SECOND DIVISION
The owner of shares, as owner of personal property, is at liberty, under said
[G.R. No. 96674. June 26, 1992.]
RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS and FRANCISCO
TRIAS, petitioners, vs. COURT OF APPEALS * SECURITIES AND EXCHANGE COMMISSION,
MELANIA A. GUERRERO, LUZ ANDICO, WILHELMINA G. ROSALES, FRANCISCO M.
GUERRERO, JR., and FRANCISCO GUERRERO, SR., respondents.
Balgos & Perez for petitioners.
Bayani L. Bernardo Law Office for private respondents.
SYLLABUS
1. COMMERCIAL LAW; SECURITIES AND EXCHANGE COMMISSION; ORIGINAL AND
EXCLUSIVE JURISDICTION INVOLVING INTRACORPORATE CONTROVERSIES; CONSTRUED.
Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction
to hear and decide cases involving intracorporate controversies. An intracorporate
controversy has been defined as one which arises between a stockholder and the
corporation. There is no distinction, qualification, nor any exception whatsoever (Rivera
vs. Florendo, 144 SCRA 643 [1986]). The case at bar involves shares of stock, their
registration, cancellation and issuances thereof by petitioner Rural Bank of Salinas. It is
therefore within the power of respondent SEC to adjudicate.
2. ID.; CORPORATIONS; SHARES OF STOCK; RIGHT OF THE HOLDER TO TRANSFER
THEREOF; LIMITATION. Respondent SEC correctly ruled in favor of the registering of the
shares of stock in question in private respondent's names. Such ruling finds support under
Section 63 of the Corporation Code, to wit: "SEC. 63 . . . Shares of stock so issued are
personal property and may be transferred by delivery of the certificate or certificates
indorsed by the owner of his attorney-in-fact or other person legally authorized to make
the transfer. No transfer, however, shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation . . ."
3. ID.; ID.; ID.; ID.; NO RESTRICTION CAN BE IMPOSED THERETO. In the case of
Fleischer vs. Botica Nolasco, 47 Phil. 583, the Court interpreted Sec. 63 in this wise: "Said
Section (Sec. 35 of Act 1459, [now Sec. 63 of the Corporation Code]) contemplates no
restriction as to whom the stocks may be transferred. It does not suggest that any
discrimination may be created by the corporation in favor of, or against a certain
purchaser.
section to dispose them in favor of whomever he pleases, without limitation in this
respect, that the general provisions of law . . . The only limitation imposed by Section 63
of the Corporation Code is when the corporation holds any unpaid claim against the
shares intended to be transferred, which is absent here. A corporation, either by its
board, its by-laws, or the act of its officers, cannot create restrictions in stock transfers,
because: ". . . Restrictions in the traffic of stock must have their source in legislative
enactment, as the corporation itself cannot create such impediment. By-laws are
intended merely for the protection of the corporation, and prescribe regulation, not
restriction; they are always subject to the corporation, in the absence of such power,
cannot ordinarily inquire into or pass upon the legality of the transactions by which its
stock passes from one person to another, nor can it question the consideration upon
which a sale is based . . ." (Tomson on Corporation Sec. 4137, cited in Fleischer vs.
Nolasco, supra).
4. ID.; ID.; ID.; DUTY OF THE CORPORATION TO REGISTER THE TRANSFER THEREOF
IS PURELY MINISTERIAL; MANDAMUS WILL LIE IN CASE OF REFUSAL THEREOF. The right
of a transferee/assignee to have stocks transferred to his name is an inherent right
flowing from his ownership of the stocks. Thus: "Whenever a corporation refuses to
transfer and register stock in cases like the present, mandamus will be to compel the
officers of the corporation to transfer said stock in the books of the corporation" (26, Cyc.
347, Hyer vs. Bryan, 19 Phil. 138; Fleischer vs. Botica Nolasco, 47 Phil. 583, 594). The
corporation's obligation to register is ministerial. "In transferring stock, the secretary of a
corporation acts in purely ministerial capacity, and does not try to decide the question of
ownership." (Fletcher, Sec. 5528, page 434). "The duty of the corporation to transfer is a
ministerial one and if it refuses to make such transaction without good cause, it may be
compelled to do so by mandamus." (Sec. 5518, 12 Fletcher 394)
DECISION
PARAS, J p:
The basic controversy in this case is whether or not the respondent court erred in
sustaining the Securities and Exchange Commission when it compelled by Mandamus the
Rural Bank of Salinas to register in its stock and transfer book the transfer of 473 shares of
stock to private respondents. Petitioners maintain that the Petition for Mandamus should
have been denied upon the following grounds: cdphil
(1) Mandamus cannot be a remedy cognizable by the Securities and Exchange
Commission when the purpose is to register certificates of stock in the names of claimants
who are not yet stockholders of a corporation:
(2) There exist valid reasons for refusing to register the transfer of the subject of
stock, namely:
(a) a pending controversy over the ownership of the certificates of stock with the
Regional Trial Court:
(b) claims that the Deeds of Assignment covering the subject certificates of stock
were fictitious and antedated, and
(c) claims on a resultant possible deprivation of inheritance share in relation with a
conflicting claim over the subject certificates of stock.
The facts are not disputed.
On June 10, 1979, Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc.,
executed a Special Power of Attorney in favor of his wife, private respondent Melania
Guerrero, giving and granting the latter full power and authority to sell or otherwise
dispose of and/or mortgage 473 shares of stock of the Bank registered in his name
(represented by the Bank's stock certificates nos. 26, 49 and 65), to execute the proper
documents therefor, and to receive and sign receipts for the dispositions.
On February 27, 1980, and pursuant to said Special Power of Attorney, private respondent
Melania Guerrero, as Attorney-in-Fact, executed a Deed of Assignment for 472 shares out
of the 473 shares, in favor of private respondents Luz Andico (457 shares), Wilhelmina
Rosales (10 shares) and Francisco Guerrero, Jr. (5 shares).
Almost four months later, or two (2) days before the death of Clemente Guerrero on June
24, 1980, private respondent Melania Guerrero, pursuant to the same Special Power of
Attorney, executed a Deed of Assignment for the remaining one (1) share of stock in favor
of private respondent Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero presented to petitioner Rural Bank of
Salinas the two (2) Deeds of Assignment for registration with a request for the transfer in
the Bank's stock and transfer book of the 473 shares of stock so assigned, the cancellation
of stock certificates in the name of Clemente G. Guerrero, and the issuance of new stock
certificates covering the transferred shares of stocks in the name of the new owners
thereof. However, petitioner Bank denied the request of respondent Melania Guerrero.
On December 5, 1980, private respondent Melania Guerrero filed with the Securities and
Exchange Commission (SEC) an action for mandamus against petitioners Rural Bank of
Salinas, its President and Corporate Secretary. The case was docketed as SEC Case No.
1979.
Petitioners filed their Answer with counterclaim on December 19, 1980 alleging that upon
the death of Clemente G. Guerrero, his 473 shares of stock became the property of his
estate, and his property and that of his widow should first be settled and liquidated in
accordance with law before any distribution can be effected so that petitioners may not
be a party to any scheme to evade payment of estate or inheritance tax and in order to
avoid liability to any third persons or creditors of the late Clemente G. Guerrero.
On January 29, 1981, a motion for intervention was filed by Maripol Guerrero, a legally
adopted daughter of the late Clemente G. Guerrero and private respondent Melania
Guerrero, who stated therein that on November 26, 1980 (almost two weeks before the
filing of the Petition for Mandamus) a Petition for the administrator of the estate of the
late Clemente G. Guerrero had been filed with the Regional Trial Court, Pasig, Branch XI,
docketed as Special Proceedings No. 9400. Maripol Guerrero further claimed that the
Deeds of Assignment for the subject shares of stock are fictitious and antedated; that said
conveyances are donations since the considerations therefor are below the book value of
the shares, the assignees/private respondents being close relatives of private respondent
Melania Guerrero; and that the transfer of the shares in question to assignees/private
respondents, other than private respondent Melania Guerrero, would deprive her
(Maripol Guerrero) of her rightful share in the inheritance. The SEC hearing officer denied
the Motion for Intervention for lack of merit. On appeal, the SEC En Banc affirmed the
decision of the hearing officer. LibLex
Intervenor Guerrero filed a complaint before the then Court of First Instance of Rizal,
Quezon City Branch, against private respondents for the annulment of the Deeds of
Assignment, docketed as Civil Case No. Q-32050. Petitioners, on the other hand, filed a
Motion to Dismiss and/or to Suspend Hearing of SEC Case No. 1979 until after the
question of whether the subject Deeds of Assignment are fictitious, void or simulated is
resolved in Civil Case No. Q-32050. The SEC Hearing Officer denied said motion.
On December 10, 1984, the SEC Hearing Officer rendered a Decision granting the writ of
Mandamus prayed for by the private respondents and directing petitioners to cancel
stock certificates nos. 26, 49 and 65 of the Bank, all in the name of Clemente G. Guerrero,
and to issue new certificated in the names of private respondents, except Melania
Guerrero. The dispositive portion of the decision reads:
"WHEREFORE, judgment is hereby rendered in favor of the petitioner and against the
respondents, directing the latter, particularly the corporate secretary of respondent Rural
Bank of Salinas, Inc. to register in the latter's Stock and Transfer Book the transfer of 473
shares of stock of respondent Bank and to cancel Stock Certificate Nos. 26, 49 and 65 and
issue new Stock Certificates covering the transferred shares in favor of petitioners, as
follows:
1. Luz Andico 457 shares
2. Wilhelmina Rosales 10 shares
3. Francisco Guerrero, Jr. 5 shares
4. Francisco Guerrero, Sr. 1 share
and to pay to the above-named petitioners, the dividends for said shares corresponding
to the years 1981, 1982, 1983 and 1984 without interest.
No pronouncement as to costs.
SO ORDERED." (p. 88, Rollo)
On appeal, the SEC En Banc affirmed the decision of the Hearing Officer. Petitioner filed a
petition for review with the Court of Appeals but said Court likewise affirmed the decision
of the SEC.
We rule in favor of the respondents.
Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction to
hear and decide cases involving intracorporate controversies. An intracorporate
controversy has been defined as one which arises between a stockholder and the
corporation. There is no distinction, qualification, nor any exception whatsoever (Rivera
vs. Florendo, 144 SCRA 643 [1986]). The case at bar involves shares of stock, their
registration, cancellation and issuances thereof by petitioner Rural Bank of Salinas. It is
therefore within the power of respondent SEC to adjudicate.
Respondent SEC correctly ruled in favor of the registering of the shares of stock in
question in private respondent's names. Such ruling finds support under Section 63 of the
Corporation Code, to wit:
"SEC. 63 . . . Shares of stock so issued are personal property and may be transferred by
delivery of the certificate of certificates indorsed by the owner or his attorney-in-fact or
other person legally authorized to make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the books of the
corporation . . ."
In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court interpreted Sec. 63 in this
wise:
"Said Section (Sec. 35 of Act 1459, [now Sec. 63 of the Corporation Code]) contemplates
no restriction as to whom the stocks may be transferred. It does not suggest that any
discrimination may be created by the corporation in favor of, or against a certain
purchaser. The owner of shares, as owner of personal property, is at liberty, under said
section to dispose them in favor of whomever he pleases, without limitation in this
respect, than the general provisions of law . . .
The only limitation imposed by Section 63 of the Corporation Code is when the
corporation holds any unpaid claim against the shares intended to be transferred, which
is absent here.
A corporation, either by its board, its by-laws, or the act of its officers, cannot create
restrictions in stock transfers, because:
". . . Restrictions in the traffic of stock must have their source in legislative enactment, as
the corporation itself cannot create such impediment. By-laws are intended merely for
the protection of the corporation, and prescribe regulation, not restriction; they are
always subject to the charter of the corporation. The corporation, in the absence of such
power, cannot ordinarily inquire into or pass upon the legality of the transactions by
which its stock passes from one person to another, nor can it question the consideration
upon which a sale is based . . ." (Tomson on Corporation Sec. 4137, cited in Fleisher vs.
Nolasco, Supra).
The right of a transferee/assignee to have stocks transferred to his name is an inherent
right flowing from his ownership of the stocks. Thus: cdll

"Whenever a corporation refuses to transfer and register stock in cases like the present,
mandamus will lie to compel the officers of the corporation to transfer said stock in the
books of the corporation" (26, Cyc. 347, Hyer vs. Bryan, 19 Phil. 138; Fleischer vs. Botica
Nolasco, 47 Phil. 583, 594).

The corporation's obligation to register is ministerial.

"In transferring stock, the secretary of a corporation acts in purely ministerial capacity,
and does not try to decide the question of ownership." (Fletcher, Sec. 5528, page 434).

"The duty of the corporation to transfer is a ministerial one and if it refuses to make such
transaction without good cause, it may be compelled to do so by mandamus." (Sec. 5518,
12 Fletcher 394)

For the petitioner Rural Bank of Salinas to refuse registration of the transferred shares in
its stock and transfer book, which duty is ministerial on its part, is to render nugatory and
ineffectual the spirit and intent of Section 63 of the Corporation Code. Thus, respondent
Court of Appeals did not err in upholding the Decision of respondent SEC affirming the
Decision of its Hearing Officer directing the registration of the 473 shares in the stock and
transfer book in the names of private respondents. At all events, the registration is
without prejudice to the proceedings in court to determine the validity of the Deeds of
Assignment of the shares of stock in question.

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.

Narvasa, C .J ., Padilla and Regalado, JJ ., concur.

Nocon, J ., is on leave.
EN BANC
[G.R. No. 41570. September 6, 1934.]
RED LINE TRANSPORTATION CO., petitioner-appellant, vs. RURAL TRANSIT CO., LTD.,
respondent-appellee.
L. D. Lockwood for appellant.
Ohnick & Opisso for appellee.
SYLLABUS
1. PUBLIC SERVICE; AUTHORITY OF PUBLIC SERVICE COMMISSION TO AUTHORIZE A
CORPORATION TO ASSUME THE NAME OF ANOTHER. There is no law that empowers
the Public Service Commission or any court in this jurisdiction to authorize one
corporation to assume the name of another corporation as a trade name. Both the Rural
Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and
the very law of their creation and continued existence requires each to adopt and certify a
distinctive name.
2. ID.; ID.; CHANGE OF CORPORATION'S NAME. The incorporators "constitute a
body politic and corporate under the name stated in the certificate." (Section 11, Act No.
1459, as amended.) A corporation has the power "of succession by its corporate name."
(Section 13, ibid.) The name of a corporation is therefore essential to its existence. It
cannot change its name except in the manner provided by the statute. By that name
alone is it authorized to transact business.
3. ID.; ID.; ID. 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.
4. ID.; ID.; ID.; POLICY OF THE LAW. The policy of the law as expressed in our
corporation statute and the Code of Commerce is clearly against such a practice. (Cf.
Scarsdale Pub. Co.-Colonial Press vs. Carter, 116 New York Supplement, 731; Svenska Nat.
F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate Courts], 428, 434.)
DECISION
BUTTE, J p:
This case is before us on a petition for review of an order of the Public Service
Commission entered December 21, 1932, granting to the Rural Transit Company, Ltd., a
certificate of public convenience to operate a transportation service between Ilagan in the
Province of Isabela and Tuguegarao in the Province of Cagayan, and additional trips in its
existing express service between Manila and Tuguegarao.
On June 4, 1932, the Rural Transit Company, Ltd., a Philippine corporation, filed with the
Public Service Commission an application in which it is stated in substance that it is the
holder of a certificate of public convenience to operate a passenger bus service between
Manila and Tuguegarao; that it is the only operator of direct service between said points
and the present authorized schedule of only one trip daily is not sufficient; that it will be
also to the public convenience to grant the applicant a certificate for a new service
between Tuguegarao and Ilagan.
On July 22, 1932, the appellant, Red Line Transportation Company, filed an opposition to
the said application alleging in substance that as to the service between Tuguegarao and
Ilagan, the oppositor already holds a certificate of public convenience and is rendering
adequate and satisfactory service; that the granting of the application of the Rural Transit
Company, Ltd., would not serve public convenience but would constitute a ruinous
competition for the oppositor over said route.
After testimony was taken, the commission, on December 21, 1932, approved the
application of the Rural Transit Company Ltd., and ordered that the certificate of public
convenience applied for be "issued to the applicant Rural Transit Company, Ltd.," with the
conditions of the various certificates of public convenience of the herein applicant and
herein incorporated are made a part hereof."
On January 14, 1933, the oppositor Red Line Transportation Company filed a motion for
rehearing and reconsideration in which it called the commission's attention to the fact
that there was pending in the Court of First Instance of Manila case No. 42343, an
application for the voluntary dissolution of the corporation, Rural Transit Company, Ltd.
Said motion for reconsideration was set down for hearing on March 24, 1933. On March
23, 1933, the Rural Transit Company, Ltd., the applicant, filed a motion for postponement.
This motion was verified by M. Olsen who swears "that he was the secretary of the Rural
Transit Company, Ltd., in the above entitled case." Upon the hearing of the motion for
reconsideration, the commission admitted without objection the following documents "A. The Rural Transit Company, Ltd.
filed in said case No. 42343 in the Court of First Instance of Manila for the dissolution
dated July 6, 1932, the decision of the said Court of First Instance of Manila, dated "JUDGE. By itself, or as a commercial name of the Bachrach Motor Company?
February 28, 1933, decreeing the dissolution of the Rural Transit Company, Ltd.
"A. I cannot say.
At the trial of this case before the Public Service Commission an issue was raised as to
"ESPELETA. The Rural Transit Company, Ltd., is a corporation duly established in
who was the real party in interest making the application, whether the Rural Transit
accordance with the laws of the Philippine Islands.
Company, Ltd., as appeared on the face of the application, or the Bachrach Motor
Company, Ltd., as a trade name. The evidence given by the applicant's secretary, Olsen, is "JUDGE. According to the records of this commission the Bachrach Motor Company is the
certainly very dubious and confusing, as may be seen from the following: owner of the certificates and the Rural Transit Company, Ltd., is operating without any
certificate.
"Q. Will you please answer the question whether it is the Bachrach Motor Company
operating under the trade name of the Rural Transit Company, Limited, or whether it is "JUDGE. If you filed this application for the Rural Transit Company, Ltd., and afterwards it
the Rural Transit Company, Limited in its own name this application was filed? is found out that the Rural Transit Company, Ltd., is not an operator, everything will be
turned down.
"A. The Bachrach Motor Company is the principal stockholder.
"JUDGE. My question was, when you filed this application you evidently made it for the
"Q. Please answer the question.
operator?
"ESPELETA. Objecion porque la pregunta ya ha sido contestada.
"A. Yes, sir.
"JUEZ. Puede contestar.
"JUDGE. Who was that operator you had in mind?
"A. I do not know what the legal construction or relationship existing between the
"A. According to the status of the ownership of the certificates of the former Rural
two.
Transit Company, the operator was the operator authorized in case No. 23217 to whom
"JUDGE. I do not know what is in your mind by not telling the real applicant in this case? all of the assets of the former Rural Transit Company were sold.

"A. It is the Rural Transit Company, Ltd. "JUDGE. The Bachrach Motor Company?

"JUDGE. As an entity by itself and not by the Bachrach Motor Company? "A. All actions have been prosecuted in the name of the Rural Transit Company, Ltd.

"A. I do not know. I have not given that phase of the matter much thought, as in "JUDGE. You mean the Bachrach Motor Company, Inc., doing business under the name of
previous occasion had not necessitated. the Rural Transit Company, Ltd.?

"JUDGE. In filing this application, you filed it for the operator on that line? Is it not? "A. Yes, sir.

"A. Yes, sir. "LOCKWOOD. I move that this case be dismissed, your Honor, on the ground that this
application was made in the name of one party but the real owner is another party.
"JUDGE. Who is that operator?
"ESPELETA. We object to that petition.
"JUDGE. I will have that in mind when I decide the case. If I agree with you everything
would be finished."
The Bachrach Motor Company, Inc., entered no appearance and ostensibly took no part in
the hearing of the application of the Rural Transit Company, Ltd. It may be a matter of
some surprise that the commission did not on its own motion order the amendment of
the application by substituting the Bachrach Motor Company, Inc., as the applicant.
However, the hearing proceeded on the application as filed and the decision of December
21, 1932, was rendered in favor of the Rural Transit Company, Ltd., and the certificate
ordered to be issued in its name, in the face of the evidence that the said corporation was
not the real party in interest. In its said decision, the commission undertook to meet the
objection by referring to its resolution of November 26, 1932, entered in another case.
This resolution in case No. 23217 concludes as follows:
The order of the commission of November 26, 1932, authorizing the Bachrach Motor Co.,
Incorporated, to assume the name of the Rural Transit Co., Ltd., likewise incorporated, as
its trade name being void, and accepting the order of December 21, 1932, at its face as
granting a certificate of public convenience to the applicant Rural Transit Co., Ltd., the
said order last mentioned is set aside and vacated on the ground that the Rural Transit
Company, Ltd., is not the real party in interest and its application was fictitious.
In view of the dissolution of the Rural Transit Company, Ltd. by judicial decree of February
28, 1933, we do not see how we can assess costs against said respondent, Rural Transit
Company, Ltd.
Malcolm, Villa-Real, Imperial and Goddard, JJ., concur.

"Premises considered we hereby authorize the Bachrach Motor Co., Inc., to continue
using the name of 'Rural Transit Co., Ltd.,' as its trade name in all the applications,
motions or other petitions to be filed in this commission in connection with said business
and that this authority is given retroactive effect as of the date of filing of the application
in this case, to wit, April 28, 1930."

We know of no law that empowers the Public Service Commission or any court in this
jurisdiction to authorize one corporation to assume the name of another corporation as a
trade name. Both the Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are
Philippine corporations and the very law of their creation and continued existence
requires each to adopt and certify a distinctive name. The incorporators "constitute a
body politic and corporate under the name stated in the certificate." (Section 11, Act No.
1459, as amended.) A corporation has the power "of succession by its corporate name."
(Section 13, ibid.) The name of a corporation is therefore essential to its existence. It
cannot change its name except in the manner provided by the statute. By that name
alone is it authorized to transact business. The law gives a corporation no express or
implied authority to assume another name that is unappropriated; still less that of
another corporation, which is expressly set apart for it and protected by the law. If any
corporation could assume at pleasure as an unregistered trade name the name of another
corporation, this practice would result in confusion and open the door to frauds and
evasions and difficulties of administration and supervision. The policy of the law as
expressed in our corporation statute and the Code of Commerce is clearly against such a
practice. (Cf. Scarsdale Pub. Co.-Colonial Press vs. Carter, 116 New York Supplement, 731;
Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate Courts], 428, 434.)
EN BANC
[G.R. No. L-26370. July 31, 1970.]
PHILIPPINE FIRST INSURANCE COMPANY, INC., plaintiff-appellant, vs. MARIA CARMEN
HARTIGAN, CGH, and O. ENGKEE, defendants-appellees.
Bausa, Ampil & Suarez for plaintiff-appellant.
Nicasio E. Martin for defendants-appellees.
DECISION
BARREDO, J p:
Appeal from the decision dated 6 October 1962 of the Court of First Instance of Manila
dismissing the action in its Civil Case No. 48925 brought by the herein plaintiff-
appellant Philippine First Insurance Co., Inc. to the Court of Appeals which could, upon
finding that the said appeal raises purely questions of law, declared itself without
jurisdiction to entertain the same and, in its resolution dated 15 July 1966, certified the
records thereof to this Court for proper determination.
The antecedent facts are set forth in the pertinent portions of the resolution of the Court
of Appeals referred to as follows:
"According to the complaint, plaintiff was originally organized as an insurance corporation
under the name of 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' The articles of
incorporation originally presented before the Security and Exchange Commissioner and
acknowledged before Notary Public Mr. E. D. Ignacio on June 1, 1953 state that the name
of the corporation was 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.'.' On May 26,
1961 the articles of incorporation were amended pursuant to a certificate of the Board of
Directors dated March 8, 1961 changing the name of the corporation to 'Philippine First
Insurance Co., Inc.'
"The complaint alleges that the plaintiff Philippine First Insurance Co., Inc., doing business
under the name of 'The Yek Tong Lin Fire and Marine Insurance Co., Lt.' signed as co-
maker together with defendant Maria Carmen Hartigan, CGH, a promissory note for
P5,000.00 in favor of the China Banking Corporation payable within 30 days after the date
of the promissory note with the usual banking interest; that the plaintiff agreed to act as
such co-maker of the promissory note upon the application of the defendant Maria
Carmen Hartigan, CGH, who together with Antonio F. Chua and Chang Ka Fu, signed an
indemnity agreement in favor of the plaintiff, undertaking jointly and severally, to pay the
plaintiff damages, losses or expenses of whatever kind or nature, including attorney's fees
and legal costs, which the plaintiff may sustain as a result of the execution by the plaintiff
as co-maker of Maria Carmen Hartigan, CGH, of the promissory note above referred to;
that as a result of the execution of the promissory note by the plaintiff and Maria Carmen
Hartigan, CGH, the China Banking Corporation delivered to the defendant Maria Carmen
Hartigan, CGH, the sum of P5,000.00 which said defendant failed to pay in full, such that
on August 31, 1961 the same was renewed and as of November 27, 1961 there was due
on account of the promissory note the sum of P4,559.50 including interest. The complaint
ends with a prayer for judgment against the defendants, jointly and severally, for the sum
of P4,559.50 with interest at the rate of 12% per annum from November 23, 1961 plus
P911.90 by way of attorney's fees and costs.
"Although O. Engkee was made as party defendant in the caption of the complaint, his
name is not mentioned in the body of said complaint. However, his name appears in the
Annex A attached to the complaint which is the counter indemnity agreement supposed
to have been signed according to the complaint by Maria Carmen Hartigan, CGH, Antonio
F. Chua and Chang Ka Fu.
"In their answer the defendants deny the allegation that the plaintiff formerly conducted
business under the name and style of 'The Yek Tong Lin Fire and Marine Insurance Co.,
Ltd.', They admit the execution of the indemnity agreement but they claim that they
signed said agreement in favor of the 'Yek Tong Lin Fire and Marine Insurance Co., Ltd.'
and not in favor of the plaintiff. They likewise admit that they failed to pay the promissory
note when it fell due but they allege that since their obligation with the China Banking
Corporation based on the promissory note still subsists, the surety who co-signed the
promissory note is not entitled to collect the value thereof from the defendants otherwise
they will be liable for double amount of their obligation, there being no allegation that the
surety has paid the obligation to the creditor.
"By way of special defense, defendants claim that there is no privity of contract between
the plaintiff and the defendants and consequently, the plaintiff has no cause of action
against them, considering that the complaint does not allege that the plaintiff and the
'Yek Tong Lin Fire and Marine Insurance Co., Ltd.' are one and the same or that the
plaintiff has acquired the rights of the latter. The parties after the admission of Exhibit A
which is the amended articles of incorporation and Exhibit 1 which is a demand letter
dated August 16, 1962 signed by the manager of the loans and discount department of
the China Banking Corporation showing that the promissory note up to said date in the
sum of P4,500.00 was still unpaid, submitted the case for decision based on the
pleadings."
Under date of 6 October 1962, the Court of First Instance of Manila rendered the decision
appealed. It dismissed the action with costs against the plaintiff Philippine First Insurance
Co., Inc., reasoning as follows:
". . . With these undisputed facts in mind, the parties correctly concluded that the issues
for resolution by this Court are as follows:
"(a) Whether or not the plaintiff is the real party in interest that may validly sue on
the indemnity agreement signed by the defendants and the Yek Tong Lin Fire & Marine
Insurance Co., Ltd. (Annex A to plaintiff's complaint); and
"(b) Whether or not a suit for indemnity or reimbursement may under said indemnity
agreement prosper without plaintiff having yet paid the amount due under said
promissory note.
"In the first place, the change of name of the Yek Tong Lin Fire & Marine Insurance Co.,
Ltd. to the Philippine First Insurance Co., Inc. is of dubious validity. Such change of name
in effect dissolved the original corporation by a process of dissolution not authorized by
our corporation law (see Secs. 62 and 67, inclusive, of our Corporation Law). Moreover,
said change of name, amounting to a dissolution of the Yek Tong Lin Fire & Marine
Insurance Co., Ltd., does not appear to have been effected with the written note or assent
of stockholders representing at least two-thirds of the subscribed capital stock of the
corporation, a voting proportion required not only for the dissolution of a corporation but
also for any amendment of its articles of incorporation (Secs. 18 and 62, Corporation
Law). Furthermore, such change of corporate name appears to be against public policy
and may be effected only by express authority of law (Red Line Transportation Co. v. Rural
Transit Co., Ltd., 60 Phil. 549, 555; Cincinnati Cooperage Co., Ltd. vs. Vate, 26 SW 538,
539; Pilsen Brewing Co. vs. Wallace, 125 NE 714), but there is nothing in our corporation
law authorizing the change of corporate name in this jurisdiction.
"In the second place, assuming that the change of name of the Yek Tong Lin Fire & Marine
Insurance Co., Ltd., to Philippine First Insurance Co., Inc., as accomplished on March 8,
1961, is valid, that would mean that the original corporation; the Yek Tong Lin Fire &
Marine Insurance Co., Ltd., became dissolved and of no further existence since March 8,
1961, 80 that on May 15, 1961, the date the indemnity agreement, Annex A, was
executed, said original corporation had no more power to enter into any agreement with
the defendants, and the agreement entered into by it was ineffective for lack of capacity
of said dissolved corporation to enter into said agreement. At any rate, even if we hold
that said change of name is valid, the fact remains that there is no evidence showing that
the new city entity, the Philippine First Insurance Co., Inc. has, with the consent of the
original parties, assumed the obligations or was assigned the rights of action in the
original corporation, the Yek Tong Lin Fire & Marine Insurance Co., Ltd. In other words,
there is no evidence of conventional subrogation of the plaintiffs in the rights of the Yek
Tong Lin Fire & Marine Insurance Co., Ltd. under said indemnity agreement (Arts. 1300
1301, New Civil Code). Without such subrogation, or assignment of rights, the herein
plaintiff has no cause of action against the defendants, and is, therefore, not the right
party in interest as plaintiff.
"Last, but not least, assuming that the said change of name was legal and operated to
dissolve the original corporation, the dissolved corporation, must pursuant to Sec. 77 of
our corporation law, be deemed as continuing as a body corporate for three (3) years
from March 8, 1961 for the purpose of prosecuting and defending suits. It is, therefore,
the Yek Tong Lin Fire & Marine Insurance Co., Ltd. that is the proper party to sue the
defendants under said indemnity agreement up to March 8, 1964.
"Having arrived at the foregoing conclusions, this Court need not squarely pass upon issue
(b) formulated above.
"WHEREFORE, plaintiff's action is hereby dismissed, with costs against the plaintiff."
In due time, the Philippine First Insurance Company, Inc. moved for reconsideration of the
decision aforesaid, but said motion was denied on December 3, 1962 in an order worded
thus:
"The motion for reconsideration, dated November 8, 1962, raises no new issue that we
failed to consider in rendering our decision of October 6, 1962. However, it gives us an
opportunity to amplify our decision as regards the question of change of name of a
corporation in this jurisdiction.
"We find nothing in our Corporation Law authorizing a change of name of a corporation
organized pursuant to its provisions. Sec. 18 of the Corporation law authorizes, in our
opinion, amendment to the Articles of Incorporation of a corporation only as to matters
other than its corporate name. Once a corporation is organized in this jurisdiction by the
execution and registration of its Articles of Incorporation, it shall continue to exist under
its corporate name for the lifetime of its corporate existence fixed in its Articles of
Incorporation, unless sooner legally dissolved (Sec. 11, Corp. Law). Significantly, change of
name is not one of the methods of dissolution of corporations expressly authorized by our
Corporation Law. Also significant is the fact that the power to change its corporate name
is not one of the general powers conferred on corporations in this jurisdiction (Sec. 13,
Corp. Law). The enumeration of corporate powers made in our Corporation Law implies
the exclusion of all others (Thomas v. West Jersey R. Co., 101 U.S. 71, 25 L. ed. 950). It is
obvious, in this connection, that change of name is not one of the powers necessary to
the exercise of the powers conferred on Corporations by said Sec. 13 (see Sec. 14, Corp.
Law).
"To rule that Sec. 18 of our Corporation Law authorizes the change of name of a
corporation by amendment of its Articles of Incorporation is to indulge in judicial
legislation. We have examined the cases cited in Volume 13 of American Jurisprudence in
support of the proposition that the general power to alter or amend the charter of a
corporation necessarily includes the power to alter the name of a corporation, and find no
justification for said conclusion arrived at by the editors of American Jurisprudence. On
the contrary, the annotations in favor of plaintiff's view appear to have been based on
decisions in cases where the statute itself expressly authorizes change of corporate name
by amendment of its Articles of Incorporation. The correct rule in harmony with the
provisions of our Corporation Law is well expressed in an English case as follows:
'After a company has been completely registered without defect or omission, so as to be
incorporated by the name set forth in the deed of settlement, such incorporated
company has not the power to change its name . . . Although the King by his prerogative
might incorporate by a new name, and the newly named corporation might retain former
rights, and sometimes its former name also, . . . it never appears to be such an act as the
corporation could do by itself, but required the same power as created the corporation.
(Reg. v. Registrar of Joint Stock Cos. 10 Q.B. 839, 59 E.C.L. 839).'
The contrary view appears to represent the minority doctrine, judging from the
annotations on decided cases on the matter.
"The movant invokes as persuasive precedent the action of the Securities Commissioner
in tacitly approving the Amended Articles of Incorporation on May 26, 1961. We regret
that we cannot in good conscience lend approval to this action of the Securities and
Exchange Commissioner. We find no justification, legal, moral, or practical, for adhering to
the view taken by the Securities and Exchange Commissioner that the name of a
corporation in the Philippines may be changed by mere amendment of its Articles of
Incorporation as to its corporate name. A change of corporate name would serve no
useful purpose, but on the contrary would most probably cause confusion. Only a dubious
purpose could inspire a change of a corporate name which, unlike a natural person's
name, was chosen by the incorporators themselves; and our Courts should not lend their
assistance to the accomplishment of dubious purposes.
"WHEREFORE, we hereby deny plaintiff's motion for reconsideration, dated November 8,
1962, for lack of merit."
In this appeal appellant contends that
"I
"THE TRIAL COURT ERRED IN HOLDING THAT IN THIS JURISDICTION, THERE IS NOTHING IN
OUR CORPORATION LAW AUTHORIZING THE CHANGE OF CORPORATE NAME;
"II
"THE TRIAL COURT ERRED IN DECLARING THAT A CHANGE OF CORPORATE NAME
APPEARS TO BE AGAINST PUBLIC POLICY;
"III
"THE TRIAL COURT ERRED IN HOLDING THAT A CHANGE OF CORPORATE NAME HAS THE
LEGAL EFFECT OF DISSOLVING THE ORIGINAL CORPORATION;
"IV
"THE TRIAL COURT ERRED IN HOLDING THAT THE CHANGE OF NAME OF THE YEK TONG
LIN FIRE & MARINE INSURANCE CO., LTD. IS OF DUBIOUS VALIDITY;
"V
"THE TRIAL COURT ERRED IN HOLDING THAT THE APPELLANT HEREIN IS NOT THE RIGHT
PARTY IN INTEREST TO SUE DEFENDANTS-APPELLEES;
"VI
"THE TRIAL COURT FINALLY ERRED IN DISMISSING THE COMPLAINT."
Appellant's position is correct; all the above assignments of error are well taken. The
whole case, however, revolves around only one question. May a Philippine corporation
change its name and still retain its original personality and individuality as such?
The answer is not difficult to find. True, under Section 6 of the Corporation Law, the first
thing required to be stated in the Articles of Incorporation of any corporation is its name,
but it is only one among many matters equally if not more important, that must be stated
therein. Thus, it is also required, for example, to state the number and names of and
residences of the incorporators and the residence or location of the principal office of the
corporation, its term of existence, the amount of its capital stock and the number of
shares into which it is divided, etc., etc.
On the other hand, Section 18 explicitly permits the articles of incorporation to be
amended thus:
"Sec. 18. Any corporation may for legitimate corporate purpose or purposes, amend its
articles of incorporation by a majority vote of its board of directors or trustees and the
vote or written assent of two-thirds of its members, if it be a nonstock corporation or, if it
be a stock corporation, by the vote or written assent of the stockholders representing at
least two thirds of the subscribed capital stock of the corporation: Provided, however,
That if such amendment to the articles of incorporation should consist in extending the
corporate existence or in any change in the rights of holders of shares of any class, or
would authorize shares with preferences in any respect superior to those of outstanding
shares of any class, or would restrict the rights of any stockholder, then any stockholder
who did not vote for such corporate action may, within forty days after the date upon
which such action was authorized, object thereto in writing and demand payment for his
shares. If, after such a demand by a stockholder. the corporation and the stockholder
cannot agree upon the value of his share or shares at the time such corporate action was
authorized, such value shall be ascertained by three disinterested persons, one of whom
shall be named by the stockholder, another by the corporation, and the third by the two
thus chosen. The findings of the appraisers shall be final, and if their award is not paid by
the corporation within thirty days after it is made, it may be recovered in an action by the
stockholder against the corporation. Upon payment by the corporation to the stockholder
of the agreed or awarded price of his share or shares, the stockholder shall forthwith
transfer and assign the share or shares held by him as directed by the Corporation:
Provided, however, That their own shares of stock purchased or otherwise acquired by
banks, trust companies, and insurance companies, should be disposed of within six
months after acquiring title thereto.
"Unless and until such amendment to the articles of incorporation shall have been
abandoned or the action rescinded, the stockholder making such demand in writing shall
cease to be a stockholder and shall have no rights with respect to such shares, except the
right to receive payment therefor as aforesaid.
"A stockholder shall not be entitled to payment for his shares under the provisions of this
section unless the value of the corporate assets which would remain after such payment
would be at least equal to the aggregate amount of its debts and liabilities and the
aggregate par value and/or issued value of the remaining subscribed capital stock.
"A copy of the articles of incorporation as amended, duly certified to be correct by the
president and the secretary of the corporation and a majority of the board of directors or
trustees, shall be filed with the Securities and Exchange Commissioner, who shall attach
the same to the original articles of incorporation, on file in his office. From the time of
filing such copy of the amended articles of incorporation, the corporation shall have the
same powers and it and the members and stockholders thereof shall thereafter be subject
to the same liabilities as if such amendment had been embraced in the original articles of
incorporation: Provided, however, That should the amendment consist in extending the
corporate life, the extension shall not exceed 50 years in any one instance. Provided,
further, That the original articles and amended articles together shall contain all
provisions required by law to be set out in the articles of incorporation: And provided,
further, That nothing in this section shall be construed to authorize any corporation to
increase or diminish its capital stock or so as to effect any rights or actions which accrued
to others between the time of filing the original articles of incorporation and the filing of
the amended articles.
"The Securities and Exchange Commissioner shall be entitled to collect and receive the
sum of ten pesos for filing said copy of the amended articles of incorporation. Provided,
however, That when the amendment consists in extending the term of corporate
existence, the Securities and Exchange Commissioner shall be entitled to collect and
receive for the filing of its amended articles of incorporation the same fees collectible
under existing law for the filing of articles of incorporation. The Securities & Exchange
Commissioner shall not hereafter file any amendment to the articles of incorporation of
any bank, banking institution, or building and loan association unless accompanied by a
certificate of the Monetary Board (of the Central sank) to the effect that such amendment
is in accordance with law. (As further amended by Act No. 3610, Sec. 2 and Sec. 9. R.A.
No. 337 and R.A. No. 3531.)"
It can be gleaned at once that this section does not only authorize corporations to amend
their charter; it also lays down the procedure for such amendment; and, what is more
relevant to the present discussion, it contains provisos restricting the power to amend
when it comes to the term of their existence and the increase or decrease of the capital
stock. There is no prohibition therein against the change of name. The inference is clear
that such a change is allowed, for if the legislature had intended to enjoin corporations
from changing names, it would have expressly stated so in this section or in any other
provision of the law.
No doubt, "(the) name (of a corporation) is peculiarly important as necessary to the very
existence of a corporation. The general rule as to corporations is that each corporation
shall have a name by which it is to sue and be sued and do all legal acts. The name of a
corporation in this respect designates the corporation in the same manner as the name of
an individual designates the person." 1 Since an individual has the right to change his
name under certain conditions, there is no Compelling reason why a corporation may not
enjoy the same right. There is nothing sacrosanct in a name when it comes to artificial
beings, The sentimental considerations which individuals attach to their names are not
present in corporations and partnerships. Of course, as in the case of an individual, such
change may not be made exclusively by the corporation's own act. It has to follow the
procedure prescribed by law for the purpose; and this is what is important and
indispensably prescribed strict adherence to such procedure.
Local well known corporation law commentators are unanimous in the view that a
corporation may change its name by merely amending its charter in the manner
prescribed by law. 2 American authorities which have persuasive force here in this regard
because our corporation law is of American origin, the same being a sort of codification of
American corporate law, 3 are of the same opinion.
"A general power to alter or amend the charter of a corporation necessarily includes the
power to alter the name of the corporation. Ft. Pitt Bldg., etc., Assoc. v. Model Plan Bldg.,
etc., Assoc., 159 Pa. St. 308, 28 Atl. 215; In re Fidelity Mut. Aid Assoc., 12 W.N.C. (Pa.) 271;
Excelsior Oil Co., 3 Pa. Co. Ct. 184; Wetherill Steel Casting Co., 5 Pa. Co. Ct. 337.
xxx xxx xxx
"Under the General Laws of Rhode Island, c 176, sec. 7, relating to an increase of the
capital stock of a corporation, it is provided that 'such agreement may be amended in and
other particular, excepting as provided in the following section', which relates to a
decrease of the capital stock. This section has been held to authorize a change in the
name of a corporation. Armington v. Palmer, 21 R.I. 109, 42 Atl. 308, 48 L.R.A. 95, 79 Am
St. Rep. 786." (Vol. 19, American and English Annotated Cases, p. 1239.)
Fletcher, a standard authority on American and English corporation law also says:
"Statutes are to be found in the various jurisdictions dealing with the matter of change in
corporate names. Such statutes have been subjected to judicial construction and have, in
the main, been upheld as constitutional. In direct terms or by necessary implication, they
authorize corporations to adopt new names and prescribe the mode of procedure for that
purpose. The same steps must be taken under some statutes to effect a change in a
corporate name, as when any other amendment of the corporate charter is sought . . .
When the general law thus deals with the subject, a corporation can change its name only
in the manner provided." (6 Fletcher, Cyclopedia of the Law of Private Corporations, 1968
Revised Volume, pp. 212213.) (Italic Ours)
The learned trial judge held that the above-quoted propositions are not supported by the
weight of authority because they are based on decisions in cases where the statutes
expressly authorize change of corporate name by amendment of the articles of
incorporation. We have carefully examined these authorities and We are satisfied of their
relevance. Even Lord Denman who has been quoted by His Honor from In Reg. v. Registrar
of Joint Stock Cos. 10, Q.B., 59 E.C.L. maintains merely that the change of its name "never
appears to be such an act as the corporation could do for itself, but required the same
power as created a corporation." What seems to have been overlooked, therefore, is that
the procedure prescribed by Section 18 of our Corporation Law for the amendment of
corporate charters is practically identical with that for the incorporation itself of a
corporation.
In the appealed order of dismissal, the trial court made the observation that, according to
this Court in Red Line Transportation Co. v. Rural Transit Co., Ltd., 60 Phil. 549, 555,
change of name of a corporation is against public policy. We must clarify that such is not
the import of Our said decision. What this Court held in that case is simply that:
"We know of no law that empowers the Public Service Commission or any court in this
jurisdiction to authorize one corporation to assume the name of another corporation as a
trade name. Both the Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are
Philippine corporations and the very law of their creation and continued existence
requires each to adopt and certify a distinctive name. The incorporators 'constitute a
body politic and corporate under the name stated in the certificate.' (Section 11, Act No.
1459, as amended.) A corporation has the ,power 'of succession by its corporate name.'
(Section 13, ibid.) The name of a corporation is therefore essential to its existence. It
cannot change its name except in the manner provided by the statute. By that name
alone is it authorized to transact business. The law gives a corporation no express or
implied authority to assume another name that is unappropriated; still less that of
another corporation, which is expressly set apart for it and protected by the law. If any
corporation could assume at pleasure as an unregistered trade name the name of another
corporation, this practice would result in confusion and open the door to frauds and
evasions and difficulties of administration and supervision. The policy of the law as
expressed in our corporation statute and the Code of Commerce is clearly against such a
practice. (Cf. Scarsdale Pub. Co. Colonial Press vs. Carter, 116 New York Supplement,
731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate Courts], 428, 434.)"
In other words, what We have held to be contrary to public policy is the use by one
corporation of the name of another corporation as its trade name. We are certain no one
will disagree that such an act can only "result in confusion and open the door to frauds
and evasions and difficulties of administration and supervision." Surely, the Red Line case
was not one of change of name.
Neither can We share the posture of His Honor that the change of name of a corporation
results in its dissolution. There is unanimity of authorities to the contrary.
"An authorized change in the name of a corporation has no more effect upon its identity
as a corporation than a change of name of a natural person has upon his identity. It does
not affect the rights of the corporation or lessen or add to its obligations. After a
corporation has effected a change in its name it should sue and be sued in its new name .
. ." (13 Am. Jur. 276-277, citing cases.)
"A mere change in the name of a corporation, either by the legislature or by the
corporators or stockholders under legislative authority, does not, generally speaking,
affect the identity of the corporation, nor in any way affect the rights, privileges, or
obligations previously acquired or incurred by it. Indeed, it has been said that a change of
name by a corporation has no more effect upon the identity of the corporation than a
change of name by a natural person has upon the identity of such person. The
corporation, Upon such change in its name, is in no sense a new corporation, nor the
successor of the original one, but remains and continues to be the original corporation. It
is the same corporation with a different name, and its character is in no respect changed .
. ."(6 Fletcher, Cyclopedia of the Law of Private Corporations, 224-225, citing cases.)
"The change in the name of a corporation has no more effect upon its identity as a
corporation than a change of name of a natural person has upon his identity. It does not
affect the rights of the corporation, or lessen or add to its obligations.
"England. Doe v. Norton, 11 M. & W. 913, 7 Jur. 751, 12 L.J. Exch. 418.
"United States. Metropolitan Nat. Bank v. Claggett, 141 U.S. 520, 12 S. Ct. 60, 35 U.S. (L.
ed.) 841.
"Alabama. Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17 So. 670; North Birmingham
Lumber Co. v. Sims, 157 Ala. 595, 48 So. 84.
"Connecticut. Trinity Church v. Hall, 22 Com. 125.
"Illinois. Mt. Palatine Academy v. Kleinschnitz, 28 Ill. 133; St. Louis, etc. R. Co. v. Miller,
43 Ill. 199; Reading v. Wedder, 66 Ill. 80.
"Indiana. Rosenthal v. Madison, etc., Plank Road Co., 10 Ind. 358.
"Kentucky. Cahill v. Bigger, 8 B. Mon. 211; Wilhite v. Convent of Good Shepherd, 177
Ky. 251, 78 S. W. 138.
Maryland. Phinney v. Sheppard & Enoch Pratt Hospital, 88 Md. 633, 42 Atl. 58, writ of
error dismissed, 177 U.S. 170 20 S. Ct. 573, 44 U.S. (L. ed.) 720.
"Missouri. Dean v. La Motte Lead Co., 59 Mo. 523.
"Nebraska. Carlon v. City Sav. Bank, 82 Neb. 582, 188 N. W. 334.
"New York. First Soc. of M.E. Church v. Brownell, 5 Hun 464.
"Pennsylvania. Com. v. Pittsburgh, 41 Pa. St. 278.
"South Carolina. South Carolina Mut. Ins. Co. v. Price 67 S.C. 207, 45 S.E. 173.
"Virginia. Wilaon v. Chesapeake, etc., R. Co., 21: Gratt, 654; Wright-Caesar Tobacco Co.
v. Hoen, 105 Va. 327, 54 S.E. 309.
"Washington. King v. Ilwaco R. etc., Co., 1 Wash. 127, 23 Pac. 924.
"Wisconsin. Racine County Bank v. Ayers, 12 Wis. 512.
"The fact that the corporation by its old name makes a formal transfer of its property to
the corporation by its new name does not of itself show that the change in name has
affected a change in the identity of the corporation. Palfrey v. Association for Relief, etc.,
110 La. 452, 34 So. 600. The fact that a corporation organized as a state bank afterwards
becomes a national bank by complying with the provisions of the National Banking Act,
and changes its name accordingly, has no effect on its right to sue upon obligations or
liabilities incurred to it by its former name. Michigan Ins. Bank v. Eldred, 143 U.S. 293, 12
S. Ct. 450, 36 U.S. (L. ed.) 162.
"A deed of land to a church by a particular name has been held not to be affected by the
fact that the church afterwards took a different name. Cahill v. Bigger, 8 B. Mon. (ky) 211.
"A change in the name of a corporation is not a divestiture of title or such a change as
requires a regular transfer of title to property, whether real or personal, from the
corporation under one name to the same corporation under another name. McCloskey v.
Doherty, 97 Ky. 300, 30 S. W. 649." (19 American and English Annotated Cases 1242-
1243.)
As was very aptly said in Pacific Bank v. De Ro, 37 Cal. 538, "The changing of the name of a
corporation is no more the creation of a corporation than the changing of the name of a
natural person is the begetting of a natural person. The act, in both cases, would seem to
be what the language which we use to designate it imports a change of name, and not
a change of being."
Having arrived at the above conclusion, We have to agree with appellant's pose that the
lower court also erred in holding that it is not the right party in interest to sue
defendants-appellees. 4 As correctly pointed out by appellant, the approval by the
stockholders of the amendment of its articles of incorporation changing the name "The
Yek Tong Lin Fire & Marine Insurance Co., Ltd." to "Philippine First Insurance Co., Inc." on
March 8, 1961, did not automatically change the name of said corporation on that date.
To be effective, Section 18 of the Corporation Law, earlier quoted, requires that "a copy of
the articles of incorporation as amended, duly certified to be correct by the president and
the secretary of the corporation and a majority of the board of directors or trustees, shall
be filed with the Securities & Exchange Commissioner", and it is only from the time of
such filing, that "the corporation shall have the same powers and it and the members and
stockholders thereof shall thereafter be subject to the same liabilities, as if such
amendment had been embraced in the original articles of incorporation." It goes without
saying then that appellant rightly acted in its old name when on May 15, 1961, it entered
into the indemnity agreement, Annex A, with the defendants-appellees; for only after the
filing of the amended articles of incorporation with the Securities & Exchange Commission
on May 26, 1961, did appellant legally acquire its new name; and it was perfectly right for
it to file the present case in that new name on December 6, 1961. Such is, but the logical
effect of the change of name of the corporation upon its actions.
"Actions brought by a corporation after it has changed its name should be brought under
the new name although for the enforcement of rights existing at the time the change was
made. Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591,17 So. 670; Newlan v. Lombard
University, 62 Ill. 195; Thomas v. Visitors of Frederick County School, 7 Gill & J (M.d.) 388;
Delaware, etc., R. Co. v. Irick, 23 N. J. L. 321; Northumberland County Bank v. Eyer, 60 Pa.
St. 436; Wilson v. Chesapeake, etc., R. Co., 21 Gratt. (Va.) 654.
"The change in the name of the corporation does not affect its right to bring an action on
a note given to the corporation under its former name. Cumberland College v. Ish. 22 Cal
641; Northwestern College v. Schwagler, 37 Ia. 577." (19 American and English Annotated
Cases 1243.)
In consequence, We hold that the lower court erred in dismissing appellant's complaint.
We take this opportunity, however, to express the Court's feeling that it is apparent that
appellee's position is more technical than otherwise. Nowhere in the record is it seriously
pretended that the indebtedness sued upon has already been paid. If appellees
entertained any fear that they might against be made liable to Yek Tong Lin Fire & Marine
Insurance Co. Ltd., or to someone else in its behalf, a cursory examination of the records
of the Securities & Exchange Commission would have sufficed to clear up the fact that Yek
Tong Lin had just changed its name but it had not ceased to be their creditor. Everyone
should realize that when the time of the courts is utilized for cases which do not involve
substantial questions and the claim of one of the parties therein is based on pure
technicality that can at most delay only the ultimate outcome necessarily adverse to such
party because it has no real cause on the merits, grave injustice is committed to
numberless litigants whose meritorious cases cannot be given all the needed time by the
courts. We address this appeal once more to all members of the bar, in particular, since it
is their bounden duty to the profession and to our country and people at large to help
ease as fast as possible the clogged dockets of the courts. Let us not wait until the people
resort to other means to secure speedy, just and inexpensive determination of their
cases.

WHEREFORE, judgment of the lower court is reversed, and this case is remanded to the
trial court for further proceedings consistent herewith. With costs against appellees.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee
and Villamor, JJ., concur.
SECOND DIVISION "On the other hand, respondent's position is that the names of the two corporations are
not similar and even if there be some similarity, it is not confusing or deceptive; that the
[G.R. No. L-28351. July 28, 1977.] only reason that respondent changed its name was because it expanded its business to
include the manufacture of fabrics of all kinds; and that the word 'textile' in petitioner's
UNIVERSAL MILLS CORPORATION, petitioner, vs. UNIVERSAL TEXTILE MILLS, INC.,
name is dominant and prominent enough to distinguish the two. It further argues that
respondent.
petitioner failed to present evidence of confusion or deception in the ordinary course of
Emigdio G. Tanjuatco for petitioner. business; that the only supposed confusion proved by complainant arose out of an
extraordinary occurrence a disastrous fire." (pp. 16-17, Record.)
Picazo, Santayana, Reyes, Tayao & Alfonso for respondent.
Upon these premises, the Commission held:
DECISION
"From the facts proved and the jurisprudence on the matter, it appears necessary under
BARREDO, J p: the circumstances to enjoin the respondent Universal Mills Corporation from further
using its present corporate name. Judging from what has already happened, confusion is
Appeal from the order of the Securities and Exchange Commission in S.E.C. Case No. 1079,
not only apparent, but possible. It does not matter that the instance of confusion
entitled In the Matter of the Universal Textile Mills, Inc. vs. Universal Mills Corporation, a
between the two corporate names was occasioned only by a fire or an extraordinary
petition to have appellant change its corporate name on the ground that such name is
occurrence. It is precisely the duty of this Commission to prevent such confusion at all
"confusingly and deceptively similar" to that of appellee, which petition the Commission
times and under all circumstances not only for the purpose of protecting the corporations
granted.
involved but more so for the protection of the public.
According to the appealed order, "the Universal Textile Mills, Inc. was organized on
"In today's modern business life where people go by tradenames and corporate images,
December 29, 1953, as a textile manufacturing firm for which it was issued a certificate of
the corporate name becomes the more important. This Commission cannot close its eyes
registration on January 8, 1954. The Universal Mills Corporation, on the other hand, was
to the fact that usually it is the sound of all the other words composing the names of
registered in this Commission on October 27, 1954, under its original name, Universal
business corporations that sticks to the mind of those who deal with them. The word
Hosiery Mills Corporation, having as its primary purpose the 'manufacture and production
'textile' in Universal Textile Mills, Inc.' can not possibly assure the exclusion of all other
of hosieries and wearing apparel of all kinds.' On May 24, 1963, it filed an amendment to
entitles with similar names from the mind of the public especially so, if the business they
its articles of incorporation changing its name to Universal Mills Corporation, its present
are engaged in are the same, like in the instant case.
name, for which this Commission issued the certificate of approval on June 10, 1963.
"This Commission further takes cognizance of the fact that when respondent filed the
"The immediate cause of this present complaint, however, was the occurrence of a fire
amendment changing its name to Universal Mills Corporation, it correspondingly filed a
which gutted respondent's spinning mills in Pasig, Rizal. Petitioner alleged that as a result
written undertaking dated June 5, 1963 and signed by its President, Mr. Mariano Cokiat,
of this fire and because of the similarity of respondent's name to that of herein
promising to change its name in the event that there is another person, firm or entity who
complainant, the news items appearing in the various metropolitan newspapers carrying
has obtained a prior right to the use of such name or one similar to it. That promise is still
reports on the fire created uncertainty and confusion among its bankers, friends,
binding upon the corporation and its responsible officers." (pp. 17-18, Record.)
stockholders and customers prompting petitioner to make announcements, clarifying the
real identity of the corporation whose property was burned. Petitioner presented It is obvious that the matter at issue is within the competence of the Securities and
documentary and testimonial evidence in support of this allegation. Exchange Commission to resolve in the first instance in the exercise of the jurisdiction it
used to possess under Commonwealth Act 287 as amended by Republic Act 1055 to
administer the application and enforcement of all laws affecting domestic corporations
and association, reserving to the courts only conflicts of judicial nature, and, of course,
the Supreme Court's authority to review the Commission's actuations in appropriate
instances involving possible denial of due process and grave abuse of discretion. Thus, in
the case at bar, there being no claim of denial of any constitutional right, all that We are
called upon to determine is whether or not the order of the Commission enjoining
petitioner to change its corporate name constitutes, in the light of the circumstances
found by the Commission, a grave abuse of discretion. LLjur

We believe it is not. Indeed, it cannot be said that the impugned order is arbitrary and
capricious. Clearly, it has rational basis. The corporate names in question are not identical,
but they are indisputably so similar that even under the test of "reasonable care and
observation as the public generally are capable of using and may be expected to exercise"
invoked by appellant, We are apprehensive confusion will usually arise, considering that
under the second amendment of its articles of incorporation on August 14, 1964,
appellant included among its primary purposes the "manufacturing, dyeing, finishing and
selling of fabrics of all kinds" in which respondent had been engaged for more than a
decade ahead of petitioner. Factually, the Commission found existence of such confusion,
and there is evidence to support its conclusion. Since respondent is not claiming damages
in this proceeding, it is, of course, immaterial whether or not appellant has acted in good
faith, but We cannot perceive why of all names, it had to choose a name already being
used by another firm engaged in practically the same business for more than a decade
enjoying well earned patronage and goodwill, when there are so many other appropriate
names it could possibly adopt without arousing any suspicion as to its motive and, more
importantly, any degree of confusion in the mind of the public which could mislead even
its own customers, existing or prospective. Premises considered, there is no warrant for
our interference.

As this is purely a case of injunction, and considering the time that has elapsed since the
facts complained of took place, this decision should not be deemed as foreclosing any
further remedy which appellee may have for the protection of its interests.

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

Fernando (Chairman), Antonio, Aquino, Concepcion, Jr. and Santos, JJ., concur.
FIRST DIVISION
[G.R. No. 15429. December 1, 1919.]
UY SIULIONG, MARIANO LIMJAP, GACU UNG JIENG, EDILBERTO CALIXTO and UY CHO YEE,
petitioners, vs. THE DIRECTOR OF COMMERCE AND INDUSTRY, respondent.
Kincaid & Perkins for petitioners.
Attorney-General Paredes for respondent.
SYLLABUS
1. MANDAMUS TO REQUIRE THE DIRECTOR OF COMMERCE AND INDUSTRY TO FILE
AND REGISTER ARTICLES OF INCORPORATION UPON PAYMENT OF THE LAWFUL FEES.
Held: That under the laws of the Philippine Islands, a corporation may by organized for
"mercantile purposes" and to engage in such incidental business as may be necessary and
advisable to give effect to, and aid in, the successful operation and conduct of the
principal business; that all of the power and authority included in the articles of
incorporation of Siuliong & Co., Inc., were only incidental to the principal purpose of its
proposed incorporation, to wit: "mercantile business."
DECISION
JOHNSON, J p:
The purpose of this action is to obtain the writ of mandamus to require the respondent to
file and register, upon the payment of the lawful fee, articles of incorporation, and to
issue to the petitioners as the incorporators of a certain corporation to be known as
"Siuliong y Compania, Inc.," a certificate under the seal of the office of said respondent,
certifying that the articles of incorporation have been duly filed and registered in his
office in accordance with the law.
To the petition the respondent demurred and the cause was finally submitted upon the
petition and demurrer. The important facts necessary for the solution of the question
presented, which are found in the petition, may be stated as follows:
1. That prior to the presentation of the petition the petitioners had been associated
together as partners, which partnership was known as a "mercantile regular colectiva,"
under the style and firm name of "Siuliong y Cia.;"
2. That the petitioners herein, who had theretofore been members of said
partnership of "Siuliong y Cia.," desired to dissolve said partnership and to form a
corporation composed of the same persons as incorporators, to be known as "Siuliong y
Compania, Incorporada;"
3. That the purpose of said corporation, "Siuliong y Cia., Inc.," is (a) to acquire the
business of the partnership theretofore known as Siuliong & Co., and (b) to continue said
business with some of its objects or purposes;
4. That an examination of the articles of incorporation of the said "Siuliong y
Compania, Incorporada" (Exhibit A) shows that it is to be organized for the following
purposes:
(a) The purchase and sale, importation and exportation, of the products of the
country as well as of foreign countries;
(b) To discount promissory notes, bills of exchange, and other negotiable
instruments;
(c) The purchase and sale of bills of exchange, bonds, stocks, or "participaciones de
sociedades mercantiles e industriales [joint account of mercantile and industrial
associations]," and of all classes of mercantile documents; "comisiones [commissions] ;"
"consignaciones [consignments];"
(d) To act as agents for life, marine, and fire insurance companies;
(e) To purchase and sell boats of all classes "y fletamento de los mismos tand
charterage of same] ;" and
(f) To purchase and sell industrial and mercantile establishments.
While the articles of incorporation of "Siuliong y Cia., Inc." states that its purpose is to
acquire and continue the business, with some of its objects or purposes, of Siuliong & Co.,
it will be found upon an examination of the purposes enumerated in the proposed articles
of incorporation of "Siuliong y Cia., Inc.," that some of the purposes of the original
partnership of "Siuliong y Cia." have been omitted. For example, the articles of
partnership of "Siuliong y Cia. gave said company the authority to purchase and sell all
classes "de fincas rusticas y urbanas [of rural and city real estate]" as well as the right to
act as agents for the establishment of any other business which it might esteem
convenient for the interests of "la compania [the company] ". (Exhibit C).
The respondent in his argument in support of the demurrer contends (a) that the
proposed articles of incorporation presented for file and registry permitted the
petitioners to engage in a business which had for its end more than one purpose; (b) that
it permitted the petitioners to engage in the banking business, and (c) to deal in real
estate, in violation of the Act of Congress of July 1, 1902.
The petitioners, in reply to said argument of the respondent, while insisting that said
proposed articles of incorporation do not permit it to enter into the banking business nor
to engage in the purchase and sale of real estate in violation of said Act of Congress,
expressly renounced in open court their right to engage in such business under their
articles of incorporation, even though said articles might be interpreted in a way to
authorize them so to do. That renouncement on the part of the petitioners eliminates
from the purposes of said proposed corporation (of "Siuliong y Cia., Inc.") any right to
engage in the banking business as such, or in the purchase and sale of real estate.
We come now to the consideration of the principal question raised by the respondent, to
wit: that the proposed articles of incorporation of "Siuliong y Cia., Inc.," permits it to
engage in a business with more than one purpose.
If upon an examination of the articles of incorporation we find that its purpose is to
engage in a business with but one principal purpose, then that contention of the
respondent will have been answered and it will be unnecessary to discuss at length the
question whether or not a corporation organized for commercial purposes in the
Philippine Islands can be organized for more than one purpose.
The attorney for the respondent, at the time of the argument, admitted in open court
that corporations in the Philippine Islands might be organized for both the "importation
and exportation" of merchandise and that there might be no relation between the kind of
merchandise imported with the class of merchandise exported.
Referring again to the proposed articles of incorporation, a copy of which is united with
the original petition and marked Exhibit A, it will be seen that the only purposes of said
corporation are those enumerated in subparagraphs (a), (b), (c), (d), (e) and (f) of
paragraph 4 above. While said articles of incorporation are somewhat loosely drawn, it is
clear from a reading of the same that the principal purpose of said corporation is to
engage in a mercantile business, with the power to do and perform the particular acts
enumerated in said subparagraphs above referred to.
Without discussing or deciding at this time whether a corporation organized under the
laws of the Philippine Islands may be organized for more than one purpose, we are of the
opinion and so decide that a corporation may be organized under the laws of the
Philippine Islands for mercantile purposes, and to engage in such incidental business as
may be necessary and advisable to give effect to, and aid in, the successful operation and
conduct of the principal business.
In the present case we are fully persuaded that all of the power and authority included in
the articles of incorporation of "Siuliong J Cia., Inc.," enumerated above in paragraph 4
(Exhibit A) are only incidental to the principal purpose of said proposed incorporation, to
wit: "mercantile business." The purchase and sale, importation and exportation of the
products of the country, as well as of foreign countries, might make it necessary to
purchase and discount promissory notes, bills of exchange, bonds, negotiable
instruments, stock, and interest in other mercantile and industrial associations. It might
also become important and advisable for the successful operation of the corporation to
act as agent for insurance companies as well as to buy, sell and equip boats and to buy
and sell other establishments. and industrial and mercantile businesses.
While we have arrived at the conclusion that the proposed articles of incorporation do
not authorize the petitioners to engage in a business with more than one purpose, we do
not mean to be understood as having decided that corporations under the laws of the
Philippine Islands may not engage in a business with more than one purpose. Such an
interpretation might work a great injustice to corporations organized under the Philippine
laws. Such an interpretation would give foreign corporations, which are permitted to be
registered under the laws here and which may be organized for more than one purpose, a
great advantage over domestic corporations. We do not believe that it was the intention
of the legislature to give foreign corporations such an advantage over domestic
corporations.
Considering the particular purposes and objects of the proposed articles of incorporation
which are specially enumerated above, we are of the opinion that it contains nothing
which violates in the slightest degree any of the provisions of the laws of the Philippine
Islands, and the petitioners are, therefore, entitled to have such articles of incorporation
filed and registered as prayed for by them and to have issued to them a certificate under
the seal of the office of the respondent, setting forth that such articles of incorporation
have been duly filed in his office. (Sec. 11, Act No. 1459.)
Therefore, the petition prayed for is hereby granted, and without any finding as to costs,
it is so ordered.
Arellano, C. J., Torres and Avancea, JJ., concur.
Separate Opinions
STREET, J., concurring:
The petitioners in this case are desirous of forming a corporation to take over and
continue a business which for a number of years has been conducted in the city of Manila
as an ordinary collective mercantile partnership under the name of "Siuliong y Compania."
To this end it is necessary that the articles of incorporation should be filed in the office of
the Director of Commerce and Industry, who, it appears, has withheld approval of the
articles submitted to him and has refused to file the same in his office.
The position taken by the Director of Commerce and Industry is that the articles of the
proposed corporation state more than one corporate purpose, contrary to the provisions
of Act No. 1459 (the Corporation Law). In order to ascertain whether this contention is
sound it becomes necessary to examine the provision contained in the proposed articles
in relation with the requirements of the Act mentioned.
The purposes for which the corporation is to be formed are stated in the second clause of
the proposed articles in the following language:
"Second. That the object for which said corporation is organized are: to acquire
the business of the regular partnership 'Siuliong y Compania,' and to continue operating
said business in all its parts, and, incidental to the principal object, the corporation shall
have powers to transact the following: the buying and selling, importation and
exportation, of native as well as foreign merchandise; the discount of promissory notes,
bills of exchange and other negotiable instruments; the buying and selling of bills of
exchange, bonds, shares, and interests in mercantile and industrial partnerships;
commissions; consignments; life, maritime, and fire insurance: the buying and selling of
vessels of all kinds and charterage of same; and the buying and selling of industrial or
mercantile plants."
This language is substantially a reproduction of the fourth clause of the partnership
articles under which the business of Siuliong & Company is being now conducted, as may
be seen by a comparison with the wording of said fourth clause, which is as follows:
"Fourth. The object of the partnership shall be the continuation of all the business of the
partnership 'Siuliong y Compania' which is dissolved on this date, June 30 1916, or rather
the buying and selling, the importation and exportation, of native as well as foreign
products; the buying and selling of bills of exchange and of all kinds of commercial
documents; commissions; consignments; maritime and fire insurance; the buying and
selling of all kinds of rural and city real estate, as well as vessels of all kinds and their
charterage; and the manager is hereby authorized to organize any other kind of business
which he may deem convenient for the company's interest."
It must be admitted that the second clause of the proposed articles of incorporation is
expressed in a way which invites criticism; and if I may be permitted so to suggest the
provision would have been better conceived if it had started off something like this:
"The general object of this corporation is to engage in commercial activities, such as the
buying and selling of merchandise and commodities of every kind; the importation and
exportation thereof; the conduct of the business of commission merchants, consignees,
and insurance agencies; the buying and selling of boats and the chartering thereof, as well
as the buying and selling of industrial and mercantile plants; etc., etc."
In setting out the corporate purpose with a view to defining the legitimate range of the
faculties of the corporation, it is undesirable to state that its primary purpose is to take
over the business of some existing concern. Undoubtedly a corporation may obtain its
capital and draw its resources from a prior enterprise, but it acquires such business by
transfer; and the nature of the activities of the older business has no bearing on the
faculties of the new corporation. All the powers that a corporation can lawfully exercise
are derived from the state by virtue of the laws governing the creation and conduct of
corporations.
Now, what are the limits upon the activities for which a corporation may be created? The
answer is to be found, if anywhere, in the Corporation Law. The first chapter of that law
deals with corporations in general and contains the provisions common to all
corporations. In the second chapter are found various special provisions applicable to
particular forms of corporate activities. Of these there are several varieties, to wit,
railroad corporations, savings and mortgage banks, banking corporations, trust
corporations, domestic insurance corporations, religious corporations, colleges and
institutions of learning, and building and loan corporations.
It is obvious that no single corporation can be permitted to exercise the mixed functions
of more than one of these classes; and the Director of Commerce and Industry would be
clearly acting within his power in rejecting any proposed articles of a corporation which
confers or appears to confer powers particularly appropriate to more than one of these
forms of corporate enterprise.
Aside from the lines that are laid down in the fundamental classification contained in the
Corporation Law, there seems to be no limit upon the legitimate activities of corporate
enterprise. For instance, a corporation organized for commercial purposes can lawfully
engage in any one of the thousand or more activities which may be imagined under the
head of commercial; but it must abstain from activities peculiar to the forms of corporate
enterprise for which special provisions are made.
business of stock-broking might not be lawfully combined under one corporate charter
with the other mercantile activities mentioned in the second clause of the articles.
On the whole, as I understand the opinion written by Justice Johnson, this court intends
to hold that the second clause of the proposed articles, when properly interpreted, means
that the company to be formed intends primarily to dedicate itself to industrial and
mercantile activities, as its principal object, and that the other activities mentioned are
purely subordinate. I have no special criticism to make of this view; and inasmuch as the
interpretation which the court thus places upon the proposed charter removes the
possibility that the corporation may, under the protection thereof, engage in illegitimate
lines of enterprise, I am content to express my concurrence in the result reached by the
court. But I really think the proposed articles ought to be amended.

This implies that the word "purpose" as used in the expression "the purpose for which the MALCOLM, J., concurs in the result, reserving his opinion concerning the suggestion in the
corporation is formed," in subsection 2 of section 6 of the Corporation Law, may properly third paragraph from the last of the principal decision.
be conceived as including the plural as well as the singular. But the purposes, when there
are more than one, must be capable of being lawfully combined, that is not obnoxious to
the classification created by the law.

It is not necessary, and indeed will rarely be found desirable, to attempt to set out in the
articles of incorporation the multitude of activities in which the corporation can engage
incidentally, as reasonably necessary to accomplish the purpose or purposes for which the
corporation was primarily formed. There is general authority for the exercise of all such
implied powers in section 13 of the Corporation Law, and they need not be expressed.

Returning now to the second clause of the proposed articles of incorporation for "Siuliong
y Compania, Incorporated." I entertain a doubt as to the propriety of admitting into that
document the words "discount of notes, bills, and other negotiable documents" and "the
buying and selling of bills, bonds, stocks, and shares of mercantile and industrial
partnerships, as well as mercantile documents of every sort." The reason simply is that in
so far as it is necessary to engage in these activities for the accomplishment of the general
purposes of the corporation, it may all be done in the exercise of the implied power
expressed in section 13; and the insertion into the articles of the words quoted may give
rise to the inference that the incorporators may desire to engage in a line of business
appropriate only to corporations created for banking purposes. (See sec. 116 of Act No.
1459.) On the other hand, it may be said that the activities expressed in the words quoted
are those peculiar to the business of stock-brokers; and one reason is apparent why the
EN BANC
[G.R. No. L-22238. February 18, 1967.]
CLAVECILLA RADIO SYSTEM, petitioner-appellant, vs. HON. AGUSTIN ANTILLON, as City
Judge of the Municipal Court of Cagayan de Oro City and NEW CAGAYAN GROCERY,
respondents-appellees.
B. C . Padua for petitioner-appellant.
Pablo S. Reyes for respondents-appellees.
SYLLABUS
1. VENUE OF ACTIONS; INFERIOR COURTS; ACTIONS BASED ON TORT. Where the
action is based on tort the venue of action is in the municipality where the defendant or
any of the defendants resides or may be served with summons. (Rule 4, Sec. 1(b) (3) New
rule.) cdasia
2. ID.; SUIT AGAINST CORPORATION; CASE AT BAR. Settled is the principle in
corporation law that the residence of the corporation is the place where its principal
office is established. The defendant Clavecilla Radio System has its principal Office in
Manila, it follows that the suit against it may properly be filed in the city of Manila. The
fact that it maintains branch offices in some parts of the country does not mean that it
can be sued in any of these places. To allow an action to be instituted in any place where
a corporate entity has its branch offices would create confusion and work untold
inconvenience to the corporation.
3. ID.; PHRASE "MAY BE SERVED WITH SUMMONS" INTERPRETED. The term
"may be served with summons" does not apply when the defendant resides in the
Philippines for, in such case, he may be sued only in the municipality of his residence,
regardless of the place where he may be found and served with summons.
4. ID.; PLAINTIFF MAY NOT FIX VENUE OF ACTION. The laying of the venue of an
action is not left to plaintiff's caprice because the matter is regulated by the Rules of
Court.
DECISION
REGALA, J p:
This is an appeal from an order of the Court of First Instance of Misamis Oriental
dismissing the petition of the Clavecilla Radio System to prohibit the City Judge of
Cagayan de Oro from taking cognizance of Civil Case No. 1048 for damages. cda
It appears that on June 22, 1963, the New Cagayan Grocery filed a complaint against the
Clavecilla Radio System, alleging, in effect, that on March 12, 1963, the following
message, addressed to the former, was filed at the latter's Bacolod Branch Office for
transmittal thru its branch office at Cagayan de Oro:
"NECAGRO
CAGAYANDEORO (CLAVECILLA)
REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE SHALL SHIP
LATER REPLY
POHANG"
The Cagayan de Oro branch office having received the said message omitted, in delivering
the same to the New Cagayan Grocery, the word "NOT" between the words "WASHED"
and "AVAILABLE," thus changing entirely the contents and purport of the same and
causing the said addressee to suffer damages. After service of summons, the Clavecilla
Radio System filed a motion to dismiss the complaint on the grounds that it states no
cause of action and that the venue is improperly laid. The New Cagayan Grocery
interposed an opposition to which the Clavecilla Radio System filed its rejoinder.
Thereafter, the City Judge, on September 18, 1963, denied the motion to dismiss for lack
of merit and set the case for hearing.
Hence, the Clavecilla Radio System filed a petition for prohibition with preliminary
injunction with the Court of First Instance praying that the City Judge, Honorable Agustin
Antillon, be enjoined from further proceeding with the case on the ground of improper
venue. The respondents filed a motion to dismiss the petition but this was opposed by the
petitioner. Later, the motion was submitted for resolution on the pleadings.
In dismissing the case, the lower court held that the Clavecilla Radio System may be sued
either in Manila where it has its principal office or in Cagayan de Oro City where it may be
served, as in fact it was served, with summons through the Manager of its branch office in
said city. In other words, the court upheld the authority of the city court to take
cognizance of the case.
In appealing, the Clavecilla Radio System contends that the suit against it should be filed
in Manila where it holds its principal office. LLjur

It is clear that the case for damages filed with the city court is based upon tort and not
upon a written contract. Section 1 of Rule 4 of the New Rules of Court, governing venue of
action in inferior courts, provides in its paragraph (b) (3) that when "the action is not upon
a written contract, then in the municipality where the defendant or any of the defendants
resides or may be served with summons." (Emphasis supplied)

Settled is the principle in corporation law that the residence of a corporation is the place
where its principal office is established. Since it is not disputed that the Clavecilla Radio
system has its principal office in Manila, it follows that the suit against it may properly be
filed in the City of Manila.

The appellees maintain, however, that with the filing of the action in Cagayan de Oro City,
venue was properly laid on the principle that the appellant may also be served with
summons in that city where it maintains a branch office. This Court has already held in the
case of Cohen vs. Benguet Commercial Co., Ltd., 34 Phil. 526, that the term "may be
served with summons" does not apply when the defendant resides in the Philippines for,
in such case, he may be sued only in the municipality of his residence, regardless of the
place where he may be found and served with summons. As any other corporation, the
Clavecilla Radio System maintains a residence which is Manila in this case, and a person
can have only one residence at a time (See Alcantara vs. Secretary of the Interior, 61 Phil.
459; Evangelista vs. Santos, 86 Phil. 387). The fact that it maintains branch offices in some
parts of the country does not mean that it can be sued in any of these places. To allow an
action to be instituted in any place where a corporate entity has its branch offices would
create confusion and work untold inconvenience to the corporation.

It is important to remember, as was stated by this Court in Evangelista vs. Santos, et al.,
supra, that the laying of the venue of an action is not left to plaintiff's caprice because the
matter is regulated by the Rules of Court. Applying the provision of the Rules of Court, the
venue in this case was improperly laid.

The order appealed from is therefore reversed, but without prejudice to the filing of the
action in which the venue shall be laid properly. With costs against the respondents-
appellees. LLphil

Concepcion, C .J ., Reyes, J .B.L., Dizon, Makalintal, Bengzon, J .P., Zaldivar, Sanchez and
Castro, JJ ., concur.
EN BANC
[G.R. No. L-23606. July 29, 1968.]
ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC., petitioner, vs.
SECURITIES & EXCHANGE COMMISSION, respondent.
Gamboa & Gamboa for petitioner.
Solicitor General for respondent.
SYLLABUS
1. COMMERCIAL LAW; CORPORATION LAW; TERM OF EXISTENCE; CORPORATIONS
CAN EXTEND CORPORATE EXISTENCE ONLY ON OR BEFORE THE EXPIRATION OF THE TERM
FIXED IN THEIR CHARTERS. The corporate existence of the corporation expired on
January 15, 1962, and during the statutory three-year period for its liquidation or on June
20, 1963, Rep. Act No. 3531 took effect, empowering domestic private corporations to
extend their corporate life beyond the period fixed by the articles of incorporation for a
term not to exceed fifty years in any one instance. Under such circumstance, said
corporation cannot avail itself thereof.
DECISION
SANCHEZ, J p:
To the question May a corporation extend its life by amendment of its articles of
incorporation effected during the three-year statutory period for liquidation when its
original term of existence had already expired? the answer of the Securities and
Exchange Commissioner was in the negative. Offshoot is this appeal.
That problem emerged out of the following controlling facts:
Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter
referred to simply as Alhambra) was duly incorporated under Philippine laws on January
15, 1912. By its corporate articles it was to exist for fifty (50) years from incorporation. Its
term of existence expired on January 15, 1962. On that date, it ceased transacting
business, entered into a state of liquidation.
Thereafter, a new corporation Alhambra Industries, Inc. was formed to carry on the
business of Alhambra.
On May 1, 1962, Alhambra's stockholders, by resolution, named Angel S. Gamboa trustee
to take charge of its liquidation.
On June 20, 1963 within Alhambra's three-year statutory period for liquidation
Republic Act 3531 was enacted into law. It amended Section 18 of the Corporation Law; it
empowered domestic private corporations to extend their corporate life beyond the
period fixed by the articles of incorporation for a term not to exceed fifty years in any one
instance. Previous to Republic Act 3531, the maximum non- extendible term of such
corporations was fifty years.
On July 15, 1963, at a special meeting, Alhambra's board of directors resolved to amend
paragraph "Fourth" of its articles of incorporation to extend its corporate life for an
additional fifty years, or a total of 100 years from its incorporation.
On August 26, 1963, Alhambra's stockholders, representing more than two-thirds of its
subscribed capital stock, voted to approve the foregoing resolution. The "Fourth"
paragraph of Alhambra's articles of incorporation was thus altered to read:
"FOURTH. That the term for which said corporation is to exist is fifty (50) years
from and after the date of incorporation, and for an additional period of fifty (50) years
thereafter".
On October 28, 1963, Alhambra's articles of incorporation as so amended, certified
correct by its president and secretary and a majority of its board of directors, were filed
with respondent Securities and Exchange Commission (SEC).
On November 18, 1963, SEC, however, returned said amended articles of incorporation to
Alhambra's counsel with the ruling that Republic Act 3531 "which took effect only on June
20, 1963, cannot be availed of by the said corporation, for the reason that its term of
existence had already expired when the said law took effect; in short, said law has no
retroactive effect."
On December 3, 1963, Alhambra's counsel sought reconsideration of SEC's ruling
aforesaid, refiled the amended articles of incorporation.
On September 8, 1964, SEC, after a conference-hearing, issued an order denying the
reconsideration sought.
Alhambra now invokes the jurisdiction of this Court to overturn the conclusion below. 1
1. Alhambra relies on Republic Act 3531, which mended Section 18 of the
Corporation Law. Well it is to take note of the old and the new statutes as they are
framed. Section 18, prior to and after its modification by Republic Act 3531, covers the
subject of amendment of the articles of incorporation of private corporations. A provision
thereof which remains unaltered is that a corporation may amend its articles of
incorporation "by a majority vote of its board of directors or trustees and . . . by the vote
or written assent of the stockholders representing at least two-thirds of the subscribed
capital stock . . ."
But prior to amendment by Republic Act 3531, an explicit prohibition existed in Section
18, thus:
". . . Provided, however, That the life of said corporation shall not be extended by said
amendment beyond the time fixed in the original articles: . . ."
This was displaced by Republic Act 3531 which enfranchises all private corporations to
extend their corporate existence. Thus incorporated into the structure of Section 18 are
the following:
". . . Provided however, That should the amendment consist in extending the corporate
life, the extension shall not exceed fifty years in any one instance: Provided, further, That
the original articles, and amended articles together shall contain all provisions required by
law to be set out in the articles of incorporation: . . ."
As we look in retrospect at the facts, we find these: From July 15 to October 28, 1963,
when Alhambra made its attempt to extend its corporate existence, its original term of
fifty years had already expired (January 15, 1962); it was in the midst of the three-year
grace period statutorily fixed in Section 77 of the Corporation Law, thus:
"SEC. 77. Every corporation whose charter expires by its own limitation or is
annulled by forfeiture or otherwise, or whose corporate existence for other purposes is
terminated in any other manner, shall nevertheless be continued as a body corporate for
three years after the time when it would have been so dissolved, for the purpose of
prosecuting and defending suits by or against it and of enabling it gradually to settle and
close its affairs, to dispose of and convey its property and to divide its capital stock, but
not for the purpose of continuing the business for which it was established". 2
Plain from the language of this provision is its meaning: continuance of a "dissolved"
corporation as a body corporate for three years has for its purpose the final closure of its
affairs, and no other; the corporation is specifically enjoined from "continuing the
business for which it was established". The liquidation of the corporation's affairs set
forth in Section 77 became necessary precisely because its life had ended. For this reason
alone, the corporate existence and juridical personality of that corporation to do business
may no longer be extended.
Worth bearing in mind, at this juncture, is the basic development of corporation law.
The common law rule, at the beginning, was rigid and inflexible in that upon its
dissolution, a corporation became legally dead for all purposes. Statutory authorizations
had to be provided for its continuance after dissolution "for limited and specified
purposes incident to complete liquidation of its affairs." 3 Thus, the moment a
corporation's right to exist as an "artificial person" ceases, its corporate powers are
terminated "just as the powers of a natural person to take part in mundane affairs cease
to exist upon his death". 4 There is nothing left but to conduct, as it were, the settlement
of the estate of a deceased juridical person.
2. Republic Act 3531, amending Section 18 of the Corporation Law, is silent, it is
true, as to when such act of extension may be made. But even with a superficial
knowledge of corporate principles, it does not take much effort to reach a correct
conclusion. For, implicit in Section 77 heretofore quoted is that the privilege given to
prolong corporate life under the amendment must be exercised before the expiry of the
term fixed in the articles of incorporation.
Silence of the law on the matter is not hard to understand. Specificity is not really
necessary. The authority to prolong corporate life was inserted by Republic Act 3531 into
a section of the law that deals with the power of a corporation to amend its articles of
incorporation. (For, the manner of prolongation is through an amendment of the articles.)
And, it should be clearly evident that under Section 77 no corporation in a state of
liquidation can act in any way, much less amend its articles, "for the purpose of
continuing the business for which it was established".
All these dilute Alhambra's position that it could revivify its corporate life simply because
when it attempted to do so, Alhambra was still in the process of liquidation. It is surely
impermissible for us to stretch the law that merely empowers a corporation to act in
liquidation to inject therein the power to extend its corporate existence.
3. Not that we are alone in this view. Fletcher has written: "Since the privilege of
extension is purely statutory, all of the statutory conditions precedent must be complied
with in order that the extension may be effectuated. And, generally these conditions must
be complied with, and the steps necessary to effect the extension must be taken, during
the life of the corporation, and before the expiration of its term of existence as originally
fixed by its charter or the general law, since, as a rule, the corporation is ipso facto
dissolved as soon as that time expires. So where the extension is by amendment of the
articles of incorporation, the amendment must be adopted before that time. And,
similarly, the filing and recording of a certificate of extension after that time cannot relate
back to the date of the passage of a resolution by the stockholders in favor of the
extension so as to save the life of the corporation. The contrary is true, however, and the
doctrine of relation will apply, where the delay is due to the neglect of the officer with
whom the certificate is required to be filed, or to a wrongful refusal on his part to receive
it. And statutes in some states specifically provide that a renewal may be had within a
specified time before or after the time fixed for the termination of the corporate
existence". 5
The logic of this position is well expressed in a four-square case decided by the Court of
Appeals of Kentucky. 6 There, pronouncement was made as follows:
". . . But section 561 (section 2147) provides that, when any corporation expires by the
terms of its articles of incorporation, it may be thereafter continued to act for the
purpose of closing up its business, but for no other purpose. The corporate life of the
Home Building Association expired on May 3, 1905. After that date, by the mandate of the
statute, it could continue to act for the purpose of closing up its business, but for no other
purpose. The proposed amendment was not made until January 16, 1908, or nearly three
years after the corporation expired by the terms of the articles of incorporation. When
the corporate life of the corporation was ended, there was nothing to extend. Here it was
proposed nearly three years after the corporate life of the association had expired to
revivify the dead body, and to make that relate back some two years and eight months. In
other words, the association for two years and eight months had only existed for the
purpose of winding up its business, and, after this length of time, it was proposed to
revivify it and make it a live corporation for the two years and eight months during which
it had not been such.
The law gives a certain length of time for the filing of records in this court, and provides
that the time may be extended by the court, but under this provision it has uniformly
been held that when the time has expired, there is nothing to extend, and that the appeal
must be dismissed . . . So, when the articles of a corporation have expired, it is too late to
adopt an amendment extending the life of a corporation; for, the corporation having
expired, this is in effect to create a new corporation . . ." 7
True it is, that the Alabama Supreme Court has stated in one case, 8 that a corporation
empowered by statute to renew its corporate existence may do so even after the
expiration of its corporate life, provided renewal is taken advantage of within the
extended statutory period for purposes of liquidation. That ruling, however, is inherently
weak as persuasive authority for the situation at bar for at least two reasons: First. That
case was a suit for mandamus to compel a former corporate officer to turn over books
and records that came into his possession and control by virtue of his office. It was there
held that such officer was obliged to surrender his books and records even if the
corporation had already expired. The holding on the continued existence of the
corporation was a mere dictum. Second. Alabama's law is different. Corporations in that
state were authorized not only to extend but also to renew their corporate existence.
That very case defined the word "renew" as follows: "To make new again; to restore to
freshness; to make new spiritually; to regenerate; to begin again; to recommence; to
resume; to restore to existence; to revive; to re-establish; to recreate; to replace; to grant
or obtain an extension of. Webster's New International Dict; 34 Cyc. 1330; Carter v.
Brooklyn Life Ins. Co., 110 N.Y. 15, 21, 22; 17 N.E. 395; 54 C.J. 379, Sec." 9
On this point, we again draw from Fletcher: "There is a broad distinction between the
extension of a charter and the grant of a new one. To renew a charter is to revive a
charter which has expired, or, in other words, 'to give a new existence to one which has
been forfeited, or which has lost its vitality by lapse of time'. To 'extend' a charter is 'to
increase the time for the existence of one which would otherwise reach its limit at an
earlier period'". 10 Nowhere in our statute Section 18, Corporation Law, as amended
by Republic Act 3531 do we find the word "renew" in reference to the authority given
to corporations to protract their lives. Our law limits itself to extension of corporate
existence. And, as so understood, extension may be made only before the term provided
in the corporate charter expires.
Alhambra draws attention to another case 11 which declares that until the end of the
extended period for liquidation, a dissolved corporation "does not become an
extinguished entity". But this statement was obviously lifted out of context. That case
dissected the question whether or not suits can be commenced by or against a
corporation within its liquidation period. Which was answered in the affirmative. For, the
corporation still exists for the settlement of its affairs.
People, ex rel, vs. Green, 12 also invoked by Alhambra, is as unavailing. There, although
the corporation amended its articles to extend its existence at a time when it had no legal
authority yet, it adopted the amended articles later on when it had the power to extend
its life and during its original term when it could amend its articles.
The foregoing notwithstanding, Alhambra falls back on the contention that its case is
arguably within the purview of the law. It says that before cessation of its corporate life, it
could not have extended the same, for the simple reason that Republic Act 3531 had not
then become law. It must be remembered that Republic Act 3531 took effect on June 20,
1963, while the original term of Alhambra's existence expired before that date on
January 15, 1962. The mischief that flows from this theory is at once apparent. It would
certainly open the gates for all defunct corporations whose charters have expired even
long before Republic Act 3531 came into being to resuscitate their corporate existence.
4. Alhambra brings into argument Republic Act 1932, which amends Section 196 of
the Insurance Act, now reading as follows:
"SEC. 196. Any provision of law to the contrary notwithstanding, every domestic
life insurance corporation, formed for a limited period under the provisions of its articles
of incorporation, may extend its corporate existence for a period not exceeding fifty years
in any one instance by amendment to its articles of incorporation on or before the
expiration of the term so fixed in said articles . . ."
To be observed is that the foregoing statute unlike Republic Act 3531 expressly
authorizes domestic insurance corporations to extend their corporate existence "on or
before the expiration of the term" fixed in their articles of incorporation. Republic Act
1932 was approved on June 22, 1957, long before the passage of Republic Act 3531 in
1963. Congress, Alhambra points out, must have been aware of Republic Act 1932 when it
passed Republic Act 3531. Since the phrase "on or before" etc., was omitted in Republic
Act 3531, which contains no similar limitation, it follows, according to Alhambra, that it is
not necessary to extend corporate existence on or before the expiration of its original
term.
That Republic Act 3531 stands mute as to when extension of corporate existence may be
made, assumes no relevance. We have already said, in the face of a familiar precept, that
a defunct corporation is bereft of any legal faculty not otherwise expressly sanctioned by
law.
Illuminating here is the explanatory note of H.B. 1774, later Republic Act 3531 now in
dispute. Its first paragraph states that "Republic Act No. 1932 allows the automatic
extension of the corporate existence of domestic life insurance corporations upon
amendment of their articles of incorporation on or before the expiration of the terms
fixed by said articles". The succeeding lines are decisive: "This is a good law, a sane and
sound one. There appears to be no valid reason why it should not be made to apply to
other private corporations." 13
The situation here presented is not one where the law under consideration is ambiguous,
where courts have to put in harness extrinsic aids such as a look at another statute to
disentangle doubts. It is an elementary rule in legal hermeneutics that where the terms of
the law are clear, no statutory construction may be permitted. Upon the basic conceptual
scheme under which corporations operate, and with Section 77 of the Corporation Law
particularly in mind, we find no vagueness in Section 18, as amended by Republic Act
3531. As we view it, by directing attention to Republic Act 1932, Alhambra would seek to
create obscurity in the law; and, with that, ask of us a ruling that such obscurity be
explained. This, we dare say, cannot be done.
The pari materia rule of statutory construction, in fact, commands that statutes must be
harmonized with each other. 14 So harmonizing, the conclusion is clear that Section 18 of
the Corporation Law, as amended by Republic Act 3531 in reference to extensions of
corporate existence, is to be read in the same light as Republic Act 1932. Which means
that domestic corporations in general, as with domestic insurance companies, can extend
corporate existence only on or before the expiration of the term fixed in their charters.
5. Alhambra pleads for munificence in interpretation, one which brushes
technicalities aside. Bases for this posture are that Republic Act 3531 is a remedial
statute, and that extension of corporate life is beneficial to the economy.
Alhambra's stance does not induce assent. Expansive construction is possible only when
there is something to expand. At the time of the passage of Republic Act 3531, Alhambra's
corporate life had already expired. It had overstepped the limits of its limited existence.
No life there is to prolong.
Besides, a new corporation Alhambra Industries, Inc., with but slight change in
stockholdings 15 has already been established. Its purpose is to carry on, and it actually
does carry on, 16 the business of the dissolved entity. The beneficial-effects argument is
off the mark.
The way the whole case shapes up then, the only possible drawbacks to Alhambra might
be that, instead of the new corporation (Alhambra Industries, Inc.) being written off, the
old one (Alhambra Cigar & Cigarette Manufacturing Company, Inc.) has to be wound up;
and that the old corporate name cannot be retained fully in its exact form. 17 What is
important though is that the word Alhambra, the name that counts [it has goodwill],
remains.

FOR THE REASONS GIVEN, the ruling of the Securities and Exchange Commission of
November 18, 1963, and its order of September 8, 1964, both here under review, are
hereby affirmed.

Costs against petitioner Alhambra Cigar & Cigarette Manufacturing Company, Inc. So
ordered.

Concepcion, C. J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Angeles and Fernando,
JJ., concur.
SECOND DIVISION
[G.R. No. L-7231. March 28, 1956.]
BENGUET CONSOLIDATED MINING CO., petitioner, vs. MARIANO PINEDA, in his capacity
as Securities and Exchange Commissioner, respondent. CONSOLIDATED MINES, INC.,
intervenor.
Claro M. Recto and Ross, Selph, Carrascoso & Janda for the petitioner.
Taada & Teehankee for intervenor.
Solicitor General Querube Makalintal and Assistant Solicitor General Francisco Carreon for
respondent.
SYLLABUS
1. CORPORATION LAW; PROHIBITION AGAINST EXTENSION OF CORPORATE
EXISTENCE BY AMENDMENT OF THE ORIGINAL ARTICLES, APPLICABLE TO "SOCIEDADES
ANONIMAS." The prohibition contained in section 18 of Act No. 1459, against
extending the period of corporate existence by amendment of the original articles, was
intended to apply, and does apply, to sociedades anonimas, already formed, organized
and existing at the time of the effectivity of the Corporation Law (Act 1459) in 1906.
2. ID.; ID.; PROHIBITION VALID AND IMPAIRS NO VESTED RIGHTS. The aforesaid
statutory prohibition is valid and impairs no vested rights or constitutional inhibition
where no agreement to extend the original period of corporate life was perfected before
the enactment of the Corporation Law.
3. WHEN "SOCIEDAD ANONIMAS", MAY NOT CLAIM TO REFORM INTO A
CORPORATION UNDER SECTION 75 OF THE ACT. A sociedad anonima, existing before
the Corporation Law, that continues to do business as such for a reasonable time after its
enactment, is deemed to have made its election and may not subsequently claim to
reform into a corporation under section 75 of Act No. 1459. Particularly should this be the
case where it has asserted its privileges as such sociedad anonima before invoking its
alleged right to reform into a corporation.
DECISION
REYES, J. B. L., J p:
Appeal under Rule 43 from a decision of the Securities and Exchange Commissioner,
denying the right of a sociedad anonima to extend its corporate existence by amendment
of its original articles of association, or alternatively, to reform and continue existing
under the Corporation Law (Act 1459) beyond the original period.
The petitioner, the Benguet Consolidated Mining Co. (hereafter termed "Benguet" for
short), was organized on June 24,1903, as a sociedad anonima regulated by Articles 151 et
seq., of the Spanish Code of Commerce of 1886, then in force in the Philippines. The
articles of association expressly provided that it was organized for a term of fifty (50)
years. In 1906, the governing Philippine Commission enacted Act 1459, commonly known
as the Corporation Law, establishing in the islands the American type of juridical entities
known as corporation, to take effect on April 1, 1906. Of its enactment, this Court said in
its decision in Harden vs. Benguet Consolidated Mining Co., 58 Phil., 141, at pp. 145-146,
and 147:
"When the Philippine Islands passed to the sovereignty of the United States, the attention
of the Philippine Commission was early drawn to the fact there is no entity in Spanish law
exactly corresponding to the motion of the corporation in English and American law; and
in the Philippine Bill, approved July 1, 1906, the Congress of the United States inserted
certain provisions, under the head of Franchises, which were intended to control the
lawmaking power in the Philippine Islands in the matter of granting of franchises,
privileges and concessions. These provisions are found in sections 74 and 75 of the Act.
The provisions of section 74 have been superseded by section 28 of the Act of Congress of
August 29, 1916, but in section 75 there is a provision referring to mining corporations,
which still remains the law, as amended. This provision, in its original form, reads as
follows: . . . it shall be unlawful for any member of a corporation engaged in agriculture or
mining and for any corporation organized for any purpose except irrigation to be in any
wise interested in any other corporation engaged in agriculture or in mining.
Under the guidance of this and certain other provisions thus enacted by Congress, the
Philippine Commission entered upon the enactment of a general law authorizing the
creation of corporations in the Philippine Islands. This rather elaborate piece of legislation
is embodied in what is called our Corporation Law (Act No. 1459 of the Philippine
Commission). The evident purpose of the commission was to introduce the American
corporation into the Philippine Islands as the standard commercial entity and to hasten
the day when the sociedad anonima of the Spanish law would be obsolete. That statute is
a sort of codification of American corporate law."
"As it was the intention of our lawmakers to stimulate the introduction of the American
corporation into the Philippine law in the place of the sociedad anonima, it was necessary
to make certain adjustment resulting from the continued co-existence, for a time, of the
two forms of commercial entities. Accordingly, in section 75 of the Corporation Law, a
provision is found making the sociedad anonima subject to the provisions of the
Corporation Law 'so far as such provisions may be applicable' and giving to the sociedades
anonimas previously created in the Islands the option to continue business as such or to
reform and organize under the provisions of the Corporation Law. Again, in section 191 of
the Corporation Law, the Code of Commerce is repealed in so far as it relates to
sociedades anonimas. The purpose of the commission in repealing this part of the Code of
Commerce was to compel commercial entities thereafter organized to incorporate under
the Corporation Law, unless they should prefer to adopt some form or other of the
partnership. To this provision was added another to the effect that existing sociedades
anonimas, which elected to continue their business as such, instead of reforming and
reorganizing under the Corporation Law, should continue to be governed by the laws that
were in force prior to the passage of this Act 'in relation to their organization and method
of transacting business and to the rights of members thereof as between themselves, but
their relations to the public and public officials shall be governed by the provisions of this
Act.'"
Specifically, the two sections of Act No. 1459 referring to sociedades anonimas then
already existing, provide as follows:
"SEC. 75. Any corporation or a sociedad anonima formed, organized, and existing
under the laws of the Philippines on the date of the passage of this Act, shall be subject to
the provisions hereof so far as such provisions may be applicable and shall be entitled at
its option either to continue business as such corporation or to reform and organize under
and by virtue of the provisions of this Act, transferring all corporate interests to the new
corporation which, if a stock corporation, is authorized to issue its shares of stock at par
to the stockholders or members of the old corporation according to their interests."
"SEC. 191. The Code of Commerce, in so far as it relates to corporation or
sociedades anonimas, and all other Acts or parts of Acts in conflict or inconsistent with
this Act, are hereby repealed with the exception of Act Numbered fifty-two, entitled 'An
Act providing for examinations of banking institutions in the Philippines, and for reports
by their officers,' as amended, and Act Numbered Six hundred sixty-seven, entitled 'An
Act prescribing the method of applying to governments of municipalities, except the city
of Manila and of provinces for franchises to contract and operate street railway, electric
light and power and telephone lines, the conditions upon which the same may be
granted, certain powers of the grantee of said franchises, and of grantees of similar
franchises under special Act of the Commission, and for other purposes.' Provided,
however, That nothing in this Act contained shall be deemed to repeal the existing law
relating to those classes of associations which are termed sociedades colectivas, and
sociedades de cuentas en participacion, as to which association the existing law shall be
deemed to be still in force; And provided, further, That existing corporations or
sociedades anonimas, lawfully organized as such, which elect to continue their business as
such sociedades anonimas instead of reforming and reorganizing under and by virtue of
the provisions of this Act, shall continue to be governed by the laws that were in force
prior to the passage of this Act in relation to their organization and method of transacting
business and to the rights of members thereof as between themselves, but their relations
to the public and public officials shall be governed by the provisions of this Act."
As the expiration of its original 50 year term of existence approached, the Board of
Directors of Benguet adopted in 1946 a resolution to extend its life for another 50 years
from July 3, 1946 and submitted it for registration to the respondent Securities and
Exchange Commissioner. Upon advice of the Secretary of Justice (Op. No. 45, Ser. 1917)
that such extension was contrary to law, the registration was denied. The matter was
dropped, allegedly because the stockholders of Benguet did not approve of the Directors'
action.
Some six years later in 1953, the shareholders of Benguet adopted a resolution
empowering the Director to "effectuate the extension of the Company's business life for
not less than 20 and not more than 50 years, and this by either (1) an amendment to the
Articles of Association or Charter of this Company or (2) by reforming and reorganizing
the Company as a Philippine Corporation, or (3) by both or (4) by any other means."
Accordingly, the Board of Directors on May 27, 1953, adopted a resolution to the
following effect
"Be It
Resolved, that the Company be reformed, reorganized and organized under the
provisions of section 75 and other provisions of the Philippine Corporation Law as a
Philippine corporation with a corporate life and corporate powers as set forth in the
Articles of Incorporation attached hereto as Schedule 'I' and made a part hereof by this
reference; and
Be It
'FURTHER RESOLVED, that any five or more of the following shareholders of the Company
be and they hereby are authorized as instructed to act for and in behalf of the share
holders of the Company and of the Company as Incorporators in the reformation,
reorganization and organization of the Company under and in accordance with the
provisions aforesaid of said Philippine Corporation Law, and in such capacity, they are
hereby authorized and instructed to execute the aforesaid Articles of Incorporation
attached to these Minutes as Schedule 'I' hereof, with such amendments, deletion and
additions thereto as any five or more of those so acting shall deem necessary, proper,
advisable or convenient to effect prompt registration of said Articles under Philippine
Law; and five or more of said Incorporators are hereby further authorized and directed to
do all things necessary, proper, advisable or convenient to effect such registration."
In pursuance of such resolution, Benguet submitted in June, 1953, to the Securities and
Exchange Commissioner, for alternative registration, two documents: (1) Certification as
to the Modification of (the articles of association of) the Benguet Consolidated Mining
Company, extending the term of its existence to another fifty years from June 15, 1953;
and (2) articles of incorporation, covering its reformation or reorganization as a
corporation in accordance with section 75 of the Philippine Corporation Law.
Relying mainly upon the adverse opinion of the Secretary of Justice (Op. No. 180, s. 1953),
the Securities and Exchange Commissioner denied the registration and ruled:
(1) That the Benguet, as sociedad anonima, had no right to extend the original term
of corporate existence stated in its Articles of Association, by subsequent amendment
thereof adopted after enactment of the Corporation Law (Act No. 1459); and
(2) That Benguet, by its conduct, had chosen to continue as sociedad anonima,
under section 75 of Act No. 1459, and could no longer exercise the option to reform into a
corporation, specially since it would indirectly produce the effect of extending its life.
This ruling is the subject of the present appeal.
Petitioner Benguet contends:
(1) That the proviso of section 18 of the Corporation Law to the effect
"that the life of said corporation shall not be extended by amendment beyond the time
fixed in the original articles."
does not apply to sociedades anonimas already in existence at the passage of the law, like
petitioner herein;
(2) That to apply the said restriction imposed by section 18 of the Corporation Law
to sociedades anonimas already functioning when the said law was enacted would be in
violation of constitutional inhibitions;
(3) That even assuming that said restriction was applicable to it, Benguet could still
exercise the option of reforming and reorganizing under section 75 of the Corporation
Law, thereby prolonging its corporate existence, since the law is silent as to the time
when such option may be exercised or availed of.
The first issue arises because the Code of Commerce of 1886 under which Benguet was
organized, contains no prohibition (to extend the period of corporate existence),
equivalent to that set forth in section 18 of the Corporation Law. Neither does it expressly
authorize the extension. But the text of Article 223, reading:
"ART. 223. After the termination of the period for which commercial associations
are constituted, it shall not be understood as extended by the implied or presumed will of
the members; and if the members desire to continue in association, they shall draw up
new articles, subject to all the formalities prescribed for their creation as provided in
Article 119." (Code of Commerce.)
would seem to imply that the period of existence of the sociedad anonimas (or of any
other commercial association for that matter) may be extended if the partners or
members so agree before the expiration of the original period.
While the Code of Commerce, in so far as sociedades anonimas are concerned, was
repealed by Act No 1459, Benguet claims that article 223 is still operative in its favor
under the last proviso of section 191 of the Corporation law (ante, p. 4 to the effect that
existing sociedades anonimas would continue to be governed by the law in force before
Act 1459,
"in relation to their organization and method of transacting business and to the rights of
members among themselves, but their relations to the public and public officials shall be
governed by the provisions of this Act."
Benguet contends that the period of corporate life relates to its organization and the
rights of its members inter se, and not to its relations to the public or public officials.
We find this contention untenable.
The term of existence of association (partnership or sociedad anonima) is coterminous
with their possession of an independent legal personality, distinct from that of their
component members. When the period expires, the sociedad anonima loses the power to
deal and enter into further legal relations with other persons; it is no longer possible for it
to acquire new rights or incur new obligations, have only as may be required by the
process of liquidating and winding up its affairs. By the same token, its officers and agents
can no longer represent it after the expiration of the life term prescribed, save for settling
its business. Necessarily, therefore, third persons or strangers have an interest in knowing
the duration of the juridical personality of the sociedad anonima, since the latter can not
be dealt with after that period; wherefore its prolongation or cessation is a matter
directly involving the company's relations to the public at large.
On the importance of the term of existence set in the articles of association of commercial
companies under the Spanish Code of Commerce, D. Lorenzo Benito y Endar, professor of
mercantile law in the Universidad Central de Madrid, has this to say:
"La duracion de la Sociedad. La necesidad de consignar este requisito en el contrato
social tiene un valor analogo al que dijimos tenia el mismo al tratar de las compaias
colectivas, aun cuando respecto de las anonimas no haya de tenerse en cuenta para nada
lo que dijimos entonces acerca de la trascendencia que ello tiene para los socios; porque
no existiendo en las anonimas la serie de responsibilidades de caracter personal que
afectan a los socios colectivos, es claro que la duracion de la sociedad importa conocerla a
los socios y los terceros, porque ella marca al limite natural del desenvolvimiento de la
empresa constituida y el comienzo de la liquidacion de la sociedad." (3 Benito, Derecho
Mercantil, 292-293.)
"Interesa, pues, la fijacion de la vida de la compaia, desenvolviendose con normalidad y
regularidad, tanto a los asociados como a los terceros. A aquellos, porque su libertad
economica, en cierto modo limitada por la existencia del contrato de compaia, se
recobra despues de realizada, mas o menos cumplidamente, la finalidad comun
perseguida; y a los terceros, porque les advierte el momento en que, extinguida la
compaia, no cabe y a la creacion con ella de nuevas relaciones juridicas, de que nazcan
reciprocamente derechos y obligaciones, sino solo la liquidacion de los negocios hasta
entonces convenidos, sin otra excepcion que la que luego mas adelante habremos de
sealar". (3 Benito, Derecho Mercantil, p. 245.)
The State and its officers also have an obvious interest in the term of life of associations,
since the conferment of juridical capacity upon them during such period is a privilege that
is derived from statute. It is obvious that no agreement between associates can result in
giving rise to a new and distinct personality, possessing independent rights and
obligations, unless the law itself shall decree such result. And the State is naturally
interested that this privilege be enjoyed only under the conditions and not beyond the
period that it sees fit to grant; and, particularly, that it be not abused in fraud and to the
detriment of other parties; and for this reason it has been ruled that "the limitation (of
corporate existence) to a definite period is an exercise of control in the interest of the
public" (Smith vs. Eastwood Wire Manufacturing Co., 43 Atl. 568).
We can not assent to the thesis of Benguet that its period of corporate existence has
relation to its "organization". The latter term is defined in Webster's International
Dictionary as:
"The executive structure of a business; the personnel of management, with its several
duties and places in administration; the various persons who conduct a business,
considered as a unit."
The legal definitions of the term "organization" are concordant with that given above:
"Organize or 'organization,' as used in reference to corporations, has a well-understood
meaning, which is the election of officers, providing for the subscription and payment of
the capital stock, the adoption of by-laws, and such other steps as are necessary to endow
the legal entity with the capacity to transact the legitimate business for which it was
created. Waltson vs. Oliver, 30 P. 172, 173, 49 Kan. 107, 33 Am. St. Rep. 355; Topeka
Bridge Co. vs. Cummings, 3 Kan. 55, 77; Hunt vs. Kansas & M. Bridge Co., 11 Kan. 412, 439;
Aspen Water & Light Co., vs. City of Aspen, 37 P. 728, 730, 6 Colo. App. 12; Nemaha Coal
& Mining Co., vs. Settle 38 P. 483, 484, 54 Kan. 424.
Under a statute providing that, until articles of incorporation should be recorded, the
corporation should transact no business except its own organization, it is held that the
term "organization" means simply the process of forming and arranging into suitable
disposition the parties who are to act together in, and defining the objects of, the
compound body, and that this process, even when complete in all its parts, does not
confer a franchise either valid or defective, but, on the contrary, it is only the act of the
individuals, and something else must be done to secure the corporate franchise. Abbott
vs. Omaha Smelting & Refining Co. 4 Neb. 416, 421." (30 Words and Phrases, p. 282.)
It is apparent from the foregoing definitions that the term "organization" relates merely
to the systematization and orderly arrangement of the internal and managerial affairs and
organs of the petitioner Benguet, and has nothing to do with the prorogation of its
corporate life.
From the double fact that the duration of its corporate life (and juridical personality) has
evident connection with the petitioner's relations to the public, and that it bears none to
the petitioner's organization and method of transacting business, we derive the
conclusion that the prohibition contained in section 18 of the Corporation Law (Act No.
1459) against extension of corporate life by amendment of the original articles was
designed and intended to apply to "compaias anonimas" that, like petitioner Benguet,
were already existing at the passage of said law. This conclusion is reinforced by the
avowed policy of the law to hasten the day when compaias anonimas would be extinct,
and replace them with the American type of corporation (Harden vs. Benguet
Consolidated Mining Co., supra), for the indefinite prorogation of the corporation life of
sociedades anonimas would maintain the unnecessary duality of organizational types
instead of reducing them to a single one; and what is more, it would confer upon these
sociedades anonimas, whose obsolescence was sought, the advantageous privilege of
perpetual existence that the new corporation could not possess.
Of course, the retroactive application of the limitations on the terms of corporate
existence could not be made in violation of constitutional inhibitions specially those
securing equal protection of the laws and prohibiting impairment of the obligation of
contracts. It needs no argument to show that if Act No. 1459 allowed existing compaias
anonimas to be governed by the old law in respect to their organization, methods of
transacting business and the rights of the members among themselves, it was precisely in
deference to the vested rights already acquired by the entity and its members at the time
the Corporation Law was enacted. But we do not agree with petitioner Benguet (and here
lies the second issue in this appeal) that the possibility to extend its corporate life under
the Code of Commerce constituted a right already vested when Act No. 1459 was
adopted. At that time, Benguet's existence was well within the 50 years period set in its
articles of association; and its members had not entered into any agreement that such
period should be extended. It is safe to say that none of the members of Benguet
anticipated in 1906 any need to reach an agreement to increase the term of its corporate
life, barely three years after it had started. The prorogation was purely speculative; a
mere possibility that could not be taken for granted. It was as yet conditional, depending
upon the ultimate decision of the members and directors. They might agree to extend
Benguet's existence beyond the original 50 years; or again they might not. It must be
remembered that in 1906, the success of Benguet in its mining ventures was by no means
so certain as to warrant continuation of its operations beyond the 50 years set in its
articles. The records of this Court show that Benguet ran into financial difficulties in the
early part of its existence, to the extent that, as late as 1913, ten years after it was found,
301,100 shares of its capital stock (with a par value of $1 per share) were being offered
for sale at 25 centavos per share in order to raise the sum of P75,000 that was needed to
rehabilitate the company (Hanlon vs. Haussermann and Beam, 40 Phil., 796). Certainly the
prolongation of the corporate existence of Benguet in 1906 was merely a possibility in
futuro, a contingency that did not fulfill the requirements of a vested right entitled to
constitutional protection, defined by this Court in Balboa vs. Farrales, 51 Phil., 498, 502, as
follows:
"Vested right is 'some right or interest in the property which has become fixed and
established, and is no longer open to doubt or controversy,"
"A 'vested' right is defined to be an immediate fixed right of present or future enjoyment,
and rights are 'vested' in contradistinction to being expectant or contingent" (Pearsall vs.
Great Northern R. Co., 161 U. S. 646, 40 L. Ed. 838).
In Corpus Juris Secundum we find:
"Rights are vested when the right to enjoyment, present or prospective, has become the
property of some particular person or persons as a present interest. The right must be
absolute, complete, and unconditional, independent of a contingency, and a mere
expectancy of future benefit, or a contingent interest in property founded on anticipated
continuance of existing laws, does not constitute a vested right. So, inchoate rights which
have not been acted on are not vested." (16 C. J. S. 214-215.)
Since there was no agreement as yet to extend the period of Benguet's corporate
existence (beyond the original 50 years) when the Corporation Law was adopted in 1906,
neither Benguet nor its members had any actual or vested right to such extension at that
time. Therefore, when the Corporation Law, by section 18, forbade extensions of
corporate life, neither Benguet nor its members were deprived of any actual or fixed right
constitutionally protected.
To hold, as petitioner Benguet asks, that the legislative power could not deprive Benguet
or its members of the possibility to enter at some indefinite future time into an
agreement to extend Benguet's corporate life, solely because such agreements were
authorized by the Code of Commerce, would be tantamount to saying that the said Code
was irrepealable on that point. It is a well settled rule that no person has a vested interest
in any rule of law entitling him to insist that it shall remain unchanged for his benefit.
(New York C. R. Co. vs. White, 61 L. Ed (U.S.) 667; Mondou vs. New York N. H. & H. R. Co.,
56 L. Ed. 327; Rainey vs. U. S., 58 L. Ed. 617; Lilly Co. vs. Saunders, 125 ALR. 1308; Shea vs.
Olson, 111 ALR. 998).
"There can be no vested right in the continued existence of a statute or rule of the
common law which precludes its change or repeal, nor in any omission to legislate on a
particular matter or subject. Any right conferred by statute may be taken away by statute
before it has become vested, but after a right has vested, repeal of the statute or
ordinance which created the right does not and cannot affect much right." (16 C. J. S. 222-
223.)
It is a general rule of constitutional law that a person has no vested right in statutory
privileges and exemptions" (Brearly School vs. Ward, 201 NY. 358, 40 LRA NS. 1215; also,
Cooley, Constitutional Limitations, 7th ed., p. 546).
It is not amiss to recall here that after Act No. 1459 the Legislature found it advisable to
impress further restrictions upon the power of corporations to deal in public lands, or to
hold real estate beyond a maximum area; and to prohibit any corporation from
endeavouring to control or hold more than 15 per cent of the voting stock of an
agricultural or mining corporation (Act No. 3518). These prohibitions are so closely
integrated with our public policy that Commonwealth Act No. 219 sought to extend such
restrictions to associations of all kinds. It would be subversive of that policy to enable
Benguet to prolong its peculiar status of sociedad anonimas, and enable it to cast doubt
and uncertainty on whether it is, or not, subject to those restrictions on corporate power,
as it once endeavoured to do in the previous case of Harden vs. Benguet Mining Corp. 58
Phil., 149.
Stress has been laid upon the fact that the Compaia Maritima (like Benguet, a sociedad
anonima established before the enactment of the Corporation Law) has been twice
permitted to extend its corporate existence by amendment of its articles of association,
without objection from the officers of the defunct Bureau of Commerce and Industry,
then in charge of the enforcement of the Corporation Laws, although the exact question
was never raised then. Be that as it may, it is a well established rule in this jurisdiction
that the government is never estopped by mistake or error on the part of its agents"
(Pineda vs. Court of First Instance of Tayabas, 52 Phil., 803, 807), and that estopped can
not give validity to an act that is prohibited by law or is against public policy (Eugenio vs.
Perdido, (97 Phil., 41, May 19, 1955; 19 Am. Jur. 802); so that the respondent, Securities
and Exchange Commissioner, was not bound by the rulings of his predecessor if they be
inconsistent with law. Much less could erroneous decisions of executive officers bind this
Court and induce it to sanction an unwarranted interpretation or application of legal
principles.
We now turn to the third and last issue of this appeal, concerning the exercise of the
option granted by section 75 of the Corporation Law to every sociedad anonima "formed,
organized and existing under the laws of the Philippines on the date of the passage of this
Act" to either continue business as such sociedad anonima or to reform and organize
under the provisions of the Corporation Law. Petitioner-appellant Benguet contends that
as the law does not determine the period within which such option may be exercised,
Benguet may exercise it at any time during its corporate existence; and that in fact on
June 22, 1953, it chose to reform itself into a corporation for a period of 50 years from
that date, filing the corresponding papers and by-laws with the respondent Commissioner
of Securities and Exchange registration; but the latter refused to accept them as belatedly
made.
The petitioner's argument proceeds from the unexpressed assumption that Benguet, as
sociedad anonima, had not exercised the option given by section 75 of the Corporation
Law until 1953. This we find to be incorrect. Under that section, by continuing to do
business as sociedad anonima, Benguet in fact rejected the alternative to reform as a
corporation under Act No. 1459. It will be noted from the text of section 75 (quoted
earlier in this opinion) that no special act or manifestation is required by the law from the
existing sociedades anonimas that prefer to remain and continue as such. It is when they
choose to reform and organize under the Corporation Law that they must, in the words of
the section, "transfer all corporate interests to the new corporation". Hence if they do not
so transfer, the sociedades anonimas affected are to be understood to have elected the
alternative "to continue business as such corporation" (sociedad anonima) 2
The election of Benguet to remain a sociedad anonima after the enactment of the
Corporation Law is evidence, not only by its failure, from 1906 to 1953, to adopt the
alternative to transfer its corporate interests to a new corporation, as required by section
75; it also appears from positive acts. Thus around 1933, Benguet claimed and defended
in court its acquisition of shares of the capital stock of the Balatoc Mining Company, on
the ground that as a sociedad anonima it (Benguet) was not a corporation within the
purview of the laws prohibiting a mining corporation from becoming interested in another
mining corporation (Harden vs. Benguet Mining Corp., 58 Phil., p. 149). Even in the
present proceedings, Benguet has urged its right to amend its original articles of
association as "sociedad anonima" and extend its life as such under the provisions of the
Spanish Code of Commerce. Such appeals to privileges as "sociedad anonima" under the
Code of 1886 necessarily imply that Benguet has rejected the alternative of reforming
under the Corporation Law. As respondent Commissioner's order, now under appeal, has
stated
"A sociedad anonima could not claim the benefit of both, but must have to choose one
and discard the other. If it elected to become a corporation it could not continue as a
sociedad anonima; and if it choose to remain as a sociedad anonima, it could not become
a corporation."
Having thus made its choice, Benguet may not now go back and seek to change its
position and adopt the reformation that it had formerly repudiated. The election of one of
several alternatives is irrevocable once made (as now expressly recognized in article 940
of the new Civil Code of the Philippines): such rule is inherent in the nature of the choice,
its purpose being to clarify and render definite the rights of the one exercising the option,
so that other persons may act in consequence. While successive choices may be provided
there is nothing in section 75 of the Corporation Law to show or hint that a sociedad
anonima may make more than one choice thereunder, since only one option is provided
for.
While no express period of time is fixed by the law within which sociedades anonimas
may elect under section 75 of Act No. 1459 either to reform or to retain their status quo,
there are powerful reasons to conclude that the legislature intended such choice to be
made within a reasonable time from the effectivity of the Act. To enable a sociedad
anonima to choose reformation when its stipulated period of existence is nearly ended,
would be to allow it to enjoy a term of existence far longer than that granted to
corporations organized under the Corporation Law; in Benguet's case, 50 years as
sociedad anonima, and another 50 years as an American type of corporation under Act
1459; a result incompatible with the avowed purpose of the Act to hasten the
disappearance of the sociedades anonimas. Moreover, such belated election, if
permitted, would enable sociedades anonimas to reap the full advantage of both types of
organization. Finally, it would permit sociedades anonimas to prolong their corporate
existence indirectly by belated reformation into corporations under Act No. 1459, when
they could not do so directly by amending their articles of association.
Much stress is laid upon allegedly improper motives on the part of the intervenor,
Consolidated Mines, Inc., in supporting the orders appealed from, on the ground that
intervenor seeks to terminate Benguet's operating contract and appropriate the profits
that are the result of Benguet's efforts in developing the mines of the intervenor. Suffice
it to say that whatever such motives should be, they are wholly irrelevant to the issues in
this appeal, that exclusively concern the legal soundness of the order of the respondent
Securities and Exchange Commissioner rejecting the claims of the Benguet Consolidated
Mining Company to extend its corporate life.
Neither are we impressed by the prophesies of economic chaos that would allegedly
ensure with the cessation of Benguet's activities. If its mining properties are really
susceptible of profitable operation, inexorable economic laws will ensure their
exploitation; if, on the other hand, they can no longer be worked at a profit, then
catastrophe becomes inevitable, whether or not petitioner Benguet retains corporate
existence.
Sustaining the opinions of the respondent Securities and Exchange Commissioner and of
the Secretary of Justice, we rule that:
(1) The prohibition contained in section 18 of Act No. 1459, against extending the
period of corporate existence by amendment of the original articles, was intended to
apply, and does apply, to sociedades anonimas already formed, organized and existing at
the time of the effectivity of the Corporation Law (Act No. 1459) in 1906;
(2) The statutory prohibition is valid and impairs no vested rights or constitutional
inhibition where no agreement to extend the original period of corporate life was
perfected before the enactment of the Corporation Law;
(3) A sociedad anonima, existing before the Corporation Law, that continues to do
business as such for a reasonable time after its enactments, is deemed to have made its
election and may not subsequently claim to reform into a corporation under section 75 of
Act No. 1459.
In view of the foregoing, the order appealed from is affirmed. Costs against petitioner-
appellant Benguet Consolidated Mining Company.
Padilla, Montemayor, Reyes, A. Labrador, Concepcion and Endencia, JJ., concur.
Separate Opinions
PARAS, C. J., dissenting:
The petitioner, Benguet Consolidated Mining Company, was organized as a sociedad
anonima on June 24, 1903, under the provisions of the Code of Commerce, and its term as
fixed in the articles of association was fifty years. It has been a leading enterprise, long
and widely reputed to have pioneered in and boosted the mining industry, distributed
profits among its shareholders, and given employment to thousands. To be more
approximately exact, the petitioner has kept on its payrolls over four thousand Filipino
employees who have about twenty thousand dependents. The taxes and other dues paid
by it to the Government have been in enormous amounts. It has always been subject to
such supervision and control of Government officials as are prescribed by law.
When, therefore, the petitioner on June 3, 1953, presented all necessary documents to
the respondent, the Securities and Exchange Commissioner, with a view to the extension
of its term as a sociedad anonima for a period of fifty years from June 15, 1953; when on
June 22, 1953, it filed with said respondent the necessary articles of incorporation and
other documents, with a view to reforming itself as a corporation under the Corporation
Law for a period of fifty years from June 22, 1953, followed by the filing on July 22, 1953,
of the corresponding by-laws; and when on October 27, 1953, the respondent issued an
order denying the registration of the instruments as well for extension as for reformation,
petitioner's corporate life was being snapped out with such lightning abruptness as
undoubtedly to spell damage and prejudice not so much to its shareholders as to its
beneficiaries thousands of employees and their dependents and even to the
Government which stands to lose a good source of revenue.
The petitioner contends (1) that the respondent had the ministerial duty of registering the
documents presented either for extension of petitioner's term as a sociedad anonima or
for its reformation under the Corporation Law, in the absence (as in this case) of any
pretense that said documents are formally defective or that petitioner's purposes are
unlawful; and (2) that as the petitioner had organized as a sociedad anonima under the
Code of Commerce, it has acquired a vested right which cannot subsequently be affected
or taken away by the Corporation Law enacted on April 1, 1906. I would not dwell upon
these contentions, because I hold that, even under the provisions of the Corporation Law,
the petitioner may either extend its life as a sociedad anonima or reform as a corporation.
Section 75 of the Corporation Law provides:
"Any corporation or sociedad anonima formed, organized and existing under the laws of
the Philippine Islands and lawfully transacting business in the Philippine Islands on the
date of the passage of this Act, shall be subject to the provisions hereof so far as such
provisions may be applicable and shall be entitled at its option either to continue business
as such corporation or to reform and organize under, and by virtue of the provisions of
this Act, transferring all corporate interests to the new corporation which, if a stock
corporation, is authorized to issue its shares of stock at par to the stockholders or
members of the old corporation according to their interests."
Upon the other hand, section 191 reads as follows:
"The Code of Commerce, in so far as it relates to corporations or sociedades anonimas,
and all other or parts of Acts in conflict or inconsistent with this Act, are hereby repealed .
. . And provided, further, That existing corporations or sociedades anonimas lawfully
organized as such, which elect to continue their business as such sociedades anonimas
instead of reforming and reorganizing under and by virtue of the provisions of this Act,
shall continue to be governed by the laws that were in force prior to the passage of this
Act in relation to their organization and method of transacting business and to the rights
of members thereof as between themselves, but their relations to the public and public
officials shall be governed by the provisions of this Act."
It is noteworthy that section 75 has not limited the optional continuance of a sociedad
anonima to its unexpired term, and section 191 expressly allows a sociedad anonima
which has elected to continue its business as such to be governed by the laws in force
prior to the enactment of the Corporation Law in relation to its organization and method
of transacting business and to the rights of members as between themselves. It is
admitted that the Code of Commerce, while containing no express provision allowing it,
does not prohibit a sociedad anonima from extending its term; and commentators Gay de
Montella (Tratado Practico de Sociedad Mercantiles Compaias Anonimas, Tomo II, p.
285) and Cesar Vivante (Tratado de Derecho Mercantil, pp. 254, 258) have observed that
a sociedad anonima may prolong its corporate duration by amendment of its articles of
association before the expiration of the term.
When a business or commercial association is organized, the members are naturally
interested in knowing not only their rights and obligations but also the duration of their
legal relations. While "organization" in a strict sense may refer to formalities like election
of officers, adoption of by-laws, and subscription and payment of capital stock, it cannot
be spoken of or conceived in a wider sense without necessarily involving the specification
of the term of the entity formed. Extension of corporation life is thus essentially an
incident of "organization" and, in any event, a matter directly affecting or in relation to
the rights of the shareholders as between themselves, within the contemplation of
section 191, and should accordingly be governed by the Code of Commerce. As pointed
out by the Supreme Court of Wyoming in the case of Drew vs. Beckwith, (114 P. 2d. 98),
extension "merely involves an additional privilege to carry out the business of enterprise
undertaken by the corporation," and is "but an enlargement of the enterprise undertaken
by the corporation." It is true that the duration of a sociedad anonima is of some concern
to the public and public officials who ought to know the time when it will cease to exist
and its business will be wound up. Notice to the world is however served by the
registration of petitioner's articles of association as a sociedad anonima or articles of
incorporation as a reformed corporation with the Securities and Exchange Commission.
When section 191 mentions "relations to the public and public officials" as being
governed by the provisions of the Corporation Law, the idea is obviously more to enable
the Government to enforce its powers of supervision, inspection and investigation, than
to restrict the freedom of the corporate entity as to organizational or substantive rights of
members as between themselves. In one of the public hearings conducted by the
Philippine Commission before the enactment of the Corporation Law, Commissioner Ide
pertinently expressed, "Of course, whether they (sociedades) come under the new law or
not they would be subject to inspection, regulations, and examination for the purpose of
protecting the community." The Attorney General in turn held that sociedades anonimas,
although governed by the Code of Commerce, are subject to the examination provided in
section 54 of the Corporation Law (5 Op. Atty. Gen. 442). In this connection, the petitioner
has admittedly subjected itself to the provisions of the Corporation Law.
In Harden vs. Benguet Consolidated Mining Co., 58 Phil., 141, it was remarked: "The
purpose of the commission in repealing this part of the Code of Commerce was to compel
commercial entities thereafter organized to incorporate under the Corporation Law,
unless they should prefer to adopt some form or other of the partnership." This Court
already indicated that the commercial entities compelled to incorporate under the
Corporation Law were those organized after its enactment.
Section 6, subsection 4, of the Corporation Law provides that the term for which
corporations shall exist shall not exceed fifty years; section 18 provides that the life of a
corporation shall not be extended by amendment beyond the time fixed in the original
articles; and section 11 provides that upon the issuance by the Securities and Exchange
Commissioner of the certificate of incorporation, the persons organizing the corporation
shall constitute a body politic and corporate for the term specified in the articles of
incorporation, not exceeding fifty years. The corporations contemplated are those
defined in section 22 corporations organized under the Corporation Law. They cannot
be sociedades anonimas formed under the Code of Commerce and licensed to continue
as such in virtue of sections 75 and 191. Otherwise the words "or sociedad anonima"
would have been added to the term "corporation" in section 18, as was done in sections
75 and 191. A similar observation was made in Harden vs. Benguet Consolidated Mining
Co., supra: "But when the word corporation is used in the sense of sociedad anonima and
close discrimination is necessary, it should be associated with the Spanish expression
sociedad anonima either in parenthesis or connected by the word 'or'. This latter device
was adopted in sections 75 and 191 of the Corporation Law."
The citation from 3 Benito, Derecho Mercantil, p. 245, invoked in the majority decision, to
the effect that the duration of a sociedad anonima is of interest both to its members and
to third persons, is clearly an authority for our conclusions that the extension of
petitioner's term is in relation "to the rights of members thereof as between themselves."
Section 191 does not say that a sociedad anonima shall be governed by the provisions of
the Corporation Law when the matter involved affects not only "the rights of members
thereof as between themselves" but also "the public and public officials."
We are also of the opinion that alternatively, under section 75, the petitioner may elect to
reform and organize under the Corporation Law, transferring all its corporate interests to
the new corporation. Contrary to the ruling of the respondent, we are convinced that, as
no period was fixed within which it should exercise the option either of continuing as a
sociedad anonima or reforming and organizing under the Corporation Law, the petitioner
was entitled to have its articles of incorporation and by-laws presented respectively on
June 22 and July 22, 1953, registered by the respondent. Section 75 did not take away
petitioner's right to exhaust its term as a sociedad anonima, already vested before the
enactment of the Corporation Law, but merely granted it the choice to organize as a
regular corporation, instead of extending its life as a sociedad anonima. The only
limitation imposed is that prescribed in section 191, namely, that if a sociedad anonima
elects to continue its business as such, it shall be governed by the prior law in relation to
its organization and method of transacting business and to the rights of its members as
between themselves, and by the provisions of the Corporation Law as to its relations to
the public and public officials. If the intention were to fix a period for reformation, the law
would have expressly so provided, in the same way that section 19 fixes two years during
which a corporation should formally organize and commence the transaction of its
business, otherwise its corporate powers would cease; section 77 fixes three years from
the dissolution of a corporation within which it may clear and settle its affairs; and section
78 fixes the same period of three years within which a corporation may convey its
properties to a trustee for the benefit of its stockholders and other interested persons.
It is not correct to argue that the petitioner is not entitled to elect to continue as a
sociedad anonima and at the same time reform and organize as a regular corporation,
because when it continued as a sociedad anonima after the passage of the Corporation
Law and during its full term of fifty years, it merely exercised a right it theretofore had;
and the petitioner can be said properly to have availed itself of the other option only
when in June 1953 it filed the necessary papers of incorporation under the Corporation
Law. It is likewise not accurate to contend that, as the respondent ruled, the petitioner
could reform as and be a regular corporation at most only for the remainder of its term as
a sociedad anonima. Section 75, in allowing a sociedad anonima to reform and organize
under the Corporation Law, also authorizes the transfer of its corporate interests to the
new corporation. This "new" corporation should have the advantage of the prescribed
maximum duration, regardless of the original term of the old or substituted entity. There
is no basis for the criticism that, if the petitioner were allowed to exhaust its full term as a
sociedad anonima, and afterwards to reform as a regular corporation for another fifty
years, it would have a span of life twice as long as that granted to corporations organized
under the Corporation Law. The simple reason is that the petitioner was already a
corporate entity before the enactment of the Corporation Law, with a fixed duration
under its original articles of association. It was clearly not in parity with any corporation
organized under and coming into existence after the effectivity of the Corporation Law
which has no choice on the matter and can therefore have only the prerogative granted
by said law, no more no less.
The respondent has suggested that the petitioner, if desirous of continuing its business,
may organize a new corporation a suggestion which need not be made because no one
would probably think of denying it that right. But we cannot see any cogent reason or
practical purpose for the suggestion. In the first place, the filing of petitioner's articles of
incorporation and by-laws in July, 1953, in effect amounted to the formation of a new
corporation. To require more is to give greater importance to form than to substance. In
the second place, the public and public officials may not as a matter of fact be adversely
affected by allowing the petitioner to reform, instead of requiring it technically to form a
new corporation. It will acquire no greater rights or obligations by simple reformation
than by newly organizing another corporation. Conversely, the public and public officials
will acquire no greater benefit or control by requiring the petitioner to form a new
corporation, than by allowing it to reform. And as already stated, whatever interest the
public and public officials may have in determining the duration of a sociedad anonima or
any corporation for that matter, is amply protected by registration in the Securities and
Exchange Commission.
The respondent and the intervenor, Consolidated Mines, Inc., have tried to show that the
petitioner holds or owns interests in eight mining companies, in violation of section 13,
subsection 5 of the Corporation Law, in that it has operating contracts with the intervenor
and seven other mining companies, besides owning the majority shares in Balatoc Mining
Co. This matter has not merited any attention or favorable comment in the majority
decision, and rightly of course. Even so, we may observe that the alleged violation was not
the subject of any finding by the respondent, nor relied upon in his order of denial; that
the petitioner has denied the charge; that the holding by the petitioner of shares of stock
in Balatoc Mining Co., if really illegal, may look into only in a quo warranto proceeding
instituted by the Government; that at any rate the petitioner has always been ready and
willing to dispose of said shares and, in a proper proceeding, it should be given reasonable
time to do so, as this Court gave the Philippine Sugar Estates a period of six months after
final decision within which to "liquidate, dissolve and separate absolutely in every respect
and in all of its relations, complained of in the petition, with the Tayabas Land Company"
(Government vs. Philippine Sugar Estates Co., 38 Phil., 15).
With special reference to the intervenor, it may be of some moment to know the
antecedents and nature of business relations existing between it and the petitioner, at
least to demonstrate the righteousness of the position of one or the other even from a
factual point of view. The following excerpts from "Petitioner's Reply to a portion of
Intervenor's Brief" are in point:
"What has happened in our case is that prior to the execution of the Operating
Agreement of July 9, 1934, the stockholders, directors, and officers of the intervenor,
Consolidated Mines, Inc., did not want to risk one centavo of their own funds for the
development of their chrome ore mining claims in Zambales province, and proposed to
the petitioner herein, Benguet Consolidated Mining Company, to explore, develop and
operate their mining claims, Benguet to furnish all the funds that might be necessary, and
to explore, develop, mine and concentrate and market 'all the pay are found on or within
paid claims or properties', the intervenor, Consolidated Mines, Inc., and the petitioner,
Benguet Consolidated Mining Company, after the latter had reimbursed itself for all its
advances, to divide half and half the excess of receipts over disbursements. Benguet
agreed to it, and advanced approximately three million pesos, one-half thereof before the
war, and the other half after the war (the intervenor's properties having been destroyed
during the war). Paragraph XII of the intervenor's complaint in the civil action instituted
by it against Benguet in the Court of First Instance of Manila, No. 18938, and to which
counsel for the intervenor refer in page 5 of their brief, makes mention of the large sums
of money that Benguet advanced, as follows:
'Initial advances amounting to approximately P1,500,000 made by defendant during the
first phases of said Operating Agreement which had been fully reimbursed to it before the
war, end of the amounts likewise advanced by it (Benguet) for rehabilitation amounting
to close P1,500,000.00.'
"While Benguet risked and poured approximately three million pesos (P3,000,000) into
the venture, and while Benguet was looking for, and establishing, a market for
intervenor's chrome ore, the intervenor, Consolidated Mines, Inc., considered the said
Operating Agreement of July 9, 1934, as valid. Now that Benguet's efforts have been
crowned with success, and Benguet has established a market for intervenor's chrome ore,
the intervenor claims that its said operating Agreement of July 9, 1934, with the
petitioner, Benguet, is contrary to law because Benguet has become interested in
intervenor's chrome ore mining claims (although the agreement expressly states that
Benguet has no interest therein), and objects to the registration of the documents which
Benguet filed with the respondent Securities and Exchange Commissioner, extending its
life as a sociedad anonima, and reforming itself s a corporation, in accordance with the
provisions of section 75 of the Corporation Law.
"Under the foregoing facts, the intervenor, Consolidated Mines, Inc., can not be heard to
complain against Benguet. No court can give now a helping hand to the intervenor, which
claims that Benguet no longer lives, and wants to keep for itself all the products of
Benguet's efforts after the latter risked into the venture approximately three million
pesos (P3,000,000)."
The foregoing considerations may not constitute a legal justification for ruling that the
petitioner should be allowed either to extend its life as a sociedad anonima or to reform
and organize under the provisions of the Corporation Law, but they may aid in resolving in
petitioner's favor and doubt as to the clarity or definiteness of sections 75 and 191 of the
Corporation Law regarding its right to exercise either option in the manner claimed by it.
The same result may be arrived at if, in addition, we bear in mind the possible economic
harm that may be brought about by the affirmance of the order complained of. This
aspect is adequately touched in petitioner's brief, as follows:
"1. A loss of employment in the Baguio district by about 4,000 Filipino and a loss of
direct living from the Benguet operation supplied to 20,000, that is, the 4,000 employed
and their dependents.
"(a) This would be calamity to the district of the highest order which could very well
produce a snow balling depression which could react all over the Philippine Islands.
"2. Losses of direct and indirect taxes to the Philippine Government in an extremely
large yearly amount.
"3. No one would be able to continue the Benguet and Balatoc mines in operation
should a liquidation of Benguet take place because the net profits after labor and material
costs and taxes in the last two years or more from the gold mining operations have not
warranted their continued operation as independent units. The profits in 1953 certainly
do not warrant it. It is merely a case of taking gold out of the ground in order to pay for
labor, materials and taxes with very little return to the stockholders and on the huge
investment made in the reconstruction since 1946.
"(a) The relief provided by the elimination of the 17 per cent Excise Tax, the 7 per
cent Compensating Tax and the lowering of the Extraction Tax, when counter-balanced
against consistently increasing costs from month to month up to this very month, is now
nothing but an offsetting item against constantly increasing costs."
For whatever persuasive effect it may have, we cannot help calling attention to the fact
that there are only about nine sociedades anonimas in the country, foremost among them
being Compaia Maritima, which have existed for years and along with the petitioner
figured prominently in our economic development. Compaia Maritima, in particular, has
been twice allowed to extend its life by amendment of its articles of incorporation. It may
be argued that if there was an official mistake in acceding to the extension of the term of
Compaia Maritima, the same should not warrant the commission of another mistake.
But it will go to show that sections 75 and 191 of the Corporation Law are, on the points
herein involved, of doubtful construction; and it is for this reason that we had to advert
hereinabove to the somewhat unequitable position of the intervenor and to the possible
adverse effect on Philippine economy of the abrupt termination of petitioner's corporate
existence.
By and large, it is my considered opinion that the respondent's order of denial dated
October 27, 1953, should be reversed and the respondent ordered to register at least the
documents presented by the petitioner, reforming and organizing itself as a corporation
under the provisions of the Corporation Law. This would be in line with the policy of doing
away with sociedad anonimas, at the same time saving "the goose that lays the golden
egg."

Jugo and Bautista Angelo, JJ., concur.

EN BANC
[G.R. No. 9321. September 24, 1914.]
NORBERTO ASUNCION, ET AL., petitioners-appellants, vs. MANUEL DE YRIARTE,
respondent-appellee.
Modesto Reyes, for appellants.
Attorney-General Villamor, for appellee.
SYLLABUS
1. CORPORATION LAW; POWERS AND DUTIES OF CHIEF OF DIVISION OF ARCHIVES,
EXECUTIVE BUREAU. The chief of the division of archives, for and on behalf of the
division, has authority under the Corporation Law (Act No. 1459) to determine the
sufficiency of the form of articles of incorporation offered for registration with the
division.
2. ID.; ID. The chief of the division of archives, on behalf of the division, has also
the power and duty to determine from the articles of incorporation presented for
registration the lawfulness of the purposes of the proposed corporation and whether or
not those purposes bring the proposed corporation within the purview of the law
authorizing corporations for given purposes.
3. ID.; ID.; MANDAMUS TO COMPEL HIM TO PERFORM DUTIES. The duties of the
chief of the division of archives, so far as relates to the registration of articles of
incorporation, are purely ministerial and not discretional; and mandamus will lie to
compel him to perform his duties under the Corporation Law if, in violation of law, he
refuse to perform them.
4. ID.; MUNICIPALITIES; ORGANIZATION OF BARRIO INTO SEPARATE CORPORATION.
When articles of incorporation presented for registration show that the object of
incorporators is to organize a pueblo or barrio of a given municipality into a separate
corporation for the purpose of taking possession and having control of all municipal
property within the pueblo or barrio so incorporated, and administer it exclusively for the
benefit of the residents of that pueblo or barrio, said articles of incorporation show upon
their face that the object of the incorporation is unlawful in that it seeks to deprive the
municipality in which the pueblo or barrio is situated of its property and its citizens of the
right of enjoying the same and would, if permitted, disrupt and destroy the government
of the municipalities of the Islands and abrogate the laws relating to the formation and
government of municipalities.
DECISION
MORELAND, J p:
This is an action to obtain a writ of mandamus to compel the chief of the division of
archives of the Executive Bureau to file certain articles of incorporation.
The chief of the division of archives, the respondent, refused to file the articles of
incorporation, hereinafter referred to, upon the ground that the object of the
corporation, as stated in the articles, was not lawful and that, in pursuance of section 6 of
Act No. 1459, they were not registerable.
The proposed incorporators began an action in the Court of First Instance of the city of
Manila to compel the chief of the division of archives to receive and register said articles
of incorporation and to do any and all acts necessary for the complete incorporation of
the persons named in the articles. The court below found in favor of the defendant and
refused to order the registration of the articles mentioned, maintaining and holding that
the defendant, under the Corporation Law, had authority to determine both the
sufficiency of the form of the articles and the legality of the object of the proposed
corporation. This appeal is taken from that judgment.
The first question that arises is whether or not the chief of the division of archives has
authority, under the Corporation Law, on being presented with articles of incorporation
for registration, to decide not only as to the sufficiency of the form of the articles, but also
as to the lawfulness of the purposes of the proposed corporation.
It is strongly urged on the part of the appellants that the duties of the defendant are
purely ministerial and that he has no authority to pass upon the lawfulness of the object
for which the incorporators propose to organize. No authorities are cited to support this
proposition and we are of the opinion that it is not sound.
Section 6 of the Corporation Law reads in part as follows:
"Five or more persons, not exceeding fifteen, a majority of whom are residents of the
Philippine Islands, may form a private corporation for any lawful purpose by filing with the
division of archives, patents, copyrights, and trademarks of the Executive Bureau articles
of incorporation duly executed and acknowledged before a notary public, . . ."
Simply because the duties of an official happen to be ministerial, it does not necessarily
follow that he may not, in the administration of his office, determine questions of law. We
are of the opinion that it is the duty of the division of archives, when articles of
incorporation are presented for registration, to determine whether the objects of the
corporation as expressed in the articles are lawful. We do not believe that, simply because
articles of incorporation presented for registration are perfect in form, the division of
archives must accept and register them and issue the corresponding certificate of
incorporation no matter what the purpose of the corporation may be as expressed in the
articles. We do not believe it was intended that the division of archives should issue a
certificate of incorporation to, and thereby put the seal of approval of the Government
upon, a corporation which was organized for base or immoral purposes. That such
corporation might later, if it sought to carry out such purposes, be dissolved, or its
officials imprisoned or itself heavily fined furnishes no reason why it should have been
created in the first instance. It seems to us to be not only the right but the duty of the
division of archives to determine the lawfulness of the objects and purposes of the
corporation before it issues a certificate of incorporation.
It having been determined that the division of archives, through its officials, has authority
to determine not only the sufficiency as to form of the articles of incorporation offered
for registration, but also the lawfulness of the purposes of the corporation as stated in
those articles, the next inquiry leads us to the determination of the question whether or
not the chief of the division of archives, who is the representative thereof and clothed by
it with authority to deal with articles of incorporation offered for registration, is subject to
mandamus in the performance of his duties.
We are of the opinion that he may be mandamused if he act in violation of law or if he
refuses, unduly, to comply with the law. While we have held that defendant has power to
pass upon the lawfulness of the purposes of the proposed corporation and that he may, in
the fulfillment of his duties, determine the question of law whether or not those purposes
are lawful and embraced within that class concerning which the law permits corporations
to be formed, this does not necessarily mean, as we have already intimated, that his
duties are not ministerial. On the contrary, there is no incompatibility in holding, as we do
hold, that his duties are ministerial and that he has no authority to exercise discretion in
receiving and registering articles of incorporation. He may exercise judgment that is,
the judicial function in the determination of the question of law referred to, but he
may not use discretion. The question whether or not the objects of a proposed
corporation are lawful is one that can be decided one way only. If he err in the
determination of that question and refuse to file articles which should be filed under the
law, that decision is subject to review and correction and, upon proper showing, he will
be ordered to file the articles. This is the same kind of determination which a court makes
when it decides a case upon the merits. When a case is presented to a court upon the
merits, the court can decide only one way and be right. As a matter of law, there is only
one course to pursue. In a case where the court or other official has discretion in the
resolution of a question, then, within certain limitations, he may decide the question
either way and still be right. Discretion, it may be said generally, is a faculty conferred
upon a court or other official by which he may decide a question either way and still be
right. The power conferred upon the division of archives with respect to the registration
of articles of incorporation is not of that character. It is of the same character as the
determination of a lawsuit by a court upon the merits. It can be decided only one way
correctly.
If, therefore, the defendant erred in determining the question presented when the
articles were offered for registration, then that error will be corrected by this court in this
action and he will be compelled to register the articles as offered. If, however, he did not
commit an error, but decided that question correctly, then, of course, his action will be
affirmed to the extent that we will deny the relief prayed for.
The next question leads us to the determination of whether or not the purposes of the
corporation as stated in the articles of incorporation are lawful within the meaning of the
Corporation Law.
The purpose of the incorporation as stated in the articles is: "That the object of the
corporation is (a) to organize and regulate the management, disposition, administration
and control which the barrio of Pulo or San Miguel or its inhabitants or residents have
over the common property of said residents or inhabitants or property belonging to the
whole barrio as such; and (b) to use the natural products of the said property for
institutions, foundations, and charitable works of common utility and advantage to the
barrio or its inhabitants."
The municipality of Pasig as recognized by law contains within its limits several barrios or
small settlements, like Pulo or San Miguel, which have no local government of their own
but are governed by the municipality of Pasig through its municipal president and council.
The president and members of the municipal council are elected by a general vote of the
municipality, the qualified electors of all the barrios having the right to participate.
The municipality of Pasig is a municipal corporation organized by law. It has the control of
all property of the municipality. The various barrios of the municipality have no right to
own or hold property, they not being recognized as legal entities by any law. The
residents of the barrios participate in the advantages which accrue to the municipality
from public property and receive all of the benefits incident to residence in a municipality
organized by law. If there is any public property situated in the barrio of Pulo or San
Miguel not belonging to the general government or the province, it belongs to the
municipality of Pasig and the sole authority to manage and administer the same resides in
that municipality. Until the present laws upon the subject are changed no other entity can
be the owner of such property or control or administer it.

The object of the proposed corporation, as appears from the articles offered for
registration, is to make of the barrio of Pulo or San Miguel a corporation which will
become the owner of and have the right to control and administer any property belonging
to the municipality of Pasig found within the limits of that barrio. This clearly cannot be
permitted. Otherwise municipalities as now established by law could be derived of the
property which they now own and administer. Each barrio of the municipality would
become, under the scheme proposed, a separate corporation, would take over the
ownership, administration, and control of that portion of the municipal territory within its
limits. This would disrupt, in a sense, the municipalities of the Islands by dividing them
into a series of smaller municipalities entirely independent of the original municipality.

What the law does not permit cannot be obtained by indirection. The object of the
proposed corporation is clearly repugnant to the provisions of the Municipal Code and the
governments of municipalities as they have been organized thereunder. (Act No. 82,
Philippine Commission.)

The judgment appealed from is affirmed, with costs against appellants.

Arellano, C.J., Torres, Johnson, Carson and Araullo, JJ., concur.

SECOND DIVISION
[G.R. No. 117188. August 7, 1997.]
LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner, vs. HON.
COURT OF APPEALS, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN
ENCARNACION and HORATIO AYCARDO, respondents.
Rene A. Diokno for petitioner.
Reyno De Vera Tiu Domingo and Santos for private respondents.
SYLLABUS
1. STATUTORY CONSTRUCTION; STATUTE; INTERPRETATION; THE WORD "MUST" IS
NOT ALWAYS IMPERATIVE. Ordinarily, the word "must" connotes an imperative act or
operates to impose a duty which may be enforced. It is synonymous with "ought" which
connotes compulsion or mandatoriness. However, the word "must" in a statute, like,
"shall", is not always imperative. It may be consistent with an exercise of discretion. In
this jurisdiction, the tendency has been to interpret "shall" as the context or a reasonable
construction of the statute in which it is used demands or requires. This is equally true as
regards the word "must". Thus, if the language of a statute considered as a whole and
with due regard to its nature and object reveals that the legislature intended to use the
words "shall" and "must" to be directory, they should be given that meaning. cdt
2. COMMERCIAL LAW; CORPORATION CODE; SEC. 46 (ADOPTION OF BY-LAWS); BY-
LAWS; REQUIREMENT FOR THE ADOPTION THEREOF WITHIN THE PERIOD PROVIDED; NOT
MANDATORY. Taken as a whole and under the principle that the best interpreter of a
statute is the statute itself (optima statuli interpretatix est ipsum statutum). Section 46 of
the Corporation Code reveals the legislative intent to attach a directory, and not
mandatory, meaning for the word "must" in the first sentence thereof. Note should be
taken of the second paragraph of the law which allows the filing of the by-laws even prior
to incorporation. This provision in the same section of the Code rules out mandatory
compliance with the requirement of filing the by-laws "within one (1) month after receipt
of official notice of the issuance of its certificate of incorporation by the Securities and
Exchange Commission". It necessarily follows that failure to file the by-laws within any
period does not imply the "demise" of the corporation. By-laws may be necessary for the
"government" of the corporation but these are subordinate to the articles of
incorporation as well as to the Corporation Code and related statutes. There are in fact
cases where by-laws are unnecessary to corporate existence or to the valid exercise of
corporate powers, thus: "In the absence of charter or statutory provisions to the contrary,
by-laws are not necessary either to the existence of a corporation or to the valid exercise
of the powers conferred upon it, certainly in all cases where the charter sufficiently
provides for the government of the body; and even where the governing statute in
express terms confers upon the corporation the power to adopt by-laws, the failure to
exercise the power will be ascribed to mere nonaction which will not render void any acts
of the corporation which would otherwise be valid." As the "rules and regulations or
private laws enacted by the corporation to regulate, govern and control its own actions,
affairs and concerns and its stockholders or members and directors and officers with
relation thereto and among themselves in their relation to it," by-laws are indispensable
to corporations in this jurisdiction. These may not be essential to corporate birth but
certainly, these are required by law for an orderly governance and management of
corporations. Nonetheless, failure to file them within the period required by law by no
means tolls the automatic dissolution of a corporation.
3. ID.; ID.; ID.; EFFECT OF FAILURE TO FILE. Although the Corporation Code
requires the filing of by-laws, it does not expressly provide for the consequences of the
non-filing of the same within the period provided for in Section 46. However, such
omission has been rectified by Presidential Decree No. 902-A, the pertinent provisions on
the jurisdiction of the SEC of which state: "SEC. 6. In order to effectively exercise such
jurisdiction, the Commission shall possess the following powers: . . . (1) to suspend, or
revoke, after proper notice and hearing, the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds provided by law,
including the following: . . . Failure to file by-laws within the required period; . . . In the
exercise of the foregoing authority and jurisdiction of the Commissions or by a
Commissioner or by such there bodies, boards committees and/or any officer as may be
created or designated by the Commission for the purpose. The decision, ruling or order of
any such Commissioner, bodies, boards, committees and/or officer may be appealed to
the Commission sitting en banc within thirty (30) days after receipt by the appellant of
notice of such decision, ruling or order. The Commission shall promulgate rules of
procedures to govern the proceedings, hearings and appeals of cases falling within its
jurisdiction. The aggrieved party may appeal the order, decision or ruling of the
Commission sitting en banc to the Supreme Court by petition for review in accordance
with the pertinent provisions of the Rules of Court." Even under the foregoing express
grant of power and authority, there can be no automatic corporate dissolution simply
because the incorporators failed to abide by the required filing of by-laws embodied in
Section 46 of the Corporation Code. There is no outright "demise" private of corporate
existence. Proper notice and hearing are cardinal components of due process in any
democratic institution, agency or society. In other words, the incorporators must be given
the chance to explain their neglect or omission and remedy the same. That the failure to
file by-laws is not provided for by the Corporation Code but in another law is of no
moment. P.D. No. 902-A, which took effect immediately after its promulgation on March
11, 1976, is very much apposite to the Code. Accordingly, the provisions above-quoted
supply the law governing the situation in the case at bar, inasmuch as the Corporation
Code and P.D. No. 902-A are statutes in pari materia. Interpretare et concordare legibus
est optimus interpretandi. Every statute must be so construed and harmonized with other
statutes as to form a uniform system of jurisprudence. cdasia
DECISION
ROMERO, J p:
May the failure of a corporation to file its by-laws within one month from the date of its
incorporation, as mandated by Section 46 of the Corporation Code, result in its automatic
dissolution?
This is the issue raised in this petition for review on certiorari of the Decision 1 of the
Court of Appeals affirming the decision of the Home Insurance and Guaranty Corporation
(HIGC). This quasi-judicial body recognized Loyola Grand Villas Homeowners Association
(LGVHA) as the sole homeowners' association in Loyola Grand Villas, a duly registered
subdivision in Quezon City and Marikina City that was owned and developed by Solid
Homes, Inc. It revoked the certificates of registration issued to Loyola Grand Villas
Homeowners (North) Association Incorporated (the North Association for brevity) and
Loyola Grand Villas Homeowners (South) Association Incorporated (the South
Association). aisadc
LGVHAI was organized on February 8, 1983 as the association of homeowners and
residents of the Loyola Grand Villas. It was registered with the Home Financing
Corporation, the predecessor of herein respondent HIGC, as the sole homeowners'
organization in the said subdivision under Certificate of Registration No. 04-197. It was
organized by the developer of the subdivision and its first president was Victorio V.
Soliven, himself the owner of the developer. For unknown reasons, however, LGVHAI did
not file its corporate by-laws.
Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They failed to
do so. 2 'To the officers' consternation, they discovered that there were two other
organizations within the subdivision the North Association and the South Association.
According to private respondents, a non-resident and Soliven himself, respectively
headed these associations. They also discovered that these associations had five (5)
registered homeowners each who were also the incorporators, directors and officers
thereof. None of the members of the LGVHAI was listed as member of the North
Association while three (3) members of LGVHAI were listed as members of the South
Association. 3 The North Association was registered with the HIGC on February 13, 1989
under Certificate of Registration No. 04-1160 covering Phases West II, East III, West III and
East IV. It submitted its by-laws on December 20, 1988.
In July, 1989, when Soliven inquired about the status of LGVHAI, Atty. Joaquin A. Bautista,
the head of the legal department of the HIGC, informed him that LGVHAI had been
automatically dissolved for two reasons. First, it did not submit its by-laws within the
period required by the Corporation Code and, second, there was non-user of corporate
charter because HIGC had not received any report on the association's activities.
Apparently, this information resulted in the registration of the South Association with the
HIGC on July 27, 1989 covering Phases West I, East I and East II. It filed its by-laws on July
26, 1989.
These developments prompted the officers of the LGVHAI to lodge a complaint with the
HIGC. They questioned the revocation of LGVHAI's certificate of registration without due
notice and hearing and concomitantly prayed for the cancellation of the certificates of
registration of the North and South Associations by reason of the earlier issuance of a
certificate of registration in favor of LGVHAI.
On January 26, 1993, after due notice and hearing, private respondents obtained a
favorable ruling from HIGC Hearing Officer Danilo C. Javier who disposed of HIGC Case No.
RRM-5-89 as follows:
"WHEREFORE, judgment is hereby rendered recognizing the Loyola Grand Villas
Homeowners Association, Inc., under Certificate of Registration No. 04-197 as the duly
registered and existing homeowners association for Loyola Grand Villas homeowners, and
declaring the Certificates of Registration of Loyola Grand Villas Homeowners (North)
Association, Inc. and Loyola Grand Villas Homeowners (South) Association, Inc. as hereby
revoked or cancelled; that the receivership be terminated and the Receiver is hereby
ordered to render an accounting and turn-over to Loyola Grand Villas Homeowners
Association, Inc., all assets and records of the Association now under his custody and
possession."
The South Association appealed to the Appeals Board of the HIGC. In its Resolution of
September 8, 1993, the Board 4 dismissed the appeal for lack of merit.
Rebuffed, the South Association in turn appealed to the Court of Appeals, raising two
issues. First, whether or not LGVHAI's failure to file its by-laws within the period
prescribed by Section 46 of the Corporation Code resulted in the automatic dissolution of
LGVHAI. Second, whether or not two homeowners' associations may be authorized by the
HIGC in one "sprawling subdivision." However, in the Decision of August 23, 1994 being
assailed here, the Court of Appeals affirmed the Resolution of the HIGC Appeals Board.
In resolving the first issue, the Court of Appeals held that under the Corporation Code, a
private corporation commences to have corporate existence and juridical personality
from the date the Securities and Exchange Commission (SEC) issues a certificate of
incorporation under its official seal. The requirement for the filing of by-laws under
Section 46 of the Corporation Code within one month from official notice of the issuance
of the certificate of incorporation presupposes that it is already incorporated, although it
may file its by-laws with its articles of incorporation. Elucidating on the effect of a delayed
filing of by-laws, the Court of Appeals said:
"We also find nothing in the provisions cited by the petitioner, i.e., Sections 46 and 22,
Corporation Code, or in any other provision of the Code and other laws which provide or
at least imply that failure to file the by-laws results in an automatic dissolution of the
corporation. While Section 46, in prescribing that by-laws must be adopted within the
period prescribed therein, may be interpreted as a mandatory provision, particularly
because of the use of the word 'must,' its meaning cannot be stretched to support the
argument that automatic dissolution results from non-compliance.
We realize that Section 46 or other provisions of the Corporation Code are silent on the
result of the failure to adopt and file the by-laws within the required period. Thus, Section
46 and other related provisions of the Corporation Code are to be construed with Section
6 (1) of P.D. 902-A. This section empowers the SEC to suspend or revoke certificates of
registration on the grounds listed therein. Among the grounds stated is the failure to file
by-laws (see also II Campos: The Corporation Code, 1990 ed., pp. 124-125). Such
suspension or revocation, the same section provides, should be made upon proper notice
and hearing. Although P.D. 902-A refers to the SEC, the same principles and procedures
apply to the public respondent HIGC as it exercises its power to revoke or suspend the
certificates of registration or homeowners associations. (Section 2 [a], E.O. 535, series
1979, transferred the powers and authorities of the SEC over homeowners associations to
the HIGC.)
We also do not agree with the petitioner's interpretation that Section 46, Corporation
Code prevails over Section 6, P.D. 902-A and that the latter is invalid because it
contravenes the former. There is no basis for such interpretation considering that these
two provisions are not inconsistent with each other. They are, in fact, complementary to
each other so that one cannot be considered as invalidating the other."
The Court of Appeals added that, as there was no showing that the registration of LGVHAI
had been validly revoked, it continued to be the duly registered homeowners' association
in the Loyola Grand Villas. More importantly, the South Association did not dispute the
fact that LGVHAI had been organized and that, thereafter, it transacted business within
the period prescribed by law.
On the second issue, the Court of Appeals reiterated its previous ruling 5 that the HIGC
has the authority to order the holding of a referendum to determine which of two
contending associations should represent the entire community, village or subdivision.
Undaunted, the South Association filed the instant petition for review on certiorari. It
elevates as sole issue for resolution the first issue it had raised before the Court of
Appeals, i.e., whether or not the LGVHAI's failure to file its by-laws within the period
prescribed by Section 46 of the Corporation Code had the effect of automatically
dissolving the said corporation.
Petitioner contends that, since Section 46 uses the word "must" with respect to the filing
of by-laws, noncompliance therewith would result in "self-extinction" either due to non-
occurrence of a suspensive condition or the occurrence of a resolutory condition ''under
the hypothesis that (by) the issuance of the certificate of registration alone the corporate
personality is deemed already formed." It asserts that the Corporation Code provides for
a "gradation of violations of requirements." Hence, Section 22 mandates that the
corporation must be formally organized and should commence transactions within two
years from date of incorporation. Otherwise, the corporation would be deemed dissolved.
On the other hand, if the corporation commences operations but becomes continuously
inoperative for five years, then it may be suspended or its corporate franchise revoked.
Petitioner concedes that Section 46 and the other provisions of the Corporation Code do
not provide for sanctions for non-filing of the by-laws. However, it insists that no sanction
need be provided "because the mandatory nature of the provision is so clear that there
can be no doubt about its being an essential attribute of corporate birth." To petitioner,
its submission is buttressed by the facts that the period for compliance is "spelled out
distinctly," that the certification of the SEC/HIGC must show that the by-laws are not
inconsistent with the Code, and that a copy of the by-laws "has to be attached to the
articles of incorporation." Moreover, no sanction is provided for because "in the first
place, no corporate identity has been completed." Petitioner asserts that "non-provision
for remedy or sanction is itself the tacit proclamation that non-compliance is fatal and no
corporate existence had yet evolved," and therefore, there was "no need to proclaim its
demise." 6 In a bid to convince the Court of its arguments, petitioner stresses that:
". . . the word MUST is used in Sec. 46 in its universal literal meaning and corollary human
implication its compulsion is integrated in its very essence MUST is always
enforceable by the inevitable consequence that is, 'OR ELSE'. The use of the word
MUST in Sec. 46 is no exception it means file the by-laws within one month after notice
of issuance of certificate of registration OR ELSE. The OR ELSE, though not specified, is
inextricably a part of MUST. Do this or if you do not you are 'Kaput'. The importance of
the by-laws to corporate existence compels such meaning for as decreed the by-laws is
'the government' of the corporation. Indeed, how can the corporation do any lawful act
as such without by-laws. Surely, no law is intended to create chaos." 7
Petitioner asserts that P.D. No. 902-A cannot exceed the scope and power of the
Corporation Code which itself does not provide sanctions for non-filing of by-laws. For the
petitioner, it is "not proper to assess the true meaning of Sec. 46 . . . on an unauthorized
provision on such matter contained in the said decree."
In their comment on the petition, private respondents counter that the requirement of
adoption of by-laws is not mandatory. They point to P.D. No. 902-A as having resolved the
issue of whether said requirement is mandatory or merely directory. Citing Chung Ka Bio
v. Intermediate Appellate Court, 8 private respondents contend that Section 6(I) of that
decree provides that non-filing of by-laws is only a ground for suspension or revocation of
the certificate of registration of corporations and, therefore, it may not result in
automatic dissolution of the corporation. Moreover, the adoption and filing of by-laws is a
condition subsequent which does not affect the corporate personality of a corporation
like the LGVHAI. This is so because Section 9 of the Corporation Code provides that the
corporate existence and juridical personality of a corporation begins from the date the
SEC issues a certificate of incorporation under its official seal. Consequently, even if the
by-laws have not yet been filed, a corporation may be considered a de facto corporation.
To emphasize the fact the LGVHAI was registered as the sole homeowners' association in
the Loyola Grand Villas, private respondents point out that membership in the LGVHAI
was an "unconditional restriction in the deeds of sale signed by lot buyers." cdtai
In its reply to private respondents' comment on the petition, petitioner reiterates its
argument that the word "must" in Section 46 of the Corporation Code is mandatory. It
adds that, before the ruling in Chung Ka Bio v. Intermediate Appellate Court could be
applied to this case, this Court must first resolve the issue of whether or not the
provisions of P.D. No. 902-A prescribing the rules and regulations to implement the
Corporation Code can "rise above and change" the substantive provisions of the Code.
The pertinent provision of the Corporation Code that is the focal point of controversy in
this case states:
"Sec. 46. Adoption of by-laws. Every corporation formed under this Code, must within
one (1) month after receipt of official notice of the issuance of its certificate of
incorporation by the Securities and Exchange Commission, adopt a code of by-laws for its
government not inconsistent with this Code. For the adoption of by-laws by the
corporation, the affirmative vote of the stockholders representing at least a majority of
the outstanding capital stock, or of at least a majority of the members, in the case of non-
stock corporations, shall be necessary. The by-laws shall be signed by the stockholders or
members voting for them and shall be kept in the principal office of the corporation,
subject to inspection of the stockholders or members during office hours; and a copy
thereof, shall be filed with the Securities and Exchange Commission which shall be
attached to the original articles of incorporation.
Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and
filed prior to incorporation; in such case, such by-laws shall be approved and signed by all
the incorporators and submitted to the Securities and Exchange Commission, together
with the articles of incorporation.
In all cases, by-laws shall be effective only upon the issuance by the Securities and
Exchange Commission of a certification that the by-laws are not inconsistent with this
Code.
The Securities and Exchange Commission shall not accept for filing the by-laws or any
amendment thereto of any bank, banking institution, building and loan association, trust
company, insurance company, public utility, educational institution or other special
corporations governed by special laws, unless accompanied by a certificate of the
appropriate government agency to the effect that such by-laws or amendments are in
accordance with law."
As correctly postulated by the petitioner, interpretation of this provision of law begins
with the determination of the meaning and import of the word "must" in this section.
Ordinarily, the word "must" connotes an imperative act or operates to impose a duty
which may be enforced. 9 It is synonymous with "ought" which connotes compulsion or
mandatoriness. 10 However, the word "must" in a statute, like "shall," is not always
imperative. It may be consistent with an exercise of discretion. In this jurisdiction, the
tendency has been to interpret "shall" as the context or a reasonable construction of the
statute in which it is used demands or requires. 11 This is equally true as regards the word
"must." Thus, if the language of a statute considered as a whole and with due regard to its
nature and object reveals that the legislature intended to use the words "shall" and
"must" to be directory, they should be given that meaning. 12
In this respect, the following portions of the deliberations of the Batasang Pambansa No.
68 are illuminating:
"MR. FUENTEBELLA. Thank you, Mr. Speaker.
On page 34, referring to the adoption of by-laws, are we made to understand here, Mr.
Speaker, that by-laws must immediately be filed within one month after the issuance? In
other words, would this be mandatory or directory in character?
MR. MENDOZA. This is mandatory.
MR. FUENTEBELLA. It being mandatory, Mr. Speaker, what would be the effect of the
failure of the corporation to file these by- laws within one month?
MR. MENDOZA. There is a provision in the latter part of the Code which identifies and
describes the consequences of violations of any provision of this Code. One such
consequence is the dissolution of the corporation for its inability, or perhaps, incurring
certain penalties.
MR. FUENTEBELLA. But it will not automatically amount to a dissolution of the
corporation by merely failing to file the by-laws within one month. Supposing the
corporation was late, say, five days, what would be the mandatory penalty?
MR. MENDOZA. I do not think it will necessarily result in the automatic or ipso facto
dissolution of the corporation. Perhaps, as in the case, as you suggested, in the case of El
Hogar Filipino where a quo warranto action is brought, one takes to account the gravity of
the violation committed. If the by-laws were late the filing of the by-laws were late by,
perhaps, a day or two, I would suppose that might be a tolerable delay, but if they are
delayed over a period of months as is happening now because of the absence of a
clear requirement that by-laws must be completed within a specified period of time, the
corporation must suffer certain consequences." 13
This exchange of views demonstrates clearly that automatic corporate dissolution for
failure to file the by-laws on time was never the intention of the legislature. Moreover,
even without resorting to the records of deliberations of the Batasang Pambansa, the law
itself provides the answer to the issue propounded by petitioner.
Taken as a whole and under the principle that the best interpreter of a statute is the
statute itself (optima statuli interpretatix est ipsum statutum), 14 Section 46 aforequoted
reveals the legislative intent to attach a directory, and not mandatory, meaning for the
word ''must" in the first sentence thereof. Note should be taken of the second paragraph
of the law which allows the filing of the by-laws even prior to incorporation. This provision
in the same section of the Code rules out mandatory compliance with the requirement of
filing the by-laws "within one (1) month after receipt of official notice of the issuance of
its certificate of incorporation by the Securities and Exchange Commission." It necessarily
follows that failure to file the by-laws within that period does not imply the "demise" of
the corporation. By-laws may be necessary for the "government" of the corporation but
these are subordinate to the articles of incorporation as well as to the Corporation Code
and related statutes. 15 There are in fact cases where by-laws are unnecessary to
corporate existence or to the valid exercise of corporate powers, thus:
"In the absence of charter or statutory provisions to the contrary, by-laws are not
necessary either to the existence of a corporation or to the valid exercise of the powers
conferred upon it, certainly in all cases where the charter sufficiently provides for the
government of the body; and even where the governing statute in express terms confers
upon the corporation the power to adopt by-laws, the failure to exercise the power will
be ascribed to mere nonaction which will not render void any acts of the corporation
which would otherwise be valid." 16 (Emphasis supplied.)
As Fletcher aptly puts it:
"It has been said that the by-laws of a corporation are the rule of its life, and that until by-
laws have been adopted the corporation may not be able to act for the purposes of its
creation, and that the first and most important duty of the members is to adopt them.
This would seem to follow as a matter of principle from the office and functions of by-
laws. Viewed in this light, the adoption of by-laws is a matter of practical, if not one of
legal, necessity. Moreover, the peculiar circumstances attending the formation of a
corporation may impose the obligation to adopt certain by-laws, as in the case of a close
corporation organized for specific purposes. And the statute or general laws from which
the corporation derives its corporate existence may expressly require it to make and
adopt by-laws and specify to some extent what they shall contain and the manner of their
adoption. The mere fact, however, of the existence of power in the corporation to adopt
by-laws does not ordinarily and of necessity make the exercise of such power essential to
its corporate life, or to the validity of any of its acts." 17
Although the Corporation Code requires the filing of by-laws, it does not expressly provide
for the consequences of the non-filing of the same within the period provided for in
Section 46. However, such omission has been rectified by Presidential Decree No. 902-A,
the pertinent provisions on the jurisdiction of the SEC of which state:
"SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess
the following powers:
xxx xxx xxx
(i) To suspend, or revoke, after proper notice and hearing, the franchise or
certificate of registration of corporations, partnerships or associations, upon any of the
grounds provided by law, including the following:
xxx xxx xxx
5. Failure to file by-laws within the required period;
xxx xxx xxx
In the exercise of the foregoing authority and jurisdiction of the Commission, hearings
shall be conducted by the Commission or by a Commissioner or by such other bodies,
boards, committees and/or any officer as may be created or designated by the
Commission for the purpose. The decision, ruling or order of any such Commissioner,
bodies, boards, committees and/or officer may be appealed to the Commission sitting en
banc within thirty (30) days after receipt by the appellant of notice of such decision, ruling
or order. The Commission shall promulgate rules of procedures to govern the
proceedings, hearings and appeals of cases falling within its jurisdiction. cdpr
The aggrieved party may appeal the order, decision or ruling of the Commission sitting en
banc to the Supreme Court by petition for review in accordance with the pertinent
provisions of the Rules of Court."
Even under the foregoing express grant of power and authority, there can be no
automatic corporate dissolution simply because the incorporators failed to abide by the
required filing of by-laws embodied in Section 46 of the Corporation Code. There is no
outright "demise" of corporate existence. Proper notice and hearing are cardinal
components of due process in any democratic institution, agency or society. In other
words, the incorporators must be given the chance to explain their neglect or omission
and remedy the same.
That the failure to file by-laws is not provided for by the Corporation Code but in another
law is of no moment. P.D. No. 902-A, which took effect immediately after its promulgation
on March 11, 1976, is very much apposite to the Code. Accordingly, the provisions
abovequoted supply the law governing the situation in the case at bar, inasmuch as the
Corporation Code and P.D. No. 902-A are statutes in pari materia. Interpretare et
concordare legibus est optimus interpretandi. Every statute must be so construed and
harmonized with other statutes as to form a uniform system of jurisprudence. 18
As the "rules and regulations or private laws enacted by the corporation to regulate,
govern and control its own actions, affairs and concerns and its stockholders or members
and directors and officers with relation thereto and among themselves in their relation to
it," 19 by-laws are indispensable to corporations in this jurisdiction. These may not be
essential to corporate birth but certainly, these are required by law for an orderly
governance and management of corporations. Nonetheless, failure to file them within the
period required by law by no means tolls the automatic dissolution of a corporation.
In this regard, private respondents are correct in relying on the pronouncements of this laws, which under Section 46 of the Corporation Code, must be adopted 'within one
Court in Chung Ka Bio v. Intermediate Appellate Court, 20 as follows: month after receipt of official notice of the issuance of its certificate of incorporation.'" 21

". . . Moreover, failure to file the by-laws does not automatically operate to dissolve a That the corporation involved herein is under the supervision of the HIGC does not alter
corporation but is now considered only a ground for such dissolution. the result of this case. The HIGC has taken over the specialized functions of the former
Home Financing Corporation by virtue of Executive Order No. 90 dated December 17,
Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation 1986. 22 With respect to homeowners associations, the HIGC shall "exercise all the
Code, provided that the powers of the corporation would cease if it did not formally powers, authorities and responsibilities that are vested on the Securities and Exchange
organize and commence the transaction of its business or the continuation of its works Commission . . ., the provision of Act 1459, as amended by P.D. 902-A, to the contrary
within two years from date of its incorporation. Section 20, which has been reproduced notwithstanding." 23
with some modifications in Section 46 of the Corporation Code, expressly declared that
'every corporation formed under this Act, must within one month after the filing of the WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the
articles of incorporation with the Securities and Exchange Commission, adopt a code of questioned Decision of the Court of Appeals AFFIRMED. This Decision is immediately
by-laws.' Whether this provision should be given mandatory or only directory effect executory. Costs against petitioner. cda
remained a controversial question until it became academic with the adoption of PD 902-
A. Under this decree, it is now clear that the failure to file by-laws within the required SO ORDERED.
period is only a ground for suspension or revocation of the certificate of registration of
Regalado, Puno and Mendoza, JJ ., concur.
corporations.
Torres, Jr., J ., is on leave.
Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under
Section 6(I) of PD 902-A, the SEC is empowered to 'suspend or revoke, after proper notice
and hearing, the franchise or certificate of registration of a corporation' on the ground
inter alia of 'failure to file by-laws within the required period.' It is clear from this
provision that there must first of all be a hearing to determine the existence of the
ground, and secondly, assuming such finding, the penalty is not necessarily revocation but
may be only suspension of the charter. In fact, under the rules and regulations of the SEC,
failure to file the by-laws on time may be penalized merely with the imposition of an
administrative fine without affecting the corporate existence of the erring firm.

It should be stressed in this connection that substantial compliance with conditions

subsequent will suffice to perfect corporate personality. Organization and
commencement of transaction of corporate business are but conditions subsequent and
not prerequisites for acquisition of corporate personality. The adoption and filing of by-
laws is also a condition subsequent. Under Section 19 of the Corporation Code, a
corporation commences its corporate existence and juridical personality and is deemed
incorporated from the date the Securities and Exchange Commission issues certificate of
incorporation under its official seal. This may be done even before the filing of the by-
SECOND DIVISION
[G.R. No. 121466. August 15, 1997.]
PMI COLLEGES, petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION and
ALEJANDRO GALVAN, respondents.
Esteban M. Mendoza for petitioner.
N. L. Dasig Law Office for private respondent.
SYNOPSIS
Petitioner hired private respondent as contractual instructor with an agreement that the
latter shall be paid a rate on hourly basis. Private respondent and other instructors were
compensated for services rendered during the first three periods of the abovementioned
contract but for reasons unknown to them, they stopped receiving payment for the
succeeding rendition of services. Repeated demands on petitioner to release the salaries
remained unheeded. Private respondent filed a complaint before the National Capital
Region Arbitration Branch seeking payment of the salaries he earned while conducting on-
the-job training courses, conducted outside the school premises. Attempts at amicable
settlement having failed the parties were required to submit their respective position
papers. On the basis thereof, the Labor Arbiter issued an order declaring the case
submitted for decision. Such order was vigorously opposed by petitioner insisting that
there should be a formal hearing on the merits in view of the important factual issues
raised. A decision was subsequently rendered by the Labor Arbiter finding for the private
respondent. On appeal, the NLRC affirmed the same in toto. In this petition for review,
petitioner imputes grave abuse of discretion on the part of the Labor Arbiter in rendering
the assailed decision without a formal hearing. Petitioner also assails the legal soundness
of the monetary award in favor of the private respondent.
The Supreme Court ruled that the absence of a formal hearing or trial before the Labor
Arbiter is not a ground to impute grave abuse of discretion. Whether to conduct one or
not depends on the sole discretion of the Labor Arbiter, taking into account the position
papers and supporting documents submitted by the parties on every issue presented. In
case at bar, private respondent through annexes to his position paper, has adequately
established the substance of his case. Petitioner on the other hand, failed to controvert
private respondent's evidence, it offered only four documents. It has only itself to blame if
it did not attach its supporting evidence with its position paper and now insist that there
be a trial to give it an opportunity to ventilate what it should have done earlier. The Court
also upheld the Labor Arbiter's monetary award in favor of private respondent holding
that the same has sufficient factual and legal basis. EHaCID
Petition dismissed for lack of merit.
SYLLABUS
1. REMEDIAL LAW; SPECIAL CIVIL ACTIONS; CERTIORARI; CONFINED ONLY TO
JURISDICTIONAL ISSUES AND A DETERMINATION OF WHETHER THERE IS SUCH GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION ON THE PART
OF A TRIBUNAL OR AGENCY. A mere perusal of the issues raised by petitioner already
invites dismissal for demonstrated ignorance and disregard of settled rules on certiorari.
Except perhaps for the third issue, the rest glaringly call for a re-examination, evaluation
and appreciation of the weight and sufficiency of factual evidence presented before the
Labor Arbiter. This, of course, the Court cannot do in the exercise of its certiorari
jurisdiction without transgressing the well-defined limits thereof. The corrective power of
the Court in this regard is confined only to jurisdictional issues and a determination of
whether there is such grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of a tribunal or agency. So unyielding and consistent are the decisional rules
thereon that it is indeed surprising why petitioner's counsel failed to accord them the
observance they deserve. Thus, in San Miguel Foods, Inc. Cebu B-Meg Feed Plant v. Hon.
Bienvenido Laguesma, we were emphatic in declaring that: "This Court is definitely not
the proper venue to consider this matter for it is not a trier of facts. . . . Certiorari is a
remedy narrow in its scope and inflexible in character. It is not a general utility tool in the
legal workshop. Factual issues are not a proper subject for certiorari, as the power of the
Supreme Court to review labor cases is limited to the issue of jurisdiction and grave abuse
of discretion. . . ." Of the same tenor was our disquisition in Ilocos Sur Electric
Cooperative, Inc. v. NLRC where we made plain that: "In certiorari proceedings under Rule
65 of the Rules of Court, judicial review by this Court does not go so far as to evaluate the
sufficiency of evidence upon which the Labor Arbiter and the NLRC based their
determinations, the inquiry being limited essentially to whether or not said public
respondents had acted without or in excess of its jurisdiction or with grave abuse of
discretion."
2. ID.; ID.; ID.; IN CERTIORARI PROCEEDINGS, THE COURT IS CONCERNED WITH
MERE "ERRORS OF JURISDICTION" AND NOT "ERRORS OF JUDGMENT". To be sure, this
does not mean that the Court would disregard altogether the evidence presented. We
merely declare that the extent of review of evidence we ordinarily provide in other cases
is different when it is a special civil action of certiorari. The latter commands us to merely
determine whether there is basis established on record to support the findings of a
tribunal and such findings meet the required quantum of proof, which in this instance, is
substantial evidence. Our deference to the expertise acquired by quasi-judicial agencies
and the limited scope a granted to us in the exercise of certiorari jurisdiction restrain us
from going so far as to probe into the correctness of a tribunal's evaluation of evidence,
unless there is palpable mistake and complete disregard thereof in which case certiorari
would be proper. In plain terms, in certiorari proceedings, we are concerned with mere
"errors of jurisdiction" and not "errors of judgment." Thus: "The rule is settled that the
original and exclusive jurisdiction of this Court to review a decision of respondent NLRC
(or Executive Labor Arbiter as in this case) in a petition for certiorari under Rule 65 does
not normally include an inquiry into the correctness of its evaluation of the evidence.
Errors of judgment, as distinguished from errors of jurisdiction, are not within the
province of a special civil action for certiorari, which is merely confined to issues of
jurisdiction or grave abuse of discretion. It is thus incumbent upon petitioner to
satisfactorily establish that respondent Commission or executive labor arbiter acted
capriciously and whimsically in total disregard of evidence material to or even decisive of
the controversy, in order that the extraordinary writ of certiorari will lie. By grave abuse
of discretion is meant such capricious and whimsical exercise of judgment as is equivalent
to lack of jurisdiction, and it must be shown that the discretion was exercised arbitrary or
despotically. For certiorari to lie there must be capricious, arbitrarily and whimsical
exercise of power, the very antithesis of the judicial prerogative in accordance with
centuries of both civil law and common law traditions." The Court entertains no doubt
that the foregoing doctrines apply with equal force in the case at bar. ITaESD
3. CIVIL LAW; CONTRACTS; FORM OF CONTRACTS; THERE IS NO REQUIREMENT
UNDER THE LAW THAT THE CONTRACT OF EMPLOYMENT SHOULD BE IN ANY PARTICULAR
FORM. Petitioner places so much emphasis on its argument that private respondent
did not produce a copy of the contract pursuant to which he rendered services. This
argument is, of course, puerile. The absence of such copy does not in any manner negate
the existence of a contract of employment since "(C)ontracts shall be obligatory, in
whatever form they have been entered into, provided all the essential requisites for their
validity are present." The only exception to this rule is "when the law requires that a
contract be in some form in order that it may be valid or enforceable, or that a contract
be proved in a certain way." However, there is no requirement under the law that the
contract of employment of the kind entered into by petitioner with private respondent
should be in any particular form. While it may have been desirable for private respondent
to have produced a copy of his contract if one really exists, but the absence thereof, in
any case, does not militate against his claims inasmuch as: "No particular form of
evidence is required to prove the existence of an employer-employee relationship. Any
competent and relevant evidence to prove the relationship may be admitted. For, if only
documentary evidence would be required to show that relationship, no scheming
employer would even be brought before the bar of justice, as no employer would wish to
come out with any trace of the illegality he has authored considering that it should take
much weightier proof to invalidate a written instrument. . . ." At any rate, the vouchers
prepared by petitioner's own accounting department and the letter-request of its Acting
Director asking for payment of private respondent's services suffice to support a
reasonable conclusion that private respondent was employed with petitioner. How else
could one explain the fact that private respondent was supposed to be paid the amounts
mentioned in those documents if he were not employed? Petitioner's evidence is wanting
in this respect while private respondent affirmatively stated that the same arose out of his
employment with petitioner. As between the two, the latter is weightier inasmuch as we
accord affirmative testimony greater value than a negative one. For the foregoing
reasons, we find it difficult to agree with petitioner's assertion that the absence of a copy
of the alleged contract should nullify private respondent's claims.
4. LABOR AND SOCIAL LEGISLATION; LABOR RELATIONS; THE ABSENCE OF A
FORMAL HEARING OR TRIAL BEFORE THE LABOR ARBITER IS NO CAUSE FOR PETITIONER
TO IMPUTE GRAVE ABUSE OF DISCRETION; REASON. We can understand why the Labor
Arbiter has opted not to proceed to trial, considering that private respondent, through
annexes to his position paper, has adequately established that, first of all, he was an
employee of petitioner; second, the nature and character of his services, and finally, the
amounts due him in consideration of his services. Petitioner, it should be reiterated, failed
to controvert them. Actually, it offered only four documents later in the course of the
proceedings. It has only itself to blame if it did not attach its supporting evidence with its
position paper. It cannot now insist that there be a trial to give it an opportunity to
ventilate what it should have done earlier. Section 3, Rule V of the New Rules of
Procedure of the NLRC is very clear on the matter: "Section 3. . . . These verified position
papers . . . shall be accompanied by all supporting documents including the affidavits of
their respective witnesses which shall take the place of the latter's direct testimony. The
parties shall thereafter not be allowed to allege facts, or present evidence to prove facts,
not referred to and any cause or causes of action not included in the complaint or position
papers, affidavits and other documents. . . ."
5. COMMERCIAL LAW; CORPORATION; BY LAWS; OPERATE MERELY AS INTERNAL
RULES AMONG THE STOCKHOLDERS, THEY CANNOT AFFECT OR PREJUDICE THIRD
PERSONS UNLESS THEY HAVE KNOWLEDGE OF THE SAME; CASE AT BAR. Neither can
we concede that such contract would be invalid just because the signatory thereon was
not the Chairman of the Board which allegedly violated petitioner's by-laws. Since by-laws
operate merely as internal rules among the stockholders, they cannot affect or prejudice
third persons who deal with the corporation, unless they have knowledge of the same."
No proof appears on record that private respondent ever knew anything about the
provisions of said by-laws. In fact, petitioner itself merely asserts the same without even
bothering to attach a copy or excerpt thereof to show that there is such a provision. How
can it now expect the Labor Arbiter and the NLRC to believe it? That this allegation has
never been denied by private respondent does not necessarily signify admission of its
existence because technicalities of law and procedure and the rules obtaining in the
courts of law do not strictly apply to proceedings of this nature. ScAaHE
6. REMEDIAL LAW; EVIDENCE; THE FACT ALONE THAT MOST OF THE DOCUMENTS
SUBMITTED IN EVIDENCE BY RESPONDENT WERE PREPARED BY HIM DOES NOT MAKE
THEM SELF-SERVING SINCE THEY HAVE BEEN OFFERED IN THE PROCEEDINGS BEFORE THE
LABOR ARBITER AND THAT AMPLE OPPORTUNITY WAS GIVEN TO PETITIONER TO REBUT
THEIR VERACITY. Petitioner bewails the fact that both the Labor Arbiter and the NLRC
accorded due weight to the documents prepared by private respondent since they are
said to be self-serving. "Self-serving evidence" is not to be literally taken as evidence that
serves one's selfish interest. The fact alone that most of the documents submitted in
evidence by private respondent were prepared by him does not make them self-serving
since they have been offered in the proceedings before the Labor Arbiter and that ample
opportunity was given to petitioner to rebut their veracity and authenticity. Petitioner,
however, opted to merely deny them which denial, ironically is actually what is
considered self-serving evidence and, therefore, deserves scant consideration. In any
event, any denial made by petitioner cannot stand against the affirmative and fairly
detailed manner by which private respondent supported his claims; such as the places
where he conducted his classes on-the-job training and shipyard and plant visits; the rate
he applied and the duration of said rendition of services; the fact that he was indeed
engaged as a contractual instructor by petitioner; and that part of his services was not yet
remunerated. These evidence, to reiterate, have never been effectively refuted by
petitioner.
DECISION
ROMERO, J p:
Subject of the instant petition for certiorari under Rule 65 of the Rules of Court is the
resolution 1 of public respondent National Labor Relations Commission 2 rendered on
August 4, 1995, affirming in toto the December 7, 1994 decision 3 of Labor Arbiter Pablo
C. Espiritu declaring petitioner PMI Colleges liable to pay private respondent Alejandro
Galvan P405,000.00 in unpaid wages and P40,532.00 as attorney's fees.
A chronicle of the pertinent events on record leading to the filing of the instant petition is
as follows:
On July 7, 1991, petitioner, an educational institution offering courses on basic seaman's
training and other marine-related courses, hired private respondent as contractual
instructor with an agreement that the latter shall be paid at an hourly rate of P30.00 to
P50.00, depending on the description of load subjects and on the schedule for teaching
the same. Pursuant to this engagement, private respondent then organized classes in
marine engineering. llcd
Initially, private respondent and other instructors were compensated for services
rendered during the first three periods of the abovementioned contract. However, for
reasons unknown to private respondent, he stopped receiving payment for the
succeeding rendition of services. This claim of non-payment was embodied in a letter
dated March 3, 1992, written by petitioner's Acting Director, Casimiro A. Aguinaldo,
addressed to its President, Atty. Santiago Pastor, calling attention to and appealing for the
early approval and release of the salaries of its instructors including that of private
respondent. It appeared further in said letter that the salary of private respondent
corresponding to the shipyard and plant visits and the ongoing on-the-job training of Class
41 on board MV "Sweet Glory" of Sweet Lines, Inc. was not yet included. This request of
the Acting Director apparently went unheeded. Repeated demands having likewise failed,
private respondent was soon constrained to file a complaint 4 before the National Capital
Region Arbitration Branch on September 14, 1993 seeking payment for salaries earned
from the following: (1) basic seaman course Classes 41 and 42 for the period covering
October 1991 to September 1992; (2) shipyard and plant visits and on-the-job training of
Classes 41 and 42 for the period covering October 1991 to September 1992 on board M/V
"Sweet Glory" vessel; and (3) as Acting Director of Seaman Training Course for 3-1/2
months.
In support of the abovementioned claims, private respondent submitted documentary
evidence which were annexed to his complaint, such as the detailed load and schedule of
classes with number of class hours and rate per hour (Annex "A"); PMI Colleges Basic
Seaman Training Course (Annex "B"); the aforementioned letter-request for payment of
salaries by the Acting Director of PMI Colleges (Annex "C"); unpaid load of private
respondent (Annex "D"); and vouchers prepared by the accounting department of
petitioner but whose amounts indicated therein were actually never paid to private
respondent (Exhibit "E").
Private respondent's claims, as expected, were resisted by petitioner. It alleged that
classes in the courses offered which complainant claimed to have remained unpaid were
not held or conducted in the school premises of PMI Colleges. Only private respondent, it
was argued, knew whether classes were indeed conducted. In the same vein, petitioner
maintained that it exercised no appropriate and proper supervision of the said classes
which activities allegedly violated certain rules and regulations of the Department of
Education, Culture and Sports (DECS). Furthermore, the claims, according to petitioner,
were all exaggerated and that, at any rate, private respondent abandoned his work at the
time he should have commenced the same.
In reply, private respondent belied petitioner's allegations contending, among others, that
he conducted lectures within the premises of petitioner's rented space located at 5th
Floor, Manufacturers Bldg., Sta. Cruz, Manila; that his students duly enrolled with the
Registrar's Office of petitioner; that shipyard and plant visits were conducted at Fort San
Felipe, Cavite Naval Base; that petitioner was fully aware of said shipyard and plant visits
because it even wrote a letter for that purpose; and that basic seaman courses 41 and 42
were sanctioned by the DECS as shown by the records of the Registrar's Office.
Later in the proceedings below, petitioner manifested that Mr. Tomas G. Cloma, Jr., a
member of the petitioner's Board of Trustees wrote a letter 5 to the Chairman of the
Board on May 23, 1994, clarifying the case of private respondent and stating therein, inter
alia, that under petitioner's by-laws only the Chairman is authorized to sign any contract
and that private respondent, in any event, failed to submit documents on the alleged
shipyard and plant visits in Cavite Naval Base.
Attempts at amicable settlement having failed, the parties were required to submit their
respective position papers. Thereafter, on June 16, 1994, the Labor Arbiter issued an
order declaring the case submitted for decision on the basis of the position papers which
the parties filed. Petitioner, however, vigorously opposed this order insisting that there
should be a formal trial on the merits in view of the important factual issues raised. In
another order dated July 22, 1994, the Labor Arbiter impliedly denied petitioner's
opposition, reiterating that the case was already submitted for decision. Hence, a decision
was subsequently rendered by the Labor Arbiter on December 7, 1994 finding for the
private respondent. On appeal, the NLRC affirmed the same in toto in its decision of
August 4, 1995.
Aggrieved, petitioner now pleads for the Court to resolve the following issues in its favor,
to wit:
I. Whether the money claims of private respondent representing salaries/wages as
contractual instructor for class instruction, on-the-job training and shipboard and plant
visits have valid legal and factual bases;
II. Whether claims for salaries/wages for services relative to on-the-job training and
shipboard and plant visits by instructors, assuming the same were really conducted, have
valid bases;
III. Whether the petitioner was denied its right to procedural due process; and
IV. Whether the NLRC findings in its questioned resolution have sound legal and
factual support.
We see no compelling reason to grant petitioner's plea; the same must, therefore, be
dismissed.
At once, a mere perusal of the issues raised by petitioner already invites dismissal for
demonstrated ignorance and disregard of settled rules on certiorari. Except perhaps for
the third issue, the rest glaringly call for a re-examination, evaluation and appreciation of
the weight and sufficiency of factual evidence presented before the Labor Arbiter. This, of
course, the Court cannot do in the exercise of its certiorari jurisdiction without
transgressing the well-defined limits thereof. The corrective power of the Court in this
regard is confined only to jurisdictional issues and a determination of whether there is
such grave abuse of discretion amounting to lack or excess of jurisdiction on the part of a
tribunal or agency. So unyielding and consistent are the decisional rules thereon that it is
indeed surprising why petitioner's counsel failed to accord them the observance they
deserve.
Thus, in San Miguel Foods, Inc. Cebu B-Meg Feed Plant v. Hon. Bienvenido Laguesma, 6
we were emphatic in declaring that:
"This Court is definitely not the proper venue to consider this matter for it is not a trier of
facts. . . . Certiorari is a remedy narrow in its scope and inflexible in character. It is not a
general utility tool in the legal workshop. Factual issues are not a proper subject for
certiorari, as the power of the Supreme Court to review labor cases is limited to the issue
of jurisdiction and grave abuse of discretion. . . ." (Emphasis supplied).
Of the same tenor was our disquisition in Ilocos Sur Electric Cooperative, Inc. v. NLRC 7
where we made plain that:
"In certiorari proceedings under Rule 65 of the Rules of Court, judicial review by this Court
does not go so far as to evaluate the sufficiency of evidence upon which the Labor Arbiter
and the NLRC based their determinations, the inquiry being limited essentially to whether
or not said public respondents had acted without or in excess of its jurisdiction or with
grave abuse of discretion." (Emphasis supplied).
To be sure, this does not mean that the Court would disregard altogether the evidence
presented. We merely declare that the extent of review of evidence we ordinarily provide
in other cases is different when it is a special civil action of certiorari. The latter
commands us to merely determine whether there is basis established on record to
support the findings of a tribunal and such findings meet the required quantum of proof,
which in this instance, is substantial evidence. Our deference to the expertise acquired by
quasi-judicial agencies and the limited scope granted to us in the exercise of certiorari
jurisdiction restrain us from going so far as to probe into the correctness of a tribunal's
evaluation of evidence, unless there is palpable mistake and complete disregard thereof
in which case certiorari would be proper. In plain terms, in certiorari proceedings, we are
concerned with mere "errors of jurisdiction" and not "errors of judgment." Thus:
"The rule is settled that the original and exclusive jurisdiction of this Court to review a
decision of respondent NLRC (or Executive Labor Arbiter as in this case) in a petition for
certiorari under Rule 65 does not normally include an inquiry into the correctness of its
evaluation of the evidence. Errors of judgment, as distinguished from errors of
jurisdiction, are not within the province of a special civil action for certiorari, which is
merely confined to issues of jurisdiction or grave abuse of discretion. It is thus incumbent
upon petitioner to satisfactorily establish that respondent Commission or executive labor
arbiter acted capriciously and whimsically in total disregard of evidence material to or
even decisive of the controversy, in order that the extraordinary writ of certiorari will lie.
By grave abuse of discretion is meant such capricious and whimsical exercise of judgment
as is equivalent to lack of jurisdiction, and it must be shown that the discretion was
exercised arbitrary or despotically. For certiorari to lie there must be capricious, arbitrarily
and whimsical exercise of power, the very antithesis of the judicial prerogative in
accordance with centuries of both civil law and common law traditions." 8
The Court entertains no doubt that the foregoing doctrines apply with equal force in the
case at bar.
In any event, granting that we may have to delve into the facts and evidence of the
parties, we still find no puissant justification for us to adjudge both the Labor Arbiter's and
NLRC's appreciation of such evidence as indicative of any grave abuse of discretion.
First. Petitioner places so much emphasis on its argument that private respondent did not
produce a copy of the contract pursuant to which he rendered services. This argument is,
of course, puerile. The absence of such copy does not in any manner negate the existence
of a contract of employment since "(C)ontracts shall be obligatory, in whatever form they
have been entered into, provided all the essential requisites for their validity are present."
9 The only exception to this rule is "when the law requires that a contract be in some
form in order that it may be valid or enforceable, or that a contract be proved in a certain
way." However, there is no requirement under the law that the contract of employment
of the kind entered into by petitioner with private respondent should be in any particular
form. While it may have been desirable for private respondent to have produced a copy
of his contract if one really exists, but the absence thereof, in any case, does not militate
against his claims inasmuch as:
"No particular form of evidence is required to prove the existence of an employer-
employee relationship. Any competent and relevant evidence to prove the relationship
may be admitted. For, if only documentary evidence would be required to show that
relationship, no scheming employer would even be brought before the bar of justice, as
no employer would wish to come out with any trace of the illegality he has authored
considering that it should take much weightier proof to invalidate a written instrument. . .
." 10
At any rate, the vouchers prepared by petitioner's own accounting department and the
letter-request of its Acting Director asking for payment of private respondent's services
suffice to support a reasonable conclusion that private respondent was employed with
petitioner. How else could one explain the fact that private respondent was supposed to
be paid the amounts mentioned in those documents if he were not employed?
Petitioner's evidence is wanting in this respect while private respondent affirmatively
stated that the same arose out of his employment with petitioner. As between the two,
the latter is weightier inasmuch as we accord affirmative testimony greater value than a
negative one. For the foregoing reasons, we find it difficult to agree with petitioner's
assertion that the absence of a copy of the alleged contract should nullify private
respondent's claims. cdasia
Neither can we concede that such contract would be invalid just because the signatory
thereon was not the Chairman of the Board which allegedly violated petitioner's by-laws.
Since by-laws operate merely as internal rules among the stockholders, they cannot affect
or prejudice third persons who deal with the corporation, unless they have knowledge of
the same." 11 No proof appears on record that private respondent ever knew anything
about the provisions of said by-laws. In fact, petitioner itself merely asserts the same
without even bothering to attach a copy or excerpt thereof to show that there is such a
provision. How can it now expect the Labor Arbiter and the NLRC to believe it? That this
allegation has never been denied by private respondent does not necessarily signify
admission of its existence because technicalities of law and procedure and the rules
obtaining in the courts of law do not strictly apply to proceedings of this nature.
Second. Petitioner bewails the fact that both the Labor Arbiter and the NLRC accorded
due weight to the documents prepared by private respondent since they are said to be
self-serving. "Self-serving evidence" is not to be literally taken as evidence that serves
one's selfish interest. 12 The fact alone that most of the documents submitted in evidence
by private respondent were prepared by him does not make them self-serving since they
have been offered in the proceedings before the Labor Arbiter and that ample
opportunity was given to petitioner to rebut their veracity and authenticity. Petitioner,
however, opted to merely deny them which denial, ironically, is actually what is
considered self-serving evidence 13 and, therefore, deserves scant consideration. In any
event, any denial made by petitioner cannot stand against the affirmative and fairly
detailed manner by which private respondent supported his claims, such as the places
where he conducted his classes, on-the-job training and shipyard and plant visits; the rate
he applied and the duration of said rendition of services; the fact that he was indeed
engaged as a contractual instructor by petitioner; and that part of his services was not yet
remunerated. These evidence, to reiterate, have never been effectively refuted by
petitioner.
Third. As regards the amounts demanded by private respondent, we can only rely upon
the evidence presented which, in this case, consists of the computation of private
respondent, as well as the findings of both the Labor Arbiter and the NLRC. Petitioner, it
must be stressed, presented no satisfactory proof to the contrary. Absent such proof, we
are constrained to rely upon private respondent's otherwise straightforward explanation
of his claims.
Fourth. The absence of a formal hearing or trial before the Labor Arbiter is no cause for
petitioner to impute grave abuse of discretion. Whether to conduct one or not depends
on the sole discretion of the Labor Arbiter, taking into account the position papers and
supporting documents submitted by the parties on every issue presented. If the Labor
Arbiter, in his judgment, is confident that he can rely on the documents before him, he
cannot be faulted for not conducting a formal trial anymore, unless it would appear that,
in view of the particular circumstances of a case, the documents, without more, are really
insufficient.
As applied to the instant case, we can understand why the Labor Arbiter has opted not to
proceed to trial, considering that private respondent, through annexes to his position
paper, has adequately established that, first of all, he was an employee of petitioner;
second, the nature and character of his services, and finally, the amounts due him in
consideration of his services. Petitioner, it should be reiterated, failed to controvert them.
Actually, it offered only four documents later in the course of the proceedings. It has only
itself to blame if it did not attach its supporting evidence with its position paper. It cannot
now insist that there be a trial to give it an opportunity to ventilate what it should have
done earlier. Section 3, Rule V of the New Rules of Procedure of the NLRC is very clear on
the matter:
"Section 3. ...
These verified position papers . . . shall be accompanied by all supporting documents
including the affidavits of their respective witnesses which shall take the place of the
latter's direct testimony. The parties shall thereafter not be allowed to allege facts, or
present evidence to prove facts, not referred to and any cause or causes of action not
included in the complaint or position papers, affidavits and other documents. . . ."
(Emphasis supplied).
Thus, given the mandate of said rule, petitioner should have foreseen that the Labor
Arbiter, in view of the non-litigious nature of the proceedings before it, might not proceed
at all to trial. Petitioner cannot now be heard to complain of lack of due process. The Regalado, Puno and Mendoza, JJ ., concur.
following is apropos:
Torres, Jr., J ., is on leave.
"The petitioners should not have assumed that after they submitted their position papers,
the Labor Arbiter would call for a formal trial of hearing. The holding of a trial is
discretionary on the Labor Arbiter, it is not a matter of right of the parties, especially in
this case, where the private respondents had already presented their documentary
evidence.

xxx xxx xxx

The petitioners did ask in their position paper for a hearing to thresh out some factual
matters pertinent to their case. However, they had no right or reason to assume that their
request would be granted. The petitioners should have attached to their position paper all
the documents that would prove their claim in case it was decided that no hearing should
be conducted or was necessary. In fact, the rules require that position papers shall be
accompanied by all supporting documents, including affidavits of witnesses in lieu of their
direct testimony." 14

It must be noted that adequate opportunity was given to petitioner in the presentation of
its evidence, such as when the Labor Arbiter granted petitioner's Manifestation and
Motion 15 dated July 22, 1994 allowing it to submit four more documents. This
opportunity notwithstanding, petitioner still failed to fully proffer all its evidence which
might help the Labor Arbiter in resolving the issues. What it desired instead, as stated in
its petition, 16 was to "require presentation of witnesses buttressed by relevant
documents in support thereof." But this is precisely the opportunity given to petitioner
when the Labor Arbiter granted its Motion and Manifestation. It should have presented
the documents it was proposing to submit. The affidavits of its witnesses would have
sufficed in lieu of their direct testimony 17 to clarify what it perceives to be complex
factual issues. We rule that the Labor Arbiter and the NLRC were not remiss in their duty
to afford petitioner due process. The essence of due process is merely that a party be
afforded a reasonable opportunity to be heard and to submit any evidence he may have
in support of his defense. 18

WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED for lack of
merit while the resolution of the National Labor Relations Commission dated August 4,
1995 is hereby AFFIRMED. cdtech

SO ORDERED.
FIRST DIVISION
[G.R. No. 91478. February 7, 1991.]
ROSITA PEA, petitioner, vs. THE COURT OF APPEALS, SPOUSES RISING T. YAP and
CATALINA YAP, PAMPANGA BUS CO., INC., JESUS DOMINGO, JOAQUIN BRIONES,
SALVADOR BERNARDEZ, MARCELINO ENRIQUEZ and EDGARDO A. ZABAT, respondents.
Cesar L. Villanueva for petitioner.
Martin N. Roque for private respondents.
DECISION
GANCAYCO, J p:
The validity of the redemption of a foreclosed real property is the center of this
controversy.
The facts as found by the respondent court are not disputed.
"A reading of the records shows that [Pampanga Bus Co.] PAMBUSCO, original owners of
the lots in question under TCT Nos. 4314, 4315 and 4316, mortgaged the same to the
Development Bank of the Philippines (DBP) on January 3, 1962 in consideration of the
amount of P935,000.00. This mortgage was foreclosed. In the foreclosure sale under Act
No. 3135 held on October 25, 1974, the said properties were awarded to Rosita Pea as
highest bidder. A certificate of sale was issued in her favor by the Senior Deputy Sheriff of
Pampanga, Edgardo A. Zabat, upon payment of the sum of P128,000.00 to the Office of
the Provincial Sheriff (Exh. 23). The certificate of sale was registered on October 29, 1974
(Exh. G).
"On November 19, 1974, the board of directors of PAMBUSCO, through three (3) out of its
five (5) directors, resolved to assign its right of redemption over the aforesaid lots and
authorized one of its members, Atty. Joaquin Briones, 'to execute and sign a Deed of
Assignment for and in behalf of PAMBUSCO in favor of any interested party . . .' (Exh. 24).
Consequently, on March 18, 1975, Briones executed a Deed of Assignment of
PAMBUSCO's redemption right over the subject lots in favor of Marcelino Enriquez (Exh.
25). The latter then redeemed the said properties and a certificate of redemption dated
August 15, 1975 was issued in his favor by Sheriff Zabat upon payment of the sum of one
hundred forty thousand, four hundred seventy four pesos (P140,474.00) to the Office of
the Provincial Sheriff of Pampanga (Exh. 26). cdrep
"A day after the aforesaid certificate was issued, Enriquez executed a deed of absolute
sale of the subject properties in favor of plaintiffs-appellants, the spouses Rising T. Yap
and Catalina Lugue, for the sum of P140,000.00 (Exh. F).
"On August 18, 1975, a levy on attachment in favor of Capitol Allied Trading was entered
as an additional encumbrance on TCT Nos. 4314, 4315 and 4316 and a Notice of a pending
consulta was also annotated on the same titles concerning the Allied Trading case entitled
Dante Gutierrez, et al. vs. PAMBUSCO (Civil Case No. 4310) in which the registrability of
the aforesaid lots in the name of the spouses Yap was sought to be resolved (Exh. 20-F).
The certificate of sale issued by the Sheriff in favor of defendant Pea, the resolution of
the PAMBUSCO's board of directors assigning its redemption rights to any interested
party, the deed of assignment PAMBUSCO executed in favor of Marcelino B. Enriquez, the
certificate of redemption issued by the Sheriff in favor of Enriquez as well as the deed of
absolute sale of the subject lots executed by Enriquez in favor of the plaintiffs-appellants
were all annotated on the same certificates of title likewise on August 18, 1975. Also, on
the same date, the Office of the Provincial Sheriff of San Fernando, Pampanga informed
defendant-appellee by registered mail 'that the properties under TCT Nos. 4314, 4315 and
4316 . . . were all redeemed by Mr. Marcelino B. Enriquez on August 15, 1975 . . .;' and
that she may now get her money at the Sheriff's Office (Exh. J and J-1).
"On September 8, 1975, Pea wrote the Sheriff notifying him that the redemption was
not valid as it was made under a void deed of assignment. She then requested the recall
of the said redemption and a restraint on any registration or transaction regarding the
lots in question (Exh. 27).
"On Sept. 10, 1975, the CFI Branch III, Pampanga in the aforementioned Civil Case No.
4310, entitled Dante Gutierrez, et al. vs. PAMBUSCO, et al., ordered the Register of Deeds
of Pampanga . . . to desist from registering or noting in his registry of property . . . any of
the following documents under contract, until further orders:
'(a) Deed of Assignment dated March 18, 1975 executed by the defendant Pampanga
Bus Company in virtue of a resolution of its Board of Directors in favor of defendant
Marcelino Enriquez;
'(b) A Certificate of Redemption issued by defendant Deputy Sheriff Edgardo Zabat in
favor of defendant Marcelino Enriquez dated August 15, 1975;
'(c) Deed of Sale dated August 16, 1975 executed by defendant Marcelino Enriquez
in favor of defendant Rising Yap.' (Original Record, p. 244)
'On November 17, 1975, the Land Registration Commission opined under LRC Resolution
No. 1029 that 'the levy on attachment in favor of Capitol Allied Trading (represented by
Dante Gutierrez) should be carried over on the new title that would be issued in the name
of Rising Yap in the event that he is able to present the owner's duplicates of the
certificates of title herein involved' (Exh. G).
'Meanwhile, defendant Pea, through counsel, wrote the Sheriff asking for the execution
of a deed of final sale in her favor on the ground that 'the one (1) year period of
redemption has long elapsed without any valid redemption having been exercised;' hence
she 'will now refuse to receive the redemption money . . .' (Exh. 28).
On Dec. 30, 1977, plaintiff Yap wrote defendant Pea asking payment of back rentals in
the amount of P42,750.00 'for the use and occupancy of the land and house located at
Sta. Lucia, San Fernando, Pampanga,' and informing her of an increase in monthly rental
to P2,000; otherwise, to vacate the premises or face an eviction cum collection suit (Exh.
D). prLL
In the meantime, the subject lots, formerly under TCT Nos. 4314, 4315 and 4316 were
registered on June 16, 1978 in the name of the spouses Yap under TCT Nos. 148983-R,
148984-R and 148985-R, with an annotation of a levy on attachment in favor of Capitol
Allied Trading. The LRC Resolution No. 1029 allowing the conditioned registration of the
subject lots in the name of the spouses Yap was also annotated on TCT No. 4315 on June
16, 1978 and the notice of a pending consulta noted thereon on August 18, 1975 was
cancelled on the same date.
No Trial on the merits was held concerning Civil Case No. 4310. In an order dated
February 17, 1983, the case was dismissed without prejudice.
Despite the foregoing, defendant-appellee Pea remained in possession of the lots in
question; hence, the spouses Yap were prompted to file the instant case." 1
The antecedents of the present petition are as follows:
"Plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, are the registered
owners of the lots in question under Transfer Certificate of Title (TCT) Nos. 148983 R,
148984-R, 148985-R. In the complaint filed on December 15, 1978, appellants sought to
recover possession over the subject lands from defendants Rosita Pea and Washington
Distillery on the ground that being registered owners, they have to enforce their right to
possession against defendants who have been allegedly in unlawful possession thereof
since October 1974 'when the previous owners assigned (their) right to collect rentals . . .
in favor of plaintiffs' (Record, p. 5). The amount claimed as damages is pegged on the total
amount of unpaid rentals from October 1974 (as taken from the allegations in the
complaint) up to December 1978 at a monthly rate of P1,500.00 'and the further sum of
P2,000.00 a month from January 1979 until the defendants finally vacate the . . . premises
in question; with interest at the legal rate' (Record, p. 6).
"In their answer, defendants Rosita Pea and Washington Distillery denied the material
allegations of the complaint and by way of an affirmative and special defense asserted
that Pea is now the legitimate owner of the subject lands for having purchased the same
in a foreclosure proceeding instituted by the DBP . . . against PAMBUSCO . . . and no valid
redemption having been effected within the period provided by law. It was contended
that plaintiffs could not have acquired ownership over the subject properties under a
deed of absolute sale executed in their favor by one Marcelino B. Enriquez who likewise
could not have become [the] owner of the properties in question by redeeming the same
on August 18, 1975 (Exh. 26) under an alleged[ly] void deed of assignment executed in his
favor on March 18, 1975 by the original owners of the land in question, the PAMBUSCO.
The defense was that since the deed of assignment executed by PAMBUSCO in favor of
Enriquez was void ab initio for being an ultra vires act of its board of directors and, for
being without any valuable consideration, it could not have had any legal effect; hence, all
the acts which flowed from it and all the rights and obligations which derived from the
aforesaid void deed are likewise void and without any legal effect.
"Further it was alleged in the same Answer that plaintiffs are buyers in bad faith because
they have caused the titles of the subject properties with the Register of Deeds to be
issued in their names despite an order from the then CFI, Br. III, Pampanga in Civil Case
No. 4310, entitled Dante Gutierrez, et al. vs. Pampanga Bus Company, Inc., et al., to desist
from registering or noting in his registry of property . . . any of the above-mentioned
documents under contest, until further orders. (Record, p. 11).
"For its part, defendant Washington Distillery stated that it has never occupied the
subject lots; hence they should not have been impleaded in the complaint. cdll
"The defendants, therefore, prayed that the complaint be dismissed; that the deed of
assignment executed in favor of Marcelino Enriquez, the certificate of redemption issued
by the Provincial Sheriff also in favor of Marcelino Enriquez, and the deed of sale of these
parcels of land executed by Marcelino Enriquez in favor of the plaintiffs herein be all
declared null and void; and further, that TCT Nos. 148983-R, 148984-R and 148985-R,
covering these parcels issued in the plaintiffs name be cancelled and, in lieu thereof,
corresponding certificates of title over these same parcels be issued in the name of
defendant Rosita Pea.
"Thereafter, the defendants with prior leave of court filed a third-party complaint third-
party defendants PAMBUSCO, Jesus Domingo, Joaquin Briones, Salvador Bernardez (as
members of the Board of Directors of PAMBUSCO), Marcelino Enriquez, and Deputy
Sheriff Edgardo Zabat of Pampanga. All these third-party defendants, however, were
declared as in default for failure to file their answer, except Edgardo Zabat who did file his
answer but failed to appear at the pre-trial.
"After trial, a decision was rendered by the court in favor of the defendants-appellees, to
wit:
"WHEREFORE, and in view of all the foregoing, judgment is hereby rendered dismissing
the complaint filed by the plaintiffs against the defendants and declaring as null and void
the following:
'(a) The resolution of the Board of Directors of PAMBUSCO approved on November
19, 1974 assigning the PAMBUSCO's right of redemption concerning the parcels involved
herein;
'(b) The deed of assignment dated March 18, 1975 executed in favor of Marcelino
Enriquez pursuant to the resolution referred to in the preceding paragraph;
'(c) The certificate of redemption dated August 15, 1975 issued by Deputy Sheriff
Edgardo Zabat in favor of Marcelino Enriquez concerning these parcels;
'(d) The deed of absolute sale dated August 15, 1975 executed by Marcelino Enriquez
in favor of the plaintiffs concerning the same parcels; and
'(e) TCT Nos. 148983-R, 148984-R and 148985-R of the Register of Deeds of
Pampanga in the name of the plaintiffs also covering these parcels.
'Third-party defendant Edgardo Zabat, in his capacity as Deputy Sheriff of Pampanga is
directed to execute in favor of defendant Rosita Pea the corresponding certificate of
final sale involving the parcels bought by her in the auction sale of October 25, 1974 for
which a certificate of sale had been issued to her.
'Finally, the third-party defendants herein except Deputy Sheriff Edgardo Zabat are
hereby ordered to pay the defendants/third party plaintiffs, jointly and severally, the
amount of P10,000.00 as attorney's fees plus costs.' " 2
Thus, an appeal from said judgment of the trial court was interposed by private
respondents to the Court of Appeals wherein in due course a decision was rendered on
June 20, 1989, the dispositive part of which reads as follows:
"WHEREFORE, premises considered, the judgment of the trial court on appeal is
REVERSED. Defendant-appellee Pea is hereby ordered to vacate the lands in question
and pay the plaintiffs-appellants the accrued rentals from October, 1974 in the amount of
P1,500.00 per month up to December, 1978 and the amount of P2,000.00 per month
thereafter, until appellee finally vacate (sic) the premises; with interest at the legal rate."
"SO ORDERED." 3
A motion for reconsideration filed by the appellee was denied in a resolution dated
December 27, 1989. LibLex
Hence, this petition for review on certiorari of said decision and resolution of the
appellate court predicated on the following assigned errors:
"First Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT HAD
NO JURISDICTION TO RULE ON THE VALIDITY OF THE QUESTIONED RESOLUTION AND
TRANSFERS.
Second Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS NO
LEGAL STANDING TO ASSAIL THE VALIDITY OF THE QUESTIONED RESOLUTION AND THE
SERIES OF SUCCEEDING TRANSACTIONS LEADING TO THE REGISTRATION OF THE SUBJECT
PROPERTIES IN FAVOR OF THE RESPONDENTS YAP.
Third Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE RESOLUTION OF
RESPONDENT PAMBUSCO, ADOPTED ON 19 NOVEMBER 1974, ASSIGNING ITS RIGHT OF
REDEMPTION IS NOT VOID OR AT THE VERY LEAST LEGALLY DEFECTIVE.
Fourth Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF
ASSIGNMENT, DATED 8 MARCH 1975, IN FAVOR OF RESPONDENT ENRIQUEZ IS NOT VOID
OR AT THE VERY LEAST VOIDABLE OR RESCISSIBLE.
Fifth Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE QUESTIONED
DEED OF ASSIGNMENT, DATED 8 MARCH 1975, WAS VOID AB INITIO FOR FAILING TO
COMPLY WITH THE FORMALITIES MANDATORILY REQUIRED UNDER THE LAW FOR
DONATIONS.
Sixth Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENTS YAP ARE
PURCHASERS IN GOOD FAITH AND IN FURTHER HOLDING THAT IT WAS TOO LATE FOR
PETITIONER TO INTERPOSE THE ISSUE THAT RESPONDENTS YAP WERE PURCHASERS IN
BAD FAITH.
Seventh Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE TRIAL
COURT." 4
The petition is impressed with merit.
First, the preliminary issues.
The respondent court ruled that the trial court has no jurisdiction to annul the board
resolution as the matter falls within the jurisdiction of the Securities and Exchange
Commission (SEC) and that petitioner did not have the proper standing to have the same
declared null and void.
In Philex Mining Corporation vs. Reyes, 5 this Court held that it is the fact of relationship
between the parties that determines the proper and exclusive jurisdiction of the SEC to
hear and decide intra-corporate disputes; that unless the controversy has arisen between
and among stockholders of the corporation, or between the stockholders and the officers
of the corporation, then the case is not within the jurisdiction of the SEC. Where the issue
involves a party who is neither a stockholder or officer of the corporation, the same is not
within the jurisdiction of the SEC. LibLex
In Union Glass & Container Corporation vs. Securities and Exchange Commission, 6 this
Court defined the relationships which are covered within "intra-corporate disputes" under
Presidential Decree No. 902-A, as amended, as follows:
"Otherwise stated, in order that the SEC can take cognizance of a case, the controversy
must pertain to any of the following relationships; (a) between the corporation,
partnership or association and the public; (b) between the corporation, partnership or
association and its stockholders, partners, members, or officers; (c) between the
corporation, partnership or association and the state in so far as its franchise, permit or
license to operate is concerned; and (d) among the stockholders, partners or associates
themselves."
In this case, neither petitioner nor respondents Yap spouses are stockholders or officers
of PAMBUSCO. Consequently, the issue of the validity of the series of transactions
resulting in the subject properties being registered in the names of respondents Yap may
be resolved only by the regular courts.
Respondent court held that petitioner being a stranger to the questioned resolution and
series of succeeding transactions has no legal standing to question their validity.
In Teves vs. People's Homesite and Housing Corporation, 7 this Court held:
"We note however, in reading the complaint that the plaintiff is seeking the declaration of
the nullity of the deed of sale, not as a party in the deed, or because she is obliged
principally or subsidiarily under the deed, but because she has an interest that is affected
by the deed. This Court has held that a person who is not a party obliged principally or
subsidiarily in a contract may exercise an action for nullity of the contract if he is
prejudiced in his rights with respect to one of the contracting parties, and can show the
detriment which would positively result to him from the contract in which he had no
intervention. Indeed, in the case now before Us, the complaint alleges facts which show
that plaintiff suffered detriment as a result of the deed of sale entered into by and
between defendant PHHC and defendant Melisenda L. Santos. We believe that the
plaintiff should be given a chance to present evidence to establish that she suffered
detriment and that she is entitled to relief." (Emphasis supplied.)
There can be no question in this case that the questioned resolution and series of
transactions resulting in the registration of the properties in the name of respondent Yap
spouses adversely affected the rights of petitioner to the said properties. Consequently,
petitioner has the legal standing to question the validity of said resolution and
transactions.
As to the question of validity of the board resolution of respondent PAMBUSCO adopted
on November 19, 1974, Section 4, Article III of the amended by-laws of respondent
PAMBUSCO, provides as follows:
"Sec. 4. Notices of regular and special meetings of the Board of Directors shall be mailed
to each Director not less than five days before any such meeting, and notices of special
meeting shall state the purpose or purposes thereof Notices of regular meetings shall be
sent by the Secretary and notices of special meetings by the President or Directors issuing
the call. No failure or irregularity of notice of meeting shall invalidate any regular meeting
or proceeding thereat; Provided a quorum of the Board is present, nor of any special
meeting; Provided at least four Directors are present." (Emphasis supplied.) 8
The trial court in finding the resolution void held as follows:
"On the other hand, this Court finds merit in the position taken by the defendants that
the questioned resolution should be declared invalid it having been approved in a
meeting attended by only 3 of the 5 members of the Board of Directors of PAMBUSCO
which attendance is short of the number required by the By-Laws of the corporation . . .
Cdpr
"In the meeting of November 19, 1974 when the questioned resolution was approved, the
three members of the Board of Directors of PAMBUSCO who were present were Jesus
Domingo, Joaquin Briones, and Salvador Bernardez. The remaining 2 others, namely:
Judge Pio Marcos and Alfredo Mamuyac were both absent therefrom.
As it becomes clear that the resolution approved on November 19, 1974 is null and void it
having been approved by only 3 of the members of the Board of Directors who were the
only ones present at the said meeting, the deed of assignment subsequently executed in
favor of Marcelino Enriquez pursuant to this resolution also becomes null and void . . ." 9
However, the respondent court overturning said legal conclusions of the trial court made
the following disquisition:
"It should be noted that the provision in Section 4, Article III of PAMBUSCO's amended by-
laws would apply only in case of a failure to notify the members of the board of directors
on the holding of a special meeting, . . .
In the instant case, however, there was no proof whatsoever, either by way of
documentary or testimonial evidence, that there was such a failure or irregularity of
notice as to make the aforecited provision apply. There was not even such an allegation in
the Answer that should have necessitated a proof thereof. The fact alone that only three
(3) out of five (5) members of the board of directors attended the subject special meeting,
was not enough to declare the aforesaid proceeding void ab initio, much less the board
resolution borne out of it, when there was no proof of irregularity nor failure of notice
and when the defense made in the Answer did not touch upon the said failure of
attendance. Therefore, the judgment declaring the nullity of the subject board resolution
must be set aside for lack of proof.
"Moreover, there is no categorical declaration in the by-laws that a failure to comply with
the attendance requirement in a special meeting should make all the acts of the board
therein null and void ab initio. A cursory reading of the subject provision, as aforequoted,
would show that its framers only intended to make voidable a board meeting held
without the necessary compliance with the attendance requirement in the by-laws. Just
the use of the word 'invalidate' already denotes a legal imputation of validity to the
questioned board meeting absent its invalidation in the proceedings prescribed by the
corporation's by-laws and/or the general incorporation law. More significantly, it should
be noted that even if the subject special meeting is itself declared void, it does not follow
that the acts of the board therein are ipso facto void and without any legal effect.
Without the declaration of nullity of the subject board proceedings, its validity should be
maintained and the acts borne out of it should be presumed valid. Considering that the
subject special board meeting has not been declared void in a proper proceeding, nor
even in the trial by the court below, there is no reason why the acts of the board in the
said special meeting should be treated as void ab initio . . ." 10
The Court disagrees.
The by-laws of a corporation are its own private laws which substantially have the same
effect as the laws of the corporation. They are in effect, written, into the charter. In this
sense they become part of the fundamental law of the corporation with which the
corporation and its directors and officers must comply. 11
Apparently, only three (3) out of five (5) members of the board of directors of respondent
PAMBUSCO convened on November 19, 1974 by virtue of a prior notice of a special
meeting. There was no quorum to validly transact business since, under Section 4 of the
amended by-laws hereinabove reproduced, at least four (4) members must be present to
constitute a quorum in a special meeting of the board of directors of respondent
PAMBUSCO. LexLib
Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation
or by-laws of the corporation may fix a greater number than the majority of the number
of board members to constitute the quorum necessary for the valid transaction of
business. Any number less than the number provided in the articles or by-laws therein
cannot constitute a quorum and any act therein would not bind the corporation; all that
the attending directors could do is to adjourn. 12
Moreover, the records show that respondent PAMBUSCO ceased to operate as of
November 15, 1949 as evidenced by a letter of the SEC to said corporation dated April 17,
1980. 13 Being a dormant corporation for several years, it was highly irregular, if not
anomalous, for a group of three (3) individuals representing themselves to be the
directors of respondent PAMBUSCO to pass a resolution disposing of the only remaining
asset of the corporation in favor of a former corporate officer.
As a matter of fact, the three (3) alleged directors who attended the special meeting on
November 19, 1974 were not listed as directors of respondent PAMBUSCO in the latest
general information sheet of respondent PAMBUSCO filed with the SEC dated 18 March
1951. 14 Similarly, the latest list of stockholders of respondent PAMBUSCO on file with
the SEC does not show that the said alleged directors were among the stockholders of
respondent PAMBUSCO. 15
Under Section 30 of the then applicable Corporation Law, only persons who own at least
one (1) share in their own right may qualify to be directors of a corporation. Further,
under Section 28 1/2 of the said law, the sale or disposition of all and/or substantially all
properties of the corporation requires, in addition to a proper board resolution, the
affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power
in the corporation in a meeting duly called for that purpose. No doubt, the questioned
resolution was not confirmed at a subsequent stockholders meeting duly called for the
purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of
the voting power in the corporation. The same requirement is found in Section 40 of the
present Corporation Code.
It is also undisputed that at the time of the passage of the questioned resolution,
respondent PAMBUSCO was insolvent and its only remaining asset was its right of
redemption over the subject properties. Since the disposition of said redemption right of
respondent PAMBUSCO by virtue of the questioned resolution was not approved by the
required number of stockholders under the law, the said resolution, as well as the
subsequent assignment executed on March 8, 1975 assigning to respondent Enriquez the
said right of redemption, should be struck down as null and void. Cdpr
Respondent court, in upholding the questioned deed of assignment, which appears to be
without any consideration at all, held that the consideration thereof is the liberality of the
respondent PAMBUSCO in favor of its former corporate officer, respondent Enriquez, for
services rendered. Assuming this to be so, then as correctly argued by petitioner, it is not
just an ordinary deed of assignment, but is in fact a donation. Under Article 725 of the
Civil Code, in order to be valid, such a donation must be made in a public document and
the acceptance must be made in the same or in a separate instrument. In the latter case,
the donor shall be notified of the acceptance in an authentic form and such step must be
noted in both instruments. 16
Non-compliance with this requirement renders the donation null and void. 17 Since
undeniably the deed of assignment dated March 8, 1975 in question, 18 shows that there
was no acceptance of the donation in the same and in a separate document, the said
deed of assignment is thus void ab initio and of no force and effect.
WHEREFORE, the petition is GRANTED. The questioned decision of the respondent Court
of Appeals dated June 20, 1989 and its resolution dated December 27, 1989 are hereby
REVERSED AND SET ASIDE and another judgment is hereby rendered AFFIRMING in toto
the decision of the trial court.
SO ORDERED.
Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.