ALICIA E. GALA, GUIA G. DOMINGO and RITA G.

BENSON
vs.
ELLICE
AGRO-INDUSTRIAL
CORPORATION,
MARGO
MANAGEMENT
AND
DEVELOPMENT CORPORATION, RAUL E. GALA,
VITALIANO N. AGUIRRE II, ADNAN V. ALONTO,
ELIAS N. CRESENCIO, MOISES S. MANIEGO,
RODOLFO B. REYNO, RENATO S. GONZALES,
VICENTE C. NOLAN, NESTOR N. BATICULON

Additionally, respondents prayed that they be allowed

to inspect the corporate books and documents of
Ellice.

1. Dismissing the petition in SEC Case No. 3747,

Facts:
1.

2.

3.

Spouses Manuel and Alicia Gala, their children Guia

Domingo, Ofelia Gala, Raul Gala, and Rita Benson, and
their encargados Virgilio Galeon and Julian Jader
formed and organized the Ellice Agro-Industrial
Corporation.
The Gala spouses transferred several parcels of land
located in the provinces of Quezon and Laguna to
Ellice. In 1982, Manuel Gala, Alicia Gala and Ofelia Gala
subscribed to an additional 3,299 shares, 10,652.5
shares and 286.5 shares, respectively. On June 28,
1982, Manuel Gala and Alicia Gala acquired an
additional 550 shares and 281 shares, respectively.
Subsequently, on September 16, 1982, Guia Domingo,
Ofelia Gala, Raul Gala, Virgilio Galeon and Julian Jader
incorporated the Margo Management and Development
Corporation (Margo). On November 10, 1982, Manuel
Gala sold 13,314 of his shares in Ellice to Margo. Alicia
Gala transferred 1,000 of her shares in Ellice to a
certain Victor de Villa on March 2, 1983. That same
day, de Villa transferred said shares to Margo. A few
months later, on August 28, 1983, Alicia Gala
transferred 854.3 of her shares to Ofelia Gala, 500 to
Guia Domingo and 500 to Raul Gala. Years later, on
February 8, 1988, Manuel Gala transferred all of his
remaining holdings in Ellice, amounting to 2,164
shares, to Raul Gala. On July 20, 1988, Alicia Gala
transferred 10,000 of her shares to Margo.
On June 23, 1990, a special stockholders meeting of
Margo was held, where a new board of directors was
elected. That same day, the newly-elected board
elected a new set of officers. Raul Gala was elected as
chairman, president and general manager. During the
meeting, the board approved several actions, including
the commencement of proceedings to annul certain
dispositions of Margos property made by Alicia Gala.
The board also resolved to change the name of the
corporation to MRG Management and Development
Corporation.
Similarly, a special stockholders meeting of Ellice was
held on August 24, 1990 to elect a new board of
directors. In the ensuing organizational meeting later
that day, a new set of corporate officers was elected.
Likewise, Raul Gala was elected as chairman, president
and general manager.
On March 27, 1990, respondents filed against
petitioners with the Securities and Exchange
Commission (SEC) a petition for the appointment of a
management committee or receiver, accounting and
restitution by the directors and officers, and the
dissolution of Ellice Agro-Industrial Corporation for
alleged mismanagement, diversion of funds, financial
losses and the dissipation of assets, docketed as SEC
Case No. 3747. The petition was amended to delete
the prayer for the appointment of a management
committee or receiver and for the dissolution of Ellice.

On November 3, 1998, the SEC rendered a Joint

Decision in SEC Cases Nos. 3747 and 4027.

2. Issuing the following orders in SEC Case No. 4027;

(a) Enjoining herein respondents to perform corporate
acts of both Ellice and Margo, as directors and officers
thereof.
(b) Nullifying the election of the new sets of Board of
Directors and Officers of Ellice and Margo from June 23,
1990 to the present, and that of Ellice from August 24,
1990 to the present.
(c) Ordering the respondent Raul Gala to return all the
titles of real properties in the names of Ellice and
Margo which were unlawfully taken and held by him.
(d) Directing the respondents to return to herein
petitioners all corporate papers, records of both Ellice
and Margo which are in their possession and control.

Petitioners filed a petition for review with the Court of

Appeals which dismissed the petition for review and
affirmed the decision of the SEC En Banc.
Hence, this petition.
Issue: Whether or not the separate juridical
personalities of Ellice and Margo were meant to be
tools to avoid land reform laws and estate taxes.
Held: Negative

1.

2.

3.

The best proof of the purpose of a corporation is

its articles of incorporation and by-laws. The
articles of incorporation must state the primary and
secondary purposes of the corporation, while the bylaws outline the administrative organization of the
corporation, which, in turn, is supposed to insure or
facilitate the accomplishment of said purpose.
In the case at bar, a perusal of the Articles of
Incorporation of Ellice and Margo shows no sign of the
allegedly illegal purposes that petitioners are
complaining of. It is well to note that, if a corporations
purpose, as stated in the Articles of Incorporation, is
lawful, then the SEC has no authority to inquire
whether the corporation has purposes other than those
stated, and mandamus will lie to compel it to issue the
certificate of incorporation.
Assuming there was even a grain of truth to the
petitioners claims regarding the legality of what are
alleged to be the corporations true purposes, we are
still precluded from granting them relief. We cannot
address here their concerns regarding circumvention of
land reform laws, for the doctrine of primary
jurisdiction precludes a court from arrogating unto
itself the authority to resolve a controversy the
jurisdiction over which is initially lodged with an

4.

5.

administrative body of special competence. 31 Since

primary jurisdiction over any violation of Section 13 of
Republic Act No. 3844 that may have been committed
is vested in the Department of Agrarian Reform
Adjudication Board (DARAB), then it is with said
administrative agency that the petitioners must first
plead their case. With regard to their claim that Ellice
and Margo were meant to be used as mere tools for the
avoidance of estate taxes, suffice it say that the legal
right of a taxpayer to reduce the amount of what
otherwise could be his taxes or altogether avoid them,
by means which the law permits, cannot be doubted.
The petitioners allegation that Ellice and Margo were
run without any of the typical corporate formalities,
even if true, would not merit the grant of any of the
relief set forth in their prayer. We cannot disregard the
corporate entities of Ellice and Margo on this ground.
At most, such allegations, if proven to be true, should
be addressed in an administrative case before the
SEC.
Thus, even if Ellice and Margo were organized for the
purpose of exempting the properties of the Gala
spouses from the coverage of land reform legislation
and avoiding estate taxes, we cannot disregard their
separate juridical personalities.
G.R. No. L-14441

December 17, 1966

PEDRO
R.
vs.
SAN
JOSE
INCORPORATED, respondent.

PALTING, petitioner,
PETROLEUM

On September 7, 1956, SAN JOSE PETROLEUM filed

with
the
Philippine
Securities
and
Exchange
Commission a sworn registration statement, for the
registration and licensing for sale in the Philippines
Voting Trust Certificates representing 2,000,000 shares
of its capital stock of a par value of $0.35 a share, at
P1.00 per share. It was alleged that the entire proceeds
of the sale of said securities will be devoted or used
exclusively to finance the operations of San Jose Oil
Company, Inc. (a domestic mining corporation
hereafter to be referred to as SAN JOSE OIL) which has
14 petroleum exploration concessions covering an area
of a little less than 1,000,000 hectares, located in the
provinces of Pangasinan, Tarlac, Nueva Ecija, La Union,
Iloilo, Cotabato, Davao and Agusan. It was the express
condition of the sale that every purchaser of the
securities shall not receive a stock certificate, but a
registered or bearer-voting-trust certificate from the
voting trustees named therein James L. Buckley and
Austin G.E. Taylor, the first residing in Connecticut,
U.S.A., and the second in New York City. While this
application for registration was pending consideration
by the Securities and Exchange Commission, SAN JOSE
PETROLEUM filed an amended Statement on June 20,
1958, for registration of the sale in the Philippines of its
shares of capital stock, which was increased from
2,000,000 to 5,000,000, at a reduced offering price of
from P1.00 to P0.70 per share. At this time the par
value of the shares has also been reduced from $.35 to
$.01 per share.1
Pedro R. Palting and others, allegedly prospective
investors in the shares of SAN JOSE PETROLEUM, filed
with the Securities and Exchange Commission an

opposition to registration and licensing of the securities

on the grounds that (1) the tie-up between the issuer,
SAN JOSE PETROLEUM, a Panamanian corporation and
SAN JOSE OIL, a domestic corporation, violates the
Constitution of the Philippines, the Corporation Law
and the Petroleum Act of 1949; (2) the issuer has not
been licensed to transact business in the Philippines;
(3) the sale of the shares of the issuer is fraudulent,
and works or tends to work a fraud upon Philippine
purchasers; and (4) the issuer as an enterprise, as well
as its business, is based upon unsound business
principles. Answering the foregoing opposition of
Palting, et al., the registrant SAN JOSE PETROLEUM
claimed that it was a "business enterprise" enjoying
parity rights under the Ordinance appended to the
Constitution, which parity right, with respect to mineral
resources in the Philippines, may be exercised,
pursuant to the Laurel-Langley Agreement, only
through the medium of a corporation organized under
the laws of the Philippines. Thus, registrant which is
allegedly qualified to exercise rights under the Parity
Amendment, had to do so through the medium of a
domestic corporation, which is the SAN JOSE OIL. It
refused the contention that the Corporation Law was
being violated, by alleging that Section 13 thereof
applies only to foreign corporations doing business in
the Philippines, and registrant was not doing business
here. The mere fact that it was a holding company of
SAN JOSE OIL and that registrant undertook the
financing of and giving technical assistance to said
corporation did not constitute transaction of business
in the Philippines. Registrant also denied that the
offering for sale in the Philippines of its shares of
capital stock was fraudulent or would work or tend to
work fraud on the investors. On August 29, 1958, and
on September 9, 1958 the Securities and Exchange
Commissioner issued the orders object of the present
appeal.
The issues raised by the parties in this appeal are as
follows:
Issue:. Whether or not the Articles of
Incorporation of respondent should be
approved.
Negative. Some of the provisions of the Articles of
Incorporation of respondent SAN JOSE PETROLEUM are
noteworthy; viz:
(1) the directors of the Company need not be
shareholders;
(2) that in the meetings of the board of
directors, any director may be represented and
may vote through a proxy who also need not
be a director or stockholder; and
(3) that no contract or transaction between the
corporation and any other association or
partnership will be affected, except in case of
fraud, by the fact that any of the directors or
officers of the corporation is interested in, or is
a director or officer of, such other association
or partnership, and that no such contract or
transaction of the corporation with any other

person or persons, firm, association or

partnership shall be affected by the fact that
any director or officer of the corporation is a
party to or has an interest in, such contract or
transaction, or has in anyway connected with
such other person or persons, firm, association
or partnership; and finally, that all and any of
the persons who may become director or
officer of the corporation shall be relieved from
all responsibility for which they may otherwise
be liable by reason of any contract entered into
with the corporation, whether it be for his
benefit or for the benefit of any other person,
firm, association or partnership in which he
may be interested.
These provisions are in direct opposition to our
corporation law and corporate practices in this country.
These provisions alone would outlaw any corporation
locally organized or doing business in this jurisdiction.
Consider the unique and unusual provision that no
contract or transaction between the company and any
other association or corporation shall be affected
except in case of fraud, by the fact that any of the
directors or officers of the company may be interested
in or are directors or officers of such other association
or corporation; and that none of such contracts or
transactions of this company with any person or
persons, firms, associations or corporations shall be
affected by the fact that any director or officer of this
company is a party to or has an interest in such
contract or transaction or has any connection with such
person or persons, firms associations or corporations;
and that any and all persons who may become
directors or officers of this company are hereby
relieved of all responsibility which they would
otherwise incur by reason of any contract entered into
which this company either for their own benefit, or for
the benefit of any person, firm, association or
corporation in which they may be interested.
The impact of these provisions upon the traditional
judiciary relationship between the directors and the
stockholders of a corporation is too obvious to escape
notice by those who are called upon to protect the
interest of investors. The directors and officers of the
company can do anything, short of actual fraud, with
the affairs of the corporation even to benefit
themselves directly or other persons or entities in
which they are interested, and with immunity because
of the advance condonation or relief from responsibility
by reason of such acts. This and the other provision
which authorizes the election of non-stockholders as
directors, completely disassociate the stockholders
from the government and management of the business
in which they have invested.
FOR ALL THE FOREGOING CONSIDERATIONS, the
motion of respondent to dismiss this appeal, is denied
and the orders of the Securities and Exchange
Commissioner,
allowing
the
registration
of
Respondent's securities and licensing their sale in the
Philippines are hereby set aside. The case is remanded
to the Securities and Exchange Commission for
appropriate action in consonance with this decision.
With costs. Let a copy of this decision be furnished the

Solicitor General for whatever action he may deem

advisable to take in the premises. So ordered.
Red Line Transportation Co. vs. Rural Transit Co.
GR No. 41570 | Sept. 6, 1934

Facts:
This is a petition for review of an order of the Public
Service Commission granting to the Rural Transit
Company, Ltd., a certificate of public convenience to
operate a transportation service between Ilagan in the
Province of Isabela and Tuguegarao in the Province of
Cagayan, and additional trips in its existing express
service between Manila Tuguegarao.
On June 4, 1932, Rural Transit filed an application for
certification of a new service between Tuguegarao and
Ilagan with the Public Company Service Commission
(PSC), since the present service is not sufficient
Rural Transit further stated that it is a holder of a
certificate of public convenience to operate a
passenger bus service between Manila and Tuguegarao
Red Line opposed said application, arguing that they
already hold a certificate of public convenience for
Tuguegarao and Ilagan, and is rendering adequate
service. They also argued that granting Rural Transits
application would constitute a ruinous competition over
said route
On Dec. 21, 1932, Public Service Commission approved
Rural Transits application, with the condition that "all
the other terms and conditions of the various
certificates of public convenience of the herein
applicant and herein incorporated are made a part
hereof."
A motion for rehearing and reconsideration was filed by
Red Line since Rural Transit has a pending application
before the Court of First Instance for voluntary
dissolution of the corporation
A motion for postponement was filed by Rural Transit
as verified by M. Olsen who swears "that he was the
secretary of the Rural Transit Company, Ltd
During the hearing before the Public Service
Commission, the petition for dissolution and the CFIs
decision decreeing the dissolution of Rural Transit were
admitted without objection
At the trial of this case before the Public Service
Commission an issue was raised as to who was the real
party in interest making the application, whether the
Rural Transit Company, Ltd., as appeared on the face of
the application, or the Bachrach Motor Company, Inc.,
using name of the Rural Transit Company, Ltd., as a
trade name
However, PSC granted Rural Transits application for
certificate of public convenience and ordered that a
certificate be issued on its name
PSC relied on a Resolution in case No. 23217,
authorizing Bachrach Motor to continue using Rural
Transits name as its tradename in all its applications
and petitions to be filed before the PSC. Said resolution
was given a retroactive effect as of the date of filing of
the application or April 30, 1930
Issue: Can the Public Service Commission authorize a
corporation to assume the name of another corporation
as a trade name?
Ruling: NO

The Rural Transit Company, Ltd., and the Bachrach

Motor Co., Inc., are Philippine corporations and the very
law of their creation and continued existence requires
each to adopt and certify a distinctive name
The incorporators "constitute a body politic and
corporate under the name stated in the certificate."
A corporation has the power "of succession by its
corporate name." It is essential to its existence and
cannot change its name except in the manner provided
by the statute. By that name alone is it authorized to
transact business.
The law gives a corporation no express or implied
authority
to assume another name that is
unappropriated: still less that of another corporation,
which is expressly set apart for it and protected by the
law. If any corporation could assume at pleasure as an
unregistered trade name the name of another
corporation, this practice would result in confusion and
open the door to frauds and evasions and difficulties of
administration and supervision.
In this case, the order of the commission authorizing
the Bachrach Motor Co., Incorporated, to assume the
name of the Rural Transit Co., Ltd. likewise
incorporated, as its trade name being void. Accepting
the order of December 21, 1932, at its face as granting
a certificate of public convenience to the applicant
Rural Transit Co., Ltd., the said order last mentioned is
set aside and vacated on the ground that the Rural
Transit Company, Ltd., is not the real party in interest
and its application was fictitious
G.R. No. L-28351 July 28, 1977
UNIVERSAL
MILLS
CORPORATION, petitioner,
vs.
UNIVERSAL TEXTILE MILLS, INC., respondent.
BARREDO, J.:
FACTS

Universal Textile Mills, Inc. (UTMI) was founded

on
December
29,
1953,
as
a textile
manufacturing firm. It was issued a certificate
of registration on January 8, 1954.

The Universal Mills Corporation (UMC), on the

other hand, was registered in SEC on October
27, 1954, under its original name, Universal
Hosiery Mills Corporation, its primary purpose
being the manufacture and production of
hosieries and wearing apparel of all kinds.

On May 24, 1963, it filed an amendment to

its articles of incorporation changing its name
to Universal Mills Corporation, its present
name, for which the SEC issued the certificate
of approval on June 10, 1963.

The controversy arose when a fire incident

happened which gutted UMCs spinning mills in
Pasig, Rizal.

UTMI alleged that as a result of this incident,

confusion arose among its bankers, friends,
stockholders and customers who were able to
hear the news, because of the similarity of its
name to that of UMC.

On the other hand, it is the position of UMC

that although there may be similarity in their
company name to that of the UTMIs, it is not
confusing or deceptive.

The SEC ruled that it is necessary under the

circumstances to enjoin the UMC from further
using its present corporate name. The SEC
found that confusion is not only apparent, but
possible. It highlighted its duty to prevent such
confusion at all times and under all
circumstances not only for the purpose of
protecting the corporations involved but more
so for the protection of the public.
ISSUE: WON the order of the SEC enjoining petitioner
to its corporate name constitutes grave abuse of
discretion.
HELD:NO

In today's modern business life where people

go by trade names and corporate images, the
corporate name becomes the more important.

Usually, it is the sound of all the other words

composing the names of business corporations
that sticks to the mind of those who deal with
them.

The word "textile" in Universal Textile Mills, Inc.'

cannot possibly assure the exclusion of all
other entities with similar names from the mind
of the public especially so, if the business they
are engaged in are the same, like in the instant
case.

When UMC filed the amendment changing its

name, it correspondingly filed a written
undertaking promising to change its name in
the event that there is another person, firm or
entity who has obtained a prior right to the use
of such name or one similar to it. That promise
is still binding upon the corporation and its
responsible officers.

The corporate names in question are not

identical, but they are indisputably so similar
that confusion will usually arise, considering
that it included among its primary purposes the
manufacturing, dyeing, finishing and selling of
fabrics of all kinds in which UTMI had been
engaged for more than a decade ahead of
UMC.
Philips Export B. V. vs. CA
Facts:
1.

2.

3.

4.

Petitioner Philips Export B. V. (PEBV), a foreign

corporation organized under the laws of the
Netherlands, although not engaged in business
here, is the registered owner of the trademarks
PHILIPS and PHILIPS SHIELD EMBLEM.
Petitioners Philips Electrical Lamps, Inc. (Philips
Electrical), and Philips Industrial Development,
Inc. (Philips Industrial), authorized users of the
trademarks PHILIPS and PHILIPS SHIELD
EMBLEM, were incorporated on Aug 29, 1956
and May 25, 1956. All petitioner corporations
belong to the PHILIPS Group of Companies.
Respondent Standard Philips Corporation
(Standard Philips) was issued a Certificate of
Registration by respondent Commission on May
19, 1982.
Petitioners filed a letter complaint with the SEC
asking for the cancellation of the word
PHILIPS and the logo PHILIPS SHIELD

EMBLEM in the name of Petitioner PEBV, and

the previous registration of Petitioners Philips
Electrical and Philips industrial with the SEC.
5. Private
respondent
refused
to
amend.
Petitioners filed with the SEC a petition praying
for the issuance of a writ of preliminary
injunction, alleging that Private Respondents
use of the word PHILIPS amounts to an
infringement and clear violation of Petitioners
exclusive right to use the same considering
that both parties engage in the same business.
6. In its answer, private respondent countered
that Petitioner PEBV has no legal capacity to
sue; that its use of its corporate name is
not at all similar to petitioners trademark
PHILIPS when considered in its entirety.
7. SEC ruled against the issuance of such writ.
Petition was dismissed for lack of merit.
Section 18 of the Corporation Code is
applicable only when the corporate
names in question are identical. Here,
there is no confusing similarity
between petitioners
and private
respondents corporate names.
8. Motion for recon: DENIED
9. Appeal to SEC en banc: affirmed the dismissal.
10. CA uphold the order of the SEC.
Issue: Whether or not Standard Philips can be enjoined
from using Philips in its corporate name
RULING: YES
A corporations right to use its corporate and trade
name is a property right, a right in rem, which it may
assert and protect against the whole world. According
to Sec. 18 of the Corporation Code, no corporate name
may be allowed if the proposed name is identical or
deceptively confusingly similar to that of any existing
corporation or to any other name already protected by
law or is patently deceptive, confusing or contrary to
existing law.
For the prohibition to apply, 2 requisites must
be
present:
(1) the complainant corporation must have
acquired a prior right over the use of such
corporate name and
(2) the proposed name is either identical or
deceptively or confusingly similar to that of any
existing corporation or to any other name
already protected by law or patently deceptive,
confusing or contrary to existing law.
With regard to the 1st requisite, PEBV adopted the
name Philips part of its name 26 years before
Standard Philips. As regards the 2nd, the test for the
existence of confusing similarity is whether the
similarity is such as to mislead a person using ordinary
care and discrimination. Standard Philips only contains
one word, Standard, different from that of PEBV. The
2 companies products are also the same, or cover the
same line of products. Although PEBV primarily deals
with electrical products, it has also shipped to its
subsidiaries machines and parts which fall under the
classification of chains, rollers, belts, bearings and
cutting saw, the goods which Standard Philips also
produce. Also, among Standard Philips primary
purposes are to buy, sell trade x x x electrical wiring
devices, electrical component, electrical supplies.

Given these, there is nothing to prevent Standard

Philips from dealing in the same line of business of
electrical devices. The use of Philips by Standard
Philips tends to show its intention to ride on the
popularity and established goodwill of PEBV.
G.R. No. L-48226

December 14, 1942

ANA L. ANG, petitioner,

vs.
TORIBIO TEODORO, respondent.
Petitioner has appealed to this Court by
certiorari to reverse the judgment of the Court of
Appeals reversing that of the Court of First Instance of
Manila and directing the Director of Commerce to
cancel the registration of the trade-mark "Ang Tibay" in
favor of said petitioner, and perpetually enjoining the
latter from using said trade-mark on goods
manufactured and sold by her.
FACTS: Respondent Toribio Teodoro has continuously
used "Ang Tibay," both as a trade-mark and as a tradename, in the manufacture and sale of slippers, shoes,
and indoor baseballs since 1910. On September 29,
1915, he formally registered it as trade-mark and as
trade-name on January 3, 1933. Petitioner (defendant
below) registered the same trade-mark "Ang Tibay" for
pants and shirts on April 11, 1932, and established a
factory for the manufacture of said articles in the year
1937. In the following year (1938) her gross sales
amounted to P422,682.09. Neither the decision of the
trial court nor that of the Court of Appeals shows how
much petitioner has spent or advertisement. But
respondent in his brief says that petitioner "was unable
to prove that she had spent a single centavo
advertising "Ang Tibay" shirts and pants prior to 1938.
In that year she advertised the factory which she had
just built and it was when this was brought to the
attention of the appellee that he consulted his
attorneys and eventually brought the present suit." The
trial court (Judge Quirico Abeto) presiding absolved the
defendant from the complaint on the grounds that the
two trademarks are dissimilar and are used on different
and non-competing goods; that there had been no
exclusive use of the trade-mark by the plaintiff; and
that there had been no fraud in the use of the said
trade-mark by the defendant because the goods on
which it is used are essentially different from those of
the plaintiff. The second division of the Court of
Appeals reversed that judgment, holding that by
uninterrupted an exclusive use since 191 in the
manufacture of slippers and shoes, respondent's trademark has acquired a secondary meaning; that the
goods or articles on which the two trade-marks are
used are similar or belong to the same class; and that
the use by petitioner of said trade-mark constitutes a
violation of sections 3 and 7 of Act No. 666. The
defendant Director of Commerce did not appeal from
the decision of the Court of Appeals.
ISSUES: a) Whether or not words "Ang Tibay" had
acquired a secondary meaning.
b) Whether or not the goods or articles of
which the two trademarks are used similar
or
belong to the same class of merchandise.

HELD: a) Petitioner contends that the Court of Appeals

erred in holding that the words "Ang Tibay" had
acquired a secondary meaning. In view of the
conclusion we have reached upon the first assignment
of error, it is unnecessary to apply here the doctrine of
"secondary meaning" in trade-mark parlance. This
doctrine is to the effect that a word or phrase originally
incapable of exclusive appropriation with reference to
an article of the market, because geographically or
otherwise descriptive, might nevertheless have been
used so long and so exclusively by one producer with
reference to his article that, in that trade and to that
branch of the purchasing public, the word or phrase
has come to mean that the article was his product. We
have said that the phrase "Ang Tibay," being neither
geographic nor descriptive, was originally capable of
exclusive appropriation as a trade-mark. But were it
not so, the application of the doctrine of secondary
meaning made by the Court of Appeals could
nevertheless be fully sustained because, in any event,
by respondent's long and exclusive use of said phrase
with reference to his products and his business, it has
acquired a proprietary connotation.
b) Yes, pants and shirts are goods closely similar to
shoes and slippers. They belong to the same class of
merchandise as shoes and slippers. They are closely
related goods. The Supreme Court affirmed the
judgment of the Court of Appeals and added that
although two non-competing articles may be classified
under to different classes by the Patent Office because
they are deemed not to possess the same descriptive
properties, they would, nevertheless, be held by the
courts to belong to the same class if the simultaneous
use on them of identical or closely similar trademarks
would be likely to cause confusion as to the origin, or
personal source, of the second users goods. They
would be considered as not falling under the same
class only if they are so dissimilar or so foreign to each
other as to make it unlikely that the purchaser would
think that the first user made the second users
goods.
PC Javier & Sons Inc. v. Court of Appeals
G.R. No. 129552. June 29, 2005
Chico- Nazario, J.:
Facts:
1. Plaintiff PC Javier & Sons applied with First
Summa Bank for a P1.5 Million loan
accommodation under the Industrial Guarantee
Loan Fund (IGLF).
2. The corporation, through Pablo C. Javier, was
advised that its loan application was approved
and that the same shall be forwarded to the
Central Bank (CB) for processing and release.
3. The CB released the loan to defendant PAIC
which in turn released the same to petitioner
corporation in two (2) tranches of P750,000
each; first on May 18, 1981 and second on Nov.
21, 1981. From the 2nd tranche release,
P250,000.00 was deducted and deposited in
the Plaintiff Corporations name under a time
deposit. To this, plaintiff claimed delay on the
loan releases and that they were not allowed to
withdraw the loan proceeds of P250,000.00
under time deposit.

4.

5.

6.

On the other hand, defendant bank contends

that the delay was due to the 2 nd tranche being
released to them only on Nov. 20, 1981 due to
the shortfall in the collateral of the corporation
to cover the loan where such tranche was
released only after petitioners commitment to
cover the collateral deficiency by opening this
time deposit using the loan proceeds of
P250,000.00. Further, to secure the loan, Javier
executed
chattel
mortgage
over
some
machinery in favor of the bank.
In the meantime, the bank changed its name to
PAIC Savings and Mortgage Bank Inc.
Thereafter, the corporation failed to pay; this
prompted the Bank to move for the
extrajudicial foreclosure of the mortgages.
PC Javier filed an action to restrain the
extrajudicial foreclosure on the ground that
First Summa and PAIC Bank are separate
entities and that they have never received any
formal notice of the alleged change of
corporate name of First Summa Savings and
Mortgage Bank to PAIC Savings & Mortgage
Bank, Inc.

Issue: Whether the debtor should be formally notified

of the corporate creditors change of name.
Held: NO. There is no such requirement under the
Corporation Code, Banking laws, or any regulations and
circulars of both SEC and Bangko Sentral ng Pilipinas
(BSP) ordering a bank that changes its corporate name,
to formally notify all its debtors. This
Court cannot impose on a bank to notify a debtor of
such change in its corporate name absent any law,
circular or regulation requiring it. Such act would be
judicial legislation.
The
formal
notification
is,
therefore,
discretionary on the bank. Unless there is a law,
regulation or circular from the SEC or BSP requiring
the formal notification of all debtors of banks of
any change in corporate name, such notification
remains to be a mere internal policy that banks may or
may not adopt.
A change in the corporate name does not make
a new corporation, whether effected by a special act or
under a general law. It has no effect on the identity of
the corporation, or on its property, rights, or liabilities.
The corporation, upon such change in its name, is in no
sense a new corporation, nor the successor of the
original corporation. It is the same corporation with a
different name, and its character is in no respect
changed.
In the case at bar, there were evidences
showing that petitioner had notice or knowledge in the
change of name of the bank. These were: 1. Letter
dated July 16, 1983 signed by petitioners accountant
Raymundo Blanco; 2. Board Reso of petitioner corp
signed by Pablo Javier to execute a chattel mortgage to
PAIC; 3. Secretarys Cert. signed by the Corporations
Sec. Fortunato Gabriel; and, 4. Undated letter signed
by Pablo Javier and addressed to PAIC authorizing
General Manager Victor Javier to secure from PAIC
certain documents for his signature. By these
documents which were executed by Petitioner
Corporation, it was then well aware that First Summa

Savings and Mortgage Bank, Inc. are one and the same
entity, but it pretended otherwise. It used this
purported ignorance as an excuse to renege on its
obligation to pay its loans after they became due and
after demands for payment were made, claiming that it
never obtained the loans from respondent bank. Thus,
it showed bad faith in this instance; hence, the award
of actual and compensatory damages.
Industrial
Refractories Corporation
Philippines vs. Court of Appeals

of

the

Facts:
1. Respondent, Refractories Corporation of the
Philippines (RCP) was organized on 1976 for the
purpose of engaging in the business of manufacturing,
producing, selling, exporting and otherwise dealing in
any and all refractory bricks
and by-products and
derivatives;
2. Petitioner International Refractories Corporation of
the Philippines (IRCP) was incorporated on 1979 with
the name Synclaire Manufacturing Corp, and later on
(1985) change its corporate name into IRCP;
3. RCP upon knowing that IRCP use such name filed
with SEC a petition to compel IRCP to change its
corporate
name;
4. SEC ruled in favor of RCP ordered IRCP remove RCP
on its name, appealed to SEC en banc ahich affirm the
decision of SEC with modification-order to delete the
word refractories only;
5. On appeal, CA upheld the jurisdiction of SEC over
this matter and ruled that both names are confusingly
similar and that RCP has prior right to use the
"refractories" on its corporate name...
Issue: I. WON, SEC has jurisdiction over the said case.
II. WON, there is confusing similarity between their
corporate names.
Held: 1. Yes, jurisdictiin of SEC is not merely confined
to the adjudicative functions provided by Sec 5 PD 902A. By express mandate it has absolute jurisdiction,
supervision and control over all corporations. It also
exercises regulatory and administrative power to
implement and enforcement Corporation Code, one of
which is Sec 18...
Sec 18. Corporate Name - No corporate name may be
allowed by the SEC if the proposed name is identical or
deceptively or
confusingly similar to that of any
existing corporation or to any other name already
protected by law or is patently
deceptive,
confusing or contrary to existing laws. When a change
in the corporate name is approved, the Commission
shall issue an amended certificate of incorporation
under the amended name.
2. SEC's duty to prevent confusion in the use of
corporate names not only for the protection of the
corporations
involved but more so for the
protection of the public, and it has authority to
deregister
at
all
times
and
under
all
circumstances corporate names which in estimation
are likely to generate confusion.
II. Yes, Sec 18 of the Corporation Code prohibits the
use of a corporate name which is "identical or
deceptively or
confusingly similar to that of an

existing corporation or to any other name already

protected by law or is patently
deceptive,
confusing or contrary existing laws". This is to avoid
fraud upon the public that ill have occasion to deal
withthe entity concerned, the evasion of legal
obligations and duties, and the reduction of difficulties
of administration and supervision over corporation.
2. Similarly, under the Revised Guidelines in the
Approval of Corporate and Partnership Names it
requires that:
a. Corporate name shall be identical, misleading, or
confusingly similar to one already registered by
another
corporation with the Commission,
b. The proposed name must contain at least one
distinctive word different from the name of the
company already
registered (if similar to other
name)
3. To fall within the prohibition of the law, two
requisites must be proven: (Phils export vs. CA)
a. Complainant corporation acquired a prior right over
the use of such corporate name.
This is determined by priority in the adoption. In this
case RCP was incorporated on 1976 while ICRP only
started using its name on 1985. Thus being the prior
registrant, RCP has acquired the right to use the word "
refractories" as part of its corporate name.
b. The proposed name is either: identical or deceptively
or confusingly similar to that of any existing
corporation or to any other name already protected by
law or patently deceptive, confusing or contrary to
existing law.
The test is whether the similarity is such as to
mislead
a
person
using
ordinary
care
and
discrimination and the
Court must look to the record
as well as the names themselves. In this case the only
word that distinguishes RCP to
ICRP is the word
Industrial, which merely identifies a corporation's
general field of activities or operations. Both
corporation cater to the same clientele. In fact, it was
found out that there were instances in which different
steel
companies were actually confused between
the two especially since they have the same
packaging. Confusion is probable or likely to occur.
EB Villarosa & Partners Co., Ltd. v. Benito
Facts: Petitioner is a limited partnership with principal
office address at Davao City and with branch offices at
Paraaque, MM and Lapasan, Cagayan de Oro City.
Petitioner and private respondent executed a Deed of
Sale with Development Agreement wherein the former
agreed to develop certain parcels of land located at
Cagayan de Oro belonging to the latter into a housing
subdivision
for
the
construction
of low
cost
housing units. They further agreed that in case
of litigation regarding any dispute arising therefrom,
the venue shall be in the proper courts of Makati.
private respondent, as plaintiff, filed a Complaint
for Breach of Contract and Damages against petitioner,
as defendant, before the RTC Makati for failure of the
latter to comply with its contractual obligation in that,
other than a few unfinished low cost houses, there
were no substantial developments therein. Summons,
together with the complaint, were served upon the
defendant, through its Branch Manager at the stated
address at Cagayan de Oro City but the Sheriff's Return
of Service stated that the summons was duly served
"upon defendant E.B. Villarosa & Partner Co., Ltd. thru

its Branch Manager Engr. at their new office Villa

Gonzalo, Nazareth, Cagayan de Oro City, and
evidenced by the signature on the face of the original
copy of the summons. Defendant prayed for the
dismissal of the complaint on the ground of improper
service of summons and for lack of jurisdiction over the
person of the defendant. It contends that the RTC did
not acquire jurisdiction over its person since the
summons was improperly served upon its employee in
its branch office at Cagayan de Oro City who is not one
of those persons named in Section 11, Rule 14 RoC
upon
whom
service
of
summons
may
be
made. plaintiff filed an Opposition to Defendant's
Motion to Dismiss. Plaintiff filed a Motion to Declare
Defendant in Default. the trial court issued an Order
denying defendant's Motion to Dismiss as well as
plaintiffs Motion to Declare Defendant in Default.
defendant, filed a Motion for Reconsideration alleging
that Sec.11, Rule 14 of the new Rules did not liberalize
but, on the contrary, restricted the service of summons
on persons enumerated therein; and that the new
provision is very specific and clear in that the word
"manager" was changed to "general manager",
"secretary" to "corporate secretary", and excluding
therefrom agent and director. Defendant's Motion for
Reconsideration was denied, hence this petition.
Issue: Whether or not the trial court acquired
jurisdiction over the person of petitioner upon service
of summons on its Branch Manager
HELD: NO. The court agrees with the contention of
Villarosa. Earlier cases have uphold service of
summons upon a construction project manager; a
corporation's assistant manager; ordinary clerk of a
corporation; private secretary of corporate executives;
retained counsel; officials who had charge or control of
the operations of the corporation, like the assistant
general manager; or the corporation's Chief Finance
and Administrative Office. In these cases, these
persons were considered as "agent" within the
contemplation of the old rule.Notably, under the new
Rules, service of summons upon an AGENT of the
corporation
is
NO
LONGER authorized.The
designation of persons or officers who are authorized
to accept summons for a domestic corporation or
partnership is now limited and more clearly specified in
Section11, Rule 14.
The rule now states
"general manager"
instead of only
"manager";
"corporate secretary" instead of "secretary"; and
"treasurer" instead of "cashier." The phrase agent, or
any of its directors" is conspicuously deleted in the new
rule.A strict compliance with the mode of service
is necessary to confer jurisdiction of the court over a
corporation. The officer upon whom service is made
must be one who is named in the statute; otherwise
the service is insufficient. . . The liberal construction
rule cannot be invoked and utilized as a substitute for
the plain legal requirements as to the manner in which
summons should be served on a domestic
corporation. .
11. Nautica Canning Corp. vs. Yumul G.R. No.
164588; October 19, 2005
FACTS: Yumul was appointed Chief Operating
Officer/General Manager of Nautica. First Dominion
Prime Holdings, Inc., Nauticas parent company,

through its Chairman Alvin Y. Dee, granted Yumul an

Option to Purchase up to 15% of thetotal stocks it
subscribed from Nautica. A Deed of Trust and
Assignment was executed between First Dominion
Prime Holdings, Inc. and Yumul whereby the former
assigned14,999 of its subscribed shares in Nautica to
the latter. After Yumuls resignation from Nautica, he
wrote a letter to Dee requesting the latter to formalize
his offer to buy Yumuls 15% share in Nautica and
demanding the issuance of the corresponding
certificate of shares in his name should Dee refuse to
buy the same. Dee denied the request claiming that
Yumul was not a stockholder of Nautica.
Yumul
requested that the Deed of Trust and Assignment be
recorded in the Stock and Transfer Book of Nautica,
and that he, as a stockholder, be allowed to inspect its
books and records. Yumuls requests were denied.
Yumul filed a petition for mandamus praying that the
Deed of Trust and Assignment be recorded in the Stock
and Transfer Book of Nautica and that the certificate of
stocks corresponding thereto be issued in his name.
ISSUE: WON
Yumul is a stockholder. (Proof of
Ownership of Shares)
HELD: YES. Indeed, it is possible for a business to be
wholly owned by one individual. The validity of its
incorporation is not affected when such individual gives
nominal ownership of only one share of stock to each
of the other four incorporators. This is not necessarily
illegal. But, this is valid only between or among the
incorporators privy to the agreement. It does bind the
corporation which, at the time the agreement is made,
was non-existent. Thus, incorporators continue to be
stockholders of a corporation unless, subsequent to the
incorporation, they have validly transferred their
subscriptions to the real parties in interest. A transfer
of shares of stock not recorded in the stock and
transfer book of the corporation is non-existent as far
as the corporation is concerned. As between the
corporation on one hand, and its shareholders and
third persons on the other, the corporation looks only
to its books for the purpose of determining who its
shareholders are. It is only when the transfer has been
recorded in the stock and transfer book that a
corporation may rightfully regard the transferee as one
of its stockholders. From this time, the consequent
obligation on the part of the corporation to recognize
such rights as it is mandated by law to recognize arises
Gokongwei
Commission

vs.

Securities

and

Exchange

[GR L-45911, 11 April 1979]

Facts: [SEC Case 1375] On 22 October 1976, John
Gokongwei Jr., as stockholder of San Miguel
Corporation, filed with the Securities and Exchange
Commission (SEC) a petition for "declaration of nullity
of amended by-laws, cancellation of certificate of filing
of amended by-laws, injunction and damages with
prayer for a preliminary injunction" against the
majority of the members of the Board of Directors and
San Miguel Corporation as an unwilling petitioner. As a
first cause of action, Gokongwei alleged that on 18
September 1976, Andres Soriano, Jr., Jose M. Soriano,
Enrique Zobel, Antonio Roxas, EmeterioBuao,
Walthrode B. Conde, Miguel Ortigas, and Antonio Prieto

amended by bylaws of the corporation, basing their

authority to do so on a resolution of the stockholders
adopted on 13 March 1961, when the outstanding
capital
stock
of
the
corporation
was
only
P70,139.740.00, divided into 5,513,974 common
shares at P10.00 per share and 150,000 preferred
shares at P100.00 per share. At the time of the
amendment, the outstanding and paid up shares
totalled 30,127,043, with a total par value of
P301,270,430.00.

It was contended that according to section 22 of the

Corporation Law and Article VIII of the by-laws of the
corporation, the power to amend, modify, repeal or
adopt new by-laws may be delegated to the Board of
Directors only by the affirmative vote of stockholders
representing not less than 2/3 of the subscribed and
paid up capital stock of the corporation, which 2/3
should have been computed on the basis of the
capitalization at the time of the amendment. Since the
amendment was based on the 1961 authorization,
Gokongwei contended that the Board acted without
authority and in usurpation of the power of the
stockholders. As a second cause of action, it was
alleged that the authority granted in 1961 had already
been exercised in 1962 and 1963, after which the
authority of the Board ceased to exist. As a third cause
of action, Gokongwei averred that the membership of
the Board of Directors had changed since the authority
was given in 1961, there being 6 new directors. As a
fourth cause of action, it was claimed that prior to the
questioned amendment, Gokogwei had all the
qualifications to be a director of the corporation, being
a substantial stockholder thereof; that as a
stockholder, Gokongwei had acquired rights inherent in
stock ownership, such as the rights to vote and to be
voted upon in the election of directors; and that in
amending the by-laws, Soriano, et. al. purposely
provided for Gokongwei's disqualification and deprived
him of his vested right as afore-mentioned, hence the
amended by-laws are null and void. As additional
causes of action, it was alleged that corporations have
no inherent power to disqualify a stockholder from
being elected as a director and, therefore, the
questioned act is ultra vires and void; that Andres M.
Soriano, Jr. and/or Jose M. Soriano, while representing
other corporations, entered into contracts (specifically
a management contract) with the corporation, which
was avowed because the questioned amendment gave
the Board itself the prerogative of determining whether
they or other persons are engaged in competitive or
antagonistic business; that the portion of the amended
by-laws which states that in determining whether or
not a person is engaged in competitive business, the
Board may consider such factors as business and
family relationship, is unreasonable and oppressive
and, therefore, void; and that the portion of the
amended by-laws which requires that "all nominations
for election of directors shall be submitted in writing to
the Board of Directors at least five (5) working days
before the date of the Annual Meeting" is likewise
unreasonable and oppressive. It was, therefore, prayed
that the amended by-laws be declared null and void
and the certificate of filing thereof be cancelled, and
that Soriano, et. al. be made to pay damages, in
specified amounts, to Gokongwei. On 28 October 1976,

in connection with the same case, Gokongwei filed with

the Securities and Exchange Commission an "Urgent
Motion for Production and Inspection of Documents",
alleging that the Secretary of the corporation refused
to allow him to inspect its records despite request
made by Gokongwei for production of certain
documents enumerated in the request, and that the
corporation had been attempting to suppress
information from its stockholders despite a negative
reply by the SEC to its query regarding their authority
to do so.
The motion was opposed by Soriano, et. al. The
Corporation, Soriano, et. al. filed their answer, and
their opposition to the petition, respectively.
Meanwhile, on 10 December 1976, while the petition
was yet to be heard, the corporation issued a notice of
special stockholders' meeting for the purpose of
"ratification and confirmation of the amendment to the
By-laws", setting such meeting for 10 February 1977.
This prompted Gokongwei to ask the SEC for a
summary judgment insofar as the first cause of action
is concerned, for the alleged reason that by calling a
special stockholders' meeting for the aforesaid
purpose, Soriano, et. al. admitted the invalidity of the
amendments of 18 September 1976. The motion for
summary judgment was opposed by Soriano, et. al.
Pending action on the motion, Gokongwei filed an
"Urgent Motion for the Issuance of a Temporary
Restraining Order", praying that pending the
determination of Gokongwei's application for the
issuance of a preliminary injunction and or
Gokongwei's motion for summary judgment, a
temporary restraining order be issued, restraining
Soriano, et. al. from holding the special stockholders'
meeting as scheduled. This motion was duly opposed
by Soriano, et. al. On 10 February 1977, Cremation
issued an order denying the motion for issuance of
temporary restraining order. After receipt of the order
of denial, Soriano, et. al. conducted the special
stockholders' meeting wherein the amendments to the
by-laws were ratified. On 14 February 1977, Gokongwei
filed a consolidated motion for contempt and for
nullification of the special stockholders' meeting. A
motion for reconsideration of the order denying
Gokongwei's motion for summary judgment was filed
by Gokongwei before the SEC on 10 March 1977.
[SEC Case 1423] Gokongwei alleged that, having
discovered that the corporation has been investing
corporate funds in other corporations and businesses
outside of the primary purpose clause of the
corporation, in violation of section 17-1/2 of the
Corporation Law, he filed with SEC, on 20 January
1977, a petition seeking to have Andres M. Soriano, Jr.
and Jose M. Soriano, as well as the corporation
declared guilty of such violation, and ordered to
account for such investments and to answer for
damages. On 4 February 1977, motions to dismiss
were filed by Soriano, et. al., to which a consolidated
motion to strike and to declare Soriano, et. al. in
default and an opposition ad abundantioremcautelam
were filed by Gokongwei. Despite the fact that said
motions were filed as early as 4 February 1977, the
Commission acted thereon only on 25 April 1977, when
it denied Soriano, et. al.'s motions to dismiss and gave
them two (2) days within which to file their answer,
and set the case for hearing on April 29 and May 3,

1977. Soriano, et. al. issued notices of the annual

stockholders' meeting, including in the Agenda thereof,
the "reaffirmation of the authorization to the Board of
Directors by the stockholders at the meeting on 20
March 1972 to invest corporate funds in other
companies or businesses or for purposes other than
the main purpose for which the Corporation has been
organized, and ratification of the investments
thereafter made pursuant thereto." By reason of the
foregoing, on 28 April 1977, Gokongwei filed with the
SEC an urgent motion for the issuance of a writ of
preliminary injunction to restrain Soriano, et. al. from
taking up Item 6 of the Agenda at the annual
stockholders' meeting, requesting that the same be set
for hearing on 3 May 1977, the date set for the second
hearing of the case on the merits. The SEC, however,
cancelled the dates of hearing originally scheduled and
reset the same to May 16 and 17, 1977, or after the
scheduled annual stockholders' meeting. For the
purpose of urging the Commission to act, Gokongwei
filed an urgent manifestation on 3 May 1977, but this
notwithstanding, no action has been taken up to the
date of the filing of the instant petition.
Gokongwei filed a petition for petition for certiorari,
mandamus and injunction, with prayer for issuance of
writ of preliminary injunction, with the Supreme Court,
alleging that there appears a deliberate and concerted
inability on the part of the SEC to act.
Issue:
1.
Whether the corporation has the power
to provide for the (additional) qualifications of
its directors.
2.
Whether the disqualification of a
competitor from being elected to the Board of
Directors is a reasonable exercise of corporate
authority.
3.
Whether the SEC gravely abused its
discretion in denying Gokongwei's request for
an examination of the records of San Miguel
International, Inc., a fully owned subsidiary of
San Miguel Corporation.
4.
Whether the SEC gravely abused its
discretion in allowing the stockholders of San
Miguel Corporation to ratify the investment of
corporate funds in a foreign corporation.
Held:
1. It is recognized by all authorities that "every
corporation has the inherent power to adopt by-laws
'for its internal government, and to regulate the
conduct and prescribe the rights and duties of its
members towards itself and among themselves in
reference to the management of its affairs.'" In this
jurisdiction under section 21 of the Corporation Law, a
corporation may prescribe in its by-laws "the
qualifications, duties and compensation of directors,
officers and employees." This must necessarily refer to
a qualification in addition to that specified by section
30 of the Corporation Law, which provides that "every
director must own in his right at least one share of the
capital stock of the stock corporation of which he is a
director." Any person "who buys stock in a corporation
does so with the knowledge that its affairs are
dominated by a majority of the stockholders and that
he impliedly contracts that the will of the majority shall

govern in all matters within the limits of the act of

incorporation and lawfully enacted by-laws and not
forbidden by law." To this extent, therefore, the
stockholder may be considered to have "parted with
his personal right or privilege to regulate the
disposition of his property which he has invested in the
capital stock of the corporation, and surrendered it to
the will of the majority of his fellow incorporators. It
can not therefore be justly said that the contract,
express or implied, between the corporation and the
stockholders is infringed by any act of the former which
is authorized by a majority." Pursuant to section 18 of
the Corporation Law, any corporation may amend its
articles of incorporation by a vote or written assent of
the stockholders representing at least two-thirds of the
subscribed capital stock of the corporation. If the
amendment changes, diminishes or restricts the rights
of the existing shareholders, then the dissenting
minority has only one right, viz.: "to object thereto in
writing and demand payment for his share." Under
section 22 of the same law, the owners of the majority
of the subscribed capital stock may amend or repeal
any by-law or adopt new by-laws. It cannot be said,
therefore, that Gokongwei has a vested right to be
elected director, in the face of the fact that the law at
the time such right as stockholder was acquired
contained the prescription that the corporate charter
and the by-law shall be subject to amendment,
alteration and modification.
2. Although in the strict and technical sense, directors
of a private corporation are not regarded as trustees,
there cannot be any doubt that their character is that
of a fiduciary insofar as the corporation and the
stockholders as a body are concerned. As agents
entrusted with the management of the corporation for
the collective benefit of the stockholders, "they occupy
a fiduciary relation, and in this sense the relation is one
of trust." "The ordinary trust relationship of directors of
a corporation and stockholders is not a matter of
statutory or technical law. It springs from the fact that
directors have the control and guidance of corporate
affairs and property and hence of the property
interests of the stockholders. Equity recognizes that
stockholders are the proprietors of the corporate
interests and are ultimately the only beneficiaries
thereof." A director is a fiduciary. Their powers are
powers in trust. He who is in such fiduciary position
cannot serve himself first and his cestuis second. He
cannot manipulate the affairs of his corporation to their
detriment and in disregard of the standards of common
decency. He cannot by the intervention of a corporate
entity violate the ancient precept against serving two
masters. He cannot utilize his inside information and
strategic position for his own preferment. He cannot
violate rules of fair play by doing indirectly through the
corporation what he could not do so directly. He cannot
violate rules of fair play by doing indirectly through the
corporation what he could not do so directly. He cannot
use his power for his personal advantage and to the
detriment of the stockholders and creditors no matter
how absolute in terms that power may be and no
matter how meticulous he is to satisfy technical
requirements. For that power is at all times subject to
the equitable limitation that it may not be exercised for
the aggrandizement, preference, or advantage of the
fiduciary to the exclusion or detriment of the cestuis.
The doctrine of "corporate opportunity" is precisely a

recognition by the courts that the fiduciary standards

could not be upheld where the fiduciary was acting for
two entities with competing interests. This doctrine
rests fundamentally on the unfairness, in particular
circumstances, of an officer or director taking
advantage of an opportunity for his own personal profit
when the interest of the corporation justly calls for
protection. It is not denied that a member of the Board
of Directors of the San Miguel Corporation has access
to sensitive and highly confidential information, such
as: (a) marketing strategies and pricing structure; (b)
budget for expansion and diversification; (c) research
and development; and (d) sources of funding,
availability of personnel, proposals of mergers or tieups with other firms. It is obviously to prevent the
creation of an opportunity for an officer or director of
San Miguel Corporation, who is also the officer or
owner of a competing corporation, from taking
advantage of the information which he acquires as
director to promote his individual or corporate interests
to the prejudice of San Miguel Corporation and its
stockholders, that the questioned amendment of the
by-laws was made. Certainly, where two corporations
are competitive in a substantial sense, it would seem
improbable, if not impossible, for the director, if he
were to discharge effectively his duty, to satisfy his
loyalty to both corporations and place the performance
of his corporation duties above his personal concerns.
The offer and assurance of Gokongwei that to avoid
any possibility of his taking unfair advantage of his
position as director of San Miguel Corporation, he
would absent himself from meetings at which
confidential matters would be discussed, would not
detract from the validity and reasonableness of the bylaws involved. Apart from the impractical results that
would ensue from such arrangement, it would be
inconsistent with Gokongwei's primary motive in
running for board membership which is to protect
his investments in San Miguel Corporation. More
important, such a proposed norm of conduct would be
against all accepted principles underlying a director's
duty of fidelity to the corporation, for the policy of the
law is to encourage and enforce responsible corporate
management.
3. Pursuant to the second paragraph of section 51 of
the Corporation Law, "(t)he record of all business
transactions of the corporation and minutes of any
meeting shall be open to the inspection of any director,
member or stockholder of the corporation at
reasonable hours." The stockholder's right of inspection
of the corporation's books and records is based upon
their ownership of the assets and property of the
corporation. It is, therefore, an incident of ownership of
the corporate property, whether this ownership or
interest be termed an equitable ownership, a beneficial
ownership, or a quasi-ownership. This right is
predicated upon the necessity of self-protection. It is
generally held by majority of the courts that where the
right is granted by statute to the stockholder, it is
given to him as such and must be exercised by him
with respect to his interest as a stockholder and for
some purpose germane thereto or in the interest of the
corporation. In other words, the inspection has to be
germane to the petitioner's interest as a stockholder,
and has to be proper and lawful in character and not
inimical to the interest of the corporation. The "general
rule that stockholders are entitled to full information as

to the management of the corporation and the manner

of expenditure of its funds, and to inspection to obtain
such information, especially where it appears that the
company is being mismanaged or that it is being
managed for the personal benefit of officers or
directors or certain of the stockholders to the exclusion
of others." While the right of a stockholder to examine
the books and records of a corporation for a lawful
purpose is a matter of law, the right of such
stockholder to examine the books and records of a
wholly-owned subsidiary of the corporation in which he
is a stockholder is a different thing. Stockholders are
entitled to inspect the books and records of a
corporation in order to investigate the conduct of the
management, determine the financial condition of the
corporation, and generally take an account of the
stewardship of the officers and directors. herein,
considering that the foreign subsidiary is wholly owned
by San Miguel Corporation and, therefore, under Its
control, it would be more in accord with equity, good
faith and fair dealing to construe the statutory right of
petitioner as stockholder to inspect the books and
records of the corporation as extending to books and
records of such wholly owned subsidiary which are in
the corporation's possession and control.
4. Section 17-1/2 of the Corporation Law allows a
corporation to "invest its funds in any other corporation
or business or for any purpose other than the main
purpose for which it was organized" provided that its
Board of Directors has been so authorized by the
affirmative vote of stockholders holding shares
entitling them to exercise at least two-thirds of the
voting power. If the investment is made in pursuance
of the corporate purpose, it does not need the approval
of the stockholders. It is only when the purchase of
shares is done solely for investment and not to
accomplish the purpose of its incorporation that the
vote of approval of the stockholders holding shares
entitling them to exercise at least two-thirds of the
voting power is necessary. As stated by the
corporation, the purchase of beer manufacturing
facilities by SMC was an investment in the same
business stated as its main purpose in its Articles of
Incorporation, which is to manufacture and market
beer. It appears that the original investment was made
in 1947-1948, when SMC, then San Miguel Brewery,
Inc., purchased a beer brewery in Hongkong (Hongkong
Brewery & Distillery, Ltd.) for the manufacture and
marketing of San Miguel beer thereat. Restructuring of
the investment was made in 1970-1971 thru the
organization of SMI in Bermuda as a tax free
reorganization. Assuming arguendo that the Board of
Directors of SMC had no authority to make the assailed
investment, there is no question that a corporation, like
an individual, may ratify and thereby render binding
upon it the originally unauthorized acts of its officers or
other agents. This is true because the questioned
investment is neither contrary to law, morals, public
order or public policy. It is a corporate transaction or
contract which is within the corporate powers, but
which is defective from a purported failure to observe
in its execution the requirement of the law that the
investment must be authorized by the affirmative vote
of the stockholders holding two-thirds of the voting
power. This requirement is for the benefit of the
stockholders. The stockholders for whose benefit the
requirement was enacted may, therefore, ratify the

investment and its ratification by said stockholders

obliterates any defect which it may have had at the
outset. Besides, the investment was for the purchase
of beer manufacturing and marketing facilities which is
apparently relevant to the corporate purpose. The
mere fact that the corporation submitted the assailed
investment to the stockholders for ratification at the
annual meeting of 10 May 1977 cannot be construed
as an admission that the corporation had committed an
ultra vires act, considering the common practice of
corporations of periodically submitting for the
ratification of their stockholders the acts of their
directors, officers and managers.
Gokongwei vs. SEC, 89 SCRA 336
Shorter version (internet )

(1979)

Facts: Petitioner, stockholder of San Miguel Corp. filed

a petition with the SEC for the declaration of nullity of
the by-laws etc. against the majority members of the
BOD and San Miguel. It is stated in the by-laws that
the amendment or modification of the by-laws may
only be delegated to the BODs upon an affirmative
vote of stockholders representing not less than 2/3 of
the subscribed and paid the capital stock of
the corporation, which 2/3 could have been computed
on the basis of the capitalization at the time
of the amendment.
Petitioner
contends
that
the amendment was based on the 1961 authorization,
the Board acted without authority and in usurpation of
the power of the stockholders n amending the by-laws
in 1976. He also contends that the 1961 authorization
was already used in 1962 and 1963. He also contends
that the amendment deprived him of his right to vote
and be voted upon as a stockholder (because it
disqualified competitors from nomination and election
in the BOD of SMC), thus the amended by-laws were
null
and
void.
While
this
was
pending,
the corporation called for a stockholders meeting for
the ratification of the amendment to the by-laws. This
prompted petitioner to seek for summary judgment.
This was denied by the SEC. In another case filed by
petitioner, he alleged that thecorporation had been
using corporate funds in other corps and businesses
outside
the
primary
purpose
clause
of
the corporation in violation of the Corporation Code.
Issue: Are

amendments

valid?

Held: The validity and reasonableness of a by-law is

purely a question of law. Whether the by-law is in
conflict with the law of the land, or with the charter of
the corporation or is in legal sense unreasonable and
therefore unlawful is a question of law. However, this is
limited where the reasonableness of a by-law is a mere
matter of judgment, and one upon which reasonable
minds must necessarily differ, a court would not be
warranted in substituting its judgment instead of
the judgment of those who are authorized to make bylaws and who have exercised authority. The Court held
that a corporation has authority prescribed by law to
prescribe the qualifications of directors. It has the
inherent power to adopt by-laws for its internal
government, and to regulate the conduct and prescribe
the rights and duties of its members towards itself and
among themselves in reference to the management of
its affairs. A corporation, under the Corporation law,
may prescribe in its by-laws the qualifications, duties

and compensation
of
directors,
officers,
and
employees. Any person who buys stock in
a corporation does so with the knowledge that its
affairs are dominated by a majority of the stockholders
and he impliedly contracts that the will of the majority
shall govern in all matters within the limits of the acts
of incorporation and lawfully enacted by-laws and not
forbidden by law. Any corporation may amend its bylaws by the owners of the majority of the subscribed
stock. It cannot thus be said that petitioners has the
vested right, as a stock holder, to be elected director,
in the face of the fact that the law at the time such
stockholder's right was acquired contained the
prescription that the corporate charter and the by-laws
shall be subject to amendment, alteration and
modification. A Director stands in a fiduciary relation to
the corporation and
its
shareholders,
which
is
characterized as a trust relationship. An amendment to
the corporate by-laws which renders a stockholder
ineligible to be director, if he be also director in
a corporation whose business is in competition with
that of the other corporation, has been sustained as
valid. This is based upon the principle that where the
director is employed in the service of a rival company,
he cannot serve both, but must betray one or the
other. The amendment in this case serves to advance
the
benefit
of
the corporation and
is
good.
Corporate officers are also not permitted to use their
position of trust and confidence to further their private
needs, and the act done in furtherance of private
needs is deemed to be for the benefit of the
corporation.
This
is
called
the
doctrine
of corporate opportunity.
Fleischer v Botica Nolasco Co. Inc.
A by-law of a corporation which provides that transfers
of stock shall not be valid without board approval
cannot defeat the rights of third persons.
Facts:
1. Manuel Gonzales assigned his 5 shares of Botica
Nolasco stock to Fleischer in consideration of a
debt he owed to the latter. Gonzales requested
Botica Nolasco to transfer the shares to Fleischers
name.
2. The treasurer of Botica Nolasco offered to buy the
shares from Fleischer for P100 each (total P500).
Fleischer refused the offer.
3. Fleischer filed an action for mandamus against the
board of directors of Botica Nolasco.
4. Fleischer wanted Botica Nolasco to
a. Register in its books 5 shares of stock
under his name
b. Pay him the sum of P500 for damages
5. Botica Nolasco refused to accede to Fleischers
demands pursuant to article 12 of its by-laws
(preferential right to buy shares from retiring
stockholders).
a. According to article 12, it had the
preferential right to buy the shares from
Fleischer at the par value of P100 per
share, with P90 as dividends, and that
Fleischer refused the offer
6. The lower court ruled that article 12 was in conflict
with the provisions of the Corporation Law
a. Article 12 creates in favor of Botica
Nolasco a preferential right to buy the

shares of a retiring shareholder (in this

case, Botica Nolasco has a preferential
right to buy Gonzales shares over
Fleischer.)
Issue/s:
1. Is article 12 in conflict with the Corporation Law?
YES
Held/Ratio:
1. By-law article 12 is in conflict with the
Corporation Law because it is a restraint
of trade not contemplated by Sec 35 of
the Corporation Law. While it was validly
created under the provisions of Sec 13(7),
it is not in harmony with Sec 35.
2. Moreover, Fleischer had no knowledge of
article 12 when Gonzales assigned the
shares to him. He was not a privy to the
contract and obtained the shares in good
faith and for valuable consideration.
3. According to Sec 13(7) and Sec 35 of the
Corporation Law, by-laws relating to transfer of
stock should be in harmony with the law on the
subject of transfer of stock.
a. 13(7)
SEC. 13. Every corporation has the
power:
(7) To make by-laws, not inconsistent
with any existing law, for the fixing or
changing of the number of its officers
and
directors
within
the
limits
prescribed by law, and for the
transferring of its stock, the
administration of its corporate
affairs, etc.
b. 35
SEC. 35. The capital stock of stock
corporations shall de divided into
shares for which certificates signed by
the president or the vice-president,
countersigned by the secretary or clerk
and sealed with the seal of the
corporation,
shall
be
issued
in
accordance with the by-laws. Shares of
stock so issued are personal property
and may be transferred by delivery of
the certificate indorsed by the owner or
his attorney in fact or other person
legally authorized to make the transfer.
No transfer, however, shall be valid,
except as between the parties, until
the transfer is entered and noted upon
the books of the corporation so as to
show the names of the parties to the
transaction, that date of the transfer,
the number of the certificate, and the
number of shares transferred.
No share of stock against which the
corporation holds any unpaid claim
shall be transferable on the books of
the corporation.
4. Sec 35 provides no restriction as to whom
shares may be transferred or sold. The
shareholder, as owner of shares, which are
personal property, is free to dispose of them in
favor of any one. The only restraint in Sec 35 is

5.
6.

7.

8.

that the transfer will only be valid if it is

entered and noted upon the books of the
corporation.
In this case, article 12 was consistent with
13(7) but not with 35.
By-laws of a corporation are valid if they are
reasonable and calculated to carry into effect
the objects of the corporation and are not
contradictory to the laws of the land.
a.
By-laws are subordinate to the
constitution and the laws of the land.
b. They should not infringe state policy or
be hostile to public welfare.
c. They cannot disturb vested rights or
impair the obligation of a contract
d. They cannot take away or abridge the
rights of stockholders or members,
affect property rights, or create
obligations unknown to law
A corporation cannot prevent or restrain
transfers of its shares unless it is expressly
authorized in its charter or governing statute.
a. WHY? By-laws or other regulations
restraining transfers are regarded as
impositions in restraint of trade
A by-law of a corporation which provides that
transfers of stock shall not be valid without
board approval cannot defeat the rights of third
persons.

Grace Christian Highschool vs Court of Appeals (1997)

Facts:
Petitioner Grace Christian High School is an educational
institution offering preparatory, kindergarten and
secondary courses at the Grace Village in Quezon City.
Private respondent Grace Village Association, Inc., is an
organization of lot and/or building owners, lessees and
residents at Grace Village, while private respondents
Alejandro G. Beltran and Ernesto L. Go were its
president and chairman of the committee on election.
It appears that a committee of the board of directors
prepared a draft of an amendment to the by-laws
which says that Grace Christian High school will have a
permanent director of the association. This draft was
never presented to the general membership for
approval. Nevertheless, the petitioner was given a
permanent seat in the board of directors of the
association. The association committee on election
informed that the petitoners permanent seat in board
is invalid because it was never approved by the
majority of its members. Hence they will have an
election. The petitioner school requested the
cancellation of the election, the association denied. So
the petitioner school instituted an action to the Home
Insurance Guaranty Corporation but their action was
denied. The board adopted a resolution declaring the
1975 provision null and void for lack of approval by
members of the association and the 1968 by-laws to be
effective. The petitioner school appealed to the CA but
CA ruled that the amended by laws in 1975 is null and
void.
Issue: WON Grace Christian High school can have
permanent seat in board as director?

Held: No. The former and present corporation law

leaves no room for doubt as to their meaning: the
board of directors of corporations must be elected from
among the stockholders or members. There may be
corporations in which there are unelected members in
the board but it is clear that in the examples cited by
petitioner
the
unelected
members
sit
as ex
officio members, i.e., by virtue of and for as long as
they hold a particular office. Nor can petitioner claim a
vested right to sit in the board on the basis of
practice. Practice, no matter how long continued,
cannot give rise to any vested right if it is contrary to
law. Even less tenable is petitioners claim that its right
is coterminus with the existence of the association.