Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-37331

March 18, 1933

FRED M. HARDEN, J.D. HIGHSMITH, and JOHN C. HART, in their own behalf and
in that all other stockholders of the Balatoc Mining Company, etc., plaintiffsappellants,
vs.
BENGUET CONSOLIDATED MINING COMPANY, BALATOC MINING COMPANY, H. E.
RENZ, JOHN W. JAUSSERMANN, and A. W. BEAM, defendants-appellees.
Gibbs and McDonough and Roman Ozaeta for appellants.
DeWitt, Perkins and Brady for appellees.
Ross, Lawrence and Selph for appellee Balatoc Mining Company.
STREET, J.:
This action was originally instituted in the Court of First Instance of the City of Manila by
F. M. Harden, acting in his own behalf and that of all other stockholders of the Balatoc
Mining Co. who might join in the action and contribute to the expense of the suit. With
the plaintiff Harden two others, J. D. Highsmith and John C. Hart, subsequently associated
themselves. The defendants are the Benguet Consolidated Mining Co., the Balatoc
Mining Co., H. E. Renz, John W. Haussermann, and A. W. Beam. The principal purpose of
the original action was to annul a certificate covering 600,000 shares of the stock of the
Balatoc Mining Co., which have been issued to the Benguet Consolidated Mining Co., and
to secure to the Balatoc Mining Co., the restoration of a large sum of money alleged to
have been unlawfully collected by the Benguet Consolidated Mining Co., with legal
interest, after deduction therefrom of the amount expended by the latter company under
a contract between the two companies, bearing date of March 9, 1927. The complaint
was afterwards amended so as to include a prayer for the annulment of this contract.
Shortly prior to the institution of this lawsuit, the Benguet Consolidated Mining Co.,
transferred to H. E. Renz, as trustee, the certificate for 600,000 shares of the Balatoc
Mining Co. which constitute the principal subject matter of the action. This was done
apparently to facilitate the splitting up to the shares in the course of the sale or
distribution. To prevent this the plaintiffs, upon filing their original complaint, procured a
preliminary injunction restraining the defendants, their agents and servants, from selling,
assigning or transferring the 600,000 shares of the Balatoc Mining Co., or any part
thereof, and from removing said shares from the Philippine Islands. This explains the
connection of Renz with the case. The other individual defendants are made merely as
officials of the Benguet Consolidated Mining Co. Upon hearing the cause the trial court
dismissed the complaint and dissolved the preliminary injunction, with costs against the
plaintiffs. From this judgment the plaintiffs appealed.
The facts which have given rise this lawsuit are simple, as the financial interests involve
are immense. Briefly told these facts are as follows: The Benguet Consolidated Mining
Co. was organized in June, 1903, as a sociedad anonima in conformity with the provisions
of Spanish law; while the Balatoc Mining Co. was organized in December 1925, as a
corporation, in conformity with the provisions of the Corporation Law (Act No. 1459).
Both entities were organized for the purpose of engaging in the mining of gold in the
Philippine Islands, and their respective properties are located only a few miles apart in
the subprovince of Benguet. The capital stock of the Balatoc Mining Co. consists of one
million shares of the par value of one peso (P1) each.

When the Balatoc Mining Co. was first organized the properties acquired by it were
largely undeveloped; and the original stockholders were unable to supply the means
needed for profitable operation. For this reason, the board of directors of the corporation
ordered a suspension of all work, effective July 31, 1926. In November of the same year a
general meeting of the company's stockholders appointed a committee for the purpose
of interesting outside capital in the mine. Under the authority of this resolution the
committee approached A. W. Beam, then president and general manager of the Benguet
Company, to secure the capital necessary to the development of the Balatoc property. As
a result of the negotiations thus begun, a contract, formally authorized by the
management of both companies, was executed on March 9, 1927, the principal features
of which were that the Benguet Company was to proceed with the development and
construct a milling plant for the Balatoc mine, of a capacity of 100 tons of ore per day,
and with an extraction of at least 85 per cent of the gold content. The Benguet Company
also agreed to erect an appropriate power plant, with the aerial tramlines and such other
surface buildings as might be needed to operate the mine. In return for this it was
agreed that the Benguet Company should receive from the treasurer of the Balatoc
Company shares of a par value of P600,000, in payment for the first P600,000 be thus
advanced to it by the Benguet Company.
The performance of this contract was speedily begun, and by May 31, 1929, the Benguet
Company had spent upon the development the sum of P1,417,952.15. In compensation
for this work a certificate for six hundred thousand shares of the stock of the Balatoc
Company has been delivered to the Benguet Company, and the excess value of the work
in the amount of P817,952.15 has been returned to the Benguet Company in cash.
Meanwhile dividends of the Balatoc Company have been enriching its stockholders, and
at the time of the filing of the complaint the value of its shares had increased in the
market from a nominal valuation to more than eleven pesos per share. While the
Benguet Company was pouring its million and a half into the Balatoc property, the
arrangements made between the two companies appear to have been viewed by the
plaintiff Harden with complacency, he being the owner of many thousands of the shares
of the Balatoc Company. But as soon as the success of the development had become
apparent, he began this litigation in which he has been joined by two others of the eighty
shareholders of the Balatoc Company.
Briefly, the legal point upon which the action is planted is that it is unlawful for the
Benguet Company to hold any interest in a mining corporation and that the contract by
which the interest here in question was acquired must be annulled, with the consequent
obliteration of the certificate issued to the Benguet Company and the corresponding
enrichment of the shareholders of the Balatoc Company.
When the Philippine Islands passed to the sovereignty of the United States, in the
attention of the Philippine Commission was early drawn to the fact that there is no entity
in Spanish law exactly corresponding to the notion of the corporation in English and
American law; and in the Philippine Bill, approved July 1, 1902, 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 section
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 provisions, in its
original form, reads as follows: "... 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.
For the purposes general description only, it may be stated that the sociedad anonima is
something very much like the English joint stock company, with features resembling
those of both the partnership is shown in the fact that sociedad, the generic component
of its name in Spanish, is the same word that is used in that language to designate other
forms of partnership, and in its organization it is constructed along the same general
lines as the ordinary partnership. It is therefore not surprising that for purposes of loose
translation the expression sociedad anonima has not infrequently the other hand, the
affinity of this entity to the American corporation has not escaped notice, and the
expression sociedad anonima is now generally translated by the word corporation. 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 a parenthesis or connected by the word "or". This
latter device was adopted in sections 75 and 191 of the Corporation Law.
In drafting the Corporation Law the Philippine Commission inserted bodily, in subsection
(5) of section 13 of that Act (No. 1459) the words which we have already quoted from
section 75 of the Act of Congress of July 1, 1902 (Philippine Bill); and it is of course
obvious that whatever meaning originally attached to this provision in the Act of
Congress, the same significance should be attached to it in section 13 of our Corporation
Law.
As it was the intention of our lawmakers to stimulate the introduction of the American
Corporation into Philippine law in the place of the sociedad anonima, it was necessary to
make certain adjustments 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."
As already observed, the provision above quoted from section 75 of the Act Congress of
July 1, 1902 (Philippine Bill), generally prohibiting corporations engaged in mining and
members of such from being interested in any other corporation engaged in mining, was
amended by section 7 of Act No. 3518 of the Philippine Legislature, approved by
Congress March 1, 1929. The change in the law effected by this amendment was in the
direction of liberalization. Thus, the inhibition contained in the original provision against
members of a corporation engaged in agriculture or mining from being interested in
other corporations engaged in agriculture or in mining was so modified as merely to
prohibit any such member from holding more than fifteen per centum of the outstanding
capital stock of another such corporation. Moreover, the explicit prohibition against the
holding by any corporation (except for irrigation) of an interest in any other corporation

engaged in agriculture or in mining was so modified as to limit the restriction to

corporations organized for the purpose of engaging in agriculture or in mining.
As originally drawn, our Corporation Law (Act No. 1459) did not contain any appropriate
clause directly penalizing the act of a corporation, a member of a corporation , in
acquiring an interest contrary to paragraph (5) of section 13 of the Act. The Philippine
Legislature undertook to remedy this situation in section 3 of Act No. 2792 of the
Philippine Legislature, approved on February 18, 1919, but this provision was declared
invalid by this court in Government of the Philippine Islands vs. El Hogar Filipino (50 Phil.,
399), for lack of an adequate title to the Act. Subsequently the Legislature reenacted
substantially the same penal provision in section 21 of Act No. 3518, under a title
sufficiently broad to comprehend the subject matter. This part of Act No. 3518 became
effective upon approval by the Governor-General, on December 3, 1928, and it was
therefore in full force when the contract now in question was made.
This provision was inserted as a new section in the Corporation Law, forming section
1990 (A) of said Act as it now stands. Omitting the proviso, which seems not to be
pertinent to the present controversy, said provision reads as follows:
SEC. 190 (A). Penalties. The violation of any of the provisions of this Act and its
amendments not otherwise penalized therein, shall be punished by a fine of not
more than five thousand pesos and by imprisonment for not more than five years,
in the discretion of the court. If the violation is committed by a corporation, the
same shall, upon such violation being proved, be dissolved by quo
warranto proceedings instituted by the Attorney-General or by any provincial fiscal
by order of said Attorney-General: . . . .
Upon a survey of the facts sketched above it is obvious that there are two fundamental
questions involved in this controversy. The first is whether the plaintiffs can maintain an
action based upon the violation of law supposedly committed by the Benguet Company
in this case. The second is whether, assuming the first question to be answered in the
affirmative, the Benguet Company, which was organized as a sociedad anonima, is a
corporation within the meaning of the language used by the Congress of the United
States, and later by the Philippine Legislature, prohibiting a mining corporation from
becoming interested in another mining corporation. It is obvious that, if the first question
be answered in the negative, it will be unnecessary to consider the second question in
this lawsuit.
Upon the first point it is at once obvious that the provision referred to was adopted by
the lawmakers with a sole view to the public policy that should control in the granting of
mining rights. Furthermore, the penalties imposed in what is now section 190 (A) of the
Corporation Law for the violation of the prohibition in question are of such nature that
they can be enforced only by a criminal prosecution or by an action of quo warranto. But
these proceedings can be maintained only by the Attorney-General in representation of
the Government.
What room then is left for the private action which the plaintiffs seek to assert in this
case? The defendant Benguet Company has committed no civil wrong against the
plaintiffs, and if a public wrong has been committed, the directors of the Balatoc
Company, and the plaintiff Harden himself, were the active inducers of the commission
of that wrong. The contract, supposing it to have been unlawful in fact, has been
performed on both sides, by the building of the Balatoc plant by the Benguet Company
and the delivery to the latter of the certificate of 600,000 shares of the Balatoc Company.
There is no possibility of really undoing what has been done. Nobody would suggest the
demolition of the mill. The Balatoc Company is secure in the possession of that
improvement, and talk about putting the parties in status quo ante by restoring the
consideration with interest, while the Balatoc Company remains in possession of what it
obtained by the use of that money, does not quite meet the case. Also, to mulct the
Benguet Company in many millions of dollars in favor of individuals who have not the

slightest equitable right to that money in a proposition to which no court can give a
ready assent.
The most plausible presentation of the case of the plaintiffs proceeds on the assumption
that only one of the contracting parties has been guilty of a misdemeanor, namely, the
Benguet Company, and that the other party, the Balatoc Company, is wholly innocent to
participation in that wrong. The plaintiffs would then have us apply the second paragraph
of article 1305 of the Civil Code which declares that an innocent party to an illegal
contract may recover anything he may have given, while he is not bound to fulfill any
promise he may have made. But, supposing that the first hurdle can be safely vaulted,
the general remedy supplied in article 1305 of the Civil Code cannot be invoked where
an adequate special remedy is supplied in a special law. It has been so held by this court
in Go Chioco vs. Martinez (45 Phil., 256, 280), where we refused to apply that article to a
case of nullity arising upon a usurious loan. The reason given for the decision on this
point was that the Usury Act, as amended, contains all the provisions necessary for the
effectuation of its purposes, with the result that the remedy given in article 1305 of the
Civil Code is unnecessary. Much more is that idea applicable to the situation now before
us, where the special provisions give ample remedies for the enforcement of the law by
action in the name of the Government, and where no civil wrong has been done to the
party here seeking redress.
The view of the case presented above rest upon considerations arising upon our own
statutes; and it would seem to be unnecessary to ransack the American decisions for
analogies pertinent to the case. We may observe, however, that the situation involved is
not unlike that which has frequently arisen in the United States under provisions of the
National Bank Act prohibiting banks organized under that law from holding real property.
It has been uniformly held that a trust deed or mortgaged conveying property of this
kind to a bank, by way of security, is valid until the transaction is assailed in a direct
proceeding instituted by the Government against the bank, and the illegality of such
tenure supplies no basis for an action by the former private owner, or his creditor, to
annul the conveyance. (National Bank vs. Matthews, 98 U. S., 621; Kerfoot vs. Farmers &
M. Bank, 218 U. S., 281.) Other analogies point in the same direction. (South & Ala. R.
Ginniss vs. B. & M. Consol. etc. Mining Co., 29 Mont., 428; Holmes & Griggs Mfg. Co. vs.
Holmes & Wessell Metal Co., 127 N. Y., 252; Oelbermann vs. N. Y. & N. R. Co., 77 Hun.,
332.)
Most suggestive perhaps of all the cases in Compaia Azucarera de Carolina vs. Registrar
(19 Porto Rico, 143), for the reason that this case arose under a provision of the Foraker
Act, a law analogous to our Philippine Bill. It appears that the registrar had refused to
register two deeds in favor of the Compaia Azucarera on the ground that the land
thereby conveyed was in excess of the area permitted by law to the company. The Porto
Rican court reversed the ruling of the registrar and ordered the registration of the deeds,
saying:
Thus it may be seen that a corporation limited by the law or by its charter has until
the State acts every power and capacity that any other individual capable of
acquiring lands, possesses. The corporation may exercise every act of ownership
over such lands; it may sue in ejectment or unlawful detainer and it may demand
specific performance. It has an absolute title against all the world except the State
after a proper proceeding is begun in a court of law. ... The Attorney General is the
exclusive officer in whom is confided the right to initiate proceedings for escheat or
attack the right of a corporation to hold land.
Having shown that the plaintiffs in this case have no right of action against the Benguet
Company for the infraction of law supposed to have been committed, we forego cny
discussion of the further question whether a sociedad anonima created under Spanish
law, such as the Benguet Company, is a corporation within the meaning of the

prohibitory provision already so many times mentioned. That important question should,
in our opinion, be left until it is raised in an action brought by the Government.
The judgment which is the subject of his appeal will therefore be affirmed, and it is so
ordered, with costs against the appellants.
Avancea, C.J., Villamor, Ostrand, Villa-Real, Abad Santos, Hull, Vickers, Imperial and
Butte, JJ., concur.

SECOND DIVISION
[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,
like Petitioner 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
the Petitioners 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 PetitionerAppellantBenguet 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, the Petitioner 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
the Respondent, 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 by-laws, 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:chanroblesvirtuallawlibraryBut 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
the Petitioner 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 by-laws 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 the Petitioner 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
the Petitioner 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 Petitioner has 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 Respondent Securities 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
the Petitionershould 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 in Petitioners 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.
Endnotes:chanroblesvirtuallawlibrary
2. It must be remembered that sections 75 and 191 of the Corporation law use the
phrase corporation or sociedad anonima thus employing corporation as the
equivalent legal designation in English of the Spanish term sociedad anonima, in
designating the same entity. See Harden vs. Benguet Cons. Mining Co., 58 Phil., p. 146.
SECOND DIVISION
BIENVENIDO EJERCITO and G.R. No. 172595
JOSE MARTINEZ,
Petitioners, Present:
QUISUMBING, J.*
Chairperson,
- versus - CARPIO MORALES,
Acting Chairperson,
TINGA,
VELASCO, JR., and
M.R. VARGAS CONSTRUCTION, BRION, JJ.
MARCIAL R. VARGAS, Sole Owner,
RENATO AGARAO,**
Project Foreman, Promulgated:
Respondents.
April 10, 2008
x---------------------------------------------------------------------------x

DECISION
TINGA, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, assailing the Court of Appeals Decision[1] and Resolution[2] in CA-G.R. SP No.
89001. The appellate courts decision dismissed the petition for certiorari, which sought
to set aside the Order[3] dated 08 November 2004 issued by Hon. Marie Christine Jacob,
Presiding Judge of the Regional Trial Court (RTC) of Quezon City, Branch 100. The
appellate courts resolution denied petitioners motion for reconsideration of the decision.
As culled from the records, the following factual antecedents appear:
On 5 March 2004, the City Government of Quezon City, represented by Mayor
Feliciano Belmonte, Jr., entered into a construction contract [4] with M.R. Vargas
Construction, represented by Marcial Vargas in his capacity as general manager of the
said business enterprise, for the improvement and concreting of Panay Avenue.
[5]
Pursuant to the contract, the business enterprise commenced its clearing operations
by removing the structures and uprooting the trees along the thoroughfare. Its
foreman, Renato Agarao, supervised the clearing operations.[6]
Claiming that the clearing operations lacked the necessary permit and prior
consultation, petitioners Bienvenido Ejercito and Jose Martinez, as well as a certain
Oscar Baria, brought the matter to the attention of the barangay authorities,
Mayor Belmonte, Senator Ma. Ana Consuelo A.S. Madrigal, the Department of
Environment and Natural Resources and the Philippine Coconut Authority.[7]
The efforts of petitioners proved unsuccessful. Hence, on 10 September 2004, they
filed a petition for injunction before the Quezon City RTC. The petition named M.R. Vargas
Construction Co., represented by herein Marcial R. Vargas and Renato Agarao, as
respondent.[8]
The Petition,[9] docketed as Civil Case No. Q-04-53687, indicated that Respondent
M.R. Vargas Construction, is an entity, with office address at the 4 th Floor, President
Tower, Timog Avenue corner Scout Ybardaloza [sic] St., Quezon City, represented herein
by its President Marcial Vargas and its construction foreman Renato Agarao, where they
may be served with summons and other court processes.[10]
The petition was accompanied with an application for a temporary restraining
order (TRO) and a writ of preliminary injunction. [11] Thus, the Office of the Clerk of Court
forthwith issued summons and notice of raffle on 10 September 2004. [12] Upon service of
the processes on the aforementioned address, they were returned unserved on the
ground that respondent enterprise was unknown thereat.[13]
The petition was subsequently raffled to the sala of Judge Jacob, before which
petitioners application for a temporary restraining order was heard on 15 September
2004.[14] On the same day, when Agarao was also present in court, Judge Jacob issued a
TRO directing respondent enterprise to desist from cutting, damaging or transferring the
trees found along Panay Avenue.[15]
On 23 September 2004, the Mangoba Tan Agus Law Offices filed a special
appearance on behalf of respondent enterprise and moved for the dismissal of the
petition as well as the quashal of the temporary restraining order on the ground of lack
of jurisdiction over respondent enterprise. The motion also assailed the raffle of the case
for having been conducted in violation of Section 4, Rule 58 of the Rules of Court; the
issuance of the TRO without requiring the posting of a bond; the failure to implead the
Government of Quezon City despite its being the real party-in-interest; and petitioners
application for the injunctive writ which was allegedly grossly defective in form and
substance.[16]
The motion to dismiss the petition and to quash the TRO was heard on 24
September 2004.[17] Before the hearing, a court interpreter showed to respondent
enterprises counsel a copy of the summons and of the notice of raffle in which appear a
signature at the bottom of each copy, apparently indicating the receipt of the summons.
[18]
On the mistaken belief that the summons was received by respondent enterprise, at

the hearing of the motion, its counsel withdrew two of the grounds stated in the motion,
to wit, lack of jurisdiction and irregularity in the raffle of the case.[19]
At the hearing of petitioners application for a writ of preliminary injunction on 1
October 2004, the counsel for respondent enterprise manifested that he was adopting
the arguments in the motion to quash the TRO. [20] On 6 October 2004, the RTC issued an
Order granting petitioners application for a writ of preliminary injunction. [21]
On 7 October 2004, counsel for respondent enterprise filed a manifestation with
urgent omnibus motion to nullify the proceedings and to cite petitioners and the process
server in contempt of court.[22] He argued that respondent enterprise failed to receive the
summons, alleging that it was herein petitioner Jose Martinez who signed as recipient
thereof as well as of the notice of raffle that was served on 10 September 2004. [23]
On 18 October 2004, the writ of preliminary injunction was issued. Subsequently,
petitioners filed a motion for ocular inspection and another motion praying that
respondent enterprise be ordered to
restore the structures damaged by its clearing operations.[24]
On 8 November 2004, the RTC issued the assailed Order, [25] nullifying the
proceedings thus far conducted in the case. [26] Petitioners sought reconsideration, but the
motion was denied in an Order dated 20 December 2004.[27]
Thus, petitioners filed a petition for certiorari before the Court of Appeals assailing
the 8 November 2004 Order issued by Judge Jacob. [28] This time, aside from Judge Jacob
and the enterprise M.R. Vargas Construction itself, the petition also named Marcial R.
Vargas and Renato Agarao, the enterprises owner and foreman, respectively, as
individual respondents. The separate addresses of said respondents were also indicated
in the initial part of the petition.
It was argued in the petition that Judge Jacob committed grave abuse of direction
in nullifying the proceedings on the ground of lack of jurisdiction in view
of Agaraos presence at the hearing on petitioners application for TRO, in failing to act on
petitioners pending motions and in directing instead the issuance of new summons on
respondent enterprise.[29]

On 10 October 2005, the Court of Appeals rendered the assailed Decision

dismissing the petition for certiorari for lack of merit. [30] In its Order dated 28 April 2006,
the Court of Appeals denied petitioners motion for reconsideration.
Hence, the instant petition attributes the following errors to the Court of Appeals:
I.
THE COURT OF APPEALS ERRED IN RULING THAT THE REGIONAL TRIAL
COURT DID NOT OBTAIN JURISDICTION OVER THE RESPONDENTS, DEPSITE
THE RECEIPT OF COURT PROCESSES AND VOLUNTARY APPEARANCE BEFORE
THE COURTS.
II.
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
WITHDRAWAL BY PRIVATE RESPONDENTS OF THE GROUND OF ABSENCE OF
JURISDICTION OVER ITS PERSON CONSTITUTED A WAIVER OF SUCH
OBJECTION[31]
The instant petitionwhich similarly impleads the enterprise, M.R. Vargas
Construction, Marcial R. Vargas and Renato Agarao as respondentsraises two issues,
namely: (1) whether the trial court acquired jurisdiction over respondent enterprise and
(2) whether the defense of lack of jurisdiction had been waived.
Jurisdiction over the defendant is acquired either upon a valid service of summons
or the defendants voluntary appearance in court. When the defendant does not

voluntarily submit to the courts jurisdiction or when there is no valid service of

summons, any judgment of the court, which has no jurisdiction over the person of
the defendant is null and void. In an action strictly in personam, personal service on the
defendant is the preferred mode of service, that is, by handing a copy of the summons to
the defendant in person.[32]
Citing the jurisdictional implications of the failure of service of summons, the Court
of Appeals concluded that no grave abuse of discretion was committed by Judge Jacob in
nullifying the proceedings thus far conducted in the case based on the finding that the
summons had not been served on respondent enterprise and that Agarao, despite being
present at the 15 September 2004 hearing, was not authorized to represent respondent
enterprise in said hearing.
Petitioners take exception. They argue that the trial court acquired jurisdiction over
respondent enterprise, an entity without juridical personality, through the appearance of
its foreman, Agarao, at the 15 September 2004 hearing on the TRO application.
Petitioners theorize that the voluntary appearance of Agarao in said hearing was
equivalent to service of summons binding upon respondent enterprise, following by
analogy, Section 8, Rule 14[33] which allows the service of summons on any of the
defendants associated to an entity without juridical personality. Furthermore, they
contend that the receipt by a certain Rona Adol of the court processes was binding upon
respondent enterprise because the latter did not deny the authority of Adol to receive
communications on its behalf.
Petitioners argument is untenable.
At the outset, it is worthy to note that both the Court of Appeals and the trial court
found that summons was not served on respondent enterprise. The Officers Return
stated essentially that the server failed to serve the summons on respondent enterprise
because it could not be found at the address alleged in the petition. This factual finding,
especially when affirmed by the appellate court, is conclusive upon this Court and should
not be disturbed because this Court is not a trier of facts.
A sole proprietorship does not possess a juridical personality separate and distinct
from the personality of the owner of the enterprise. The law does not vest a separate
legal personality on the sole proprietorship or empower it to file or defend an action in
court.[34] Only natural or juridical persons or entities authorized by law may be parties to
a civil action and every action must be prosecuted and defended in the name of the real
parties-in-interest.[35]
The records show that respondent enterprise, M.R. Vargas Construction Co., is a
sole proprietorship and, therefore, an entity without juridical personality. Clearly, the real
party-in-interest is Marcial R. Vargas who is the owner of the enterprise. Thus, the
petition for injunction should have impleaded him as the party respondent either simply
by mention of his name or by denominating him as doing business under the name and
style of M.R. Vargas Construction Co. It was erroneous to refer to him, as the petition did
in both its caption and body, as representing the enterprise. Petitioners apparently
realized this procedural lapse when in the petition for certiorari filed before the Court of
Appeals and in the instant petition, M.R. Vargas Construction, Marcial R. Vargas
and Renato Agaro were separately named as individual respondents.
Since respondent enterprise is only a sole proprietorship, an entity without juridical
personality, the suit for injunction may be instituted only against its
owner, Marcial Vargas. Accordingly summons should have been served on Vargas
himself, following Rule 14, Sections 6[36] and 7[37] of the Rules of Court on personal service
and substituted service. In the instant case, no service of summons, whether personal or
substituted, was effected on Vargas. It is well-established that summons upon a
respondent or a defendant must be served by handing a copy thereof to him in person
or, if he refuses to receive it, by tendering it to him. Personal service of summons most
effectively ensures that the notice desired under the constitutional requirement of due
process is accomplished. If however efforts to find him personally would make prompt
service impossible, service may be completed by substituted service, i.e., by leaving
copies of the summons at his dwelling house or residence with some person of suitable
age and discretion then residing therein or by leaving the copies at his office or regular
place of business with some competent person in charge thereof.[38]

The modes of service of summons should be strictly followed in order that the
court may acquire jurisdiction over the respondents, and failure to strictly comply with
the requirements of the rules regarding the order of its publication is a fatal defect in the
service of summons. It cannot be overemphasized that the statutory requirements on
service of summons, whether personally, by substituted service or by publication, must
be followed strictly, faithfully and fully, and any mode of service other than that
prescribed by the statute is considered ineffective.[39]
Agarao was not a party respondent in the injunction case before the trial court.
Certainly, he is not a real party-in-interest against whom the injunction suit may be
brought, absent any showing that he is also an owner or he acts as an agent of
respondent enterprise. Agarao is only a foreman, bereft of any authority to defend the
suit on behalf of respondent enterprise. As earlier mentioned, the suit against an entity
without juridical personality like respondent enterprise may be instituted only by or
against its owner. Impleading Agarao as a party-respondent in the suit for injunction
would have no legal consequence. In any event, the petition for injunction
described Agarao only as a representative of M.R. Vargas Construction Co., which is a
mere inconsequentiality considering that only Vargas, as its sole owner, is authorized by
the Rules of Court to defend the suit on behalf of the enterprise.
Despite Agaraos not being a party-respondent, petitioners nevertheless confuse his
presence or attendance at the hearing on the application for TRO with the notion of
voluntary appearance, which interpretation has a legal nuance as far as jurisdiction is
concerned. While it is true that an appearance in whatever form, without explicitly
objecting to the jurisdiction of the court over the person, is a submission to the
jurisdiction of the court over the person, the appearance must constitute a positive act
on the part of the litigant manifesting an intention to submit to the courts jurisdiction.
[40]
Thus, in the instances where the Court upheld the jurisdiction of the trial court over
the person of the defendant, the parties showed the intention to participate or be bound
by the proceedings through the filing of a motion, a plea or an answer.[41]
Neither is the service of the notice of hearing on the application for a TRO on a
certain Rona Adol binding on respondent enterprise. The records show that
Rona Adol received the notice of hearing on behalf of an entity named JCB. More
importantly, for purposes of acquiring jurisdiction over the person of the defendant, the
Rules require the service of summons and not of any other court processes.
Petitioners also contend that respondent enterprise waived the defense of lack of
jurisdiction when its counsel actively demanded positive action on the omnibus motion.
The argument is implausible.
It should be noted that when the defendants appearance is made precisely to
object to the jurisdiction of the court over his person, it cannot be considered as
appearance in court.[42] Such was the purpose of the omnibus motion, as counsel for
respondent enterprise precisely manifested therein that he erroneously believed that
Vargas himself had received the summons when in fact it was petitioner Martinez who
signed as recipient of the summons. Noteworthy is the fact that when the counsel first
appeared in court his appearance was special in character and was only for the purpose
of questioning the courts jurisdiction over Vargas, considering that the latter never
received the summons. However, the counsel was shown a copy of the summons where
a signature appears at the bottom which led him to believe that the summons was
actually received by Vargas when in fact it was petitioner Martinez himself who affixed
his signature as recipient thereof. When the counsel discovered his mistake, he lost no
time pleading that the proceedings be nullified and that petitioners and the process
server be cited for contempt of court. Both the trial and appellate courts concluded that
the improvident withdrawal of the defense of lack of jurisdiction was an innocuous error,
proceeding on the undeniable fact that the summons was not properly served on Vargas.
Thus, the Court of Appeals did not commit a reversible error when it affirmed the trial
courts nullification of the proceedings for lack of jurisdiction.
WHEREFORE, the instant petition for certiorari is DENIED. The Decision and
Resolution of the Court of Appeals in CA-G.R. SP No. 89001 are AFFIRMED in toto. Costs
against petitioners.
The temporary restraining order issued in this case is DISSOLVED.

SO ORDERED.
DANTE O. TINGA Associate Justice
THIRD DIVISION
[G.R. No. 125027. August 12, 2002]
ANITA
MANGILA, petitioner,
GUINA, respondents.

vs. COURT

OF

APPEALS

and

LORETA

DECISION
CARPIO, J.:
The Case
This is a petition fore review on certiorari under Rule 45 of the Rules of Court, seeking
to set aside the Decision[1] of the Court of Appeals affirming the Decision [2] of the
Regional Trial Court, Branch 108, Pasay City. The trial court upheld the writ of attachment
and the declaration of default on petitioner while ordering her to pay private respondent
P109,376.95 plus 18 percent interest per annum, 25 percent attorneys fees and costs of
suit.
The Facts
Petitioner Anita Mangila (petitioner for brevity) is an exporter of sea foods and doing
business under the name and style of Seafoods Products. Private respondent Loreta
Guina (private respondent for brevity) is the President and General Manager of Air Swift
International, a single registered proprietorship engaged in the freight forwarding
business.
Sometime in January 1988, petitioner contracted the freight forwarding services of
private respondent for shipment of petitioners products, such as crabs, prawns and
assorted fishes, to Guam (USA) where petitioner maintains an outlet. Petitioner agreed to
pay private respondent cash on delivery. Private respondents invoice stipulates a charge
of 18 percent interest per annum on all overdue accounts. In case of suit, the same
invoice stipulates attorneys fees equivalent to 25 percent of the amount due plus costs
of suit.[3]
On the first shipment, petitioner requested for seven days within which to pay private
respondent. However, for the next three shipments, March 17, 24 and 31, 1988,
petitioner failed to pay private respondent shipping charges amounting to P109, 376.95.
[4]

Despite several demands, petitioner never paid private respondent. Thus, on June 10,
1988, private respondent filed Civil Case No. 5875 before the Regional Trial Court of
Pasay City for collection of sum of money.
On August 1, 1988, the sheriff filed his Sheriffs Return showing that summons was
not served on petitioner. A woman found at petitioners house informed the sheriff that
petitioner transferred her residence to Sto. Nio, Guagua, Pampanga. The sheriff found out
further that petitioner had left the Philippines for Guam.[5]
Thus, on September 13, 1988, construing petitioners departure from the Philippines
as done with intent to defraud her creditors, private respondent filed a Motion for
Preliminary Attachment. On September 26, 1988, the trial court issued an Order of

Preliminary Attachment[6] against petitioner. The following day, the trial court issued a
Writ of Preliminary Attachment.
The trial court granted the request of its sheriff for assistance from their counterparts
in RTC, Pampanga. Thus, on October 28, 1988, Sheriff Alfredo San Miguel of RTC
Pampanga served on petitioners household help in San Fernando, Pampanga, the Notice
of Levy with the Order, Affidavit and Bond.[7]
On November 7, 1988, petitioner filed an Urgent Motion to Discharge
Attachment[8] without submitting herself to the jurisdiction of the trial court. She pointed
out that up to then, she had not been served a copy of the Complaint and the summons.
Hence, petitioner claimed the court had not acquired jurisdiction over her person. [9]
In the hearing of the Urgent Motion to Discharge Attachment on November 11, 1988,
private respondent sought and was granted a re-setting to December 9, 1988. On that
date, private respondents counsel did not appear, so the Urgent Motion to Discharge
Attachment was deemed submitted for resolution.[10]
The trial court granted the Motion to Discharge Attachment on January 13, 1989 upon
filing of petitioners counter-bond. The trial court, however, did not rule on the question of
jurisdiction and on the validity of the writ of preliminary attachment.
On December 26, 1988, private respondent applied for an alias summons, which the
trial court issued on January 19, 1989. [11] It was only on January 26, 1989 that summons
was finally served on petitioner.[12]
On February 9, 1989, petitioner filed a Motion to Dismiss the Complaint on the ground
of improper venue. Private respondents invoice for the freight forwarding service
stipulates that if court litigation becomes necessary to enforce collection xxx the agreed
venue for such action is Makati, Metro Manila. [13] Private respondent filed an Opposition
asserting that although Makati appears as the stipulated venue, the same was merely an
inadvertence by the printing press whose general manager executed an
affidavit[14]admitting such inadvertence. Moreover, private respondent claimed that
petitioner knew that private respondent was holding office in Pasay City and not in
Makati.[15] The lower court, finding credence in private respondents assertion, denied the
Motion to Dismiss and gave petitioner five days to file her Answer. Petitioner filed a
Motion for Reconsideration but this too was denied.
Petitioner filed her Answer[16] on June 16, 1989, maintaining her contention that the
venue was improperly laid.
On June 26, 1989, the trial court issued an Order setting the pre-trial for July 18, 1989
at 8:30 a.m. and requiring the parties to submit their pre-trial briefs. Meanwhile, private
respondent filed a Motion to Sell Attached Properties but the trial court denied the
motion.
On motion of petitioner, the trial court issued an Order resetting the pre-trial from
July 18, 1989 to August 24, 1989 at 8:30 a.m..
On August 24, 1989, the day of the pre-trial, the trial court issued an
Order[17] terminating the pre-trial and allowing the private respondent to present
evidence ex-parte on September 12, 1989 at 8:30 a.m.. The Order stated that when the
case was called for pre-trial at 8:31 a.m., only the counsel for private respondent
appeared. Upon the trial courts second call 20 minutes later, petitioners counsel was still
nowhere to be found. Thus, upon motion of private respondent, the pre-trial was
considered terminated.
On September 12, 1989, petitioner filed her Motion for Reconsideration of the Order
terminating the pre-trial. Petitioner explained that her counsel arrived 5 minutes after

the second call, as shown by the transcript of stenographic notes, and was late because
of heavy traffic. Petitioner claims that the lower court erred in allowing private
respondent to present evidence ex-parte since there was no Order considering the
petitioner as in default. Petitioner contends that the Order of August 24, 1989 did not
state that petitioner was declared as in default but still the court allowed private
respondent to present evidence ex-parte.[18]
On October 6, 1989, the trial court denied the Motion for Reconsideration and
scheduled the presentation of private respondents evidence ex-parte on October 10,
1989.
On October 10, 1989, petitioner filed an Omnibus Motion stating that the
presentation of evidence ex-parte should be suspended because there was no
declaration of petitioner as in default and petitioners counsel was not absent, but merely
late.
On October 18, 1989, the trial court denied the Omnibus Motion.[19]
On November 20, 1989, the petitioner received a copy of the Decision of November
10, 1989, ordering petitioner to pay respondent P109,376.95 plus 18 percent interest per
annum, 25 percent attorneys fees and costs of suit. Private respondent filed a Motion for
Execution Pending Appeal but the trial court denied the same.
The Ruling of the Court of Appeals
On December 15, 1995, the Court of Appeals rendered a decision affirming the
decision of the trial court. The Court of Appeals upheld the validity of the issuance of the
writ of attachment and sustained the filing of the action in the RTC of Pasay. The Court of
Appeals also affirmed the declaration of default on petitioner and concluded that the trial
court did not commit any reversible error.
Petitioner filed a Motion for Reconsideration on January 5, 1996 but the Court of
Appeals denied the same in a Resolution dated May 20, 1996.
Hence, this petition.
The Issues
The issues raised by petitioner may be re-stated as follows:
I.
WHETHER RESPONDENT COURT ERRED IN NOT HOLDING THAT THE WRIT OF
ATTACHMENT WAS IMPROPERLY ISSUED AND SERVED;
II.
WHETHER THERE WAS A VALID DECLARATION OF DEFAULT;
III.
WHETHER THERE WAS IMPROPER VENUE.
IV.
WHETHER RESPONDENT COURT ERRED IN DECLARING THAT PETITIONER IS OBLIGED TO
PAY P109, 376.95, PLUS ATTORNEYS FEES.[20]
The Ruling of the Court

Improper Issuance and Service of Writ of Attachment

Petitioner ascribes several errors to the issuance and implementation of the writ of
attachment. Among petitioners arguments are: first, there was no ground for the
issuance of the writ since the intent to defraud her creditors had not been established;
second, the value of the properties levied exceeded the value of private respondents
claim. However, the crux of petitioners arguments rests on the question of the validity of
the writ of attachment. Because of failure to serve summons on her before or
simultaneously with the writs implementation, petitioner claims that the trial court had
not acquired jurisdiction over her person and thus the service of the writ is void.
As a preliminary note, a distinction should be made between issuance and
implementation of the writ of attachment. It is necessary to distinguish between the two
to determine when jurisdiction over the person of the defendant should be acquired to
validly implement the writ. This distinction is crucial in resolving whether there is merit in
petitioners argument.
This Court has long settled the issue of when jurisdiction over the person of the
defendant should be acquired in cases where a party resorts to provisional remedies. A
party to a suit may, at any time after filing the complaint, avail of the provisional
remedies under the Rules of Court. Specifically, Rule 57 on preliminary attachment
speaks of the grant of the remedy at the commencement of the action or at any
time thereafter.[21] This phrase refers to the date of filing of the complaint which is the
moment that marks the commencement of the action. The reference plainly is to a time
before summons is served on the defendant, or even before summons issues.
In Davao Light & Power Co., Inc. v. Court of Appeals, [22] this Court clarified the
actual time when jurisdiction should be had:
It goes without saying that whatever be the acts done by the Court prior to the
acquisition of jurisdiction over the person of defendant - issuance of summons, order of
attachment and writ of attachment - these do not and cannot bind and affect
the defendant until and unless jurisdiction over his person is eventually
obtained by the court, either by service on him of summons or other coercive process
or his voluntary submission to the courts authority. Hence, when the sheriff or other
proper officer commences implementation of the writ of attachment, it is essential that
he serve on the defendant not only a copy of the applicants affidavit and attachment
bond, and of the order of attachment, as explicitly required by Section 5 of Rule 57, but
also the summonsaddressed to said defendant as well as a copy of the complaint xxx.
(Emphasis supplied.)
Furthermore, we have held that the grant of the provisional remedy of attachment
involves three stages: first, the court issues the order granting the application; second,
the writ of attachment issues pursuant to the order granting the writ; and third, the writ
is implemented. For the initial two stages, it is not necessary that jurisdiction
over the person of the defendant be first obtained. However, once the
implementation of the writ commences, the court must have acquired jurisdiction
over the defendant for without such jurisdiction, the court has no power and authority to
act in any manner against the defendant. Any order issuing from the Court will not bind
the defendant.[23]
In the instant case, the Writ of Preliminary Attachment was issued on September 27,
1988 and implemented on October 28, 1988. However, the alias summons was
served only on January 26, 1989 or almost three months after the
implementation of the writ of attachment.
The trial court had the authority to issue the Writ of Attachment on September 27
since a motion for its issuance can be filed at the commencement of the action.
However, on the day the writ was implemented, the trial court should have, previously or

simultaneously with the implementation of the writ, acquired jurisdiction over the
petitioner. Yet, as was shown in the records of the case, the summons was actually
served on petitioner several months after the writ had been implemented.
Private respondent, nevertheless, claims that the prior or contemporaneous service
of summons contemplated in Section 5 of Rule 57 provides for exceptions. Among such
exceptions are where the summons could not be served personally or by substituted
service despite diligent efforts or where the defendant is a resident temporarily absent
therefrom x x x. Private respondent asserts that when she commenced this action, she
tried to serve summons on petitioner but the latter could not be located at her
customary address in Kamuning, Quezon City or at her new address in Guagua,
Pampanga.[24] Furthermore, respondent claims that petitioner was not even in Pampanga;
rather, she was in Guam purportedly on a business trip.
Private respondent never showed that she effected substituted service on petitioner
after her personal service failed. Likewise, if it were true that private respondent could
not ascertain the whereabouts of petitioner after a diligent inquiry, still she had some
other recourse under the Rules of Civil Procedure.
The rules provide for certain remedies in cases where personal service could not be
effected on a party. Section 14, Rule 14 of the Rules of Court provides that whenever the
defendants whereabouts are unknown and cannot be ascertained by diligent inquiry,
service may, by leave of court, be effected upon him by publication in a newspaper of
general circulation x x x. Thus, if petitioners whereabouts could not be ascertained after
the sheriff had served the summons at her given address, then respondent could have
immediately asked the court for service of summons by publication on petitioner. [25]
Moreover, as private respondent also claims that petitioner was abroad at the time of
the service of summons, this made petitioner a resident who is temporarily out of the
country. This is the exact situation contemplated in Section 16, [26] Rule 14 of the Rules of
Civil Procedure, providing for service of summons by publication.
In conclusion, we hold that the alias summons belatedly served on petitioner cannot
be deemed to have cured the fatal defect in the enforcement of the writ. The trial court
cannot enforce such a coercive process on petitioner without first obtaining jurisdiction
over her person. The preliminary writ of attachment must be served after or
simultaneous with the service of summons on the defendant whether by personal
service, substituted service or by publication as warranted by the circumstances of the
case.[27] The subsequent service of summons does not confer a retroactive acquisition of
jurisdiction over her person because the law does not allow for retroactivity of a belated
service.
Improper Venue
Petitioner assails the filing of this case in the RTC of Pasay and points to a provision in
private respondents invoice which contains the following:
3. If court litigation becomes necessary to enforce collection, an additional equivalent
(sic) to 25% of the principal amount will be charged. The agreed venue for such action is
Makati, Metro Manila, Philippines.[28]
Based on this provision, petitioner contends that the action should have been
instituted in the RTC of Makati and to do otherwise would be a ground for the dismissal of
the case.
We resolve to dismiss the case on the ground of improper venue but not for the
reason stated by petitioner.

The Rules of Court provide that parties to an action may agree in writing on the
venue on which an action should be brought. [29] However, a mere stipulation on the
venue of an action is not enough to preclude parties from bringing a case in other
venues.[30] The parties must be able to show that such stipulation is exclusive. Thus,
absent words that show the parties intention to restrict the filing of a suit in a particular
place, courts will allow the filing of a case in any venue, as long as jurisdictional
requirements are followed. Venue stipulations in a contract, while considered valid and
enforceable, do not as a rule supersede the general rule set forth in Rule 4 of the Revised
Rules of Court.[31] In the absence of qualifying or restrictive words, they should be
considered merely as an agreement on additional forum, not as limiting venue to the
specified place.[32]
In the instant case, the stipulation does not limit the venue exclusively to Makati.
There are no qualifying or restrictive words in the invoice that would evince the intention
of the parties that Makati is the only or exclusive venue where the action could be
instituted. We therefore agree with private respondent that Makati is not the only venue
where this case could be filed.
Nevertheless, we hold that Pasay is not the proper venue for this case.
Under the 1997 Rules of Civil Procedure, the general rule is venue in personal actions
is where the defendant or any of the defendants resides or may be found, or where the
plaintiff or any of the plaintiffs resides, at the election of the plaintiff. [33] The exception to
this rule is when the parties agree on an exclusive venue other than the places
mentioned in the rules. But, as we have discussed, this exception is not applicable in this
case. Hence, following the general rule, the instant case may be brought in the place of
residence of the plaintiff or defendant, at the election of the plaintiff (private respondent
herein).
In the instant case, the residence of private respondent (plaintiff in the lower court)
was not alleged in the complaint. Rather, what was alleged was the postal address of her
sole proprietorship, Air Swift International. It was only when private respondent testified
in court, after petitioner was declared in default, that she mentioned her residence to be
in Better Living Subdivision, Paraaque City.
In the earlier case of Sy v. Tyson Enterprises, Inc., [34] the reverse happened. The
plaintiff in that case was Tyson Enterprises, Inc., a corporation owned and managed by
Dominador Ti. The complaint, however, did not allege the office or place of business of
the corporation, which was in Binondo, Manila. What was alleged was the residence of
Dominador Ti, who lived in San Juan, Rizal. The case was filed in the Court of First
Instance of Rizal, Pasig. The Court there held that the evident purpose of alleging the
address of the corporations president and manager was to justify the filing of the suit in
Rizal, Pasig instead of in Manila. Thus, the Court ruled that there was no question that
venue was improperly laid in that case and held that the place of business of Tyson
Enterpises, Inc. is considered as its residence for purposes of venue. Furthermore, the
Court held that the residence of its president is not the residence of the corporation
because a corporation has a personality separate and distinct from that of its officers
and stockholders.
In the instant case, it was established in the lower court that petitioner resides in San
Fernando, Pampanga[35] while private respondent resides in Paraaque City.[36]However,
this case was brought in Pasay City, where the business of private respondent is found.
This would have been permissible had private respondents business been a corporation,
just like the case in Sy v. Tyson Enterprises, Inc. However, as admitted by private
respondent in her Complaint[37] in the lower court, her business is a sole proprietorship,
and as such, does not have a separate juridical personality that could enable it to file a
suit in court.[38] In fact, there is no law authorizing sole proprietorships to file a suit in
court.[39]

A sole proprietorship does not possess a juridical personality separate and distinct
from the personality of the owner of the enterprise. [40] The law merely recognizes the
existence of a sole proprietorship as a form of business organization conducted for profit
by a single individual and requires its proprietor or owner to secure licenses and permits,
register its business name, and pay taxes to the national government. [41] The law does
not vest a separate legal personality on the sole proprietorship or empower it to file or
defend an action in court.[42]
Thus, not being vested with legal personality to file this case, the sole proprietorship
is not the plaintiff in this case but rather Loreta Guina in her personal capacity. In fact,
the complaint in the lower court acknowledges in its caption that the plaintiff and
defendant are Loreta Guina and Anita Mangila, respectively. The title of the petition
before us does not state, and rightly so, Anita Mangila v. Air Swift International, but
rather Anita Mangila v. Loreta Guina. Logically then, it is the residence of private
respondent Guina, the proprietor with the juridical personality, which should be
considered as one of the proper venues for this case.
All these considered, private respondent should have filed this case either in San
Fernando, Pampanga (petitioners residence) or Paraaque (private respondents
residence). Since private respondent (complainant below) filed this case in Pasay, we
hold that the case should be dismissed on the ground of improper venue.
Although petitioner filed an Urgent Motion to Discharge Attachment in the lower
court, petitioner expressly stated that she was filing the motion without submitting to the
jurisdiction of the court. At that time, petitioner had not been served the summons and a
copy of the complaint.[43] Thereafter, petitioner timely filed a Motion to Dismiss [44] on the
ground of improper venue. Rule 16, Section 1 of the Rules of Court provides that a
motion to dismiss may be filed [W]ithin the time for but before filing the answer to the
complaint or pleading asserting a claim. Petitioner even raised the issue of improper
venue in his Answer[45] as a special and affirmative defense. Petitioner also continued to
raise the issue of improper venue in her Petition for Review [46] before this Court. We thus
hold that the dismissal of this case on the ground of improper venue is warranted.
The rules on venue, like other procedural rules, are designed to insure a just and
orderly administration of justice or the impartial and evenhanded determination of every
action and proceeding. Obviously, this objective will not be attained if the plaintiff is
given unrestricted freedom to choose where to file the complaint or petition.[47]
We find no reason to rule on the other issues raised by petitioner.
WHEREFORE, the petition is GRANTED on the grounds of improper venue and
invalidity of the service of the writ of attachment. The decision of the Court of Appeals
and the order of respondent judge denying the motion to dismiss are REVERSED and SET
ASIDE. Civil Case No. 5875 is hereby dismissed without prejudice to refiling it in the
proper venue. The attached properties of petitioner are ordered returned to her
immediately.
SO ORDERED.
Puno, (Chairman), and Panganiban, JJ., concur.
Sandoval-Gutierrez, J., on leave.

SECOND DIVISION

ROGER V. NAVARRO,
Petitioner,

- versus -

G.R. No. 153788

Present:
CARPIO, J., Chairperson,
LEONARDO-DE CASTRO,
BRION,
DEL CASTILLO, and
ABAD, JJ.

HON.
JOSE
L.
ESCOBIDO,
Presiding Judge, RTC Branch 37, Promulgated:
Cagayan de Oro City, and KAREN
T. GO, doing business under the November 27, 2009
name KARGO ENTERPRISES,
Respondents.
x ---------------------------------------------------------------------------------------- x
DECISION
BRION, J.:
This is a petition for review on certiorari[1] that seeks to set aside the Court of
Appeals (CA) Decision[2] dated October 16, 2001 and Resolution[3] dated May 29, 2002 in
CA-G.R. SP. No. 64701. These CA rulings affirmed the July 26, 2000[4] and March 7,
2001[5] orders of the Regional Trial Court (RTC), Misamis Oriental, Cagayan de Oro City,
denying petitioner Roger V. Navarros (Navarro) motion to dismiss.
BACKGROUND FACTS
On September 12, 1998, respondent Karen T. Go filed two complaints, docketed as Civil
Case Nos. 98-599 (first complaint)[6] and 98-598 (second complaint),[7]before the RTC for
replevin and/or sum of money with damages against Navarro. In these complaints, Karen
Go prayed that the RTC issue writs of replevin for the seizure of two (2) motor vehicles in
Navarros possession.
The first complaint stated:
1. That plaintiff KAREN T. GO is a Filipino, of legal age, married to
GLENN O. GO, a resident of Cagayan de Oro City and doing business under
the trade name KARGO ENTERPRISES, an entity duly registered and
existing under and by virtue of the laws of the Republic of the Philippines,
which has its business address at Bulua, Cagayan de Oro City; that
defendant ROGER NAVARRO is a Filipino, of legal age, a resident of 62
Dolores Street, Nazareth, Cagayan de Oro City, where he may be served with
summons and other processes of the Honorable Court; that defendant JOHN
DOE whose real name and address are at present unknown to plaintiff is
hereby joined as party defendant as he may be the person in whose
possession and custody the personal property subject matter of this suit may
be found if the same is not in the possession of defendant ROGER NAVARRO;
2. That KARGO ENTERPRISES is in the business of, among others,
buying and selling motor vehicles, including hauling trucks and other heavy
equipment;

3. That for the cause of action against defendant ROGER NAVARRO, it

is hereby stated that on August 8, 1997, the said defendant leased [from]
plaintiff a certain motor vehicle which is more particularly described as
follows
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-51680
Motor No. 6D15-338735
Plate No. GHK-378
as
evidenced
by
a LEASE
AGREEMENT
WITH
OPTION
TO
PURCHASE entered into by and between KARGO ENTERPRISES,
then represented by its Manager, the aforementioned GLENN O. GO,
and defendant ROGER NAVARRO xxx; that in accordance with the provisions
of the above LEASE AGREEMENT WITH OPTION TO PURCHASE, defendant
ROGER NAVARRO delivered unto plaintiff six (6) post-dated checks each in
the amount of SIXTY-SIX THOUSAND THREE HUNDRED THIRTY-THREE &
33/100 PESOS (P66,333.33) which were supposedly in payment of the agreed
rentals; that when the fifth and sixth checks, i.e. PHILIPPINE BANK OF
COMMUNICATIONS CAGAYAN DE ORO BRANCH CHECKS NOS. 017112 and
017113, respectively dated January 8, 1998 and February 8, 1998, were
presented for payment and/or credit, the same were dishonored and/or
returned by the drawee bank for the common reason that the current deposit
account against which the said checks were issued did not have sufficient
funds to cover the amounts thereof; that the total amount of the two (2)
checks, i.e. the sum of ONE HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED
SIXTY-SIX & 66/100 PESOS (P132,666.66) therefore represents the principal
liability of defendant ROGER NAVARRO unto plaintiff on the basis of the
provisions of the above LEASE AGREEMENT WITH RIGHT TO PURCHASE;
that demands, written and oral, were made of defendant ROGER
NAVARRO to pay the amount of ONE HUNDRED THIRTY-TWO THOUSAND SIX
HUNDRED SIXTY-SIX & 66/100 PESOS (P132,666.66), or to return the subject
motor vehicle as also provided for in the LEASE AGREEMENT WITH RIGHT TO
PURCHASE, but said demands were, and still are, in vain to the great damage
and injury of herein plaintiff; xxx
4. That the aforedescribed motor vehicle has not been the subject of any tax
assessment and/or fine pursuant to law, or seized under an execution or an
attachment as against herein plaintiff;
xxx
8. That plaintiff hereby respectfully applies for an order of the Honorable
Court for the immediate delivery of the above-described motor vehicle from
defendants unto plaintiff pending the final determination of this case on the
merits and, for that purpose, there is attached hereto an affidavit duly
executed and bond double the value of the personal property subject matter
hereof to answer for damages and costs which defendants may suffer in the
event that the order for replevin prayed for may be found out to having not
been properly issued.

The second complaint contained essentially the same allegations as the first complaint,
except that the Lease Agreement with Option to Purchase involved is dated October 1,
1997 and the motor vehicle leased is described as follows:
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-510528

Motor No. 6D14-423403

The second complaint also alleged that Navarro delivered three post-dated checks, each
for the amount of P100,000.00, to Karen Go in payment of the agreed rentals; however,
the third check was dishonored when presented for payment.[8]
On October 12, 1998[9] and October 14, 1998,[10] the RTC issued writs of replevin for both
cases; as a result, the Sheriff seized the two vehicles and delivered them to the
possession of Karen Go.
In his Answers, Navarro alleged as a special affirmative defense that the two
complaints stated no cause of action, since Karen Go was not a party to the Lease
Agreements with Option to Purchase (collectively, the lease agreements) the actionable
documents on which the complaints were based.
On Navarros motion, both cases were duly consolidated on December 13, 1999.
In its May 8, 2000 order, the RTC dismissed the case on the ground that the complaints
did not state a cause of action.
In response to the motion for reconsideration Karen Go filed dated May 26, 2000,
the RTC issued another order dated July 26, 2000 setting aside the order of dismissal.
Acting on the presumption that Glenn Gos leasing business is a conjugal property, the
RTC held that Karen Go had sufficient interest in his leasing business to file the action
against Navarro. However, the RTC held that Karen Go should have included her
husband, Glenn Go, in the complaint based on Section 4, Rule 3 of the Rules of Court
(Rules).[12] Thus, the lower court ordered Karen Go to file a motion for the inclusion of
[11]

Glenn Go as co-plaintiff.
When the RTC denied Navarros motion for reconsideration on March 7, 2001, Navarro
filed a petition for certiorari with the CA, essentially contending that the RTC committed
grave abuse of discretion when it reconsidered the dismissal of the case and directed
Karen Go to amend her complaints by including her husband Glenn Go as co-plaintiff.
According to Navarro, a complaint which failed to state a cause of action could not be
converted into one with a cause of action by mere amendment or supplemental
pleading.
On October 16, 2001, the CA denied Navarros petition and affirmed the RTCs order.
[13]
The CA also denied Navarros motion for reconsideration in its resolution of May 29,
2002,[14] leading to the filing of the present petition.
THE PETITION
Navarro alleges that even if the lease agreements were in the name of Kargo
Enterprises, since it did not have the requisite juridical personality to sue, the actual
parties to the agreement are himself and Glenn Go. Since it was Karen Go who filed the
complaints and not Glenn Go, she was not a real party-in-interest and the complaints
failed to state a cause of action.
Navarro posits that the RTC erred when it ordered the amendment of the
complaint to include Glenn Go as a co-plaintiff, instead of dismissing the complaint
outright because a complaint which does not state a cause of action cannot be
converted into one with a cause of action by a mere amendment or a supplemental
pleading. In effect, the lower court created a cause of action for Karen Go when there
was none at the time she filed the complaints.

Even worse, according to Navarro, the inclusion of Glenn Go as co-plaintiff

drastically changed the theory of the complaints, to his great prejudice. Navarro claims
that the lower court gravely abused its discretion when it assumed that the leased
vehicles are part of the conjugal property of Glenn and Karen Go. Since Karen Go is the
registered owner of Kargo Enterprises, the vehicles subject of the complaint are her
paraphernal properties and the RTC gravely erred when it ordered the inclusion of Glenn
Go as a co-plaintiff.
Navarro likewise faults the lower court for setting the trial of the case in the same
order that required Karen Go to amend her complaints, claiming that by issuing this
order, the trial court violated Rule 10 of the Rules.
Even assuming the complaints stated a cause of action against him, Navarro
maintains that the complaints were premature because no prior demand was made on
him to comply with the provisions of the lease agreements before the complaints for
replevin were filed.
Lastly, Navarro posits that since the two writs of replevin were issued based on
flawed complaints, the vehicles were illegally seized from his possession and should be
returned to him immediately.
Karen Go, on the other hand, claims that it is misleading for Navarro to state that
she has no real interest in the subject of the complaint, even if the lease agreements
were signed only by her husband, Glenn Go; she is the owner of Kargo Enterprises and
Glenn Go signed the lease agreements merely as the manager of Kargo Enterprises.
Moreover, Karen Go maintains that Navarros insistence that Kargo Enterprises is Karen
Gos paraphernal property is without basis. Based on the law and jurisprudence on the
matter, all property acquired during the marriage is presumed to be conjugal property.
Finally, Karen Go insists that her complaints sufficiently established a cause of action
against Navarro. Thus, when the RTC ordered her to include her husband as co-plaintiff,
this was merely to comply with the rule that spouses should sue jointly, and was not
meant to cure the complaints lack of cause of action.
THE COURTS RULING
We find the petition devoid of merit.

Karen Go is the real party-in-interest

The 1997 Rules of Civil Procedure requires that every action must be prosecuted
or defended in the name of the real party-in-interest, i.e., the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails of the
suit.[15]
Interestingly, although Navarro admits that Karen Go is the registered owner of the
business name Kargo Enterprises, he still insists that Karen Go is not a real party-ininterest in the case. According to Navarro, while the lease contracts were in Kargo

Enterprises name, this was merely a trade name without a juridical personality, so the
actual parties to the lease agreements were Navarro and Glenn Go, to the exclusion of
Karen Go.

As a corollary, Navarro contends that the RTC acted with grave abuse of discretion
when it ordered the inclusion of Glenn Go as co-plaintiff, since this in effect created a
cause of action for the complaints when in truth, there was none.

We do not find Navarros arguments persuasive.

The central factor in appreciating the issues presented in this case is the business
name Kargo Enterprises. The name appears in the title of the Complaint where the
plaintiff was identified as KAREN T. GO doing business under the name KARGO
ENTERPRISES, and this identification was repeated in the first paragraph of the
Complaint. Paragraph
2
defined
the
business
KARGO
ENTERPRISES
undertakes. Paragraph 3 continued with the allegation that the defendant leased from
plaintiff a certain motor vehicle that was thereafter described. Significantly, the
Complaint specifies and attaches as its integral part the Lease Agreement that underlies
the transaction between the plaintiff and the defendant. Again, the name KARGO
ENTERPRISES entered the picture as this Lease Agreement provides:

This agreement, made and entered into by and between:

GLENN O. GO, of legal age, married, with post office address at xxx,
herein referred to as the LESSOR-SELLER; representing KARGO
ENTERPRISES as its Manager,

xxx

thus, expressly pointing to KARGO ENTERPRISES as the principal that Glenn O. Go

represented. In other words, by the express terms of this Lease Agreement, Glenn Go
did sign the agreement only as the manager of Kargo Enterprises and the latter is
clearly the real party to the lease agreements.

As Navarro correctly points out, Kargo Enterprises is a sole proprietorship, which is

neither a natural person, nor a juridical person, as defined by Article 44 of the Civil
Code:

Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public interest or
purpose, created by law; their personality begins as soon as they have
been constituted according to law;
(3) Corporations, partnerships and associations for private interest or
purpose to which the law grants a juridical personality, separate and
distinct from that of each shareholder, partner or member.

Thus, pursuant to Section 1, Rule 3 of the Rules, [16] Kargo Enterprises cannot be a
party to a civil action. This legal reality leads to the question: who then is the proper
party to file an action based on a contract in the name of Kargo Enterprises?

We faced a similar question in Juasing Hardware v. Mendoza,[17] where we said:

Finally, there is no law authorizing sole proprietorships like petitioner to

bring suit in court. The law merely recognizes the existence of a sole
proprietorship as a form of business organization conducted for profit by a
single individual, and requires the proprietor or owner thereof to secure
licenses and permits, register the business name, and pay taxes to the
national government. It does not vest juridical or legal personality upon the
sole proprietorship nor empower it to file or defend an action in court.

Thus, the complaint in the court below should have been filed in the
name of the owner of Juasing Hardware. The allegation in the body of
the complaint would show that the suit is brought by such person as
proprietor or owner of the business conducted under the name and
style Juasing Hardware. The descriptive words doing business as Juasing
Hardware may be added to the title of the case, as is customarily done.
[18]
[Emphasis supplied.]

This conclusion should be read in relation with Section 2, Rule 3 of the Rules,
which states:

SEC. 2. Parties in interest. A real party in interest is the party who stands to
be benefited or injured by the judgment in the suit, or the party entitled
to the avails of the suit. Unless otherwise authorized by law or these
Rules, every action must be prosecuted or defended in the name of the real
party in interest.

As the registered owner of Kargo Enterprises, Karen Go is the party who will
directly benefit from or be injured by a judgment in this case. Thus, contrary to Navarros
contention, Karen Go is the real party-in-interest, and it is legally incorrect to say that
her Complaint does not state a cause of action because her name did not appear in the
Lease Agreement that her husband signed in behalf of Kargo Enterprises. Whether
Glenn Go can legally sign the Lease Agreement in his capacity as a manager of Kargo
Enterprises, a sole proprietorship, is a question we do not decide, as this is a matter for
the trial court to consider in a trial on the merits.

Glenn Gos Role in the Case

We find it significant that the business name Kargo Enterprises is in the name of
Karen T. Go,[19] who described herself in the Complaints to be a Filipino, of legal age,
married to GLENN O. GO, a resident of Cagayan de Oro City, and doing business under
the trade name KARGO ENTERPRISES. [20] That Glenn Go and Karen Go are married to
each other is a fact never brought in issue in the case. Thus, the business name KARGO
ENTERPRISES is registered in the name of a married woman, a fact material to the side
issue of whether Kargo Enterprises and its properties are paraphernal or conjugal
properties. To restate the parties positions, Navarro alleges that Kargo Enterprises is
Karen Gos paraphernal property, emphasizing the fact that the business is registered
solely in Karen Gos name.On the other hand, Karen Go contends that while the business
is registered in her name, it is in fact part of their conjugal property.

The registration of the trade name in the name of one person a woman does not
necessarily lead to the conclusion that the trade name as a property is hers alone, particularly
when the woman is married. By law, all property acquired during the marriage, whether the
acquisition appears to have been made, contracted or registered in the name of one or both
spouses, is presumed to be conjugal unless the contrary is proved.[21] Our examination of the
records of the case does not show any proof that Kargo Enterprises and the properties or
contracts in its name are conjugal. If at all, only the bare allegation of Navarro to this effect
exists in the records of the case. As we emphasized in Castro v. Miat:[22]

Petitioners also overlook Article 160 of the New Civil Code. It provides that
all property of the marriage is presumed to be conjugal partnership, unless it be
prove[n] that it pertains exclusively to the husband or to the wife. This article does
not require proof that the property was acquired with funds of the
partnership. The presumption applies even when the manner in which the
property was acquired does not appear.[23] [Emphasis supplied.]

Thus, for purposes solely of this case and of resolving the issue of whether Kargo
Enterprises as a sole proprietorship is conjugal or paraphernal property, we hold that it
is conjugal property.
Article 124 of the Family Code, on the administration of the conjugal property,
provides:

Art. 124. The administration and enjoyment of the conjugal

partnership property shall belong to both spouses jointly. In case
of disagreement, the husbands decision shall prevail, subject to recourse to
the court by the wife for proper remedy, which must be availed of within five
years from the date of the contract implementing such decision.
xxx
This provision, by its terms, allows either Karen or Glenn Go to speak and act with
authority in managing their conjugal property, i.e., Kargo Enterprises. No need exists,
therefore, for one to obtain the consent of the other before performing an act of
administration or any act that does not dispose of or encumber their conjugal property.
Under Article 108 of the Family Code, the conjugal partnership is governed by the
rules on the contract of partnership in all that is not in conflict with what is expressly
determined in this Chapter or by the spouses in their marriage settlements. In other
words, the property relations of the husband and wife shall be governed primarily by
Chapter 4 on Conjugal Partnership of Gains of the Family Code and, suppletorily, by the
spouses marriage settlement and by the rules on partnership under the Civil Code. In
the absence of any evidence of a marriage settlement between the spouses Go, we look
at the Civil Code provision on partnership for guidance.
A rule on partnership applicable to the spouses circumstances is Article 1811 of
the Civil Code, which states:
Art. 1811. A partner is a co-owner with the other partners of specific
partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any agreement
between the partners, has an equal right with his partners to
possess specific partnership propertyfor partnership purposes; xxx
Under this provision, Glenn and Karen Go are effectively co-owners of Kargo
Enterprises and the properties registered under this name; hence, both have an equal
right to seek possession of these properties. Applying Article 484 of the Civil Code,
which states that in default of contracts, or special provisions, co-ownership shall be
governed by the provisions of this Title, we find further support in Article 487 of the Civil
Code that allows any of the co-owners to bring an action in ejectment with respect to
the co-owned property.
While ejectment is normally associated with actions involving real property, we
find that this rule can be applied to the circumstances of the present case, following our
ruling in Carandang v. Heirs of De Guzman.[24] In this case, one spouse filed an action for
the recovery of credit, a personal property considered conjugal property, without
including the other spouse in the action. In resolving the issue of whether the other
spouse was required to be included as a co-plaintiff in the action for the recovery of the
credit, we said:

Milagros de Guzman, being presumed to be a co-owner of the credits

allegedly extended to the spouses Carandang, seems to be either an

indispensable or a necessary party.If she is an indispensable party, dismissal

would be proper. If she is merely a necessary party, dismissal is not
warranted, whether or not there was an order for her inclusion in the
complaint pursuant to Section 9, Rule 3.
Article 108 of the Family Code provides:
Art. 108. The conjugal partnership shall be governed by the
rules on the contract of partnership in all that is not in conflict
with what is expressly determined in this Chapter or by the
spouses in their marriage settlements.
This provision is practically the same as the Civil Code provision it
superseded:
Art. 147. The conjugal partnership shall be governed by the
rules on the contract of partnership in all that is not in conflict
with what is expressly determined in this Chapter.
In this connection, Article 1811 of the Civil Code provides that [a]
partner is a co-owner with the other partners of specific partnership
property. Taken with the presumption of the conjugal nature of the funds
used to finance the four checks used to pay for petitioners stock
subscriptions, and with the presumption that the credits themselves are part
of conjugal funds, Article 1811 makes Quirino and Milagros de Guzman coowners of the alleged credit.
Being co-owners of the alleged credit, Quirino and Milagros de
Guzman may separately bring an action for the recovery thereof. In the
fairly recent cases of Baloloy v. Hular and Adlawan v. Adlawan, we held
that, in a co-ownership, co-owners may bring actions for the
recovery of co-owned property without the necessity of joining all
the other co-owners as co-plaintiffs because the suit is presumed
to have been filed for the benefit of his co-owners. In the latter case
and in that of De Guia v. Court of Appeals, we also held that Article 487 of
the Civil Code, which provides that any of the co-owners may bring an
action for ejectment, covers all kinds of action for the recovery of
possession.
In sum, in suits to recover properties, all co-owners are real parties in
interest. However, pursuant to Article 487 of the Civil Code and relevant
jurisprudence, any one of them may bring an action, any kind of action, for
the recovery of co-owned properties. Therefore, only one of the coowners, namely the co-owner who filed the suit for the recovery of
the co-owned property, is an indispensable party thereto. The other
co-owners are not indispensable parties. They are not even necessary
parties, for a complete relief can be accorded in the suit even without their
participation, since the suit is presumed to have been filed for the benefit of
all co-owners.[25] [Emphasis supplied.]
Under this ruling, either of the spouses Go may bring an action against Navarro to
recover possession of the Kargo Enterprises-leased vehicles which they co-own. This
conclusion is consistent with Article 124 of the Family Code, supporting as it does the
position that either spouse may act on behalf of the conjugal partnership, so long as
they do not dispose of or encumber the property in question without the other spouses
consent.

On this basis, we hold that since Glenn Go is not strictly an indispensable party in
the action to recover possession of the leased vehicles, he only needs to be impleaded
as a pro-forma party to the suit, based on Section 4, Rule 4 of the Rules, which states:
Section 4. Spouses as parties. Husband and wife shall sue or be sued jointly,
except as provided by law.

Non-joinder of indispensable
ground to dismiss action

parties

not

Even assuming that Glenn Go is an indispensable party to the action, we have

held in a number of cases[26] that the misjoinder or non-joinder of indispensable parties
in a complaint is not a ground for dismissal of action. As we stated in Macababbad v.
Masirag:[27]
Rule 3, Section 11 of the Rules of Court provides that neither
misjoinder nor nonjoinder of parties is a ground for the dismissal of an
action, thus:
Sec. 11. Misjoinder and non-joinder of parties. Neither
misjoinder nor non-joinder of parties is ground for dismissal of
an action. Parties may be dropped or added by order of the
court on motion of any party or on its own initiative at any stage
of the action and on such terms as are just. Any claim against a
misjoined party may be severed and proceeded with separately.

In Domingo v. Scheer, this Court held that the proper remedy when a
party is left out is to implead the indispensable party at any stage of the
action. The court, either motu proprio or upon the motion of a party, may
order the inclusion of the indispensable party or give the plaintiff
opportunity to amend his complaint in order to include indispensable
parties. If the plaintiff to whom the order to include the indispensable party
is directed refuses to comply with the order of the court, the complaint may
be dismissed upon motion of the defendant or upon the court's own
motion. Only upon unjustified failure or refusal to obey the order to include
or to amend is the action dismissed.
In these lights, the RTC Order of July 26, 2000 requiring plaintiff Karen Go to join her
husband as a party plaintiff is fully in order.
Demand not required prior
to filing of replevin action

In arguing that prior demand is required before an action for a writ of replevin is
filed, Navarro apparently likens a replevin action to an unlawful detainer.
For a writ of replevin to issue, all that the applicant must do is to file an affidavit and
bond, pursuant to Section 2, Rule 60 of the Rules, which states:
Sec. 2. Affidavit and bond.
The applicant must show by his own affidavit or that of some other person
who personally knows the facts:

(a)

That the applicant is the owner of the property claimed,

particularly describing it, or is entitled to the possession thereof;
(b)
That the property is wrongfully detained by the adverse party,
alleging the cause of detention thereof according to the best of his
knowledge, information, and belief;
(c)
That the property has not been distrained or taken for a tax
assessment or a fine pursuant to law, or seized under a writ of execution
or preliminary attachment, or otherwise placed under custodia legis, or
if so seized, that it is exempt from such seizure or custody; and
(d) The actual market value of the property.
The applicant must also give a bond, executed to the adverse party in
double the value of the property as stated in the affidavit aforementioned,
for the return of the property to the adverse party if such return be
adjudged, and for the payment to the adverse party of such sum as he may
recover from the applicant in the action.
We see nothing in these provisions which requires the applicant to make a prior demand
on the possessor of the property before he can file an action for a writ of replevin. Thus,
prior demand is not a condition precedent to an action for a writ of replevin.
More importantly, Navarro is no longer in the position to claim that a prior demand is
necessary, as he has already admitted in his Answers that he had received the letters
that Karen Go sent him, demanding that he either pay his unpaid obligations or return
the leased motor vehicles. Navarros position that a demand is necessary and has not
been made is therefore totally unmeritorious.
WHEREFORE, premises considered, we DENY the petition for review for lack of
merit. Costs against petitioner Roger V. Navarro.

SO ORDERED.