This Commission further takes cognizance of the fact As this is purely a case of injunction, and considering the
that when respondent filed the amendment changing its time that has elapsed since the facts complained of took
name to Universal Mills Corporation, it correspondingly place, this decision should not be deemed as foreclosing
filed a written undertaking dated June 5, 1963 and any further remedy which appellee may have for the
signed by its President, Mr. Mariano Cokiat, promising protection of its interests.
to change its name in the event that there is another
person, firm or entity who has obtained a prior right to WHEREFORE, with the reservation already mentioned,
the use of such name or one similar to it. That promise the appealed decision is affirmed. Costs against
is still binding upon the corporation and its responsible petitioners.
officers. (pp. 17-18, Record.)
The background of the case at bar needs some 1. The Court of Appeals erred in holding that the
recounting. Petitioner had sometime before commenced in Resolution of the Supreme Court in G.R. No. L-46595 did
the SEC a proceeding (SEC-Case No. 1241) against the not constitute stare decisis as to apply to this case and in
Lyceum of Baguio, Inc. to require it to change its corporate not holding that said Resolution bound subsequent
name and to adopt another name not "similar [to] or determinations on the right to exclusive use of the word
identical" with that of petitioner. In an Order dated 20 April Lyceum.
1977, Associate Commissioner Julio Sulit held that the 2. The Court of Appeals erred in holding that respondent
corporate name of petitioner and that of the Lyceum of Western Pangasinan Lyceum, Inc. was incorporated
Baguio, Inc. were substantially identical because of the earlier than petitioner.
presence of a "dominant" word, i.e., "Lyceum," the name 3. The Court of Appeals erred in holding that the word
of the geographical location of the campus being the only Lyceum has not acquired a secondary meaning in favor of
word which distinguished one from the other corporate petitioner.
name. The SEC also noted that petitioner had registered 4. The Court of Appeals erred in holding that Lyceum as a
as a corporation ahead of the Lyceum of Baguio, Inc. in generic word cannot be appropriated by the petitioner to
point of time, 1 and ordered the latter to change its name the exclusion of others.
to another name "not similar or identical [with]" the names
of previously registered entities. We will consider all the foregoing ascribed errors, though
not necessarily seriatim. We begin by noting that the
The Lyceum of Baguio, Inc. assailed the Order of the SEC Resolution of the Court in G.R. No. L-46595 does not, of
before the Supreme Court in a case docketed as G.R. No. course, constitute res adjudicata in respect of the case at
L-46595. In a Minute Resolution dated 14 September bar, since there is no identity of parties. Neither is stare
1977, the Court denied the Petition for Review for lack of decisis pertinent, if only because the SEC En Banc itself
merit. Entry of judgment in that case was made on 21 has re-examined Associate Commissioner Sulit's ruling in
October 1977. the Lyceum of Baguio case. The Minute Resolution of the
Court in G.R. No. L-46595 was not a reasoned adoption of
the Sulit ruling.
Armed with the Resolution of this Court in G.R. No. L-
46595, petitioner then wrote all the educational institutions
it could find using the word "Lyceum" as part of their The Articles of Incorporation of a corporation must, among
corporate name, and advised them to discontinue such other things, set out the name of the corporation. 6
use of "Lyceum." When, with the passage of time, it Section 18 of the Corporation Code establishes a
became clear that this recourse had failed, petitioner restrictive rule insofar as corporate names are concerned:
instituted before the SEC SEC-Case No. 2579 to enforce
what petitioner claims as its proprietary right to the word "SECTION 18. Corporate name. — No corporate name
"Lyceum." The SEC hearing officer rendered a decision may be allowed by the Securities an Exchange
sustaining petitioner's claim to an exclusive right to use the Commission if the proposed name is identical or
deceptively or confusingly similar to that of any existing a generic, has become appropriable by petitioner to the
corporation or to any other name already protected by law exclusion of other institutions like private respondents
or is patently deceptive, confusing or contrary to existing herein.
laws. When a change in the corporate name is approved,
the Commission shall issue an amended certificate of The doctrine of secondary meaning originated in the field
incorporation under the amended name." (Emphasis of trademark law. Its application has, however, been
supplied) extended to corporate names sine the right to use a
corporate name to the exclusion of others is based upon
The policy underlying the prohibition in Section 18 against the same principle which underlies the right to use a
the registration of a corporate name which is "identical or particular trademark or tradename. In Philippine Nut
deceptively or confusingly similar" to that of any existing Industry, Inc. v. Standard Brands, Inc., the doctrine of
corporation or which is "patently deceptive" or "patently secondary meaning was elaborated in the following terms:
confusing" or "contrary to existing laws," is the avoidance
of fraud upon the public which would have occasion to " . . . a word or phrase originally incapable of exclusive
deal with the entity concerned, the evasion of legal appropriation with reference to an article on the market,
obligations and duties, and the reduction of difficulties of because geographically or otherwise descriptive, might
administration and supervision over corporations. nevertheless have been used so long and so exclusively
by one producer with reference to his article that, in that
We do not consider that the corporate names of private trade and to that branch of the purchasing public, the word
respondent institutions are "identical with, or deceptively or or phrase has come to mean that the article was his
confusingly similar" to that of the petitioner institution. True product."
enough, the corporate names of private respondent
entities all carry the word "Lyceum" but confusion and The question which arises, therefore, is whether or not the
deception are effectively precluded by the appending of use by petitioner of "Lyceum" in its corporate name has
geographic names to the word "Lyceum." Thus, we do not been for such length of time and with such exclusivity as
believe that the "Lyceum of Aparri" can be mistaken by the to have become associated or identified with the petitioner
general public for the Lyceum of the Philippines, or that institution in the mind of the general public (or at least that
the "Lyceum of Camalaniugan" would be confused with portion of the general public which has to do with schools).
the Lyceum of the Philippines. The Court of Appeals recognized this issue and answered
it in the negative:
Etymologically, the word "Lyceum" is the Latin word for the
Greek lykeion which in turn referred to a locality on the "Under the doctrine of secondary meaning, a word or
river Ilissius in ancient Athens "comprising an enclosure phrase originally incapable of exclusive appropriation with
dedicated to Apollo and adorned with fountains and reference to an article in the market, because
buildings erected by Pisistratus, Pericles and Lycurgus geographical or otherwise descriptive might nevertheless
frequented by the youth for exercise and by the have been used so long and so exclusively by one
philosopher Aristotle and his followers for teaching." 8 In producer with reference to this article that, in that trade
time, the word "Lyceum" became associated with schools and to that group of the purchasing public, the word or
and other institutions providing public lectures and phrase has come to mean that the article was his produce
concerts and public discussions. Thus today, the word (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This
"Lyceum" generally refers to a school or an institution of circumstance has been referred to as the distinctiveness
learning. While the Latin word "lyceum" has been into which the name or phrase has evolved through the
incorporated into the English language, the word is also substantial and exclusive use of the same for a
found in Spanish (liceo) and in French (lycee). As the considerable period of time. Consequently, the same
Court of Appeals noted in its Decision, Roman Catholic doctrine or principle cannot be made to apply where the
schools frequently use the term; e.g., "Liceo de Manila," evidence did not prove that the business (of the plaintiff)
"Liceo de Baleno" (in Baleno, Masbate), "Liceo de has continued for so long a time that it has become of
Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as consequence and acquired a good will of considerable
generic in character as the word "university." In the name value such that its articles and produce have acquired a
of the petitioner, "Lyceum" appears to be a substitute for well-known reputation, and confusion will result by the use
"university;" in other places, however, "Lyceum," or "Liceo" of the disputed name (by the defendant) (Ang Si Heng vs.
or "Lycee" frequently denotes a secondary school or a Wellington Department Store, Inc., 92 Phil. 448).
college. It may be (though this is a question of fact which
we need not resolve) that the use of the word "Lyceum"
may not yet be as widespread as the use of "university," With the foregoing as a yardstick, [we] believe the
but it is clear that a not inconsiderable number of appellant failed to satisfy the aforementioned requisites.
educational institutions have adopted "Lyceum" or "Liceo" No evidence was ever presented in the hearing before the
as part of their corporate names. Since "Lyceum" or Commission which sufficiently proved that the word
"Liceo" denotes a school or institution of learning, it is not 'Lyceum' has indeed acquired secondary meaning in favor
unnatural to use this word to designate an entity which is of the appellant. If there was any of this kind, the same
organized and operating as an educational institution. tend to prove only that the appellant had been using the
disputed word for a long period of time. Nevertheless, its
(appellant) exclusive use of the word (Lyceum) was never
It is claimed, however, by petitioner that the word established or proven as in fact the evidence tend to
"Lyceum" has acquired a secondary meaning in relation to convey that the cross-claimant was already using the word
petitioner with the result that that word, although originally 'Lyceum' seventeen (17) years prior to the date the
appellant started using the same word in its corporate We conclude and so hold that petitioner institution is not
name. Furthermore, educational institutions of the Roman entitled to a legally enforceable exclusive right to use the
Catholic Church had been using the same or similar word word "Lyceum" in its corporate name and that other
like 'Liceo de Manila,' 'Liceo de Baleno' (in Baleno, institutions may use "Lyceum" as part of their corporate
Masbate), 'Liceo de Masbate,' 'Liceo de Albay' long before names. To determine whether a given corporate name is
appellant started using the word 'Lyceum'. The appellant "identical" or "confusingly or deceptively similar" with
also failed to prove that the word 'Lyceum' has become so another entity's corporate name, it is not enough to
identified with its educational institution that confusion will ascertain the presence of "Lyceum" or "Liceo" in both
surely arise in the minds of the public if the same word names. One must evaluate corporate names in their
were to be used by other educational institutions. entirety and when the name of petitioner is juxtaposed
with the names of private respondents, they are not
In other words, while the appellant may have proved that it reasonably regarded as "identical" or "confusingly or
had been using the word 'Lyceum' for a long period of deceptively similar" with each other.
time, this fact alone did not amount to mean that the said
word had acquired secondary meaning in its favor WHEREFORE, the petitioner having failed to show any
because the appellant failed to prove that it had been reversible error on the part of the public respondent Court
using the same word all by itself to the exclusion of others. of Appeals, the Petition for Review is DENIED for lack of
More so, there was no evidence presented to prove that merit, and the Decision of the Court of Appeals dated 28
confusion will surely arise if the same word were to be June 1991 is hereby AFFIRMED. No pronouncement as to
used by other educational institutions. Consequently, the costs.
allegations of the appellant in its first two assigned errors SO ORDERED.
must necessarily fail." 13 (Underscoring partly in the
original and partly supplied)
After conducting hearings with respect to the prayer for As early as Western Equipment and Supply Co. v. Reyes,
Injunction; the SEC Hearing Officer, on 27 September 51 Phil. 115 (1927), the Court declared that a corporation's
1985, ruled against the issuance of such Writ. right to use its corporate and trade name is a property
right, a right in rem, which it may assert and protect
On 30 January 1987, the same Hearing Officer dismissed against the world in the same manner as it may protect its
the Petition for lack of merit. In so ruling, the latter tangible property, real or personal, against trespass or
declared that inasmuch as the SEC found no sufficient conversion. It is regarded, to a certain extent, as a
ground for the granting of injunctive relief on the basis of property right and one which cannot be impaired or
the testimonial and documentary evidence presented, it defeated by subsequent appropriation by another
cannot order the removal or cancellation of the word corporation in the same field (Red Line Transportation Co.
"PHILIPS" from Private Respondent's corporate name on vs. Rural Transit Co., September 8, 1934, 20 Phil 549).
the basis of the same evidence adopted in toto during trial
on the merits. Besides, Section 18 of the Corporation A name is peculiarly important as necessary to the very
Code (infra) is applicable only when the corporate names existence of a corporation (American Steel Foundries vs.
in question are identical. Here, there is no confusing Robertson, 269 US 372, 70 L ed 317, 46 S Ct 160;
similarity between Petitioners' and Private Respondent's Lauman vs. Lebanon Valley R. Co., 30 Pa 42; First
corporate names as those of the Petitioners contain at National Bank vs. Huntington Distilling Co. 40 W Va 530,
least two words different from that of the Respondent. 23 SE 792). Its name is one of its attributes, an element of
Petitioners' Motion for Reconsideration was likewise its existence, and essential to its identity (6 Fletcher [Perm
denied on 17 June 1987. Ed], pp. 3-4). The general rule as to corporations is that
each corporation must have a name by which it is to sue
On appeal, the SEC en banc affirmed the dismissal and be sued and do all legal acts. The name of a
declaring that the corporate names of Petitioners and corporation in this respect designates the corporation in
Private Respondent hardly breed confusion inasmuch as the same manner as the name of an individual designates
each contains at least two different words and, therefore, the person (Cincinnati Cooperage Co. vs. Bate. 96 Ky
rules out any possibility of confusing one for the other. 356, 26 SW 538; Newport Mechanics Mfg. Co. vs.
Starbird. 10 NH 123); and the right to use its corporate
name is as much a part of the corporate franchise as any
On 30 January 1990, Petitioners sought an extension of other privilege granted (Federal Secur. Co. vs. Federal
time to file a Petition for Review on Certiorari before this Secur. Corp., 129 Or 375, 276 P 1100, 66 ALR 934;
Court, which Petition was later referred to the Court of Paulino vs. Portuguese Beneficial Association, 18 RI 165,
Appeals in a Resolution dated 12 February 1990. 26 A 36).
In deciding to dismiss the petition on 31 July 1990, the A corporation acquires its name by choice and need not
Court of select a name identical with or similar to one already
Appeals swept aside Petitioners' claim that following the
1
appropriated by a senior corporation while an individual's
ruling in Converse Rubber Corporation v. Universal name is thrust upon him (See Standard Oil Co. of New
Converse Rubber Products, Inc., et al, (G. R. No. L-27906, Mexico, Inc. v. Standard Oil Co. of California, 56 F 2d 973,
January 8, 1987, 147 SCRA 154), the word PHILIPS 977). A corporation can no more use a corporate name in
violation of the rights of others than an individual can use corporation, PEBV, are known in the Philippines and
his name legally acquired so as to mislead the public and abroad as the PHILIPS Group of Companies.
injure another (Armington vs. Palmer, 21 RI 109. 42 A
308). Respondents maintain, however, that Petitioners did not
present an iota of proof of actual confusion or deception of
Our own Corporation Code, in its Section 18, expressly the public much less a single purchaser of their product
provides that: who has been deceived or confused or showed any
likelihood of confusion. It is settled, however, that proof of
No corporate name may be allowed by the Securities actual confusion need not be shown. It suffices that
and Exchange Commission if the proposed name confusion is probably or likely to occur (6 Fletcher [Perm
is identical or deceptively or confusingly similar to that Ed], pp. 107-108, enumerating a long line of cases).
of any existing corporation or to any other name
already protected by law or is patently deceptive, It may be that Private Respondent's products also consist
confusing or contrary to existing law. Where a change of chain rollers, belts, bearing and the like, while
in a corporate name is approved, the commission petitioners deal principally with electrical products. It is
shall issue an amended certificate of incorporation significant to note, however, that even the Director of
under the amended name. (Emphasis supplied) Patents had denied Private Respondent's application for
registration of the trademarks "Standard Philips & Device"
The statutory prohibition cannot be any clearer. To come for chain, rollers, belts, bearings and cutting saw. That
within its scope, two requisites must be proven, namely: office held that PEBV, "had shipped to its subsidiaries in
the Philippines equipment, machines and their parts which
fall under international class where "chains, rollers, belts,
(1) that the complainant corporation acquired a prior right bearings and cutting saw," the goods in connection with
over the use of such corporate name; and which Respondent is seeking to register 'STANDARD
PHILIPS' . . . also belong" ( Inter Partes Case No. 2010,
(2) the proposed name is either: June 17, 1988, SEC Rollo).
(a) identical; or
(b) deceptively or confusingly similar to that of any Furthermore, the records show that among Private
existing corporation or to any other name already Respondent's primary purposes in its Articles of
protected by law; or Incorporation (Annex D, Petition p. 37, Rollo) are the
(c) patently deceptive, confusing or contrary to existing following:
law.
To buy, sell, barter, trade, manufacture, import,
The right to the exclusive use of a corporate name with export, or otherwise acquire, dispose of, and deal in
freedom from infringement by similarity is determined by and deal with any kind of goods, wares, and
priority of adoption (1 Thompson, p. 80 citing Munn v. merchandise such as but not limited to plastics,
Americana Co., 82 N. Eq. 63, 88 Atl. 30; San Francisco carbon products, office stationery and supplies,
Oyster House v. Mihich, 75 Wash. 274, 134 Pac. 921). In hardware parts, electrical wiring devices, electrical
this regard, there is no doubt with respect to Petitioners' component parts, and/or complement of industrial,
prior adoption of' the name ''PHILIPS" as part of its agricultural or commercial machineries, constructive
corporate name. Petitioners Philips Electrical and Philips supplies, electrical supplies and other merchandise
Industrial were incorporated on 29 August 1956 and 25 which are or may become articles of commerce
May 1956, respectively, while Respondent Standard except food, drugs and cosmetics and to carry on
Philips was issued a Certificate of Registration on 12 April such business as manufacturer, distributor, dealer,
1982, twenty-six (26) years later (Rollo, p. 16). Petitioner indentor, factor, manufacturer's representative
PEBV has also used the trademark "PHILIPS" on capacity for domestic or foreign companies.
electrical lamps of all types and their accessories since 30 (emphasis ours)
September 1922, as evidenced by Certificate of
Registration No. 1651.
For its part, Philips Electrical also includes, among its
primary purposes, the following:
The second requisite no less exists in this case. In
determining the existence of confusing similarity in
corporate names, the test is whether the similarity is such To develop manufacture and deal in electrical
as to mislead a person, using ordinary care and products, including electronic, mechanical and other
discrimination. In so doing, the Court must look to the similar products . . . (p. 30, Record of SEC Case No.
record as well as the names themselves (Ohio Nat. Life 2743)
Ins. Co. v. Ohio Life Ins. Co., 210 NE 2d 298). While the
corporate names of Petitioners and Private Respondent Given Private Respondent's aforesaid underlined primary
are not identical, a reading of Petitioner's corporate purpose, nothing could prevent it from dealing in the same
names, to wit: PHILIPS EXPORT B.V., PHILIPS line of business of electrical devices, products or supplies
ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL which fall under its primary purposes. Besides, there is
DEVELOPMENT, INC., inevitably leads one to conclude showing that Private Respondent not only manufactured
that "PHILIPS" is, indeed, the dominant word in that all the and sold ballasts for fluorescent lamps with their corporate
companies affiliated or associated with the principal name printed thereon but also advertised the same as,
among others, Standard Philips (TSN, before the SEC, pp.
14, 17, 25, 26, 37-42, June 14, 1985; pp. 16-19, July 25, the status of a well-known mark in the Philippines and
1985). As aptly pointed out by Petitioners, [p]rivate internationally as well (Bureau of Patents Decision No. 88-
respondent's choice of "PHILIPS" as part of its corporate 35 [TM], June 17, 1988, SEC Records).
name [STANDARD PHILIPS CORPORATION] . . . tends
to show said respondent's intention to ride on the In support of its application for the registration of its
popularity and established goodwill of said petitioner's Articles of Incorporation with the SEC, Private Respondent
business throughout the world" (Rollo, p. 137). The had submitted an undertaking "manifesting its willingness
subsequent appropriator of the name or one confusingly to change its corporate name in the event another person,
similar thereto usually seeks an unfair advantage, a free firm or entity has acquired a prior right to the use of the
ride of another's goodwill (American Gold Star Mothers, said firm name or one deceptively or confusingly similar to
Inc. v. National Gold Star Mothers, Inc., et al, 89 App DC it." Private respondent must now be held to its
269, 191 F 2d 488). undertaking.
In allowing Private Respondent the continued use of its As a general rule, parties organizing a corporation
corporate name, the SEC maintains that the corporate must choose a name at their peril; and the use of a
names of Petitioners PHILIPS ELECTRICAL LAMPS. INC. name similar to one adopted by another corporation,
and PHILIPS INDUSTRIAL DEVELOPMENT, INC. contain whether a business or a nonbusiness or non-profit
at least two words different from that of the corporate organization if misleading and likely to injure it in the
name of respondent STANDARD PHILIPS exercise in its corporate functions, regardless of
CORPORATION, which words will readily identify Private intent, may be prevented by the corporation having
Respondent from Petitioners and vice-versa. the prior right, by a suit for injunction against the new
corporation to prevent the use of the name (American
True, under the Guidelines in the Approval of Corporate Gold Star Mothers, Inc. v. National Gold Star Mothers,
and Partnership Names formulated by the SEC, the Inc., 89 App DC 269, 191 F 2d 488, 27 ALR 2d 948).
proposed name "should not be similar to one already used
by another corporation or partnership. If the proposed WHEREFORE, the Decision of the Court of Appeals dated
name contains a word already used as part of the firm 31 July 1990, and its Resolution dated 20 November
name or style of a registered company; the proposed 1990, are SET ASIDE and a new one entered ENJOINING
name must contain two other words different from the private respondent from using "PHILIPS" as a feature of
company already registered" (Emphasis ours). It is then its corporate name, and ORDERING the Securities and
pointed out that Petitioners Philips Electrical and Philips Exchange Commission to amend private respondent's
Industrial have two words different from that of Private Articles of Incorporation by deleting the word PHILIPS
Respondent's name. from the corporate name of private respondent.
No costs.
What is lost sight of, however, is that PHILIPS is a SO ORDERED.
trademark or trade name which was registered as far back
as 1922. Petitioners, therefore, have the exclusive right to
its use which must be free from any infringement by
similarity. A corporation has an exclusive right to the use
of its name, which may be protected by injunction upon a
principle similar to that upon which persons are protected
in the use of trademarks and tradenames (18 C.J.S. 574). ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO
Such principle proceeds upon the theory that it is a fraud HESUS, H.S.K. SA BANSANG PILIPINAS,
on the corporation which has acquired a right to that name INC.,petitioner,
and perhaps carried on its business thereunder, that vs.
another should attempt to use the same name, or the IGLESIA NG DIOS KAY CRISTO JESUS, HALIGI AT
same name with a slight variation in such a way as to SUHAY NG KATOTOHANAN, respondent.
induce persons to deal with it in the belief that they are G.R. No. 137592 December 12, 2001
dealing with the corporation which has given a reputation
to the name (6 Fletcher [Perm Ed], pp. 39- This is a petition for review assailing the Decision dated
40, citing Borden Ice Cream Co. v. Borden's Condensed October 7, 19971 and the Resolution dated February 16,
Milk Co., 210 F 510). Notably, too, Private Respondent's 19992 of the Court of Appeals in CA-G.R. SP No. 40933,
name actually contains only a single word, that is, which affirmed the Decision of the Securities and
"STANDARD", different from that of Petitioners inasmuch Exchange and Commission (SEC) in SEC-AC No. 539.3
as the inclusion of the term "Corporation" or "Corp."
merely serves the Purpose of distinguishing the
corporation from partnerships and other business Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at
organizations. Suhay ng Katotohanan (Church of God in Christ Jesus,
the Pillar and Ground of Truth),4 is a non-stock religious
society or corporation registered in 1936. Sometime in
The fact that there are other companies engaged in other 1976, one Eliseo Soriano and several other members of
lines of business using the word "PHILIPS" as part of their respondent corporation disassociated themselves from the
corporate names is no defense and does not warrant the latter and succeeded in registering on March 30, 1977 a
use by Private Respondent of such word which constitutes new non-stock religious society or corporation,
an essential feature of Petitioners' corporate name named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan
previously adopted and registered and-having acquired ng Katotohanan.
On July 16, 1979, respondent corporation filed with the the SEC En Banc. Petitioner's motion for reconsideration
SEC a petition to compel the Iglesia ng Dios Kay Kristo was denied by the Court of Appeals on February 16, 1992.
Hesus, Haligi at Saligan ng Katotohanan to change its
corporate name, which petition was docketed as SEC Hence, the instant petition for review, raising the following
Case No. 1774. On May 4, 1988, the SEC rendered assignment of errors:
judgment in favor of respondent, ordering the Iglesia ng I
Dios Kay Kristo Hesus, Haligi at Saligan ng THE HONORABLE COURT OF APPEALS ERRED IN
Katotohanan to change its corporate name to another CONCLUDING THAT PETITIONER HAS NOT BEEN
name that is not similar or identical to any name already DEPRIVED OF ITS RIGHT TO PROCEDURAL DUE
used by a corporation, partnership or association PROCESS, THE HONORABLE COURT OF APPEALS
registered with the Commission.5No appeal was taken DISREGARDED THE JURISPRUDENCE APPLICABLE
from said decision. TO THE CASE AT BAR AND INSTEAD RELIED ON
TOTALLY INAPPLICABLE JURISPRUDENCE.
It appears that during the pendency of SEC Case No. II
1774, Soriano, et al., caused the registration on April 25, THE HONORABLE COURT OF APPEALS ERRED IN ITS
1980 of petitioner corporation, Ang Mga Kaanib sa Iglesia INTERPRETATION OF THE CIVIL CODE PROVISIONS
ng Dios Kay Kristo Hesus, H.S.K, sa Bansang Pilipinas. ON EXTINCTIVE PRESCRIPTION, THEREBY
The acronym "H.S.K." stands for Haligi at Saligan ng RESULTING IN ITS FAILURE TO FIND THAT THE
Katotohanan.6 RESPONDENT'S RIGHT OF ACTION TO INSTITUTE
THE SEC CASE HAS SINCE PRESCRIBED PRIOR TO
On March 2, 1994, respondent corporation filed before the ITS INSTITUTION.
SEC a petition, docketed as SEC Case No. 03-94-4704, III
praying that petitioner be compelled to change its THE HONORABLE COURT OF APPEALS FAILED TO
corporate name and be barred from using the same or CONSIDER AND PROPERLY APPLY THE EXCEPTIONS
similar name on the ground that the same causes ESTABLISHED BY JURISPRUDENCE IN THE
confusion among their members as well as the public. APPLICATION OF SECTION 18 OF THE
CORPORATION CODE TO THE INSTANT CASE.
IV
Petitioner filed a motion to dismiss on the ground of lack of THE HONORABLE COURT OF APPEALS FAILED TO
cause of action. The motion to dismiss was denied. PROPERLY APPRECIATE THE SCOPE OF THE
Thereafter, for failure to file an answer, petitioner was CONSTITUTIONAL GUARANTEE ON RELIGIOUS
declared in default and respondent was allowed to present FREEDOM, THEREBY FAILING TO APPLY THE SAME
its evidence ex parte. TO PROTECT PETITIONER'S RIGHTS.9
On November 20, 1995, the SEC rendered a decision Invoking the case of Legarda v. Court of Appeals,10
ordering petitioner to change its corporate name. The petitioner insists that the decision of the Court of Appeals
dispositive portion thereof reads: and the SEC should be set aside because the negligence
of its former counsel of record, Atty. Joaquin Garaygay, in
PREMISES CONSIDERED, judgment is hereby failing to file an answer after its motion to dismiss was
rendered in favor of the petitioner (respondent denied by the SEC, deprived them of their day in court.
herein).
Respondent Mga Kaanib sa Iglesia ng Dios Kay The contention is without merit. As a general rule, the
Kristo Jesus (sic), H.S.K. sa Bansang Pilipinas negligence of counsel binds the client. This is based on
(petitioner herein) is hereby MANDATED to change the rule that any act performed by a lawyer within the
its corporate name to another not deceptively similar scope of his general or implied authority is regarded as an
or identical to the same already used by the act of his client.11 An exception to the foregoing is where
Petitioner, any corporation, association, and/or the reckless or gross negligence of the counsel deprives
partnership presently registered with the Commission. the client of due process of law. 12 Said exception,
Let a copy of this Decision be furnished the Records however, does not obtain in the present case.
Division and the Corporate and Legal Department
[CLD] of this Commission for their records, reference In Legarda v. Court of Appeals, the effort of the counsel in
and/or for whatever requisite action, if any, to be defending his client's cause consisted in filing a motion for
undertaken at their end. extension of time to file answer before the trial court.
SO ORDERED.7 When his client was declared in default, the counsel did
nothing and allowed the judgment by default to become
Petitioner appealed to the SEC En Banc, where its appeal final and executory. Upon the insistence of his client, the
was docketed as SEC-AC No. 539. In a decision dated counsel filed a petition to annul the judgment with the
March 4, 1996, the SEC En Banc affirmed the above Court of Appeals, which denied the petition, and again the
decision, upon a finding that petitioner's corporate name counsel allowed the denial to become final and executory.
was identical or confusingly or deceptively similar to that of This Court found the counsel grossly negligent and
respondent's corporate name.8 consequently declared as null and void the decision
adverse to his client.
Petitioner filed a petition for review with the Court of
Appeals. On October 7, 1997, the Court of Appeals The factual antecedents of the case at bar are different.
rendered the assailed decision affirming the decision of Atty. Garaygay filed before the SEC a motion to dismiss
on the ground of lack of cause of action. When his client hardly serve as an effective differentiating medium
was declared in default for failure to file an answer, Atty. necessary to avoid confusion or difficulty in distinguishing
Garaygay moved for reconsideration and lifting of the petitioner from respondent. This is especially so, since
order of default.13 After judgment by default was rendered both petitioner and respondent corporations are using the
against petitioner corporation, Atty. Garaygay filed a same acronym — H.S.K.;19 not to mention the fact that
motion for extension of time to appeal/motion for both are espousing religious beliefs and operating in the
reconsideration, and thereafter a motion to set aside the same place. Parenthetically, it is well to mention that the
decision.14 acronym H.S.K. used by petitioner stands for "Haligi at
Saligan ng Katotohanan."20
Evidently, Atty. Garaygay was only guilty of simple
negligence. Although he failed to file an answer that led to Then, too, the records reveal that in holding out their
the rendition of a judgment by default against petitioner, corporate name to the public, petitioner highlights the
his efforts were palpably real, albeit bereft of zeal.15 dominant words "IGLESIA NG DIOS KAY KRISTO
HESUS, HALIGI AT SALIGAN NG KATOTOHANAN,"
Likewise, the issue of prescription, which petitioner raised which is strikingly similar to respondent's corporate name,
for the first time on appeal to the Court of Appeals, is thus making it even more evident that the additional words
untenable. Its failure to raise prescription before the SEC "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.", are
can only be construed as a waiver of that defense.16 At any merely descriptive of and pertaining to the members of
rate, the SEC has the authority to de-register at all times respondent corporation.21
and under all circumstances corporate names which in its
estimation are likely to spawn confusion. It is the duty of Significantly, the only difference between the corporate
the SEC to prevent confusion in the use of corporate names of petitioner and respondent are the
names not only for the protection of the corporations words SALIGAN and SUHAY. These words are
involved but more so for the protection of the public. 17 synonymous — both mean ground, foundation or support.
Hence, this case is on all fours with Universal Mills
Section 18 of the Corporation Code provides: Corporation v. Universal Textile Mills, Inc.,22 where the
Corporate Name. — No corporate name may be Court ruled that the corporate names Universal Mills
allowed by the Securities and Exchange Commission Corporation and Universal Textile Mills, Inc., are
if the proposed name is identical or deceptively or undisputably so similar that even under the test of
confusingly similar to that of any existing corporation "reasonable care and observation" confusion may arise.
or to any other name already protected by law or is
patently deceptive, confusing or is contrary to existing Furthermore, the wholesale appropriation by petitioner of
laws. When a change in the corporate name is respondent's corporate name cannot find justification
approved, the Commission shall issue an amended under the generic word rule. We agree with the Court of
certificate of incorporation under the amended name. Appeals' conclusion that a contrary ruling would
encourage other corporations to adopt verbatim and
Corollary thereto, the pertinent portion of the SEC register an existing and protected corporate name, to the
Guidelines on Corporate Names states: detriment of the public.
(d) If the proposed name contains a word similar to a
word already used as part of the firm name or style of The fact that there are other non-stock religious societies
a registered company, the proposed name must or corporations using the names Church of the Living God,
contain two other words different from the name of the Inc., Church of God Jesus Christ the Son of God the
company already registered; Head, Church of God in Christ & By the Holy Spirit, and
other similar names, is of no consequence. It does not
Parties organizing a corporation must choose a name at authorize the use by petitioner of the essential and
their peril; and the use of a name similar to one adopted distinguishing feature of respondent's registered and
by another corporation, whether a business or a nonprofit protected corporate name.23
organization, if misleading or likely to injure in the exercise
of its corporate functions, regardless of intent, may be We need not belabor the fourth issue raised by petitioner.
prevented by the corporation having a prior right, by a suit Certainly, ordering petitioner to change its corporate name
for injunction against the new corporation to prevent the is not a violation of its constitutionally guaranteed right to
use of the name.18 religious freedom. In so doing, the SEC merely compelled
petitioner to abide by one of the SEC guidelines in the
Petitioner claims that it complied with the aforecited SEC approval of partnership and corporate names, namely its
guideline by adding not only two but eight words to their undertaking to manifest its willingness to change its
registered name, to wit: "Ang Mga Kaanib" and "Sa corporate name in the event another person, firm, or entity
Bansang Pilipinas, Inc.," which, petitioner argues, has acquired a prior right to the use of the said firm name
effectively distinguished it from respondent corporation. or one deceptively or confusingly similar to it.
The additional words "Ang Mga Kaanib" and "Sa Bansang WHEREFORE, in view of all the foregoing, the instant
Pilipinas, Inc." in petitioner's name are, as correctly petition for review is DENIED. The appealed decision of
observed by the SEC, merely descriptive of and also the Court of Appeals is AFFIRMED in toto.
referring to the members, or kaanib, of respondent who SO ORDERED.
are likewise residing in the Philippines. These words can
ZUELLIG FREIGHT AND CARGO SYSTEMS, Petitioner, Contrary to respondents’ claim that Zeta ceased
vs. operations and closed its business, we believe that there
NATIONAL LABOR RELATIONS COMMISSION AND was merely a change of business name and primary
RONALDO V. SAN MIGUEL, Respondents. purpose and upgrading of stocks of the corporation.
G.R. No. 157900 July 22, 2013 Zuellig and Zeta are therefore legally the same person and
entity and this was admitted by Zuellig’s counsel in its
DECISION letter to the VAT Department of the Bureau of Internal
The mere change in the corporate name is not considered Revenue on 08 June 1994 (Reply, Annex "A"). As such,
under the law as the creation of a new corporation; hence, the termination of complainant’s services allegedly due to
the renamed corporation remains liable for the illegal cessation of business operations of Zeta is deemed illegal.
dismissal of its employee separated under that guise. Notwithstanding his receipt of separation benefits from
The Case respondents, complainant is not estopped from
Petitioner employer appeals the decision promulgated on questioning the legality of his dismissal.6
November 6, 2001,1 whereby the Court of Appeals (CA) xxxx
dismissed its petition for certiorari and upheld the adverse WHEREFORE, in view of the foregoing, complainant
decision of the National Labor Relations Commission is found to have been illegally dismissed. Respondent
(NLRC) finding respondent Ronaldo V. San Miguel to have Zuellig Freight and Cargo Systems, Inc. is hereby
been illegally dismissed. ordered to pay complainant his backwages from April
1, 1994 up to November 15, 1999, in the amount of
Antecedents THREE HUNDRED TWENTY FOUR THOUSAND
San Miguel brought a complaint for unfair labor practice, SIX HUNDRED FIFTEEN PESOS (₱324,615.00).
illegal dismissal, non-payment of salaries and moral The same respondent is ordered to pay the
damages against petitioner, formerly known as Zeta complainant Ronaldo San Miguel attorney’s fees
Brokerage Corporation (Zeta).2 He alleged that he had equivalent to ten percent (10%) of the total award.
been a checker/customs representative of Zeta since All other claims are dismissed.
December 16, 1985; that in January 1994, he and other SO ORDERED.7
employees of Zeta were informed that Zeta would cease
operations, and that all affected employees, including him, Decision of the NLRC
would be separated; that by letter dated February 28, Petitioner appealed, but the NLRC issued a resolution on
1994, Zeta informed him of his termination effective March April 4, 2001,8 affirming the decision of the Labor Arbiter.
31, 1994; that he reluctantly accepted his separation pay
subject to the standing offer to be hired to his former The NLRC later on denied petitioner’s motion for
position by petitioner; and that on April 15, 1994, he was reconsideration via its resolution dated June 15, 2001.9
summarily terminated, without any valid cause and due
process.
Decision of the CA
Petitioner then filed a petition for certiorari in the CA,
San Miguel contended that the amendments of the articles imputing to the NLRC grave abuse of discretion amounting
of incorporation of Zeta were for the purpose of changing to lack or excess of jurisdiction, as follows:
the corporate name, broadening the primary functions, 1. In failing to consider the circumstances attendant to
and increasing the capital stock; and that such the cessation of business of Zeta;
amendments could not mean that Zeta had been thereby 2. In failing to consider that San Miguel failed to meet
dissolved.3 the deadline Zeta fixed for its employees to accept the
offer of petitioner for re-employment;
On its part, petitioner countered that San Miguel’s 3. In failing to consider that San Miguel’s employment
termination from Zeta had been for a cause authorized by with petitioner from April 1 to 15, 1994 could in no way
the Labor Code; that its non-acceptance of him had not be interpreted as a continuation of employment with
been by any means irregular or discriminatory; that its Zeta;
predecessor-in-interest had complied with the 4. In admitting in evidence the letter dated January 21,
requirements for termination due to the cessation of 1994 of petitioner’s counsel to the Bureau of Internal
business operations; that it had no obligation to employ Revenue; and
San Miguel in the exercise of its valid management 5. In awarding attorney’s fees to San Miguel based on
prerogative; that all employees had been given sufficient Article 2208 of the Civil Code and Article 111 of the
time to make their decision whether to accept its offer of Labor Code.
employment or not, but he had not responded to its offer On November 6, 2002, the CA promulgated its assailed
within the time set; that because of his failure to meet the decision dismissing the petition for certiorari,10 viz:
deadline, the offer had expired; that he had nonetheless
been hired on a temporary basis; and that when it decided A careful perusal of the records shows that the closure of
to hire another employee instead of San Miguel, such business operation was not validly made. Consider the
decision was not arbitrary because of seniority Certificate of Filing of the Amended Articles of
considerations.4 Incorporation which clearly shows that petitioner Zuellig is
actually the former Zeta as per amendment dated January
Decision of the Labor Arbiter 21, 1994. The same observation can be deduced with
On November 15, 1999, Labor Arbiter Francisco A. Robles respect to the Certificate of Filing of Amended By-Laws
rendered a decision holding that San Miguel had been dated May 10, 1994. As aptly pointed out by private
illegally dismissed,5 to wit: respondent San Miguel, the amendment of the articles of
incorporation merely changed its corporate name, in refusing to satisfy his plainly valid, just and demandable
broadened its primary purpose and increased its claim.
authorized capital stocks. The requirements contemplated
in Article 283 were not satisfied in this case. Good faith After careful and judicious evaluation of the arguments
was not established by mere registration with the advanced to support the propriety or impropriety of the
Securities and Exchange Commission (SEC) of the award of attorney’s fees to private respondent San Miguel,
Amended Articles of Incorporation and ByLaws. The this Court finds the resolutions of public respondent NLRC
factual milleu of the case, considered in its totality, shows supported by laws and jurisprudence. It does not need
that there was no closure to speak of. The termination of much imagination to see that by reason of petitioner
services allegedly due to cessation of business operations Zuellig’s feigned closure of business operations, private
of Zeta was illegal. Notwithstanding private respondent respondent San Miguel incurred expenses to protect his
San Miguel’s receipt of separation benefits from petitioner rights and interests. Therefore, the award of attorney’s
Zuellig, the former is not estopped from questioning the fees is in order.
legality of his dismissal.
WHEREFORE, in view of the foregoing, the resolutions
Petitioner Zuellig’s allegation that the five employees who dated April 4, 2001 and June 15, 2001 of the National
refused to receive the termination letters were verbally Labor Relations Commission affirming the November 15,
informed that they had until 6:00 p.m. of March 1, 1994 to 1999 decision of the Labor
receive the termination letters and sign the employment Arbiter in NLRC NCR 05-03639-94 (CA No. 022861-00)
contracts, otherwise the former would be constrained to are hereby AFFIRMED and the instant petition for
withdraw its offer of employment and seek for certiorari is hereby DENIED and ordered DISMISSED.
replacements in order to ensure the smooth operations of SO ORDERED.
the new company from its opening date, is of no moment Hence, petitioner appeals.
in view of the foregoing circumstances. There being no Issues
valid closure of business operations, the dismissal of Petitioner asserts that the CA erred in holding that the
private respondent San Miguel on alleged authorized NLRC did not act with grave abuse of discretion in ruling
cause of cessation of business pursuant to Article 283 of that the closure of the business operation of Zeta had not
the Labor Code, was utterly illegal. Despite verbal notice been bona fide, thereby resulting in the illegal dismissal of
that the employees had until 6:00 p.m. of March 1, 1994 to San Miguel; and in holding that the NLRC did not act with
receive the termination letters and sign the employment grave abuse of discretion in ordering it to pay San Miguel
contracts, the dismissal was still illegal for the said attorney’s fees.11
condition is null and void. In point of facts and law, private
respondent San Miguel remained an employee of
petitioner Zuellig. If at all, the alleged closure of business In his comment,12 San Miguel counters that the CA
operations merely operates to suspend employment correctly found no grave abuse of discretion on the part of
relation since it is not permanent in character. the NLRC because the ample evidence on record showed
that he had been illegally terminated; that such finding
accorded with applicable laws and jurisprudence; and that
Where there is no showing of a clear, valid, and legal he was entitled to back wages and attorney’s fees.
cause for the termination of employment, the law
considers the matter a case of illegal dismissal and the
burden is on the employer to prove that the termination In its reply,13 petitioner reiterates that the cessation of
was for a valid or authorized cause. Zeta’s business, which resulted in the severance of San
Miguel from his employment, was valid; that the CA erred
in upholding the NLRC’s finding that San Miguel had been
Findings of facts of the NLRC, particularly when both the illegally terminated; that his acknowledgment of the validity
NLRC and Labor Arbiter are in agreement, are deemed of his separation from Zeta by signing a quitclaim and
binding and conclusive upon the Supreme Court. waiver estopped him from claiming that it had
subsequently employed him; and that the award of
As regards the second and last argument advanced by attorney’s fees had no basis in fact and in law.
petitioner Zuellig that private respondent San Miguel is not
entitled to attorney’s fees, this Court finds no reason to
disturb the ruling of the public respondent NLRC. Ruling
Petitioner Zuellig maintains that the factual backdraft (sic) The petition for review on certiorari is denied for its lack of
of this petition does not call for the application of Article merit.
2208 of the Civil Code and Article 111 of the Labor Code
as private respondent’s wages were not withheld. On the First of all, the outcome reached by the CA that the NLRC
other hand, public respondent NLRC argues that did not commit any grave abuse of discretion was borne
paragraphs 2 and 3, Article 2208 of the Civil Code and out by the records of the case. We cannot undo such
paragraph (a), Article 111 of the Labor Code justify the finding without petitioner making a clear demonstration to
award of attorney’s fees. NLRC was saying to the effect the Court now that the CA gravely erred in passing upon
that by petitioner Zuellig’s act of illegally dismissing private the petition for certiorari of petitioner.
respondent San Miguel, the latter was compelled to litigate
and thus incurred expenses to protect his interest. In the Indeed, in a special civil action for certiorari brought
same passion, private respondent San Miguel contends against a court or quasi-judicial body with jurisdiction over
that petitioner Zuellig acted in gross and evident bad faith a case, petitioner carries the burden of proving that the
court or quasi-judicial body committed not a merely
reversible error but a grave abuse of discretion amounting not to pay because the IGLF loans were applied with and
to lack or excess of jurisdiction in issuing the impugned obtained from First Summa Savings and Mortgage Bank.
order.14Showing mere abuse of discretion is not enough, First Summa Savings and Mortgage Bank and PAIC
for it is necessary to demonstrate that the abuse of Savings and Mortgage Bank, Inc., are one and the same
discretion was grave. Grave abuse of discretion means bank to which petitioner corporation is indebted. A change
either that the judicial or quasi-judicial power was in the corporate name does not make a new corporation,
exercised in an arbitrary or despotic manner by reason of whether effected by a special act or under a general law. It
passion or personal hostility, or that the respondent judge, has no effect on the identity of the corporation, or on its
tribunal or board evaded a positive duty, or virtually property, rights, or liabilities. The corporation, upon to
refused to perform the duty enjoined or to act in change in its name, is in no sense a new corporation, nor
contemplation of law, such as when such judge, tribunal or the successor of the original corporation. It is the same
board exercising judicial or quasi-judicial powers acted in corporation with a different name, and its character is in no
a capricious or whimsical manner as to be equivalent to respect changed. (Bold underscoring supplied for
lack of jurisdiction.15 Under the circumstances, the CA emphasis)
committed no abuse of discretion, least of all grave,
because its justifications were supported by the records In short, Zeta and petitioner remained one and the same
and by the applicable laws and jurisprudence. corporation. The change of name did not give petitioner
the license to terminate employees of Zeta like San Miguel
Secondly, it is worthy to point out that the Labor Arbiter, without just or authorized cause. The situation was not
the NLRC, and the CA were united in concluding that the similar to that of an enterprise buying the business of
cessation of business by Zeta was not a bona fide closure another company where the purchasing company had no
to be regarded as a valid ground for the termination of obligation to rehire terminated employees of the
employment of San Miguel within the ambit of Article 283 latter.18 Petitioner, despite its new name, was the mere
of the Labor Code. The provision pertinently reads: continuation of Zeta's corporate being, and still held the
obligation to honor all of Zeta's obligations, one of which
Article 283. Closure of establishment and reduction of was to respect San Miguel's security of tenure. The
personnel. — The employer may also terminate the dismissal of San Miguel from employment on the pretext
employment of any employee due to the installation of that petitioner, being a different corporation, had no
labor-saving devices, redundancy, retrenchment to obligation to accept him as its employee, was illegal and
prevent losses or the closing or cessation of operation of ineffectual.
the establishment or undertaking unless the closing is for
the purpose of circumventing the provisions of this Title, And, lastly, the CA rightfully upheld the NLRC's affirmance
by serving a written notice on the workers and the of the grant of attorney's fees to San Miguel. Thereby, the
Department of Labor and Employment at least one (1) NLRC did not commit any grave abuse of its discretion,
month before the intended date thereof. x x x. considering that San Miguel had been compelled to litigate
and to incur expenses to protect his rights and interest. In
The unanimous conclusions of the CA, the NLRC and the Producers Bank of the Philippines v. Court of
Labor Arbiter, being in accord with law, were not tainted Appeals,19the Court ruled that attorney's fees could be
with any abuse of discretion, least of all grave, on the part awarded to a party whom an unjustified act of the other
of the NLRC. Verily, the amendments of the articles of party compelled to litigate or to incur expenses to protect
incorporation of Zeta to change the corporate name to his interest. It was plain that petitioner's refusal to reinstate
Zuellig Freight and Cargo Systems, Inc. did not produce San Miguel with backwages and other benefits to which he
the dissolution of the former as a corporation. For sure, had been legally entitled was unjustified, thereby entitling
the Corporation Code defined and delineated the different him to recover attorney's fees.
modes of dissolving a corporation, and amendment of the
articles of incorporation was not one of such modes. The WHEREFORE, the Court AFFIRMS the decision of the
effect of the change of name was not a change of the Court of Appeals promulgated on November 6, 2002; and
corporate being, for, as well stated in Philippine First ORDERS petitioner to pay the costs of suit.
Insurance Co., Inc. v. Hartigan:16 "The changing of the SO ORDERED.
name of a corporation is no more the creation of a
corporation than the changing of the name of a natural
person is begetting of a natural person. The act, in both
cases, would seem to be what the language which we use
to designate it imports – a change of name, and not a
change of being." CLAVECILLIA RADIO SYSTEM, petitioner-appellant,
vs.
HON. AGUSTIN ANTILLON, as City Judge of the
The consequences, legal and otherwise, of the change of
Municipal Court of Cagayan de Oro City
name were similarly dealt with in P.C. Javier & Sons, Inc.
and NEW CAGAYAN GROCERY, respondents-
v. Court of Appeals,17 with the Court holding thusly:
appellees.
G.R. No. L-22238 February 18, 1967
From the foregoing documents, it cannot be denied that
petitioner corporation was aware of First Summa Savings
This is an appeal from an order of the Court of First
and Mortgage Bank’s change of corporate name to PAIC
Instance of Misamis Oriental dismissing the petition of the
Savings and Mortgage Bank, Inc. Knowing fully well of
Clavecilla Radio System to prohibit the City Judge of
such change, petitioner corporation has no valid reason
Cagayan de Oro from taking cognizance of Civil Case No. follows that the suit against it may properly be filed in the
1048 for damages. City of Manila.
It appears that on June 22, 1963, the New Cagayan The appellee maintain, however, that with the filing of the
Grocery filed a complaint against the Clavecilla Radio action in Cagayan de Oro City, venue was properly laid on
System alleging, in effect, that on March 12, 1963, the the principle that the appellant may also be served with
following message, addressed to the former, was filed at summons in that city where it maintains a branch office.
the latter's Bacolod Branch Office for transmittal thru its This Court has already held in the case of Cohen vs.
branch office at Cagayan de Oro: Benguet Commercial Co., Ltd., 34 Phil. 526; that the term
NECAGRO CAGAYAN DE ORO (CLAVECILLA) "may be served with summons" does not apply when the
REURTEL WASHED NOT AVAILABLE REFINED defendant resides in the Philippines for, in such case, he
TWENTY FIFTY IF AGREEABLE SHALL SHIP LATER may be sued only in the municipality of his residence,
REPLY POHANG regardless of the place where he may be found and
served with summons. As any other corporation, the
The Cagayan de Oro branch office having received the Clavecilla Radio System maintains a residence which is
said message omitted, in delivering the same to the Manila in this case, and a person can have only one
New Cagayan Grocery, the word "NOT" between the residence at a time (See Alcantara vs. Secretary of the
words "WASHED" and "AVAILABLE," thus changing Interior, 61 Phil. 459; Evangelists vs. Santos, 86 Phil.
entirely the contents and purport of the same and 387). The fact that it maintains branch offices in some
causing the said addressee to suffer damages. After parts of the country does not mean that it can be sued in
service of summons, the Clavecilla Radio System filed a any of these places. To allow an action to be instituted in
motion to dismiss the complaint on the grounds that it any place where a corporate entity has its branch offices
states no cause of action and that the venue is would create confusion and work untold inconvenience to
improperly laid. The New Cagayan Grocery interposed the corporation.
an opposition to which the Clavecilla Radio System filed
its rejoinder. Thereafter, the City Judge, on September It is important to remember, as was stated by this Court
18, 1963, denied the motion to dismiss for lack of merit in Evangelista vs. Santos, et al., supra, that the laying of
and set the case for hearing. 1äwphï1.ñët the venue of an action is not left to plaintiff's caprice
because the matter is regulated by the Rules of Court.
Hence, the Clavecilla Radio System filed a petition for Applying the provision of the Rules of Court, the venue in
prohibition with preliminary injunction with the Court of this case was improperly laid.
First Instance praying that the City Judge, Honorable
Agustin Antillon, be enjoined from further proceeding with The order appealed from is therefore reversed, but without
the case on the ground of improper venue. The prejudice to the filing of the action in Which the venue
respondents filed a motion to dismiss the petition but this shall be laid properly. With costs against the respondents-
was opposed by the petitioner. Later, the motion was appellees.
submitted for resolution on the pleadings.
DECISION
In appealing, the Clavecilla Radio System contends that Well established in our jurisprudence is the rule that
the suit against it should be filed in Manila where it holds the residence of a corporation is the place where its principal
its principal office. office is located, as stated in its Articles of Incorporation.
It is clear that the case for damages filed with the city court The Case
is based upon tort and not upon a written contract. Section Before us is a Petition for Review[1] on Certiorari, under
1 of Rule 4 of the New Rules of Court, governing venue of Rule 45 of the Rules of Court, assailing the June 26, 2003
actions in inferior courts, provides in its paragraph (b) (3) Decision[2] and the November 27, 2003 Resolution[3] of the
that when "the action is not upon a written contract, then in Court of Appeals (CA) in CA-GR SP No. 74319. The
the municipality where the defendant or any of the decretal portion of the Decision reads as follows:
defendants resides or may be served with summons."
(Emphasis supplied) WHEREFORE, in view of the foregoing, the
assailed Orders dated May 27, 2002 and October
1, 2002 of the RTC, Branch 213, Mandaluyong
Settled is the principle in corporation law that the
City in Civil Case No. 99-600, are hereby SET
residence of a corporation is the place where its principal
ASIDE. The said case is hereby
office is established. Since it is not disputed that the
ordered DISMISSED on the ground of improper
Clavecilla Radio System has its principal office in Manila, it
venue.[4]
of a joint venture agreement with Otis Elevator Company of
The assailed Resolution denied petitioners Motion for the USA, to LG Otis Elevator Company (LG OTIS, for
Reconsideration. brevity). Thus, LGISC was to be substituted or changed to
LG OTIS, its successor-in-interest. Likewise, the motion
The Facts averred that x x x GOLDSTAR was being utilized by LG
The relevant facts of the case are summarized by OTIS and LGIC in perpetrating their unlawful and unjustified
the CA in this wise: acts against HYATT. Consequently, in order to afford
complete relief, GOLDSTAR was to be additionally
Petitioner [herein Respondent] Goldstar Elevator impleaded as a party-defendant. Hence, in the Amended
Philippines, Inc. (GOLDSTAR for brevity) is a domestic Complaint, HYATT impleaded x x x GOLDSTAR as a party-
corporation primarily engaged in the business of defendant, and all references to LGISC were
marketing, distributing, selling, importing, installing, and correspondingly replaced with LG OTIS.
maintaining elevators and escalators, with address at
6th Floor, Jacinta II Building, 64 EDSA, Guadalupe, On December 18, 2000, LG OTIS (LGISC) and LGIC
Makati City. filed their opposition to HYATTs motion to amend the
complaint. It argued that: (1) the inclusion of GOLDSTAR
On the other hand, private respondent [herein as party-defendant would lead to a change in the theory of
petitioner] Hyatt Elevators and Escalators Company the case since the latter took no part in the negotiations
(HYATT for brevity) is a domestic corporation similarly which led to the alleged unfair trade practices subject of the
engaged in the business of selling, installing and case; and (b) HYATTs move to amend the complaint at that
maintaining/servicing elevators, escalators and parking time was dilatory, considering that HYATT was aware of the
equipment, with address at the 6th Floor, Dao I existence of GOLDSTAR for almost two years before it
Condominium, Salcedo St., Legaspi Village, Makati, as sought its inclusion as party-defendant.
stated in its Articles of Incorporation.
On January 8, 2001, the [trial] court admitted the
On February 23, 1999, HYATT filed a Complaint for Amended Complaint. LG OTIS (LGISC) and LGIC filed a
unfair trade practices and damages under Articles 19, 20 motion for reconsideration thereto but was similarly
and 21 of the Civil Code of the Philippines against LG rebuffed on October 4, 2001.
Industrial Systems Co. Ltd. (LGISC) and LG International
Corporation (LGIC), alleging among others, that: in 1988, On April 12, 2002, x x x GOLDSTAR filed a Motion to
it was appointed by LGIC and LGISC as the exclusive Dismiss the amended complaint, raising the following
distributor of LG elevators and escalators in the grounds: (1) the venue was improperly laid, as neither
Philippines under a Distributorship Agreement; x x x HYATT nor defendants reside in Mandaluyong City, where
LGISC, in the latter part of 1996, made a proposal to the original case was filed; and (2) failure to state a cause
change the exclusive distributorship agency to that of a of action against [respondent], since the amended
joint venture partnership; while it looked forward to a complaint fails to allege with certainty what specific ultimate
healthy and fruitful negotiation for a joint venture, acts x x x Goldstar performed in violation of x x x Hyatts
however, the various meetings it had with LGISC and rights. In the Order dated May 27, 2002, which is the main
LGIC, through the latters representatives, were subject of the present petition, the [trial] court denied the
conducted in utmost bad faith and with malevolent motion to dismiss, ratiocinating as follows:
intentions; in the middle of the negotiations, in order to
put pressures upon it, LGISC and LGIC terminated the Upon perusal of the factual and legal arguments raised
Exclusive Distributorship Agreement; x x x [A]s a by the movants-defendants, the court finds that these
consequence, [HYATT] suffered P120,000,000.00 as are substantially the same issues posed by the then
actual damages, representing loss of earnings and defendant LG Industrial System Co. particularly the
business opportunities, P20,000,000.00 as damages for matter dealing [with] the issues of improper venue,
its reputation and goodwill, P1,000,000.00 as and by way failure to state cause of action as well as this courts lack
of exemplary damages, and P500,000.00 as and by way of jurisdiction. Under the circumstances obtaining, the
of attorneys fees. court resolves to rule that the complaint sufficiently
states a cause of action and that the venue is properly
On March 17, 1999, LGISC and LGIC filed a Motion to laid. It is significant to note that in the amended
Dismiss raising the following grounds: (1) lack of jurisdiction complaint, the same allegations are adopted as in the
over the persons of defendants, summons not having been original complaint with respect to the Goldstar
served on its resident agent; (2) improper venue; and (3) Philippines to enable this court to adjudicate a complete
failure to state a cause of action. The [trial] court denied the determination or settlement of the claim subject of the
said motion in an Order dated January 7, 2000. action it appearing preliminarily as sufficiently alleged in
the plaintiffs pleading that said Goldstar Elevator Philippines
On March 6, 2000, LGISC and LGIC filed an Answer with Inc., is being managed and operated by the same Korean
Compulsory Counterclaim ex abundante cautela. officers of defendants LG-OTIS Elevator Company and LG
International Corporation.
Thereafter, they filed a Motion for Reconsideration and to
Expunge Complaint which was denied.
On June 11, 2002, [Respondent] GOLDSTAR filed a
motion for reconsideration thereto. On June 18, 2002,
On December 4, 2000, HYATT filed a motion for leave of
without waiving the grounds it raised in its motion to
court to amend the complaint, alleging that subsequent to
dismiss, [it] also filed an Answer Ad Cautelam. On
the filing of the complaint, it learned that LGISC transferred
October 1, 2002, [its] motion for reconsideration was
all its organization, assets and goodwill, as a consequence
denied.
Appeals[11] ruled that for practical purposes, a corporation
From the aforesaid Order denying x x x Goldstars is in a metaphysical sense a resident of the place where
motion for reconsideration, it filed the x x x petition for its principal office is located as stated in the articles of
certiorari [before the CA] alleging grave abuse of incorporation.[12] Even before this ruling, it has already
discretion amounting to lack or excess of jurisdiction on been established that the residence of a corporation is the
the part of the [trial] court in issuing the assailed Orders place where its principal office is established.[13]
dated May 27, 2002 and October 1, 2002.[5]
This Court has also definitively ruled that for purposes
Ruling of the Court of Appeals of venue, the term residence is synonymous with
The CA ruled that the trial court had committed domicile.[14] Correspondingly, the Civil Code provides:
palpable error amounting to grave abuse of discretion
when the latter denied respondents Motion to Dismiss. Art. 51. When the law creating or recognizing
The appellate court held that the venue was clearly them, or any other provision does not fix the domicile
improper, because none of the litigants resided in of juridical persons, the same shall be understood to
Mandaluyong City, where the case was filed. be the place where their legal representation is
established or where they exercise their principal
According to the appellate court, since Makati was the functions.[15]
principal place of business of both respondent and
petitioner, as stated in the latters Articles of Incorporation, It now becomes apparent that the residence or
that place was controlling for purposes of determining the domicile of a juridical person is fixed by the law creating or
proper venue. The fact that petitioner had abandoned its recognizing it. Under Section 14(3) of the Corporation
principal office in Makati years prior to the filing of the Code, the place where the principal office of the
original case did not affect the venue where personal corporation is to be located is one of the required contents
actions could be commenced and tried. of the articles of incorporation, which shall be filed with the
Hence, this Petition.[6] Securities and Exchange Commission (SEC).
The rules on venue, like the other procedural rules, On a petition for review, the Supreme Court held that the
are designed to insure a just and orderly administration newly acquired shares were not treasury shares; their
of justice or the impartial and evenhanded determination declaration as treasury stock dividends was a complete
of every action and proceeding. Obviously, this objective nullity and that the assessment by the Commissioner of
will not be attained if the plaintiff is given unrestricted fraud penalty and the imposition of interest charges
freedom to choose the court where he may file his pursuant to the provision of the Tax Code were made in
complaint or petition. accordance with law.
Judgment of the Court of Tax Appeals set aside.
The choice of venue should not be left to the
plaintiffs whim or caprice. He may be impelled by some SYLLABUS
ulterior motivation in choosing to file a case in a 1. PRIVATE CORPORATIONS; SHARES OF STOCKS;
particular court even if not allowed by the rules on TREASURY; SHARES. — Treasury shares are stocks
venue.[24] issued and fully paid for and re-acquired by the
corporation either by purchase, donation, forfeiture or
other means. They are therefore issued shares, but being
WHEREFORE, the Petition is
hereby DENIED, and the assailed Decision and in the treasury they do not have the status of outstanding
shares. Consequently, although a treasury share, not
Resolution AFFIRMED. Costs against petitioner.
having been retired by the corporation re-acquiring it, may
SO ORDERED.
be re-issued or sold again, such share, as long as it is
held by the corporation as a treasury share, participates
neither in dividends, because dividends cannot be
declared by the corporation to itself, nor in the meetings of
the corporations as voting stock, for otherwise equal
distribution of voting powers among stockholders will be
effectively lost and the directors will be able to perpetuate
COMMISSIONER OF INTERNAL REVENUE, Petitioner, their control of the corporation though it still represent a
v. JOHN L. MANNING, W.D. McDONALD, E.E. paid — for interest in the property of the corporation.
SIMMONS and THE COURT OF TAX
APPEALS, Respondents. 2. ID.; ID.; ID.; DECLARATION OF QUESTIONED
[G.R. No. L-28398. August 6, 1975.] SHARES AS TREASURY STOCK DIVIDENDS, A
NULLITY. — Where the manifest intention of the parties to
SYNOPSIS the trust agreement was, in sum and substance, to treat
the shares of a deceased stockholder as absolutely
Under a trust agreement, Julius Reese who owned 24,700 outstanding shares of said stockholder’s estate until they
shares of the 25,000 common shares of MANTRASCO, were fully paid. the declaration of said shares as treasury
stock dividend was a complete nullity and plainly violative 6. TAXATION; INCOME TAX; ASSESSMENT OF FRAUD
of public policy. PENALTY AND IMPOSITION OF INTEREST CHARGES
IN ACCORDANCE WITH LAW DESPITE NULLITY OF
3. ID.; ID.; STOCK DIVIDEND PAYABLE ONLY FROM RESOLUTION AUTHORIZING DISTRIBUTION OF
RETAINED EARNINGS. — A stock dividend, being one EARNINGS. — The fact that the resolution authorizing the
payable in capital stock, cannot be declared out of distribution of earnings is null and void is of no moment.
outstanding corporate stock, but only from retained Under the National Internal Revenue Code, income tax is
earnings. assessed on income received from any property, activity
or service that produces income. The Tax Code stands as
4. ID.; ID.; PURCHASE OF HOLDING RESULTING IN an indifferent, neutral party on the matter of where the
DISTRIBUTION OF EARNINGS TAXABLE. — Where by income comes from. The action taken by the
the use of a trust instrument as a convenient technical Commissioner of assessing fraud penalty and imposing
device, respondents bestowed unto themselves the full interest charges pursuant to the provisions of the Tax
worth and value of a deceased stockholder’s corporate Code is in accordance with law.
holding acquired with the very earnings of the companies,
such package device which obviously is not designed to DECISION
carry out the usual stock dividend purpose of corporate This is a petition for review of the decision of the Court of
expansion reinvestment, e.g., the acquisition of additional Tax Appeals, in CTA case 1626, which set aside the
facilities and other capital budget items, but exclusively for income tax assessments issued by the Commissioner of
expanding the capital base of the surviving stockholders in Internal Revenue against John L. Manning, W.D.
the company, cannot be allowed to deflect the latter’s McDonald and E.E. Simmons (hereinafter referred to as
responsibilities toward our income tax laws. The the respondents), for alleged undeclared stock dividends
conclusion is ineluctable that whenever the company received in 1958 from the Manila Trading and Supply Co.
parted with a portion of its earnings "to buy" the corporate (hereinafter referred to as the MANTRASCO) valued at
holdings of the deceased stockholders, it was in ultimate P7,973,660.
effect and result making a distribution of such earnings to
the surviving stockholders. All these amounts are In 1952 the MANTRASCO had an authorized capital stock
consequently subject to income tax as being, in truth and of P2,500,000 divided into 25,000 common shares; 24,700
in fact, a flow of cash benefits to the surviving of these were owned by Julius S. Reese, and the rest, at
stockholders. 100 shares each, by the three respondents.
5. ID.; ID.; ID.; COMMISSIONER ASSESSMENT BASED On February 29, 1952, in view of Reese’s desire that upon
ON THE TOTAL ACQUISITION COST OF THE ALLEGED his death MANTRASCO and its two subsidiaries,
TREASURY STOCK DIVIDENDS, ERROR. — Where the MANTRASCO (Guam), Inc. and the Port Motors, Inc.,
surviving stockholders, by resolution, partitioned among would continue under the management of the
themselves, as treasury stock dividends, the deceased respondents, a trust agreement on his and the
stockholder’s interest, and earnings of the corporation respondents’ interests in MANTRASCO was executed by
over a period of years were used to gradually wipe out the and among Reese (therein referred to as OWNER),
holdings therein of said deceased stockholder, the MANTRASCO (therein referred to as COMPANY), the law
earnings (which in effect have been distributed to the firm of Ross, Selph, Carrascoso and Janda (therein
surviving stockholders when they appropriated among referred to as TRUSTEES), and the respondents (therein
themselves the deceased stockholder’s interest), should referred to as MANAGERS).
be taxed for each of the corresponding years when
payments were made to the deceased’s estate on account The trust agreement pertinently provides as follows:
of his shares. In other words, the Tax Commissioner may "1. Upon the execution of this agreement the OWNER
not asses the surviving stockholders, for income tax shall deposit with the TRUSTEES, duly endorsed and
purposes, the total acquisition cost of the alleged treasury ready for transfer Twenty-Four Thousand Seven Hundred
stock dividends in one lump sum. However, with regard to (24,700) shares of the capital stock of the COMPANY,
payment made with the corporation’s earnings before the these shares being all shares of the capital stock of the
passage of the resolution declaring as stock dividends the COMPANIES belonging to him . . .
deceased stockholder’s interest (while indeed those
earnings were utilized in those years to gradually pay off "2. Upon the execution of this Agreement the MANAGERS
the value of the deceased stockholder’s holdings), the shall deposit with the TRUSTEES, duly endorsed and
surviving stockholders should be liable (in the absence of ready for transfer, all shares of the capital stock of the
evidence that prior to the passage of the stockholder’s COMPANIES belonging to any of them.
resolution the contributed of each of the surviving
stockholder rose corresponding), for income tax purposes, "3. (a) The OWNER and the MANAGERS, and each of
to the extent of the aggregate amount paid by the them, agree that if any of them shall at any time during the
corporation (prior to such resolution) to buy off the life of this trust acquire any additional shares of stock of
deceased stockholder’s shares. The reason is that it was any of the COMPANIES, or of any successor company, or
only by virtue of the authority contained in said resolution any shares in substitution, exchange or replacement of the
that the surviving stockholders actually, albeit illegally, shares subject to this agreement, they shall forthwith
appropriated and petitioned among themselves the endorse and deposit such shares with the TRUSTEES
stockholders equity representing the deceased hereunder and such additional or other shares shall
stockholder’s interest. become subject to this agreement; shares deposited by
the OWNER and shares received by the TRUSTEES as
stock dividends on, or in substitution, exchange or shares being purchased by any COMPANY or
replacement of, such shares so deposited under this COMPANIES should they in their exclusive discretion
agreement being MANAGERS’ SHARES. determine that such increase or decrease would be
necessary to carry out the intention of the parties that the
"(b) All shares deposited under paragraphs 1, 2 and 3(a) Estate and heirs of the OWNER shall receive the fair value
hereof shall, during the life of the OWNER, remain in the of the shares deposited in Trust as such value existed at
name of and shall be voted by the respective parties the date of the death of the OWNER. . .
making the deposit ...
"13. Should the said COMPANIES or any of them be
"4. (a) Upon the death of the OWNER and the receipt by unable or unwilling to comply with their obligations
the TRUSTEES of the initial payment from the company hereunder when due, the TRUSTEES may terminate this
purchasing the OWNER’S SHARES, the TRUSTEES shall agreement and dispose of all the shares of stock
cause the OWNER’S SHARES to be transferred into the deposited hereunder, whether or not payment shall have
name of such company and such company shall been made for part of such stock, applying the proceeds
thereupon transfer such shares into the name of the of such sale or disposition to the unpaid balance of the
TRUSTEES and the TRUSTEES shall hold such shares purchase price:
until payment for all such shares shall have been made by
the company as provided in this agreement. "(a) If, upon any such sale or disposition of the stock, the
x x x TRUSTEES shall receive an amount in excess of the
"(c) The TRUSTEES shall vote all stock standing in their unpaid balance of the purchase price agreed to be paid by
name or the name of their nominees at all meetings and the COMPANIES for the OWNER’S SHARES such
shall be in all respects entitled to all the rights as owners excess, after deducting all expenses, charges and taxes,
of said shares, subject, however, to the provisions of this shall be paid to the then MANAGERS.
agreement of trust. x x x
"17. Until the delivery to him of the shares purchased by
"(d) Any and all dividends paid on said shares after the him, no MANAGER, shall sell, assign, mortgage, pledge,
death of the OWNER shall be subject to the provisions of transfer or in anywise encumber or hypothecate such
this agreement. shares or his interest in this agreement.
x x x x x x
"5. (b) It is expressly agreed and understood, however, "19. After the death of the OWNER and during the period
that the declaration of dividends and amount of earnings of this trust the COMPANIES shall pay no dividends
transferred to surplus shall be subject to the approval of except as may be authorized by the TRUSTEES.
the TRUSTEES and the TRUSTEES shall participate to Dividends on MANAGER’S SHARES shall, so long as
such extent in the affairs of the COMPANIES as they they shall not be in default under this agreement, be paid
deem necessary to insure the carrying out of this over by the TRUSTEES to the MANAGERS. Dividends on
agreement and the discharge of the obligations of the OWNER’S SHARES shall be applied in liquidation of the
COMPANIES and each of them and of the MANAGERS COMPANIES’ liabilities hereunder as provided in Article
hereunder. 8(d).
x x x
"(c) The TRUSTEES shall designate one or more directors "26. The TRUSTEES may, after the death of the OWNER
of each of the COMPANIES as they shall consider and during the life of this trust, vote any and all shares
advisable and corresponding shares shall be transferred held in trust, at any general and special meeting of
to such directors to qualify them to act. stockholders for all purposes, including but not limited to
x x x wholly or partially liquidating or reducing the capital of any
"8. (a) Upon the death of the OWNER, the COMPANIES COMPANY or COMPANIES, authorizing the sale of any or
or any one or more of them shall purchase the OWNER’S all assets, and election of directors . . .
SHARES; it being the intent that any of the COMPANIES x x x
shall purchase all or a proportionate part of the OWNER’S "28. The COMPANIES and each of them undertake and
SHARES . . . agree by proper corporate act to reduce their
capitalization, sell or encumber their assets, amend their
"(b) The purchase price of such shares shall be the book articles of incorporation, reorganize, liquidate, dissolve
value of such share computed in United States dollars . . . and do all other things the TRUSTEES in their discretion
x x x determine to be necessary to enable them to comply with
"(d) All dividends paid on stock that had been OWNER’S their obligations hereunder and the TRUSTEES are
SHARES, from the time of the transfer of such shares by hereby irrevocably authorized to vote all shares of the
one or more of the COMPANIES to the TRUSTEES as COMPANIES and each of them at any general or special
provided in Article 4 until payment in full for such meeting for the accomplishment of such purposes. . . ." cralaw
COMPANIES which shall have purchased the same, shall On October 19, 1954 Reese died. The projected transfer
be credited as payments on account of the purchase price of his shares in the name of MANTRASCO could not,
of such shares and shall be a prepayment on account of however, be immediately effected for lack of sufficient
the next due installment or installments of such purchase funds to cover initial payment on the shares.
price.
x x x On February 2, 1955, after MANTRASCO made a partial
"12. The TRUSTEES may from time to time increase or payment of Reese’s shares, the certificate for the 24,700
decrease the unpaid balance of the purchase price of the shares in Reese’s name was cancelled and a new
certificate was issued in the name of MANTRASCO. On TOTAL AMOUNT DUE & COLLECTIBLE P2,430,067.92
the same date, and in the meantime that Reese’s interest P2,423,767.92 2,436,729.12
had not been fully paid, the new certificate was endorsed
to the law firm of Ross, Selph, Carrascoso and Janda, as The respondents unsuccessfully challenged the foregoing
trustees for and in behalf of MANTRASCO. assessments and, failing to secure a favorable
reconsideration, appealed to the Court of Tax Appeals.
On December 22, 1958, at a special meeting of
MANTRASCO stockholders, the following resolution was On October 30, 1967 the CTA rendered judgment
passed: absolving the respondents from any liability for receiving
the questioned stock dividends on the ground that their
"RESOLVED, that the 24,700 shares in the Treasury be respective one-third interest in MANTRASCO remained
reverted back to the capital account of the company as a the same before and after the declaration of stock
stock dividend to be distributed to shareholders of record dividends and only the number of shares held by each of
at the close of business on December 22, 1958, in them had changed.
accordance with the action of the Board of Directors at its
meeting on December 19, 1958 which action is hereby Hence, the present recourse.
approved and confirmed." cralaw virtua1aw library
All the parties rely upon the same provisions of the Tax
On November 25, 1963 the entire purchase price of Code and internal revenue regulations to bolster their
Reese’s interest in MANTRASCO was finally paid in full by respective positions. These are:
the latter, On May 4, 1964 the trust agreement was
terminated and the trustees delivered to MANTRASCO all A. National Internal Revenue Code
the shares which they were holding in trust.
"SEC. 83. Distribution of dividends or assets by
Meanwhile, on September 14, 1962, an examination of corporations — (a) Definition of Dividends — The term
MANTRASCO’s books was ordered by the Bureau of ‘dividends’ when used in this Title means any distribution
Internal Revenue. The examination disclosed that (a) as of made by a corporation to its shareholders out of its
December 31, 1958 the 24,700 shares declared as earnings or profits accrued since March first, nineteen
dividends had been proportionately distributed to the hundred and thirteen, and payable to its shareholders,
respondents, representing a total book value or acquisition whether in money or in other property.
cost of P7,973,660; (b) the respondents failed to declare
the said stock dividends as part of their taxable income for "Where a corporation distributes all of its assets in
the year 1958; and (c) from 1956 to 1961 the following complete liquidation or dissolution the gain realized or loss
amounts were paid by MANTRASCO to Reese’s estate by sustained by the stockholder, whether individual or
virtue of the trust agreement, to wit: chanrob1es virtual 1aw library corporate, is a taxable income or deductible loss, as the
case may be.
Amounts
Year Liabilities Paid "(b) Stock dividend. — A stock dividend representing the
1956 P5,830,587.86 P 2,143,073.00 transfer of surplus to capital account shall not be subject
1957 5,317,137.86 513,450.00
to tax. However, if a corporation cancels or redeems stock
1958 4,824,059.28 493,078.58
1959 4,319,420.14 504,639.14 issued as a dividend at such time and in such manner as
1960 3,849,720.14 469,700.00 to make the distribution and cancellation or redemption, in
1961 3,811,387.69 38,332.45 whole or in part, essentially equivalent to the distribution of
a taxable dividend, the amount so distributed in
On the basis of their examination, the BIR examiners redemption or cancellation of the stock shall be
concluded that the distribution of Reese’s shares as stock considered as taxable income to the extent that it
dividends was in effect a distribution of the "asset or represents a distribution of earnings or profits
property of the corporation as may be gleaned from the accumulated after March first, nineteen hundred and
payment of cash for the redemption of said stock and thirteen."
distributing the same as stock dividend." On April 14, 1965
the Commissioner of Internal Revenue issued notices of B. B.I.R. Regulations
assessment for deficiency income taxes to the
respondents for the year 1958, as follows: chanrob1es virtual 1aw library "SEC. 251. Dividends paid in property. — Dividends paid
in securities or other property (other than its own stock), in
J.L. Manning W.D. McDonald E.E. Simmons which the earnings of the corporation have been invested,
are income to the recipients to the amount of the full
Deficiency Income Tax P1,416,469.00 P1,442,719.00 market value of such property when receivable by
P1,450,434.00 individual stockholders . . .
Add 50% surcharge* 723,234.50 721,359.507 25,217.00 "SEC. 252. Stock dividend. — A stock dividend which
represents the transfer of surplus to capital account is not
1/2% monthly interest from subject to income tax. However, a dividend in stock may
constitute taxable income to the recipients thereof
6-20-59 to 6-20-62 260,364.42 259,689.42 261,078.12 notwithstanding the fact that the officers or directors of the
———— ———— ———— corporation (as defined in section 84) choose to call such
distribution as a stock dividend. The distinction between a
stock dividend which does not, and one which does, of said shares" — this authority is reiterated in paragraphs
constitute income taxable to the shareholders is the 26 and 28 of the trust agreement;
distinction between a stock dividend which works no
change in the corporate entity, the same interest in the (b) under paragraph 4(d), "Any and all dividends paid on
same corporation being represented after the distribution said shares after the death of the OWNER shall be subject
by more shares of precisely the same character, and a to the provisions of this agreement;"
stock dividend where there either has been change of
corporate identity or a change in the nature of the shares (c) under paragraph 5(b), the amount of retained earnings
issued as dividends whereby the proportional interest of to be declared as dividends was made subject to the
the shareholder after the distribution is essentially different approval of the trustees of the 24,700 shares;
from the former interest. A stock dividend constitutes
income if it gives the shareholder an interest different from (d) under paragraph 5(c), the choice of corporate directors
that which his former stockholdings represented. A stock was delegated exclusively to the trustees who were also
dividend does not constitute income if the new shares given the authority to transfer qualifying shares to such
confer no different rights or interests than did the old — directors; and
the new certificate plus the old representing the same
proportionate interest in the net assets of the corporation (e) under paragraph 19, MANTRASCO and its two
as did the old." subsidiaries were expressly prohibited from paying
"dividends except as may be authorized by the
The parties differ, however, on the taxability of the TRUSTEES;" in the same paragraph mention was also
"treasury" stock dividends received by the respondents. made of "dividends on OWNER’S SHARES" which shall
be applied to the liquidation of the liabilities of the three
The respondents anchor their argument on the same basis companies for the price of Reese’s shares.
as the Court of Tax Appeals; whereas the Commissioner
maintains that the full value (P7,973,660) of the shares The manifest intention of the parties to the trust agreement
redeemed from Reese by MANTRASCO which were was, in sum and substance, to treat the 24,700 shares of
subsequently distributed to the respondents as stock Reese as absolutely outstanding shares of Reese’s estate
dividends in 1958 should be taxed as income of the until they were fully paid. Such being the true nature of the
respondents for that year, the said distribution being in 24,700 shares, their declaration as treasury stock dividend
effect a distribution of cash. The respondents’ interests in in 1958 was a complete nullity and plainly violative of
MANTRASCO, he further argues, were only .4% prior to public policy. A stock dividend, being one payable in
the declaration of the stock dividends in 1958, but rose to capital stock, cannot be declared out of outstanding
33 1/3% each after the said declaration. corporate stock, but only from retained earnings: 7
In submitting their respective contentions, it is the Of pointed relevance is this useful discussion of the nature
assumption of both parties that the 24,700 shares of a stock dividend: 8
declared as stock dividends were treasury shares. We are
however convinced, after a careful study of the trust "‘A stock dividend always involves a transfer of surplus (or
agreement, that the said shares were not, on December profit) to capital stock.’ Graham and Katz, Accounting in
22, 1958 or at anytime before or after that date, treasury Law Practice, 2d ed. 1938, No. 70. As the court said in
shares. The reasons are quite plain. United States v. Siegel, 8 Cir., 1931, 52 F 2d 63, 65, 78
ALR 672: ‘A stock dividend is a conversion of surplus or
Although authorities may differ on the exact legal and undivided profits into capital stock, which is distributed to
accounting status of so-called "treasury shares," 1 they stockholders in lieu of a cash dividend.’ Congress itself
are more or less in agreement that treasury shares are has defined the term ‘dividend’ in No. 115(a) of the Act as
stocks issued and fully paid for and re-acquired by the meaning any distribution made by a corporation to its
corporation either by purchase, donation, forfeiture or shareholders, whether in money or in other property, out
other means. 2 Treasury shares are therefore issued of its earnings or profits. In Eisner v. Macomber, 1920, 252
shares, but being in the treasury they do not have the US 189, 40 S Ct 189, 64 L Ed 521, 9 ALR 1570, both the
status of outstanding shares. 3 Consequently, although a prevailing and the dissenting opinions recognized that
treasury share, not having been retired by the corporation within the meaning of the revenue acts the essence of a
re-acquiring it, may be re-issued or sold again, such stock dividend was the segregation out of surplus account
share, as long as it is held by the corporation as a treasury of a definite portion of the corporate earnings as part of
share, participates neither in dividends, because dividends the permanent capital resources of the corporation by the
cannot be declared by the corporation to itself, 4 nor in the device of capitalizing the same, and the issuance to the
meetings of the corporation as voting stock, for otherwise stockholders of additional shares of stock representing the
equal distribution of voting powers among stockholders profits so capitalized."
cralaw virtua1aw library
company or corporation, and it was no error to reject the court found the dispute to be intracorporate, hence,
counter-bond, the court having declared the dissolution. subject to the jurisdiction of the SEC, and ordered the
As to the amount of the bond to be demanded of the MCTC to dismiss Civil Case No. 1214 accordingly. It 5
receiver, much depends upon the discretion of the trial denied reconsideration on May 31, 1996. 6
This petition for certiorari seeks to annul and set aside the The jurisdiction of the Securities and Exchange
decision of the Regional Trial Court, Branch 58, Angeles Commission (SEC) is set forth in Section 5 of Presidential
City which ordered the Municipal Circuit Trial Court, Decree No. 902-A. Section 5 reads as follows:
Sec. 5. . . . [T]he Securities and Exchange There is no intracorporate nor partnership relation
Commission [has] original and exclusive jurisdiction to between petitioner and private respondent. The
hear and decide cases involving: controversy between them arose out of their plan to
consolidate their respective jeepney drivers' and
(a) Devices or schemes employed by or any acts of operators' associations into a single common association.
the board of directors, business associates, its This unified association was, however, still a proposal. It
officers or partners, amounting to fraud and had not been approved by the SEC, neither had its officers
misrepresentation which may be detrimental to the and members submitted their articles of consolidation is
interest of the public and/or of the stockholders, accordance with Sections 78 and 79 of the Corporation
partners, members of associations or organizations Code. Consolidation becomes effective not upon mere
registered with the Commission. agreement of the members but only upon issuance of the
certificate of consolidation by the SEC. When the SEC,
13
or associates, respectively; and between such existence and the constituent corporations dissolve and
corporation, partnership or association and the state cease to exist. 15
impossibility of meeting them when they respectively private respondent cannot override jurisdictional
fall due or in cases where the corporation, partnership requirements. Jurisdiction is fixed by law and is not subject
or association has no sufficient assets to over its to the agreement of the parties. It cannot be acquired
17
liabilities, but is under the management of a through or waived, enlarged or diminished by, any act or
Rehabilitation Receiver or Management Committee omission of the parties, neither can it be conferred by the
created pursuant to this Decree. acquiescence of the court. 18
The grant of jurisdiction to the SEC must be viewed in Corporation by estoppel is founded on principles of equity
the light of its nature and function under the law. This
8
and is designed to prevent injustice and unfairness. It
19
jurisdiction is determined by a concurrence of two applies when persons assume to form a corporation and
elements: (1) the status or relationship of the parties; exercise corporate functions and enter into business
and (2) the nature of the question that is the subject of relations with third person. Where there is no third person
their controversy. 9
involved and the conflict arises only among those
assuming the form of a corporation, who therefore know
The first element requires that the controversy must arise that it has not been registered, there is no corporation by
out of intracorporate or partnership relations between and estoppel. 20
By "due process of law" we mean " "a law which hears This is a petition for certiorari filed by Manuela T. Vda. de
before it condemns; which proceeds upon inquiry, and Salvatierra seeking to nullify the order of the Court of First
renders judgment only after trial. ... ." (4 Wheaton, U.S. Instance of Leyte in Civil Case No. 1912, dated March 21,
518, 581.)"; or, as this Court has said, " "Due process of 1956, relieving Segundino Refuerzo of liability for the
law" contemplates notice and opportunity to be heard contract entered into between the former and the
before judgment is rendered, affecting one's person or Philippine Fibers Producers Co., Inc., of which Refuerzo is
property" (Lopez vs. Director of Lands, 47 Phil. 23, 32)." the president. The facts of the case are as follows:
(Sicat vs. Reyes, L-11023, Dec. 14, 1956.) And it may not
be amiss to mention here also that the "due process" Manuela T. Vda. de Salvatierra appeared to be the owner
clause of the Constitution is designed to secure justice as of a parcel of land located at Maghobas, Poblacion,
a living reality; not to sacrifice it by paying undue homage Burauen, Teyte. On March 7, 1954, said landholder
to formality. For substance must prevail over form. It may entered into a contract of lease with the Philippine Fibers
now be trite, but none the less apt, to quote what long ago Producers Co., Inc., allegedly a corporation "duly
we said in Alonso vs. Villamor, 16 Phil. 315, 321-322: organized and existing under the laws of the Philippines,
domiciled at Burauen, Leyte, Philippines, and with
A litigation is not a game of technicalities in which business address therein, represented in this instance by
one, more deeply schooled and skilled in the subtle Mr. Segundino Q. Refuerzo, the President". It was
art of movement and position, entraps and destroys provided in said contract, among other things, that the
the other. It is, rather, a contest in which each lifetime of the lease would be for a period of 10 years; that
contending party fully and fairly lays before the court the land would be planted to kenaf, ramie or other crops
the facts in issue and then, brushing side as wholly suitable to the soil; that the lessor would be entitled to 30
trivial and indecisive all imperfections of form and per cent of the net income accruing from the harvest of
technicalities of procedure, asks that Justice be done any, crop without being responsible for the cost of
upon the merits. Lawsuits, unlike duels, are not to be production thereof; and that after every harvest, the lessee
won by a rapier's thrust. Technicality, when it deserts was bound to declare at the earliest possible time the
its proper office as an aid to justice and becomes its income derived therefrom and to deliver the corresponding
great hindrance and chief enemy, deserves scant share due the lessor.
consideration from courts. There should be no vested
rights in technicalities. Apparently, the aforementioned obligations imposed on
the alleged corporation were not complied with because
The evidence is patently clear that Jose M. Aruego, acting on April 5, 1955, Alanuela T. Vda, de Salvatierra filed with
as representative of a non-existent principal, was the real the Court of First Instance of Leyte a complaint against the
party to the contract sued upon; that he was the one who Philippine Fibers Producers Co., Inc., and Segundino Q.
reaped the benefits resulting from it, so much so that Refuerzo, for accounting, rescission and damages (Civil
partial payments of the consideration were made by him; Case No. 1912). She averred that sometime in April, 1954,
that he violated its terms, thereby precipitating the suit in defendants planted kenaf on 3 hectares of the leased
question; and that in the litigation he was the real property which crop was, at the time of the
defendant. Perforce, in line with the ends of justice, commencement of the action, already harvested,
responsibility under the judgment falls on him. processed and sold by defendants; that notwithstanding
that fact, defendants refused to render an accounting of
We need hardly state that should there be persons who the income derived therefrom and to deliver the lessor's
under the law are liable to Aruego for reimbursement or share; that the estimated gross income was P4,500, and
the deductible expenses amounted to P1,000; that as petitioner is good and substantial cause of action or
defendants' refusal to undertake such task was in violation defense, as the case may be, which he may prove if
of the terms of the covenant entered into between the his petition be granted". (Rule 38)
plaintiff and defendant corporation, a rescission was but
proper. The aforequoted provision treats of 2 periods, i.e., 60 days
after petitioner learns of the judgment, and not more than
As defendants apparently failed to file their answer to the 6 months after the judgment or order was rendered, both
complaint, of which they were allegedly notified, the Court of which must be satisfied. As the decision in the case at
declared them in default and proceeded to receive bar was under date of June 8, 1955, whereas the motion
plaintiff's evidence. On June 8, 1955, the lower Court filed by respondent Refuerzo was dated January 31, 1956,
rendered judgment granting plaintiff's prayer, and required or after the lapse of 7 months and 23 days, the filing of the
defendants to render a complete accounting of the harvest aforementioned motion was clearly made beyond the
of the land subject of the proceeding within 15 days from prescriptive period provided for by the rules. The remedy
receipt of the decision and to deliver 30 per cent of the net allowed by Rule 38 to a party adversely affected by a
income realized from the last harvest to plaintiff, with legal decision or order is certainly an alert of grace or
interest from the date defendants received payment for benevolence intended to afford said litigant a penultimate
said crop. It was further provide that upon defendants' opportunity to protect his interest. Considering the nature
failure to abide by the said requirement, the gross income of such relief and the purpose behind it, the periods fixed
would be fixed at P4,200 or a net income of P3,200 after by said rule are non-extendible and never interrupted; nor
deducting the expenses for production, 30 per cent of could it be subjected to any condition or contingency
which or P960 was held to be due the plaintiff pursuant to because it is of itself devised to meet a condition or
the aforementioned contract of lease, which was declared contingency (Palomares vs. Jimenez,* G.R. No. L-4513,
rescinded. January 31, 1952). On this score alone, therefore, the
petition for a writ of certiorari filed herein may be granted.
No appeal therefrom having been perfected within the However, taking note of the question presented by the
reglementary period, the Court, upon motion of plaintiff, motion for relief involved herein, We deem it wise to delve
issued a writ of execution, in virtue of which the Provincial in and pass upon the merit of the same.
Sheriff of Leyte caused the attachment of 3 parcels of land
registered in the name of Segundino Refuerzo. No Refuerzo, in praying for his exoneration from any liability
property of the Philippine Fibers Producers Co., Inc., was resulting from the non-fulfillment of the obligation imposed
found available for attachment. On January 31, 1956, on defendant Philippine Fibers Producers Co., Inc.,
defendant Segundino Refuerzo filed a motion claiming that interposed the defense that the complaint filed with the
the decision rendered in said Civil Case No. 1912 was null lower court contained no allegation which would hold him
and void with respect to him, there being no allegation in liable personally, for while it was stated therein that he
the complaint pointing to his personal liability and thus was a signatory to the lease contract, he did so in his
prayed that an order be issued limiting such liability to capacity as president of the corporation. And this
defendant corporation. Over plaintiff's opposition, the allegation was found by the Court a quo to be supported
Court a quo granted the same and ordered the Provincial by the records. Plaintiff on the other hand tried to refute
Sheriff of Leyte to release all properties belonging to the this averment by contending that her failure to specify
movant that might have already been attached, after defendant's personal liability was due to the fact that all
finding that the evidence on record made no mention or the time she was under the impression that the Philippine
referred to any fact which might hold movant personally Fibers Producers Co., Inc., represented by Refuerzo was
liable therein. As plaintiff's petition for relief from said order a duly registered corporation as appearing in the contract,
was denied, Manuela T. Vda. de Salvatierra instituted the but a subsequent inquiry from the Securities and
instant action asserting that the trial Judge in issuing the Exchange Commission yielded otherwise. While as a
order complained of, acted with grave abuse of discretion general rule a person who has contracted or dealt with an
and prayed that same be declared a nullity. association in such a way as to recognize its existence as
a corporate body is estopped from denying the same in an
From the foregoing narration of facts, it is clear that the action arising out of such transaction or dealing, (Asia
order sought to be nullified was issued by tile respondent Banking Corporation vs. Standard Products Co., 46 Phil.,
Judge upon motion of defendant Refuerzo, obviously 114; Compania Agricola de Ultramar vs. Reyes, 4 Phil., 1;
pursuant to Rule 38 of the Rules of Court. Section 3 of Ohta Development Co.; vs. Steamship Pompey, 49 Phil.,
said Rule, however, in providing for the period within 117), yet this doctrine may not be held to be applicable
which such a motion may be filed, prescribes that: where fraud takes a part in the said transaction. In the
instant case, on plaintiff's charge that she was unaware of
the fact that the Philippine Fibers Producers Co., Inc., had
SEC. 3. WHEN PETITION FILED; CONTENTS AND no juridical personality, defendant Refuerzo gave no
VERIFICATION. — A petition provided for in either of confirmation or denial and the circumstances surrounding
the preceding sections of this rule must be verified, the execution of the contract lead to the inescapable
filed within sixty days after the petitioner learns of the conclusion that plaintiff Manuela T. Vda. de Salvatierra
judgment, order, or other proceeding to be set aside, was really made to believe that such corporation was duly
and not more than six months after such judgment or organized in accordance with law.
order was entered, or such proceeding was taken;
and must be must be accompanied with affidavit
showing the fraud, accident, mistake, or excusable There can be no question that a corporation with
negligence relied upon, and the facts constituting the registered has a juridical personality separate and distinct
from its component members or stockholders and officers of the blue, and for no apparent or given reason, this
such that a corporation cannot be held liable for the abrupt dismissal.
personal indebtedness of a stockholder even if he should
be its president (Walter A. Smith Co. vs. Ford, SC-G.R. Oh sued. She demanded separation pay, social security
No. 42420) and conversely, a stockholder or member benefits, salary differentials, maternity benefits and moral
cannot be held personally liable for any financial obligation and exemplary damages. 1 The original defendant was the
be, the corporation in excess of his unpaid subscription. Chiang Kai Shek School but when it filed a motion to
But this rule is understood to refer merely to registered dismiss on the ground that it could not be sued, the
corporations and cannot be made applicable to the liability complaint was amended. 2 Certain officials of the school
of members of an unincorporated association. The reason were also impleaded to make them solidarily liable with
behind this doctrine is obvious-since an organization the school.
which before the law is non-existent has no personality
and would be incompetent to act and appropriate for itself
the powers and attribute of a corporation as provided by The Court of First Instance of Sorsogon dismissed the
law; it cannot create agents or confer authority on another complaint. 3 On appeal, its decision was set aside by the
to act in its behalf; thus, those who act or purport to act as respondent court, which held the school suable and liable
its representatives or agents do so without authority and at while absolving the other defendants. 4 The motion for
their own risk. And as it is an elementary principle of law reconsideration having been denied, 5 the school then
that a person who acts as an agent without authority or came to this Court in this petition for review on certiorari.
without a principal is himself regarded as the principal,
possessed of all the rights and subject to all the liabilities The issues raised in the petition are:
of a principal, a person acting or purporting to act on
behalf of a corporation which has no valid existence 1. Whether or not a school that has not been incorporated
assumes such privileges and obligations and comes may be sued by reason alone of its long continued
personally liable for contracts entered into or for other acts existence and recognition by the government,
performed as such, agent (Fay vs. Noble, 7 Cushing 2. Whether or not a complaint filed against persons
[Mass.] 188. Cited in II Tolentino's Commercial Laws of associated under a common name will justify a judgment
the Philippines, Fifth Ed., P. 689-690). Considering that against the association itself and not its individual
defendant Refuerzo, as president of the unregistered members.
corporation Philippine Fibers Producers Co., Inc., was the 3. Whether or not the collection of tuition fees and book
moving spirit behind the consummation of the lease rentals will make a school profit-making and not charitable.
agreement by acting as its representative, his liability 4. Whether or not the Termination Pay Law then in force
cannot be limited or restricted that imposed upon was available to the private respondent who was
corporate shareholders. In acting on behalf of a employed on a year-to-year basis.
corporation which he knew to be unregistered, he 5. Whether or not the awards made by the respondent
assumed the risk of reaping the consequential damages or court were warranted.
resultant rights, if any, arising out of such transaction.
An unpleasant surprise awaited Fausta F. Oh when she Having been recognized by the government, it was under
reported for work at the Chiang Kai Shek School in obligation to incorporate under the Corporation Law within
Sorsogon on the first week of July, 1968. She was told she 90 days from such recognition. It appears that it had not
had no assignment for the next semester. Oh was done so at the time the complaint was filed
shocked. She had been teaching in the school since 1932 notwithstanding that it had been in existence even earlier
for a continuous period of almost 33 years. And now, out than 1932. The petitioner cannot now invoke its own non-
compliance with the law to immunize it from the private notice then required by law had not been given, such
respondent's complaint. dismissal was invalid.
There should also be no question that having contracted The private respondent's position is no different from that
with the private respondent every year for thirty two years of the rank-and-file employees involved in Gregorio
and thus represented itself as possessed of juridical Araneta University Foundation v. NLRC, 9 of whom the Court
personality to do so, the petitioner is now estopped from had the following to say:
denying such personality to defeat her claim against it.
According to Article 1431 of the Civil Code, "through Undoubtedly, the private respondents' positions as
estoppel an admission or representation is rendered deans and department heads of the petitioner
conclusive upon the person making it and cannot be university are necessary in its usual business.
denied or disproved as against the person relying on it." Moreover, all the private respondents have been
serving the university from 18 to 28 years. All of them
As the school itself may be sued in its own name, there is rose from the ranks starting as instructors until they
no need to apply Rule 3, Section 15, under which the became deans and department heads of the
persons joined in an association without any juridical university. A person who has served the University for
personality may be sued with such association. Besides, it 28 years and who occupies a high administrative
has been shown that the individual members of the board position in addition to teaching duties could not
of trustees are not liable, having been appointed only after possibly be a temporary employee or a casual.
the private respondent's dismissal.
The applicable law is the Termination Pay Law, which
It is clear now that a charitable institution is covered by the provided:
labor laws 7 although the question was still unsettled when
this case arose in 1968. At any rate, there was no law SECTION 1. In cases of employment, without a
even then exempting such institutions from the operation definite period, in a commercial, industrial, or
of the labor laws (although they were exempted by the agricultural establishment or enterprise, the employer
Constitution from ad valorem taxes). Hence, even or the employee may terminate at any time the
assuming that the petitioner was a charitable institution as employment with just cause; or without just cause in
it claims, the private respondent was nonetheless still the case of an employee by serving written notice on
entitled to the protection of the Termination Pay Law, the employer at least one month in advance, or in the
which was then in force. case of an employer, by serving such notice to the
employee at least one month in advance or one-half
While it may be that the petitioner was engaged in month for every year of service of the employee,
charitable works, it would not necessarily follow that those whichever, is longer, a fraction of at least six months
in its employ were as generously motivated. Obviously, being considered as one whole year.
most of them would not have the means for such
charity. The private respondent herself was only a humble The employer, upon whom no such notice was served
school teacher receiving a meager salary of Pl80. 00 per in case of termination of employment without just
month. cause may hold the employee liable for damages.
At that, it has not been established that the petitioner is a The employee, upon whom no such notice was
charitable institution, considering especially that it charges served in case of termination of employment without
tuition fees and collects book rentals from its just cause shall be entitled to compensation from the
students. 8 While this alone may not indicate that it is date of termination of his employment in an I amount
profit-making, it does weaken its claim that it is a non-profit equivalent to his salaries or wages correspond to the
entity. required period of notice. ... .
The petitioner says the private respondent had not been The respondent court erred, however, in awarding her one
illegally dismissed because her teaching contract was on a month pay instead of only one-half month salary for every
yearly basis and the school was not required to rehire her year of service. The law is quite clear on this matter.
in 1968. The argument is that her services were Accordingly, the separation pay should be computed at
terminable at the end of each year at the discretion of the P90.00 times 32 months, for a total of P2,880.00.
school. Significantly, no explanation was given by the
petitioner, and no advance notice either, of her relief after Parenthetically, R.A. No. 4670, otherwise known as the
teaching year in and year out for all of thirty-two years, the Magna Carta for Public School Teachers, confers security
private respondent was simply told she could not teach of tenure on the teacher upon appointment as long as he
any more.
possesses the required qualification. 10 And under the
present policy of the Department of Education, Culture
The Court holds, after considering the particular and Sports, a teacher becomes permanent and
circumstance of Oh's employment, that she had become a automatically acquires security of tenure upon completion
permanent employee of the school and entitled to security of three years in the service. 11
of tenure at the time of her dismissal. Since no cause was
shown and established at an appropriate hearing, and the
While admittedly not applicable to the case at bar, these I ASIA BANKING CORPORATION, plaintiff-appellee,
rules nevertheless reflect the attitude of the government vs.
on the protection of the worker's security of tenure, which STANDARD PRODUCTS, CO., INC., defendant-
is now guaranteed by no less than the Constitution appellant.
itself. 12 G.R. No. 22106 September 11, 1924
We find that the private respondent was arbitrarily treated This action is brought to recover the sum of P24,736.47,
by the petitioner, which has shown no cause for her the balance due on the following promissory note:
removal nor had it given her the notice required by the
Termination Pay Law. As the respondent court said, the P37,757.22
contention that she could not report one week before the MANILA, P. I., Nov. 28, 1921.
start of classes is a flimsy justification for replacing On demand, after date we promise to pay to the Asia
her. 13 She had been in its employ for all of thirty-two Banking Corporation, or order, the sum of thirty-seven
years. Her record was apparently unblemished. There is thousand seven hundred fifty-seven and 22/100 pesos at
no showing of any previous strained relations between her their office in Manila, for value received, together with
and the petitioner. Oh had every reason to assume, as interest at the rate of ten per cent per annum.
she had done in previous years, that she would continue No. ________ Due __________
teaching as usual.
THE STANDARD PRODUCTS CO., INC.
By (Sgd.) GEORGE H. SEAVER
It is easy to imagine the astonishment and hurt she felt
when she was flatly and without warning told she was
By President
dismissed. There was not even the amenity of a formal
notice of her replacement, with perhaps a graceful
expression of thanks for her past services. She was simply The court below rendered judgment in favor of the plaintiff
informed she was no longer in the teaching staff. To put it for the sum demanded in the complaint, with interest on
bluntly, she was fired. the sum of P24,147.34 from November 1, 1923, at the rate
of 10 per cent per annum, and the costs. From this
judgment the defendant appeals to this court.
For the wrongful act of the petitioner, the private
respondent is entitled to moral damages. 14 As a
proximate result of her illegal dismissal, she suffered At the trial of the case the plaintiff failed to prove
mental anguish, serious anxiety, wounded feelings and affirmatively the corporate existence of the parties and the
even besmirched reputation as an experienced teacher for appellant insists that under these circumstances the court
more than three decades. We also find that the erred in finding that the parties were corporations with
respondent court did not err in awarding her exemplary juridical personality and assigns same as reversible error.
damages because the petitioner acted in a wanton and
oppressive manner when it dismissed her. 15 There is no merit whatever in the appellant's contention.
The general rule is that in the absence of fraud a person
The Court takes this opportunity to pay a sincere tribute to who has contracted or otherwise dealt with an association
the grade school teachers, who are always at the forefront in such a way as to recognize and in effect admit its legal
in the battle against illiteracy and ignorance. If only existence as a corporate body is thereby estopped to deny
because it is they who open the minds of their pupils to an its corporate existence in any action leading out of or
unexplored world awash with the magic of letters and involving such contract or dealing, unless its existence is
numbers, which is an extraordinary feat indeed, these attacked for cause which have arisen since making the
humble mentors deserve all our respect and appreciation. contract or other dealing relied on as an estoppel and this
applies to foreign as well as to domestic corporations. (14
C. J., 227; Chinese Chamber of Commerce vs. Pua Te
WHEREFORE, the petition is DENIED. The appealed
Ching, 14 Phil., 222.)
decision is AFFIRMED except for the award of separation
pay, which is reduced to P2,880.00. All the other awards
are approved. Costs against the petitioner. The defendant having recognized the corporate existence
This decision is immediately executory. of the plaintiff by making a promissory note in its favor and
SO ORDERED. making partial payments on the same is therefore
estopped to deny said plaintiff's corporate existence. It is,
of course, also estopped from denying its own corporate
existence. Under these circumstances it was unnecessary
for the plaintiff to present other evidence of the corporate
existence of either of the parties. It may be noted that
there is no evidence showing circumstances taking the
case out of the rules stated.
of P176,467.50. 2
The dispositive portion of the trial court's decision reads:
On 4 October 1989, petitioner wrote the Federation, WHEREFORE, judgment is rendered ordering
through the private respondent a demand letter requesting defendant Henri Kahn to pay the plaintiff the principal
for the amount of P265,894.33. On 30 October 1989, the
3
sum of P207,524.20, plus the interest thereon at the
Federation, through the Project Gintong Alay, paid the legal rate computed from July 5, 1990, the date the
amount of P31,603.00. 4
complaint was filed, until the principal obligation is
fully liquidated; and another sum of P15,000.00 for
attorney's fees.
On 27 December 1989, Henri Kahn issued a personal
check in the amount of P50,000 as partial payment for the
outstanding balance of the Federation. Thereafter, no
5
The complaint of the plaintiff against the Philippine
further payments were made despite repeated demands. Football Federation and the counterclaims of the
defendant Henri Kahn are hereby dismissed.
This prompted petitioner to file a civil case before the
Regional Trial Court of Manila. Petitioner sued Henri Kahn With the costs against defendant Henri Kahn. 10
The Executive Committee shall give the recognition Thus being said, it follows that private respondent Henry
applied for if it is satisfied that said association will Kahn should be held liable for the unpaid obligations of the
promote the purposes of this Act and particularly section unincorporated Philippine Football Federation. It is a
three thereof. No application shall be held pending for settled principal in corporation law that any person acting
more than three months after the filing thereof without any or purporting to act on behalf of a corporation which has
action having been taken thereon by the executive no valid existence assumes such privileges and becomes
committee. Should the application be rejected, the personally liable for contract entered into or for other acts
reasons for such rejection shall be clearly stated in a performed as such agent. As president of the Federation,
14
written communication to the applicant. Failure to specify Henri Kahn is presumed to have known about the
the reasons for the rejection shall not affect the application corporate existence or non-existence of the Federation.
which shall be considered as unacted upon: Provided, We cannot subscribe to the position taken by the appellate
however, That until the executive committee herein court that even assuming that the Federation was
provided shall have been formed, applications for defectively incorporated, the petitioner cannot deny the
recognition shall be passed upon by the duly elected corporate existence of the Federation because it had
members of the present executive committee of the contracted and dealt with the Federation in such a manner
Philippine Amateur Athletic Federation. The said executive as to recognize and in effect admit its existence. The
15
committee shall be dissolved upon the organization of the doctrine of corporation by estoppel is mistakenly applied
executive committee herein provided: Provided, further, by the respondent court to the petitioner. The application
That the functioning executive committee is charged with of the doctrine applies to a third party only when he tries to
the responsibility of seeing to it that the National Sports' escape liability on a contract from which he has benefited
Associations are formed and organized within six months on the irrelevant ground of defective incorporation. In the
16
from and after the passage of this Act. case at bar, the petitioner is not trying to escape liability
from the contract but rather is the one claiming from the
contract.
Section 7 of P.D. 604, similarly provides:
WHEREFORE, the decision appealed from is REVERSED
SEC. 7. National Sports Associations. - Application for and SET ASIDE. The decision of the Regional Trial Court
accreditation or recognition as a national sports of Manila, Branch 35, in Civil Case No. 90-53595 is hereby
association for each individual sport in the Philippines REINSTATED. SO ORDERED.
shall be filed with the Department together with, among
others, a copy of the Constitution and By-Laws and a list
of the members of the proposed association.
The Department shall give the recognition applied for if it GEORG GROTJAHN GMBH & CO., petitioner,
is satisfied that the national sports association to be vs.
organized will promote the objectives of this Decree and HON. LUCIA VIOLAGO ISNANI, Presiding Judge,
has substantially complied with the rules and regulations Regional Trial Court, Makati, Br. 59; ROMANA R.
of the Department: Provided, That the Department may LANCHINEBRE; and TEOFILO A.
withdraw accreditation or recognition for violation of this LANCHINEBRE, respondents.
Decree and such rules and regulations formulated by it. G.R. No. 109272 August 10, 1994
The Department shall supervise the national sports Petitioner impugns the dismissal of its Complaint for a sum
association: Provided, That the latter shall have exclusive of money by the respondent judge for lack of jurisdiction
technical control over the development and promotion of and lack of capacity to sue.
the particular sport for which they are organized.
The records show that petitioner is a multinational
Clearly the above cited provisions require that before an company organized and existing under the laws of the
entity may be considered as a national sports association, Federal Republic of Germany. On July 6, 1983, petitioner
such entity must be recognized by the accrediting
filed an application, dated July 2, 1983, with the
1
pesos (P5,000.00) regardless of whether or not
Securities and Exchange Commission (SEC) for the accompanied with a claim for reinstatement.
establishment of a regional or area headquarters in the
Philippines, pursuant to Presidential Decree No. 218. The In its complaint, the plaintiff (petitioner herein) seeks
application was approved by the Board of Investments to recover alleged cash advances made by defendant
(BOI) on September 6, 1983. Consequently, on (private respondent herein) Romana Lanchinebre
September 20, 1983, the SEC issued a Certificate of while the latter was in the employ of the former.
Registration and License to petitioner.2
Obviously the said cash advances were made
pursuant to the employer-employee relationship
Private respondent Romana R. Lanchinebre was a sales between the (petitioner) and the said (private
representative of petitioner from 1983 to mid-1992. On respondent) and as such, within the original and
March 12, 1992, she secured a loan of twenty-five exclusive jurisdiction of the National Labor Relations
thousand pesos (P25,000.00) from petitioner. On March Commission.
26 and June 10, 1992, she made additional cash
advances in the sum of ten thousand pesos (P10,000.00). Again, it is not disputed that the Certificate of
Of the total amount, twelve thousand one hundred seventy Registration and License issued to the (petitioner) by
pesos and thirty-seven centavos (P12,170.37) remained the Securities and Exchange Commission was merely
unpaid. Despite demand, private respondent Romana "for the establishment of a regional or area
failed to settle her obligation with petitioner. headquarters in the Philippines, pursuant to
Presidential Decree No. 218 and its implementing
On July 22, 1992, private respondent Romana rules and regulations." It does not include a license to
Lanchinebre filed with the Arbitration Branch of the do business in the Philippines. There is no allegation
National Labor Relations Commission (NLRC) in Manila, a in the complaint moreover that (petitioner) is suing
Complaint for illegal suspension, dismissal and non- under an isolated transaction. It must be considered
payment of commissions against petitioner. On August 18, that under Section 4, Rule 8 of the Revised Rules of
1992, petitioner in turn filed against private respondent a Court, facts showing the capacity of a party to sue or
Complaint for damages amounting to one hundred twenty be sued or the authority of a party to sue or be sued
thousand pesos (P120,000.00) also with the NLRC in a representative capacity or the legal existence of
Arbitration Branch (Manila). The two cases were
3
an organized association of persons that is made a
consolidated. party must be averred. There is no averment in the
complaint regarding (petitioner's) capacity to sue or
On September 2, 1992, petitioner filed another Complaint be sued.
for collection of sum of money against private respondents
spouses Romana and Teofilo Lanchinebre which was Finally, (petitioner's) claim being clearly incidental to
docketed as Civil Case No. 92-2486 and raffled to the sala the occupation or exercise of (respondent) Romana
of respondent judge. Instead of filing their Answer, private Lanchinebre's profession, (respondent) husband
respondents moved to dismiss the Complaint. This was should not be joined as party defendant. 4
opposed by petitioner.
On March 8, 1993, the respondent judge issued a minute
On December 21, 1992, respondent judge issued the first Order denying petitioner's Motion for Reconsideration.
impugned Order, granting the motion to dismiss. She
held, viz: Petitioner now raises the following assignments of errors:
damages for breach of a contractual obligation. The bench, petitioner does not engage in commercial dealings
other items demanded are not labor benefits or activities in the country because it is precluded from
demanded by workers generally taken cognizance of doing so by P.D. No. 218, under which it was
in labor disputes, such as payment of wages, established. Nonetheless, it has been continuously, since
7
overtime compensation or separation pay. The items 1983, acting as a supervision, communications and
claimed are the natural consequences flowing from coordination center for its home office's affiliates in
breach of an obligation, intrinsically a civil dispute. Singapore, and in the process has named its local agent
xxx xxx xxx and has employed Philippine nationals like private
respondent Romana Lanchinebre. From this uninterrupted
performance by petitioner of acts pursuant to its primary
purposes and functions as a regional/area headquarters
for its home office, it is clear that petitioner is doing
business in the country. Moreover, private respondents
are estopped from assailing the personality of petitioner.
So we held in Merrill Lynch Futures, Inc. vs. Court of
Appeals, 211 SCRA 824, 837 (1992):