auction to satisfy a judgment rendered against them by he Regional Trial
Court of Makati, Branch 66, in Civil Case No. 42560, entitled Regines Condominium v. Ofelia (Gala) Panes
and Alicia Gala. [21]
On November 3, 1998, the SEC rendered a Joint Decision in SEC Cases Nos. 3747 and 4027,
the dispositive portion of which states:
WHEREFORE, premises considered, judgment is hereby rendered, as follows:
1. Dismissing the petition in SEC Case No. 3747,
2. Issuing the following orders in SEC Case No. 4027;
(a) Enjoining herein respondents to perform corporate acts of both Ellice and Margo, as directors
and officers thereof.
(b) Nullifying the election of the new sets of Board of Directors and Officers of Ellice and
Margo from June 23, 1990 to the present, and that of Ellice from August 24, 1990 to the
present.
(c) Ordering the respondent Raul Gala to return all the titles of real properties in the names of
Ellice and Margo which were unlawfully taken and held by him.
(d) Directing the respondents to return to herein petitioners all corporate papers, records of both
Ellice and Margo which are in their possession and control.
[22]
SO ORDERED.
Respondents appealed to the SEC En Banc, which, on July 4, 2002, rendered its Decision,
the decretal portion of which reads:
WHEREFORE, the Decision of the Hearing Officer dated November 3, 1998 is hereby REVERSED and SET
ASIDE and a new one hereby rendered granting the appeal, upholding the Amended Petition in SEC Case No.
3747, and dismissing the Petition with Prayer for Issuance of Preliminary Restraining Order and granting the
Compulsory Counterclaim in SEC Case No. 4027.
Accordingly, appellees Alicia Gala and Guia G. Domingo are ordered as follows:
(1) jointly and solidarily pay ELLICE and/or MARGO the amount of P700,000.00 representing the
consideration for the unauthorized sale of a parcel of land to Lucky Homes and Development
Corporation (Exhs. N and CCC);
(2) jointly and severally pay ELLICE and MARGO the proceeds of sales of agricultural products
averaging P120,000.00 per month from February 17, 1988;
(3) jointly and severally indemnify the appellants P90,000.00 as attorneys fees;
(4) jointly and solidarily pay the costs of suit;
 (5) turn over to the individual appellants the corporate records of ELLICE and MARGO in their
possession; and
(6) desist and refrain from interfering with the management of ELLICE and MARGO.
SO ORDERED. [23]
Petitioners filed a petition for review with the Court of Appeals which dismissed the petition for review and
affirmed the decision of the SEC En Banc. [24]
Hence, this petition, raising the following issues:
I
WHETHER OR NOT THE LOWER COURT ERRED IN NOT DECLARING AS ILLEGAL AND
CONTRARY TO PUBLIC POLICY THE PURPOSES AND MANNER IN WHICH
RESPONDENT CORPORATIONS WERE ORGANIZED WHICH WERE, E.G. TO
(1) PREVENT THE GALA ESTATE FROM BEING BROUGHT UNDER THE
COVERAGE (SIC) OF THE COMPREHENSIVE AGRARIAN REFORM PROGRAM (CARP)
AND (2) PURPORTEDLY FOR ESTATE PLANNING.
II
WHETHER OR NOT THE LOWER COURT ERRED (1) IN SUSPICIOUSLY RESOLVING THE
CASE WITHIN TWO (2) DAYS FROM RECEIPT OF RESPONDENTS COMMENT; AND (2)
IN NOT MAKING A DETERMINATION OF THE ISSUES OF FACTS AND INSTEAD
RITUALLY CITING THE FACTUAL FINDINGS OF THE COMMISSION A QUO WITHOUT
DISCUSSION AND ANALYSIS;
III
WHETHER OR NOT THE LOWER COURT ERRED IN RULING THAT THE
ORGANIZATION OF RESPONDENT CORPORATIONS WAS NOT ILLEGAL FOR
DEPRIVING PETITIONER RITA G. BENSON OF HER LEGITIME.
IV
WHETHER OR NOT THE LOWER COURT ERRED IN NOT PIERCING THE VEILS OF
CORPORATE FICTION OF RESPONDENTS CORPORATIONS ELLICE AND MARGO. [25]
In essence, petitioners want this Court to disregard the separate juridical personalities of Ellice and Margo
for the purpose of treating all property purportedly owned by said corporations as property solely owned by the
Gala spouses.
The petitioners first contention in support of this theory is that the purposes for which Ellice and Margo
were organized should be declared as illegal and contrary to public policy. They claim that the respondents
never pursued exemption from land reform coverage in good faith and instead merely used the corporations as
tools to circumvent land reform laws and to avoid estate taxes. Specifically, they point out that respondents
have not shown that the transfers of the land in favor of Ellice were executed in compliance with the
requirements of Section 13 of R.A. 3844.[26] Furthermore, they alleged that respondent corporations were run
without any of the conventional corporate formalities. [27]
At the outset, the Court holds that petitioners contentions impugning the legality of the purposes for
which Ellice and Margo were organized, amount to collateral attacks which are prohibited in this
jurisdiction. [28]
The best proof of the purpose of a corporation is its articles of incorporation and by-laws. The articles of
incorporation must state the primary and secondary purposes of the corporation, while the by-laws outline the
administrative organization of the corporation, which, in turn, is supposed to insure or facilitate the
accomplishment of said purpose. [29]
In the case at bar, a perusal of the Articles of Incorporation of Ellice and Margo shows no sign of the
allegedly illegal purposes that petitioners are complaining of. It is well to note that, if a corporations purpose, as
stated in the Articles of Incorporation, is lawful, then the SEC has no authority to inquire whether the
corporation has purposes other than those stated, and mandamus will lie to compel it to issue the certificate of
incorporation. [30]
Assuming there was even a grain of truth to the petitioners claims regarding the legality of what are alleged
to be the corporations true purposes, we are still precluded from granting them relief. We cannot address here
their concerns regarding circumvention of land reform laws, for the doctrine of primary jurisdiction precludes a
court from arrogating unto itself the authority to resolve a controversy the jurisdiction over which is initially
lodged with an administrative body of special competence.[31] Since primary jurisdiction over any violation of
Section 13 of Republic Act No. 3844 that may have been committed is vested in the Department of Agrarian
Reform Adjudication Board (DARAB),[32] then it is with said administrative agency that the petitioners must
first plead their case. With regard to their claim that Ellice and Margo were meant to be used as mere tools for
the avoidance of estate taxes, suffice it say that the legal right of a taxpayer to reduce the amount of what
otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted. [33]
The petitioners allegation that Ellice and Margo were run without any of the typical corporate formalities,
even if true, would not merit the grant of any of the relief set forth in their prayer.We cannot disregard the
corporate entities of Ellice and Margo on this ground. At most, such allegations, if proven to be true, should be
addressed in an administrative case before the SEC. [34]
Thus, even if Ellice and Margo were organized for the purpose of exempting the properties of the Gala
spouses from the coverage of land reform legislation and avoiding estate taxes, we cannot disregard their
separate juridical personalities.
Next, petitioners make much of the fact that the Court of Appeals promulgated its assailed Decision a mere
two days from the time the respondents filed their Comment. They alleged that the appellate court could not
have made a deliberate study of the factual questions in the case, considering the sheer volume of evidence
available. [35] In support of this allegation, they point out that the Court of Appeals merely adopted the factual
findings of the SEC En Banc verbatim, without deliberation and analysis. [36]
In People v. Mercado, [37] we ruled that the speed with which a lower court disposes of a case cannot thus
be attributed to the injudicious performance of its function. Indeed, magistrates are not supposed to study a case
only after all the pertinent pleadings have been filed. It is a mark of diligence and devotion to duty that jurists
study a case long before the deadline set for the promulgation of their decision has arrived. The two-day period
between the filing of petitioners Comment and the promulgation of the decision was sufficient time to consider
their arguments and to incorporate these in the decision. As long as the lower court does not sacrifice the
orderly administration of justice in favor of a speedy but reckless disposition of a case, it cannot be taken to task
for rendering its decision with due dispatch. The Court of Appeals in this intra-corporate controversy committed
no reversible error and, consequently, its decision should be affirmed. [38] Verily, if such swift disposition of a
case is considered a non-issue in cases where the life or liberty of a person is at stake, then we see no reason
why the same principle cannot apply when only private rights are involved.
Furthermore, well-settled is the rule that the factual findings of the Court of Appeals are conclusive on the
parties and are not reviewable by the Supreme Court. They carry even more weight when the Court of Appeals
affirms the factual findings of a lower fact-finding body.[39] Likewise, the findings of fact of administrative
bodies, such as the SEC, will not be interfered with by the courts in the absence of grave abuse of discretion on
the part of said agencies, or unless the aforementioned findings are not supported by substantial evidence. [40]
However, in the interest of equity, this Court has reviewed the factual findings of the SEC En Banc, which
were affirmed in toto by the Court of Appeals, and has found no cogent reason to disturb the same. Indeed, we
are convinced that the arguments raised by the petitioners are nothing but unwarranted conclusions of
law. Specifically, they insist that the Gala spouses never meant to part with the ownership of the shares which
are in the names of their children and encargados, and that all transfers of property to these individuals are
supposedly void for being absolutely simulated for lack of consideration.[41] However, as correctly held by the
SEC En Banc, the transfers were only relatively simulated, inasmuch as the evident intention of the Gala
spouses was to donate portions of their property to their children and encargados. [42]
In an attempt to bolster their theory that the organization of the respondent corporations was illegal, the
petitioners aver that the legitime pertaining to petitioners Rita G. Benson and Guia G. Domingo from the estate
of their father had been subject to unwarranted reductions as a result thereof. In sum, they claim that
stockholdings in Ellice which the late Manuel Gala had assigned to them were insufficient to cover
their legitimes, since Benson was only given two shares while Domingo received only sixteen shares out of a
total number of 35,000 issued shares. [43]
Moreover, the reliefs sought by petitioners should have been raised in a proceeding for settlement of estate,
rather than in the present intra-corporate controversy. If they are genuinely interested in securing that part of
their late fathers property which has been reserved for them in their capacity as compulsory heirs, then they
should simply exercise their actio ad supplendam legitimam, or their right of completion of legitime.[44] Such
relief must be sought during the distribution and partition stage of a case for the settlement of the estate of
Manuel Gala, filed before a court which has taken jurisdiction over the settlement of said estate. [45]
Finally, the petitioners pray that the veil of corporate fiction that shroud both Ellice and Margo be pierced,
consistent with their earlier allegation that both corporations were formed for purposes contrary to law and
public policy. In sum, they submit that the respondent corporations are mere business conduits of the deceased
Manuel Gala and thus may be disregarded to prevent injustice, the distortion or hiding of the truth or the letting
in of a just defense. [46]
However, to warrant resort to the extraordinary remedy of piercing the veil of corporate fiction, there must
be proof that the corporation is being used as a cloak or cover for fraud or illegality, or to work injustice, [47] and
the petitioners have failed to prove that Ellice and Margo were being used thus. They have not presented any
evidence to show how the separate juridical entities of Ellice and Margo were used by the respondents to
commit fraudulent, illegal or unjust acts. Hence, this contention, too, must fail.
On June 5, 2003, the petitioners filed a Reply, where, aside from reiterating the contentions raised in their
Petition, they averred that there is no proof that either capital gains taxes or documentary stamp taxes were paid
in the series of transfers of Ellice and Margo shares. Thus, they invoke Sections 176 and 201 of the National
Internal Revenue Code, which would bar the presentation or admission into evidence of any document that
purports to transfer any benefit derived from certificates of stock if the requisite documentary stamps have not
been affixed thereto and cancelled.
Curiously, the petitioners never raised this issue before the SEC Hearing Officer, the SEC En Banc or the
Court of Appeals. Thus, we are precluded from passing upon the same for, as a rule, no question will be
entertained on appeal unless it has been raised in the court below, for points of law, theories, issues and
arguments not brought to the attention of the lower court need not be, and ordinarily will not be, considered by a
reviewing court, as they cannot be raised for the first time at that late stage. Basic considerations of due process
impel this rule.[48]Furthermore, even if these allegations were proven to be true, such facts would not render the
underlying transactions void, for these instruments would not be the sole means, much less the best means, by
which the existence of these transactions could be proved. For this purpose, the books and records of a
corporation, which include the stock and transfer book, are generally admissible in evidence in favor of or
against the corporation and its members. They can be used to prove corporate acts, a corporations financial
status and other matters, including ones status as a stockholder. Most importantly, these books and records are,
ordinarily, the best evidence of corporate acts and proceedings.[49] Thus, reference to these should have been
made before the SEC Hearing Officer, for this Court will not entertain this belated questioning of the evidence
now.
It is always sad to see families torn apart by money matters and property disputes. The concept of a close
corporation organized for the purpose of running a family business or managing family property has formed the
backbone of Philippine commerce and industry. Through this device, Filipino families have been able to turn
their humble, hard-earned life savings into going concerns capable of providing them and their families with a
modicum of material comfort and financial security as a reward for years of hard work. A family corporation
should serve as a rallying point for family unity and prosperity, not as a flashpoint for familial strife. It is hoped
that people reacquaint themselves with the concepts of mutual aid and security that are the original driving
forces behind the formation of family corporations and use these tenets in order to facilitate more civil, if not
more amicable, settlements of family corporate disputes.
 WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated November 8,
2002 and the Resolution dated December 27, 2002, both of the Court of Appeals, are AFFIRMED. Costs
against petitioners.
SO ORDERED.

HYATT ELEVATORS AND G.R. No. 161026

ESCALATORS CORPORATION,
Petitioner, Present:
Panganiban, J.,
Chairman,
Sandoval-Gutierrez,
- versus - Corona,
Carpio Morales, and
Garcia, JJ
GOLDSTAR ELEVATORS, Promulgated:
PHILS., INC.,*
Respondent. October 24, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:

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

The Case

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

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

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

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

Petitioner [herein Respondent] Goldstar Elevator Philippines, Inc. (GOLDSTAR for

brevity) is a domestic corporation primarily engaged in the business of marketing, distributing,
selling, importing, installing, and maintaining elevators and escalators, with address at 6th Floor,
Jacinta II Building, 64 EDSA, Guadalupe, Makati City.

On the other hand, private respondent [herein petitioner] Hyatt Elevators and Escalators
Company (HYATT for brevity) is a domestic corporation similarly engaged in the business of
selling, installing and maintaining/servicing elevators, escalators and parking equipment, with
address at the 6th Floor, Dao I Condominium, Salcedo St., Legaspi Village, Makati, as stated in
its Articles of Incorporation.

On February 23, 1999, HYATT filed a Complaint for unfair trade practices and damages
under Articles 19, 20 and 21 of the Civil Code of the Philippines against LG Industrial Systems
Co. Ltd. (LGISC) and LG International Corporation (LGIC), alleging among others, that: in
1988, it was appointed by LGIC and LGISC as the exclusive distributor of LG elevators and
escalators in the Philippines under a Distributorship Agreement; x x x LGISC, in the latter part
of 1996, made a proposal to change the exclusive distributorship agency to that of a joint venture
partnership; while it looked forward to a healthy and fruitful negotiation for a joint venture,
however, the various meetings it had with LGISC and LGIC, through the latters representatives,
were conducted in utmost bad faith and with malevolent intentions; in the middle of the
negotiations, in order to put pressures upon it, LGISC and LGIC terminated the Exclusive
Distributorship Agreement; x x x [A]s a consequence, [HYATT] suffered P120,000,000.00 as
actual damages, representing loss of earnings and business opportunities, P20,000,000.00 as
damages for its reputation and goodwill, P1,000,000.00 as and by way of exemplary damages,
and P500,000.00 as and by way of attorneys fees.

On March 17, 1999, LGISC and LGIC filed a Motion to Dismiss raising the following
grounds: (1) lack of jurisdiction over the persons of defendants, summons not having been
served on its resident agent; (2) improper venue; and (3) failure to state a cause of action. The
[trial] court denied the said motion in an Order dated January 7, 2000.
 On March 6, 2000, LGISC and LGIC filed an Answer with Compulsory Counterclaim ex
abundante cautela. Thereafter, they filed a Motion for Reconsideration and to Expunge
Complaint which was denied.

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

On December 18, 2000, LG OTIS (LGISC) and LGIC filed their opposition to HYATTs
motion to amend the complaint. It argued that: (1) the inclusion of GOLDSTAR as party-
defendant would lead to a change in the theory of the case since the latter took no part in the
negotiations which led to the alleged unfair trade practices subject of the case; and (b) HYATTs
move to amend the complaint at that time was dilatory, considering that HYATT was aware of
the existence of GOLDSTAR for almost two years before it sought its inclusion as party-
defendant.

On January 8, 2001, the [trial] court admitted the Amended Complaint. LG OTIS
(LGISC) and LGIC filed a motion for reconsideration thereto but was similarly rebuffed on
October 4, 2001.

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

Upon perusal of the factual and legal arguments raised by the movants-
defendants, the court finds that these are substantially the same issues posed by
the then defendant LG Industrial System Co. particularly the matter dealing [with]
the issues of improper venue, failure to state cause of action as well as this courts
lack of jurisdiction. Under the circumstances obtaining, the court resolves to rule
that the complaint sufficiently states a cause of action and that the venue is
properly laid. It is significant to note that in the amended complaint, the same
allegations are adopted as in the original complaint with respect to the Goldstar
Philippines to enable this court to adjudicate a complete determination or
settlement of the claim subject of the action it appearing preliminarily as
sufficiently alleged in the plaintiffs pleading that said Goldstar Elevator
Philippines Inc., is being managed and operated by the same Korean officers of
defendants LG-OTIS Elevator Company and LG International Corporation.
 On June 11, 2002, [Respondent] GOLDSTAR filed a motion for reconsideration thereto.
On June 18, 2002, without waiving the grounds it raised in its motion to dismiss, [it] also filed an
Answer Ad Cautelam. On October 1, 2002, [its] motion for reconsideration was denied.

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

Ruling of the Court of Appeals

The CA ruled that the trial court had committed palpable error amounting to grave abuse of discretion

when the latter denied respondents Motion to Dismiss. The appellate court held that the venue was clearly

improper, because none of the litigants resided in Mandaluyong City, where the case was filed.

According to the appellate court, since Makati was the principal place of business of both respondent

and petitioner, as stated in the latters Articles of Incorporation, that place was controlling for purposes of

determining the proper venue. The fact that petitioner had abandoned its principal office in Makati years prior to

the filing of the original case did not affect the venue where personal actions could be commenced and tried.

Hence, this Petition.[6]

The Issue

In its Memorandum, petitioner submits this sole issue for our consideration:
 Whether or not the Court of Appeals, in reversing the ruling of the Regional Trial Court,
erred as a matter of law and jurisprudence, as well as committed grave abuse of discretion, in
holding that in the light of the peculiar facts of this case, venue was improper[.][7]

This Courts Ruling

The Petition has no merit.

Sole Issue:
Venue

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SO ORDERED.

G.R. No. L-56763 December 15, 1982

JOHN SY and UNIVERSAL PARTS SUPPLY CORPORATION, petitioners,
vs.
TYSON ENTERPRISES, INC., JUDGE GREGORIO G. PINEDA of the Court of First Instance of Rizal,
Pasig Branch XXI and COURT OF APPEALS, respondents.
Abraham D. Cana for petitioners.
Alberto A. Domingo for private respondent.

AQUINO, J:
This is a case about the venue of a collection suit. On August 29, 1979, Tyson Enterprises, Inc. filed against
John Sy and Universal Parts Supply Corporation in the Court of First Instance of Rizal, Pasig Branch XXI, a
complaint for the collection of P288,534.58 plus interest, attorney's fees and litigation expenses (Civil Case No.
34302).
It is alleged in the complaint that John Sy, doing business under the trade name, Universal Parts Supply, is a
resident of Fuentebella Subdivision, Bacolod City and that his co-defendant, Universal Parts Supply
Corporation, allegedly controlled by Sy, is doing business in Bacolod City.
Curiously enough, there is no allegation in the complaint as to the office or place of business of plaintiff Tyson
Enterprises, Inc., a firm actually doing business at 1024 Magdalena, now G. Masangkay Street, Binondo,
Manila (p. 59, Rollo).
What is alleged is the postal address or residence of Dominador Ti, the president and general manager of
plaintiff firm, which is at 26 Xavier Street, Greenhills Subdivision, San Juan, Rizal. The evident purpose of
alleging that address and not mentioning the place of business of plaintiff firm was to justify the filing of the
suit in Pasig, Rizal instead of in Manila.
Defendant Sy and Universal Parts Supply Corporation first filed a motion for extension of time to file their
answer and later a motion for a bill of particulars. The latter motion was denied. Then, they filed a motion to
dismiss on the ground of improper venue.
They invoked the provision of section 2(b), Rule 4 of the Rules of Court that personal actions "may be
commenced and tried where the defendant or any of the defendants resides or may be found, or where the
plaintiffs or any of the plaintiffs resides, at the election of the plaintiff."
To strengthen that ground, they also cited the stipulation in the sales invoice that "the parties expressly submit
to the jurisdiction of the Courts of the City of Manila for any legal action arising out of" the transaction which
stipulation is quoted in paragraph 4 of plaintiff's complaint.
The plaintiff opposed the motion to dismiss on the ground that the defendants had waived the objection based
on improper venue because they had previously filed a motion for a bill of particulars which was not granted.
The trial court denied the motion to dismiss on the ground that by filing a motion for a bill of particulars the
defendants waived their objection to the venue. That denial order was assailed in a petition for certiorari and
prohibition in the Court of Appeals which issued on July 29, 1980 a restraining order, enjoining respondent
judge from acting on the case. He disregarded the restraining order (p. 133, Rollo).
The Appellate Court in its decision of October 6, 1980 dismissed the petition. It ruled that the parties did not
intend Manila as the exclusive venue of the actions arising under their transactions and that since the action was
filed in Pasig, which is near Manila, no useful purpose would be served by dismissing the same and ordering
that it be filed in Manila (Sy vs. Pineda, CA-G.R. No. SP-10775). That decision was appealed to this Court.
There is no question that the venue was improperly laid in this case. The place of business of plaintiff Tyson
Enterprises, Inc., which for purposes of venue is considered as its residence (18 C.J.S 583; Clavecilla Radio
system vs. Antillon, L-22238, February 18, 1967, 19 SCRA 379), because a corporation has a personality
separate and distinct from that of its officers and stockholders.
Consequently, the collection suit should have been filed in Manila, the residence of plaintiff corporation and the
place designated in its sales invoice, or it could have been filed also in Bacolod City, the residence of defendant
Sy.
We hold that the trial court and the Court of Appeals erred in ruling that the defendants, now the petitioners,
waived their objection to the improper venue. As the trial court proceeded in defiance of the Rules of Court in
not dismissing the case, prohibition lies to restrain it from acting in the case (Enriquez vs. Macadaeg, 84 Phil.
674).
Section 4, Rule 4 of the Rules of Court provides that, "when improper venue is not objected to in a motion to
dismiss it is deemed waived" and it can no longer be pleaded as an affirmative defense in the answer (Sec. 5,
Rule 16).
In this case, the petitioners, before filing their answer, filed a motion to dismiss based on improper venue. That
motion was seasonably filed (Republic vs. Court of First Instance of Manila, L-30839, November 28, 1975, 68
SCRA 231, 239). The fact that they filed a motion for a bill of particulars before they filed their motion to
dismiss did not constitute a waiver of their objection to the venue.
It should be noted that the provision of Section 377 of the Code of Civil Procedure that "the failure of a
defendant to object to the venue of the action at the time of entering his appearance in the action shall be
deemed a waiver on his part of all objection to the place or tribunal in which the action is brought" is not found
in the Rules of Court.
And the provision of section 4, Rule 5 of the 1940 Rules of Court that "when improper venue is not objected to
prior to the trial, it is deemed waived" is not reproduced in the present Rules of Court.
To repeat, what section 4 of Rule 4 of the present Rules of court provides is that the objection to improper
venue should be raised in a motion to dismiss seasonably filed and, if not so raised, then the said objection is
waived. Section 4 does not provide that the objection based on improper venue should be interposed by means
of a special appearance or before any pleading is filed.
The rules on venue, like the other procedural rules, are designed to insure a just and orderly administration of
justice or the impartial and evenhanded determination of every action and proceeding. Obviously, this objective
will not be attained if the plaintiff is given unrestricted freedom to choose the court where he may file his
complaint or petition.
The choice of venue should not be left to the plaintiff's whim or caprice. He may be impelled by some ulterior
motivation in choosing to file a case in a particular court even if not allowed by the rules on venue.
As perspicaciously observed by Justice Moreland, the purpose of procedure is not to restrict the court's
jurisdiction over the subject matter but to give it effective facility "in righteous action", "to facilitate and
promote the administration of justice" or to insure "just judgments" by means of a fair hearing. If that objective
is not achieved, then "the administration of justice becomes incomplete and unsatisfactory and lays itself open
to grave criticism." (Manila Railroad Co. vs. Attorney General, 20 Phil. 523, 530.)
The case of Marquez Lim Cay vs. Del Rosario, 55 Phil. 962, does not sustain the trial court's order of denial
because in that case the defendants, before filing a motion to dismiss on the ground of improper venue,
interposed a demurrer on the ground that the complaint does not state a cause of action. Then, they filed a
motion for the dissolution of an attachment, posted a bond for its dissolution and later filed a motion for the
assessment of the damages caused by the attachment. All those acts constituted a submission to the trial court's
jurisdiction and a waiver of the objection based on improper venue under section 377 of the Code of Civil
Procedure.
The instant case is similar to Evangelista vs. Santos, 86 Phil. 387, where the plaintiffs sued the defendant in the
Court of First Instance of Rizal on the assumption that he was a resident of Pasay City because he had a house
there. Upon receipt of the summons, the defendant filed a motion to dismiss based on improper venue. He
alleged under oath that he was a resident of Iloilo City.
This Court sustained the dismissal of the complaint on the ground of improper venue, because the defendant
was really a resident of Iloilo City. His Pasay City residence was used by his children who were studying in
Manila. Same holding in Casilan vs. Tomassi, 90 Phil. 765; Corre vs. Corre, 100 Phil. 321; Calo vs. Bislig
Industries, Inc., L-19703, January 30, 1967, 19 SCRA 173; Adamos vs. J. M. Tuason, Co., Inc.,. L-21957,
October 14, 1968, 25 SCRA 529.
Where one Cesar Ramirez, a resident of Quezon City, sued in the Court of First Instance of Manila Manuel F.
Portillo, a resident of Caloocan City, for the recovery of a sum of money, the trial court erred in not granting
Portillo's motion to dismiss the complaint on the ground of improper venue This Court issued the writ of
prohibition to restrain the trial court from proceeding in the case (Portillo vs. Judge Reyes and Ramirez, 113
Phil. 288).
WHEREFORE, the decision of the Court of Appeals and the order of respondent judge denying the motion to
dismiss are reversed and set aside. The writ of prohibition is granted. Civil Case No. 34302 should be
considered dismissed without prejudice to refiling - it in the Court of First Instance of Manila or Bacolod City at
the election of plaintiff which should be allowed to withdraw the documentary evidence submitted in that case.
All the proceedings in said case, including the decision, are also set aside. Costs against Tyson Enterprises, Inc.
SOORDERED.