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G.R. No.

L-43350 December 23, 1937


CAGAYAN
FISHING
DEVELOPMENT
vs.
TEODORO SANDIKO, defendant-appellee.

CO.,

INC., plaintiff-appellant,

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. (See Exhibits 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.
G.R. No. L-20993

September 28, 1968

RIZAL
LIGHT
&
ICE
CO.,
INC., petitioner,
vs.
THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC SERVICE
COMMISSION, respondents.
---------------------------G.R. No. L-21221

September 28, 1968

RIZAL
LIGHT
vs.
THE PUBLIC SERVICE
INC., respondents.

&

ICE

COMMISSION

CO.,
and

Amado
A.
Amador,
Jr.
Atilano C. Bautista and Pompeyo F. Olivas for respondents.

INC., petitioner,

MORONG

for

ELECTRIC

CO.,

petitioner.

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

Case G. R. L-21221 is likewise a petition of the Rizal Light & Ice Co., Inc. to review and set
aside the decision of the Commission dated March 13, 1963 in PSC Case No. 62-5143 granting a
certificate of public convenience and necessity to respondent Morong Electric Co., Inc. 2 to
operate an electric light, heat and power service in the municipality of Morong, Rizal. In the
petition Rizal Light & Ice Co., Inc. also prayed for the issuance of a writ of preliminary
injunction ex parte suspending the effectivity of said decision. Per resolution of this Court, dated
May 6, 1963, said petition for injunction was denied.
The facts, as they appear in the records of both cases, are as follows:
Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with business address at Morong,
Rizal. On August 15, 1949, it was granted by the Commission a certificate of public convenience
and necessity for the installation, operation and maintenance of an electric light, heat and power
service in the municipality of Morong, Rizal.
In an order dated December 19, 1956, the Commission required the petitioner to appear before it
on February 18, 1957 to show cause why it should not be penalized for violation of the
conditions of its certificate of public convenience and the regulations of the Commission, and for
failure to comply with the directives to raise its service voltage and maintain them within the
limits prescribed in the Revised Order No. 1 of the Commission, and to acquire and install a
kilowattmeter to indcate the load in kilowatts at any particular time of the generating unit. 3
For failure of the petitioner to appear at the hearing on February 18, 1957, the Commission
ordered the cancellation and revocation of petitioner's certificate of public convenience and
necessity and the forfeiture of its franchise. Petitioner moved for reconsideration of said order on
the ground that its manager, Juan D. Francisco, was not aware of said hearing. Respondent
municipality opposed the motion alleging that petitioner has not rendered efficient and
satisfactory service and has not complied with the requirements of the Commission for the
improvement of its service. The motion was set for hearing and Mr. Pedro S. Talavera, Chief,
Industrial Division of the Commission, was authorized to conduct the hearing for the reception
of the evidence of the parties. 4
Finding that the failure of the petitioner to appear at the hearing set for February 18, 1957 the
sole basis of the revocation of petitioner's certificate was really due to the illness of its
manager, Juan D. Francisco, the Commission set aside its order of revocation. Respondent
municipality moved for reconsideration of this order of reinstatement of the certificate, but the
motion was denied.
In a petition dated June 25, 1958, filed in the same case, respondent municipality formally asked
the Commission to revoke petitioner's certificate of public convenience and to forfeit its
franchise on the ground, among other things, that it failed to comply with the conditions of said
certificate and franchise. Said petition was set for hearing jointly with the order to show cause.
The hearings had been postponed several times.

Meanwhile, inspections had been made of petitioner's electric plant and installations by the
engineers of the Commission, as follows: April 15, 1958 by Engineer Antonio M. Alli;
September 18, 1959, July 12-13, 1960, and June 21-24, 1961, by Engineer Meliton S. Martinez.
The inspection on June 21-24, 1961 was made upon the request of the petitioner who manifested
during the hearing on December 15, 1960 that improvements have been made on its service since
the inspection on July 12-13, 1960, and that, on the basis of the inspection report to be submitted,
it would agree to the submission of the case for decision without further hearing.
When the case was called for hearing on July 5, 1961, petitioner failed to appear. Respondent
municipality was then allowed to present its documentary evidence, and thereafter the case was
submitted for decision.
On July 7, 1961, petitioner filed a motion to reopen the case upon the ground that it had not been
furnished with a copy of the report of the June 21-24, 1961 inspection for it to reply as
previously agreed. In an order dated August 25, 1961, petitioner was granted a period of ten (10)
days within which to submit its written reply to said inspection report, on condition that should it
fail to do so within the said period the case would be considered submitted for decision.
Petitioner failed to file the reply. In consonance with the order of August 25, 1961, therefore, the
Commission proceeded to decide the case. On July 29, 1962 petitioner's electric plant was
burned.
In its decision, dated August 20, 1962, the Commission, on the basis of the inspection reports of
its aforenamed engineers, found that the petitioner had failed to comply with the directives
contained in its letters dated May 21, 1954 and September 4, 1954, and had violated the
conditions of its certificate of public convenience as well as the rules and regulations of the
Commission. The Commission concluded that the petitioner "cannot render the efficient,
adequate and satisfactory electric service required by its certificate and that it is against public
interest to allow it to continue its operation." Accordingly, it ordered the cancellation and
revocation of petitioner's certificate of public convenience and the forfeiture of its franchise.
On September 18, 1962, petitioner moved for reconsideration of the decision, alleging that
before its electric plant was burned on July 29, 1962, its service was greatly improved and that it
had still existing investment which the Commission should protect. But eight days before said
motion for reconsideration was filed, or on September 10, 1962, Morong Electric, having been
granted a municipal franchise on May 6, 1962 by respondent municipality to install, operate and
maintain an electric heat, light and power service in said municipality approved by the
Provincial Board of Rizal on August 31, 1962 filed with the Commission an application for a
certificate of public convenience and necessity for said service. Said application was entitled
"Morong Electric Co., Inc., Applicant", and docketed as Case No. 62-5143.
Petitioner opposed in writing the application of Morong Electric, alleging among other things,
that it is a holder of a certificate of public convenience to operate an electric light, heat and
power service in the same municipality of Morong, Rizal, and that the approval of said
application would not promote public convenience, but would only cause ruinous and wasteful

competition. Although the opposition is dated October 6, 1962, it was actually received by the
Commission on November 8, 1962, or twenty four days after the order of general default was
issued in open court when the application was first called for hearing on October 15, 1962. On
November 12, 1962, however, the petitioner filed a motion to lift said order of default. But
before said motion could be resolved, petitioner filed another motion, dated January 4, 1963, this
time asking for the dismissal of the application upon the ground that applicant Morong Electric
had no legal personality when it filed its application on September 10, 1962, because its
certificate of incorporation was issued by the Securities and Exchange Commission only on
October 17, 1962. This motion to dismiss was denied by the Commission in a formal order
issued on January 17, 1963 on the premise that applicant Morong Electric was a de
facto corporation. Consequently, the case was heard on the merits and both parties presented
their respective evidence. On the basis of the evidence adduced, the Commission, in its decision
dated March 13, 1963, found that there was an absence of electric service in the municipality of
Morong and that applicant Morong Electric, a Filipino-owned corporation duly organized and
existing under the laws of the Philippines, has the financial capacity to maintain said service.
These circumstances, considered together with the denial of the motion for reconsideration filed
by petitioner in Case No. 39715 on February, 15, 1963, such that as far as the Commission was
concerned the certificate of the petitioner was already declared revoked and cancelled, the
Commission approved the application of Morong Electric and ordered the issuance in its favor of
the corresponding certificate of public convenience and necessity.1awphl.nt
On March 8, 1963, petitioner filed with this Court a petition to review the decision in Case No.
39715 (now G. R. No. L-20993). Then on April 26, 1963, petitioner also filed a petition to
review the decision in Case No. 62-5143 (now G. R. No. L-21221).
In questioning the decision of the Commission in Case No. 39715, petitioner contends: (1) that
the Commission acted without or in excess of its jurisdiction when it delegated the hearing of the
case and the reception of evidence to Mr. Pedro S. Talavera who is not allowed by law to hear the
same; (2) that the cancellation of petitioner's certificate of public convenience was unwarranted
because no sufficient evidence was adduced against the petitioner and that petitioner was not
able to present evidence in its defense; (3) that the Commission failed to give protection to
petitioner's investment; and (4) that the Commission erred in imposing the extreme penalty of
revocation of the certificate.
In questioning the decision in Case No. 62-5143, petitioner contends: (1) that the Commission
erred in denying petitioner's motion to dismiss and proceeding with the hearing of the application
of the Morong Electric; (2) that the Commission erred in granting Morong Electric a certificate
of public convenience and necessity since it is not financially capable to render the service; (3)
that the Commission erred when it made findings of facts that are not supported by the evidence
adduced by the parties at the trial; and (4) that the Commission erred when it did not give to
petitioner protection to its investment a reiteration of the third assignment of error in the other
case.1awphl.nt
We shall now discuss the appeals in these two cases separately.

G.R. No. L-20993


1. Under the first assignment of error, petitioner contends that while Mr. Pedro S. Talavera, who
conducted the hearings of the case below, is a division chief, he is not a lawyer. As such, under
Section 32 of Commonwealth Act No. 146, as amended, the Commission should not have
delegated to him the authority to conduct the hearings for the reception of evidence of the
parties.
We find that, really, Mr. Talavera is not a lawyer. 5 Under the second paragraph of Section 32 of
Commonwealth Act No. 146, as amended, 6 the Commission can only authorize a division chief
to hear and investigate a case filed before it if he is a lawyer. However, the petitioner is raising
this question for the first time in this appeal. The record discloses that petitioner never made any
objection to the authority of Mr. Talavera to hear the case and to receive the evidence of the
parties. On the contrary, we find that petitioner had appeared and submitted evidence at the
hearings conducted by Mr. Talavera, particularly the hearings relative to the motion for
reconsideration of the order of February 18, 1957 cancelling and revoking its certificate. We also
find that, through counsel, petitioner had entered into agreements with Mr. Talavera, as hearing
officer, and the counsel for respondent municipality, regarding procedure in order to abbreviate
the proceedings. 7 It is only after the decision in the case turned out to be adverse to it that
petitioner questioned the proceedings held before Mr. Talavera.
This Court in several cases has ruled that objection to the delegation of authority to hear a case
filed before the Commission and to receive the evidence in connection therewith is a procedural,
not a jurisdictional point, and is waived by failure to interpose timely the objection and the case
had been decided by the Commission. 8 Since petitioner has never raised any objection to the
authority of Mr. Talavera before the Commission, it should be deemed to have waived such
procedural defect, and consonant with the precedents on the matter, petitioner's claim that the
Commission acted without or in excess of jurisdiction in so authorizing Mr. Talavera should be
dismissed. 9
2. Anent the second assigned error, the gist of petitioner's contention is that the evidence
consisting of inspection reports upon which the Commission based its decision is insufficient
and untrustworthy in that (1) the authors of said reports had not been put to test by way of crossexamination; (2) the reports constitute only one side of the picture as petitioner was not able to
present evidence in its defense; (3) judicial notice was not taken of the testimony of Mr. Harry B.
Bernardino, former mayor of respondent municipality, in PSC Case No. 625143 (the other case,
G. R. No. L-21221) to the effect that the petitioner had improved its service before its electric
power plant was burned on July 29, 1962 which testimony contradicts the inspection reports;
and (4) the Commission acted both as prosecutor and judge passing judgment over the very
same evidence presented by it as prosecutor a situation "not conducive to the arrival at just
and equitable decisions."
Settled is the rule that in reviewing the decision of the Public Service Commission this Court is
not required to examine the proof de novo and determine for itself whether or not the

preponderance of evidence really justifies the decision. The only function of this Court is to
determine whether or not there is evidence before the Commission upon which its decision might
reasonably be based. This Court will not substitute its discretion for that of the Commission on
questions of fact and will not interfere in the latter's decision unless it clearly appears that there is
no evidence to support it. 10 Inasmuch as the only function of this Court in reviewing the decision
of the Commission is to determine whether there is sufficient evidence before the Commission
upon which its decision can reasonably be based, as it is not required to examine the proof de
novo, the evidence that should be made the basis of this Court's determination should be only
those presented in this case before the Commission. What then was the evidence presented
before the Commission and made the basis of its decision subject of the present appeal? As stated
earlier, the Commission based its decision on the inspection reports submitted by its engineers
who conducted the inspection of petitioner's electric service upon orders of the
Commission. 11 Said inspection reports specify in detail the deficiencies incurred, and violations
committed, by the petitioner resulting in the inadequacy of its service. We consider that said
reports are sufficient to serve reasonably as bases of the decision in question. It should be
emphasized, in this connection that said reports, are not mere documentary proofs presented for
the consideration of the Commission, but are the results of the Commission's own observations
and investigations which it can rightfully take into consideration, 12 particularly in this case where
the petitioner had not presented any evidence in its defense, and speaking of petitioner's failure to
present evidence, as well as its failure to cross-examine the authors of the inspection reports,
petitioner should not complain because it had waived not only its right to cross-examine but also
its right to present evidence. Quoted hereunder are the pertinent portions of the transcripts of the
proceedings where the petitioner, through counsel, manifested in clear language said waiver and
its decision to abide by the last inspection report of Engineer Martinez:
Proceedings of December 15, 1960
COMMISSION:
It appears at the last hearing of this case on September 23, 1960, that an engineer of this
Commission has been ordered to make an inspection of all electric services in the province of
Rizal and on that date the engineer of this Commission is still undertaking that inspection and it
appears that the said engineer had actually made that inspection on July 12 and 13, 1960. The
engineer has submitted his report on November 18, 1960 which is attached to the records of this
case.
ATTY. LUQUE (Councel for Petitioner):
... (W)e respectfully state that while the report is, as I see it attached to the records, clear and
very thorough, it was made sometime July of this year and I understand from the respondent that
there is some improvement since this report was made ... we respectfully request that an up-todate inspection be made ... . An inspector of this Commission can be sent to the plant and
considering that the engineer of this Commission, Engineer Meliton Martinez, is very acquainted
to the points involved we pray that his report will be used by us for the reason that he is a

technical man and he knows well as he has done a good job and I think our proposition would
expedite the matter. We sincerely believe that the inspection report will be the best evidence to
decide this matter.
xxx

xxx

xxx

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

xxx

xxx

COMMISSION (to Atty. Luque):


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

Yes, your honor.

Proceedings of August 25, 1961


ATTY. LUQUE (Counsel for petitioner):
In order to avoid any delay in the consideration of this case we are respectfully move (sic) that
instead of our witnesses testifying under oath that we will submit a written reply under oath

together with the memorandum within fifteen (15) days and we will furnish a copy and upon our
submission of said written reply under oath and memorandum we consider this case submitted.
This suggestion is to abbreviate the necessity of presenting witnesses here which may prolong
the resolution of this case.
ATTY. OLIVAS (Counsel for respondent municipality):
I object on the ground that there is no resolution by this Commission on the action to reopen the
case and second this case has been closed.
ATTY. LUQUE:
With regard to the testimony on the ground for opposition we respectfully submit to this
Commission our motion to submit a written reply together with a memorandum. Also as stated to
expedite the case and to avoid further hearing we will just submit our written reply. According to
our records we are furnished with a copy of the report of July 17, 1961. We submit your honor.
xxx

xxx

xxx

COMMISSION:
To give applicant a chance to have a day in court the Commission grants the request of applicant
that it be given 10 days within which to submit a written reply on the report of the engineer of
the Commission who inspected the electric service, in the municipality of Morong, Rizal, and
after the submission of the said written reply within 10 days from today this case will be
considered submitted for decision.
The above-quoted manifestation of counsel for the petitioner, specifically the statement referring
to the inspection report of Engineer Martinez as the "best evidence to decide this matter," can
serve as an argument against petitioner's claim that the Commision should have taken into
consideration the testimony of Mr. Bernardino. But the primary reasons why the Commission
could not have taken judicial cognizance of said testimony are: first, it is not a proper subject of
judicial notice, as it is not a "known" fact that is, well established and authoritatively settled,
without qualification and contention; 13 second, it was given in a subsequent and distinct case
after the petitioner's motion for reconsideration was heard by the Commission en banc and
submitted for decision, 14 and third, it was not brought to the attention of the Commission in this
case through an appropriate pleading. 15
Regarding the contention of petitioner that the Commission had acted both as prosecutor and
judge, it should be considered that there are two matters that had to be decided in this case,
namely, the order to show cause dated December 19, 1956, and the petition or complaint by
respondent municipality dated June 25, 1958. Both matters were heard jointly, and the record
shows that respondent municipality had been allowed to present its evidence to substantiate its
complaint. It can not be said, therefore, that in this case the Commission had acted as prosecutor

and judge. But even assuming, for the sake of argument, that there was a commingling of the
prosecuting and investigating functions, this exercise of dual function is authorized by Section
17(a) of Commonwealth Act No. 146, as amended, under which the Commission has power "to
investigate, upon its own initiative or upon complaint in writing, any matter concerning any
public service as regards matters under its jurisdiction; to, require any public service to furnish
safe, adequate, and proper service as the public interest may require and warrant; to enforce
compliance with any standard, rule, regulation, order or other requirement of this Act or of the
Commission ... ." Thus, in the case of Collector of Internal Revenue vs. Estate of F. P. Buan, L11438, July 31, 1958, this Court held that the power of the Commission to cancel and revoke a
certificate of public convenience and necessity may be exercised by it even without a formal
charge filed by any interested party, with the only limitation that the holder of the certificate
should be given his day in court.
It may not be amiss to add that when prosecuting and investigating duties are delegated by
statute to an administrative body, as in the case of the Public Service Commission, said body
may take steps it believes appropriate for the proper exercise of said duties, particularly in the
manner of informing itself whether there is probable violation of the law and/or its rules and
regulations. It may initiate an investigation, file a complaint, and then try the charge as preferred.
So long as the respondent is given a day in court, there can be no denial of due process, and
objections to said procedure cannot be sustained.
3. In its third assignment of error, petitioner invokes the "protection-of-investment rule"
enunciated by this Court inBatangas Transportation Co. vs. Orlanes 16 in this wise:
The Government having taken over the control and supervision of all public utilities, so
long as an operator under a prior license complies with the terms and conditions of his
license and reasonable rules and regulations for its operation and meets the reasonable
demands of the public, it is the duty of the Commission to protect rather than to destroy
his investment by the granting of the second license to another person for the same thing
over the same route of travel. The granting of such a license does not serve its
convenience or promote the interests of the public.
The above-quoted rule, however, is not absolute, for nobody has exclusive right to secure a
franchise or a certificate of public convenience. 17 Where, as in the present case, it has been
shown by ample evidence that the petitioner, despite ample time and opportunity given to it by
the Commission, had failed to render adequate, sufficient and satisfactory service and had
violated the important conditions of its certificate as well as the directives and the rules and
regulations of the Commission, the rule cannot apply. To apply that rule unqualifiedly is to
encourage violation or disregard of the terms and conditions of the certificate and the
Commission's directives and regulations, and would close the door to other applicants who could
establish, operate and provide adequate, efficient and satisfactory service for the benefit and
convenience of the inhabitants. It should be emphasized that the paramount consideration should
always be the public interest and public convenience. The duty of the Commission to protect
investment of a public utility operator refers only to operators of good standing those who

comply with the laws, rules and regulations and not to operators who are unconcerned with
the public interest and whose investments have failed or deteriorated because of their own
fault. 18
4. The last assignment of error assails the propriety of the penalty imposed by the Commission
on the petitioner that is, the revocation of the certificate and the forfeiture of the franchise.
Petitioner contends that the imposition of a fine would have been sufficient, as had been done by
the Commission in cases of a similar nature.
It should be observed that Section 16(n) of Commonwealth Act No. 146, as amended, confers
upon the Commission ample power and discretion to order the cancellation and revocation of any
certificate of public convenience issued to an operator who has violated, or has willfully and
contumaciously refused to comply with, any order, rule or regulation of the Commission or any
provision of law. What matters is that there is evidence to support the action of the Commission.
In the instant case, as shown by the evidence, the contumacious refusal of the petitioner since
1954 to comply with the directives, rules and regulations of the Commission, its violation of the
conditions of its certificate and its incapability to comply with its commitment as shown by its
inadequate service, were the circumstances that warranted the action of the Commission in not
merely imposing a fine but in revoking altogether petitioner's certificate. To allow petitioner to
continue its operation would be to sacrifice public interest and convenience in favor of private
interest.
A grant of a certificate of public convenience confers no property rights but is a mere
license or privilege, and such privilege is forfeited when the grantee fails to comply with
his commitments behind which lies the paramount interest of the public, for public
necessity cannot be made to wait, nor sacrificed for private convenience. (Collector of
Internal Revenue v. Estate of F. P. Buan, et al., L-11438 and Santiago Sambrano, et al. v.
PSC, et al., L-11439 & L-11542-46, July 31, 1958)
(T)he Public Service Commission, ... has the power to specify and define the terms and
conditions upon which the public utility shall be operated, and to make reasonable rules
and regulations for its operation and the compensation which the utility shall receive for
its services to the public, and for any failure to comply with such rules and regulations or
the violation of any of the terms and conditions for which the license was granted, the
Commission has ample power to enforce the provisions of the license or even to revoke
it, for any failure or neglect to comply with any of its terms and provisions. (Batangas
Trans. Co. v. Orlanes, 52 Phil. 455, 460; emphasis supplied)
Presumably, the petitioner has in mind Section 21 of Commonwealth Act No. 146, as amended,
which provides that a public utility operator violating or failing to comply with the terms and
conditions of any certificate, or any orders, decisions or regulations of the Commission, shall be
subject to a fine and that the Commission is authorized and empowered to impose such fine, after
due notice and hearing. It should be noted, however, that the last sentence of said section states
that the remedy provided therein "shall not be a bar to, or affect any other remedy provided in

this Act but shall be cumulative and additional to such remedy or remedies." In other words, the
imposition of a fine may only be one of the remedies which the Commission may resort to, in its
discretion. But that remedy is not exclusive of, or has preference over, the other remedies. And
this Court will not substitute its discretion for that of the Commission, as long as there is
evidence to support the exercise of that discretion by the Commission.
G. R. No. L-21221
Coming now to the other case, let it be stated at the outset that before any certificate may be
granted, authorizing the operation of a public service, three requisites must be complied with,
namely: (1) the applicant must be a citizen of the Philippines or of the United States, or a
corporation or co-partnership, association or joint-stock company constituted and organized
under the laws of the Philippines, sixty per centum at least of the stock or paid-up capital of
which belongs entirely to citizens of the Philippines or of the United States; 19 (2) the applicant
must be financially capable of undertaking the proposed service and meeting the responsibilities
incident to its operation; 20 and (3) the applicant must prove that the operation of the public
service proposed and the authorization to do business will promote the public interest in a proper
and suitable manner. 21
As stated earlier, in the decision appealed from, the Commission found that Morong Electric is a
corporation duly organized and existing under the laws of the Philippines, the stockholders of
which are Filipino citizens, that it is financially capable of operating an electric light, heat and
power service, and that at the time the decision was rendered there was absence of electric
service in Morong, Rizal. While the petitioner does not dispute the need of an electric service in
Morong, Rizal, 22 it claims, in effect, that Morong Electric should not have been granted the
certificate of public convenience and necessity because (1) it did not have a corporate personality
at the time it was granted a franchise and when it applied for said certificate; (2) it is not
financially capable of undertaking an electric service, and (3) petitioner was rendering efficient
service before its electric plant was burned, and therefore, being a prior operator its investment
should be protected and no new party should be granted a franchise and certificate of public
convenience and necessity to operate an electric service in the same locality.
1. The bulk of petitioner's arguments assailing the personality of Morong Electric dwells on the
proposition that since a franchise is a contract, 23 at least two competent parties are necessary to
the execution thereof, and parties are not competent except when they are in being. Hence, it is
contended that until a corporation has come into being, in this jurisdiction, by the issuance of a
certificate of incorporation by the Securities and Exchange Commission (SEC) it cannot enter
into any contract as a corporation. The certificate of incorporation of the Morong Electric was
issued by the SEC on October 17, 1962, so only from that date, not before, did it acquire juridical
personality and legal existence. Petitioner concludes that the franchise granted to Morong
Electric on May 6, 1962 when it was not yet in esse is null and void and cannot be the subject of
the Commission's consideration. On the other hand, Morong Electric argues, and to which
argument the Commission agrees, that it was a de factocorporation at the time the franchise was
granted and, as such, it was not incapacitated to enter into any contract or to apply for and accept

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

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

It is now a very well-settled rule in this jurisdiction that the findings and conclusions of
fact made by the Public Service Commission, after weighing the evidence adduced by the
parties in a public service case, will not be disturbed by the Supreme Court unless those
findings and conclusions appear not to be reasonably supported by evidence. (La
Mallorca and Pampanga Bus Co. vs. Mercado, L-19120, November 29, 1965)
For purposes of appeal, what is decisive is that said testimonial evidence provides
reasonable support for the Public Service Commission's findings of financial capacity on
the part of applicants, rendering such findings beyond our power to disturb. (Del Pilar
Transit vs. Silva, L-21547, July 15, 1966)
It may be worthwhile to mention in this connection that per inspection report dated January 20,
1964 29 of Mr. Meliton Martinez of the Commission, who inspected the electric service of
Morong on January 15-16, 1964, Morong Electric "is serving electric service to the entire area
covered by its approved plan and has constructed its line in accordance with the plans and
specifications approved by the Commission." By reason thereof, it was recommended that the
requests of Morong Electric (1) for the withdrawal of its deposit in the amount of P1,000.00 with
the Treasurer of the Philippines, and (2) for the approval of Resolution No. 160 of the Municipal
Council of Morong, Rizal, exempting the operator from making the additional P9,000.00 deposit
mentioned in its petition, dated September 16, 1963, be granted. This report removes any doubt
as to the financial capability of Morong Electric to operate and maintain an electric light, heat
and power service.
3. With the financial qualification of Morong Electric beyond doubt, the remaining question to be
resolved is whether, or not, the findings of fact of the Commission regarding petitioner's service
are supported by evidence. It is the contention of the petitioner that the Commission made some
findings of fact prejudicial to its position but which do not find support from the evidence
presented in this case. Specifically, petitioner refers to the statements or findings that its service
had "turned from bad to worse," that it miserably failed to comply with the oft-repeated promises
to bring about the needed improvement, that its equipment is unserviceable, and that it has no
longer any plant site and, therefore, has discredited itself. Petitioner further states that such
statements are not only devoid of evidentiary support but contrary to the testimony of its witness,
Mr. Harry Bernardino, who testified that petitioner was rendering efficient and satisfactory
service before its electric plant was burned on July 29, 1962.
On the face of the decision appealed from, it is obvious that the Commission in describing the
kind of service petitioner was rendering before its certificate was ordered revoked and cancelled,
took judicial notice of the records of the previous case (PSC Case No. 39715) where the quality
of petitioner's service had been squarely put in issue. It will be noted that the findings of the
Commission were made notwithstanding the fact that the aforementioned testimony of Mr.
Bernardino had been emphasized and pointed out in petitioner's Memorandum to the
Commission. 30 The implication is simple: that as between the testimony of Mr. Bernardino and
the inspection reports of the engineers of the Commission, which served as the basis of the
revocation order, the Commission gave credence to the latter. Naturally, whatever conclusion or

finding of fact that the Commission arrived at regarding the quality of petitioner's service are not
borne out by the evidence presented in this case but by evidence in the previous case. 31 In this
connection, we repeat, the conclusion, arrived at by the Commission after weighing the
conflicting evidence in the two related cases, is a conclusion of fact which this Court will not
disturb.
And it has been held time and again that where the Commission has reached a conclusion
of fact after weighing the conflicting evidence, that conclusion must be respected, and the
Supreme Court will not interfere unless it clearly appears that there is no evidence to
support the decision of the Commission. (La Mallorca and Pampanga Bus Co., Inc. vs.
Mercado, L-19120, November 29, 1965 citing Pangasinan Trans. Co., Inc. vs. Dela Cruz,
96 Phil. 278)
For that matter, petitioner's pretension that it has a prior right to the operation of an electric
service in Morong, Rizal, is not tenable; and its plea for protection of its investment, as in the
previous case, cannot be entertained.
WHEREFORE, the two decisions of the Public Service Commission, appealed from, should be,
as they are hereby affirmed, with costs in the two cases against petitioner Rizal Light & Ice Co.,
Inc. It is so ordered.

G.R. No. L-48627 June 30, 1987


FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners
vs.
THE HONORABLE COURT OF APPEALS and ALBERTO V. ARELLANO, respondents.

CRUZ, J.:
We gave limited due course to this petition on the question of the solidary liability of the
petitioners with their co-defendants in the lower court 1 because of the challenge to the following
paragraph in the dispositive portion of the decision of the respondent court: *
1. Defendants are hereby ordered to jointly and severally pay the plaintiff the
amount of P50,000.00 for the preparation of the project study and his technical
services that led to the organization of the defendant corporation, plus P10,000.00
attorney's fees; 2

The petitioners claim that this order has no support in fact and law because they had no contract
whatsoever with the private respondent regarding the above-mentioned services. Their position is
that as mere subsequent investors in the corporation that was later created, they should not be
held solidarily liable with the Filipinas Orient Airways, a separate juridical entity, and with
Barretto and Garcia, their co-defendants in the lower court, ** who were the ones who requested
the said services from the private respondent. 3
We are not concerned here with the petitioners' co-defendants, who have not appealed the
decision of the respondent court and may, for this reason, be presumed to have accepted the
same. For purposes of resolving this case before us, it is not necessary to determine whether it is
the promoters of the proposed corporation, or the corporation itself after its organization, that
shall be responsible for the expenses incurred in connection with such organization.
The only question we have to decide now is whether or not the petitioners themselves
are also and personallyliable for such expenses and, if so, to what extent.
The reasons for the said order are given by the respondent court in its decision in this wise:
As to the 4th assigned error we hold that as to the remuneration due the plaintiff
for the preparation of the project study and the pre-organizational services in the
amount of P50,000.00, not only the defendant corporation but the other
defendants including defendants Caram should be jointly and severally liable for
this amount. As we above related it was upon the request of defendants Barretto
and Garcia that plaintiff handled the preparation of the project study which project
study was presented to defendant Caram so the latter was convinced to invest in
the proposed airlines. The project study was revised for purposes of presentation
to financiers and the banks. It was on the basis of this study that defendant
corporation was actually organized and rendered operational. Defendants Garcia
and Caram, and Barretto became members of the Board and/or officers of
defendant corporation. Thus, not only the defendant corporation but all the other
defendants who were involved in the preparatory stages of the incorporation, who
caused the preparation and/or benefited from the project study and the technical
services of plaintiff must be liable. 4
It would appear from the above justification that the petitioners were not really involved in the
initial steps that finally led to the incorporation of the Filipinas Orient Airways. Elsewhere in the
decision, Barretto was described as "the moving spirit." The finding of the respondent court is
that the project study was undertaken by the private respondent at the request of Barretto and
Garcia who, upon its completion, presented it to the petitioners to induce them to invest in the
proposed airline. The study could have been presented to other prospective investors. At any rate,
the airline was eventually organized on the basis of the project study with the petitioners as
major stockholders and, together with Barretto and Garcia, as principal officers.
The following portion of the decision in question is also worth considering:

... Since defendant Barretto was the moving spirit in the pre-organization work of
defendant corporation based on his experience and expertise, hence he was
logically compensated in the amount of P200,000.00 shares of stock not as
industrial partner but more for his technical services that brought to fruition the
defendant corporation. By the same token, We find no reason why the plaintiff
should not be similarly compensated not only for having actively participated in
the preparation of the project study for several months and its subsequent revision
but also in his having been involved in the pre-organization of the defendant
corporation, in the preparation of the franchise, in inviting the interest of the
financiers and in the training and screening of personnel. We agree that for these
special services of the plaintiff the amount of P50,000.00 as compensation is
reasonable. 5
The above finding bolsters the conclusion that the petitioners were not involved in the initial
stages of the organization of the airline, which were being directed by Barretto as the main
promoter. It was he who was putting all the pieces together, so to speak. The petitioners were
merely among the financiers whose interest was to be invited and who were in fact persuaded, on
the strength of the project study, to invest in the proposed airline.
Significantly, there was no showing that the Filipinas Orient Airways was a fictitious corporation
and did not have a separate juridical personality, to justify making the petitioners, as principal
stockholders thereof, responsible for its obligations. As a bona fide corporation, the Filipinas
Orient Airways should alone be liable for its corporate acts as duly authorized by its officers and
directors.
In the light of these circumstances, we hold that the petitioners cannot be held personally liable
for the compensation claimed by the private respondent for the services performed by him in the
organization of the corporation. To repeat, the petitioners did not contract such services. It was
only the results of such services that Barretto and Garcia presented to them and which persuaded
them to invest in the proposed airline. The most that can be said is that they benefited from such
services, but that surely is no justification to hold them personally liable therefor. Otherwise, all
the other stockholders of the corporation, including those who came in later, and regardless of
the amount of their share holdings, would be equally and personally liable also with the
petitioners for the claims of the private respondent.
The petition is rather hazy and seems to be flawed by an ambiguous ambivalence. Our
impression is that it is opposed to the imposition of solidary responsibility upon the Carams but
seems to be willing, in a vague, unexpressed offer of compromise, to accept joint liability. While
it is true that it does here and there disclaim total liability, the thrust of the petition seems to be
against the imposition of solidary liability only rather than against any liability at all, which is
what it should have categorically argued.
Categorically, the Court holds that the petitioners are not liable at all, jointly or jointly and
severally, under the first paragraph of the dispositive portion of the challenged decision. So

holding, we find it unnecessary to examine at this time the rules on solidary obligations, which
the parties-needlessly, as it turns out have belabored unto death.
WHEREFORE, the petition is granted. The petitioners are declared not liable under the
challenged decision, which is hereby modified accordingly. It is so ordered.

G.R. No. L-5003

June 27, 1953

NAZARIO
vs.
QUEZON COLLEGE, INC., claimant-appellant.

TRILLANA, administrator-appellee,

Singson,
Barnes,
Yap
Delgado, Flores & Macapagal for appellee.

Blanco

and

for

appellant.

PARAS, J.:
Damasa Crisostomo sent the following letter to the Board of Trustees of the Quezon College:

June 1, 1948

The
Quezon
Manila

BOARD

OF

TRUSTEES
College

Gentlemen:
Please enter my subscription to dalawang daan (200) shares of your capital stock with a
par value of P100 each. Enclosed you will find (Babayaran kong lahat pagkatapos na ako
ay makapag-pahuli ng isda) pesos as my initial payment and the balance payable in
accordance with law and the rules and regulations of the Quezon College. I hereby agree
to shoulder the expenses connected with said shares of stock. I further submit myself to
all lawful demands, decisions or directives of the Board of Trustees of the Quezon
College and all its duly constituted officers or authorities (ang nasa itaas ay binasa at
ipinaliwanag sa akin sa wikang tagalog na aking nalalaman).

Very respectfully,
(Sgd.)
DAMASA
CRISOSTOMO
Signature of subscriber

Nilagdaan sa aming harapan:


JOSE
EDUARDO CRISOSTOMO

CRISOSTOMO

Damasa Crisostomo died on October 26, 1948. As no payment appears to have been made on the
subscription mentioned in the foregoing letter, the Quezon College, Inc. presented a claim before
the Court of First Instance of Bulacan in her testate proceeding, for the collection of the sum of

P20,000, representing the value of the subscription to the capital stock of the Quezon College,
Inc. This claim was opposed by the administrator of the estate, and the Court of First Instance of
Bulacan, after hearing issued an order dismissing the claim of the Quezon College, Inc. on the
ground that the subscription in question was neither registered in nor authorized by the Securities
and Exchange Commission. From this order the Quezon College, Inc. has appealed.
It is not necessary for us to discuss at length appellant's various assignments of error relating to
the propriety of the ground relief upon by the trial court, since, as pointed out in the brief for the
administrator and appellee, there are other decisive considerations which, though not touched by
the lower court, amply sustained the appealed order.
It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was
written on a general form indicating that an applicant will enclose an amount as initial payment
and will pay the balance in accordance with law and the regulations of the College. On the other
hand, in the letter actually sent by Damasa Crisostomo, the latter (who requested that her
subscription for 200 shares be entered) not only did not enclose any initial payment but stated
that "babayaran kong lahat pagkatapos na ako ay makapagpahuli ng isda." There is nothing in the
record to show that the Quezon College, Inc. accepted the term of payment suggested by Damasa
Crisostomo, or that if there was any acceptance the same came to her knowledge during her
lifetime. As the application of Damasa Crisostomo is obviously at variance with the terms
evidenced in the form letter issued by the Quezon College, Inc., there was absolute necessity on
the part of the College to express its agreement to Damasa's offer in order to bind the latter.
Conversely, said acceptance was essential, because it would be unfair to immediately obligate the
Quezon College, Inc. under Damasa's promise to pay the price of the subscription after she had
caused fish to be caught. In other words, the relation between Damasa Crisostomo and the
Quezon College, Inc. had only thus reached the preliminary stage whereby the latter offered its
stock for subscription on the terms stated in the form letter, and Damasa applied for subscription
fixing her own plan of payment, a relation, in the absence as in the present case of acceptance
by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that had not ripened into
an enforceable contract.
Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the
more imperative, in view of the proposal of Damasa Crisostomo to pay the value of the
subscription after she has harvested fish, a condition obviously dependent upon her sole will and,
therefore, facultative in nature, rendering the obligation void, under article 1115 of the old Civil
Code which provides as follows: "If the fulfillment of the condition should depend upon the
exclusive will of the debtor, the conditional obligation shall be void. If it should depend upon
chance, or upon the will of a third person, the obligation shall produce all its effects in
accordance with the provisions of this code." It cannot be argued that the condition solely is void,
because it would have served to create the obligation to pay, unlike a case, exemplified
by Osmea vs. Rama (14 Phil., 99), wherein only the potestative condition was held void
because it referred merely to the fulfillment of an already existing indebtedness.
In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court already held that "a
condition, facultative as to the debtor, is obnoxious to the first sentence contained in article 1115
and renders the whole obligation void."

Wherefore, the appealed order is affirmed, and it is so ordered with costs against appellant.

G.R. Nos. L-48195 and 48196

May 1, 1942

SOFRONIO
T.
BAYLA,
ET
AL., petitioners,
vs.
SILANG
TRAFFIC
CO.,
INC., respondent.
SILANG TRAFFIC CO., petitioner, vs. SOFRONIO BAYLA, ET AL., respondents.
E.
A.
Beltran
for
petitioners.
Conrado V. Sanchez, Melchor C. Benitez, and Enrique M. Fernando for respondent.
OZAETA, J.:
Petitioners in G.R. No. 48195 instituted this action in the Court of First Instance of Cavite
against the respondent Silang Traffic Co., Inc. (cross-petitioner in G.R. No. 48196), to recover
certain sums of money which they had paid severally to the corporation on account of shares of
stock they individually agreed to take and pay for under certain specified terms and conditions,
of which the following referring to the petitioner Josefa Naval, is typical:
AGREEMENT FOR INSTALLMENT SALE OF SHARES IN THE "SILANG
TRAFFIC COMPANY, INC.,"

Silang, Cavite, P. I.

THIS AGREEMENT, made and entered into between Mrs. Josefa Naval, of legal age,
married and resident of the Municipality of Silang, Province of Cavite, Philippine
Islands, party of the First Part, hereinafter called the subscriber, and the "Silang Traffic
Company, Inc.," a corporation duly organized and existing by virtue of and under the
laws of the Philippine Islands, with its principal office in the Municipality of Silang,
Province of Cavite, Philippine Islands, party of the Second Part, hereinafter called the
seller,
WITNESSETH:
That the subscriber promises to pay personally or by his duly authorized agent to the
seller at the Municipality of Silang, Province of Cavite, Philippine Islands, the sum of
one thousand five hundred pesos (P1,500), Philippine currency, as purchase price of
FIFTEEN (15) shares of capital stock, said purchase price to be paid as follows, to wit:
five (5%) per cent upon the execution of the contract, the receipt whereof is hereby

acknowledged and confessed, and the remainder in installments of five per cent, payable
within the first month of each and every quarter thereafter, commencing on the 1st day of
July, 1935, with interest on deferred payments at the rate of SIX (6%) per cent per annum
until paid.
That the said subscriber further agrees that if he fails to pay any of said installment when
due, or to perform any of the aforesaid conditions, or if said shares shall be attached or
levied upon by creditors of the said subscriber, then the said shares are to revert to the
seller and the payments already made are to be forfeited in favor of said seller, and the
latter may then take possession, without resorting to court proceedings.
The said seller upon receiving full payment, at the time and manner hereinbefore
specified, agrees to execute and deliver to said subscriber, or to his heirs and assigns, the
certificate of title of said shares, free and clear of all encumbrances.
In testimony whereof, the parties have hereunto set their hands in the Municipality of
Silang, Province of Cavite, Philippine Islands, this 30th day of March, 1935.

(Sgd.)
SILANG
By

JOSEFA
NAVAL
TRAFFIC COMPANY, INC.
Subscriber

(Sgd.)
President.

LINO

GOMEZ

(Exhibit 1. Notarial acknowledgment omitted.)


The agreements signed by the other petitioners were of the same date (March 30, 1935) and in
identical terms as the foregoing except as to the number of shares and the corresponding
purchase price. The petitioners agreed to purchase the following number of shares and, up to
April 30, 1937, had paid the following sums on account thereof:

Sofronio
Bayla.......

T. 8 shares

P360

Venancio
Toledo........

8 shares

375

Josefa

15 shares

675

Naval..............

Paz
Toledo................

15 shares

675

Petitioners' action for the recovery of the sums above mentioned is based on a resolution by the
board of directors of the respondent corporation on August 1, 1937, of the following tenor:
A mocion sel Sr. Marcos Caparas y secundado por el Sr. Alejandro Bayla, que para el
bien de la corporacion y la pronta terminacion del asunto civil No. 3125 titulado "Vicente
F. Villanueva et al. vs. Lino Gomez et al.," en el Juzgado de Primera Instancia de Cavite,
donde se gasto y se gastara no poca cantidad de la Corporacion, se resolvio y se aprobo
por la Junta Directiva los siguientes:
(a) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 de marzo, 1935, art.
11, sec. 162, sobre las cobranzas que se haran por el Secretario Tesorero de la
Corporacion a los accionistas que habian tomado o suscrito nuevas acciones y que se
permitia a estos pagar 20% del valor de las acciones suscritas en un ao, con interes de
6% y el pago o jornal que se hara por trimestre.
(b) Se dejara sin efecto, en vista de que aun no esta pagado todo el valor de las 123
acciones, tomadas de las acciones no expedidas (unissued stock) de la Corporacion y que
fueron suscritas por los siguienes:

Lino
Gomez.....................

10 Acciones

Venancio
Toledo.............

8 Acciones

Melchor
Benitez........

P. 17 Acciones

Isaias
Videa.................

14 Acciones

Esteban
Velasco............

10 Acciones

Numeriano
Aldaba....

S. 15 Acciones

Inocencio
Cruz.................

8 Acciones

Josefa
Naval ..................

15 Acciones

Sofronio
Bayla.................

8 Acciones

Dionisio
Dungca.............

3 Acciones

y devolver a las personas arriba descritas toda la cantidad que estas habian pagado por las 123
acciones.
(c) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 marzo, 1935, art. V.
sec. 165, sobre el cambio o trueque de las 31 acciones del Treasury Stock, contra las 32
acciones del Sr. Numeriano Aldaba, en la corporacion Northern Luzon Transportation Co.
y que se devuelva al Sr. Numeriano Aldaba las 32 acciones mencionadas despues que el
haya devuelto el certificado de las 31 acciones de la Silang Traffic Co., Inc.
(d) Permitir al Tesorero de la Corporacion para que devuelva a las personas arriba
indicadas, las cantidades pagadas por las 123 acciones. (Exhibit A-1.)

The respondent corporation set up the following defenses: (1) That the above-quoted resolution
is not applicable to the petitioners Sofronio T. Bayla, Josefa Naval, and Paz Toledo because on
the date thereof "their subscribed shares of stock had already automatically reverted to the
defendant, and the installments paid by them had already been forfeited"; and (2) that said
resolution of August 1, 1937, was revoked and cancelled by a subsequent resolution of the board
of directors of the defendant corporation dated August 22, 1937.
The trial court absolved the defendant from the complaint and declared canceled (forfeited) in
favor of the defendant the shares of stock in question. It held that the resolution of August 1,
1937, was null and void, citingVelasco vs. Poizat (37 Phil., 802), wherein this Court held that "a
corporation has no legal capacity to release an original subscriber to its capital stock from the
obligation to pay for shares; and any agreement to this effect is invalid" Plaintiffs below appealed
to the Court of Appeals, which modified of the trial court as follows:
That part of the judgment dismissing plaintiff's complaint is affirmed, but that part
thereof declaring their subscription canceled is reversed. Defendant is directed to grant
plaintiffs 30 days after final judgment within which to pay the arrears on their
subscription. Without pronouncement as to costs.
Both parties appealed to this Court by petition and cross-petition for certiorari. Petitioners insist
that they have the right to recover the amounts involved under the resolution of August 1, 1937,
while the respondent and cross-petitioner on its part contends that said amounts have been
automatically forfeited and the shares of stock have reverted to the corporation under the
agreement hereinabove quoted.
The parties litigant, the trial court, and the Court of Appeals have interpreted or considered the
said agreement as a contract of subscription to the capital stock of the respondent corporation. It
should be noted, however, that said agreement is entitled "Agreement for Installment Sale of
Shares in the Silang Traffic Company, Inc.,"; that while the purchaser is designated as
"subscriber," the corporation is described as "seller"; that the agreement was entered into on
March 30, 1935, long after the incorporation and organization of the corporation, which took
place in 1927; and that the price of the stock was payable in quarterly installments spread over a
period of five years. It also appears that in civil case No. 3125 of the Court of First Instance of
Cavite mentioned in the resolution of August 1, 1937, the right of the corporation to sell the
shares of stock to the person named in said resolution (including herein petitioners) was
impugned by the plaintiffs in said case, who claimed a preferred right to buy said shares.
Whether a particular contract is a subscription or a sale of stock is a matter of construction and
depends upon its terms and the intention of the parties (4 Fletcher, Cyclopedia of Corporation
[permanent edition], 29, cited in Salmon, Dexter & Co. vs. Unson (47 Phil. 649, 652). In the
Unson case just cited, this Court held that a subscription to stock in an existing corporation is, as
between the subscriber and the corporation, simply a contract of purchase and sale.
It seems clear from the terms of the contracts in question that they are contracts of sale and not of
subscription. The lower courts erred in overlooking the distinction between subscription and
purchase "A subscription, properly speaking, is the mutual agreement of the subscribers to take

and pay for the stock of a corporation, while a purchase is an independent agreement between the
individual and the corporation to buy shares of stock from it at stipulated price." (18 C. J. S.,
760.) In some particulars the rules governing subscriptions and sales of shares are different. For
instance, the provisions of our Corporation Law regarding calls for unpaid subscription and
assessment of stock (sections 37-50) do not apply to a purchase of stock. Likewise the rule that
corporation has no legal capacity to release an original subscriber to its capital stock from the
obligation to pay for his shares, is inapplicable to a contract of purchase of shares.
The next question to determine is whether under the contract between the parties the failure of
the purchaser to pay any of the quarterly installments on the purchase price automatically gave
rise to the forfeiture of the amounts already paid and the reversion of the shares to the
corporation. The contract provides for interest of the rate of six per centum per annum on
deferred payments. It is also provides that if the purchaser fails to pay any of said installments
when due, the said shares are to revert to the seller and the payments already made are to be
forfeited in favor of said seller. The respondent corporation contends that when the petitioners
failed to pay the installment which fell due on or before July 31, 1937, forfeiture automatically
took place, that is to say, without the necessity of any demand from the corporation, and that
therefore the resolution of August 1, 1937, authorizing the refund of the installments already paid
was inapplicable to the petitioners, who had already lost any and all rights under said contract.
The contention is, we think, untenable. The provision regarding interest on deferred payments
would not have been inserted if it had been the intention of the parties to provide for automatic
forfeiture and cancelation of the contract. Moreover, the contract did not expressly provide that
the failure of the purchaser to pay any installment would give rise to forfeiture and cancelation
without the necessity of any demand from the seller; and under article 1100 of the Civil Code
persons obliged to deliver or do something are not in default until the moment the creditor
demands of them judicially or extrajudicially the fulfillment of their obligation, unless (1) the
obligation or the law expressly provides that demand shall not be necessary in order that default
may arise, (2) by reason of the nature and circumstances of the obligation it shall appear that the
designation of the time at which that thing was to be delivered or the service rendered was the
principal inducement to the creation of the obligation.
Is the resolution of August 1, 1937, valid? The contract in question being one of purchase and not
subscription as we have heretofore pointed out, we see no legal impediment to its rescission by
agreement of the parties. According to the resolution of August 1, 1937, the recission was made
for the good of the corporation and in order to terminate the then pending civil case involving the
validity of the sale of the shares in question among others. To that rescission the herein
petitioners apparently agreed, as shown by their demand for the refund of the amounts they had
paid as provided in said resolution. It appears from the record that said civil case was
subsequently dismissed, and that the purchasers of shares of stock, other than the herein
petitioners, who were mentioned in said resolution were able to benefit by said resolution. It
would be an unjust discrimination to deny the same benefit to the herein petitioners.
We may add that there is no intimation in this case that the corporation was insolvent, or that the
right of any creditor of the same was in any way prejudiced by the rescission.

The attempted revocation of said rescission by the resolution of August 22, 1937, was invalid, it
not having been agreed to by the petitioners.
Wherefore, the judgment of the court of appeals is hereby reversed and another judgment will be
entered against the defendant Silang Traffic Co., Inc., ordering it to pay to the plaintiffs Sofronio
T. Bayla, Venancio Toledo, Josefa Naval, and Paz Toledo, the sums of P360, P375, P675, and
P675, respectively, with legal interest on each of said sums from May 28, 1938, the date of the
filing of the complaint, until the date of payment, and with costs in the three instances. So
ordered.

March 15, 1918


G.R.

No.

11528

MIGUEL VELASCO, assignee of The Philippine Chemical Product Co. (Ltd.), plaintiffappellant,
vs.
JEAN M. POIZAT, defendant-appellee.
Vicente

Rodriguez

for

appellant.

A. J. Burke for appellee.


STREET, J.:
From the amended complaint filed in this cause upon February 5, 1915, it appears that the
plaintiff, as assignee in insolvency of "The Philippine Chemical Product Company" (Ltd.) is
seeking to recover of the defendant, Jean M. Poizat, the sum of P1,500, upon a subscription
made by him to the corporate stock of said company. It appears that the corporation in question
was originally organized by several residents of the city of Manila, where the company had its
principal place of business, with a capital of P50,000, divided into 500 shares. The defendant
subscribed for 20 shares of the stock of the company, an paid in upon his subscription the sum of
P500, the par value of 5 shares . The action was brought to recover the amount subscribed upon
the remaining shares.

It appears that the defendant was a stock holder in the company from the inception of the
enterprise, and for sometime acted as its treasurer and manager. While serving in this capacity he
called in and collected all subscriptions to the capital stock of the company, except the aforesaid
15 shares subscribed by himself and another 15 shares owned by Jose R. Infante.
Upon July 13, 1914, a meeting of the board of directors of the company was held at which a
majority of the stock was presented. Up[on this occasion two resolutions, important to be here
noted, were adopted. The first was a proposal that the directors, or shareholders, of the company
should make good by new subscriptions, in proportion to their respective holdings, 15 shares
which had been surrendered by Infante. It seems that this shareholder had already paid 25 per
cent of his subscription upon 20 shares, leaving 15 shares unpaid for, and an understanding had
been reached by him and the management by which he was to be released from the obligation of
his subscription, it being understood that what he had already paid should not be refunded.
Accordingly the directors present at this meeting subscribed P1,200 toward taking up his shares,
leaving a deficiency of P300 to be recovered by voluntary subscriptions from stockholders not
present at the meeting.
The other proposition was o the effect that Juan [Jean] M. Poizat, who was absent, should be
required to pay the amount of his subscription upon the 15 shares for which he was still indebted
to the company. The resolution further provided that, in case he should refuse to make such
payment, the management of the corporation should be authorized to undertake judicial
proceedings against him. When notification of this resolution reached Poizat through the mail it
evoked from him a manifestation of surprise and pain, which found expression in a letter written
by him in reply, dated July 27, 1914, and addressed to Velasco, as treasurer and administrator. In
this letter Poizat states that he had been given to understand by some member of the board of
directors that he was to be relieved from his subscription upon the terms conceded to Infante; and
he added:
My desire to be relieved from the payment of the remaining 75 per cent arises from the
poor opinion which I entertain of the business and the faint hope of ever recovering any
money invested. In consequence, I prefer to lose the whole of the 25 per cent I have
already paid rather than to continue investing more money in what I consider to be
ruinous proposition.

Within a short while the unfavorable opinion entertained by Poizat as to the prospect of the
company was found to be fully justified, as the company soon went into voluntary insolvency,
Velasco being named as the assignee. He qualified at once by giving bond, and was duly
inducted into the office of assignee upon November 25, 1914, by virtue of a formal transfer
executed by the clerk in pursuance of section 32 of Act No. 1956 .
The answer of the defendant consisted of a general denial and a so-called special defense,
consisting of a concatenation of statements more appropriate for a demurrer than as material for
a special defense. The principal contention is that the call made by the board of directors of the
company on July 13, 1914 , was not made pursuant to the requirements of sections 37 and 38 of
the Corporation Law (Act No. 1459) , and in particular that the action was instituted before the
expiration of the 30 days specified in section 38.
At the hearing of the Court of First Instance, judgment was rendered in favor of the defendant,
and the complaint was dismissed. From this action the plaintiff has appealed.
We think that Poizat is liable upon this subscription. A stock subscription is a contract between
the corporation on one side, and the subscriber on the other, and courts will enforce it for or
against either. It is a rule, accepted by the Supreme Court of the United States, that a subscription
for shares of stock does not require an express promise to pay the amount subscribed, as the law
implies a promise to pay on the part of the subscriber. (7 Ruling Case Law, sec. 191.) Section 36
of the Corporation Law clearly recognizes that a stock subscription is subsisting liability from
the time the subscription is made, since it requires the subscriber to pay interest quarterly from
that date unless he is relieved from such liability by the by-laws of the corporation. The
subscriber is as much bound to pay the amount of the share subscribed by him as he would be to
pay any other debt, and the right of the company to demand payment is no less incontestable.
The provisions of the Corporation Law (Act No. 1459) given recognition of two remedies for the
enforcement of stock subscriptions. The first and most special remedy given by the statute
consists in permitting the corporation to put up the unpaid stock for sale and dispose of it for the
account of the delinquent subscriber. In this case the provisions of section 38 to 48, inclusive , of
the Corporation Law are applicable and must be followed. The other remedy is by action in
court, concerning which we find in section 49 the following provision:

Nothing in this Act shall prevent the directors from collecting, by action in any court of
proper jurisdiction, the amount due on any unpaid subscription, together with accrued
interest and costs and expenses incurred.
It is generally accepted doctrine that the statutory right to sell the subscriber's stock is merely a
remedy in addition to that which proceeds by action in court; and it has been held that the
ordinary legal remedy by action exists even though no express mention thereof is made in the
statute. (Instone vs. Frankfort Bridge Co., 2 Bibb [Ky.], 576; 5 Am. Dec., 638.)
No attempt is made in the Corporation Law to define the precise conditions under which an
action may be maintained upon a stock subscription, as such conditions should be determined
with reference to the rules governing contract liability in general; and where it appears as in this
case that a matured stock subscription is unpaid, none of the provisions contained in section 38
to 48, inclusive, of Act No. 1459can be permitted to obstruct or impede the action to recover
thereon. By virtue of the first subsection of section 36 of the Insolvency Law (Act No. 1956) the
assignee of the insolvent corporation succeeds to all the corporate rights of action vested in the
corporation prior to its insolvency; and the assignee therefore has the same freedom with respect
to suing upon the stock subscription as the directors themselves would have had under section 49
above cited.
But there is another reason why the present plaintiff must prevail in this case, even supposing
that the failure of the directors to comply with the requirements of the provisions of sections 38
to 48, inclusive, of Act No. 1459 might have been an obstacle to a recovery by the corporation
itself. That reason is this: When insolvency supervenes upon a corporation and the court assumes
jurisdiction to wind up, all unpaid stock subscriptions become payable on demand, and are at
once recoverable in an action instituted by the assignee or receiver appointed by the court. This
rule apparently had origin in a recognition of the principle that a court of equity, having
jurisdiction of the insolvency proceedings, could, if necessary, make the call itself, in its capacity
as successor to the powers exercised by the board of directors of the defunct company. Later a
further rule gained recognition to the effect that the receiver or assignee, in an action instituted
by proper authority, could himself proceed to collect the subscription without the necessity of
any prior call whatever. This conclusion is well supported by reference to the following
authorities:

. . . a court of equity may enforce payment of the stock subscriptions, although there have
been no calls for them by the company. (Hatch vs. Dana, 101 U. S., 205.)
It is again insisted that the plaintiffs cannot recover because the suit was not preceded by
a call or assessment against no right of action accrues. In a suit by a solvent going
corporation to collect a subscription, and in certain suits provided by the statute this
would be true; but it is now quite well settled that when the corporation becomes
insolvent, with proceedings instituted by creditors to wind up and distribute its assets, no
call or assessment is necessary before the institution of suits to collect unpaid balances on
subscription. (Ross-Meehan Shoe F. Co. vs.Southern Malleable Iron Co., 72 Fed., 957,
960; see also Henry vs. Vermillion etc. R. R. Co., 17 Ohio, 187, and Thompson on
Corporations 2d ed., vol. 3, sec. 2697.)
It evidently cannot be permitted that a subscriber should escape from his lawful obligation by
reason of the failure of the officers of the corporation to perform their duty in making a call; and
when the original model of making the call becomes impracticable, the obligation must be
treated as due upon demand. If the corporation must be treated still an active entity, and this
action should be dismissed for irregularity in the making of the call, other steps could be taken
by the board to cure the defect and another action could be brought; but where the company is
being wound up, no such procedure would be practicable. The better doctrine is that when
insolvency supervenes all unpaid subscriptions become at once due and enforceable.
The printed bill of exceptions in this cause does not contain the original complaint, nor does it
state who was plaintiff therein or the date when the action was instituted. It may, however, be
gathered from the papers transmitted to this court that the action was originally instituted in the
name of the Philippine Chemical Product Co. (Ltd.), prior to its insolvency, and that later the
assignee was substituted as plaintiff and then filed the amended complaint, with the permission
of the court. Now, if we concede that no right of action existed when the original complaint was
filed, a right of action certainly existed when the assignee filed his amended complaint; and as
the bill of exceptions fails to show that any exception was taken to the action of the court in
allowing the amended complaint to be filed, no objection would be here entertained on the
ground that the action was prematurely brought.

The circumstance that the board of directors in their meeting of July 13, 1914, resolved to release
Infante from his obligation upon a subscription for 15 shares is no wise prejudicial to the right of
the corporation or its assignee to recover from Poizat upon a subscription made by him. In
releasing Infante the board transcended its powers, and he no doubt still remained liable on such
of his shares as were not taken up and paid for by other persons.
The general doctrine is that the corporation has no legal capacity to release an original
subscriber to its capital stock from the obligation of paying for his shares, in whole or in
part, . . . (10 Cyc., 450.)
The suggestion contained in Poizat's letter of July 27, 1914, to the effect that he understood that
he was to be relieved upon the same terms as Infante is, for the same reason, of no merit as
matter of defense, even if an agreement to that effect had been duly proved.
From what has been said it is manifest that the defendant is liable for P1,500, the amount of his
subscription upon the unpaid shares. Under section 36 of the Corporation Law he is also liable
for interest at the lawful rate from the date of his subscription, unless relieved from this liability
by the by-laws of the company. These by-laws have not been introduced in evidence and there is
no proof showing the exact date upon which the subscription was made, though it is alleged in
the original complaint that the company was organized upon March 23, 1914. This allegation is
not admitted in the agreed statement of facts. The defendant, however, inferentially admits in his
letter of July 27, 1914, that his subscription had been made prior to July 13, 1914. It resulted that
in our opinion he should be held liable for interest from that date.
The judgment of the lower court is therefore reversed, and judgment will be rendered in favor of
the plaintiff and against the defendant for the sum of one thousand five hundred pesos (P1,500),
with interest from July 13, 1014, and costs of both instances. So ordered.

G.R. Nos. L-24177-85

June 29, 1968

PHILIPPINE
NATIONAL
BANK, plaintiff-appellee,
vs.
BITULOK SAWMILL, INC., DINGALAN LUMBER CO., INC., SIERRA MADRE
LUMBER CO., INC., NASIPIT LUMBER CO., INC., WOODWORKS, INC., GONZALO
PUYAT, TOMAS B. MORATO, FINDLAY MILLAR LUMBER CO., INC., ET AL.,
INSULAR LUMBER CO., ANAKAN LUMBER CO., AND CANTILAN LUMBER CO.,
INC., defendants-appellees.
Tomas Besa, Simplicio N. Angeles and Jose B. Galang for plaintiff-appellee.
Bausa,
Ampil
and
Suarez
for
defendant-appellant
Woodworks,
Inc.
Pacifico
de
Ocampo
for
defendant-appellant
Anakan
Lumber
Co.
Ross, Selph, Salcedo, Del Rosario, Bito and Misa for defendant-appellant Insular Lumber Co.
Garin, Boquiren and Tamesis for defendant-appellant Nasipit Lumber Co., Inc.
Feria,
Manglapus
and
Associates
for
defendant-appellant
Gonzalo
Puyat.
Sycip, Salazar and Associates for defendant-appellant Cantilan Lumber Co., Inc.
Ozaeta, Gibbs and Ozaeta for defendant-appellant Findlay Millar Lumber Co., Inc.
Dominador
Alafriz
for
defendant-appellant
Bitulok
Sawmill,
Inc.
De la Costa and De la Costa for defendant-appellant Tomas B. Morato.
FERNANDO, J.:
In the face of a statutory norm, which, as interpreted in a uniform line of decisions by this Court,
speaks unequivocally and is free from doubt, the lower court with full recognition that the case
for the plaintiff creditor, Philippine National Bank, "is meritorious strictly from the legal
standpoint" 1 but apparently unable to "close its eyes to the equity of the case" 2 dismissed nine
(9) cases filed by it, seeking "to recover from the defendant lumber producers [Bitulok Sawmill,
Inc.; Dingalan Lumber Co., Inc., Sierra Madre Lumber Co., Inc.; Nasipit Lumber Co., Inc.;
Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay Millar Lumber Co., Inc.; Insular
Lumber Co., Inc.; Anakan Lumber Co., Inc.; and Cantilan Lumber Co., Inc.] the balance of their
stock subscriptions to the Philippine Lumber Distributing Agency, Inc." 3 In essence then, the
crucial question posed by this appeal from such a decision of the lower court is adherence to the
rule of law. Otherwise stated, would non-compliance with a plain statutory command,
considering the persuasiveness of the plea that defendants-appellees would "not have subscribed
to [the] capital stock" of the Philippine Lumber Distributing Agency "were it not for the
assurance of the [then] President of the Republic of the Philippines that the Government would
back [it] up by investing P9.00 for every peso" 4 subscribed, a condition which was not fulfilled,

such commitment not having been complied with, be justified? The answer must be in the
negative.
It cannot be otherwise even if an element of unfairness and injustice could be predicated, as the
lower court, in a rather sympathetic mood, did find in the plaintiff bank, as creditor, compelling
defendant lumber producers under the above circumstances to pay the balance of their
subscriptions. For a plain and statutory command, if applicable, must be respected. The rule of
law cannot be satisfied with anything less. The appeal must be sustained.
In these various suits decided jointly, the Philippine National Bank, as creditor, and therefore the
real party in interest, was allowed by the lower court to substitute the receiver of the Philippine
Lumber Distributing Agency in these respective actions for the recovery from defendant lumber
producers the balance of their stock subscriptions. The amount sought to be collected from
defendants-appellees Bitulok Sawmill, Inc., Dingalan Lumber Co., Inc., and Sierra Madre
Lumber Co., Inc., is P5,000.00, defendants-appellees having made a partial payment of
P15,000.00 of their total subscription worth P20,000.00; from defendant-appellee Nasipit
Lumber Co., Inc., the sum of P10,000.00, defendant-appellee having made a partial payment of
P10,000.00 of its total subscription worth P20,000.00; from defendant-appellee Woodworks,
Inc., the sum of P10,886.00, defendant-appellee having made a partial payment of P9,114.00 of
its total subscription worth P20,000.00; from defendant-appellee Gonzalo Puyat the sum of
P10,000.00, defendant-appellee having made a partial payment of P10,000.00 of his total
subscription worth P20,000.00; from defendant-appellee Tomas Morato the sum of P10,000.00,
defendant-appellee having made a partial payment of P10,000.00 of his total subscription worth
P20,000.00; from defendant-appellee Findlay Millar Lumber Co., Inc., the sum of P10,000.00,
defendant-appellee having made a partial payment of P10,000.00 of its total subscription worth
P20,000.00; from defendant-appellee Insular Lumber Co., Inc., the sum of P5,000.00, defendantappellee having made a partial payment of P15,000.00 of its total subscription worth P20,000.00;
from defendant-appellee Anakan Lumber Co., Inc., the sum of P15,000.00, defendant-appellee
having made a partial payment of P5,000.00 of its total subscription worth P20,000.00; and from
defendant-appellee Cantilan Lumber Co., Inc., the sum of P7,500.00, defendant-appellee having
made a partial payment of P2,500.00 of its total subscription worth P10,000.00, plus interest at
the legal rate from the filing of the suits and the costs of the suits in all the nine (9) cases.
The Philippine Lumber Distributing Agency, Inc., according to the lower court, "was organized
sometime in the early part of 1947 upon the initiative and insistence of the late President Manuel
Roxas of the Republic of the Philippines who for the purpose, had called several conferences
between him and the subscribers and organizers of the Philippine Lumber Distributing Agency,
Inc." 5 The purpose was praiseworthy, to insure a steady supply of lumber, which could be sold at
reasonable prices to enable the war sufferers to rehabilitate their devastated homes. The decision
continues: "He convinced the lumber producers to form a lumber cooperative and to pool their
sources together in order to wrest, particularly, the retail trade from aliens who were acting as
middlemen in the distribution of lumber. At the beginning, the lumber producers were reluctant
to organize the cooperative agency as they believed that it would not be easy to eliminate from
the retail trade the alien middlemen who had been in this business from time immemorial, but

because the late President Roxas made it clear that such a cooperative agency would not be
successful without a substantial working capital which the lumber producers could not entirely
shoulder, and as an inducement he promised and agreed to finance the agency by making the
Government invest P9.00 by way of counterpart for every peso that the members would invest
therein,...." 6
This was the assurance relied upon according to the decision, which stated that the amount thus
contributed by such lumber producers was not enough for the operation of its business especially
having in mind the primary purpose of putting an end to alien domination in the retail trade of
lumber products. Nor was there any appropriation by the legislature of the counterpart fund to be
put up by the Government, namely, P9.00 for every peso invested by defendant lumber
producers. Accordingly, "the late President Roxas instructed the Hon. Emilio Abello, then
Executive Secretary and Chairman of the Board of Directors of the Philippine National Bank, for
the latter to grant said agency an overdraft in the original sum of P250,000.00 which was later
increased to P350,000.00, which was approved by said Board of Directors of the Philippine
National Bank on July 28, 1947, payable on or before April 30, 1958, with interest at the rate of
6% per annum, and secured by the chattel mortgages on the stock of lumber of said
agency." 7 The Philippine Government did not invest the P9.00 for every peso coming from
defendant lumber producers. The loan extended to the Philippine Lumber Distributing Agency by
the Philippine National Bank was not paid. Hence, these suits.
For the lower court, the above facts sufficed for their dismissal. To its mind "it is grossly unfair
and unjust for the plaintiff bank now to compel the lumber producers to pay the balance of their
subscriptions .... Indeed, when the late President Roxas made representations to the plaintiff
bank, thru the Hon. Emilio Abello, who was then the Executive Secretary and Chairman of its
Board of Directors, to grant said overdraft to the agency, it was the only way by which President
Roxas could make good his commitment that the Government would invest in said agency to the
extent already mentioned because, according to said late President Roxas, the legislature had not
appropriated any amount for such counterpart. Consequently, viewing from all considerations of
equity in the case, the Court finds that plaintiff bank should not collect any more from the
defendants the balance of their subscriptions to the capital stock of the Philippine Lumber
Distributing Agency, Inc." 8
Even with the case for defendant lumber producers being put forth in its strongest possible light
in the appealed decision, the plaintiff creditor, the Philippine National Bank, should have been
the prevailing party. On the law as it stands, the judgment reached by the lower court cannot be
sustained. The appeal, as earlier made clear, possesses merit.
In Philippine Trust Co. v. Rivera, 9 citing the leading case of Velasco v. Poizat, 10 this Court held:
"It is established doctrine that subscriptions to the capital of a corporation constitute a fund to
which creditors have a right to look for satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid stock subscription in order to realize assets
for the payment of its debt.... A corporation has no power to release an original subscriber to its
capital stock from the obligation of paying for his shares, without a valuable consideration for

such release; and as against creditors a reduction of the capital stock can take place only in the
manner and under the conditions prescribed by the statute or the charter or the articles of
incorporation. Moreover, strict compliance with the statutory regulations is necessary...." The
Poizat doctrine found acceptance in later cases. 11One of the latest cases, Lingayen Gulf Electric
Power v. Baltazar, 12 Speaks to this effect: "In the case of Velasco v. Poizat, 13 the corporation
involved was insolvent, in which case all unpaid stock subscriptions become payable on demand
and are immediately recoverable in an action instituted by the assignee."
It would be unwarranted to ascribe to the late President Roxas the view that the payment of the
stock subscriptions, as thus required by law, could be condoned in the event that the counterpart
fund to be invested by the Government would not be available. Even if such were the case,
however, and such a promise were in fact made, to further the laudable purpose to which the
proposed corporation would be devoted and the possibility that the lumber producers would lose
money in the process, still the plain and specific wording of the applicable legal provision as
interpreted by this Court must be controlling. It is a well-settled principle that with all the vast
powers lodged in the Executive, he is still devoid of the prerogative of suspending the operation
of any statute or any of its terms.
The emphatic and categorical language of an American decision cited by the late Justice Laurel,
in People v. Vera,14 comes to mind: "By the twentieth article of the declaration of rights in the
constitution of this commonwealth, it is declared that the power of suspending the laws, or the
execution of the laws, ought never to be exercised but by the legislature, or by authority derived
from it, to be exercised in such particular cases only as the legislature shall expressly provide
for...." Nor could it be otherwise considering that the Constitution specifically enjoins the
President to see to it that all laws be faithfully executed. 15 There may be a discretion as to what a
particular legal provision requires; there can be none whatsoever as to the enforcement and
application thereof once its meaning has been ascertained. What it decrees must be followed;
what it commands must be obeyed. It must be respected, the wishes of the President, to the
contrary notwithstanding, even if impelled by the most worthy of motives and the most
persuasive equitable considerations. To repeat, such is not the case here. For at no time did
President Roxas ever give defendant lumber producers to understand that the failure of the
Government for any reason to put up the counterpart fund could terminate their statutory
liability.
Such is not the law. Unfortunately, the lower court was of a different mind. That is not to pay
homage to the rule of law. Its decision then, one it is to be repeated influenced by what it
considered to be the "equity of the case", is not legally impeccable.
WHEREFORE, the decision of the lower court is reversed and the cases remanded to the lower
court for judgment according to law, with full consideration of the legal defenses raised by
defendants-appellees, Bitulok Sawmill, Inc.; Dingalan Lumber Co., Inc.; Sierra Madre Lumber
Co., Inc.; Nasipit Lumber Co., Inc.; Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay
Millar Lumber Co., Inc.; Anakan Lumber Co., Inc.; and Cantilan Lumber Co., Inc. No
pronouncement as to costs.

G.R. No. L-30646

January 30, 1929

THE
GOVERNMENT
OF
THE
PHILIPPINE
ISLANDS, petitioner,
vs.
THE MANILA RAILROAD COMPANY and JOSE PAEZ as Manager of said
Company, respondents.
Attorney-General
Jose Abreu for respondents.
JOHNSON, J.:

Jaranilla

for

petitioner.

This is a petition in the Supreme Court of the extraordinary legal writ of mandamus presented by
the Government of the Philippine Islands, praying that the writ be issued to compel the Manila
Railroad Company and Jose Paez, as its manager, to provide and equip the telegraph poles of
said company between the municipality of Paniqui, Province of Tarlac, and the Municipality of
San Fernando, Province of La Union, with crosspieces for six telegraph wires belonging to the
Government, which, it is alleged, are necessary for public service between said municipalities.
The only question raised by the petition is whether the dependant company is required to provide
and equip its telegraph poles with crosspieces to carry six telegraph wires of the Government, or
whether it is only required to furnish poles with crosspieces sufficient to carry four wires only.
It is admitted that the present poles and crosspieces between said municipalities are sufficient to
carry four telegraph wires and that they do now carry four telegraph wires, by virtue of an
agreement between the respondents and the Bureau of the Posts of the Philippine Government. It
is admitted that the poles and not sufficient to carry six telegraph wires.
The petitioner relies upon the provisions of section 84 of act No. 1459. Act No. 1459 is the
General Corporation Law and was adopted by the United States Philippine Commission on
March 1, 1906. (Vol. 5, Pub. Laws, pp. 224-268.) Section 84 of the said Act provides:
The railroad corporation shall establish along the whole length of the road a telegraph
line for the use of the railroad. The posts of this line may be used for Government wires
and shall be of sufficient length and strength and equipped with sufficient crosspiece to
carry the number of wires which the Government may consider necessary for the public
service. The establishment, protection, and maintenance of the wires and stations
necessary for the public service shall be at the cost of the Government. (Vol. 5, P. L., p.
247.)
The plaintiff contends that under said section 84 the defendant company is required to erect and
maintain posts for its telegraph wires, of sufficient length and strength, and equipped with
sufficient crosspieces to carry the number of wires which the Government may consider
necessary for the public service, and that six wires are now necessary for the public service.
The respondents answered by a general and special defense. In their special defense they contend
that section 84 of Act No. 1459 has been repealed by section 1, paragraph 8 of Act No. 1510 of
the United States Philippine Commission (vol. 5, P. L., pp. 350-358), and that under the
provisions of said Act No. 1510 the Government is entitled to place on the poles of the company
four wires only. Act No. 1510 is the charter of the Manila Railroad Company. It was adopted by
the United States Philippine Commission on July 7, 1906. Section 1, paragraph 8, of said Act No.
1510 provides:
8. The grantee (the Manila Railroad Company) shall have the right to construct and
operate telegraph, telephone, and electrical transmission lines over said railways for the
use of the railways and their business, and also, with the approval of the Secretary of War,

for public service and commercial purposes but these latter privileges shall be subject to
the following provisions:
In the construction of telegraph or telephone lines along the right of way the grantee (the
Manila Railroad Company) shall erect and maintain poles with sufficient space thereon to
permit the Philippine Government, at the expense of said Government, to place, operate,
and maintain four wires for telegraph, telephone, and electrical transmission for any
Government purposes between the termini of the lines of railways main or branch; and
the Philippine Government reserves to itself the right to construct, maintain, and operate
telegraph, telephone, or electrical transmission lines over the right of way of said
railways for commercial military, or government purposes, without unreasonably
interfering with the construction, maintenance, and operation by the grantee of its
railways, telegraph, telephone, and electrical transmission lines.
To answer the question above stated, it becomes necessary to determine whether section 84 of
Act No. 1459 is applicable to the Manila Railroad Company, or whether the manila Railroad
Company is governed by section 1, paragraph 8, of Act No. 1510. As has been said, Act No.
1459 is a general law applicable to corporations generally, while Act No. 1510 is the charter of
the Manila Railroad Company and constitute a contract between it and the Government.
Inasmuch as Act No. 1510 is the charter of Manila Railroad Company and constitute a contract
between it and the Governmemnt, it would seem that the company is governd by its contract and
not by the provisions of any general law upon questions covered by said contract. From a reading
of the said charter or contract it would be seen that there is no indication that the Government
intended to impose upon said company any other conditions as obligations not expressly found in
said charter or contract. If that is true, then certainly the Government cannot impose upon said
company any conditions or obligations found in any general law, which does not expressly
modify said contract.
Section 84 of the Corporation Law (Act No. 1459) was intended to apply to all railways in the
Philippine Islands which did not have a special charter contract. Act No. 1510 applies only to the
Manila Railroad Company, one of the respondents, and being a special charter of said company,
its adoption had the effect of superseding the provisions of the general Corporation Law which
are applicable to railraods in general. The special charter (Act No. 1510) had the effect of
superseding the general Corporation Law upon all matters covered by said special charter. Said
Act, inasmuch as it contained a special provision relating to the erection of telegraph and
telephone poles, and the number of wires which the Government might place thereon,
superseded the general law upon that question.
Act No. 1510 is a special charter of the respondent company. It constitutes a contract between the
respondent company and the state; and the state and the grantee of a charter are equally bound by
its provisions. For the state to impose an obligation or a duty upon the respondent company,
which is not expressly provided for in the charter (Act No. 1510), would amount to a violation of
said contract between the state and the respondent company. The provisions of Act No. 1459

relating to the number of wires which the Government may place upon the poles of the company
are different and more enerous than the provisions of the charter upon the same question.
Therefore, to allow the plaintiff to require of the respondent company a compliance with said
section 84 of Act No. 1459, would be to require of the respondent company and the performance
of an obligation which is not imposed upon it by its charter. The charter of a corporation is a
contract between three parties: (a) it is a contract between the state and the corporation to which
the charter is granted; (b) it is a contact between the stockholders and the state and (c) it is also a
contract between the corporation and its stockholders. (Cook on Corporations, vol. 2, sec. 494
and cases cited.)
The question is not whether Act No. 1510 repealed Act No. 1459; but whether, after the adoption
of Act No. 1510, the respondents are obliged to comply with the special provision above
mentioned, contained in Act No. 1459. We must answer that question in the native. Both laws are
still in force, unless otherwise repealed. Act No. 1510 is applicable to respondents upon the
question before us, while Act No. 1459 is not applicable.
The petitioner, in view of all the foregoing facts and the law applicable thereto, has not shown
itself entitled to the remedy prayed for. The prayer of the petition must, therefore, be denied. And
without any finding as to costs, it is so ordered.

G.R. No. 96674 June 26, 1992


RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS and
FRANCISCO TRIAS, petitioners,
vs.
COURT OF APPEALS*, SECURITIES AND EXCHANGE COMMISSION, MELANIA A.
GUERRERO, LUZ ANDICO, WILHEMINA G. ROSALES, FRANCISCO M.
GUERRERO, JR., and FRANCISCO GUERRERO , SR.,respondents.

PARAS, J.:
The basic controversy in this case is whether or not the respondent court erred in sustaining the
Securities and Exchange Commission when it compelled by Mandamus the Rural Bank of
Salinas to register in its stock and transfer book the transfer of 473 shares of stock to private
respondents. Petitioners maintain that the Petition forMandamus should have been denied upon
the following grounds.
(1) Mandamus cannot be a remedy cognizable by the Securities and Exchange Commission
when the purpose is to register certificates of stock in the names of claimants who are not yet
stockholders of a corporation:
(2) There exist valid reasons for refusing to register the transfer of the subject of stock, namely:
(a) a pending controversy over the ownership of the certificates of stock with the
Regional Trial Court;
(b) claims that the Deeds of Assignment covering the subject certificates of stock
were fictitious and antedated; and
(c) claims on a resultant possible deprivation of inheritance share in relation with
a conflicting claim over the subject certificates of stock.
The facts are not disputed.
On June 10, 1979, Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed
a Special Power of Attorney in favor of his wife, private respondent Melania Guerrero, giving
and granting the latter full power and authority to sell or otherwise dispose of and/or mortgage
473 shares of stock of the Bank registered in his name (represented by the Bank's stock

certificates nos. 26, 49 and 65), to execute the proper documents therefor, and to receive and sign
receipts for the dispositions.
On February 27, 1980, and pursuant to said Special Power of Attorney, private respondent
Melania Guerrero, as Attorney-in-Fact, executed a Deed of Assignment for 472 shares out of the
473 shares, in favor of private respondents Luz Andico (457 shares), Wilhelmina Rosales (10
shares) and Francisco Guerrero, Jr. (5 shares).
Almost four months later, or two (2) days before the death of Clemente Guerrero on June 24,
1980, private respondent Melania Guerrero, pursuant to the same Special Power of Attorney,
executed a Deed of Assignmentfor the remaining one (1) share of stock in favor of private
respondent Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero presented to petitioner Rural Bank of Salinas
the two (2) Deeds of Assignment for registration with a request for the transfer in the Bank's
stock and transfer book of the 473 shares of stock so assigned, the cancellation of stock
certificates in the name of Clemente G. Guerrero, and the issuance of new stock certificates
covering the transferred shares of stocks in the name of the new owners thereof. However,
petitioner Bank denied the request of respondent Melania Guerrero.
On December 5, 1980, private respondent Melania Guerrero filed with the Securities and
Exchange Commission" (SEC) an action for mandamus against petitioners Rural Bank of
Salinas, its President and Corporate Secretary. The case was docketed as SEC Case No. 1979.
Petitioners filed their Answer with counterclaim on December 19, 1980 alleging the upon the
death of Clemente G. Guerrero, his 473 shares of stock became the property of his estate, and his
property and that of his widow should first be settled and liquidated in accordance with law
before any distribution can be effected so that petitioners may not be a party to any scheme to
evade payment of estate or inheritance tax and in order to avoid liability to any third persons or
creditors of the late Clemente G. Guerrero.
On January 29, 1981, a motion for intervention was filed by Maripol Guerrero, a legally adopted
daughter of the late Clemente G. Guerrero and private respondent Melania Guerrero, who stated
therein that on November 26, 1980 (almost two weeks before the filing of the petition
for Mandamus) a Petition for the administration of the estate of the late Clemente G. Guerrero
had been filed with the Regional Trial Court, Pasig, Branch XI, docketed as Special Proceedings
No. 9400. Maripol Guerrero further claimed that the Deeds of Assignment for the subject shares
of stock are fictitious and antedated; that said conveyances are donations since the considerations
therefor are below the book value of the shares, the assignees/private respondents being close
relatives of private respondent Melania Guerrero; and that the transfer of the shares in question
to assignees/private respondents, other than private respondent Melania Guerrero, would deprive
her (Maripol Guerrero) of her rightful share in the inheritance. The SEC hearing officer denied
the Motion for Intervention for lack of merit. On appeal, the SEC En Banc affirmed the decision
of the hearing officer.

Intervenor Guerrero filed a complaint before the then Court of First Instance of Rizal, Quezon
City Branch, against private respondents for the annulment of the Deeds of Assignment,
docketed as Civil Case No. Q-32050. Petitioners, on the other hand, filed a Motion to Dismiss
and/or to Suspend Hearing of SEC Case No. 1979 until after the question of whether the subject
Deeds of Assignment are fictitious, void or simulated is resolved in Civil Case No. Q-32050. The
SEC Hearing Officer denied said motion.
On December 10, 1984, the SEC Hearing Officer rendered a Decision granting the writ
of Mandamus prayed for by the private respondents and directing petitioners to cancel stock
certificates nos. 26, 49 and 65 of the Bank, all in the name of Clemente G. Guerrero, and to issue
new certificates in the names of private respondents, except Melania Guerrero. The dispositive,
portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the petitioners and
against the respondents, directing the latter, particularly the corporate secretary of
respondent Rural Bank of Salinas, Inc., to register in the latter's Stock and
Transfer Book the transfer of 473 shares of stock of respondent Bank and to
cancel Stock Certificates Nos. 26, 45 and 65 and issue new Stock Certificates
covering the transferred shares in favor of petitioners, as follows:
1. Luz Andico 457 shares
2. Wilhelmina Rosales 10 shares
3. Francisco Guerrero, Jr. 5 shares
4. Francisco Guerrero, Sr. 1 share
and to pay to the above-named petitioners, the dividends for said shares
corresponding to the years 1981, 1982, 1983 and 1984 without interest.
No pronouncement as to costs.
SO ORDERED. (p. 88, Rollo)
On appeal, the SEC En Banc affirmed the decision of the Hearing Officer. Petitioner filed a
petition for review with the Court of Appeals but said Court likewise affirmed the decision of the
SEC.
We rule in favor of the respondents.
Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction to hear
and decide cases involving intracorporate controversies. An intracorporate controversy has been
defined as one which arises between a stockholder and the corporation. There is no distinction,

qualification, nor any exception whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]). The
case at bar involves shares of stock, their registration, cancellation and issuances thereof by
petitioner Rural Bank of Salinas. It is therefore within the power of respondent SEC to
adjudicate.
Respondent SEC correctly ruled in favor of the registering of the shares of stock in question in
private respondent's names. Such ruling finds support under Section 63 of the Corporation Code,
to wit:
Sec. 63. . . . Shares of stock so issued are personal property and may be
transferred by delivery of the certificate or certificates indorsed by the owner or
his attorney-in-fact or other person legally authorized to make the transfer. No
transfer, however, shall be valid, except as between the parties, until the transfer is
recorded in the books of the corporation . . .
In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court interpreted Sec. 63 in
his wise:
Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the Corporation Code])
contemplates no restriction as to whom the stocks may be transferred. It does not
suggest that any discrimination may be created by the corporation in favor of, or
against a certain purchaser. The owner of shares, as owner of personal property, is
at liberty, under said section to dispose them in favor of whomever he pleases,
without limitation in this respect, than the general provisions of law. . . .
The only limitation imposed by Section 63 of the Corporation Code is when the
corporation holds any unpaid claim against the shares intended to be transferred, which is
absent here.
A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions
in stock transfers, because:
. . . Restrictions in the traffic of stock must have their source in legislative
enactment, as the corporation itself cannot create such impediment. By-laws are
intended merely for the protection of the corporation, and prescribe regulation,
not restriction; they are always subject to the charter of the corporation. The
corporation, in the absence of such power, cannot ordinarily inquire into or pass
upon the legality of the transactions by which its stock passes from one person to
another, nor can it question the consideration upon which a sale is based. . . .
(Tomson on Corporation Sec. 4137, citedin Fleisher vs. Nolasco, Supra).
The right of a transferee/assignee to have stocks transferred to his name is an inherent right
flowing from his ownership of the stocks. Thus:

Whenever a corporation refuses to transfer and register stock in cases like the
present, mandamuswill lie to compel the officers of the corporation to transfer
said stock in the books of the corporation" (26, Cyc. 347, Hyer vs. Bryan, 19 Phil.
138; Fleisher vs. Botica Nolasco, 47 Phil. 583, 594).
The corporation's obligation to register is ministerial.
In transferring stock, the secretary of a corporation acts in purely ministerial
capacity, and does not try to decide the question of ownership. (Fletcher, Sec.
5528, page 434).
The duty of the corporation to transfer is a ministerial one and if it refuses to
make such transaction without good cause, it may be compelled to do so
by mandamus. (See. 5518, 12 Fletcher 394)
For the petitioner Rural Bank of Salinas to refuse registration of the transferred shares in its stock
and transfer book, which duty is ministerial on its part, is to render nugatory and ineffectual the
spirit and intent of Section 63 of the Corporation Code. Thus, respondent Court of Appeals did
not err in upholding the Decision of respondent SEC affirming the Decision of its Hearing
Officer directing the registration of the 473 shares in the stock and transfer book in the names of
private respondents. At all events, the registration is without prejudice to the proceedings in court
to determine the validity of the Deeds of Assignment of the shares of stock in question.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.

G.R. No. 41570

September 6, 1934

RED
LINE
TRANSPORTATION
vs.
RURAL TRANSIT CO., LTD., respondent-appellee.
L.
D.
Ohnick and Opisso for appellee.
BUTTE, J.:

Lockwood

CO., petitioner-appellant,

for

appellant.

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.
two.

I do not know what the legal construction or relationship existing between the

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.
Ltd.

All actions have been prosecuted in the name of the Rural Transit Company,

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.

G.R. No. L-26370 July 31, 1970


PHILIPPINE
FIRST
INSURANCE
COMPANY,
INC., plaintiff-appellant,
vs.
MARIA CARMEN HARTIGAN, CGH, and O. ENGKEE, defendants-appellees.
Bausa, Ampil & Suarez for plaintiff-appellant.
Nicasio E. Martin for defendants-appellees.

BARREDO, J.:
Appeal from the decision dated 6 October 1962 of the Court of First Instance of Manila
dismissing the action in its Civil Case No. 48925 brought by the herein plaintiff-appellant
Philippine First Insurance Co., Inc. to the Court of Appeals which could, upon finding that the
said appeal raises purely questions of law, declared itself without jurisdiction to entertain the
same and, in its resolution dated 15 July 1966, certified the records thereof to this Court for
proper determination.
The antecedent facts are set forth in the pertinent portions of the resolution of the Court of
Appeals referred to as follows:

According to the complaint, plaintiff was originally organized as an insurance


corporation under the name of 'The Yek Tong Lin Fire and Marine Insurance Co.,
Ltd.' The articles of incorporation originally presented before the Security and
Exchange Commissioner and acknowledged before Notary Public Mr. E. D.
Ignacio on June 1, 1953 state that the name of the corporation was 'The Yek Tong
Lin Fire and Marine Insurance Co., Ltd.' On May 26, 1961 the articles of
incorporation were amended pursuant to a certificate of the Board of Directors
dated March 8, 1961 changing the name of the corporation to 'Philippine First
Insurance Co., Inc.'.
The complaint alleges that the plaintiff Philippine First Insurance Co., Inc., doing
business under the name of 'The Yek Tong Lin Fire and Marine Insurance Co., Lt.'
signed as co-maker together with defendant Maria Carmen Hartigan, CGH, a
promissory note for P5,000.00 in favor of the China Banking Corporation payable
within 30 days after the date of the promissory note with the usual banking
interest; that the plaintiff agreed to act as such co-maker of the promissory note
upon the application of the defendant Maria Carmen Hartigan, CGH, who
together with Antonio F. Chua and Chang Ka Fu, signed an indemnity agreement
in favor of the plaintiff, undertaking jointly and severally, to pay the plaintiff
damages, losses or expenses of whatever kind or nature, including attorney's fees
and legal costs, which the plaintiff may sustain as a result of the execution by the
plaintiff and co-maker of Maria Carmen Hartigan, CGH, of the promissory note
above-referred to; that as a result of the execution of the promissory note by the
plaintiff and Maria Carmen Hartigan, CGH, the China Banking Corporation
delivered to the defendant Maria Carmen Hartigan, CGH, the sum of P5,000.00
which said defendant failed to pay in full, such that on August 31, 1961 the same
was. renewed and as of November 27, 1961 there was due on account of the
promissory note the sum of P4,559.50 including interest. The complaint ends with
a prayer for judgment against the defendants, jointly and severally, for the sum of
P4,559.50 with interest at the rate of 12% per annum from November 23, 1961
plus P911.90 by way of attorney's fees and costs.
Although O. Engkee was made as party defendant in the caption of the complaint,
his name is not mentioned in the body of said complaint. However, his name
Appears in the Annex A attached to the complaint which is the counter indemnity
agreement supposed to have been signed according to the complaint by Maria
Carmen Hartigan, CGH, Antonio F. Chua and Chang Ka Fu.
In their answer the defendants deny the allegation that the plaintiff formerly
conducted business under the name and style of 'The Yek Tong Lin Fire and
Marine Insurance Co., Ltd.' They admit the execution of the indemnity agreement
but they claim that they signed said agreement in favor of the Yek Tong Lin Fire
and Marine Insurance Co., Ltd.' and not in favor of the plaintiff. They likewise
admit that they failed to pay the promissory note when it fell due but they allege

that since their obligation with the China Banking Corporation based on the
promissory note still subsists, the surety who co-signed the promissory note is not
entitled to collect the value thereof from the defendants otherwise they will be
liable for double amount of their obligation, there being no allegation that the
surety has paid the obligation to the creditor.
By way of special defense, defendants claim that there is no privity of contract
between the plaintiff and the defendants and consequently, the plaintiff has no
cause of action against them, considering that the complaint does not allege that
the plaintiff and the 'Yek Tong Lin Fire and Marine Insurance Co., Ltd.' are one
and the same or that the plaintiff has acquired the rights of the latter. The parties
after the admission of Exhibit A which is the amended articles of incorporation
and Exhibit 1 which is a demand letter dated August 16, 1962 signed by the
manager of the loans and discount department of the China Banking Corporation
showing that the promissory note up to said date in the sum of P4,500.00 was still
unpaid, submitted the case for decision based on the pleadings.
Under date of 6 October 1962, the Court of First Instance of Manila rendered the decision
appealed. It dismissed the action with costs against the plaintiff Philippine First Insurance Co.,
Inc., reasoning as follows:
... With these undisputed facts in mind, the parties correctly concluded that the
issues for resolution by this Court are as follows:
(a) Whether or not the plaintiff is the real party in interest that may validly sue on
the indemnity agreement signed by the defendants and the Yek Tong Lin Fire &
Marine Insurance Co., Ltd. (Annex A to plaintiff's complaint ); and
(b) Whether or not a suit for indemnity or reimbursement may under said
indemnity agreement prosper without plaintiff having yet paid the amount due
under said promissory note.
In the first place, the change of name of the Yek Tong Lin Fire & Marine
Insurance Co., Ltd. to the Philippines First Insurance Co., Inc. is of dubious
validity. Such change of name in effect dissolved the original corporation by a
process of dissolution not authorized by our corporation law (see Secs. 62 and 67,
inclusive, of our Corporation Law). Moreover, said change of name, amounting to
a dissolution of the Yek Tong Lin Fire & Marine Insurance Co., Ltd., does not
appear to have been effected with the written note or assent of stockholders
representing at least two-thirds of the subscribed capital stock of the corporation,
a voting proportion required not only for the dissolution of a corporation but also
for any amendment of its articles of incorporation (Secs. 18 and 62, Corporation
Law). Furthermore, such change of corporate name appears to be against public
policy and may be effected only by express authority of law (Red Line

Transportation Co. v. Rural Transit Co., Ltd., 60 Phil. 549, 555; Cincinnati
Cooperage Co., Ltd. vs. Vate, 26 SW 538, 539; Pilsen Brewing Co. vs. Wallace,
125 NE 714), but there is nothing in our corporation law authorizing the change
of corporate name in this jurisdiction.
In the second place, assuming that the change of name of the Yek Tong Lin Fire &
Marine Insurance Co. Ltd., to Philippines pine First Insurance Co., Inc., as
accomplished on March 8, 1961, is valid, that would mean that the original
corporation, the Yek Tong Lin Fire & Marine Insurance Co., Ltd., became
dissolved and of no further existence since March 8, 1961, so that on May 15,
1961, the date the indemnity agreement, Annex A, was executed, said original
corporation bad no more power to enter into any agreement with the defendants,
and the agreement entered into by it was ineffective for lack of capacity of said
dissolved corporation to enter into said agreement. At any rate, even if we hold
that said change of name is valid, the fact remains that there is no evidence
showing that the new entity, the Philippine First Insurance Co., Inc. has with the
consent of the original parties, assumed the obligations or was assigned the rights
of action in the original corporation, the Yek Tong Lin Fire & Marine Insurance
Co., Ltd. In other words, there is no evidence of conventional subrogation of the
Plaintiffs in the rights of the Yek Tong Lin Fire & Marine Insurance Co., Ltd.
under said indemnity agreement (Arts. 1300, 1301, New Civil Code). without
such subrogation assignment of rights, the herein plaintiff has no cause of action
against the defendants, and is, therefore, not the right party in interest as plaintiff.
Last, but not least, assuming that the said change of name was legal and operated
to dissolve the original corporation, the dissolved corporation, must pursuant to
Sec. 77 of our corporation law, be deemed as continuing as a body corporate for
three (3) years from March 8, 1961 for the purpose of prosecuting and defending
suits. It is, therefore, the Yek Tong Lin Fire & Marine Insurance Co., Ltd. that is
the proper party to sue the defendants under said indemnity agreement up to
March 8, 1964.
Having arrived at the foregoing conclusions, this Court need not squarely pass
upon issue (b) formulated above.
WHEREFORE, plaintiff's action is hereby dismissed, with costs against the
plaintiff.
In due time, the Philippine First Insurance Company, Inc. moved for reconsideration of the
decision aforesaid, but said motion was denied on December 3, 1962 in an order worded thus:
The motion for reconsideration, dated November 8, 1962, raises no new issue that
we failed to consider in rendering our decision of October 6, 1962. However, it

gives us an opportunity to amplify our decision as regards the question of change


of name of a corporation in this jurisdiction.
We find nothing in our Corporation Law authorizing a change of name of a
corporation organized pursuant to its provisions. Sec. 18 of the Corporation Law
authorizes, in our opinion, amendment to the Articles of Incorporation of a
corporation only as to matters other than its corporate name. Once a corporation is
organized in this jurisdiction by the execution and registration of its Articles of
Incorporation, it shall continue to exist under its corporate name for the lifetime of
its corporate existence fixed in its Articles of Incorporation, unless sooner legally
dissolved (Sec. 11, Corp. Law). Significantly, change of name is not one of the
methods of dissolution of corporations expressly authorized by our Corporation
Law. Also significant is the fact that the power to change its corporate name is not
one of the general powers conferred on corporations in this jurisdiction (Sec. 13,
Corp. Law). The enumeration of corporate powers made in our Corporation Law
implies the exclusion of all others (Thomas v. West Jersey R. Co., 101 U.S. 71, 25
L. ed. 950). It is obvious, in this connection, that change of name is not one of the
powers necessary to the exercise of the powers conferred on corporations by said
Sec. 13 (see Sec. 14, Corp. Law).
To rule that Sec. 18 of our Corporation Law authorizes the change of name of a
corporation by amendment of its Articles of Incorporation is to indulge in judicial
legislation. We have examined the cases cited in Volume 13 of American
Jurisprudence in support of the proposition that the general power to alter or
amend the charter of a corporation necessarily includes the power to alter the
name of a corporation, and find no justification for said conclusion arrived at by
the editors of American Jurisprudence. On the contrary, the annotations in favor of
plaintiff's view appear to have been based on decisions in cases where the statute
itself expressly authorizes change of corporate name by amendment of its Articles
of Incorporation. The correct rule in harmony with the provisions of our
Corporation Law is well expressed in an English case as follows:
After a company has been completely register without defect or
omission, so as to be incorporated by the name set forth in the deed
of settlement, such incorporated company has not the power to
change its name ... Although the King by his prerogative might
incorporate by a new name, and the newly named corporation
might retain former rights, and sometimes its former name also, ...
it never appears to be such an act as the corporation could do by
itself, but required the same power as created the corporation.
(Reg. v. Registrar of Joint Stock Cos 10 Q.B. 839, 59 E.C.L. 839).
The contrary view appears to represent the minority doctrine, judging from the
annotations on decided cases on the matter.

The movant invokes as persuasive precedent the action of the Securities


Commissioner in tacitly approving the Amended, Articles of Incorporation on
May 26, 1961. We regret that we cannot in good conscience lend approval to this
action of the Securities and Exchange Commissioner. We find no justification,
legal, moral, or practical, for adhering to the view taken by the Securities and
Exchange Commissioner that the name of a corporation in the Philippines may be
changed by mere amendment of its Articles of Incorporation as to its corporate
name. A change of corporate name would serve no useful purpose, but on the
contrary would most probably cause confusion. Only a dubious purpose could
inspire a change of a corporate. name which, unlike a natural person's name, was
chosen by the incorporators themselves; and our Courts should not lend their
assistance to the accomplishment of dubious purposes.
WHEREFORE, we hereby deny plaintiff's motion for reconsideration, dated
November 8, 1962, for lack of merit.
In this appeal appellant contends that
I
THE TRIAL COURT ERRED IN HOLDING THAT IN THIS JURISDICTION,
THERE IS NOTHING IN OUR CORPORATION LAW AUTHORIZING THE
CHANGE OF CORPORATE NAME;
II
THE TRIAL COURT ERRED IN DECLARING THAT A CHANGE OF
CORPORATE NAME APPEARS TO BE AGAINST PUBLIC POLICY;
III
THE TRIAL COURT ERRED IN HOLDING THAT A CHANGE OF
CORPORATE NAME HAS THE LEGAL EFFECT OF DISSOLVING THE
ORIGINAL CORPORATION:
IV
THE TRIAL COURT ERRED IN HOLDING THAT THE CHANGE OF NAME
OF THE YEK TONG LIN FIRE & MARINE INSURANCE CO., LTD. IS OF
DUBIOUS VALIDITY;
V

THE TRIAL COURT ERRED IN HOLDING THAT THE APPELLANT


HEREIN IS NOT THE RIGHT PARTY INTEREST TO SUE DEFENDANTSAPPELLEES;
IV
THE TRIAL COURT FINALLY ERRED IN DISMISSING THE COMPLAINT.
Appellant's Position is correct; all the above assignments of error are well taken. The whole case,
however, revolves around only one question. May a Philippine corporation change its name and
still retain its original personality and individuality as such?
The answer is not difficult to find. True, under Section 6 of the Corporation Law, the first thing
required to be stated in the Articles of Incorporation of any corn corporation is its name, but it is
only one among many matters equally if not more important, that must be stated therein. Thus, it
is also required, for example, to state the number and names of and residences of the
incorporators and the residence or location of the principal office of the corporation, its term of
existence, the amount of its capital stock and the number of shares into which it is divided, etc.,
etc.
On the other hand, Section 18 explicitly permits the articles of incorporation to be amended thus:
Sec. 18. Any corporation may for legitimate corporate purpose or purposes,
amend its articles of incorporation by a majority vote of its board of directors or
trustees and the vote or written assent of two-thirds of its members, if it be a
nonstock corporation or, if it be a stock corporation, by the vote or written assent
of the stockholders representing at least two-thirds of the subscribed capital stock
of the corporation Provided, however, That if such amendment to the articles of
incorporation should consist in extending the corporate existence or in any change
in the rights of holders of shares of any class, or would authorize shares with
preferences in any respect superior to those of outstanding shares of any class, or
would restrict the rights of any stockholder, then any stockholder who did not
vote for such corporate action may, within forty days after the date upon which
such action was authorized, object thereto in writing and demand Payment for his
shares. If, after such a demand by a stockholder, the corporation and the
stockholder cannot agree upon the value of his share or shares at the time such
corporate action was authorized, such values all be ascertained by three
disinterested persons, one of whom shall be named by the stockholder, another by
the corporation, and the third by the two thus chosen. The findings of the
appraisers shall be final, and if their award is not paid by the corporation within
thirty days after it is made, it may be recovered in an action by the stockholder
against the corporation. Upon payment by the corporation to the stockholder of
the agreed or awarded price of his share or shares, the stockholder shall forthwith
transfer and assign the share or shares held by him as directed by the

corporation: Provided, however, That their own shares of stock purchased or


otherwise acquired by banks, trust companies, and insurance companies, should
be disposed of within six months after acquiring title thereto.
Unless and until such amendment to the articles of incorporation shall have been
abandoned or the action rescinded, the stockholder making such demand in
writing shall cease to be a stockholder and shall have no rights with respect to
such shares, except the right to receive payment therefor as aforesaid.
A stockholder shall not be entitled to payment for his shares under the provisions
of this section unless the value of the corporate assets which would remain after
such payment would be at least equal to the aggregate amount of its debts and
liabilities and the aggregate par value and/or issued value of the remaining
subscribed capital stock.
A copy of the articles of incorporation as amended, duly certified to be correct by
the president and the secretary of the corporation and a majority of the board of
directors or trustees, shall be filed with the Securities and Exchange
Commissioner, who shall attach the same to the original articles of incorporation,
on file in his office. From the time of filing such copy of the amended articles of
incorporation, the corporation shall have the same powers and it and the members
and stockholders thereof shall thereafter be subject to the same liabilities as if
such amendment had been embraced in the original articles of
incorporation: Provided, however, That should the amendment consist in
extending the corporate life, the extension shall not exceed 50 years in any one
instance. Provided, further, That the original articles and amended articles
together shall contain all provisions required by law to be set out in the articles of
incorporation: And provided, further, That nothing in this section shall be
construed to authorize any corporation to increase or diminish its capital stock or
so as to effect any rights or actions which accrued to others between the time of
filing the original articles of incorporation and the filing of the amended articles.
The Securities and, Exchange Commissioner shall be entitled to collect and receive the sum of
ten pesos for filing said copy of the amended articles of incorporation. Provided, however, That
when the amendment consists in extending the term of corporate existence, the Securities and
Exchange Commissioner shall be entitled to collect and receive for the filing of its amended
articles of incorporation the same fees collectible under existing law for the filing of articles of
incorporation. The Securities & Exchange Commissioner shall not hereafter file any amendment
to the articles of incorporation of any bank, banking institution, or building and loan association
unless accompanied by a certificate of the Monetary Board (of the Central Bank) to the effect
that such amendment is in accordance with law. (As further amended by Act No. 3610, Sec. 2
and Sec. 9. R.A. No. 337 and R.A. No. 3531.)

It can be gleaned at once that this section does not only authorize corporations to amend their
charter; it also lays down the procedure for such amendment; and, what is more relevant to the
present discussion, it contains provisos restricting the power to amend when it comes to the term
of their existence and the increase or decrease of the capital stock. There is no prohibition therein
against the change of name. The inference is clear that such a change is allowed, for if the
legislature had intended to enjoin corporations from changing names, it would have expressly
stated so in this section or in any other provision of the law.
No doubt, "(the) name (of a corporation) is peculiarly important as necessary to the very
existence of a corporation. The general rule as to corporations is that each corporation shall 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." 1 Since an individual has the right to change his name under certain conditions, there
is no compelling reason why a corporation may not enjoy the same right. There is nothing
sacrosanct in a name when it comes to artificial beings. The sentimental considerations which
individuals attach to their names are not present in corporations and partnerships. Of course, as
in the case of an individual, such change may not be made exclusively. by the corporation's own
act. It has to follow the procedure prescribed by law for the purpose; and this is what is important
and indispensably prescribed strict adherence to such procedure.
Local well known corporation law commentators are unanimous in the view that a corporation
may change its name by merely amending its charter in the manner prescribed by
law. 2 American authorities which have persuasive force here in this regard because our
corporation law is of American origin, the same being a sort of codification of American
corporate law, 3 are of the same opinion.
A general power to alter or amend the charter of a corporation necessarily
includes the power to alter the name of the corporation. Ft. Pitt Bldg., etc., Assoc.
v. Model Plan Bldg., etc., Assoc., 159 Pa. St. 308, 28 Atl. 215; In re Fidelity Mut.
Aid Assoc., 12 W.N.C. (Pa.) 271; Excelsior Oil Co., 3 Pa. Co. Ct. 184; Wetherill
Steel Casting Co., 5 Pa. Co. Ct. 337.
xxx xxx xxx
Under the General Laws of Rhode Island, c 176, sec. 7, relating to an increase of
the capital stock of a corporation, it is provided that 'such agreement may be
amended in any other particular, excepting as provided in the following section',
which relates to a decrease of the capital stock This section has been held to
authorize a change in the name of a corporation. Armington v. Palmer, 21 R.I.
109, 42 Atl. 308, 43, L.R.A. 95, 79 Am. St. Rep. 786. (Vol. 19, American and
English Annotated Cases, p. 1239.)
Fletcher, a standard authority on American an corporation law also says:

Statutes are to be found in the various jurisdictions dealing with the matter of
change in corporate names. Such statutes have been subjected to judicial
construction and have, in the main, been upheld as constitutional. In direct terms
or by necessary implication, they authorize corporations new names and prescribe
the mode of procedure for that purpose. The same steps must be taken under some
statutes to effect a change in a corporate name, as when any other amendment of
the corporate charter is sought .... When the general law thus deals with the
subject, a corporation can change its name only in the manner provided. (6
Fletcher, Cyclopedia of the Law of Private Corporations, 1968 Revised Volume,
pp. 212-213.) (Emphasis supplied)
The learned trial judge held that the above-quoted proposition are not supported by the weight of
authority because they are based on decisions in cases where the statutes expressly authorize
change of corporate name by amendment of the articles of incorporation. We have carefully
examined these authorities and We are satisfied of their relevance. Even Lord Denman who has
been quoted by His Honor from In Reg. v. Registrar of Joint Stock Cos. 10, Q.B., 59 E.C.L.
maintains merely that the change of its name never appears to be such an act as the corporation
could do for itself, but required ;the same Power as created a corporation." What seems to have
been overlooked, therefore, is that the procedure prescribes by Section 18 of our Corporation
Law for the amendment of corporate charters is practically identical with that for the
incorporation itself of a corporation.
In the appealed order of dismissal, the trial court, made the observation that, according to this
Court in Red Line Transportation Co. v. Rural Transit Co., Ltd., 60 Phil, 549, 555, change of
name of a corporation is against public policy. We must clarify that such is not the import of Our
said decision. What this Court held in that case is simply that:
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 as expressed 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.)
In other words, what We have held to be contrary to public policy is the use by one corporation
of the name of another corporation as its trade name. We are certain no one will disagree that
such an act can only "result in confusion and open the door to frauds and evasions and
difficulties of administration and supervision." Surely, the Red Line case was not one of change
of name.
Neither can We share the posture of His Honor that the change of name of a corporation results
in its dissolution. There is unanimity of authorities to the contrary.
An authorized change in the name of a corporation has no more effect upon its
identity as a corporation than a change of name of a natural person has upon his
identity. It does not affect the rights of the corporation or lessen or add to its
obligations. After a corporation has effected a change in its name it should sue and
be sued in its new name .... (13 Am. Jur. 276-277, citing cases.)
A mere change in the name of a corporation, either by the legislature or by the
corporators or stockholders under legislative authority, does not, generally
speaking, affect the identity of the corporation, nor in any way affect the rights,
privileges, or obligations previously acquired or incurred by it. Indeed, it has been
said that a change of name by a corporation has no more effect upon the identity
of the corporation than a change of name by a natural person has upon the identity
of such person. The corporation, upon such change in its name, is in no sense a
new corporation, nor the successor of the original one, but remains and continues
to be the original corporation. It is the same corporation with a different name,
and its character is in no respect changed. ... (6 Fletcher, Cyclopedia of the Law of
Private Corporations, 224-225, citing cases.)
The change in the name of a corporation has no more effect upon its identity as a
corporation than a change of name of a natural person has upon his identity. It
does not affect the rights of the corporation, or lessen or add to its obligations.
England. Doe v. Norton, 11 M. & W. 913, 7 Jur. 751, 12 L. J. Exch. 418.
United States. Metropolitan Nat. Bank v. Claggett, 141 U.S. 520, 12 S. Ct. 60,
35 U.S. (L. ed.) 841.
Alabama. Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17 So. 670; North
Birmingham Lumber Co. v. Sims, 157 Ala. 595, 48 So. 84.
Connecticut. Trinity Church v. Hall, 22 Com. 125.

Illinois. Mt. Palatine Academy v. Kleinschnitz 28 III, 133; St. Louis etc. R. Co.
v. Miller, 43 Ill. 199;Reading v. Wedder, 66 III. 80.
Indiana. Rosenthal v. Madison etc., Plank Road Co., 10 Ind. 358.
Kentucky. Cahill v. Bigger, 8 B. Mon. 211; Wilhite v. Convent of Good
Shepherd, 177 Ky. 251, 78 S. W. 138.
Maryland. Phinney v. Sheppard & Enoch Pratt Hospital, 88 Md. 633, 42 Atl.
58, writ of error dismissed, 177 U.S. 170, 20 S. Ct. 573, 44 U.S. (L. ed.) 720.
Missouri. Dean v. La Motte Lead Co., 59 Mo. 523.
Nebraska. Carlon v. City Sav. Bank, 82 Neb. 582, 188 N. W. 334. New York
First Soc of M.E. Church v. Brownell, 5 Hun 464.
Pennsylvania. Com. v. Pittsburgh, 41 Pa. St. 278.
South Carolina. South Carolina Mut Ins. Co. v. Price 67 S.C. 207, 45 S.E. 173.
Virginia. Wilson v. Chesapeake etc., R. Co., 21 Gratt 654; Wright-Caesar
Tobacco Co. v. Hoen,105 Va. 327, 54 S.E. 309.
Washington. King v. Ilwaco R. etc., Co., 1 Wash. 127. 23 Pac. 924.
Wisconsin. Racine Country Bank v. Ayers, 12 Wis. 512.
The fact that the corporation by its old name makes a format transfer of its
property to the corporation by its new name does not of itself show that the
change in name has affected a change in the identity of the corporation. Palfrey v.
Association for Relief, etc., 110 La. 452, 34 So. 600. The fact that a corporation
organized as a state bank afterwards becomes a national bank by complying with
the provisions of the National Banking Act, and changes its name accordingly, has
no effect on its right to sue upon obligations or liabilities incurred to it by its
former name. Michigan Ins. Bank v. Eldred 143 U.S. 293, 12 S. Ct. 450, 36 U.S.
(L. ed.) 162.
A deed of land to a church by a particular name has been held not to be affected
by the fact that the church afterwards took a different name. Cahill v. Bigger, 8 B.
Mon (ky) 211.
A change in the name of a corporation is not a divestiture of title or such a change
as requires a regular transfer of title to property, whether real or personal, from the
corporation under one name to the same corporation under another

name. McCloskey v. Doherty, 97 Ky. 300, 30 S. W. 649. (19 American and English
Annotated Cases 1242-1243.)
As was very aptly said in Pacific Bank v. De Ro 37 Cal. 538, "The changing of the
name of a corporation is no more the creation of a corporation than the changing
of the name of a natural person is the begetting of a natural person. The act, in
both cases, would seem to be what the language which we use to designate it
imports a change of name, and not a change of being.
Having arrived at the above conclusion, We have agree with appellant's pose that the lower court
also erred in holding that it is not the right party in interest to sue defendants-appellees. 4 As
correctly pointed out by appellant, the approval by the stockholders of the amendment of its
articles of incorporation changing the name "The Yek Tong Lin Fire & Marine Insurance Co.,
Ltd." to "Philippine First Insurance Co., Inc." on March 8, 1961, did not automatically change
the name of said corporation on that date. To be effective, Section 18 of the Corporation Law,
earlier quoted, requires that "a copy of the articles of incorporation as amended, duly certified to
be correct by the president and the secretary of the corporation and a majority of the board of
directors or trustees, shall be filed with the Securities & Exchange Commissioner", and it is only
from the time of such filing, that "the corporation shall have the same powers and it and the
members and stockholders thereof shall thereafter be subject to the same liabilities as if such
amendment had been embraced in the original articles of incorporation." It goes without saying
then that appellant rightly acted in its old name when on May 15, 1961, it entered into the
indemnity agreement, Annex A, with the defendant-appellees; for only after the filing of the
amended articles of incorporation with the Securities & Exchange Commission on May 26,
1961, did appellant legally acquire its new name; and it was perfectly right for it to file the
present case In that new name on December 6, 1961. Such is, but the logical effect of the change
of name of the corporation upon its actions.
Actions brought by a corporation after it has changed its name should be brought
under the new name although for the enforcement of rights existing at the time the
change was made. Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17 So.
670: Newlan v. Lombard University, 62 III. 195; Thomas v. Visitor of Frederick
County School, 7 Gill & J (Md.) 388; Delaware, etc., R. Co. v. Trick, 23 N. J. L.
321; Northumberland Country Bank v. Eyer, 60 Pa. St. 436; Wilson v. Chesapeake
etc., R. Co., 21 Gratt (Va.) 654.
The change in the name of the corporation does not affect its right to bring an
action on a note given to the corporation under its former name. Cumberland
College v. Ish, 22. Cal. 641; Northwestern College v. Schwagler, 37 Ia. 577. (19
American and English Annotated Cases 1243.)
In consequence, We hold that the lower court erred in dismissing appellant's complaint. We take
this opportunity, however, to express the Court's feeling that it is apparent that appellee's position
is more technical than otherwise. Nowhere in the record is it seriously pretended that the

indebtedness sued upon has already been paid. If appellees entertained any fear that they might
again be made liable to Yek Tong Lin Fire & Marine Insurance Co. Ltd., or to someone else in its
behalf, a cursory examination of the records of the Securities & Exchange Commission would
have sufficed to clear up the fact that Yek Tong Lin had just changed its name but it had not
ceased to be their creditor. Everyone should realize that when the time of the courts is utilized for
cases which do not involve substantial questions and the claim of one of the parties, therein is
based on pure technicality that can at most delay only the ultimate outcome necessarily adverse
to such party because it has no real cause on the merits, grave injustice is committed to
numberless litigants whose meritorious cases cannot be given all the needed time by the courts.
We address this appeal once more to all members of the bar, in particular, since it is their
bounden duty to the profession and to our country and people at large to help ease as fast as
possible the clogged dockets of the courts. Let us not wait until the people resort to other means
to secure speedy, just and inexpensive determination of their cases.
WHEREFORE, judgment of the lower court is reversed, and this case is remanded to the trial
court for further proceedings consistent herewith With costs against appellees.

G.R. No. L-28351 July 28, 1977


UNIVERSAL
MILLS
vs.
UNIVERSAL TEXTILE MILLS, INC., respondent.

CORPORATION, petitioner,

Emigdio G. Tanjuatco for petitioner.


Picazo, Santayana, Reyes, Tayao & Alfonso for respondent.

BARREDO, J.:
Appeal from the order of the Securities and Exchange Commission in S.E.C. Case No. 1079,
entitled In the Matter of the Universal Textile Mills, Inc. vs. Universal Mills Corporation, a
petition to have appellant change its corporate name on the ground that such name is
"confusingly and deceptively similar" to that of appellee, which petition the Commission
granted.

According to the order, "the Universal Textile Mills, Inc. was organ on December 29, 1953, as a
textile manufacturing firm for which it was issued a certificate of registration on January 8, 1954.
The Universal Mills Corporation, on the other hand, was registered in this Commission on
October 27, 1954, under its original name, Universal Hosiery Mills Corporation, having as its
primary purpose the "manufacture and production of hosieries and wearing apparel of all kinds."
On May 24, 1963, it filed an amendment to its articles of incorporation changing its name to
Universal Mills Corporation, its present name, for which this Commission issued the certificate
of approval on June 10, 1963.
The immediate cause of this present complaint, however, was the occurrence of a fire which
gutted respondent's spinning mills in Pasig, Rizal. Petitioner alleged that as a result of this fire
and because of the similarity of respondent's name to that of herein complainant, the news items
appearing in the various metropolitan newspapers carrying reports on the fire created uncertainty
and confusion among its bankers, friends, stockholders and customers prompting petitioner to
make announcements, clarifying the real Identity of the corporation whose property was burned.
Petitioner presented documentary and testimonial evidence in support of this allegation.
On the other hand, respondent's position is that the names of the two corporations
are not similar and even if there be some similarity, it is not confusing or
deceptive; that the only reason that respondent changed its name was because it
expanded its business to include the manufacture of fabrics of all kinds; and that
the word 'textile' in petitioner's name is dominant and prominent enough to
distinguish the two. It further argues that petitioner failed to present evidence of
confusion or deception in the ordinary course of business; that the only supposed
confusion proved by complainant arose out of an extraordinary occurrence a
disastrous fire. (pp. 16-&17, Record.)
Upon these premises, the Commission held:
From the facts proved and the jurisprudence on the matter, it appears necessary
under the circumstances to enjoin the respondent Universal Mills Corporation
from further using its present corporate name. Judging from what has already
happened, confusion is not only apparent, but possible. It does not matter that the
instance of confusion between the two corporate names was occasioned only by a
fire or an extraordinary occurrence. It is precisely the duty of this Commission to
prevent such confusion at all times and under all circumstances not only for the
purpose of protecting the corporations involved but more so for the protection of
the public.
In today's modern business life where people go by tradenames and corporate
images, the corporate name becomes the more important. This Commission
cannot close its eyes to the fact that usually it is the sound of all the other words
composing the names of business corporations that sticks to the mind of those
who deal with them. The word "textile" in Universal Textile Mills, Inc.' can not

possibly assure the exclusion of all other entities with similar names from the
mind of the public especially so, if the business they are engaged in are the same,
like in the instant case.
This Commission further takes cognizance of the fact that when respondent filed
the amendment changing its name to Universal Mills Corporation, it
correspondingly filed a written undertaking dated June 5, 1963 and signed by its
President, Mr. Mariano Cokiat, promising to change its name in the event that
there is another person, firm or entity who has obtained a prior right to the use of
such name or one similar to it. That promise is still binding upon the corporation
and its responsible officers. (pp. 17-18, Record.)
It is obvious that the matter at issue is within the competence of the Securities and Exchange
Commission to resolve in the first instance in the exercise of the jurisdiction it used to possess
under Commonwealth Act 287 as amended by Republic Act 1055 to administer the application
and enforcement of all laws affecting domestic corporations and associations, reserving to the
courts only conflicts of judicial nature, and, of course, the Supreme Court's authority to review
the Commissions actuations in appropriate instances involving possible denial of due process and
grave abuse of discretion. Thus, in the case at bar, there being no claim of denial of any
constitutional right, all that We are called upon to determine is whether or not the order of the
Commission enjoining petitioner to its corporate name constitutes, in the light of the
circumstances found by the Commission, a grave abuse of discretion.
We believe it is not. Indeed, it cannot be said that the impugned order is arbitrary and capricious.
Clearly, it has rational basis. The corporate names in question are not Identical, but they are
indisputably so similar that even under the test of "reasonable care and observation as the public
generally are capable of using and may be expected to exercise" invoked by appellant, We are
apprehensive confusion will usually arise, considering that under the second amendment of its
articles of incorporation on August 14, 1964, appellant included among its primary purposes the
"manufacturing, dyeing, finishing and selling of fabrics of all kinds" in which respondent had
been engaged for more than a decade ahead of petitioner. Factually, the Commission found
existence of such confusion, and there is evidence to support its conclusion. Since respondent is
not claiming damages in this proceeding, it is, of course, immaterial whether or not appellant has
acted in good faith, but We cannot perceive why of all names, it had to choose a name already
being used by another firm engaged in practically the same business for more than a decade
enjoying well earned patronage and goodwill, when there are so many other appropriate names it
could possibly adopt without arousing any suspicion as to its motive and, more importantly, any
degree of confusion in the mind of the public which could mislead even its own customers,
existing or prospective. Premises considered, there is no warrant for our interference.
As this is purely a case of injunction, and considering the time that has elapsed since the facts
complained of took place, this decision should not be deemed as foreclosing any further remedy
which appellee may have for the protection of its interests.

WHEREFORE, with the reservation already mentioned, the appealed decision is affirmed. Costs
against petitioners.

G.R. No. L-15429 December 1, 1919

UY SIULIONG, MARIANO LIMJAP, GACU UNG JIENG, EDILBERTO CALIXTO and


UY
CHO
YEE, petitioners,
vs.
THE DIRECTOR OF COMMERCE AND INDUSTRY, respondent.
Kincaid
and
Perkins
Attorney-General Paredes for respondent.

for

petitioners.

JOHNSON, J.:
The purpose of this action is to obtain the writ of mandamus to require the respondent
to file and register, upon the payment of the lawful fee, articles of incorporation, and to issue to
the petitioners as the incorporators of a certain corporation to be known as "Siuliong y
Compaia, Inc.," a certificate under the seal of the office of said respondent, certifying that the
articles of incorporation have been duly filed and registered in his office in accordance with the
law.
To the petition the respondent demurred and the cause was finally submitted upon the petition
and demurrer.
The important facts necessary for the solution of the question presented, which are found in the
petition, may be stated as follows:
1. That prior to the presentation of the petition the petitioners had been associated together as
partners, which partnership was known as "mercantil regular colectiva, under the style and firm
name of "Siuliong y Cia.;"
2. That the petitioners herein, who had theretofore been members of said partnership of "Siuliong
y Cia.," desired to dissolve said partnership and to form a corporation composed of the same
persons as incorporators, to be known as "Siulong y Compaia, Incorporada;"
3. That the purpose of said corporation, "Siuliong y Cia., Inc.," is (a) to acquire the business of
the partnership theretofore known as Siuliong & Co., and (b) to continue said business with some
of its objects or purposes;
4. That an examination of the articles of incorporation of the said "Siuliong y Compaia,
Incorporada" (Exhibit A) shows that it is to be organized for the following purposes:
(a) The purchase and sale, importation and exportation, of the products of the country as well as
of foreign countries;
(b) To discount promissory notes, bills of exchange, and other negotiable instruments;

(c) The purchase and sale of bills of exchange, bonds, stocks, or "participaciones de sociedades
mercantiles e industriales [joint account of mercantile and industrial associations]," and of all
classes of mercantile documents; "comisiones [commissions];" "consignaciones
[consignments];"
(d) To act as agents for life, marine and fire insurance companies; lawphi1.net
(e) To purchase and sell boats of all classes "y fletamento de los mismos [and charterage of
same];" and
(f) To purchase and sell industrial and mercantile establishments.
While the articles of incorporation of "Siuliong y Cia., Inc." states that its purpose is to acquire
and continue the business, with some of its objects or purposes, of Siuliong & Co., it will be
found upon an examination of the purposes enumerated in the proposed articles of incorporation
of "Siuliong y Cia., Inc.," that some of the purposes of the original partnership of "Siuliong y
Cia." have been omitted. For example, the articles of partnership of "Siuliong y Cia." gave said
company the authority to purchase and sell all classes "de fincas rusticas y urbanas [of rural and
city real estate]" as well as the right to act as agents for the establishment of any other business
which it might esteem convenient for the interests of "la compaia [the company]." (Exhibit C).
The respondent in his argument in support of the demurrer contends (a) that the proposed articles
of incorporation presented for file and registry permitted the petitioners to engage in a business
which had for its end more than one purpose; (b) that it permitted the petitioners to engage in the
banking business, and (c) to deal in real estate, in violation of the Act of Congress of July 1,
1902.
The petitioners, in reply to said argument of the respondent, while insisting that said proposed
articles of incorporation do not permit it to enter into the banking business nor to engage in the
purchase and sale of real estate in violation of said Act of Congress, expressly renounced in open
court their right to engage in such business under their articles of incorporation, even though said
articles might be interpreted in a way to authorize them to so to do. That renouncement on the
part of the petitioners eliminates from the purposes of said proposed corporation (of "Siuliong y
Cia., Inc.") any right to engage in the banking business as such, or in the purchase and sale of
real estate.
We come now to the consideration of the principal question raised by the respondent, to wit: that
the proposed articles of incorporation of "Siuliong y Cia., Inc.," permits it to engage in a business
with more than one purpose.
If upon an examination of the articles of incorporation we find that its purpose is to engage in a
business with butone principal purpose, then that contention of the respondent will have been
answered and it will be unnecessary to discuss at length the question whether or not a
corporation organized for commercial purposes in the Philippine Islands can be organized for
more than one purpose.

The attorney for the respondent, at the time of the argument, admitted in open court that
corporations in the Philippine Islands might be organized for both the "importation and
exportation" of merchandise and that there might be no relation between the kind of merchandise
imported with the class of merchandise exported.
Referring again to be proposed articles of incorporation, a copy of which is united with the
original petition and marked Exhibit A, it will be seen that the only purpose of said corporation
are those enumerated in subparagraphs (a), (b), (c), (d), (e) and ( f ) of paragraph 4 above. While
said articles of incorporation are somewhat loosely drawn, it is clear from a reading of the same
that the principal purpose of said corporation is to engage in amercantile business, with the
power to do and perform the particular acts enumerated in said subparagraphs above referred to.
Without discussing or deciding at this time whether a corporation organized under the laws of the
Philippine Islands may be organized for more than one purpose, we are of the opinion and so
decide that a corporation may be organized under the laws of the Philippine Islands
for mercantile purposes, and to engage in such incidental business as may be
necessary and advisable to give effect to, and aid in, the successful operation and conduct of the
principal business.1awphi1.net
In the present case we are fully persuaded that all of the power and authority included in the
articles of incorporation of "Siuliong y Cia., Inc.," enumerated above in paragraph 4 (Exhibit A)
are only incidental to the principal purpose of said proposed incorporation, to wit: "mercantile
business." The purchase and sale, importation and exportation of the products of the country, as
well as of foreign countries, might make it necessary to purchase and discount promissory notes,
bills of exchange, bonds, negotiable instruments, stock, and interest in other mercantile and
industrial associations. It might also become important and advisable for the successful operation
of the corporation to act as agent for insurance companies as well as to buy, sell and equip boats
and to buy and sell other establishments, and industrial and mercantile businesses.
While we have arrived at the conclusion that the proposed articles of incorporation do not
authorize the petitioners to engage in a business with more than one purpose, we do not mean to
be understood as having decided that corporations under the laws of the Philippine Islands may
not engage in a business with more than one purpose. Such an interpretation might work a great
injustice to corporations organized under the Philippine laws. Such an interpretation would give
foreign corporations, which are permitted to be registered under the laws here and which may be
organized for more than one purpose, a great advantage over domestic corporations. We do not
believe that it was the intention of the legislature to give foreign corporations such an advantage
over domestic corporations.
Considering the particular purposes and objects of the proposed articles of incorporation which
are specially enumerated above, we are of the opinion that it contains nothing which violates in
the slightest degree any of the provisions of the laws of the Philippine Islands, and the petitioners
are, therefore, entitled to have such articles of incorporation filed and registered as prayed for by
them and to have issued to them a certificate under the seal of the office of the respondent,
setting forth that such articles of incorporation have been duly filed in his office. (Sec. 11, Act
No. 1459.)

Therefore, the petition prayed for is hereby granted, and without any finding as to costs, it is so
ordered.
Arellano, C.J., Torres and Avancea, JJ., concur.

Separate Opinions

STREET, J., concurring:


The petitioners in this case are desirous of forming a corporation to take over and continue a
business which for a number of years has been conducted in the city of Manila as an ordinary
collective mercantile partnership under the name of "Siuliong y Compaia." To this end it is
necessary that the articles of incorporation should be filed in the office of the Director of
Commerce and Industry, who, it appears, has withheld approval of the articles submitted to him
and has refused to file the same in his office.
The position taken by the Director of Commerce and Industry is that the articles of the proposed
corporation state more than one corporate purpose, contrary to the provisions of Act No. 1459
(the Corporation Law). In order to ascertain whether this contention is sound it becomes
necessary to examine the provisions contained in the proposed articles in relation with the
requirements of the Act mentioned.
The purposes for which the corporation is to be formed are stated in the second clause of the
proposed articles in the following language:
Second. That the object for which said corporation is organized are: to acquire the
business of the regular partnership "Siuliong y Compaia," and to continue operating said
business in all its parts, and incidental to the principal object, the corporation shall have
powers to transact the following: the buying and selling, importation and exportation, of
native as well as foreign merchandise; the discount of promissory notes, bills of exchange
and other negotiable instruments; the buying and selling of bills of exchange, bonds,
shares, and interests in mercantile and industrial partnerships; commissions;
consignments; life, maritime, and fire insurance: the buying and selling of vessels of all

kinds and charterage of same; and the buying and selling of industrial or mercantile
plants.
This language is substantially a reproduction of the fourth clause of the partnership articles under
which the business of Siuliong & Company is being now conducted, as may be seen by a
comparison with the wording of said fourth clause, which is as follows:
Fourth. The object of the partnership shall be the continuation of all the business of the
partnership "Siuliong y Compaia" which is dissolved on this date, June 30, 1916, or
rather the buying and selling, the importation and exportation, of native as well as foreign
products; the buying and selling is bills of exchange and of all kinds of commercial
documents; commissions; consignments; maritime and fire insurance; the buying and
selling of all kinds of rural and city real estate, as well as vessels of all kinds and their
charterage; and the manager is hereby authorized to organize any other kind of business
which he may deem convenient for the company's interest.
It must be admitted that the second clause of the proposed articles of incorporation is expressed
in a way which invites criticism; and if I my be permitted so to suggest the provision would have
been better conceived if it had started off something like this:
The general object of this corporation is to engage in commercial activities, such as the buying
and selling of merchandise and commodities of every kind; the importation and exportation
thereof; the conduct of the business of commission merchants, consignees, and insurance
agencies; the buying and selling of boats and the chartering thereof, as well as the buying and
selling of industrial and mercantile plants; etc., etc.
In setting out the corporate purpose with a view to defining the legitimate range of the faculties
of the corporation, it is undesirable to state that its primary purpose is to take over the business of
some existing concern. Undoubtedly a corporation may obtain its capital and draw its resources
from a prior enterprise, but it acquires such business by transfer; and the nature of the activities
of the older business has no bearing on the faculties of the new corporation. All the powers that a
corporation can lawfully exercise are derived from the state by virtue of the laws governing the
creation and conduct of corporations.
Now, what are limits upon the activities for which a corporation may be created? The answer is
to be found, if anywhere, in the Corporation Law. The first chapter of that law deals with
corporations in general and contains the provisions common to all corporations. In the second
chapter are found various special provisions applicable to particular forms of corporate activities.
Of these there are several varieties, to wit, railroad corporations, savings and mortgage banks,
banking corporations, trust corporations, domestic insurance corporations, religious corporations,
colleges and institutions of learning, and building and loan corporations.
It is obvious that no single corporation can be permitted to exercise the mixed functions of more
than one of these classes; and the Director of Commerce and Industry would be clearly acting
within his power in rejecting any proposed articles of a corporation which confers or appears to
confer powers particularly appropriate to more than one of these forms of corporate enterprise.

Aside from the lines that are laid down in the fundamental classification contained in the
Corporation Law, there seems to be no limit upon the legitimate activities of corporate enterprise.
For instance, a corporation organized for commercial purposes can lawfully engage in any one of
the thousand or more activities which may be imagined under the head of commercial; but it
must abstain from activities peculiar to the forms of corporate enterprise for which special
provisions are made.
This implies that the word "purpose" as used in the expression "the purpose for which the
corporation is formed," in subsection 2 of section 6 of the Corporation Law, may properly be
conceived as including the plural as well as the singular. But the purposes, when there are more
than one, must be capable of being lawfully combined, that is not obnoxious to the classification
created by the law.
It is not necessary, and indeed will rarely be found desirable, to attempt to set out in the articles
of incorporation the multitude of activities in which the corporation can engage incidentally, as
reasonably necessary to accomplish the purpose or purposes for which the corporation was
primarily formed. There is general authority for the exercise of all such implied powers in
section 13 of the Corporation Law, and they need not be expressed.
Returning now to the second clause of the proposed articles of incorporation for "Siuliong y
Compaia, Incorporated," I entertain a doubt as to the propriety of admitting into that document
the words "discounts of notes, bills, and other negotiable documents" and "the buying and selling
of bills, bonds, stocks, and shares of mercantile and industrial partnership, as well as mercantile
documents of every sort." The reason simply is that in so far as it is necessary to engage in these
activities for the accomplishment of the general purposes of the corporation, it may all be done in
the exercise of the implied power expressed in section 13; and the insertion into the articles of
the words quoted may give rise to the inference that the incorporators may desire to engage in a
line of business appropriate only to corporations created for banking purposes. (See sec. 116 of
Act No. 1459.) On the other hand, it may be said that the activities expressed in the words quoted
are those peculiar to the business of stock-brokers; and one reason is apparent why the business
of stock-broking might not be lawfully combined under one corporate chapter with the other
mercantile activities mentioned in the second clause of the articles.
On the whole, as I understand the opinion written by Justice Johnson, this court intends to hold
that the second clause of the proposed articles, when property interpreted, means that the
company to be formed intends primarily to dedicate itself to industrial and mercantile activities,
as its principal object and that the other activities mentioned are purely subordinate. I have no
special criticism to make of this view; and inasmuch as the interpretation which the court thus
places upon the proposed charter removes the possibility that the corporation may, under the
protection thereof, engage in illegitimate lines of enterprise, I am content to express my
concurrence in the result reached by the court. But I really think the proposed articles ought to be
amended.
MALCOLM, J., concurs in the result, reserving his opinion concerning the suggestion in the
third paragraph from the last of the principal decision.

G.R. No. L-22238

February 18, 1967

CLAVECILLIA
RADIO
SYSTEM, petitioner-appellant,
vs.
HON. AGUSTIN ANTILLON, as City Judge of the Municipal Court of Cagayan de Oro
City
and NEW CAGAYAN GROCERY, respondents-appellees.
B.
C.
Padua
for
Pablo S. Reyes for respondents and appellees.

petitioner

and

appellant.

REGALA, J.:
This is an appeal from an order of the Court of First Instance of Misamis Oriental dismissing the
petition of the Clavecilla Radio System to prohibit the City Judge of Cagayan de Oro from taking
cognizance of Civil Case No. 1048 for damages.
It appears that on June 22, 1963, the New Cagayan Grocery filed a complaint against the
Clavecilla Radio System alleging, in effect, that on March 12, 1963, the following message,

addressed to the former, was filed at the latter's Bacolod Branch Office for transmittal thru its
branch office at Cagayan de Oro:
NECAGRO CAGAYAN DE ORO (CLAVECILLA)
REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE
SHALL SHIP LATER REPLY POHANG
The Cagayan de Oro branch office having received the said message omitted, in
delivering the same to the New Cagayan Grocery, the word "NOT" between the words
"WASHED" and "AVAILABLE," thus changing entirely the contents and purport of the
same and causing the said addressee to suffer damages. After service of summons, the
Clavecilla Radio System filed a motion to dismiss the complaint on the grounds that it
states no cause of action and that the venue is improperly laid. The New Cagayan
Grocery interposed an opposition to which the Clavecilla Radio System filed its
rejoinder. Thereafter, the City Judge, on September 18, 1963, denied the motion to
dismiss for lack of merit and set the case for hearing.1wph1.t
Hence, the Clavecilla Radio System filed a petition for prohibition with preliminary injunction
with the Court of First Instance praying that the City Judge, Honorable Agustin Antillon, be
enjoined from further proceeding with the case on the ground of improper venue. The
respondents filed a motion to dismiss the petition but this was opposed by the petitioner. Later,
the motion was submitted for resolution on the pleadings.
In dismissing the case, the lower court held that the Clavecilla Radio System may be sued either
in Manila where it has its principal office or in Cagayan de Oro City where it may be served, as
in fact it was served, with summons through the Manager of its branch office in said city. In
other words, the court upheld the authority of the city court to take cognizance of the
case.1wph1.t
In appealing, the Clavecilla Radio System contends that the suit against it should be filed in
Manila where it holds its principal office.
It is clear that the case for damages filed with the city court is based upon tort and not upon a
written contract. Section 1 of Rule 4 of the New Rules of Court, governing venue of actions in
inferior courts, provides in its paragraph (b) (3) that when "the action is not upon a written
contract, then in the municipality where the defendant or any of the defendants resides or may be
served with summons." (Emphasis supplied)
Settled is the principle in corporation law that the residence of a corporation is the place where
its principal office is established. Since it is not disputed that the Clavecilla Radio System has its
principal office in Manila, it follows that the suit against it may properly be filed in the City of
Manila.

The appellee maintain, however, that with the filing of the action in Cagayan de Oro City, venue
was properly laid on the principle that the appellant may also be served with summons in that
city where it maintains a branch office. This Court has already held in the case of Cohen vs.
Benguet Commercial Co., Ltd., 34 Phil. 526; that the term "may be served with summons" does
not apply when the defendant resides in the Philippines for, in such case, he may be sued only in
the municipality of his residence, regardless of the place where he may be found and served with
summons. As any other corporation, the Clavecilla Radio System maintains a residence which is
Manila in this case, and a person can have only one residence at a time (See Alcantara vs.
Secretary of the Interior, 61 Phil. 459; Evangelists vs. Santos, 86 Phil. 387). The fact that it
maintains branch offices in some parts of the country does not mean that it can be sued in any of
these places. To allow an action to be instituted in any place where a corporate entity has its
branch offices would create confusion and work untold inconvenience to the corporation.
It is important to remember, as was stated by this Court in Evangelista vs. Santos, et al., supra,
that the laying of the venue of an action is not left to plaintiff's caprice because the matter is
regulated by the Rules of Court. Applying the provision of the Rules of Court, the venue in this
case was improperly laid.
The order appealed from is therefore reversed, but without prejudice to the filing of the action in
Which the venue shall be laid properly. With costs against the respondents-appellees.

G.R. No. L-23606

July 29, 1968

ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC., petitioner,


vs.
SECURITIES & EXCHANGE COMMISSION, respondent.

Gamboa
and
Gamboa
Office of the Solicitor General for respondent.

for

petitioner.

SANCHEZ, J.:
To the question May a corporation extend its life by amendment of its articles of
incorporation effected during the three-year statutory period for liquidation when its original
term of existence had already expired? the answer of the Securities and Exchange
Commissioner was in the negative. Offshoot is this appeal.
That problem emerged out of the following controlling facts:
Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter referred to
simply as Alhambra) was duly incorporated under Philippine laws on January 15, 1912. By its
corporate articles it was to exist for fifty (50) years from incorporation. Its term of existence
expired on January 15, 1962. On that date, it ceased transacting business, entered into a state of
liquidation.
Thereafter, a new corporation. Alhambra Industries, Inc. was formed to carry on the
business of Alhambra.
On May 1, 1962, Alhambra's stockholders, by resolution named Angel S. Gamboa trustee to take
charge of its liquidation.
On June 20, 1963 within Alhambra's three-year statutory period for liquidation - Republic Act
3531 was enacted into law. It amended Section 18 of the Corporation Law; it empowered
domestic private corporations to extend their corporate life beyond the period fixed by the
articles of incorporation for a term not to exceed fifty years in any one instance. Previous to
Republic Act 3531, the maximum non-extendible term of such corporations was fifty years.
On July 15, 1963, at a special meeting, Alhambra's board of directors resolved to amend
paragraph "Fourth" of its articles of incorporation to extend its corporate life for an additional
fifty years, or a total of 100 years from its incorporation.
On August 26, 1963, Alhambra's stockholders, representing more than two-thirds of its
subscribed capital stock, voted to approve the foregoing resolution. The "Fourth" paragraph of
Alhambra's articles of incorporation was thus altered to read:
FOURTH. That the term for which said corporation is to exist is fifty (50) years from and
after the date of incorporation, and for an additional period of fifty (50) years thereafter.
On October 28, 1963, Alhambra's articles of incorporation as so amended certified correct by its
president and secretary and a majority of its board of directors, were filed with respondent
Securities and Exchange Commission (SEC).

On November 18, 1963, SEC, however, returned said amended articles of incorporation to
Alhambra's counsel with the ruling that Republic Act 3531 "which took effect only on June 20,
1963, cannot be availed of by the said corporation, for the reason that its term of existence had
already expired when the said law took effect in short, said law has no retroactive effect."
On December 3, 1963, Alhambra's counsel sought reconsideration of SEC's ruling aforesaid,
refiled the amended articles of incorporation.
On September 8, 1964, SEC, after a conference hearing, issued an order denying the
reconsideration sought.
Alhambra now invokes the jurisdiction of this Court to overturn the conclusion below.1
1. Alhambra relies on Republic Act 3531, which amended Section 18 of the Corporation Law.
Well it is to take note of the old and the new statutes as they are framed. Section 18, prior to and
after its modification by Republic Act 3531, covers the subject of amendment of the articles of
incorporation of private corporations. A provision thereof which remains unaltered is that a
corporation may amend its articles of incorporation "by a majority vote of its board of directors
or trustees and ... by the vote or written assent of the stockholders representing at least two-thirds
of the subscribed capital stock ... "
But prior to amendment by Republic Act 3531, an explicit prohibition existed in Section 18,
thus:
... Provided, however, That the life of said corporation shall not be extended by said
amendment beyond the time fixed in the original articles: ...
This was displaced by Republic Act 3531 which enfranchises all private corporations to extend
their corporate existence. Thus incorporated into the structure of Section 18 are the following:
... Provided, however, That should the amendment consist in extending the corporate life,
the extension shall not exceed fifty years in any one instance: Provided, further, That the
original articles, and amended articles together shall contain all provisions required by
law to be set out in the articles of incorporation: ...
As we look in retrospect at the facts, we find these: From July 15 to October 28, 1963, when
Alhambra made its attempt to extend its corporate existence, its original term of fifty years had
already expired (January 15, 1962); it was in the midst of the three-year grace period statutorily
fixed in Section 77 of the Corporation Law, thus: .
SEC. 77. Every corporation whose charter expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate existence for other purposes is terminated in
any other manner, shall nevertheless be continued as a body corporate for three years
after the time when it would have been so dissolved, for the purpose of prosecuting and

defending suits by or against it and of enabling it gradually to settle and close its affairs,
to dispose of and convey its property and to divide its capital stock, but not for the
purpose of continuing the business for which it was established.2
Plain from the language of the provision is its meaning: continuance of a "dissolved" corporation
as a body corporate for three years has for its purpose the final closure of its affairs, and no
other; the corporation is specifically enjoined from "continuing the business for which it was
established". The liquidation of the corporation's affairs set forth in Section 77 became necessary
precisely because its life had ended. For this reason alone, the corporate existence and juridical
personality of that corporation to do business may no longer be extended.
Worth bearing in mind, at this juncture, is the basic development of corporation law.
The common law rule, at the beginning, was rigid and inflexible in that upon its dissolution, a
corporation became legally dead for all purposes. Statutory authorizations had to be provided for
its continuance after dissolution "for limited and specified purposes incident to complete
liquidation of its affairs".3 Thus, the moment a corporation's right to exist as an "artificial person"
ceases, its corporate powers are terminated "just as the powers of a natural person to take part in
mundane affairs cease to exist upon his death".4 There is nothing left but to conduct, as it were,
the settlement of the estate of a deceased juridical person.
2. Republic Act 3531, amending Section 18 of the Corporation Law, is silent, it is true, as to
when such act of extension may be made. But even with a superficial knowledge of corporate
principles, it does not take much effort to reach a correct conclusion. For, implicit in Section 77
heretofore quoted is that the privilege given to prolongcorporate life under the amendment must
be exercised before the expiry of the term fixed in the articles of incorporation.
Silence of the law on the matter is not hard to understand. Specificity is not really necessary. The
authority to prolong corporate life was inserted by Republic Act 3531 into a section of the law
that deals with the power of a corporation to amend its articles of incorporation. (For, the manner
of prolongation is through an amendment of the articles.) And it should be clearly evident that
under Section 77 no corporation in a state of liquidation can act in any way, much less amend its
articles, "for the purpose of continuing the business for which it was established".
All these dilute Alhambra's position that it could revivify its corporate life simply because when
it attempted to do so, Alhambra was still in the process of liquidation. It is surely impermissible
for us to stretch the law that merely empowers a corporation to act in liquidation to inject
therein the power to extend its corporate existence.
3. Not that we are alone in this view. Fletcher has written: "Since the privilege of extension is
purely statutory, all of the statutory conditions precedent must be complied with in order that the
extension may be effectuated. And, generally these conditions must be complied with, and the
steps necessary to effect the extension must be taken,during the life of the corporation, and
before the expiration of the term of existence as original fixed by its charter or the general law,

since, as a rule, the corporation is ipso facto dissolved as soon as that time expires. So where the
extension is by amendment of the articles of incorporation, the amendment must be adopted
before that time. And, similarly, the filing and recording of a certificate of extension after that
time cannot relate back to the date of the passage of a resolution by the stockholders in favor of
the extension so as to save the life of the corporation. The contrary is true, however, and the
doctrine of relation will apply, where the delay is due to the neglect of the officer with whom the
certificate is required to be filed, or to a wrongful refusal on his part to receive it. And statutes in
some states specifically provide that a renewal may be had within a specified time before or after
the time fixed for the termination of the corporate existence".5
The logic of this position is well expressed in a foursquare case decided by the Court of Appeals
of Kentucky.6There, pronouncement was made as follows:
... But section 561 (section 2147) provides that, when any corporation expires by the
terms of its articles of incorporation, it may be thereafter continued to act for the purpose
of closing up its business, but for no other purpose. The corporate life of the Home
Building Association expired on May 3, 1905. After that date, by the mandate of the
statute, it could continue to act for the purpose of closing up its business, but for no other
purpose. The proposed amendment was not made until January 16, 1908, or nearly three
years after the corporation expired by the terms of the articles of incorporation. When the
corporate life of the corporation was ended, there was nothing to extend. Here it was
proposed nearly three years after the corporate life of the association had expired to
revivify the dead body, and to make that relate back some two years and eight months. In
other words, the association for two years and eight months had only existed for the
purpose of winding up its business, and, after this length of time, it was proposed to
revivify it and make it a live corporation for the two years and eight months daring which
it had not been such.
The law gives a certain length of time for the filing of records in this court, and provides
that the time may be extended by the court, but under this provision it has uniformly been
held that when the time was expired, there is nothing to extend, and that the appeal must
be dismissed... So, when the articles of a corporation have expired, it is too late to adopt
an amendment extending the life of a corporation; for, the corporation having
expired, this is in effect to create a new corporation ..."7
True it is, that the Alabama Supreme Court has stated in one case. 8 that a corporation empowered
by statute torenew its corporate existence may do so even after the expiration of its corporate life,
provided renewal is taken advantage of within the extended statutory period for purposes of
liquidation. That ruling, however, is inherently weak as persuasive authority for the situation at
bar for at least two reasons: First. That case was a suit for mandamus to compel a former
corporate officer to turn over books and records that came into his possession and control by
virtue of his office. It was there held that such officer was obliged to surrender his books and
records even if the corporation had already expired. The holding on the continued existence of
the corporation was a mere dictum. Second. Alabama's law is different. Corporations in that state

were authorized not only to extend but also to renew their corporate existence.That very
case defined the word "renew" as follows; "To make new again; to restore to freshness; to make
new spiritually; to regenerate; to begin again; to recommence; to resume; to restore to existence,
to revive; to re-establish; to recreate; to replace; to grant or obtain an extension of Webster's New
International Dict.; 34 Cyc. 1330; Carter v. Brooklyn Life Ins. Co., 110 N.Y. 15, 21, 22, 17 N.E.
396; 54 C.J. 379. Sec".9
On this point, we again draw from Fletcher: "There is a broad distinction between the extension
of a charter and the grant of a new one. To renew a charter is to revive a charter which has
expired, or, in other words, "to give a new existence to one which has been forfeited, or which
has lost its vitality by lapse of time". To "extend" a charter is "to increase the time for the
existence of one which would otherwise reach its limit at an earlier period". 10Nowhere in our
statute Section 18, Corporation Law, as amended by Republic Act 3531 do we find the
word "renew" in reference to the authority given to corporations to protract their lives. Our law
limits itself to extension of corporate existence. And, as so understood, extension may be
made only before the term provided in the corporate charter expires.
Alhambra draws attention to another case11 which declares that until the end of the extended
period for liquidation, a dissolved corporation "does not become an extinguished entity". But this
statement was obviously lifted out of context. That case dissected the question whether or not
suits can be commenced by or against a corporation within its liquidation period. Which was
answered in the affirmative. For, the corporation still exists for the settlement of its affairs.
People, ex rel. vs. Green,12 also invoked by Alhambra, is as unavailing. There, although the
corporation amended its articles to extend its existence at a time when it had no legal authority
yet, it adopted the amended articles later on when it had the power to extend its life and during
its original term when it could amend its articles.
The foregoing notwithstanding, Alhambra falls back on the contention that its case is arguably
within the purview of the law. It says that before cessation of its corporate life, it could not have
extended the same, for the simple reason that Republic Act 3531 had not then become law. It
must be remembered that Republic Act 3531 took effect on June 20, 1963, while the original
term of Alhambra's existence expired before that date on January 15, 1962. The mischief that
flows from this theory is at once apparent. It would certainly open the gates for all defunct
corporations whose charters have expired even long before Republic Act 3531 came into
being to resuscitate their corporate existence.
4. Alhambra brings into argument Republic Act 1932, which amends Section 196 of the
Insurance Act, now reading as follows: 1wph1.t
SEC. 196. Any provision of law to the contrary notwithstanding, every domestic life
insurance corporation, formed for a limited period under the provisions of its articles of
incorporation, may extend its corporate existence for a period not exceeding fifty years in

any one instance by amendment to its articles of incorporation on or before the expiration
of the term so fixed in said articles ...
To be observed is that the foregoing statute unlike Republic Act 3531 expressly authorizes
domestic insurance corporations to extend their corporate existence "on or before the expiration
of the term" fixed in their articles of incorporation. Republic Act 1932 was approved on June 22,
1957, long before the passage of Republic Act 3531 in 1963. Congress, Alhambra points out,
must have been aware of Republic Act 1932 when it passed Republic Act 3531. Since the phrase
"on or before", etc., was omitted in Republic Act 3531, which contains no similar limitation, it
follows, according to Alhambra, that it is not necessary to extend corporate existence on or
before the expiration of its original term.
That Republic Act 3531 stands mute as to when extention of corporate existence may be made,
assumes no relevance. We have already said, in the face of a familiar precept, that a defunct
corporation is bereft of any legal faculty not otherwise expressly sanctioned by law.
Illuminating here is the explanatory note of H.B. 1774, later Republic Act 3531 now in
dispute. Its first paragraph states that "Republic Act No. 1932 allows the automatic extension of
the corporate existence of domestic life insurance corporations upon amendment of their articles
of incorporation on or before the expiration of the terms fixed by said articles". The succeeding
lines are decisive: "This is a good law, a sane and sound one. There appears to be no valid
reason why it should not be made to apply to other private corporations.13
The situation here presented is not one where the law under consideration is ambiguous, where
courts have to put in harness extrinsic aids such as a look at another statute to disentangle doubts.
It is an elementary rule in legal hermeneutics that where the terms of the law are clear, no
statutory construction may be permitted. Upon the basic conceptual scheme under which
corporations operate, and with Section 77 of the Corporation Law particularly in mind, we find
no vagueness in Section 18, as amended by Republic Act 3531. As we view it, by directing
attention to Republic Act 1932, Alhambra would seek to create obscurity in the law; and, with
that, ask of us a ruling that such obscurity be explained. This, we dare say, cannot be done.
The pari materia rule of statutory construction, in fact, commands that statutes must be
harmonized with each other.14 So harmonizing, the conclusion is clear that Section 18 of the
Corporation Law, as amended by Republic Act 3531 in reference to extensions of corporate
existence, is to be read in the same light as Republic Act 1932. Which means that domestic
corporations in general, as with domestic insurance companies, can extend corporate existence
only on or before the expiration of the term fixed in their charters.
5. Alhambra pleads for munificence in interpretation, one which brushes technicalities aside.
Bases for this posture are that Republic Act 3531 is a remedial statute, and that extension of
corporate life is beneficial to the economy.

Alhambra's stance does not induce assent. Expansive construction is possible only when there is
something to expand. At the time of the passage of Republic Act 3531, Alhambra's corporate life
had already expired. It had overstepped the limits of its limited existence. No life there is to
prolong.
Besides, a new corporation Alhambra Industries, Inc., with but slight change in
stockholdings15 has already been established. Its purpose is to carry on, and it actually does
carry on,16 the business of the dissolved entity. The beneficial-effects argument is off the mark.
The way the whole case shapes up then, the only possible drawbacks of Alhambra might be that,
instead of the new corporation (Alhambra Industries, Inc.) being written off, the old one
(Alhambra Cigar & Cigarette Manufacturing Company, Inc.) has to be wound up; and that the
old corporate name cannot be retained fully in its exact form. 17 What is important though is that
the word Alhambra, the name that counts [it has goodwill], remains.
FOR THE REASONS GIVEN, the ruling of the Securities and Exchange Commission of
November 18, 1963, and its order of September 8, 1964, both here under review, are hereby
affirmed.
Costs against petitioner Alhambra Cigar & Cigarette Manufacturing Company, Inc. So ordered.

[G.R. No. L-7231. March 28, 1956.]


BENGUET CONSOLIDATED MINING CO., Petitioner, vs. MARIANO PINEDA, in his
capacity as Securities and Exchange Commissioner, Respondent. CONSOLIDATED
MINES, INC., Intervenor.
DECISION
REYES, J. B. L., J.:

Appeal under Rule 43 from a decision of the Securities and Exchange Commissioner, denying
the right of a sociedad anonima to extend its corporate existence by amendment of its original
articles of association, or alternatively, to reform and continue existing under the Corporation
Law (Act 1459) beyond the original period.
The Petitioner, the Benguet Consolidated Mining Co. (hereafter termed Benguet for short),
was organized on June 24,1903, as a sociedad anonima regulated by Articles 151 et seq., of the
Spanish Code of Commerce of 1886, then in force in the Philippines. The articles of association
expressly provided that it was organized for a term of fifty (50) years. In 1906, the governing
Philippine Commission enacted Act 1459, commonly known as the Corporation Law,
establishing in the islands the American type of juridical entities known as corporation, to take
effect on April 1, 1906. Of its enactment, this Court said in its decision in Harden vs. Benguet
Consolidated Mining Co., 58 Phil., 141, at pp. 145-146, and 147:chanroblesvirtuallawlibrary
When the Philippine Islands passed to the sovereignty of the United States, the attention of the
Philippine Commission was early drawn to the fact there is no entity in Spanish law exactly
corresponding to the motion of the corporation in English and American law; chan
roblesvirtualawlibraryand in the Philippine Bill, approved July 1, 1906, the Congress of the
United States inserted certain provisions, under the head of Franchises, which were intended to
control the lawmaking power in the Philippine Islands in the matter of granting of franchises,
privileges and concessions. These provisions are found in sections 74 and 75 of the Act. The
provisions of section 74 have been superseded by section 28 of the Act of Congress of August
29, 1916, but in section 75 there is a provision referring to mining corporations, which still
remains the law, as amended. This provision, in its original form, reads as
follows:chanroblesvirtuallawlibrary cralaw it shall be unlawful for any member of a corporation
engaged in agriculture or mining and for any corporation organized for any purpose except
irrigation to be in any wise interested in any other corporation engaged in agriculture or in
mining.
Under the guidance of this and certain other provisions thus enacted by Congress, the Philippine
Commission entered upon the enactment of a general law authorizing the creation of
corporations in the Philippine Islands. This rather elaborate piece of legislation is embodied in
what is called our Corporation Law (Act No. 1459 of the Philippine Commission). The evident
purpose of the commission was to introduce the American corporation into the Philippine Islands
as the standard commercial entity and to hasten the day when the sociedad anonima of the
Spanish law would be obsolete. That statute is a sort of codification of American corporate law.
As it was the intention of our lawmakers to stimulate the introduction of the American
corporation into the Philippine law in the place of the sociedad anonima, it was necessary to
make certain adjustment resulting from the continued co-existence, for a time, of the two forms
of commercial entities. Accordingly, in section 75 of the Corporation Law, a provision is found
making the sociedad anonima subject to the provisions of the Corporation Law so far as such
provisions may be applicable and giving to the sociedades anonimas previously created in the
Islands the option to continue business as such or to reform and organize under the provisions of
the Corporation Law. Again, in section 191 of the Corporation Law, the Code of Commerce is
repealed in so far as it relates to sociedades anonimas. The purpose of the commission in
repealing this part of the Code of Commerce was to compel commercial entities thereafter
organized to incorporate under the Corporation Law, unless they should prefer to adopt some
form or other of the partnership. To this provision was added another to the effect that existing

sociedades anonimas, which elected to continue their business as such, instead of reforming and
reorganizing under the Corporation Law, should continue to be governed by the laws that were in
force prior to the passage of this Act in relation to their organization and method of transacting
business and to the rights of members thereof as between themselves, but their relations to the
public and public officials shall be governed by the provisions of this Act.
Specifically, the two sections of Act No. 1459 referring to sociedades anonimas then already
existing, provide as follows:chanroblesvirtuallawlibrary
SEC. 75. Any corporation or a sociedad anonima formed, organized, and existing under the
laws of the Philippines on the date of the passage of this Act, shall be subject to the provisions
hereof so far as such provisions may be applicable and shall be entitled at its option either to
continue business as such corporation or to reform and organize under and by virtue of the
provisions of this Act, transferring all corporate interests to the new corporation which, if a stock
corporation, is authorized to issue its shares of stock at par to the stockholders or members of the
old corporation according to their interests.
SEC. 191. The Code of Commerce, in so far as it relates to corporation or sociedades
anonimas, and all other Acts or parts of Acts in conflict or inconsistent with this Act, are hereby
repealed with the exception of Act Numbered fifty-two, entitled An Act providing for
examinations of banking institutions in the Philippines, and for reports by their officers, as
amended, and Act Numbered Six hundred sixty-seven, entitled An Act prescribing the method
of applying to governments of municipalities, except the city of Manila and of provinces for
franchises to contract and operate street railway, electric light and power and telephone lines, the
conditions upon which the same may be granted, certain powers of the grantee of said franchises,
and of grantees of similar franchises under special Act of the Commission, and for other
purposes. Provided, however, That nothing in this Act contained shall be deemed to repeal the
existing law relating to those classes of associations which are termed sociedades colectivas, and
sociedades de cuentas en participacion, as to which association the existing law shall be deemed
to be still in force; chan roblesvirtualawlibraryAnd provided, further, That existing corporations
or sociedades anonimas, lawfully organized as such, which elect to continue their business as
such sociedades anonimas instead of reforming and reorganizing under and by virtue of the
provisions of this Act, shall continue to be governed by the laws that were in force prior to the
passage of this Act in relation to their organization and method of transacting business and to the
rights of members thereof as between themselves, but their relations to the public and public
officials shall be governed by the provisions of this Act.
As the expiration of its original 50 year term of existence approached, the Board of Directors of
Benguet adopted in 1946 a resolution to extend its life for another 50 years from July 3, 1946
and submitted it for registration to the Respondent Securities and Exchange Commissioner. Upon
advice of the Secretary of Justice (Op. No. 45, Ser. 1917) that such extension was contrary to
law, the registration was denied. The matter was dropped, allegedly because the stockholders of
Benguet did not approve of the Directors action.
Some six years later in 1953, the shareholders of Benguet adopted a resolution empowering the
Director to effectuate the extension of the Companys business life for not less than 20 and not
more than 50 years, and this by either (1) an amendment to the Articles of Association or Charter
of this Company or (2) by reforming and reorganizing the Company as a Philippine Corporation,

or (3) by both or (4) by any other means. Accordingly, the Board of Directors on May 27, 1953,
adopted a resolution to the following effect
Be It
Resolved, that the Company be reformed, reorganized and organized under the provisions of
section 75 and other provisions of the Philippine Corporation Law as a Philippine corporation
with a corporate life and corporate powers as set forth in the Articles of Incorporation attached
hereto as Schedule I and made a part hereof by this reference; chan roblesvirtualawlibraryand
Be It
FURTHER RESOLVED, that any five or more of the following shareholders of the Company be
and they hereby are authorized as instructed to act for and in behalf of the share holders of the
Company and of the Company as Incorporators in the reformation, reorganization and
organization of the Company under and in accordance with the provisions aforesaid of said
Philippine Corporation Law, and in such capacity, they are hereby authorized and instructed to
execute the aforesaid Articles of Incorporation attached to these Minutes as Schedule I hereof,
with such amendments, deletion and additions thereto as any five or more of those so acting shall
deem necessary, proper, advisable or convenient to effect prompt registration of said Articles
under Philippine Law; chan roblesvirtualawlibraryand five or more of said Incorporators are
hereby further authorized and directed to do all things necessary, proper, advisable or convenient
to effect such registration.
In pursuance of such resolution, Benguet submitted in June, 1953, to the Securities and
Exchange
Commissioner,
for
alternative
registration,
two
documents:chanroblesvirtuallawlibrary (1) Certification as to the Modification of (the articles of
association of) the Benguet Consolidated Mining Company, extending the term of its existence to
another fifty years from June 15, 1953; chan roblesvirtualawlibraryand (2) articles of
incorporation, covering its reformation or reorganization as a corporation in accordance with
section 75 of the Philippine Corporation Law.
Relying mainly upon the adverse opinion of the Secretary of Justice (Op. No. 180, s. 1953), the
Securities
and
Exchange
Commissioner
denied
the
registration
and
ruled:chanroblesvirtuallawlibrary
(1) That the Benguet, as sociedad anonima, had no right to extend the original term of corporate
existence stated in its Articles of Association, by subsequent amendment thereof adopted after
enactment of the Corporation Law (Act No. 1459); chan roblesvirtualawlibraryand
(2) That Benguet, by its conduct, had chosen to continue as sociedad anonima, under section 75
of Act No. 1459, and could no longer exercise the option to reform into a corporation, specially
since it would indirectly produce the effect of extending its life.
This ruling is the subject of the present appeal.
Petitioner Benguet contends:chanroblesvirtuallawlibrary
(1) That the proviso of section 18 of the Corporation Law to the effect
that the life of said corporation shall not be extended by amendment beyond the time fixed in
the original articles.

does not apply to sociedades anonimas already in existence at the passage of the law,
likePetitioner herein;
(2) That to apply the said restriction imposed by section 18 of the Corporation Law to
sociedades anonimas already functioning when the said law was enacted would be in violation of
constitutional inhibitions;
(3) That even assuming that said restriction was applicable to it, Benguet could still exercise the
option of reforming and reorganizing under section 75 of the Corporation Law, thereby
prolonging its corporate existence, since the law is silent as to the time when such option may be
exercised or availed of.
The first issue arises because the Code of Commerce of 1886 under which Benguet was
organized, contains no prohibition (to extend the period of corporate existence), equivalent to
that set forth in section 18 of the Corporation Law. Neither does it expressly authorize the
extension. But the text of Article 223, reading:chanroblesvirtuallawlibrary
ART. 223. After the termination of the period for which commercial associations are
constituted, it shall not be understood as extended by the implied or presumed will of the
members; chan roblesvirtualawlibraryand if the members desire to continue in association, they
shall draw up new articles, subject to all the formalities prescribed for their creation as provided
in Article 119. (Code of Commerce.)
would seem to imply that the period of existence of the sociedad anonimas (or of any other
commercial association for that matter) may be extended if the partners or members so agree
before the expiration of the original period.
While the Code of Commerce, in so far as sociedades anonimas are concerned, was repealed by
Act No 1459, Benguet claims that article 223 is still operative in its favor under the last proviso
of section 191 of the Corporation law (ante, p. 4 to the effect that existing sociedades anonimas
would continue to be governed by the law in force before Act 1459,
in relation to their organization and method of transacting business and to the rights of members
among themselves, but their relations to the public and public officials shall be governed by the
provisions of this Act.
Benguet contends that the period of corporate life relates to its organization and the rights of its
members inter se, and not to its relations to the public or public officials.
We find this contention untenable.
The term of existence of association (partnership or sociedad anonima) is coterminous with their
possession of an independent legal personality, distinct from that of their component members.
When the period expires, the sociedad anonima loses the power to deal and enter into further
legal relations with other persons; chan roblesvirtualawlibraryit is no longer possible for it to
acquire new rights or incur new obligations, have only as may be required by the process of
liquidating and winding up its affairs. By the same token, its officers and agents can no longer
represent it after the expiration of the life term prescribed, save for settling its business.
Necessarily, therefore, third persons or strangers have an interest in knowing the duration of the
juridical personality of the sociedad anonima, since the latter cannot be dealt with after that
period; chan roblesvirtualawlibrarywherefore its prolongation or cessation is a matter directly
involving the companys relations to the public at large.

On the importance of the term of existence set in the articles of association of commercial
companies under the Spanish Code of Commerce, D. Lorenzo Benito y Endar, professor of
mercantile law in the Universidad Central de Madrid, has this to say:chanroblesvirtuallawlibrary
La duracion de la Sociedad. La necesidad de consignar este requisito en el contrato social
tiene un valor analogo al que dijimos tenia el mismo al tratar de las compaias colectivas, aun
cuando respecto de las anonimas no haya de tenerse en cuenta para nada lo que dijimos entonces
acerca de la trascendencia que ello tiene para los socios; chan roblesvirtualawlibraryporque no
existiendo en las anonimas la serie de responsibilidades de caracter personal que afectan a los
socios colectivos, es claro que la duracion de la sociedad importa conocerla a los socios y los
terceros, porque ella marca al limite natural del desenvolvimiento de la empresa constituida y el
comienzo de la liquidacion de la sociedad. (3 Benito, Derecho Mercantil, 292-293.)
Interesa, pues, la fijacion de la vida de la compaia, desenvolviendose con normalidad y
regularidad, tanto a los asociados como a los terceros. A aquellos, porque su libertad economica,
en cierto modo limitada por la existencia del contrato de compaia, se recobra despues de
realizada, mas o menos cumplidamente, la finalidad comun perseguida; chan
roblesvirtualawlibraryy a los terceros, porque les advierte el momento en que, extinguida la
compaia, no cabe y a la creacion con ella de nuevas relaciones juridicas, de que nazcan
reciprocamente derechos y obligaciones, sino solo la liquidacion de los negocios hasta entonces
convenidos, sin otra excepcion que la que luego mas adelante habremos de sealar. (3 Benito,
Derecho Mercantil, p. 245.)
The State and its officers also have an obvious interest in the term of life of associations, since
the conferment of juridical capacity upon them during such period is a privilege that is derived
from statute. It is obvious that no agreement between associates can result in giving rise to a new
and distinct personality, possessing independent rights and obligations, unless the law itself shall
decree such result. And the State is naturally interested that this privilege be enjoyed only under
the conditions and not beyond the period that it sees fit to grant; chan roblesvirtualawlibraryand,
particularly, that it be not abused in fraud and to the detriment of other parties; chan
roblesvirtualawlibraryand for this reason it has been ruled that the limitation (of corporate
existence) to a definite period is an exercise of control in the interest of the public (Smith vs.
Eastwood Wire Manufacturing Co., 43 Atl. 568).
We cannot assent to the thesis of Benguet that its period of corporate existence has relation to its
organization. The latter term is defined in Websters International Dictionary
as:chanroblesvirtuallawlibrary
The executive structure of a business; chan roblesvirtualawlibrarythe personnel of management,
with its several duties and places in administration; chan roblesvirtualawlibrarythe various
persons who conduct a business, considered as a unit.
The legal definitions of the term organization are concordant with that given
above:chanroblesvirtuallawlibrary
Organize or organization, as used in reference to corporations, has a well-understood meaning,
which is the election of officers, providing for the subscription and payment of the capital stock,
the adoption of by-laws, and such other steps as are necessary to endow the legal entity with the
capacity to transact the legitimate business for which it was created. Waltson vs. Oliver, 30 P.
172, 173, 49 Kan. 107, 33 Am. St. Rep. 355; chan roblesvirtualawlibraryTopeka Bridge Co. vs.

Cummings, 3 Kan. 55, 77; chan roblesvirtualawlibraryHunt vs. Kansas & M. Bridge Co., 11
Kan. 412, 439; chan roblesvirtualawlibraryAspen Water & Light Co., vs. City of Aspen, 37 P.
728, 730, 6 Colo. App. 12; chan roblesvirtualawlibraryNemaha Coal & Mining Co., vs. Settle 38
P. 483, 484, 54 Kan. 424.
Under a statute providing that, until articles of incorporation should be recorded, the corporation
should transact no business except its own organization, it is held that the term organization
means simply the process of forming and arranging into suitable disposition the parties who are
to act together in, and defining the objects of, the compound body, and that this process, even
when complete in all its parts, does not confer a franchise either valid or defective, but, on the
contrary, it is only the act of the individuals, and something else must be done to secure the
corporate franchise. Abbott vs. Omaha Smelting & Refining Co. 4 Neb. 416, 421. (30 Words
and Phrases, p. 282.)
It is apparent from the foregoing definitions that the term organization relates merely to the
systematization and orderly arrangement of the internal and managerial affairs and organs of
the Petitioner Benguet, and has nothing to do with the prorogation of its corporate life.
From the double fact that the duration of its corporate life (and juridical personality) has evident
connection with the Petitioners relations to the public, and that it bears none to thePetitioners
organization and method of transacting business, we derive the conclusion that the prohibition
contained in section 18 of the Corporation Law (Act No. 1459) against extension of corporate
life by amendment of the original articles was designed and intended to apply to compaias
anonimas that, like Petitioner Benguet, were already existing at the passage of said law. This
conclusion is reinforced by the avowed policy of the law to hasten the day when compaias
anonimas would be extinct, and replace them with the American type of corporation (Harden vs.
Benguet Consolidated Mining Co., supra), for the indefinite prorogation of the corporation life of
sociedades anonimas would maintain the unnecessary duality of organizational types instead of
reducing them to a single one; chan roblesvirtualawlibraryand what is more, it would confer
upon these sociedades anonimas, whose obsolescence was sought, the advantageous privilege of
perpetual existence that the new corporation could not possess.
Of course, the retroactive application of the limitations on the terms of corporate existence could
not be made in violation of constitutional inhibitions specially those securing equal protection of
the laws and prohibiting impairment of the obligation of contracts. It needs no argument to show
that if Act No. 1459 allowed existing compaias anonimas to be governed by the old law in
respect to their organization, methods of transacting business and the rights of the members
among themselves, it was precisely in deference to the vested rights already acquired by the
entity and its members at the time the Corporation Law was enacted. But we do not agree
with Petitioner Benguet (and here lies the second issue in this appeal) that the possibility to
extend its corporate life under the Code of Commerce constituted a right already vested when
Act No. 1459 was adopted. At that time, Benguets existence was well within the 50 years period
set in its articles of association; chan roblesvirtualawlibraryand its members had not entered into
any agreement that such period should be extended. It is safe to say that none of the members of
Benguet anticipated in 1906 any need to reach an agreement to increase the term of its corporate
life, barely three years after it had started. The prorogation was purely speculative; chan
roblesvirtualawlibrarya mere possibility that could not be taken for granted. It was as yet
conditional, depending upon the ultimate decision of the members and directors. They might
agree to extend Benguets existence beyond the original 50 years; chan roblesvirtualawlibraryor

again they might not. It must be remembered that in 1906, the success of Benguet in its mining
ventures was by no means so certain as to warrant continuation of its operations beyond the 50
years set in its articles. The records of this Court show that Benguet ran into financial difficulties
in the early part of its existence, to the extent that, as late as 1913, ten years after it was found,
301,100 shares of its capital stock (with a par value of $1 per share) were being offered for sale
at 25 centavos per share in order to raise the sum of P75,000 that was needed to rehabilitate the
company (Hanlon vs. Hausermann and Beam, 40 Phil., 796). Certainly the prolongation of the
corporate existence of Benguet in 1906 was merely a possibility in futuro, a contingency that did
not fulfill the requirements of a vested right entitled to constitutional protection, defined by this
Court in Balboa vs. Farrales, 51 Phil., 498, 502, as follows:chanroblesvirtuallawlibrary
Vested right is some right or interest in the property which has become fixed and established,
and is no longer open to doubt or controversy,
A vested right is defined to be an immediate fixed right of present or future enjoyment, and
rights are vested in contradistinction to being expectant or contingent (Pearsall vs. Great
Northern R. Co., 161 U. S. 646, 40 L. Ed. 838).
In Corpus Juris Secundum we find:chanroblesvirtuallawlibrary
Rights are vested when the right to enjoyment, present or prospective, has become the property
of some particular person or persons as a present interest. The right must be absolute, complete,
and unconditional, independent of a contingency, and a mere expectancy of future benefit, or a
contingent interest in property founded on anticipated continuance of existing laws, does not
constitute a vested right. So, inchoate rights which have not been acted on are not vested.
(16 C.J. S. 214-215.)
Since there was no agreement as yet to extend the period of Benguets corporate existence
(beyond the original 50 years) when the Corporation Law was adopted in 1906, neither Benguet
nor its members had any actual or vested right to such extension at that time. Therefore, when the
Corporation Law, by section 18, forbade extensions of corporate life, neither Benguet nor its
members were deprived of any actual or fixed right constitutionally protected.
To hold, as Petitioner Benguet asks, that the legislative power could not deprive Benguet or its
members of the possibility to enter at some indefinite future time into an agreement to extend
Benguets corporate life, solely because such agreements were authorized by the Code of
Commerce, would be tantamount to saying that the said Code was irrepealable on that point. It is
a well settled rule that no person has a vested interest in any rule of law entitling him to insist
that it shall remain unchanged for his benefit. (New York C. R. Co. vs. White, 61 L. Ed (U.S.)
667; chan roblesvirtualawlibraryMondou vs. New York N. H. & H. R. Co., 56 L. Ed. 327; chan
roblesvirtualawlibraryRainey vs. U. S., 58 L. Ed. 617; chan roblesvirtualawlibraryLilly Co. vs.
Saunders, 125 ALR. 1308; chan roblesvirtualawlibraryShea vs. Olson, 111 ALR. 998).
There can be no vested right in the continued existence of a statute or rule of the common law
which precludes its change or repeal, nor in any omission to legislate on a particular matter or
subject. Any right conferred by statute may be taken away by statute before it has become vested,
but after a right has vested, repeal of the statute or ordinance which created the right does not and
cannot affect much right. (16 C.J. S. 222-223.)

It is a general rule of constitutional law that a person has no vested right in statutory privileges
and exemptions (Brearly School vs. Ward, 201 NY. 358, 40 LRA NS. 1215; chan
roblesvirtualawlibraryalso, Cooley, Constitutional Limitations, 7th ed., p. 546).
It is not amiss to recall here that after Act No. 1459 the Legislature found it advisable to impress
further restrictions upon the power of corporations to deal in public lands, or to hold real estate
beyond a maximum area; chan roblesvirtualawlibraryand to prohibit any corporation from
endeavouring to control or hold more than 15 per cent of the voting stock of an agricultural or
mining corporation (Act No. 3518). These prohibitions are so closely integrated with our public
policy that Commonwealth Act No. 219 sought to extend such restrictions to associations of all
kinds. It would be subversive of that policy to enable Benguet to prolong its peculiar status of
sociedad anonimas, and enable it to cast doubt and uncertainty on whether it is, or not, subject to
those restrictions on corporate power, as it once endeavoured to do in the previous case of
Harden vs. Benguet Mining Corp. 58 Phil., 149.
Stress has been laid upon the fact that the Compaia Maritima (like Benguet, a sociedad anonima
established before the enactment of the Corporation Law) has been twice permitted to extend its
corporate existence by amendment of its articles of association, without objection from the
officers of the defunct Bureau of Commerce and Industry, then in charge of the enforcement of
the Corporation Laws, although the exact question was never raised then. Be that as it may, it is a
well established rule in this jurisdiction that the government is never estopped by mistake or
error on the part of its agents (Pineda vs. Court of First Instance of Tayabas, 52 Phil., 803, 807),
and that estopped cannot give validity to an act that is prohibited by law or is against public
policy (Eugenio vs. Perdido, (97 Phil., 41, May 19, 1955; chan roblesvirtualawlibrary19 Am. Jur.
802); chan roblesvirtualawlibraryso that the Respondent, Securities and Exchange
Commissioner, was not bound by the rulings of his predecessor if they be inconsistent with law.
Much less could erroneous decisions of executive officers bind this Court and induce it to
sanction an unwarranted interpretation or application of legal principles.
We now turn to the third and last issue of this appeal, concerning the exercise of the option
granted by section 75 of the Corporation Law to every sociedad anonima formed, organized and
existing under the laws of the Philippines on the date of the passage of this Act to either
continue business as such sociedad anonima or to reform and organize under the provisions of
the Corporation Law. Petitioner-Appellant Benguet contends that as the law does not determine
the period within which such option may be exercised, Benguet may exercise it at any time
during its corporate existence; chan roblesvirtualawlibraryand that in fact on June 22, 1953, it
chose to reform itself into a corporation for a period of 50 years from that date, filing the
corresponding papers and by-laws with the Respondent Commissioner of Securities and
Exchange registration; chan roblesvirtualawlibrarybut the latter refused to accept them as
belatedly made.
The Petitioners argument proceeds from the unexpressed assumption that Benguet, as sociedad
anonima, had not exercised the option given by section 75 of the Corporation Law until 1953.
This we find to be incorrect. Under that section, by continuing to do business as sociedad
anonima, Benguet in fact rejected the alternative to reform as a corporation under Act No. 1459.
It will be noted from the text of section 75 (quoted earlier in this opinion) that no special act or
manifestation is required by the law from the existing sociedades anonimas that prefer to remain
and continue as such. It is when they choose to reform and organize under the Corporation Law
that they must, in the words of the section, transfer all corporate interests to the new

corporation. Hence if they do not so transfer, the sociedades anonimas affected are to be
understood to have elected the alternative to continue business as such corporation (sociedad
anonima) 2
The election of Benguet to remain a sociedad anonima after the enactment of the Corporation
Law is evidence, not only by its failure, from 1906 to 1953, to adopt the alternative to transfer its
corporate interests to a new corporation, as required by section 75; chan roblesvirtualawlibraryit
also appears from positive acts. Thus around 1933, Benguet claimed and defended in court its
acquisition of shares of the capital stock of the Balatoc Mining Company, on the ground that as a
sociedad anonima it (Benguet) was not a corporation within the purview of the laws prohibiting a
mining corporation from becoming interested in another mining corporation (Harden vs. Benguet
Mining Corp., 58 Phil., p. 149). Even in the present proceedings, Benguet has urged its right to
amend its original articles of association as sociedad anonima and extend its life as such under
the provisions of the Spanish Code of Commerce. Such appeals to privileges as sociedad
anonima under the Code of 1886 necessarily imply that Benguet has rejected the alternative of
reforming under the Corporation Law. As Respondent Commissioners order, now under appeal,
has stated
A sociedad anonima could not claim the benefit of both, but must have to choose one and
discard the other. If it elected to become a corporation it could not continue as a sociedad
anonima; chan roblesvirtualawlibraryand if it choose to remain as a sociedad anonima, it could
not become a corporation.
Having thus made its choice, Benguet may not now go back and seek to change its position and
adopt the reformation that it had formerly repudiated. The election of one of several alternatives
is irrevocable once made (as now expressly recognized in article 940 of the new Civil Code of
the Philippines):chanroblesvirtuallawlibrary such rule is inherent in the nature of the choice, its
purpose being to clarify and render definite the rights of the one exercising the option, so that
other persons may act in consequence. While successive choices may be provided there is
nothing in section 75 of the Corporation Law to show or hint that a sociedad anonima may make
more than one choice thereunder, since only one option is provided for.
While no express period of time is fixed by the law within which sociedades anonimas may elect
under section 75 of Act No. 1459 either to reform or to retain their status quo, there are powerful
reasons to conclude that the legislature intended such choice to be made within a reasonable time
from the effectivity of the Act. To enable a sociedad anonima to choose reformation when its
stipulated period of existence is nearly ended, would be to allow it to enjoy a term of existence
far longer than that granted to corporations organized under the Corporation Law; chan
roblesvirtualawlibraryin Benguets case, 50 years as sociedad anonima, and another 50 years as
an American type of corporation under Act 1459; chan roblesvirtualawlibrarya result
incompatible with the avowed purpose of the Act to hasten the disappearance of the sociedades
anonimas. Moreover, such belated election, if permitted, would enable sociedades anonimas to
reap the full advantage of both types of organization. Finally, it would permit sociedades
anonimas to prolong their corporate existence indirectly by belated reformation into corporations
under Act No. 1459, when they could not do so directly by amending their articles of association.
Much stress is laid upon allegedly improper motives on the part of the intervenor, Consolidated
Mines, Inc., in supporting the orders appealed from, on the ground that intervenor seeks to
terminate Benguets operating contract and appropriate the profits that are the result of Benguets

efforts in developing the mines of the intervenor. Suffice it to say that whatever such motives
should be, they are wholly irrelevant to the issues in this appeal, that exclusively concern the
legal soundness of the order of the Respondent Securities and Exchange Commissioner rejecting
the claims of the Benguet Consolidated Mining Company to extend its corporate life.
Neither are we impressed by the prophesies of economic chaos that would allegedly ensure with
the cessation of Benguets activities. If its mining properties are really susceptible of profitable
operation, inexorable economic laws will ensure their exploitation; chan roblesvirtualawlibraryif,
on the other hand, they can no longer be worked at a profit, then catastrophe becomes inevitable,
whether or not Petitioner Benguet retains corporate existence.
Sustaining the opinions of the Respondent Securities and Exchange Commissioner and of the
Secretary of Justice, we rule that:chanroblesvirtuallawlibrary
(1) The prohibition contained in section 18 of Act No. 1459, against extending the period of
corporate existence by amendment of the original articles, was intended to apply, and does apply,
to sociedades anonimas already formed, organized and existing at the time of the effectivity of
the Corporation Law (Act No. 1459) in 1906;
(2) The statutory prohibition is valid and impairs no vested rights or constitutional inhibition
where no agreement to extend the original period of corporate life was perfected before the
enactment of the Corporation Law;
(3) A sociedad anonima, existing before the Corporation Law, that continues to do business as
such for a reasonable time after its enactments, is deemed to have made its election and may not
subsequently claim to reform into a corporation under section 75 of Act No. 1459.
In view of the foregoing, the order appealed from is affirmed. Costs against PetitionerAppellant Benguet Consolidated Mining Company.
Padilla, Montemayor, Reyes, A. Labrador, Concepcion and Endencia, JJ., concur.
Separate Opinions
PARAS, C.J., dissenting:chanroblesvirtuallawlibrary
The Petitioner, Benguet Consolidated Mining Company, was organized as a sociedad anonima
on June 24, 1903, under the provisions of the Code of Commerce, and its term as fixed in the
articles of association was fifty years. It has been a leading enterprise, long and widely reputed to
have pioneered in and boosted the mining industry, distributed profits among its shareholders,
and given employment to thousands. To be more approximately exact, thePetitioner has kept on
its payrolls over four thousand Filipino employees who have about twenty thousand dependents.
The taxes and other dues paid by it to the Government have been in enormous amounts. It has
always been subject to such supervision and control of Government officials as are prescribed by
law.
When, therefore, the Petitioner on June 3, 1953, presented all necessary documents to
theRespondent, the Securities and Exchange Commissioner, with a view to the extension of its
term as a sociedad anonima for a period of fifty years from June 15, 1953; chan
roblesvirtualawlibrarywhen on June 22, 1953, it filed with said Respondent the necessary articles
of incorporation and other documents, with a view to reforming itself as a corporation under the

Corporation Law for a period of fifty years from June 22, 1953, followed by the filing on July
22, 1953, of the corresponding by-laws; chan roblesvirtualawlibraryand when on October 27,
1953, the Respondent issued an order denying the registration of the instruments as well for
extension as for reformation,Petitioners corporate life was being snapped out with such
lightning abruptness as undoubtedly to spell damage and prejudice not so much to its
shareholders as to its beneficiaries thousands of employees and their dependents and even
to the Government which stands to lose a good source of revenue.
The Petitioner contends (1) that the Respondent had the ministerial duty of registering the
documents presented either for extension of Petitioners term as a sociedad anonima or for its
reformation under the Corporation Law, in the absence (as in this case) of any pretense that said
documents are formally defective or that Petitioners purposes are unlawful; chan
roblesvirtualawlibraryand (2) that as the Petitioner had organized as a sociedad anonima under
the Code of Commerce, it has acquired a vested right which cannot subsequently be affected or
taken away by the Corporation Law enacted on April 1, 1906. I would not dwell upon these
contentions, because I hold that, even under the provisions of the Corporation Law,
the Petitioner may either extend its life as a sociedad anonima or reform as a corporation.
Section 75 of the Corporation Law provides:chanroblesvirtuallawlibrary
Any corporation or sociedad anonima formed, organized and existing under the laws of the
Philippine Islands and lawfully transacting business in the Philippine Islands on the date of the
passage of this Act, shall be subject to the provisions hereof so far as such provisions may be
applicable and shall be entitled at its option either to continue business as such corporation or to
reform and organize under, and by virtue of the provisions of this Act, transferring all corporate
interests to the new corporation which, if a stock corporation, is authorized to issue its shares of
stock at par to the stockholders or members of the old corporation according to their interests.
Upon the other hand, section 191 reads as follows:chanroblesvirtuallawlibrary
The Code of Commerce, in so far as it relates to corporations or sociedades anonimas, and all
other or parts of Acts in conflict or inconsistent with this Act, are hereby repealed cralaw And
provided, further, That existing corporations or sociedades anonimas lawfully organized as such,
which elect to continue their business as such sociedades anonimas instead of reforming and
reorganizing under and by virtue of the provisions of this Act, shall continue to be governed by
the laws that were in force prior to the passage of this Act in relation to their organization and
method of transacting business and to the rights of members thereof as between themselves, but
their relations to the public and public officials shall be governed by the provisions of this Act.
It is noteworthy that section 75 has not limited the optional continuance of a sociedad anonima to
its unexpired term, and section 191 expressly allows a sociedad anonima which has elected to
continue its business as such to be governed by the laws in force prior to the enactment of the
Corporation Law in relation to its organization and method of transacting business and to the
rights of members as between themselves. It is admitted that the Code of Commerce, while
containing no express provision allowing it, does not prohibit a sociedad anonima from
extending its term; chan roblesvirtualawlibraryand commentators Gay de Montella (Tratado
Practico de Sociedad Marcantiles Compaias Anonimas, Tomo II, p. 285) and Cesar Vivante
(Tratado de Derecho Mercantil, pp. 254, 258) have observed that a sociedad anonima may
prolong its corporate duration by amendment of its articles of association before the expiration of
the term.

When a business or commercial association is organized, the members are naturally interested in
knowing not only their rights and obligations but also the duration of their legal relations. While
organization in a strict sense may refer to formalities like election of officers, adoption of bylaws, and subscription and payment of capital stock, it cannot be spoken of or conceived in a
wider sense without necessarily involving the specification of the term of the entity formed.
Extension of corporation life is thus essentially an incident of organization and, in any event, a
matter directly affecting or in relation to the rights of the shareholders as between themselves,
within the contemplation of section 191, and should accordingly be governed by the Code of
Commerce. As pointed out by the Supreme Court of Wyoming in the case of Drew vs. Beckwith,
(114 P. 2d. 98), extension merely involves an additional privilege to carry out the business of
enterprise undertaken by the corporation, and is but an enlargement of the enterprise
undertaken by the corporation. It is true that the duration of a sociedad anonima is of some
concern to the public and public officials who ought to know the time when it will cease to exist
and its business will be wound up. Notice to the world is however served by the registration
of Petitioners articles of association as a sociedad anonima or articles of incorporation as a
reformed corporation with the Securities and Exchange Commission.
When section 191 mentions relations to the public and public officials as being governed by
the provisions of the Corporation Law, the idea is obviously more to enable the Government to
enforce its powers of supervision, inspection and investigation, than to restrict the freedom of the
corporate entity as to organizational or substantive rights of members as between themselves. In
one of the public hearings conducted by the Philippine Commission before the enactment of the
Corporation Law, Commissioner Ide pertinently expressed, Of course, whether they
(sociedades) come under the new law or not they would be subject to inspection, regulations, and
examination for the purpose of protecting the community. The Attorney General in turn held
that sociedades anonimas, although governed by the Code of Commerce, are subject to the
examination provided in section 54 of the Corporation Law (5 Op. Atty. Gen. 442). In this
connection, the Petitioner has admittedly subjected itself to the provisions of the Corporation
Law.
In Harden vs. Benguet Consolidated Mining Co., 58 Phil., 141, it was
remarked:chanroblesvirtuallawlibrary The purpose of the commission in repealing this part of
the Code of Commerce was to compel commercial entities thereafter organized to incorporate
under the Corporation Law, unless they should prefer to adopt some form or other of the
partnership. This Court already indicated that the commercial entities compelled to incorporate
under the Corporation Law were those organized after its enactment.
Section 6, subsection 4, of the Corporation Law provides that the term for which corporations
shall exist shall not exceed fifty years; chan roblesvirtualawlibrarysection 18 provides that the
life of a corporation shall not be extended by amendment beyond the time fixed in the original
articles; chan roblesvirtualawlibraryand section 11 provides that upon the issuance by the
Securities and Exchange Commissioner of the certificate of incorporation, the persons organizing
the corporation shall constitute a body politic and corporate for the term specified in the articles
of incorporation, not exceeding fifty years. The corporations contemplated are those defined in
section 22 corporations organized under the Corporation Law. They cannot be sociedades
anonimas formed under the Code of Commerce and licensed to continue as such in virtue of
sections 75 and 191. Otherwise the words or sociedad anonima would have been added to the
term corporation in section 18, as was done in sections 75 and 191. A similar observation was

made in Harden vs. Benguet Consolidated Mining Co., supra:chanroblesvirtuallawlibrary But


when the word corporation is used in the sense of sociedad anonima and close discrimination is
necessary, it should be associated with the Spanish expression sociedad anonima either in
parenthesis or connected by the word or. This latter device was adopted in sections 75 and 191
of the Corporation Law.
The citation from 3 Benito, Derecho Mercantil, p. 245, invoked in the majority decision, to the
effect that the duration of a sociedad anonima is of interest both to its members and to third
persons, is clearly an authority for our conclusions that the extension of Petitioners term is in
relation to the rights of members thereof as between themselves. Section 191 does not say that
a sociedad anonima shall be governed by the provisions of the Corporation Law when the matter
involved affects not only the rights of members thereof as between themselves but also the
public and public officials.
We are also of the opinion that alternatively, under section 75, the Petitioner may elect to reform
and organize under the Corporation Law, transferring all its corporate interests to the new
corporation. Contrary to the ruling of the Respondent, we are convinced that, as no period was
fixed within which it should exercise the option either of continuing as a sociedad anonima or
reforming and organizing under the Corporation Law, the Petitioner was entitled to have its
articles of incorporation and by-laws presented respectively on June 22 and July 22, 1953,
registered by the Respondent. Section 75 did not take away Petitioners right to exhaust its term
as a sociedad anonima, already vested before the enactment of the Corporation Law, but merely
granted it the choice to organize as a regular corporation, instead of extending its life as a
sociedad anonima. The only limitation imposed is that prescribed in section 191, namely, that if a
sociedad anonima elects to continue its business as such, it shall be governed by the prior law in
relation to its organization and method of transacting business and to the rights of its members as
between themselves, and by the provisions of the Corporation Law as to its relations to the
public and public officials. If the intention were to fix a period for reformation, the law would
have expressly so provided, in the same way that section 19 fixes two years during which a
corporation should formally organize and commence the transaction of its business, otherwise its
corporate powers would cease; chan roblesvirtualawlibrarysection 77 fixes three years from the
dissolution of a corporation within which it may clear and settle its affairs; chan
roblesvirtualawlibraryand section 78 fixes the same period of three years within which a
corporation may convey its properties to a trustee for the benefit of its stockholders and other
interested persons.
It is not correct to argue that the Petitioner is not entitled to elect to continue as a sociedad
anonima and at the same time reform and organize as a regular corporation, because when it
continued as a sociedad anonima after the passage of the Corporation Law and during its full
term of fifty years, it merely exercised a right it theretofore had; chan roblesvirtualawlibraryand
the Petitioner can be said properly to have availed itself of the other option only when in June
1953 it filed the necessary papers of incorporation under the Corporation Law. It is likewise not
accurate to contend that, as the Respondent ruled, the Petitioner could reform as and be a regular
corporation at most only for the remainder of its term as a sociedad anonima. Section 75, in
allowing a sociedad anonima to reform and organize under the Corporation Law, also authorizes
the transfer of its corporate interests to the new corporation. This new corporation should have
the advantage of the prescribed maximum duration, regardless of the original term of the old or
substituted entity. There is no basis for the criticism that, if thePetitioner were allowed to exhaust

its full term as a sociedad anonima, and afterwards to reform as a regular corporation for another
fifty years, it would have a span of life twice as long as that granted to corporations organized
under the Corporation Law. The simple reason is that the Petitioner was already a corporate
entity before the enactment of the Corporation Law, with a fixed duration under its original
articles of association. It was clearly not in parity with any corporation organized under and
coming into existence after the effectivity of the Corporation Law which has no choice on the
matter and can therefore have only the prerogative granted by said law, no more no less.
The Respondent has suggested that the Petitioner, if desirous of continuing its business, may
organize a new corporation a suggestion which need not be made because no one would
probably think of denying it that right. But we cannot see any cogent reason or practical purpose
for the suggestion. In the first place, the filing of Petitioners articles of incorporation and bylaws in July, 1953, in effect amounted to the formation of a new corporation. To require more is
to give greater importance to form than to substance. In the second place, the public and public
officials may not as a matter of fact be adversely affected by allowing thePetitioner to reform,
instead of requiring it technically to form a new corporation. It will acquire no greater rights or
obligations by simple reformation than by newly organizing another corporation. Conversely, the
public and public officials will acquire no greater benefit or control by requiring the Petitioner to
form a new corporation, than by allowing it to reform. And as already stated, whatever interest
the public and public officials may have in determining the duration of a sociedad anonima or
any corporation for that matter, is amply protected by registration in the Securities and Exchange
Commission.
The Respondent and the intervenor, Consolidated Mines, Inc., have tried to show that
thePetitioner holds or owns interests in eight mining companies, in violation of section 13,
subsection 5 of the Corporation Law, in that it has operating contracts with the intervenor and
seven other mining companies, besides owning the majority shares in Balatoc Mining Co. This
matter has not merited any attention or favorable comment in the majority decision, and rightly
of course. Even so, we may observe that the alleged violation was not the subject of any finding
by the Respondent, nor relied upon in his order of denial; chan roblesvirtualawlibrarythat
the Petitionerhas denied the charge; chan roblesvirtualawlibrarythat the holding by
the Petitioner of shares of stock in Balatoc Mining Co., if really illegal, may look into only in a
quo warranto proceeding instituted by the Government; chan roblesvirtualawlibrarythat at any
rate the Petitioner has always been ready and willing to dispose of said shares and, in a proper
proceeding, it should be given reasonable time to do so, as this Court gave the Philippine Sugar
Estates a period of six months after final decision within which to liquidate, dissolve and
separate absolutely in every respect and in all of its relations, complained of in the petition, with
the Tayabas Land Company (Government vs. Philippine Sugar Estates Co., 38 Phil., 15).
With special reference to the intervenor, it may be of some moment to know the antecedents and
nature of business relations existing between it and the Petitioner, at least to demonstrate the
righteousness of the position of one or the other even from a factual point of view. The following
excerpts from Petitioners Reply to a portion of Intervenors Brief are in
point:chanroblesvirtuallawlibrary
What has happened in our case is that prior to the execution of the Operating Agreement of July
9, 1934, the stockholders, directors, and officers of the intervenor, Consolidated Mines, Inc., did
not want to risk one centavo of their own funds for the development of their chrome ore mining
claims in Zambales province, and proposed to the Petitioner herein, Benguet Consolidated

Mining Company, to explore, develop and operate their mining claims, Benguet to furnish all the
funds that might be necessary, and to explore, develop, mine and concentrate and market all the
pay are found on or within paid claims or properties, the intervenor, Consolidated Mines, Inc.,
and the Petitioner, Benguet Consolidated Mining Company, after the latter had reimbursed itself
for all its advances, to divide half and half the excess of receipts over disbursements. Benguet
agreed to it, and advanced approximately three million pesos, one-half thereof before the war,
and the other half after the war (the intervenors properties having been destroyed during the
war). Paragraph XII of the intervenors complaint in the civil action instituted by it against
Benguet in the Court of First Instance of Manila, No. 18938, and to which counsel for the
intervenor refer in page 5 of their brief, makes mention of the large sums of money that Benguet
advanced, as follows:chanroblesvirtuallawlibrary
Initial advances amounting to approximately P1,500,000 made by Defendant during the first
phases of said Operating Agreement which had been fully reimbursed to it before the war, end of
the amounts likewise advanced by it (Benguet) for rehabilitation amounting to close
P1,500,000.00.
While Benguet risked and poured approximately three million pesos (P3,000,000) into the
venture, and while Benguet was looking for, and establishing, a market for intervenors chrome
ore, the intervenor, Consolidated Mines, Inc., considered the said Operating Agreement of July 9,
1934, as valid. Now that Benguets efforts have been crowned with success, and Benguet has
established a market for intervenors chrome ore, the intervenor claims that its said operating
Agreement of July 9, 1934, with the Petitioner, Benguet, is contrary to law because Benguet has
become interested in intervenors chrome ore mining claims (although the agreement expressly
states that Benguet has no interest therein), and objects to the registration of the documents
which Benguet filed with the RespondentSecurities and Exchange Commissioner, extending its
life as a sociedad anonima, and reforming itself s a corporation, in accordance with the
provisions of section 75 of the Corporation Law.
Under the foregoing facts, the intervenor, Consolidated Mines, Inc., cannot be heard to
complain against Benguet. No court can give now a helping hand to the intervenor, which claims
that Benguet no longer lives, and wants to keep for itself all the products of Benguets efforts
after the latter risked into the venture approximately three million pesos (P3,000,000).
The foregoing considerations may not constitute a legal justification for ruling that
thePetitioner should be allowed either to extend its life as a sociedad anonima or to reform and
organize under the provisions of the Corporation Law, but they may aid in resolving
inPetitioners favor and doubt as to the clarity or definiteness of sections 75 and 191 of the
Corporation Law regarding its right to exercise either option in the manner claimed by it.
The same result may be arrived at if, in addition, we bear in mind the possible economic harm
that may be brought about by the affirmance of the order complained of. This aspect is
adequately touched in Petitioners brief, as follows:chanroblesvirtuallawlibrary
1. A loss of employment in the Baguio district by about 4,000 Filipino and a loss of direct
living from the Benguet operation supplied to 20,000, that is, the 4,000 employed and their
dependents.
(a) This would be calamity to the district of the highest order which could very well produce a
snow balling depression which could react all over the Philippine Islands.

2. Losses of direct and indirect taxes to the Philippine Government in an extremely large yearly
amount.
3. No one would be able to continue the Benguet and Balatoc mines in operation should a
liquidation of Benguet take place because the net profits after labor and material costs and taxes
in the last two years or more from the gold mining operations have not warranted their continued
operation as independent units. The profits in 1953 certainly do not warrant it. It is merely a case
of taking gold out of the ground in order to pay for labor, materials and taxes with very little
return to the stockholders and on the huge investment made in the reconstruction since 1946.
(a) The relief provided by the elimination of the 17 per cent Excise Tax, the 7 per cent
Compensating Tax and the lowering of the Extraction Tax, when counter-balanced against
consistently increasing costs from month to month up to this very month, is now nothing but an
offsetting item against constantly increasing costs.
For whatever persuasive effect it may have, we cannot help calling attention to the fact that there
are only about nine sociedades anonimas in the country, foremost among them being Compaia
Maritima, which have existed for years and along with the Petitioner figured prominently in our
economic development. Compaia Maritima, in particular, has been twice allowed to extend its
life by amendment of its articles of incorporation. It may be argued that if there was an official
mistake in acceding to the extension of the term of Compaia Maritima, the same should not
warrant the commission of another mistake. But it will go to show that sections 75 and 191 of the
Corporation Law are, on the points herein involved, of doubtful construction; chan
roblesvirtualawlibraryand it is for this reason that we had to advert hereinabove to the somewhat
unequitable position of the intervenor and to the possible adverse effect on Philippine economy
of the abrupt termination of Petitioners corporate existence.
By and large, it is my considered opinion that the Respondents order of denial dated October 27,
1953, should be reversed and the Respondent ordered to register at least the documents presented
by the Petitioner, reforming and organizing itself as a corporation under the provisions of the
Corporation Law. This would be in line with the policy of doing away with sociedad anonimas,
at the same time saving the goose that lays the golden egg.
Jugo and Bautista Angelo, JJ., concur.

G.R. No. 9321

September 24, 1914

NORBERTO
ASUNCION,
vs.
MANUEL DE YRIARTE, respondent-appellee.

ET

Modesto
Reyes
Attorney-General Villamor for appellee.

AL., petitioners-appellants,

for

appellants.

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.