G.R. No. L-43350 December 23, 1937

CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant, vs.TEODORO SANDIKO, defendant-appellee.

LAUREL, J.:

This is an appeal from a judgment of the Court of First Instance of Manila absolving the defendant from the plaintiff's complaint.

Manuel Tabora is the registered owner of four parcels of land situated in the barrio of Linao, town of Aparri, Province of Cagayan, as evidenced by transfer certificate of title No. 217 of the land records of Cagayan, a copy of which is in evidence as Exhibit 1. To guarantee the payment of a loan in the sum of P8,000, Manuel Tabora, on August 14, 1929, executed in favor of the Philippine National Bank a first mortgage on the four parcels of land above-mentioned. A second mortgage in favor of the same bank was in April of 1930 executed by Tabora over the same lands to guarantee the payment of another loan amounting to P7,000. A third mortgage on the same lands was executed on April 16, 1930 in favor of Severina Buzon to whom Tabora was indebted in the sum of P2,9000. These mortgages were registered and annotations thereof appear at the back of transfer certificate of title No. 217.

On May 31, 1930, Tabora executed a public document entitled "Escritura de Transpaso de Propiedad Inmueble" (Exhibit A) by virtue of which the four parcels of land owned by him was sold to the plaintiff company, said to under process of incorporation, in consideration of one peso (P1) subject to the mortgages in favor of the Philippine National Bank and Severina Buzon and, to the condition that the certificate of title to said lands shall not be transferred to the name of the plaintiff company until the latter has fully and completely paid Tabora's indebtedness to the Philippine National Bank.

The plaintiff company filed its article incorporation with the Bureau of Commerce and Industry on October 22, 1930 (Exhibit 2). A year later, on October 28, 1931, the board of directors of said company adopted a resolution (Exhibit G) authorizing its president, Jose Ventura, to sell the four parcels of lands in question to Teodoro Sandiko for P42,000. Exhibits B, C and D were thereafter made and executed. Exhibit B is a deed of sale executed before a notary public by the terms of which the plaintiff sold ceded and transferred to the defendant all its right, titles, and interest in and to the four parcels of land described in transfer certificate in turn obligated himself to shoulder the three mortgages hereinbefore referred to. Exhibit C is a promisory note for P25,300. drawn by the defendant in favor of the plaintiff, payable after one year from the date thereof. Exhibit D is a deed of mortgage executed before a notary public in accordance with which the four parcels of land were given a security for the payment of the promissory note, Exhibit C. All these three instrument were dated February 15, 1932.

The defendant having failed to pay the sum stated in the promissory note, plaintiff, on January 25, 1934, brought this action in the Court of First Instance of Manila praying that judgment be rendered against the defendant for the sum of P25,300, with interest at legal rate from the date of the filing of the complaint, and the costs of the suits. After trial, the court below, on December 18, 1934, rendered judgment absolving the defendant, with costs against the plaintiff. Plaintiff presented a motion for new trial on January 14, 1935, which

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motion was denied by the trial court on January 19 of the same year. After due exception and notice, plaintiff has appealed to this court and makes an assignment of various errors.

In dismissing the complaint against the defendant, the court below, reached the conclusion that Exhibit B is invalid because of vice in consent and repugnancy to law. While we do not agree with this conclusion, we have however voted to affirm the judgment appealed from the reasons which we shall presently state.

The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff herein, was affected on May 31, 1930 (Exhibit A) and the actual incorporation of said company was affected later on October 22, 1930 (Exhibit 2). In other words, the transfer was made almost five months before the incorporation of the company. Unquestionably, a duly organized corporation has the power to purchase and hold such real property as the purposes for which such corporation was formed may permit and for this purpose may enter into such contracts as may be necessary (sec. 13, pars. 5 and 9, and sec. 14, Act No. 1459). But before a corporation may be said to be lawfully organized, many things have to be done. Among other things, the law requires the filing of articles of incorporation (secs. 6 et seq., Act. No. 1459). Although there is a presumption that all the requirements of law have been complied with (sec. 334, par. 31 Code of Civil Procedure), in the case before us it can not be denied that the plaintiff was not yet incorporated when it entered into a contract of sale, Exhibit A. The contract itself referred to the plaintiff as "una sociedad en vias de incorporacion." It was not even a de facto corporation at the time. Not being in legal existence then, it did not possess juridical capacity to enter into the contract.

Corporations are creatures of the law, and can only come into existence in the manner prescribed by law. As has already been stated, general law authorizing the formation of corporations are general offers to any persons who may bring themselves within their provisions; and if conditions precedent are prescribed in the statute, or certain acts are required to be done, they are terms of the offer, and must be complied with substantially before legal corporate existence can be acquired. (14 C. J., sec. 111, p. 118.)

That a corporation should have a full and complete organization and existence as an entity before it can enter into any kind of a contract or transact any business, would seem to be self evident. . . . A corporation, until organized, has no being, franchises or faculties. Nor do those engaged in bringing it into being have any power to bind it by contract, unless so authorized by the charter there is not a corporation nor does it possess franchise or faculties for it or others to exercise, until it acquires a complete existence. (Gent vs. Manufacturers and Merchant's Mutual Insurance Company, 107 Ill., 652, 658.)

Boiled down to its naked reality, the contract here (Exhibit A) was entered into not between Manuel Tabora and a non-existent corporation but between the Manuel Tabora as owner of the four parcels of lands on the one hand and the same Manuel Tabora, his wife and others, as mere promoters of a corporations on the other hand. For reasons that are self-evident, these promoters could not have acted as agent for a projected corporation since that which no legal existence could have no agent. A corporation, until organized, has no life and therefore no faculties. It is, as it were, a child in ventre sa mere. This is not saying that under no circumstances may the acts of promoters of a corporation be ratified by the corporation if and when subsequently organized. There are, of course, exceptions (Fletcher Cyc. of Corps., permanent edition, 1931, vol. I, secs. 207 et seq.), but under the peculiar facts and circumstances of the present case we decline to extend the doctrine of ratification which would result in the commission of injustice or fraud to the candid and unwary.(Massachusetts rule, Abbott vs. Hapgood, 150 Mass., 248; 22 N. E. 907, 908; 5 L. R. A., 586; 15 Am. St. Rep., 193; citing English cases; Koppel vs. Massachusetts Brick Co., 192 Mass., 223; 78 N. E., 128; Holyoke Envelope Co., vs. U. S. Envelope

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Co., 182 Mass., 171; 65 N. E., 54.) It should be observed that Manuel Tabora was the registered owner of the four parcels of land, which he succeeded in mortgaging to the Philippine National Bank so that he might have the necessary funds with which to convert and develop them into fishery. He appeared to have met with financial reverses. He formed a corporation composed of himself, his wife, and a few others. From the articles of incorporation, Exhibit 2, it appears that out of the P48,700, amount of capital stock subscribed, P45,000 was subscribed by Manuel Tabora himself and P500 by his wife, Rufina Q. de Tabora; and out of the P43,300, amount paid on subscription, P42,100 is made to appear as paid by Tabora and P200 by his wife. Both Tabora and His wife were directors and the latter was treasurer as well. In fact, to this day, the lands remain inscribed in Tabora's name. The defendant always regarded Tabora as the owner of the lands. He dealt with Tabora directly. Jose Ventura, president of the plaintiff corporation, intervened only to sign the contract, Exhibit B, in behalf of the plaintiff. Even the Philippine National Bank, mortgagee of the four parcels of land, always treated Tabora as the owner of the same. (See Exhibits E and F.) Two civil suits (Nos. 1931 and 38641) were brought against Tabora in the Court of First Instance of Manila and in both cases a writ of attachment against the four parcels of land was issued. The Philippine National Bank threatened to foreclose its mortgages. Tabora approached the defendant Sandiko and succeeded in the making him sign Exhibits B, C, and D and in making him, among other things, assume the payment of Tabora's indebtedness to the Philippine National Bank. The promisory note, Exhibit C, was made payable to the plaintiff company so that it may not attached by Tabora's creditors, two of whom had obtained writs of attachment against the four parcels of land.

If the plaintiff corporation could not and did not acquire the four parcels of land here involved, it follows that it did not possess any resultant right to dispose of them by sale to the defendant, Teodoro Sandiko.

Some of the members of this court are also of the opinion that the transfer from Manuel Tabora to the Cagayan Fishing Development Company, Inc., which transfer is evidenced by Exhibit A, was subject to a condition precedent (condicion suspensiva), namely, the payment of the mortgage debt of said Tabora to the Philippine National Bank, and that this condition not having been complied with by the Cagayan Fishing Development Company, Inc., the transfer was ineffective. (Art. 1114, Civil Code; Wise & Co. vs. Kelly and Lim, 37 Phil., 696; Manresa, vol. 8, p. 141.) However, having arrived at the conclusion that the transfer by Manuel Tabora to the Cagayan Fishing Development Company, Inc. was null because at the time it was affected the corporation was non-existent, we deem it unnecessary to discuss this point.lawphil.net

The decision of the lower court is accordingly affirmed, with costs against the appellant. So Ordered.

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G.R. No. L-20993             September 28, 1968

RIZAL LIGHT & ICE CO., INC., petitioner, vs.THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC SERVICE COMMISSION, respondents.

----------------------------

G.R. No. L-21221             September 28, 1968

RIZAL LIGHT & ICE CO., INC., petitioner, vs.THE PUBLIC SERVICE COMMISSION and MORONG ELECTRIC CO., INC., respondents.

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

 

ZALDIVAR, J.:

These two cases, being interrelated, are decided together.

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

Case G. R. L-21221 is likewise a petition of the Rizal Light & Ice Co., Inc. to review and set aside the decision of the Commission dated March 13, 1963 in PSC Case No. 62-5143 granting a certificate of public convenience and necessity to respondent Morong Electric Co., Inc. 2 to operate an electric light, heat and power service in the municipality of Morong, Rizal. In the petition Rizal Light & Ice Co., Inc. also prayed for the issuance of a writ of preliminary injunction ex parte suspending the effectivity of said decision. Per resolution of this Court, dated May 6, 1963, said petition for injunction was denied.

The facts, as they appear in the records of both cases, are as follows:

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Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with business address at Morong, Rizal. On August 15, 1949, it was granted by the Commission a certificate of public convenience and necessity for the installation, operation and maintenance of an electric light, heat and power service in the municipality of Morong, Rizal.

In an order dated December 19, 1956, the Commission required the petitioner to appear before it on February 18, 1957 to show cause why it should not be penalized for violation of the conditions of its certificate of public convenience and the regulations of the Commission, and for failure to comply with the directives to raise its service voltage and maintain them within the limits prescribed in the Revised Order No. 1 of the Commission, and to acquire and install a kilowattmeter to indcate the load in kilowatts at any particular time of the generating unit. 3

For failure of the petitioner to appear at the hearing on February 18, 1957, the Commission ordered the cancellation and revocation of petitioner's certificate of public convenience and necessity and the forfeiture of its franchise. Petitioner moved for reconsideration of said order on the ground that its manager, Juan D. Francisco, was not aware of said hearing. Respondent municipality opposed the motion alleging that petitioner has not rendered efficient and satisfactory service and has not complied with the requirements of the Commission for the improvement of its service. The motion was set for hearing and Mr. Pedro S. Talavera, Chief, Industrial Division of the Commission, was authorized to conduct the hearing for the reception of the evidence of the parties. 4

Finding that the failure of the petitioner to appear at the hearing set for February 18, 1957 — the sole basis of the revocation of petitioner's certificate — was really due to the illness of its manager, Juan D. Francisco, the Commission set aside its order of revocation. Respondent municipality moved for reconsideration of this order of reinstatement of the certificate, but the motion was denied.

In a petition dated June 25, 1958, filed in the same case, respondent municipality formally asked the Commission to revoke petitioner's certificate of public convenience and to forfeit its franchise on the ground, among other things, that it failed to comply with the conditions of said certificate and franchise. Said petition was set for hearing jointly with the order to show cause. The hearings had been postponed several times.

Meanwhile, inspections had been made of petitioner's electric plant and installations by the engineers of the Commission, as follows: April 15, 1958 by Engineer Antonio M. Alli; September 18, 1959, July 12-13, 1960, and June 21-24, 1961, by Engineer Meliton S. Martinez. The inspection on June 21-24, 1961 was made upon the request of the petitioner who manifested during the hearing on December 15, 1960 that improvements have been made on its service since the inspection on July 12-13, 1960, and that, on the basis of the inspection report to be submitted, it would agree to the submission of the case for decision without further hearing.

When the case was called for hearing on July 5, 1961, petitioner failed to appear. Respondent municipality was then allowed to present its documentary evidence, and thereafter the case was submitted for decision.

On July 7, 1961, petitioner filed a motion to reopen the case upon the ground that it had not been furnished with a copy of the report of the June 21-24, 1961 inspection for it to reply as previously agreed. In an order dated August 25, 1961, petitioner was granted a period of ten (10) days within which to submit its written reply to said inspection report, on condition that should it fail to do so within the said period the case would be considered submitted for decision. Petitioner failed to file the reply. In consonance with the order of August 25,

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1961, therefore, the Commission proceeded to decide the case. On July 29, 1962 petitioner's electric plant was burned.

In its decision, dated August 20, 1962, the Commission, on the basis of the inspection reports of its aforenamed engineers, found that the petitioner had failed to comply with the directives contained in its letters dated May 21, 1954 and September 4, 1954, and had violated the conditions of its certificate of public convenience as well as the rules and regulations of the Commission. The Commission concluded that the petitioner "cannot render the efficient, adequate and satisfactory electric service required by its certificate and that it is against public interest to allow it to continue its operation." Accordingly, it ordered the cancellation and revocation of petitioner's certificate of public convenience and the forfeiture of its franchise.

On September 18, 1962, petitioner moved for reconsideration of the decision, alleging that before its electric plant was burned on July 29, 1962, its service was greatly improved and that it had still existing investment which the Commission should protect. But eight days before said motion for reconsideration was filed, or on September 10, 1962, Morong Electric, having been granted a municipal franchise on May 6, 1962 by respondent municipality to install, operate and maintain an electric heat, light and power service in said municipality — approved by the Provincial Board of Rizal on August 31, 1962 — filed with the Commission an application for a certificate of public convenience and necessity for said service. Said application was entitled "Morong Electric Co., Inc., Applicant", and docketed as Case No. 62-5143.

Petitioner opposed in writing the application of Morong Electric, alleging among other things, that it is a holder of a certificate of public convenience to operate an electric light, heat and power service in the same municipality of Morong, Rizal, and that the approval of said application would not promote public convenience, but would only cause ruinous and wasteful competition. Although the opposition is dated October 6, 1962, it was actually received by the Commission on November 8, 1962, or twenty four days after the order of general default was issued in open court when the application was first called for hearing on October 15, 1962. On November 12, 1962, however, the petitioner filed a motion to lift said order of default. But before said motion could be resolved, petitioner filed another motion, dated January 4, 1963, this time asking for the dismissal of the application upon the ground that applicant Morong Electric had no legal personality when it filed its application on September 10, 1962, because its certificate of incorporation was issued by the Securities and Exchange Commission only on October 17, 1962. This motion to dismiss was denied by the Commission in a formal order issued on January 17, 1963 on the premise that applicant Morong Electric was a de facto corporation. Consequently, the case was heard on the merits and both parties presented their respective evidence. On the basis of the evidence adduced, the Commission, in its decision dated March 13, 1963, found that there was an absence of electric service in the municipality of Morong and that applicant Morong Electric, a Filipino-owned corporation duly organized and existing under the laws of the Philippines, has the financial capacity to maintain said service. These circumstances, considered together with the denial of the motion for reconsideration filed by petitioner in Case No. 39715 on February, 15, 1963, such that as far as the Commission was concerned the certificate of the petitioner was already declared revoked and cancelled, the Commission approved the application of Morong Electric and ordered the issuance in its favor of the corresponding certificate of public convenience and necessity.1awphîl.nèt

On March 8, 1963, petitioner filed with this Court a petition to review the decision in Case No. 39715 (now G. R. No. L-20993). Then on April 26, 1963, petitioner also filed a petition to review the decision in Case No. 62-5143 (now G. R. No. L-21221).

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In questioning the decision of the Commission in Case No. 39715, petitioner contends: (1) that the Commission acted without or in excess of its jurisdiction when it delegated the hearing of the case and the reception of evidence to Mr. Pedro S. Talavera who is not allowed by law to hear the same; (2) that the cancellation of petitioner's certificate of public convenience was unwarranted because no sufficient evidence was adduced against the petitioner and that petitioner was not able to present evidence in its defense; (3) that the Commission failed to give protection to petitioner's investment; and (4) that the Commission erred in imposing the extreme penalty of revocation of the certificate.

In questioning the decision in Case No. 62-5143, petitioner contends: (1) that the Commission erred in denying petitioner's motion to dismiss and proceeding with the hearing of the application of the Morong Electric; (2) that the Commission erred in granting Morong Electric a certificate of public convenience and necessity since it is not financially capable to render the service; (3) that the Commission erred when it made findings of facts that are not supported by the evidence adduced by the parties at the trial; and (4) that the Commission erred when it did not give to petitioner protection to its investment — a reiteration of the third assignment of error in the other case.1awphîl.nèt

We shall now discuss the appeals in these two cases separately.

G.R. No. L-20993

1. Under the first assignment of error, petitioner contends that while Mr. Pedro S. Talavera, who conducted the hearings of the case below, is a division chief, he is not a lawyer. As such, under Section 32 of Commonwealth Act No. 146, as amended, the Commission should not have delegated to him the authority to conduct the hearings for the reception of evidence of the parties.

We find that, really, Mr. Talavera is not a lawyer. 5 Under the second paragraph of Section 32 of Commonwealth Act No. 146, as amended, 6 the Commission can only authorize a division chief to hear and investigate a case filed before it if he is a lawyer. However, the petitioner is raising this question for the first time in this appeal. The record discloses that petitioner never made any objection to the authority of Mr. Talavera to hear the case and to receive the evidence of the parties. On the contrary, we find that petitioner had appeared and submitted evidence at the hearings conducted by Mr. Talavera, particularly the hearings relative to the motion for reconsideration of the order of February 18, 1957 cancelling and revoking its certificate. We also find that, through counsel, petitioner had entered into agreements with Mr. Talavera, as hearing officer, and the counsel for respondent municipality, regarding procedure in order to abbreviate the proceedings.  7 It is only after the decision in the case turned out to be adverse to it that petitioner questioned the proceedings held before Mr. Talavera.

This Court in several cases has ruled that objection to the delegation of authority to hear a case filed before the Commission and to receive the evidence in connection therewith is a procedural, not a jurisdictional point, and is waived by failure to interpose timely the objection and the case had been decided by the Commission.  8 Since petitioner has never raised any objection to the authority of Mr. Talavera before the Commission, it should be deemed to have waived such procedural defect, and consonant with the precedents on the matter, petitioner's claim that the Commission acted without or in excess of jurisdiction in so authorizing Mr. Talavera should be dismissed. 9

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2. Anent the second assigned error, the gist of petitioner's contention is that the evidence — consisting of inspection reports — upon which the Commission based its decision is insufficient and untrustworthy in that (1) the authors of said reports had not been put to test by way of cross-examination; (2) the reports constitute only one side of the picture as petitioner was not able to present evidence in its defense; (3) judicial notice was not taken of the testimony of Mr. Harry B. Bernardino, former mayor of respondent municipality, in PSC Case No. 625143 (the other case, G. R. No. L-21221) to the effect that the petitioner had improved its service before its electric power plant was burned on July 29, 1962 — which testimony contradicts the inspection reports; and (4) the Commission acted both as prosecutor and judge — passing judgment over the very same evidence presented by it as prosecutor — a situation "not conducive to the arrival at just and equitable decisions."

Settled is the rule that in reviewing the decision of the Public Service Commission this Court is not required to examine the proof de novo and determine for itself whether or not the preponderance of evidence really justifies the decision. The only function of this Court is to determine whether or not there is evidence before the Commission upon which its decision might reasonably be based. This Court will not substitute its discretion for that of the Commission on questions of fact and will not interfere in the latter's decision unless it clearly appears that there is no evidence to support it. 10 Inasmuch as the only function of this Court in reviewing the decision of the Commission is to determine whether there is sufficient evidence before the Commission upon which its decision can reasonably be based, as it is not required to examine the proof de novo, the evidence that should be made the basis of this Court's determination should be only those presented in this case before the Commission. What then was the evidence presented before the Commission and made the basis of its decision subject of the present appeal? As stated earlier, the Commission based its decision on the inspection reports submitted by its engineers who conducted the inspection of petitioner's electric service upon orders of the Commission.  11 Said inspection reports specify in detail the deficiencies incurred, and violations committed, by the petitioner resulting in the inadequacy of its service. We consider that said reports are sufficient to serve reasonably as bases of the decision in question. It should be emphasized, in this connection that said reports, are not mere documentary proofs presented for the consideration of the Commission, but are the results of the Commission's own observations and investigations which it can rightfully take into consideration, 12 particularly in this case where the petitioner had not presented any evidence in its defense, and speaking of petitioner's failure to present evidence, as well as its failure to cross-examine the authors of the inspection reports, petitioner should not complain because it had waived not only its right to cross-examine but also its right to present evidence. Quoted hereunder are the pertinent portions of the transcripts of the proceedings where the petitioner, through counsel, manifested in clear language said waiver and its decision to abide by the last inspection report of Engineer Martinez:

          Proceedings of December 15, 1960

COMMISSION:

It appears at the last hearing of this case on September 23, 1960, that an engineer of this Commission has been ordered to make an inspection of all electric services in the province of Rizal and on that date the engineer of this Commission is still undertaking that inspection and it appears that the said engineer had actually made that inspection on July 12 and 13, 1960. The engineer has submitted his report on November 18, 1960 which is attached to the records of this case.

ATTY. LUQUE (Councel for Petitioner):

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... (W)e respectfully state that while the report is, as I see it attached to the records, clear and very thorough, it was made sometime July of this year and I understand from the respondent that there is some improvement since this report was made ... we respectfully request that an up-to-date inspection be made ... . An inspector of this Commission can be sent to the plant and considering that the engineer of this Commission, Engineer Meliton Martinez, is very acquainted to the points involved we pray that his report will be used by us for the reason that he is a technical man and he knows well as he has done a good job and I think our proposition would expedite the matter. We sincerely believe that the inspection report will be the best evidence to decide this matter.

x x x           x x x           x x x

ATTY. LUQUE:

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

x x x           x x x           x x x

COMMISSION (to Atty. Luque):

Q           Does the Commission understand from the counsel for applicant that if the motion is granted he will submit this order to show cause for decision without any further hearing and the decision will be based on the report of the engineer of this Commission?

A           We respectfully reply in this manner that we be allowed or be given an opportunity just to read the report and 99%, we will agree that the report will be the basis of that decision. We just want to find out the contents of the report, however, we request that we be furnished with a copy of the report before the hearing so that we will just make a manifestation that we will agree.

COMMISSION (to Atty. Luque):

Q           In order to prevent the delay of the disposition of this case the Commission will allow counsel for the applicant to submit his written reply to the report that the engineer of this Commission. Will he submit this case without further hearing upon the receipt of that written reply?

A           Yes, your honor.

          Proceedings of August 25, 1961

ATTY. LUQUE (Counsel for petitioner):

In order to avoid any delay in the consideration of this case we are respectfully move (sic) that instead of our witnesses testifying under oath that we will submit a written reply under oath together with the memorandum

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within fifteen (15) days and we will furnish a copy and upon our submission of said written reply under oath and memorandum we consider this case submitted. This suggestion is to abbreviate the necessity of presenting witnesses here which may prolong the resolution of this case.

ATTY. OLIVAS (Counsel for respondent municipality):

I object on the ground that there is no resolution by this Commission on the action to reopen the case and second this case has been closed.

ATTY. LUQUE:

With regard to the testimony on the ground for opposition we respectfully submit to this Commission our motion to submit a written reply together with a memorandum. Also as stated to expedite the case and to avoid further hearing we will just submit our written reply. According to our records we are furnished with a copy of the report of July 17, 1961. We submit your honor.

x x x           x x x           x x x

COMMISSION:

To give applicant a chance to have a day in court the Commission grants the request of applicant that it be given 10 days within which to submit a written reply on the report of the engineer of the Commission who inspected the electric service, in the municipality of Morong, Rizal, and after the submission of the said written reply within 10 days from today this case will be considered submitted for decision.

The above-quoted manifestation of counsel for the petitioner, specifically the statement referring to the inspection report of Engineer Martinez as the "best evidence to decide this matter," can serve as an argument against petitioner's claim that the Commision should have taken into consideration the testimony of Mr. Bernardino. But the primary reasons why the Commission could not have taken judicial cognizance of said testimony are: first, it is not a proper subject of judicial notice, as it is not a "known" fact — that is, well established and authoritatively settled, without qualification and contention; 13 second, it was given in a subsequent and distinct case after the petitioner's motion for reconsideration was heard by the Commission en banc and submitted for decision, 14 and third, it was not brought to the attention of the Commission in this case through an appropriate pleading. 15

Regarding the contention of petitioner that the Commission had acted both as prosecutor and judge, it should be considered that there are two matters that had to be decided in this case, namely, the order to show cause dated December 19, 1956, and the petition or complaint by respondent municipality dated June 25, 1958. Both matters were heard jointly, and the record shows that respondent municipality had been allowed to present its evidence to substantiate its complaint. It can not be said, therefore, that in this case the Commission had acted as prosecutor and judge. But even assuming, for the sake of argument, that there was a commingling of the prosecuting and investigating functions, this exercise of dual function is authorized by Section 17(a) of Commonwealth Act No. 146, as amended, under which the Commission has power "to investigate, upon its own initiative or upon complaint in writing, any matter concerning any public service as regards matters under its jurisdiction; to, require any public service to furnish safe, adequate, and proper service as the public interest may require and warrant; to enforce compliance with any standard, rule, regulation, order or other requirement

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of this Act or of the Commission ... ." Thus, in the case of Collector of Internal Revenue vs. Estate of F. P. Buan, L-11438, July 31, 1958, this Court held that the power of the Commission to cancel and revoke a certificate of public convenience and necessity may be exercised by it even without a formal charge filed by any interested party, with the only limitation that the holder of the certificate should be given his day in court.

It may not be amiss to add that when prosecuting and investigating duties are delegated by statute to an administrative body, as in the case of the Public Service Commission, said body may take steps it believes appropriate for the proper exercise of said duties, particularly in the manner of informing itself whether there is probable violation of the law and/or its rules and regulations. It may initiate an investigation, file a complaint, and then try the charge as preferred. So long as the respondent is given a day in court, there can be no denial of due process, and objections to said procedure cannot be sustained.

3. In its third assignment of error, petitioner invokes the "protection-of-investment rule" enunciated by this Court inBatangas Transportation Co. vs. Orlanes 16 in this wise:

The Government having taken over the control and supervision of all public utilities, so long as an operator under a prior license complies with the terms and conditions of his license and reasonable rules and regulations for its operation and meets the reasonable demands of the public, it is the duty of the Commission to protect rather than to destroy his investment by the granting of the second license to another person for the same thing over the same route of travel. The granting of such a license does not serve its convenience or promote the interests of the public.

The above-quoted rule, however, is not absolute, for nobody has exclusive right to secure a franchise or a certificate of public convenience. 17 Where, as in the present case, it has been shown by ample evidence that the petitioner, despite ample time and opportunity given to it by the Commission, had failed to render adequate, sufficient and satisfactory service and had violated the important conditions of its certificate as well as the directives and the rules and regulations of the Commission, the rule cannot apply. To apply that rule unqualifiedly is to encourage violation or disregard of the terms and conditions of the certificate and the Commission's directives and regulations, and would close the door to other applicants who could establish, operate and provide adequate, efficient and satisfactory service for the benefit and convenience of the inhabitants. It should be emphasized that the paramount consideration should always be the public interest and public convenience. The duty of the Commission to protect investment of a public utility operator refers only to operators of good standing — those who comply with the laws, rules and regulations — and not to operators who are unconcerned with the public interest and whose investments have failed or deteriorated because of their own fault. 18

4. The last assignment of error assails the propriety of the penalty imposed by the Commission on the petitioner — that is, the revocation of the certificate and the forfeiture of the franchise. Petitioner contends that the imposition of a fine would have been sufficient, as had been done by the Commission in cases of a similar nature.

It should be observed that Section 16(n) of Commonwealth Act No. 146, as amended, confers upon the Commission ample power and discretion to order the cancellation and revocation of any certificate of public convenience issued to an operator who has violated, or has willfully and contumaciously refused to comply with, any order, rule or regulation of the Commission or any provision of law. What matters is that there is evidence to support the action of the Commission. In the instant case, as shown by the evidence, the

11

contumacious refusal of the petitioner since 1954 to comply with the directives, rules and regulations of the Commission, its violation of the conditions of its certificate and its incapability to comply with its commitment as shown by its inadequate service, were the circumstances that warranted the action of the Commission in not merely imposing a fine but in revoking altogether petitioner's certificate. To allow petitioner to continue its operation would be to sacrifice public interest and convenience in favor of private interest.

A grant of a certificate of public convenience confers no property rights but is a mere license or privilege, and such privilege is forfeited when the grantee fails to comply with his commitments behind which lies the paramount interest of the public, for public necessity cannot be made to wait, nor sacrificed for private convenience. (Collector of Internal Revenue v. Estate of F. P. Buan, et al., L-11438 and Santiago Sambrano, et al. v. PSC, et al., L-11439 & L-11542-46, July 31, 1958)

(T)he Public Service Commission, ... has the power to specify and define the terms and conditions upon which the public utility shall be operated, and to make reasonable rules and regulations for its operation and the compensation which the utility shall receive for its services to the public, and for any failure to comply with such rules and regulations or the violation of any of the terms and conditions for which the license was granted, the Commission has ample power to enforce the provisions of the license or even to revoke it, for any failure or neglect to comply with any of its terms and provisions . (Batangas Trans. Co. v. Orlanes, 52 Phil. 455, 460; emphasis supplied)

Presumably, the petitioner has in mind Section 21 of Commonwealth Act No. 146, as amended, which provides that a public utility operator violating or failing to comply with the terms and conditions of any certificate, or any orders, decisions or regulations of the Commission, shall be subject to a fine and that the Commission is authorized and empowered to impose such fine, after due notice and hearing. It should be noted, however, that the last sentence of said section states that the remedy provided therein "shall not be a bar to, or affect any other remedy provided in this Act but shall be cumulative and additional to such remedy or remedies." In other words, the imposition of a fine may only be one of the remedies which the Commission may resort to, in its discretion. But that remedy is not exclusive of, or has preference over, the other remedies. And this Court will not substitute its discretion for that of the Commission, as long as there is evidence to support the exercise of that discretion by the Commission.

G. R. No. L-21221

Coming now to the other case, let it be stated at the outset that before any certificate may be granted, authorizing the operation of a public service, three requisites must be complied with, namely: (1) the applicant must be a citizen of the Philippines or of the United States, or a corporation or co-partnership, association or joint-stock company constituted and organized under the laws of the Philippines, sixty per centum at least of the stock or paid-up capital of which belongs entirely to citizens of the Philippines or of the United States; 19 (2) the applicant must be financially capable of undertaking the proposed service and meeting the responsibilities incident to its operation; 20 and (3) the applicant must prove that the operation of the public service proposed and the authorization to do business will promote the public interest in a proper and suitable manner. 21

As stated earlier, in the decision appealed from, the Commission found that Morong Electric is a corporation duly organized and existing under the laws of the Philippines, the stockholders of which are Filipino citizens, that it is financially capable of operating an electric light, heat and power service, and that at the time the decision was rendered there was absence of electric service in Morong, Rizal. While the petitioner does not

12

dispute the need of an electric service in Morong, Rizal,  22 it claims, in effect, that Morong Electric should not have been granted the certificate of public convenience and necessity because (1) it did not have a corporate personality at the time it was granted a franchise and when it applied for said certificate; (2) it is not financially capable of undertaking an electric service, and (3) petitioner was rendering efficient service before its electric plant was burned, and therefore, being a prior operator its investment should be protected and no new party should be granted a franchise and certificate of public convenience and necessity to operate an electric service in the same locality.

1. The bulk of petitioner's arguments assailing the personality of Morong Electric dwells on the proposition that since a franchise is a contract, 23 at least two competent parties are necessary to the execution thereof, and parties are not competent except when they are in being. Hence, it is contended that until a corporation has come into being, in this jurisdiction, by the issuance of a certificate of incorporation by the Securities and Exchange Commission (SEC) it cannot enter into any contract as a corporation. The certificate of incorporation of the Morong Electric was issued by the SEC on October 17, 1962, so only from that date, not before, did it acquire juridical personality and legal existence. Petitioner concludes that the franchise granted to Morong Electric on May 6, 1962 when it was not yet in esse is null and void and cannot be the subject of the Commission's consideration. On the other hand, Morong Electric argues, and to which argument the Commission agrees, that it was a de factocorporation at the time the franchise was granted and, as such, it was not incapacitated to enter into any contract or to apply for and accept a franchise. Not having been incapacitated, Morong Electric maintains that the franchise granted to it is valid and the approval or disapproval thereof can be properly determined by the Commission.

Petitioner's contention that Morong Electric did not yet have a legal personality on May 6, 1962 when a municipal franchise was granted to it is correct. The juridical personality and legal existence of Morong Electric began only on October 17, 1962 when its certificate of incorporation was issued by the SEC. 24 Before that date, or pending the issuance of said certificate of incorporation, the incorporators cannot be considered as de facto corporation.25 But the fact that Morong Electric had no corporate existence on the day the franchise was granted in its name does not render the franchise invalid, because later Morong Electric obtained its certificate of incorporation and then accepted the franchise in accordance with the terms and conditions thereof. This view is sustained by eminent American authorities. Thus, McQuiuin says:

The fact that a company is not completely incorporated at the time the grant is made to it by a municipality to use the streets does not, in most jurisdictions, affect the validity of the grant. But such grant cannot take effect until the corporation is organized. And in Illinois it has been decided that the ordinance granting the franchise may be presented before the corporation grantee is fully organized, where the organization is completed before the passage and acceptance. (McQuillin, Municipal Corporations, 3rd Ed., Vol. 12, Chap. 34, Sec. 34.21)

Fletcher says:

While a franchise cannot take effect until the grantee corporation is organized, the franchise may, nevertheless, be applied for before the company is fully organized.

A grant of a street franchise is valid although the corporation is not created until afterwards. (Fletcher, Cyclopedia Corp. Permanent Edition, Rev. Vol. 6-A, Sec. 2881)

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And Thompson gives the reason for the rule:

(I)n the matter of the secondary franchise the authorities are numerous in support of the proposition that an ordinance granting a privilege to a corporation is not void because the beneficiary of the ordinance is not fully organized at the time of the introduction of the ordinance. It is enough that organization is complete prior to the passage and acceptance of the ordinance. The reason is that a privilege of this character is a mere license to the corporation until it accepts the grant and complies with its terms and conditions. (Thompson on Corporations, Vol. 4, 3rd Ed., Sec. 2929) 26

The incorporation of Morong Electric on October 17, 1962 and its acceptance of the franchise as shown by its action in prosecuting the application filed with the Commission for the approval of said franchise, not only perfected a contract between the respondent municipality and Morong Electric but also cured the deficiency pointed out by the petitioner in the application of Morong EIectric. Thus, the Commission did not err in denying petitioner's motion to dismiss said application and in proceeding to hear the same. The efficacy of the franchise, however, arose only upon its approval by the Commission on March 13, 1963. The reason is that —

Under Act No. 667, as amended by Act No. 1022, a municipal council has the power to grant electric franchises, subject to the approval of the provincial board and the President. However, under Section 16(b) of Commonwealth Act No. 146, as amended, the Public Service Commission is empowered "to approve, subject to constitutional limitations any franchise or privilege granted under the provisions of Act No. 667, as amended by Act No. 1022, by any political subdivision of the Philippines when, in the judgment of the Commission, such franchise or privilege will properly conserve the public interests and the Commission shall in so approving impose such conditions as to construction, equipment, maintenance, service, or operation as the public interests and convenience may reasonably require, and to issue certificates of public convenience and necessity when such is required or provided by any law or franchise." Thus, the efficacy of a municipal electric franchise arises, therefore, only after the approval of the Public Service Commission. (Almendras vs. Ramos, 90 Phil. 231) .

The conclusion herein reached regarding the validity of the franchise granted to Morong Electric is not incompatible with the holding of this Court in Cagayan Fishing Development Co., Inc. vs. Teodoro Sandiko 27 upon which the petitioner leans heavily in support of its position. In said case this Court held that a corporation should have a full and complete organization and existence as an entity before it can enter into any kind of a contract or transact any business. It should be pointed out, however, that this Court did not say in that case that the rule is absolute or that under no circumstances may the acts of promoters of a corporation be ratified or accepted by the corporation if and when subsequently organized. Of course, there are exceptions. It will be noted that American courts generally hold that a contract made by the promoters of a corporation on its behalf may be adopted, accepted or ratified by the corporation when organized. 28

2. The validity of the franchise and the corporate personality of Morong Electric to accept the same having been shown, the next question to be resolved is whether said company has the financial qualification to operate an electric light, heat and power service. Petitioner challenges the financial capability of Morong Electric, by pointing out the inconsistencies in the testimony of Mr. Jose P. Ingal, president of said company, regarding its assets and the amount of its initial investment for the electric plant. In this connection it should be stated that on the basis of the evidence presented on the matter, the Commission has found the Morong Electric to be "financially qualified to install, maintain and operate the proposed electric light, heat and power service." This is essentially a factual determination which, in a number of cases, this Court has said it will not disturb unless

14

patently unsupported by evidence. An examination of the record of this case readily shows that the testimony of Mr. Ingal and the documents he presented to establish the financial capability of Morong Electric provide reasonable grounds for the above finding of the Commission.

It is now a very well-settled rule in this jurisdiction that the findings and conclusions of fact made by the Public Service Commission, after weighing the evidence adduced by the parties in a public service case, will not be disturbed by the Supreme Court unless those findings and conclusions appear not to be reasonably supported by evidence. (La Mallorca and Pampanga Bus Co. vs. Mercado, L-19120, November 29, 1965)

For purposes of appeal, what is decisive is that said testimonial evidence provides reasonable support for the Public Service Commission's findings of financial capacity on the part of applicants, rendering such findings beyond our power to disturb. (Del Pilar Transit vs. Silva, L-21547, July 15, 1966)

It may be worthwhile to mention in this connection that per inspection report dated January 20, 1964 29 of Mr. Meliton Martinez of the Commission, who inspected the electric service of Morong on January 15-16, 1964, Morong Electric "is serving electric service to the entire area covered by its approved plan and has constructed its line in accordance with the plans and specifications approved by the Commission." By reason thereof, it was recommended that the requests of Morong Electric (1) for the withdrawal of its deposit in the amount of P1,000.00 with the Treasurer of the Philippines, and (2) for the approval of Resolution No. 160 of the Municipal Council of Morong, Rizal, exempting the operator from making the additional P9,000.00 deposit mentioned in its petition, dated September 16, 1963, be granted. This report removes any doubt as to the financial capability of Morong Electric to operate and maintain an electric light, heat and power service.

3. With the financial qualification of Morong Electric beyond doubt, the remaining question to be resolved is whether, or not, the findings of fact of the Commission regarding petitioner's service are supported by evidence. It is the contention of the petitioner that the Commission made some findings of fact prejudicial to its position but which do not find support from the evidence presented in this case. Specifically, petitioner refers to the statements or findings that its service had "turned from bad to worse," that it miserably failed to comply with the oft-repeated promises to bring about the needed improvement, that its equipment is unserviceable, and that it has no longer any plant site and, therefore, has discredited itself. Petitioner further states that such statements are not only devoid of evidentiary support but contrary to the testimony of its witness, Mr. Harry Bernardino, who testified that petitioner was rendering efficient and satisfactory service before its electric plant was burned on July 29, 1962.

On the face of the decision appealed from, it is obvious that the Commission in describing the kind of service petitioner was rendering before its certificate was ordered revoked and cancelled, took judicial notice of the records of the previous case (PSC Case No. 39715) where the quality of petitioner's service had been squarely put in issue. It will be noted that the findings of the Commission were made notwithstanding the fact that the aforementioned testimony of Mr. Bernardino had been emphasized and pointed out in petitioner's Memorandum to the Commission. 30 The implication is simple: that as between the testimony of Mr. Bernardino and the inspection reports of the engineers of the Commission, which served as the basis of the revocation order, the Commission gave credence to the latter. Naturally, whatever conclusion or finding of fact that the Commission arrived at regarding the quality of petitioner's service are not borne out by the evidence presented in this case but by evidence in the previous case. 31 In this connection, we repeat, the conclusion, arrived at by the

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Commission after weighing the conflicting evidence in the two related cases, is a conclusion of fact which this Court will not disturb.

And it has been held time and again that where the Commission has reached a conclusion of fact after weighing the conflicting evidence, that conclusion must be respected, and the Supreme Court will not interfere unless it clearly appears that there is no evidence to support the decision of the Commission. (La Mallorca and Pampanga Bus Co., Inc. vs. Mercado, L-19120, November 29, 1965 citing Pangasinan Trans. Co., Inc. vs. Dela Cruz, 96 Phil. 278)

For that matter, petitioner's pretension that it has a prior right to the operation of an electric service in Morong, Rizal, is not tenable; and its plea for protection of its investment, as in the previous case, cannot be entertained.

WHEREFORE, the two decisions of the Public Service Commission, appealed from, should be, as they are hereby affirmed, with costs in the two cases against petitioner Rizal Light & Ice Co., Inc. It is so ordered.

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

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

 

CRUZ, J.:

We gave limited due course to this petition on the question of the solidary liability of the petitioners with their co-defendants in the lower court 1 because of the challenge to the following paragraph in the dispositive portion of the decision of the respondent court: *

1. Defendants are hereby ordered to jointly and severally pay the plaintiff the amount of P50,000.00 for the preparation of the project study and his technical services that led to the organization of the defendant corporation, plus P10,000.00 attorney's fees; 2

The petitioners claim that this order has no support in fact and law because they had no contract whatsoever with the private respondent regarding the above-mentioned services. Their position is that as mere subsequent investors in the corporation that was later created, they should not be held solidarily liable with the Filipinas Orient Airways, a separate juridical entity, and with Barretto and Garcia, their co-defendants in the lower court, ** who were the ones who requested the said services from the private respondent. 3

We are not concerned here with the petitioners' co-defendants, who have not appealed the decision of the respondent court and may, for this reason, be presumed to have accepted the same. For purposes of resolving this case before us, it is not necessary to determine whether it is the promoters of the proposed corporation, or

16

the corporation itself after its organization, that shall be responsible for the expenses incurred in connection with such organization.

The only question we have to decide now is whether or not the petitioners themselves are also and personallyliable for such expenses and, if so, to what extent.

The reasons for the said order are given by the respondent court in its decision in this wise:

As to the 4th assigned error we hold that as to the remuneration due the plaintiff for the preparation of the project study and the pre-organizational services in the amount of P50,000.00, not only the defendant corporation but the other defendants including defendants Caram should be jointly and severally liable for this amount. As we above related it was upon the request of defendants Barretto and Garcia that plaintiff handled the preparation of the project study which project study was presented to defendant Caram so the latter was convinced to invest in the proposed airlines. The project study was revised for purposes of presentation to financiers and the banks. It was on the basis of this study that defendant corporation was actually organized and rendered operational. Defendants Garcia and Caram, and Barretto became members of the Board and/or officers of defendant corporation. Thus, not only the defendant corporation but all the other defendants who were involved in the preparatory stages of the incorporation, who caused the preparation and/or benefited from the project study and the technical services of plaintiff must be liable. 4

It would appear from the above justification that the petitioners were not really involved in the initial steps that finally led to the incorporation of the Filipinas Orient Airways. Elsewhere in the decision, Barretto was described as "the moving spirit." The finding of the respondent court is that the project study was undertaken by the private respondent at the request of Barretto and Garcia who, upon its completion, presented it to the petitioners to induce them to invest in the proposed airline. The study could have been presented to other prospective investors. At any rate, the airline was eventually organized on the basis of the project study with the petitioners as major stockholders and, together with Barretto and Garcia, as principal officers.

The following portion of the decision in question is also worth considering:

... Since defendant Barretto was the moving spirit in the pre-organization work of defendant corporation based on his experience and expertise, hence he was logically compensated in the amount of P200,000.00 shares of stock not as industrial partner but more for his technical services that brought to fruition the defendant corporation. By the same token, We find no reason why the plaintiff should not be similarly compensated not only for having actively participated in the preparation of the project study for several months and its subsequent revision but also in his having been involved in the pre-organization of the defendant corporation, in the preparation of the franchise, in inviting the interest of the financiers and in the training and screening of personnel. We agree that for these special services of the plaintiff the amount of P50,000.00 as compensation is reasonable. 5

The above finding bolsters the conclusion that the petitioners were not involved in the initial stages of the organization of the airline, which were being directed by Barretto as the main promoter. It was he who was putting all the pieces together, so to speak. The petitioners were merely among the financiers whose interest was

17

to be invited and who were in fact persuaded, on the strength of the project study, to invest in the proposed airline.

Significantly, there was no showing that the Filipinas Orient Airways was a fictitious corporation and did not have a separate juridical personality, to justify making the petitioners, as principal stockholders thereof, responsible for its obligations. As a bona fide corporation, the Filipinas Orient Airways should alone be liable for its corporate acts as duly authorized by its officers and directors.

In the light of these circumstances, we hold that the petitioners cannot be held personally liable for the compensation claimed by the private respondent for the services performed by him in the organization of the corporation. To repeat, the petitioners did not contract such services. It was only the results of such services that Barretto and Garcia presented to them and which persuaded them to invest in the proposed airline. The most that can be said is that they benefited from such services, but that surely is no justification to hold them personally liable therefor. Otherwise, all the other stockholders of the corporation, including those who came in later, and regardless of the amount of their share holdings, would be equally and personally liable also with the petitioners for the claims of the private respondent.

The petition is rather hazy and seems to be flawed by an ambiguous ambivalence. Our impression is that it is opposed to the imposition of solidary responsibility upon the Carams but seems to be willing, in a vague, unexpressed offer of compromise, to accept joint liability. While it is true that it does here and there disclaim total liability, the thrust of the petition seems to be against the imposition of solidary liability only rather than against any liability at all, which is what it should have categorically argued.

Categorically, the Court holds that the petitioners are not liable at all, jointly or jointly and severally, under the first paragraph of the dispositive portion of the challenged decision. So holding, we find it unnecessary to examine at this time the rules on solidary obligations, which the parties-needlessly, as it turns out have belabored unto death.

WHEREFORE, the petition is granted. The petitioners are declared not liable under the challenged decision, which is hereby modified accordingly. It is so ordered.

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G.R. No. L-5003             June 27, 1953

NAZARIO TRILLANA, administrator-appellee, vs.QUEZON COLLEGE, INC., claimant-appellant.

Singson, Barnes, Yap and Blanco for appellant.Delgado, Flores & Macapagal for appellee.

PARAS, J.:

Damasa Crisostomo sent the following letter to the Board of Trustees of the Quezon College:

June 1, 1948

The BOARD OF TRUSTEES Quezon CollegeManila

Gentlemen:

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

Very respectfully,

(Sgd.) DAMASA CRISOSTOMOSignature of subscriber

Nilagdaan sa aming harapan:

JOSE CRISOSTOMOEDUARDO CRISOSTOMO

Damasa Crisostomo died on October 26, 1948. As no payment appears to have been made on the subscription mentioned in the foregoing letter, the Quezon College, Inc. presented a claim before the Court of First Instance of Bulacan in her testate proceeding, for the collection of the sum of P20,000, representing the value of the subscription to the capital stock of the Quezon College, Inc. This claim was opposed by the administrator of the estate, and the Court of First Instance of Bulacan, after hearing issued an order dismissing the claim of the Quezon College, Inc. on the ground that the subscription in question was neither registered in nor authorized by the Securities and Exchange Commission. From this order the Quezon College, Inc. has appealed.

It is not necessary for us to discuss at length appellant's various assignments of error relating to the propriety of the ground relief upon by the trial court, since, as pointed out in the brief for the administrator and appellee, there are other decisive considerations which, though not touched by the lower court, amply sustained the appealed order.

It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written on a general form indicating that an applicant will enclose an amount as initial payment and will pay the balance in accordance with law and the regulations of the College. On the other hand, in the letter actually sent by Damasa Crisostomo, the latter (who requested that her subscription for 200 shares be entered) not only did not enclose any initial payment but stated that "babayaran kong lahat pagkatapos na ako ay makapagpahuli ng isda." There is nothing in the record to show that the Quezon College, Inc. accepted the term of payment suggested by Damasa Crisostomo, or that if there was any acceptance the same came to her knowledge during her lifetime. As the application of Damasa Crisostomo is obviously at variance with the terms evidenced in the form letter issued by the Quezon College, Inc., there was absolute necessity on the part of the College to express its agreement to Damasa's offer in order to bind the latter. Conversely, said acceptance was essential, because it would be unfair to immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of the subscription after she had caused fish to be caught. In other words, the relation between Damasa Crisostomo and the Quezon College, Inc. had only thus reached the preliminary stage whereby the latter offered its stock for subscription on the terms stated in the form letter, and Damasa applied for subscription fixing her own plan of

20

payment, — a relation, in the absence as in the present case of acceptance by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that had not ripened into an enforceable contract.

Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she has harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative in nature, rendering the obligation void, under article 1115 of the old Civil Code which provides as follows: "If the fulfillment of the condition should depend upon the exclusive will of the debtor, the conditional obligation shall be void. If it should depend upon chance, or upon the will of a third person, the obligation shall produce all its effects in accordance with the provisions of this code." It cannot be argued that the condition solely is void, because it would have served to create the obligation to pay, unlike a case, exemplified by Osmeña vs. Rama (14 Phil., 99), wherein only the potestative condition was held void because it referred merely to the fulfillment of an already existing indebtedness.

In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court already held that "a condition, facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and renders the whole obligation void."

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

G.R. Nos. L-48195 and 48196             May 1, 1942

SOFRONIO T. BAYLA, ET AL., petitioners, vs.SILANG TRAFFIC CO., INC., respondent.SILANG TRAFFIC CO., petitioner, vs. SOFRONIO BAYLA, ET AL., respondents.

E. A. Beltran for petitioners.Conrado V. Sanchez, Melchor C. Benitez, and Enrique M. Fernando for respondent.

OZAETA, J.:

Petitioners in G.R. No. 48195 instituted this action in the Court of First Instance of Cavite against the respondent Silang Traffic Co., Inc. (cross-petitioner in G.R. No. 48196), to recover certain sums of money which they had paid severally to the corporation on account of shares of stock they individually agreed to take and pay for under certain specified terms and conditions, of which the following referring to the petitioner Josefa Naval, is typical:

AGREEMENT FOR INSTALLMENT SALE OF SHARES IN THE "SILANG TRAFFIC COMPANY, INC.,"

Silang, Cavite, P. I.

21

THIS AGREEMENT, made and entered into between Mrs. Josefa Naval, of legal age, married and resident of the Municipality of Silang, Province of Cavite, Philippine Islands, party of the First Part, hereinafter called the subscriber, and the "Silang Traffic Company, Inc.," a corporation duly organized and existing by virtue of and under the laws of the Philippine Islands, with its principal office in the Municipality of Silang, Province of Cavite, Philippine Islands, party of the Second Part, hereinafter called the seller,

WITNESSETH:

That the subscriber promises to pay personally or by his duly authorized agent to the seller at the Municipality of Silang, Province of Cavite, Philippine Islands, the sum of one thousand five hundred pesos (P1,500), Philippine currency, as purchase price of FIFTEEN (15) shares of capital stock, said purchase price to be paid as follows, to wit: five (5%) per cent upon the execution of the contract, the receipt whereof is hereby acknowledged and confessed, and the remainder in installments of five per cent, payable within the first month of each and every quarter thereafter, commencing on the 1st day of July, 1935, with interest on deferred payments at the rate of SIX (6%) per cent per annum until paid.

That the said subscriber further agrees that if he fails to pay any of said installment when due, or to perform any of the aforesaid conditions, or if said shares shall be attached or levied upon by creditors of the said subscriber, then the said shares are to revert to the seller and the payments already made are to be forfeited in favor of said seller, and the latter may then take possession, without resorting to court proceedings.

The said seller upon receiving full payment, at the time and manner hereinbefore specified, agrees to execute and deliver to said subscriber, or to his heirs and assigns, the certificate of title of said shares, free and clear of all encumbrances.

In testimony whereof, the parties have hereunto set their hands in the Municipality of Silang, Province of Cavite, Philippine Islands, this 30th day of March, 1935.

(Sgd.) JOSEFA NAVALSILANG TRAFFIC COMPANY, INC.                     Subscriber

By (Sgd.) LINO GOMEZ            President.

(Exhibit 1. Notarial acknowledgment omitted.)

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

Sofronio T. 8 shares P360

22

Bayla.......

Venancio Toledo........

8 shares 375

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

15 shares 675

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

15 shares 675

Petitioners' action for the recovery of the sums above mentioned is based on a resolution by the board of directors of the respondent corporation on August 1, 1937, of the following tenor:

A mocion sel Sr. Marcos Caparas y secundado por el Sr. Alejandro Bayla, que para el bien de la corporacion y la pronta terminacion del asunto civil No. 3125 titulado "Vicente F. Villanueva et al. vs. Lino Gomez et al.," en el Juzgado de Primera Instancia de Cavite, donde se gasto y se gastara no poca cantidad de la Corporacion, se resolvio y se aprobo por la Junta Directiva los siguientes:

(a) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 de marzo, 1935, art. 11, sec. 162, sobre las cobranzas que se haran por el Secretario Tesorero de la Corporacion a los accionistas que habian tomado o suscrito nuevas acciones y que se permitia a estos pagar 20% del valor de las acciones suscritas en un año, con interes de 6% y el pago o jornal que se hara por trimestre.

(b) Se dejara sin efecto, en vista de que aun no esta pagado todo el valor de las 123 acciones, tomadas de las acciones no expedidas (unissued stock) de la Corporacion y que fueron suscritas por los siguienes:

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

10 Acciones

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

8 Acciones

Melchor P. Benitez........

17 Acciones

Isaias Videña.................

14 Acciones

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

10 Acciones

Numeriano S. Aldaba....

15 Acciones

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

8 Acciones

23

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

15 Acciones

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

8 Acciones

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

3 Acciones

y devolver a las personas arriba descritas toda la cantidad que estas habian pagado por las 123 acciones.

(c) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 marzo, 1935, art. V. sec. 165, sobre el cambio o trueque de las 31 acciones del Treasury Stock, contra las 32 acciones del Sr. Numeriano Aldaba, en la corporacion Northern Luzon Transportation Co. y que se devuelva al Sr. Numeriano Aldaba las 32 acciones mencionadas despues que el haya devuelto el certificado de las 31 acciones de la Silang Traffic Co., Inc.

(d) Permitir al Tesorero de la Corporacion para que devuelva a las personas arriba indicadas, las cantidades pagadas por las 123 acciones. (Exhibit A-1.)

The respondent corporation set up the following defenses: (1) That the above-quoted resolution is not applicable to the petitioners Sofronio T. Bayla, Josefa Naval, and Paz Toledo because on the date thereof "their subscribed shares of stock had already automatically reverted to the defendant, and the installments paid by them had already been forfeited"; and (2) that said resolution of August 1, 1937, was revoked and cancelled by a subsequent resolution of the board of directors of the defendant corporation dated August 22, 1937.

The trial court absolved the defendant from the complaint and declared canceled (forfeited) in favor of the defendant the shares of stock in question. It held that the resolution of August 1, 1937, was null and void, citingVelasco vs. Poizat (37 Phil., 802), wherein this Court held that "a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for shares; and any agreement to this effect is invalid" Plaintiffs below appealed to the Court of Appeals, which modified of the trial court as follows:

That part of the judgment dismissing plaintiff's complaint is affirmed, but that part thereof declaring their subscription canceled is reversed. Defendant is directed to grant plaintiffs 30 days after final judgment within which to pay the arrears on their subscription. Without pronouncement as to costs.

Both parties appealed to this Court by petition and cross-petition for certiorari. Petitioners insist that they have the right to recover the amounts involved under the resolution of August 1, 1937, while the respondent and cross-petitioner on its part contends that said amounts have been automatically forfeited and the shares of stock have reverted to the corporation under the agreement hereinabove quoted.

The parties litigant, the trial court, and the Court of Appeals have interpreted or considered the said agreement as a contract of subscription to the capital stock of the respondent corporation. It should be noted, however, that said agreement is entitled "Agreement for Installment Sale of Shares in the Silang Traffic Company, Inc.,"; that while the purchaser is designated as "subscriber," the corporation is described as "seller"; that the agreement was entered into on March 30, 1935, long after the incorporation and organization of the corporation, which

24

took place in 1927; and that the price of the stock was payable in quarterly installments spread over a period of five years. It also appears that in civil case No. 3125 of the Court of First Instance of Cavite mentioned in the resolution of August 1, 1937, the right of the corporation to sell the shares of stock to the person named in said resolution (including herein petitioners) was impugned by the plaintiffs in said case, who claimed a preferred right to buy said shares.

Whether a particular contract is a subscription or a sale of stock is a matter of construction and depends upon its terms and the intention of the parties (4 Fletcher, Cyclopedia of Corporation [permanent edition], 29, cited in Salmon, Dexter & Co. vs. Unson (47 Phil. 649, 652). In the Unson case just cited, this Court held that a subscription to stock in an existing corporation is, as between the subscriber and the corporation, simply a contract of purchase and sale.

It seems clear from the terms of the contracts in question that they are contracts of sale and not of subscription. The lower courts erred in overlooking the distinction between subscription and purchase "A subscription, properly speaking, is the mutual agreement of the subscribers to take and pay for the stock of a corporation, while a purchase is an independent agreement between the individual and the corporation to buy shares of stock from it at stipulated price." (18 C. J. S., 760.) In some particulars the rules governing subscriptions and sales of shares are different. For instance, the provisions of our Corporation Law regarding calls for unpaid subscription and assessment of stock (sections 37-50) do not apply to a purchase of stock. Likewise the rule that corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for his shares, is inapplicable to a contract of purchase of shares.

The next question to determine is whether under the contract between the parties the failure of the purchaser to pay any of the quarterly installments on the purchase price automatically gave rise to the forfeiture of the amounts already paid and the reversion of the shares to the corporation. The contract provides for interest of the rate of six per centum per annum on deferred payments. It is also provides that if the purchaser fails to pay any of said installments when due, the said shares are to revert to the seller and the payments already made are to be forfeited in favor of said seller. The respondent corporation contends that when the petitioners failed to pay the installment which fell due on or before July 31, 1937, forfeiture automatically took place, that is to say, without the necessity of any demand from the corporation, and that therefore the resolution of August 1, 1937, authorizing the refund of the installments already paid was inapplicable to the petitioners, who had already lost any and all rights under said contract. The contention is, we think, untenable. The provision regarding interest on deferred payments would not have been inserted if it had been the intention of the parties to provide for automatic forfeiture and cancelation of the contract. Moreover, the contract did not expressly provide that the failure of the purchaser to pay any installment would give rise to forfeiture and cancelation without the necessity of any demand from the seller; and under article 1100 of the Civil Code persons obliged to deliver or do something are not in default until the moment the creditor demands of them judicially or extrajudicially the fulfillment of their obligation, unless (1) the obligation or the law expressly provides that demand shall not be necessary in order that default may arise, (2) by reason of the nature and circumstances of the obligation it shall appear that the designation of the time at which that thing was to be delivered or the service rendered was the principal inducement to the creation of the obligation.

Is the resolution of August 1, 1937, valid? The contract in question being one of purchase and not subscription as we have heretofore pointed out, we see no legal impediment to its rescission by agreement of the parties. According to the resolution of August 1, 1937, the recission was made for the good of the corporation and in order to terminate the then pending civil case involving the validity of the sale of the shares in question among

25

others. To that rescission the herein petitioners apparently agreed, as shown by their demand for the refund of the amounts they had paid as provided in said resolution. It appears from the record that said civil case was subsequently dismissed, and that the purchasers of shares of stock, other than the herein petitioners, who were mentioned in said resolution were able to benefit by said resolution. It would be an unjust discrimination to deny the same benefit to the herein petitioners.

We may add that there is no intimation in this case that the corporation was insolvent, or that the right of any creditor of the same was in any way prejudiced by the rescission.

The attempted revocation of said rescission by the resolution of August 22, 1937, was invalid, it not having been agreed to by the petitioners.

Wherefore, the judgment of the court of appeals is hereby reversed and another judgment will be entered against the defendant Silang Traffic Co., Inc., ordering it to pay to the plaintiffs Sofronio T. Bayla, Venancio Toledo, Josefa Naval, and Paz Toledo, the sums of P360, P375, P675, and P675, respectively, with legal interest on each of said sums from May 28, 1938, the date of the filing of the complaint, until the date of payment, and with costs in the three instances. So ordered.

March 15, 1918

G.R. No. 11528

MIGUEL VELASCO, assignee of The Philippine Chemical Product Co. (Ltd.), plaintiff-appellant,

vs.

JEAN M. POIZAT, defendant-appellee.

Vicente Rodriguez for appellant.

A. J. Burke for appellee.

STREET, J.:

From the amended complaint filed in this cause upon February 5, 1915, it appears that the plaintiff, as assignee

in insolvency of "The Philippine Chemical Product Company" (Ltd.) is seeking to recover of the defendant,

Jean M. Poizat, the sum of P1,500, upon a subscription made by him to the corporate stock of said company. It

appears that the corporation in question was originally organized by several residents of the city of Manila,

where the company had its principal place of business, with a capital of P50,000, divided into 500 shares. The

defendant subscribed for 20 shares of the stock of the company, an paid in upon his subscription the sum of

P500, the par value of 5 shares . The action was brought to recover the amount subscribed upon the remaining

shares.

26

It appears that the defendant was a stock holder in the company from the inception of the enterprise, and for

sometime acted as its treasurer and manager. While serving in this capacity he called in and collected all

subscriptions to the capital stock of the company, except the aforesaid 15 shares subscribed by himself and

another 15 shares owned by Jose R. Infante.

Upon July 13, 1914, a meeting of the board of directors of the company was held at which a majority of the

stock was presented. Up[on this occasion two resolutions, important to be here noted, were adopted. The first

was a proposal that the directors, or shareholders, of the company should make good by new subscriptions, in

proportion to their respective holdings, 15 shares which had been surrendered by Infante. It seems that this

shareholder had already paid 25 per cent of his subscription upon 20 shares, leaving 15 shares unpaid for, and

an understanding had been reached by him and the management by which he was to be released from the

obligation of his subscription, it being understood that what he had already paid should not be refunded.

Accordingly the directors present at this meeting subscribed P1,200 toward taking up his shares, leaving a

deficiency of P300 to be recovered by voluntary subscriptions from stockholders not present at the meeting.

The other proposition was o the effect that Juan [Jean] M. Poizat, who was absent, should be required to pay the

amount of his subscription upon the 15 shares for which he was still indebted to the company. The resolution

further provided that, in case he should refuse to make such payment, the management of the corporation should

be authorized to undertake judicial proceedings against him. When notification of this resolution reached Poizat

through the mail it evoked from him a manifestation of surprise and pain, which found expression in a letter

written by him in reply, dated July 27, 1914, and addressed to Velasco, as treasurer and administrator. In this

letter Poizat states that he had been given to understand by some member of the board of directors that he was

to be relieved from his subscription upon the terms conceded to Infante; and he added:

My desire to be relieved from the payment of the remaining 75 per cent arises from the poor opinion

which I entertain of the business and the faint hope of ever recovering any money invested. In

consequence, I prefer to lose the whole of the 25 per cent I have already paid rather than to continue

investing more money in what I consider to be ruinous proposition.

Within a short while the unfavorable opinion entertained by Poizat as to the prospect of the company was found

to be fully justified, as the company soon went into voluntary insolvency, Velasco being named as the assignee.

He qualified at once by giving bond, and was duly inducted into the office of assignee upon November 25,

1914, by virtue of a formal transfer executed by the clerk in pursuance of section 32 of Act No. 1956 .

27

The answer of the defendant consisted of a general denial and a so-called special defense, consisting of a

concatenation of statements more appropriate for a demurrer than as material for a special defense. The

principal contention is that the call made by the board of directors of the company on July 13, 1914 , was not

made pursuant to the requirements of sections 37 and 38 of the Corporation Law (Act No. 1459) , and in

particular that the action was instituted before the expiration of the 30 days specified in section 38.

At the hearing of the Court of First Instance, judgment was rendered in favor of the defendant, and the

complaint was dismissed. From this action the plaintiff has appealed.

We think that Poizat is liable upon this subscription. A stock subscription is a contract between the corporation

on one side, and the subscriber on the other, and courts will enforce it for or against either. It is a rule, accepted

by the Supreme Court of the United States, that a subscription for shares of stock does not require an express

promise to pay the amount subscribed, as the law implies a promise to pay on the part of the subscriber. (7

Ruling Case Law, sec. 191.) Section 36 of the Corporation Law clearly recognizes that a stock subscription is

subsisting liability from the time the subscription is made, since it requires the subscriber to pay interest

quarterly from that date unless he is relieved from such liability by the by-laws of the corporation. The

subscriber is as much bound to pay the amount of the share subscribed by him as he would be to pay any other

debt, and the right of the company to demand payment is no less incontestable.

The provisions of the Corporation Law (Act No. 1459) given recognition of two remedies for the enforcement

of stock subscriptions. The first and most special remedy given by the statute consists in permitting the

corporation to put up the unpaid stock for sale and dispose of it for the account of the delinquent subscriber. In

this case the provisions of section 38 to 48, inclusive , of the Corporation Law are applicable and must be

followed. The other remedy is by action in court, concerning which we find in section 49 the following

provision:

Nothing in this Act shall prevent the directors from collecting, by action in any court of proper

jurisdiction, the amount due on any unpaid subscription, together with accrued interest and costs and

expenses incurred.

It is generally accepted doctrine that the statutory right to sell the subscriber's stock is merely a remedy in

addition to that which proceeds by action in court; and it has been held that the ordinary legal remedy by action

exists even though no express mention thereof is made in the statute. (Instone vs. Frankfort Bridge Co., 2 Bibb

[Ky.], 576; 5 Am. Dec., 638.)

28

No attempt is made in the Corporation Law to define the precise conditions under which an action may be

maintained upon a stock subscription, as such conditions should be determined with reference to the rules

governing contract liability in general; and where it appears as in this case that a matured stock subscription is

unpaid, none of the provisions contained in section 38 to 48, inclusive, of Act No. 1459can be permitted to

obstruct or impede the action to recover thereon. By virtue of the first subsection of section 36 of the Insolvency

Law (Act No. 1956) the assignee of the insolvent corporation succeeds to all the corporate rights of action

vested in the corporation prior to its insolvency; and the assignee therefore has the same freedom with respect to

suing upon the stock subscription as the directors themselves would have had under section 49 above cited.

But there is another reason why the present plaintiff must prevail in this case, even supposing that the failure of

the directors to comply with the requirements of the provisions of sections 38 to 48, inclusive, of  Act No.

1459 might have been an obstacle to a recovery by the corporation itself. That reason is this: When insolvency

supervenes upon a corporation and the court assumes jurisdiction to wind up, all unpaid stock subscriptions

become payable on demand, and are at once recoverable in an action instituted by the assignee or receiver

appointed by the court. This rule apparently had origin in a recognition of the principle that a court of equity,

having jurisdiction of the insolvency proceedings, could, if necessary, make the call itself, in its capacity as

successor to the powers exercised by the board of directors of the defunct company. Later a further rule gained

recognition to the effect that the receiver or assignee, in an action instituted by proper authority, could himself

proceed to collect the subscription without the necessity of any prior call whatever. This conclusion is well

supported by reference to the following authorities:

. . . a court of equity may enforce payment of the stock subscriptions, although there have been no calls

for them by the company. (Hatch vs. Dana, 101 U. S., 205.)

It is again insisted that the plaintiffs cannot recover because the suit was not preceded by a call or

assessment against no right of action accrues. In a suit by a solvent going corporation to collect a

subscription, and in certain suits provided by the statute this would be true; but it is now quite well

settled that when the corporation becomes insolvent, with proceedings instituted by creditors to wind up

and distribute its assets, no call or assessment is necessary before the institution of suits to collect unpaid

balances on subscription. (Ross-Meehan Shoe F. Co. vs.Southern Malleable Iron Co., 72 Fed., 957,

960; see also Henry vs. Vermillion etc. R. R. Co., 17 Ohio, 187, and Thompson on Corporations 2d ed.,

vol. 3, sec. 2697.)

It evidently cannot be permitted that a subscriber should escape from his lawful obligation by reason of the

failure of the officers of the corporation to perform their duty in making a call; and when the original model of

making the call becomes impracticable, the obligation must be treated as due upon demand. If the corporation

must be treated still an active entity, and this action should be dismissed for irregularity in the making of the

29

call, other steps could be taken by the board to cure the defect and another action could be brought; but where

the company is being wound up, no such procedure would be practicable. The better doctrine is that when

insolvency supervenes all unpaid subscriptions become at once due and enforceable.

The printed bill of exceptions in this cause does not contain the original complaint, nor does it state who was

plaintiff therein or the date when the action was instituted. It may, however, be gathered from the papers

transmitted to this court that the action was originally instituted in the name of the Philippine Chemical Product

Co. (Ltd.), prior to its insolvency, and that later the assignee was substituted as plaintiff and then filed the

amended complaint, with the permission of the court. Now, if we concede that no right of action existed when

the original complaint was filed, a right of action certainly existed when the assignee filed his amended

complaint; and as the bill of exceptions fails to show that any exception was taken to the action of the court in

allowing the amended complaint to be filed, no objection would be here entertained on the ground that the

action was prematurely brought.

The circumstance that the board of directors in their meeting of July 13, 1914, resolved to release Infante from

his obligation upon a subscription for 15 shares is no wise prejudicial to the right of the corporation or its

assignee to recover from Poizat upon a subscription made by him. In releasing Infante the board transcended its

powers, and he no doubt still remained liable on such of his shares as were not taken up and paid for by other

persons.

The general doctrine is that the corporation has no legal capacity to release an original subscriber to its

capital stock from the obligation of paying for his shares, in whole or in part, . . . (10 Cyc., 450.)

The suggestion contained in Poizat's letter of July 27, 1914, to the effect that he understood that he was to be

relieved upon the same terms as Infante is, for the same reason, of no merit as matter of defense, even if an

agreement to that effect had been duly proved.

From what has been said it is manifest that the defendant is liable for P1,500, the amount of his subscription

upon the unpaid shares. Under section 36 of the Corporation Law he is also liable for interest at the lawful rate

from the date of his subscription, unless relieved from this liability by the by-laws of the company. These by-

laws have not been introduced in evidence and there is no proof showing the exact date upon which the

subscription was made, though it is alleged in the original complaint that the company was organized upon

March 23, 1914. This allegation is not admitted in the agreed statement of facts. The defendant, however,

30

inferentially admits in his letter of July 27, 1914, that his subscription had been made prior to July 13, 1914. It

resulted that in our opinion he should be held liable for interest from that date.

The judgment of the lower court is therefore reversed, and judgment will be rendered in favor of the plaintiff

and against the defendant for the sum of one thousand five hundred pesos (P1,500), with interest from July 13,

1014, and costs of both instances. So ordered.

G.R. Nos. L-24177-85           June 29, 1968

PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs.BITULOK SAWMILL, INC., DINGALAN LUMBER CO., INC., SIERRA MADRE LUMBER CO., INC., NASIPIT LUMBER CO., INC., WOODWORKS, INC., GONZALO PUYAT, TOMAS B. MORATO, FINDLAY MILLAR LUMBER CO., INC., ET AL., INSULAR LUMBER CO., ANAKAN LUMBER CO., AND CANTILAN LUMBER CO., INC., defendants-appellees.

Tomas Besa, Simplicio N. Angeles and Jose B. Galang for plaintiff-appellee.Bausa, Ampil and Suarez for defendant-appellant Woodworks, Inc.Pacifico de Ocampo for defendant-appellant Anakan Lumber Co.Ross, Selph, Salcedo, Del Rosario, Bito and Misa for defendant-appellant Insular Lumber Co.Garin, Boquiren and Tamesis for defendant-appellant Nasipit Lumber Co., Inc.Feria, Manglapus and Associates for defendant-appellant Gonzalo Puyat.Sycip, Salazar and Associates for defendant-appellant Cantilan Lumber Co., Inc.Ozaeta, Gibbs and Ozaeta for defendant-appellant Findlay Millar Lumber Co., Inc.Dominador Alafriz for defendant-appellant Bitulok Sawmill, Inc.De la Costa and De la Costa for defendant-appellant Tomas B. Morato.

31

FERNANDO, J.:

In the face of a statutory norm, which, as interpreted in a uniform line of decisions by this Court, speaks unequivocally and is free from doubt, the lower court with full recognition that the case for the plaintiff creditor, Philippine National Bank, "is meritorious strictly from the legal standpoint" 1 but apparently unable to "close its eyes to the equity of the case" 2 dismissed nine (9) cases filed by it, seeking "to recover from the defendant lumber producers [Bitulok Sawmill, Inc.; Dingalan Lumber Co., Inc., Sierra Madre Lumber Co., Inc.; Nasipit Lumber Co., Inc.; Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay Millar Lumber Co., Inc.; Insular Lumber Co., Inc.; Anakan Lumber Co., Inc.; and Cantilan Lumber Co., Inc.] the balance of their stock subscriptions to the Philippine Lumber Distributing Agency, Inc."  3 In essence then, the crucial question posed by this appeal from such a decision of the lower court is adherence to the rule of law. Otherwise stated, would non-compliance with a plain statutory command, considering the persuasiveness of the plea that defendants-appellees would "not have subscribed to [the] capital stock" of the Philippine Lumber Distributing Agency "were it not for the assurance of the [then] President of the Republic of the Philippines that the Government would back [it] up by investing P9.00 for every peso" 4 subscribed, a condition which was not fulfilled, such commitment not having been complied with, be justified? The answer must be in the negative.

It cannot be otherwise even if an element of unfairness and injustice could be predicated, as the lower court, in a rather sympathetic mood, did find in the plaintiff bank, as creditor, compelling defendant lumber producers under the above circumstances to pay the balance of their subscriptions. For a plain and statutory command, if applicable, must be respected. The rule of law cannot be satisfied with anything less. The appeal must be sustained.

In these various suits decided jointly, the Philippine National Bank, as creditor, and therefore the real party in interest, was allowed by the lower court to substitute the receiver of the Philippine Lumber Distributing Agency in these respective actions for the recovery from defendant lumber producers the balance of their stock subscriptions. The amount sought to be collected from defendants-appellees Bitulok Sawmill, Inc., Dingalan Lumber Co., Inc., and Sierra Madre Lumber Co., Inc., is P5,000.00, defendants-appellees having made a partial payment of P15,000.00 of their total subscription worth P20,000.00; from defendant-appellee Nasipit Lumber Co., Inc., the sum of P10,000.00, defendant-appellee having made a partial payment of P10,000.00 of its total subscription worth P20,000.00; from defendant-appellee Woodworks, Inc., the sum of P10,886.00, defendant-appellee having made a partial payment of P9,114.00 of its total subscription worth P20,000.00; from defendant-appellee Gonzalo Puyat the sum of P10,000.00, defendant-appellee having made a partial payment of P10,000.00 of his total subscription worth P20,000.00; from defendant-appellee Tomas Morato the sum of P10,000.00, defendant-appellee having made a partial payment of P10,000.00 of his total subscription worth P20,000.00; from defendant-appellee Findlay Millar Lumber Co., Inc., the sum of P10,000.00, defendant-appellee having made a partial payment of P10,000.00 of its total subscription worth P20,000.00; from defendant-appellee Insular Lumber Co., Inc., the sum of P5,000.00, defendant-appellee having made a partial payment of P15,000.00 of its total subscription worth P20,000.00; from defendant-appellee Anakan Lumber Co., Inc., the sum of P15,000.00, defendant-appellee having made a partial payment of P5,000.00 of its total subscription worth P20,000.00; and from defendant-appellee Cantilan Lumber Co., Inc., the sum of P7,500.00, defendant-appellee having made a partial payment of P2,500.00 of its total subscription worth P10,000.00, plus interest at the legal rate from the filing of the suits and the costs of the suits in all the nine (9) cases.

The Philippine Lumber Distributing Agency, Inc., according to the lower court, "was organized sometime in the early part of 1947 upon the initiative and insistence of the late President Manuel Roxas of the Republic of the

32

Philippines who for the purpose, had called several conferences between him and the subscribers and organizers of the Philippine Lumber Distributing Agency, Inc." 5 The purpose was praiseworthy, to insure a steady supply of lumber, which could be sold at reasonable prices to enable the war sufferers to rehabilitate their devastated homes. The decision continues: "He convinced the lumber producers to form a lumber cooperative and to pool their sources together in order to wrest, particularly, the retail trade from aliens who were acting as middlemen in the distribution of lumber. At the beginning, the lumber producers were reluctant to organize the cooperative agency as they believed that it would not be easy to eliminate from the retail trade the alien middlemen who had been in this business from time immemorial, but because the late President Roxas made it clear that such a cooperative agency would not be successful without a substantial working capital which the lumber producers could not entirely shoulder, and as an inducement he promised and agreed to finance the agency by making the Government invest P9.00 by way of counterpart for every peso that the members would invest therein,...." 6

This was the assurance relied upon according to the decision, which stated that the amount thus contributed by such lumber producers was not enough for the operation of its business especially having in mind the primary purpose of putting an end to alien domination in the retail trade of lumber products. Nor was there any appropriation by the legislature of the counterpart fund to be put up by the Government, namely, P9.00 for every peso invested by defendant lumber producers. Accordingly, "the late President Roxas instructed the Hon. Emilio Abello, then Executive Secretary and Chairman of the Board of Directors of the Philippine National Bank, for the latter to grant said agency an overdraft in the original sum of P250,000.00 which was later increased to P350,000.00, which was approved by said Board of Directors of the Philippine National Bank on July 28, 1947, payable on or before April 30, 1958, with interest at the rate of 6% per annum, and secured by the chattel mortgages on the stock of lumber of said agency." 7 The Philippine Government did not invest the P9.00 for every peso coming from defendant lumber producers. The loan extended to the Philippine Lumber Distributing Agency by the Philippine National Bank was not paid. Hence, these suits.

For the lower court, the above facts sufficed for their dismissal. To its mind "it is grossly unfair and unjust for the plaintiff bank now to compel the lumber producers to pay the balance of their subscriptions .... Indeed, when the late President Roxas made representations to the plaintiff bank, thru the Hon. Emilio Abello, who was then the Executive Secretary and Chairman of its Board of Directors, to grant said overdraft to the agency, it was the only way by which President Roxas could make good his commitment that the Government would invest in said agency to the extent already mentioned because, according to said late President Roxas, the legislature had not appropriated any amount for such counterpart. Consequently, viewing from all considerations of equity in the case, the Court finds that plaintiff bank should not collect any more from the defendants the balance of their subscriptions to the capital stock of the Philippine Lumber Distributing Agency, Inc." 8

Even with the case for defendant lumber producers being put forth in its strongest possible light in the appealed decision, the plaintiff creditor, the Philippine National Bank, should have been the prevailing party. On the law as it stands, the judgment reached by the lower court cannot be sustained. The appeal, as earlier made clear, possesses merit.

In Philippine Trust Co. v. Rivera, 9 citing the leading case of Velasco v. Poizat, 10 this Court held: "It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debt.... A corporation has no power to release an original subscriber to its capital stock from the obligation of paying for his shares, without a valuable consideration for such release; and as against creditors a reduction of the capital stock can take place only in the

33

manner and under the conditions prescribed by the statute or the charter or the articles of incorporation. Moreover, strict compliance with the statutory regulations is necessary...." The Poizat doctrine found acceptance in later cases. 11One of the latest cases, Lingayen Gulf Electric Power v. Baltazar, 12 Speaks to this effect: "In the case of Velasco v. Poizat, 13 the corporation involved was insolvent, in which case all unpaid stock subscriptions become payable on demand and are immediately recoverable in an action instituted by the assignee."

It would be unwarranted to ascribe to the late President Roxas the view that the payment of the stock subscriptions, as thus required by law, could be condoned in the event that the counterpart fund to be invested by the Government would not be available. Even if such were the case, however, and such a promise were in fact made, to further the laudable purpose to which the proposed corporation would be devoted and the possibility that the lumber producers would lose money in the process, still the plain and specific wording of the applicable legal provision as interpreted by this Court must be controlling. It is a well-settled principle that with all the vast powers lodged in the Executive, he is still devoid of the prerogative of suspending the operation of any statute or any of its terms.

The emphatic and categorical language of an American decision cited by the late Justice Laurel, in  People v. Vera,14 comes to mind: "By the twentieth article of the declaration of rights in the constitution of this commonwealth, it is declared that the power of suspending the laws, or the execution of the laws, ought never to be exercised but by the legislature, or by authority derived from it, to be exercised in such particular cases only as the legislature shall expressly provide for...." Nor could it be otherwise considering that the Constitution specifically enjoins the President to see to it that all laws be faithfully executed. 15 There may be a discretion as to what a particular legal provision requires; there can be none whatsoever as to the enforcement and application thereof once its meaning has been ascertained. What it decrees must be followed; what it commands must be obeyed. It must be respected, the wishes of the President, to the contrary notwithstanding, even if impelled by the most worthy of motives and the most persuasive equitable considerations. To repeat, such is not the case here. For at no time did President Roxas ever give defendant lumber producers to understand that the failure of the Government for any reason to put up the counterpart fund could terminate their statutory liability.

Such is not the law. Unfortunately, the lower court was of a different mind. That is not to pay homage to the rule of law. Its decision then, one it is to be repeated influenced by what it considered to be the "equity of the case", is not legally impeccable.

WHEREFORE, the decision of the lower court is reversed and the cases remanded to the lower court for judgment according to law, with full consideration of the legal defenses raised by defendants-appellees, Bitulok Sawmill, Inc.; Dingalan Lumber Co., Inc.; Sierra Madre Lumber Co., Inc.; Nasipit Lumber Co., Inc.; Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay Millar Lumber Co., Inc.; Anakan Lumber Co., Inc.; and Cantilan Lumber Co., Inc. No pronouncement as to costs.

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G.R. No. L-30646             January 30, 1929

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, petitioner, vs.THE MANILA RAILROAD COMPANY and JOSE PAEZ as Manager of said Company, respondents.

Attorney-General Jaranilla for petitioner.Jose Abreu for respondents.

JOHNSON, J.:

This is a petition in the Supreme Court of the extraordinary legal writ of mandamus presented by the Government of the Philippine Islands, praying that the writ be issued to compel the Manila Railroad Company and Jose Paez, as its manager, to provide and equip the telegraph poles of said company between the municipality of Paniqui, Province of Tarlac, and the Municipality of San Fernando, Province of La Union, with crosspieces for six telegraph wires belonging to the Government, which, it is alleged, are necessary for public service between said municipalities.

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The only question raised by the petition is whether the dependant company is required to provide and equip its telegraph poles with crosspieces to carry six telegraph wires of the Government, or whether it is only required to furnish poles with crosspieces sufficient to carry four wires only.

It is admitted that the present poles and crosspieces between said municipalities are sufficient to carry four telegraph wires and that they do now carry four telegraph wires, by virtue of an agreement between the respondents and the Bureau of the Posts of the Philippine Government. It is admitted that the poles and not sufficient to carry six telegraph wires.

The petitioner relies upon the provisions of section 84 of act No. 1459. Act No. 1459 is the General Corporation Law and was adopted by the United States Philippine Commission on March 1, 1906. (Vol. 5, Pub. Laws, pp. 224-268.) Section 84 of the said Act provides:

The railroad corporation shall establish along the whole length of the road a telegraph line for the use of the railroad. The posts of this line may be used for Government wires and shall be of sufficient length and strength and equipped with sufficient crosspiece to carry the number of wires which the Government may consider necessary for the public service. The establishment, protection, and maintenance of the wires and stations necessary for the public service shall be at the cost of the Government. (Vol. 5, P. L., p. 247.)

The plaintiff contends that under said section 84 the defendant company is required to erect and maintain posts for its telegraph wires, of sufficient length and strength, and equipped with sufficient crosspieces to carry the number of wires which the Government may consider necessary for the public service, and that six wires are now necessary for the public service.

The respondents answered by a general and special defense. In their special defense they contend that section 84 of Act No. 1459 has been repealed by section 1, paragraph 8 of Act No. 1510 of the United States Philippine Commission (vol. 5, P. L., pp. 350-358), and that under the provisions of said Act No. 1510 the Government is entitled to place on the poles of the company four wires only. Act No. 1510 is the charter of the Manila Railroad Company. It was adopted by the United States Philippine Commission on July 7, 1906. Section 1, paragraph 8, of said Act No. 1510 provides:

8. The grantee (the Manila Railroad Company) shall have the right to construct and operate telegraph, telephone, and electrical transmission lines over said railways for the use of the railways and their business, and also, with the approval of the Secretary of War, for public service and commercial purposes but these latter privileges shall be subject to the following provisions:

In the construction of telegraph or telephone lines along the right of way the grantee (the Manila Railroad Company) shall erect and maintain poles with sufficient space thereon to permit the Philippine Government, at the expense of said Government, to place, operate, and maintain four wires for telegraph, telephone, and electrical transmission for any Government purposes between the termini of the lines of railways main or branch; and the Philippine Government reserves to itself the right to construct, maintain, and operate telegraph, telephone, or electrical transmission lines over the right of way of said railways for commercial military, or government purposes, without unreasonably interfering with the construction, maintenance, and operation by the grantee of its railways, telegraph, telephone, and electrical transmission lines.

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To answer the question above stated, it becomes necessary to determine whether section 84 of Act No. 1459 is applicable to the Manila Railroad Company, or whether the manila Railroad Company is governed by section 1, paragraph 8, of Act No. 1510. As has been said, Act No. 1459 is a general law applicable to corporations generally, while Act No. 1510 is the charter of the Manila Railroad Company and constitute a contract between it and the Government.

Inasmuch as Act No. 1510 is the charter of Manila Railroad Company and constitute a contract between it and the Governmemnt, it would seem that the company is governd by its contract and not by the provisions of any general law upon questions covered by said contract. From a reading of the said charter or contract it would be seen that there is no indication that the Government intended to impose upon said company any other conditions as obligations not expressly found in said charter or contract. If that is true, then certainly the Government cannot impose upon said company any conditions or obligations found in any general law, which does not expressly modify said contract.

Section 84 of the Corporation Law (Act No. 1459) was intended to apply to all railways in the Philippine Islands which did not have a special charter contract. Act No. 1510 applies only to the Manila Railroad Company, one of the respondents, and being a special charter of said company, its adoption had the effect of superseding the provisions of the general Corporation Law which are applicable to railraods in general. The special charter (Act No. 1510) had the effect of superseding the general Corporation Law upon all matters covered by said special charter. Said Act, inasmuch as it contained a special provision relating to the erection of telegraph and telephone poles, and the number of wires which the Government might place thereon, superseded the general law upon that question.

Act No. 1510 is a special charter of the respondent company. It constitutes a contract between the respondent company and the state; and the state and the grantee of a charter are equally bound by its provisions. For the state to impose an obligation or a duty upon the respondent company, which is not expressly provided for in the charter (Act No. 1510), would amount to a violation of said contract between the state and the respondent company. The provisions of Act No. 1459 relating to the number of wires which the Government may place upon the poles of the company are different and more enerous than the provisions of the charter upon the same question. Therefore, to allow the plaintiff to require of the respondent company a compliance with said section 84 of Act No. 1459, would be to require of the respondent company and the performance of an obligation which is not imposed upon it by its charter. The charter of a corporation is a contract between three parties: (a) it is a contract between the state and the corporation to which the charter is granted; (b) it is a contact between the stockholders and the state and (c) it is also a contract between the corporation and its stockholders. (Cook on Corporations, vol. 2, sec. 494 and cases cited.)

The question is not whether Act No. 1510 repealed Act No. 1459; but whether, after the adoption of Act No. 1510, the respondents are obliged to comply with the special provision above mentioned, contained in Act No. 1459. We must answer that question in the native. Both laws are still in force, unless otherwise repealed. Act No. 1510 is applicable to respondents upon the question before us, while Act No. 1459 is not applicable.

The petitioner, in view of all the foregoing facts and the law applicable thereto, has not shown itself entitled to the remedy prayed for. The prayer of the petition must, therefore, be denied. And without any finding as to costs, it is so ordered.

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G.R. No. 96674 June 26, 1992

RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS and FRANCISCO TRIAS, petitioners,

vs.

COURT OF APPEALS*, SECURITIES AND EXCHANGE COMMISSION, MELANIA A. GUERRERO, LUZ ANDICO, WILHEMINA G. ROSALES, FRANCISCO M. GUERRERO, JR., and FRANCISCO GUERRERO , SR.,respondents.

 

PARAS, J.:

The basic controversy in this case is whether or not the respondent court erred in sustaining the Securities and Exchange Commission when it compelled by Mandamus the Rural Bank of Salinas to register in its stock and transfer book the transfer of 473 shares of stock to private respondents. Petitioners maintain that the Petition forMandamus should have been denied upon the following grounds.

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(1) Mandamus cannot be a remedy cognizable by the Securities and Exchange Commission when the purpose is to register certificates of stock in the names of claimants who are not yet stockholders of a corporation:

(2) There exist valid reasons for refusing to register the transfer of the subject of stock, namely:

(a) a pending controversy over the ownership of the certificates of stock with the Regional Trial Court;

(b) claims that the Deeds of Assignment covering the subject certificates of stock were fictitious and antedated; and

(c) claims on a resultant possible deprivation of inheritance share in relation with a conflicting claim over the subject certificates of stock.

The facts are not disputed.

On June 10, 1979, Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a  Special Power of Attorney in favor of his wife, private respondent Melania Guerrero, giving and granting the latter full power and authority to sell or otherwise dispose of and/or mortgage 473 shares of stock of the Bank registered in his name (represented by the Bank's stock certificates nos. 26, 49 and 65), to execute the proper documents therefor, and to receive and sign receipts for the dispositions.

On February 27, 1980, and pursuant to said Special Power of Attorney, private respondent Melania Guerrero, as Attorney-in-Fact, executed a Deed of Assignment for 472 shares out of the 473 shares, in favor of private respondents Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and Francisco Guerrero, Jr. (5 shares).

Almost four months later, or two (2) days before the death of Clemente Guerrero on June 24, 1980, private respondent Melania Guerrero, pursuant to the same Special Power of Attorney, executed a Deed of Assignmentfor the remaining one (1) share of stock in favor of private respondent Francisco Guerrero, Sr.

Subsequently, private respondent Melania Guerrero presented to petitioner Rural Bank of Salinas the two (2) Deeds of Assignment for registration with a request for the transfer in the Bank's stock and transfer book of the 473 shares of stock so assigned, the cancellation of stock certificates in the name of Clemente G. Guerrero, and the issuance of new stock certificates covering the transferred shares of stocks in the name of the new owners thereof. However, petitioner Bank denied the request of respondent Melania Guerrero.

On December 5, 1980, private respondent Melania Guerrero filed with the Securities and Exchange Commission" (SEC) an action for mandamus against petitioners Rural Bank of Salinas, its President and Corporate Secretary. The case was docketed as SEC Case No. 1979.

Petitioners filed their Answer with counterclaim on December 19, 1980 alleging the upon the death of Clemente G. Guerrero, his 473 shares of stock became the property of his estate, and his property and that of his widow should first be settled and liquidated in accordance with law before any distribution can be effected so that petitioners may not be a party to any scheme to evade payment of estate or inheritance tax and in order to avoid liability to any third persons or creditors of the late Clemente G. Guerrero.

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On January 29, 1981, a motion for intervention was filed by Maripol Guerrero, a legally adopted daughter of the late Clemente G. Guerrero and private respondent Melania Guerrero, who stated therein that on November 26, 1980 (almost two weeks before the filing of the petition for Mandamus) a Petition for the administration of the estate of the late Clemente G. Guerrero had been filed with the Regional Trial Court, Pasig, Branch XI, docketed as Special Proceedings No. 9400. Maripol Guerrero further claimed that the Deeds of Assignment for the subject shares of stock are fictitious and antedated; that said conveyances are donations since the considerations therefor are below the book value of the shares, the assignees/private respondents being close relatives of private respondent Melania Guerrero; and that the transfer of the shares in question to assignees/private respondents, other than private respondent Melania Guerrero, would deprive her (Maripol Guerrero) of her rightful share in the inheritance. The SEC hearing officer denied the Motion for Intervention for lack of merit. On appeal, the SEC En Banc affirmed the decision of the hearing officer.

Intervenor Guerrero filed a complaint before the then Court of First Instance of Rizal, Quezon City Branch, against private respondents for the annulment of the Deeds of Assignment, docketed as Civil Case No. Q-32050. Petitioners, on the other hand, filed a Motion to Dismiss and/or to Suspend Hearing of SEC Case No. 1979 until after the question of whether the subject Deeds of Assignment are fictitious, void or simulated is resolved in Civil Case No. Q-32050. The SEC Hearing Officer denied said motion.

On December 10, 1984, the SEC Hearing Officer rendered a Decision granting the writ of Mandamus prayed for by the private respondents and directing petitioners to cancel stock certificates nos. 26, 49 and 65 of the Bank, all in the name of Clemente G. Guerrero, and to issue new certificates in the names of private respondents, except Melania Guerrero. The dispositive, portion of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the petitioners and against the respondents, directing the latter, particularly the corporate secretary of respondent Rural Bank of Salinas, Inc., to register in the latter's Stock and Transfer Book the transfer of 473 shares of stock of respondent Bank and to cancel Stock Certificates Nos. 26, 45 and 65 and issue new Stock Certificates covering the transferred shares in favor of petitioners, as follows:

1. Luz Andico 457 shares

2. Wilhelmina Rosales 10 shares

3. Francisco Guerrero, Jr. 5 shares

4. Francisco Guerrero, Sr. 1 share

and to pay to the above-named petitioners, the dividends for said shares corresponding to the years 1981, 1982, 1983 and 1984 without interest.

No pronouncement as to costs.

SO ORDERED. (p. 88, Rollo)

On appeal, the SEC En Banc affirmed the decision of the Hearing Officer. Petitioner filed a petition for review with the Court of Appeals but said Court likewise affirmed the decision of the SEC.

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We rule in favor of the respondents.

Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction to hear and decide cases involving intracorporate controversies. An intracorporate controversy has been defined as one which arises between a stockholder and the corporation. There is no distinction, qualification, nor any exception whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]). The case at bar involves shares of stock, their registration, cancellation and issuances thereof by petitioner Rural Bank of Salinas. It is therefore within the power of respondent SEC to adjudicate.

Respondent SEC correctly ruled in favor of the registering of the shares of stock in question in private respondent's names. Such ruling finds support under Section 63 of the Corporation Code, to wit:

Sec. 63. . . . Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation . . .

In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court interpreted Sec. 63 in his wise:

Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the Corporation Code]) contemplates no restriction as to whom the stocks may be transferred. It does not suggest that any discrimination may be created by the corporation in favor of, or against a certain purchaser. The owner of shares, as owner of personal property, is at liberty, under said section to dispose them in favor of whomever he pleases, without limitation in this respect, than the general provisions of law. . . .

The only limitation imposed by Section 63 of the Corporation Code is when the corporation holds any unpaid claim against the shares intended to be transferred, which is absent here.

A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in stock transfers, because:

. . . Restrictions in the traffic of stock must have their source in legislative enactment, as the corporation itself cannot create such impediment. By-laws are intended merely for the protection of the corporation, and prescribe regulation, not restriction; they are always subject to the charter of the corporation. The corporation, in the absence of such power, cannot ordinarily inquire into or pass upon the legality of the transactions by which its stock passes from one person to another, nor can it question the consideration upon which a sale is based. . . . (Tomson on Corporation Sec. 4137, citedin Fleisher vs. Nolasco, Supra).

The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from his ownership of the stocks. Thus:

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

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The corporation's obligation to register is ministerial.

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

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

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

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.

G.R. No. 41570           September 6, 1934

RED LINE TRANSPORTATION CO., petitioner-appellant, vs.RURAL TRANSIT CO., LTD., respondent-appellee.

L. D. Lockwood for appellant.Ohnick and Opisso for appellee.

BUTTE, J.:

This case is before us on a petition for review of an order of the Public Service Commission entered December 21, 1932, granting to the Rural Transit Company, Ltd., a certificate of public convenience to operate a transportation service between Ilagan in the Province of Isabela and Tuguegarao in the Province of Cagayan, and additional trips in its existing express service between Manila Tuguegarao.

On June 4, 1932, the Rural Transit Company, Ltd., a Philippine corporation, filed with the Public Company Service Commission an application in which it is stated in substance that it is the holder of a certificate or public

42

convenience to operate a passenger bus service between Manila and Tuguegarao; that it is the only operator of direct service between said points and the present authorized schedule of only one trip daily is not sufficient; that it will be also to the public convenience to grant the applicant a certificate for a new service between Tuguegarao and Ilagan.

On July 22, 1932, the appellant, Red Line Transportation Company, filed an opposition to the said application alleging in substance that as to the service between Tuguegarao and Ilagan, the oppositor already holds a certificate of public convenience and is rendering adequate and satisfactory service; that the granting of the application of the Rural Transit Company, Ltd., would not serve public convenience but would constitute a ruinous competition for the oppositor over said route.

After testimony was taken, the commission, on December 21, 1932, approved the application of the Rural Transit Company, Ltd., and ordered that the certificate of public convenience applied for be "issued to the applicant Rural Transit Company, Ltd.," with the condition, among others, that "all the other terms and conditions of the various certificates of public convenience of the herein applicant and herein incorporated are made a part hereof."

On January 14, 1933, the oppositor Red Line Transportation Company filed a motion for rehearing and reconsideration in which it called the commission's attention to the fact that there was pending in the Court of First Instance of Manila case N. 42343, an application for the voluntary dissolution of the corporation, Rural Transit Company, Ltd. Said motion for reconsideration was set down for hearing on March 24, 1933. On March 23, 1933, the Rural Transit Company, Ltd., the applicant, filed a motion for postponement. This motion was verified by M. Olsen who swears "that he was the secretary of the Rural Transit Company, Ltd., in the above entitled case." Upon the hearing of the motion for reconsideration, the commission admitted without objection the following documents filed in said case No. 42343 in the Court of First Instance of Manila for the dissolution of the Rural Transit Company, Ltd. the petition for dissolution dated July 6, 1932, the decision of the said Court of First Instance of Manila, dated February 28, 1933, decreeing the dissolution of the Rural Transit Company, Ltd.

At the trial of this case before the Public Service Commission an issue was raised as to who was the real party in interest making the application, whether the Rural Transit Company, Ltd., as appeared on the face of the application, or the Bachrach Motor Company, Inc., using name of the Rural Transit Company, Ltd., as a trade name. The evidence given by the applicant's secretary, Olsen, is certainly very dubious and confusing, as may be seen from the following:

Q.            Will you please answer the question whether it is the Bachrach Motor Company operating under the trade name of the Rural Transit Company, Limited, or whether it is the Rural Transit Company, Limited in its own name this application was filed?

A.            The Bachrach Motor Company is the principal stockholder.

Q.            Please answer the question.

ESPELETA.  Objecion porque la pregunta ya ha sido contestada.

JUEZ.  Puede contestar.

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

JUDGE.  I do not know what is in your mind by not telling the real applicant in this case?

A.            It is the Rural Transit Company, Ltd.

JUDGE.  As an entity by itself and not by the Bachrach Motor Company?

A.            I do not know. I have not given that phase of the matter much thought, as in previous occassion had not necessitated.

JUDGE.  In filing this application, you filed it for the operator on that line? Is it not!

A.            Yes, sir.

JUDGE.  Who is that operator?

A.            The Rural Transit Company, Ltd.

JUDGE.  By itself, or as a commercial name of the Bachrach Motor Company?

A.            I cannot say.

ESPELETA.  The Rural Transit Company, Ltd., is a corporation duly established in accordance with the laws of the Philippine Islands.

JUDGE.  According to the records of this commission the Bachrach Motor Company is the owner of the certificates and the Rural Transit Company, Ltd., is operating without any certificate.

JUDGE.  If you filed this application for the Rural Transit Company, Ltd., and afterwards it is found out that the Rural Transit Company, Ltd., is not an operator, everything will be turned down.

JUDGE.  My question was, when you filed this application you evidently made it for the operator?

A.            Yes, sir.

JUDGE.  Who was that operator you had in mind?

A.            According to the status of the ownership of the certificates of the former Rural Transit Company, the operator was the operator authorized in case No. 23217 to whom all of the assets of the former Rural Transit Company were sold.

JUDGE.  Bachrach Motor Company?

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

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JUDGE.  You mean the Bachrach Motor Company, Inc., doing business under the name of the Rural Transit Company, Ltd.?

A.            Yes, sir.

LOCKWOOD.  I move that this case be dismissed, your Honor, on the ground that this application was made in the name of one party but the real owner is another party.

ESPELETA.  We object to that petition.

JUDGE.  I will have that in mind when I decide the case. If I agree with you everything would be finished.

The Bachrach Motor Company, Inc., entered no appearance and ostensibly took no part in the hearing of the application of the Rural Transit Company, Ltd. It may be a matter of some surprise that the commission did not on its own motion order the amendment of the application by substituting the Bachrach Motor Company, Inc., as the applicant. However, the hearing proceeded on the application as filed and the decision of December 2, 1932, was rendered in favor of the Rural Transit Company, Ltd., and the certificate ordered to be issued in its name, in the face of the evidence that the said corporation was not the real party in interest. In its said decision, the commission undertook to meet the objection by referring to its resolution of November 26, 1932, entered in another case. This resolution in case No. 23217 concludes as follows:

Premises considered we hereby authorize the Bachrach Motor Co., Inc., to continue using the name of "Rural Transit Co., Ltd.," as its trade name in all the applications, motions or other petitions to be filed in this commission in connection with said business and that this authority is given retroactive effect as of the date, of filing of the application in this case, to wit, April 29, 1930.

We know of no law that empowers the Public Service Commission or any court in this jurisdiction to authorize one corporation to assume the name of another corporation as a trade name. Both the Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and the very law of their creation and continued existence requires each to adopt and certify a distinctive name. The incorporators "constitute a body politic and corporate under the name stated in the certificate." (Section 11, Act No. 1459, as amended.) A corporation has the power "of succession by its corporate name." (Section 13, ibid.) The name of a corporation is therefore essential to its existence. It cannot change its name except in the manner provided by the statute. By that name alone is it authorized to transact business. The law gives a corporation no express or implied authority to assume another name that is unappropriated: still less that of another corporation, which is expressly set apart for it and protected by the law. If any corporation could assume at pleasure as an unregistered trade name the name of another corporation, this practice would result in confusion and open the door to frauds and evasions and difficulties of administration and supervision. The policy of the law expressed in our corporation statute and the Code of Commerce is clearly against such a practice. (Cf. Scarsdale Pub. Co. Colonial Press vs. Carter, 116 New York Supplement, 731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate Courts], 428, 434.)

The order of the commission of November 26, 1932, authorizing the Bachrach Motor Co., Incorporated, to assume the name of the Rural Transit Co., Ltd. likewise in corporated, as its trade name being void, and accepting the order of December 21, 1932, at its face as granting a certificate of public convenience to the

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applicant Rural Transit Co., Ltd., the said order last mentioned is set aside and vacated on the ground that the Rural Transit Company, Ltd., is not the real party in interest and its application was fictitious.

In view of the dissolution of the Rural Transit Company, Ltd. by judicial decree of February 28, 1933, we do not see how we can assess costs against said respondent, Rural Transit Company, Ltd.

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

PHILIPPINE FIRST INSURANCE COMPANY, INC., plaintiff-appellant, vs.MARIA CARMEN HARTIGAN, CGH, and O. ENGKEE, defendants-appellees.

Bausa, Ampil & Suarez for plaintiff-appellant.

Nicasio E. Martin for defendants-appellees.

 

BARREDO, J.:

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

The antecedent facts are set forth in the pertinent portions of the resolution of the Court of Appeals referred to as follows:

According to the complaint, plaintiff was originally organized as an insurance corporation under the name of 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' The articles of incorporation originally presented before the Security and Exchange Commissioner and acknowledged before Notary Public Mr. E. D. Ignacio on June 1, 1953 state that the name of the corporation was 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' On May 26, 1961 the articles of incorporation were amended pursuant to a certificate of the Board of Directors dated March 8, 1961 changing the name of the corporation to 'Philippine First Insurance Co., Inc.'.

The complaint alleges that the plaintiff Philippine First Insurance Co., Inc., doing business under the name of 'The Yek Tong Lin Fire and Marine Insurance Co., Lt.' signed as co-maker together with defendant Maria Carmen Hartigan, CGH, a promissory note for P5,000.00 in favor of the China Banking Corporation payable within 30 days after the date of the promissory note with the usual banking interest; that the plaintiff agreed to act as such co-maker of the promissory note upon the application of the defendant Maria Carmen Hartigan, CGH, who together with Antonio F. Chua and Chang Ka Fu, signed an indemnity agreement in favor of the plaintiff, undertaking jointly and severally, to pay the plaintiff damages, losses or expenses of whatever kind or nature, including attorney's fees and legal costs, which the plaintiff may sustain as a result of the execution by the plaintiff and co-maker of Maria Carmen Hartigan, CGH, of the promissory note above-referred to; that as a result of the execution of the promissory note by the plaintiff and Maria Carmen Hartigan, CGH, the China Banking Corporation delivered to the defendant Maria Carmen Hartigan, CGH, the sum of P5,000.00 which said defendant failed to pay in full, such that on August 31, 1961 the same was. renewed and as of November 27, 1961 there was due on account of the promissory note the sum of P4,559.50 including interest. The complaint ends with a prayer for judgment against the defendants, jointly and severally, for the sum of P4,559.50 with interest at the rate of 12% per annum from November 23, 1961 plus P911.90 by way of attorney's fees and costs.

Although O. Engkee was made as party defendant in the caption of the complaint, his name is not mentioned in the body of said complaint. However, his name Appears in the Annex A attached to the complaint which is the counter indemnity agreement supposed to have been signed according to the complaint by Maria Carmen Hartigan, CGH, Antonio F. Chua and Chang Ka Fu.

In their answer the defendants deny the allegation that the plaintiff formerly conducted business under the name and style of 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' They admit the execution of the indemnity agreement but they claim that they signed said agreement in favor of the Yek Tong Lin Fire and Marine Insurance Co., Ltd.' and not in favor of the plaintiff. They

47

likewise admit that they failed to pay the promissory note when it fell due but they allege that since their obligation with the China Banking Corporation based on the promissory note still subsists, the surety who co-signed the promissory note is not entitled to collect the value thereof from the defendants otherwise they will be liable for double amount of their obligation, there being no allegation that the surety has paid the obligation to the creditor.

By way of special defense, defendants claim that there is no privity of contract between the plaintiff and the defendants and consequently, the plaintiff has no cause of action against them, considering that the complaint does not allege that the plaintiff and the 'Yek Tong Lin Fire and Marine Insurance Co., Ltd.' are one and the same or that the plaintiff has acquired the rights of the latter. The parties after the admission of Exhibit A which is the amended articles of incorporation and Exhibit 1 which is a demand letter dated August 16, 1962 signed by the manager of the loans and discount department of the China Banking Corporation showing that the promissory note up to said date in the sum of P4,500.00 was still unpaid, submitted the case for decision based on the pleadings.

Under date of 6 October 1962, the Court of First Instance of Manila rendered the decision appealed. It dismissed the action with costs against the plaintiff Philippine First Insurance Co., Inc., reasoning as follows:

... With these undisputed facts in mind, the parties correctly concluded that the issues for resolution by this Court are as follows:

(a) Whether or not the plaintiff is the real party in interest that may validly sue on the indemnity agreement signed by the defendants and the Yek Tong Lin Fire & Marine Insurance Co., Ltd. (Annex A to plaintiff's complaint ); and

(b) Whether or not a suit for indemnity or reimbursement may under said indemnity agreement prosper without plaintiff having yet paid the amount due under said promissory note.

In the first place, the change of name of the Yek Tong Lin Fire & Marine Insurance Co., Ltd. to the Philippines First Insurance Co., Inc. is of dubious validity. Such change of name in effect dissolved the original corporation by a process of dissolution not authorized by our corporation law (see Secs. 62 and 67, inclusive, of our Corporation Law). Moreover, said change of name, amounting to a dissolution of the Yek Tong Lin Fire & Marine Insurance Co., Ltd., does not appear to have been effected with the written note or assent of stockholders representing at least two-thirds of the subscribed capital stock of the corporation, a voting proportion required not only for the dissolution of a corporation but also for any amendment of its articles of incorporation (Secs. 18 and 62, Corporation Law). Furthermore, such change of corporate name appears to be against public policy and may be effected only by express authority of law (Red Line Transportation Co. v. Rural Transit Co., Ltd., 60 Phil. 549, 555; Cincinnati Cooperage Co., Ltd. vs. Vate, 26 SW 538, 539; Pilsen Brewing Co. vs. Wallace, 125 NE 714), but there is nothing in our corporation law authorizing the change of corporate name in this jurisdiction.

In the second place, assuming that the change of name of the Yek Tong Lin Fire & Marine Insurance Co. Ltd., to Philippines pine First Insurance Co., Inc., as accomplished on March 8, 1961, is valid, that would mean that the original corporation, the Yek Tong Lin Fire & Marine

48

Insurance Co., Ltd., became dissolved and of no further existence since March 8, 1961, so that on May 15, 1961, the date the indemnity agreement, Annex A, was executed, said original corporation bad no more power to enter into any agreement with the defendants, and the agreement entered into by it was ineffective for lack of capacity of said dissolved corporation to enter into said agreement. At any rate, even if we hold that said change of name is valid, the fact remains that there is no evidence showing that the new entity, the Philippine First Insurance Co., Inc. has with the consent of the original parties, assumed the obligations or was assigned the rights of action in the original corporation, the Yek Tong Lin Fire & Marine Insurance Co., Ltd. In other words, there is no evidence of conventional subrogation of the Plaintiffs in the rights of the Yek Tong Lin Fire & Marine Insurance Co., Ltd. under said indemnity agreement (Arts. 1300, 1301, New Civil Code). without such subrogation assignment of rights, the herein plaintiff has no cause of action against the defendants, and is, therefore, not the right party in interest as plaintiff.

Last, but not least, assuming that the said change of name was legal and operated to dissolve the original corporation, the dissolved corporation, must pursuant to Sec. 77 of our corporation law, be deemed as continuing as a body corporate for three (3) years from March 8, 1961 for the purpose of prosecuting and defending suits. It is, therefore, the Yek Tong Lin Fire & Marine Insurance Co., Ltd. that is the proper party to sue the defendants under said indemnity agreement up to March 8, 1964.

Having arrived at the foregoing conclusions, this Court need not squarely pass upon issue (b) formulated above.

WHEREFORE, plaintiff's action is hereby dismissed, with costs against the plaintiff.

In due time, the Philippine First Insurance Company, Inc. moved for reconsideration of the decision aforesaid, but said motion was denied on December 3, 1962 in an order worded thus:

The motion for reconsideration, dated November 8, 1962, raises no new issue that we failed to consider in rendering our decision of October 6, 1962. However, it gives us an opportunity to amplify our decision as regards the question of change of name of a corporation in this jurisdiction.

We find nothing in our Corporation Law authorizing a change of name of a corporation organized pursuant to its provisions. Sec. 18 of the Corporation Law authorizes, in our opinion, amendment to the Articles of Incorporation of a corporation only as to matters other than its corporate name. Once a corporation is organized in this jurisdiction by the execution and registration of its Articles of Incorporation, it shall continue to exist under its corporate name for the lifetime of its corporate existence fixed in its Articles of Incorporation, unless sooner legally dissolved (Sec. 11, Corp. Law). Significantly, change of name is not one of the methods of dissolution of corporations expressly authorized by our Corporation Law. Also significant is the fact that the power to change its corporate name is not one of the general powers conferred on corporations in this jurisdiction (Sec. 13, Corp. Law). The enumeration of corporate powers made in our Corporation Law implies the exclusion of all others (Thomas v. West Jersey R. Co., 101 U.S. 71, 25 L. ed. 950). It is obvious, in this connection, that change of name is not one of

49

the powers necessary to the exercise of the powers conferred on corporations by said Sec. 13 (see Sec. 14, Corp. Law).

To rule that Sec. 18 of our Corporation Law authorizes the change of name of a corporation by amendment of its Articles of Incorporation is to indulge in judicial legislation. We have examined the cases cited in Volume 13 of American Jurisprudence in support of the proposition that the general power to alter or amend the charter of a corporation necessarily includes the power to alter the name of a corporation, and find no justification for said conclusion arrived at by the editors of American Jurisprudence. On the contrary, the annotations in favor of plaintiff's view appear to have been based on decisions in cases where the statute itself expressly authorizes change of corporate name by amendment of its Articles of Incorporation. The correct rule in harmony with the provisions of our Corporation Law is well expressed in an English case as follows:

After a company has been completely register without defect or omission, so as to be incorporated by the name set forth in the deed of settlement, such incorporated company has not the power to change its name ... Although the King by his prerogative might incorporate by a new name, and the newly named corporation might retain former rights, and sometimes its former name also, ... it never appears to be such an act as the corporation could do by itself, but required the same power as created the corporation. (Reg. v. Registrar of Joint Stock Cos 10 Q.B. 839, 59 E.C.L. 839).

The contrary view appears to represent the minority doctrine, judging from the annotations on decided cases on the matter.

The movant invokes as persuasive precedent the action of the Securities Commissioner in tacitly approving the Amended, Articles of Incorporation on May 26, 1961. We regret that we cannot in good conscience lend approval to this action of the Securities and Exchange Commissioner. We find no justification, legal, moral, or practical, for adhering to the view taken by the Securities and Exchange Commissioner that the name of a corporation in the Philippines may be changed by mere amendment of its Articles of Incorporation as to its corporate name. A change of corporate name would serve no useful purpose, but on the contrary would most probably cause confusion. Only a dubious purpose could inspire a change of a corporate. name which, unlike a natural person's name, was chosen by the incorporators themselves; and our Courts should not lend their assistance to the accomplishment of dubious purposes.

WHEREFORE, we hereby deny plaintiff's motion for reconsideration, dated November 8, 1962, for lack of merit.

In this appeal appellant contends that —

I

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THE TRIAL COURT ERRED IN HOLDING THAT IN THIS JURISDICTION, THERE IS NOTHING IN OUR CORPORATION LAW AUTHORIZING THE CHANGE OF CORPORATE NAME;

II

THE TRIAL COURT ERRED IN DECLARING THAT A CHANGE OF CORPORATE NAME APPEARS TO BE AGAINST PUBLIC POLICY;

III

THE TRIAL COURT ERRED IN HOLDING THAT A CHANGE OF CORPORATE NAME HAS THE LEGAL EFFECT OF DISSOLVING THE ORIGINAL CORPORATION:

IV

THE TRIAL COURT ERRED IN HOLDING THAT THE CHANGE OF NAME OF THE YEK TONG LIN FIRE & MARINE INSURANCE CO., LTD. IS OF DUBIOUS VALIDITY;

V

THE TRIAL COURT ERRED IN HOLDING THAT THE APPELLANT HEREIN IS NOT THE RIGHT PARTY INTEREST TO SUE DEFENDANTS-APPELLEES;

IV

THE TRIAL COURT FINALLY ERRED IN DISMISSING THE COMPLAINT.

Appellant's Position is correct; all the above assignments of error are well taken. The whole case, however, revolves around only one question. May a Philippine corporation change its name and still retain its original personality and individuality as such?

The answer is not difficult to find. True, under Section 6 of the Corporation Law, the first thing required to be stated in the Articles of Incorporation of any corn corporation is its name, but it is only one among many matters equally if not more important, that must be stated therein. Thus, it is also required, for example, to state the number and names of and residences of the incorporators and the residence or location of the principal office of the corporation, its term of existence, the amount of its capital stock and the number of shares into which it is divided, etc., etc.

On the other hand, Section 18 explicitly permits the articles of incorporation to be amended thus:

Sec. 18. — Any corporation may for legitimate corporate purpose or purposes, amend its articles of incorporation by a majority vote of its board of directors or trustees and the vote or written assent of two-thirds of its members, if it be a nonstock corporation or, if it be a stock corporation, by the vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the corporation Provided, however, That if such amendment to the articles of

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incorporation should consist in extending the corporate existence or in any change in the rights of holders of shares of any class, or would authorize shares with preferences in any respect superior to those of outstanding shares of any class, or would restrict the rights of any stockholder, then any stockholder who did not vote for such corporate action may, within forty days after the date upon which such action was authorized, object thereto in writing and demand Payment for his shares. If, after such a demand by a stockholder, the corporation and the stockholder cannot agree upon the value of his share or shares at the time such corporate action was authorized, such values all be ascertained by three disinterested persons, one of whom shall be named by the stockholder, another by the corporation, and the third by the two thus chosen. The findings of the appraisers shall be final, and if their award is not paid by the corporation within thirty days after it is made, it may be recovered in an action by the stockholder against the corporation. Upon payment by the corporation to the stockholder of the agreed or awarded price of his share or shares, the stockholder shall forthwith transfer and assign the share or shares held by him as directed by the corporation: Provided, however, That their own shares of stock purchased or otherwise acquired by banks, trust companies, and insurance companies, should be disposed of within six months after acquiring title thereto.

Unless and until such amendment to the articles of incorporation shall have been abandoned or the action rescinded, the stockholder making such demand in writing shall cease to be a stockholder and shall have no rights with respect to such shares, except the right to receive payment therefor as aforesaid.

A stockholder shall not be entitled to payment for his shares under the provisions of this section unless the value of the corporate assets which would remain after such payment would be at least equal to the aggregate amount of its debts and liabilities and the aggregate par value and/or issued value of the remaining subscribed capital stock.

A copy of the articles of incorporation as amended, duly certified to be correct by the president and the secretary of the corporation and a majority of the board of directors or trustees, shall be filed with the Securities and Exchange Commissioner, who shall attach the same to the original articles of incorporation, on file in his office. From the time of filing such copy of the amended articles of incorporation, the corporation shall have the same powers and it and the members and stockholders thereof shall thereafter be subject to the same liabilities as if such amendment had been embraced in the original articles of incorporation: Provided, however, That should the amendment consist in extending the corporate life, the extension shall not exceed 50 years in any one instance. Provided, further, That the original articles and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation: And provided, further, That nothing in this section shall be construed to authorize any corporation to increase or diminish its capital stock or so as to effect any rights or actions which accrued to others between the time of filing the original articles of incorporation and the filing of the amended articles.

The Securities and, Exchange Commissioner shall be entitled to collect and receive the sum of ten pesos for filing said copy of the amended articles of incorporation. Provided, however, That when the amendment consists in extending the term of corporate existence, the Securities and Exchange Commissioner shall be entitled to collect and receive for the filing of its amended articles of incorporation the same fees collectible under existing law for the filing of articles of incorporation. The Securities & Exchange Commissioner shall not

52

hereafter file any amendment to the articles of incorporation of any bank, banking institution, or building and loan association unless accompanied by a certificate of the Monetary Board (of the Central Bank) to the effect that such amendment is in accordance with law. (As further amended by Act No. 3610, Sec. 2 and Sec. 9. R.A. No. 337 and R.A. No. 3531.)

It can be gleaned at once that this section does not only authorize corporations to amend their charter; it also lays down the procedure for such amendment; and, what is more relevant to the present discussion, it contains provisos restricting the power to amend when it comes to the term of their existence and the increase or decrease of the capital stock. There is no prohibition therein against the change of name. The inference is clear that such a change is allowed, for if the legislature had intended to enjoin corporations from changing names, it would have expressly stated so in this section or in any other provision of the law.

No doubt, "(the) name (of a corporation) is peculiarly important as necessary to the very existence of a corporation. The general rule as to corporations is that each corporation shall have a name by which it is to sue and be sued and do all legal acts. The name of a corporation in this respect designates the corporation in the same manner as the name of an individual designates the person."  1 Since an individual has the right to change his name under certain conditions, there is no compelling reason why a corporation may not enjoy the same right. There is nothing sacrosanct in a name when it comes to artificial beings. The sentimental considerations which individuals attach to their names are not present in corporations and partnerships. Of course, as in the case of an individual, such change may not be made exclusively. by the corporation's own act. It has to follow the procedure prescribed by law for the purpose; and this is what is important and indispensably prescribed — strict adherence to such procedure.

Local well known corporation law commentators are unanimous in the view that a corporation may change its name by merely amending its charter in the manner prescribed by law.  2 American authorities which have persuasive force here in this regard because our corporation law is of American origin, the same being a sort of codification of American corporate law, 3 are of the same opinion.

A general power to alter or amend the charter of a corporation necessarily includes the power to alter the name of the corporation. Ft. Pitt Bldg., etc., Assoc. v. Model Plan Bldg., etc., Assoc., 159 Pa. St. 308, 28 Atl. 215; In re Fidelity Mut. Aid Assoc., 12 W.N.C. (Pa.) 271; Excelsior Oil Co., 3 Pa. Co. Ct. 184; Wetherill Steel Casting Co., 5 Pa. Co. Ct. 337.

xxx xxx xxx

Under the General Laws of Rhode Island, c 176, sec. 7, relating to an increase of the capital stock of a corporation, it is provided that 'such agreement may be amended in any other particular, excepting as provided in the following section', which relates to a decrease of the capital stock This section has been held to authorize a change in the name of a corporation. Armington v. Palmer, 21 R.I. 109, 42 Atl. 308, 43, L.R.A. 95, 79 Am. St. Rep. 786. (Vol. 19, American and English Annotated Cases, p. 1239.)

Fletcher, a standard authority on American an corporation law also says:

Statutes are to be found in the various jurisdictions dealing with the matter of change in corporate names. Such statutes have been subjected to judicial construction and have, in the

53

main, been upheld as constitutional. In direct terms or by necessary implication, they authorize corporations new names and prescribe the mode of procedure for that purpose. The same steps must be taken under some statutes to effect a change in a corporate name, as when any other amendment of the corporate charter is sought .... When the general law thus deals with the subject, a corporation can change its name only in the manner provided. (6 Fletcher, Cyclopedia of the Law of Private Corporations, 1968 Revised Volume, pp. 212-213.) (Emphasis supplied)

The learned trial judge held that the above-quoted proposition are not supported by the weight of authority because they are based on decisions in cases where the statutes expressly authorize change of corporate name by amendment of the articles of incorporation. We have carefully examined these authorities and We are satisfied of their relevance. Even Lord Denman who has been quoted by His Honor from In Reg. v. Registrar of Joint Stock Cos. 10, Q.B., 59 E.C.L. maintains merely that the change of its name never appears to be such an act as the corporation could do for itself, but required ;the same Power as created a corporation." What seems to have been overlooked, therefore, is that the procedure prescribes by Section 18 of our Corporation Law for the amendment of corporate charters is practically identical with that for the incorporation itself of a corporation.

In the appealed order of dismissal, the trial court, made the observation that, according to this Court in  Red Line Transportation Co. v. Rural Transit Co., Ltd., 60 Phil, 549, 555, change of name of a corporation is against public policy. We must clarify that such is not the import of Our said decision. What this Court held in that case is simply that:

We know of no law that empowers the Public Service Commission or any court in this jurisdiction to authorize one corporation to assume the name of another corporation as a trade name. Both the Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and the very law of their creation and continued existence requires each to adopt and certify a distinctive name. The incorporators 'constitute a body politic and corporate under the name stated in the certificate.' (Section 11, Act No. 1459, as amended.) A corporation has the power 'of succession by its corporate name.' (Section 13, ibid.) The name of a corporation is therefore essential to its existence. It cannot change its name except in the manner provided by the statute. By that name alone is it authorized to transact business. The law gives a corporation no express or implied authority to assume another name that is unappropriated; still less that of another corporation, which is expressly set apart for it and protected by the law. If any corporation could assume at pleasure as an unregistered trade name the name of another corporation, this practice would result in confusion and open the door to frauds and evasions and difficulties of administration and supervision. The policy of the law as expressed our corporation statute and the Code of Commerce is clearly against such a practice. (Cf. Scarsdale Pub. Co. — Colonial Press vs. Carter, 116 New York Supplement, 731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate Courts], 428, 434.)

In other words, what We have held to be contrary to public policy is the use by one corporation of the name of another corporation as its trade name. We are certain no one will disagree that such an act can only "result in confusion and open the door to frauds and evasions and difficulties of administration and supervision." Surely, the Red Line case was not one of change of name.

Neither can We share the posture of His Honor that the change of name of a corporation results in its dissolution. There is unanimity of authorities to the contrary.

54

An authorized change in the name of a corporation has no more effect upon its identity as a corporation than a change of name of a natural person has upon his identity. It does not affect the rights of the corporation or lessen or add to its obligations. After a corporation has effected a change in its name it should sue and be sued in its new name .... (13 Am. Jur. 276-277, citing cases.)

A mere change in the name of a corporation, either by the legislature or by the corporators or stockholders under legislative authority, does not, generally speaking, affect the identity of the corporation, nor in any way affect the rights, privileges, or obligations previously acquired or incurred by it. Indeed, it has been said that a change of name by a corporation has no more effect upon the identity of the corporation than a change of name by a natural person has upon the identity of such person. The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the original one, but remains and continues to be the original corporation. It is the same corporation with a different name, and its character is in no respect changed. ... (6 Fletcher, Cyclopedia of the Law of Private Corporations, 224-225, citing cases.)

The change in the name of a corporation has no more effect upon its identity as a corporation than a change of name of a natural person has upon his identity. It does not affect the rights of the corporation, or lessen or add to its obligations.

England. — Doe v. Norton, 11 M. & W. 913, 7 Jur. 751, 12 L. J. Exch. 418.

United States. — Metropolitan Nat. Bank v. Claggett, 141 U.S. 520, 12 S. Ct. 60, 35 U.S. (L. ed.) 841.

Alabama. — Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17 So. 670; North Birmingham Lumber Co. v. Sims, 157 Ala. 595, 48 So. 84.

Connecticut. — Trinity Church v. Hall, 22 Com. 125.

Illinois. — Mt. Palatine Academy v. Kleinschnitz 28 III, 133; St. Louis etc. R. Co. v. Miller, 43 Ill. 199;Reading v. Wedder, 66 III. 80.

Indiana. — Rosenthal v. Madison etc., Plank Road Co., 10 Ind. 358.

Kentucky. — Cahill v. Bigger, 8 B. Mon. 211; Wilhite v. Convent of Good Shepherd, 177 Ky. 251, 78 S. W. 138.

Maryland. — Phinney v. Sheppard & Enoch Pratt Hospital, 88 Md. 633, 42 Atl. 58, writ of error dismissed, 177 U.S. 170, 20 S. Ct. 573, 44 U.S. (L. ed.) 720.

Missouri. — Dean v. La Motte Lead Co., 59 Mo. 523.

Nebraska. — Carlon v. City Sav. Bank, 82 Neb. 582, 188 N. W. 334. New York First Soc of M.E. Church v. Brownell, 5 Hun 464.

55

Pennsylvania. — Com. v. Pittsburgh, 41 Pa. St. 278.

South Carolina. — South Carolina Mut Ins. Co. v. Price 67 S.C. 207, 45 S.E. 173.

Virginia. — Wilson v. Chesapeake etc., R. Co., 21 Gratt 654; Wright-Caesar Tobacco Co. v. Hoen,105 Va. 327, 54 S.E. 309.

Washington. — King v. Ilwaco R. etc., Co., 1 Wash. 127. 23 Pac. 924.

Wisconsin. — Racine Country Bank v. Ayers, 12 Wis. 512.

The fact that the corporation by its old name makes a format transfer of its property to the corporation by its new name does not of itself show that the change in name has affected a change in the identity of the corporation. Palfrey v. Association for Relief, etc., 110 La. 452, 34 So. 600. The fact that a corporation organized as a state bank afterwards becomes a national bank by complying with the provisions of the National Banking Act, and changes its name accordingly, has no effect on its right to sue upon obligations or liabilities incurred to it by its former name. Michigan Ins. Bank v. Eldred 143 U.S. 293, 12 S. Ct. 450, 36 U.S. (L. ed.) 162.

A deed of land to a church by a particular name has been held not to be affected by the fact that the church afterwards took a different name. Cahill v. Bigger, 8 B. Mon (ky) 211.

A change in the name of a corporation is not a divestiture of title or such a change as requires a regular transfer of title to property, whether real or personal, from the corporation under one name to the same corporation under another name. McCloskey v. Doherty, 97 Ky. 300, 30 S. W. 649. (19 American and English Annotated Cases 1242-1243.)

As was very aptly said in Pacific Bank v. De Ro 37 Cal. 538, "The changing of the name of a corporation is no more the creation of a corporation than the changing of the name of a natural person is the begetting of a natural person. The act, in both cases, would seem to be what the language which we use to designate it imports — a change of name, and not a change of being.

Having arrived at the above conclusion, We have agree with appellant's pose that the lower court also erred in holding that it is not the right party in interest to sue defendants-appellees.  4 As correctly pointed out by appellant, the approval by the stockholders of the amendment of its articles of incorporation changing the name "The Yek Tong Lin Fire & Marine Insurance Co., Ltd." to "Philippine First Insurance Co., Inc." on March 8, 1961, did not automatically change the name of said corporation on that date. To be effective, Section 18 of the Corporation Law, earlier quoted, requires that "a copy of the articles of incorporation as amended, duly certified to be correct by the president and the secretary of the corporation and a majority of the board of directors or trustees, shall be filed with the Securities & Exchange Commissioner", and it is only from the time of such filing, that "the corporation shall have the same powers and it and the members and stockholders thereof shall thereafter be subject to the same liabilities as if such amendment had been embraced in the original articles of incorporation." It goes without saying then that appellant rightly acted in its old name when on May 15, 1961, it entered into the indemnity agreement, Annex A, with the defendant-appellees; for only after the filing of the amended articles of incorporation with the Securities & Exchange Commission on May 26, 1961, did appellant

56

legally acquire its new name; and it was perfectly right for it to file the present case In that new name on December 6, 1961. Such is, but the logical effect of the change of name of the corporation upon its actions.

Actions brought by a corporation after it has changed its name should be brought under the new name although for the enforcement of rights existing at the time the change was made.  Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17 So. 670: Newlan v. Lombard University, 62 III. 195; Thomas v. Visitor of Frederick County School, 7 Gill & J (Md.) 388; Delaware, etc., R. Co. v. Trick, 23 N. J. L. 321; Northumberland Country Bank v. Eyer, 60 Pa. St. 436; Wilson v. Chesapeake etc., R. Co., 21 Gratt (Va.) 654.

The change in the name of the corporation does not affect its right to bring an action on a note given to the corporation under its former name. Cumberland College v. Ish, 22. Cal. 641; Northwestern College v. Schwagler, 37 Ia. 577. (19 American and English Annotated Cases 1243.)

In consequence, We hold that the lower court erred in dismissing appellant's complaint. We take this opportunity, however, to express the Court's feeling that it is apparent that appellee's position is more technical than otherwise. Nowhere in the record is it seriously pretended that the indebtedness sued upon has already been paid. If appellees entertained any fear that they might again be made liable to Yek Tong Lin Fire & Marine Insurance Co. Ltd., or to someone else in its behalf, a cursory examination of the records of the Securities & Exchange Commission would have sufficed to clear up the fact that Yek Tong Lin had just changed its name but it had not ceased to be their creditor. Everyone should realize that when the time of the courts is utilized for cases which do not involve substantial questions and the claim of one of the parties, therein is based on pure technicality that can at most delay only the ultimate outcome necessarily adverse to such party because it has no real cause on the merits, grave injustice is committed to numberless litigants whose meritorious cases cannot be given all the needed time by the courts. We address this appeal once more to all members of the bar, in particular, since it is their bounden duty to the profession and to our country and people at large to help ease as fast as possible the clogged dockets of the courts. Let us not wait until the people resort to other means to secure speedy, just and inexpensive determination of their cases.

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

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

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

57

Emigdio G. Tanjuatco for petitioner.

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

 

BARREDO, J.:

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

According to the order, "the Universal Textile Mills, Inc. was organ on December 29, 1953, as a textile manufacturing firm for which it was issued a certificate of registration on January 8, 1954. The Universal Mills Corporation, on the other hand, was registered in this Commission on October 27, 1954, under its original name, Universal Hosiery Mills Corporation, having as its primary purpose the "manufacture and production of hosieries and wearing apparel of all kinds." On May 24, 1963, it filed an amendment to its articles of incorporation changing its name to Universal Mills Corporation, its present name, for which this Commission issued the certificate of approval on June 10, 1963.

The immediate cause of this present complaint, however, was the occurrence of a fire which gutted respondent's spinning mills in Pasig, Rizal. Petitioner alleged that as a result of this fire and because of the similarity of respondent's name to that of herein complainant, the news items appearing in the various metropolitan newspapers carrying reports on the fire created uncertainty and confusion among its bankers, friends, stockholders and customers prompting petitioner to make announcements, clarifying the real Identity of the corporation whose property was burned. Petitioner presented documentary and testimonial evidence in support of this allegation.

On the other hand, respondent's position is that the names of the two corporations are not similar and even if there be some similarity, it is not confusing or deceptive; that the only reason that respondent changed its name was because it expanded its business to include the manufacture of fabrics of all kinds; and that the word 'textile' in petitioner's name is dominant and prominent enough to distinguish the two. It further argues that petitioner failed to present evidence of confusion or deception in the ordinary course of business; that the only supposed confusion proved by complainant arose out of an extraordinary occurrence — a disastrous fire. (pp. 16-&17, Record.)

Upon these premises, the Commission held:

From the facts proved and the jurisprudence on the matter, it appears necessary under the circumstances to enjoin the respondent Universal Mills Corporation from further using its present corporate name. Judging from what has already happened, confusion is not only apparent, but possible. It does not matter that the instance of confusion between the two corporate names was occasioned only by a fire or an extraordinary occurrence. It is precisely the duty of this Commission to prevent such confusion at all times and under all circumstances not

58

only for the purpose of protecting the corporations involved but more so for the protection of the public.

In today's modern business life where people go by tradenames and corporate images, the corporate name becomes the more important. This Commission cannot close its eyes to the fact that usually it is the sound of all the other words composing the names of business corporations that sticks to the mind of those who deal with them. The word "textile" in Universal Textile Mills, Inc.' can not possibly assure the exclusion of all other entities with similar names from the mind of the public especially so, if the business they are engaged in are the same, like in the instant case.

This Commission further takes cognizance of the fact that when respondent filed the amendment changing its name to Universal Mills Corporation, it correspondingly filed a written undertaking dated June 5, 1963 and signed by its President, Mr. Mariano Cokiat, promising to change its name in the event that there is another person, firm or entity who has obtained a prior right to the use of such name or one similar to it. That promise is still binding upon the corporation and its responsible officers. (pp. 17-18, Record.)

It is obvious that the matter at issue is within the competence of the Securities and Exchange Commission to resolve in the first instance in the exercise of the jurisdiction it used to possess under Commonwealth Act 287 as amended by Republic Act 1055 to administer the application and enforcement of all laws affecting domestic corporations and associations, reserving to the courts only conflicts of judicial nature, and, of course, the Supreme Court's authority to review the Commissions actuations in appropriate instances involving possible denial of due process and grave abuse of discretion. Thus, in the case at bar, there being no claim of denial of any constitutional right, all that We are called upon to determine is whether or not the order of the Commission enjoining petitioner to its corporate name constitutes, in the light of the circumstances found by the Commission, a grave abuse of discretion.

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

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

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

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

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UY SIULIONG, MARIANO LIMJAP, GACU UNG JIENG, EDILBERTO CALIXTO and UY CHO YEE, petitioners, vs.THE DIRECTOR OF COMMERCE AND INDUSTRY, respondent.

Kincaid and Perkins for petitioners.Attorney-General Paredes for respondent.

 

JOHNSON, J.:

The purpose of this action is to obtain the writ of mandamus to require the respondent to  file and register, upon the payment of the lawful fee, articles of incorporation, and to issue  to the petitioners as the incorporators of a certain corporation to be known as "Siuliong y Compañia, Inc.," a certificate under the seal of the office of said respondent, certifying that the articles of incorporation have been duly filed and registered in his office in accordance with the law.

To the petition the respondent demurred and the cause was finally submitted upon the petition and demurrer.

The important facts necessary for the solution of the question presented, which are found in the petition, may be stated as follows:

1. That prior to the presentation of the petition the petitioners had been associated together as partners, which partnership was known as "mercantil regular colectiva, under the style and firm name of "Siuliong y Cia.;"

2. That the petitioners herein, who had theretofore been members of said partnership of "Siuliong y Cia.," desired to dissolve said partnership and to form a corporation composed of the same persons as incorporators, to be known as "Siulong y Compañia, 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 Compañia, Incorporada" (Exhibit A) shows that it is to be organized for the following purposes:

(a) The purchase and sale, importation and exportation, of the products of the country as well as of foreign countries;

(b) To discount promissory notes, bills of exchange, and other negotiable instruments;

(c) The purchase and sale of bills of exchange, bonds, stocks, or "participaciones de sociedades mercantiles e industriales [joint account of mercantile and industrial associations]," and of all classes of mercantile documents; "comisiones [commissions];" "consignaciones [consignments];"

(d) To act as agents for life, marine and fire insurance companies; lawphi1.net

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(e) To purchase and sell boats of all classes "y fletamento de los mismos [and charterage of same];" and

(f) To purchase and sell industrial and mercantile establishments.

While the articles of incorporation of "Siuliong y Cia., Inc." states that its purpose is to acquire and continue the business, with some of its objects or purposes, of Siuliong & Co., it will be found upon an examination of the purposes enumerated in the proposed articles of incorporation of "Siuliong y Cia., Inc.," that some of the purposes of the original partnership of "Siuliong y Cia." have been omitted. For example, the articles of partnership of "Siuliong y Cia." gave said company the authority to purchase and sell all classes "de fincas rusticas y urbanas [of rural and city real estate]" as well as the right to act as agents for the establishment of any other business which it might esteem convenient for the interests of "la compañia [the company]." (Exhibit C).

The respondent in his argument in support of the demurrer contends (a) that the proposed articles of incorporation presented for file and registry permitted the petitioners to engage in a business which had for its end more than one purpose; (b) that it permitted the petitioners to engage in the banking business, and (c) to deal in real estate, in violation of the Act of Congress of July 1, 1902.

The petitioners, in reply to said argument of the respondent, while insisting that said proposed articles of incorporation do not permit it to enter into the banking business nor to engage in the purchase and sale of real estate in violation of said Act of Congress, expressly renounced in open court their right to engage in such business under their articles of incorporation, even though said articles might be interpreted in a way to authorize them to so to do. That renouncement on the part of the petitioners eliminates from the purposes of said proposed corporation (of "Siuliong y Cia., Inc.") any right to engage in the banking business as such, or in the purchase and sale of real estate.

We come now to the consideration of the principal question raised by the respondent, to wit: that the proposed articles of incorporation of "Siuliong y Cia., Inc.," permits it to engage in a business with more than one purpose.

If upon an examination of the articles of incorporation we find that its purpose is to engage in a business with butone principal purpose, then that contention of the respondent will have been answered and it will be unnecessary to discuss at length the question whether or not a corporation organized for commercial purposes in the Philippine Islands can be organized for more than one purpose.

The attorney for the respondent, at the time of the argument, admitted in open court that corporations in the Philippine Islands might be organized for both the "importation and exportation" of merchandise and that there might be no relation between the kind of merchandise imported with the class of merchandise exported.

Referring again to be proposed articles of incorporation, a copy of which is united with the original petition and marked Exhibit A, it will be seen that the only purpose of said corporation are those enumerated in subparagraphs (a), (b), (c), (d), (e) and (  f ) of paragraph 4 above. While said articles of incorporation are somewhat loosely drawn, it is clear from a reading of the same that the principal purpose of said corporation is to engage in amercantile business, with the power to do and perform the particular acts enumerated in said subparagraphs above referred to.

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Without discussing or deciding at this time whether a corporation organized under the laws of the Philippine Islands may be organized for more than one purpose, we are of the opinion and so decide that a corporation may be organized under the laws of the Philippine Islands for mercantile purposes, and to engage in such incidental business as may be necessary and advisable to give effect to, and aid in, the successful operation and conduct of the principal business.1awphi1.net

In the present case we are fully persuaded that all of the power and authority included in the articles of incorporation of "Siuliong y Cia., Inc.," enumerated above in paragraph 4 (Exhibit A) are only incidental to the principal purpose of said proposed incorporation, to wit: "mercantile business." The purchase and sale, importation and exportation of the products of the country, as well as of foreign countries, might make it necessary to purchase and discount promissory notes, bills of exchange, bonds, negotiable instruments, stock, and interest in other mercantile and industrial associations. It might also become important and advisable for the successful operation of the corporation to act as agent for insurance companies as well as to buy, sell and equip boats and to buy and sell other establishments, and industrial and mercantile businesses.

While we have arrived at the conclusion that the proposed articles of incorporation do not authorize the petitioners to engage in a business with more than one purpose, we do not mean to be understood as having decided that corporations under the laws of the Philippine Islands may not engage in a business with more than one purpose. Such an interpretation might work a great injustice to corporations organized under the Philippine laws. Such an interpretation would give foreign corporations, which are permitted to be registered under the laws here and which may be organized for more than one purpose, a great advantage over domestic corporations. We do not believe that it was the intention of the legislature to give foreign corporations such an advantage over domestic corporations.

Considering the particular purposes and objects of the proposed articles of incorporation which are specially enumerated above, we are of the opinion that it contains nothing which violates in the slightest degree any of the provisions of the laws of the Philippine Islands, and the petitioners are, therefore, entitled to have such articles of incorporation  filed and registered as prayed for by them and to have issued to them a certificate under the seal of the office of the respondent, setting forth that such articles of incorporation have been duly filed in his office. (Sec. 11, Act No. 1459.)

Therefore, the petition prayed for is hereby granted, and without any finding as to costs, it is so ordered.

Arellano, C.J., Torres and Avanceña, JJ., concur.

 

 

 

Separate Opinions

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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 Compañia." To this end it is necessary that the articles of incorporation should be filed in the office of the Director of Commerce and Industry, who, it appears, has withheld approval of the articles submitted to him and has refused to file the same in his office.

The position taken by the Director of Commerce and Industry is that the articles of the proposed corporation state more than one corporate purpose, contrary to the provisions of Act No. 1459 (the Corporation Law). In order to ascertain whether this contention is sound it becomes necessary to examine the provisions contained in the proposed articles in relation with the requirements of the Act mentioned.

The purposes for which the corporation is to be formed are stated in the second clause of the proposed articles in the following language:

Second. That the object for which said corporation is organized are: to acquire the business of the regular partnership "Siuliong y Compañia," 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 Compañia" which is dissolved on this date, June 30, 1916, or rather the buying and selling, the importation and exportation, of native as well as foreign products; the buying and selling is bills of exchange and of all kinds of commercial documents; commissions; consignments; maritime and fire insurance; the buying and selling of all kinds of rural and city real estate, as well as vessels of all kinds and their charterage; and the manager is hereby authorized to organize any other kind of business which he may deem convenient for the company's interest.

It must be admitted that the second clause of the proposed articles of incorporation is expressed in a way which invites criticism; and if I my be permitted so to suggest the provision would have been better conceived if it had started off something like this:

The general object of this corporation is to engage in commercial activities, such as the buying and selling of merchandise and commodities of every kind; the importation and exportation thereof; the conduct of the

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business of commission merchants, consignees, and insurance agencies; the buying and selling of boats and the chartering thereof, as well as the buying and selling of industrial and mercantile plants; etc., etc.

In setting out the corporate purpose with a view to defining the legitimate range of the faculties of the corporation, it is undesirable to state that its primary purpose is to take over the business of some existing concern. Undoubtedly a corporation may obtain its capital and draw its resources from a prior enterprise, but it acquires such business by transfer; and the nature of the activities of the older business has no bearing on the faculties of the new corporation. All the powers that a corporation can lawfully exercise are derived from the state by virtue of the laws governing the creation and conduct of corporations.

Now, what are limits upon the activities for which a corporation may be created? The answer is to be found, if anywhere, in the Corporation Law. The first chapter of that law deals with corporations in general and contains the provisions common to all corporations. In the second chapter are found various special provisions applicable to particular forms of corporate activities. Of these there are several varieties, to wit, railroad corporations, savings and mortgage banks, banking corporations, trust corporations, domestic insurance corporations, religious corporations, colleges and institutions of learning, and building and loan corporations.

It is obvious that no single corporation can be permitted to exercise the mixed functions of more than one of these classes; and the Director of Commerce and Industry would be clearly acting within his power in rejecting any proposed articles of a corporation which confers or appears to confer powers particularly appropriate to more than one of these forms of corporate enterprise.

Aside from the lines that are laid down in the fundamental classification contained in the Corporation Law, there seems to be no limit upon the legitimate activities of corporate enterprise. For instance, a corporation organized for commercial purposes can lawfully engage in any one of the thousand or more activities which may be imagined under the head of commercial; but it must abstain from activities peculiar to the forms of corporate enterprise for which special provisions are made.

This implies that the word "purpose" as used in the expression "the purpose for which the corporation is formed," in subsection 2 of section 6 of the Corporation Law, may properly be conceived as including the plural as well as the singular. But the purposes, when there are more than one, must be capable of being lawfully combined, that is not obnoxious to the classification created by the law.

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

Returning now to the second clause of the proposed articles of incorporation for "Siuliong y Compañia, Incorporated," I entertain a doubt as to the propriety of admitting into that document the words "discounts of notes, bills, and other negotiable documents" and "the buying and selling of bills, bonds, stocks, and shares of mercantile and industrial partnership, as well as mercantile documents of every sort." The reason simply is that in so far as it is necessary to engage in these activities for the accomplishment of the general purposes of the corporation, it may all be done in the exercise of the implied power expressed in section 13; and the insertion into the articles of the words quoted may give rise to the inference that the incorporators may desire to engage

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in a line of business appropriate only to corporations created for banking purposes. (See sec. 116 of Act No. 1459.) On the other hand, it may be said that the activities expressed in the words quoted are those peculiar to the business of stock-brokers; and one reason is apparent why the business of stock-broking might not be lawfully combined under one corporate chapter with the other mercantile activities mentioned in the second clause of the articles.

On the whole, as I understand the opinion written by Justice Johnson, this court intends to hold that the second clause of the proposed articles, when property interpreted, means that the company to be formed intends primarily to dedicate itself to industrial and mercantile activities, as its principal object and that the other activities mentioned are purely subordinate. I have no special criticism to make of this view; and inasmuch as the interpretation which the court thus places upon the proposed charter removes the possibility that the corporation may, under the protection thereof, engage in illegitimate lines of enterprise, I am content to express my concurrence in the result reached by the court. But I really think the proposed articles ought to be amended.

MALCOLM, J., concurs in the result, reserving his opinion concerning the suggestion in the third paragraph from the last of the principal decision.

G.R. No. L-22238             February 18, 1967

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

B. C. Padua for petitioner and appellant.Pablo S. Reyes for respondents and appellees.

REGALA, J.:

This is an appeal from an order of the Court of First Instance of Misamis Oriental dismissing the petition of the Clavecilla Radio System to prohibit the City Judge of Cagayan de Oro from taking cognizance of Civil Case No. 1048 for damages.

It appears that on June 22, 1963, the New Cagayan Grocery filed a complaint against the Clavecilla Radio System alleging, in effect, that on March 12, 1963, the following message, addressed to the former, was filed at the latter's Bacolod Branch Office for transmittal thru its branch office at Cagayan de Oro:

NECAGRO CAGAYAN DE ORO (CLAVECILLA)

REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE SHALL SHIP LATER REPLY POHANG

The Cagayan de Oro branch office having received the said message omitted, in delivering the same to the New Cagayan Grocery, the word "NOT" between the words "WASHED" and "AVAILABLE," thus changing entirely the contents and purport of the same and causing the said addressee to suffer damages. After service of summons, the Clavecilla Radio System filed a motion to dismiss the complaint on the grounds that it states no cause of action and that the venue is improperly laid. The New Cagayan Grocery interposed an opposition to which the Clavecilla Radio System filed its rejoinder. Thereafter, the City Judge, on September 18, 1963, denied the motion to dismiss for lack of merit and set the case for hearing.1äwphï1.ñët

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.1äwphï1.ñët

In appealing, the Clavecilla Radio System contends that the suit against it should be filed in Manila where it holds its principal office.

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

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

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

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

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

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G.R. No. L-23606           July 29, 1968

ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC., petitioner, vs.SECURITIES & EXCHANGE COMMISSION, respondent.

Gamboa and Gamboa for petitioner.Office of the Solicitor General for respondent.

SANCHEZ, J.:

To the question — May a corporation extend its life by amendment of its articles of incorporation effected during the three-year statutory period for liquidation when its original term of existence had already expired? — the answer of the Securities and Exchange Commissioner was in the negative. Offshoot is this appeal.

That problem emerged out of the following controlling facts:

Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter referred to simply as Alhambra) was duly incorporated under Philippine laws on January 15, 1912. By its corporate articles it was to exist for fifty (50) years from incorporation. Its term of existence expired on January 15, 1962. On that date, it ceased transacting business, entered into a state of liquidation.

Thereafter, a new corporation. — Alhambra Industries, Inc. — was formed to carry on the business of Alhambra.

On May 1, 1962, Alhambra's stockholders, by resolution named Angel S. Gamboa trustee to take charge of its liquidation.

On June 20, 1963 — within Alhambra's three-year statutory period for liquidation - Republic Act 3531 was enacted into law. It amended Section 18 of the Corporation Law; it empowered domestic private corporations to extend their corporate life beyond the period fixed by the articles of incorporation for a term not to exceed fifty years in any one instance. Previous to Republic Act 3531, the maximum non-extendible term of such corporations was fifty years.

On July 15, 1963, at a special meeting, Alhambra's board of directors resolved to amend paragraph "Fourth" of its articles of incorporation to extend its corporate life for an additional fifty years, or a total of 100 years from its incorporation.

On August 26, 1963, Alhambra's stockholders, representing more than two-thirds of its subscribed capital stock, voted to approve the foregoing resolution. The "Fourth" paragraph of Alhambra's articles of incorporation was thus altered to read:

FOURTH. That the term for which said corporation is to exist is fifty (50) years from and after the date of incorporation, and for an additional period of fifty (50) years thereafter.

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On October 28, 1963, Alhambra's articles of incorporation as so amended certified correct by its president and secretary and a majority of its board of directors, were filed with respondent Securities and Exchange Commission (SEC).

On November 18, 1963, SEC, however, returned said amended articles of incorporation to Alhambra's counsel with the ruling that Republic Act 3531 "which took effect only on June 20, 1963, cannot be availed of by the said corporation, for the reason that its term of existence had already expired when the said law took effect in short, said law has no retroactive effect."

On December 3, 1963, Alhambra's counsel sought reconsideration of SEC's ruling aforesaid, refiled the amended articles of incorporation.

On September 8, 1964, SEC, after a conference hearing, issued an order denying the reconsideration sought.

Alhambra now invokes the jurisdiction of this Court to overturn the conclusion below.1

1. Alhambra relies on Republic Act 3531, which amended Section 18 of the Corporation Law. Well it is to take note of the old and the new statutes as they are framed. Section 18, prior to and after its modification by Republic Act 3531, covers the subject of amendment of the articles of incorporation of private corporations. A provision thereof which remains unaltered is that a corporation may amend its articles of incorporation "by a majority vote of its board of directors or trustees and ... by the vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock ... "

But prior to amendment by Republic Act 3531, an explicit prohibition existed in Section 18, thus:

... Provided, however, That the life of said corporation shall not be extended by said amendment beyond the time fixed in the original articles: ...

This was displaced by Republic Act 3531 which enfranchises all private corporations to extend their corporate existence. Thus incorporated into the structure of Section 18 are the following:

... Provided, however, That should the amendment consist in extending the corporate life, the extension shall not exceed fifty years in any one instance: Provided, further, That the original articles, and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation: ...

As we look in retrospect at the facts, we find these: From July 15 to October 28, 1963, when Alhambra made its attempt to extend its corporate existence, its original term of fifty years had already expired (January 15, 1962); it was in the midst of the three-year grace period statutorily fixed in Section 77 of the Corporation Law, thus: .

SEC. 77. Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established.2

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Plain from the language of the provision is its meaning: continuance of a "dissolved" corporation as a body corporate for three years has for its purpose the final closure of its affairs, and no other; the corporation is specifically enjoined from "continuing the business for which it was established". The liquidation of the corporation's affairs set forth in Section 77 became necessary precisely because its life had ended. For this reason alone, the corporate existence and juridical personality of that corporation to do business may no longer be extended.

Worth bearing in mind, at this juncture, is the basic development of corporation law.

The common law rule, at the beginning, was rigid and inflexible in that upon its dissolution, a corporation became legally dead for all purposes. Statutory authorizations had to be provided for its continuance after dissolution "for limited and specified purposes incident to complete liquidation of its affairs". 3 Thus, the moment a corporation's right to exist as an "artificial person" ceases, its corporate powers are terminated "just as the powers of a natural person to take part in mundane affairs cease to exist upon his death". 4 There is nothing left but to conduct, as it were, the settlement of the estate of a deceased juridical person.

2. Republic Act 3531, amending Section 18 of the Corporation Law, is silent, it is true, as to when such act of extension may be made. But even with a superficial knowledge of corporate principles, it does not take much effort to reach a correct conclusion. For, implicit in Section 77 heretofore quoted is that the privilege given to prolongcorporate life under the amendment must be exercised before the expiry of the term fixed in the articles of incorporation.

Silence of the law on the matter is not hard to understand. Specificity is not really necessary. The authority to prolong corporate life was inserted by Republic Act 3531 into a section of the law that deals with the power of a corporation to amend its articles of incorporation. (For, the manner of prolongation is through an amendment of the articles.) And it should be clearly evident that under Section 77 no corporation in a state of liquidation can act in any way, much less amend its articles, "for the purpose of continuing the business for which it was established".

All these dilute Alhambra's position that it could revivify its corporate life simply because when it attempted to do so, Alhambra was still in the process of liquidation. It is surely impermissible for us to stretch the law — that merely empowers a corporation to act in liquidation — to inject therein the power to extend its corporate existence.

3. Not that we are alone in this view. Fletcher has written: "Since the privilege of extension is purely statutory, all of the statutory conditions precedent must be complied with in order that the extension may be effectuated. And, generally these conditions must be complied with, and the steps necessary to effect the extension must be taken,during the life of the corporation, and before the expiration of the term of existence as original fixed by its charter or the general law, since, as a rule, the corporation is ipso facto dissolved as soon as that time expires. So where the extension is by amendment of the articles of incorporation, the amendment must be adopted before that time. And, similarly, the filing and recording of a certificate of extension after that time cannot relate back to the date of the passage of a resolution by the stockholders in favor of the extension so as to save the life of the corporation. The contrary is true, however, and the doctrine of relation will apply, where the delay is due to the neglect of the officer with whom the certificate is required to be filed, or to a wrongful refusal on his part to receive it. And statutes in some states specifically provide that a renewal may be had within a specified time before or after the time fixed for the termination of the corporate existence".5

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The logic of this position is well expressed in a foursquare case decided by the Court of Appeals of Kentucky.6There, pronouncement was made as follows:

... But section 561 (section 2147) provides that, when any corporation expires by the terms of its articles of incorporation, it may be thereafter continued to act for the purpose of closing up its business, but for no other purpose. The corporate life of the Home Building Association expired on May 3, 1905. After that date, by the mandate of the statute, it could continue to act for the purpose of closing up its business, but for no other purpose. The proposed amendment was not made until January 16, 1908, or nearly three years after the corporation expired by the terms of the articles of incorporation.  When the corporate life of the corporation was ended, there was nothing to extend. Here it was proposed nearly three years after the corporate life of the association had expired to revivify the dead body, and to make that relate back some two years and eight months. In other words, the association for two years and eight months had only existed for the purpose of winding up its business, and, after this length of time, it was proposed to revivify it and make it a live corporation for the two years and eight months daring which it had not been such.

The law gives a certain length of time for the filing of records in this court, and provides that the time may be extended by the court, but under this provision it has uniformly been held that when the time was expired, there is nothing to extend, and that the appeal must be dismissed... So, when the articles of a corporation have expired, it is too late to adopt an amendment extending the life of a corporation; for, the corporation having expired, this is in effect to create a new corporation  ..."7

True it is, that the Alabama Supreme Court has stated in one case.8 that a corporation empowered by statute torenew its corporate existence may do so even after the expiration of its corporate life, provided renewal is taken advantage of within the extended statutory period for purposes of liquidation. That ruling, however, is inherently weak as persuasive authority for the situation at bar for at least two reasons: First. That case was a suit for mandamus to compel a former corporate officer to turn over books and records that came into his possession and control by virtue of his office. It was there held that such officer was obliged to surrender his books and records even if the corporation had already expired. The holding on the continued existence of the corporation was a mere dictum. Second. Alabama's law is different. Corporations in that state were authorized not only to extend but also to renew their corporate existence.That very case defined the word "renew" as follows; "To make new again; to restore to freshness; to make new spiritually; to regenerate; to begin again; to recommence; to resume; to restore to existence, to revive; to re-establish; to recreate; to replace; to grant or obtain an extension of Webster's New International Dict.; 34 Cyc. 1330; Carter v. Brooklyn Life Ins. Co., 110 N.Y. 15, 21, 22, 17 N.E. 396; 54 C.J. 379. Sec".9

On this point, we again draw from Fletcher: "There is a broad distinction between the extension of a charter and the grant of a new one. To renew a charter is to revive a charter which has expired, or, in other words, "to give a new existence to one which has been forfeited, or which has lost its vitality by lapse of time". To "extend" a charter is "to increase the time for the existence of one which would otherwise reach its limit at an earlier period".10Nowhere in our statute — Section 18, Corporation Law, as amended by Republic Act 3531 — do we find the word "renew" in reference to the authority given to corporations to protract their lives. Our law limits itself to extension of corporate existence. And, as so understood, extension may be made only before the term provided in the corporate charter expires.

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Alhambra draws attention to another case11 which declares that until the end of the extended period for liquidation, a dissolved corporation "does not become an extinguished entity". But this statement was obviously lifted out of context. That case dissected the question whether or not suits can be commenced by or against a corporation within its liquidation period. Which was answered in the affirmative. For, the corporation still exists for the settlement of its affairs.

People, ex rel. vs. Green,12 also invoked by Alhambra, is as unavailing. There, although the corporation amended its articles to extend its existence at a time when it had no legal authority yet, it adopted the amended articles later on when it had the power to extend its life and during its original term when it could amend its articles.

The foregoing notwithstanding, Alhambra falls back on the contention that its case is arguably within the purview of the law. It says that before cessation of its corporate life, it could not have extended the same, for the simple reason that Republic Act 3531 had not then become law. It must be remembered that Republic Act 3531 took effect on June 20, 1963, while the original term of Alhambra's existence expired before that date — on January 15, 1962. The mischief that flows from this theory is at once apparent. It would certainly open the gates for all defunct corporations — whose charters have expired even long before Republic Act 3531 came into being — to resuscitate their corporate existence.

4. Alhambra brings into argument Republic Act 1932, which amends Section 196 of the Insurance Act, now reading as follows: 1äwphï1.ñët

SEC. 196. Any provision of law to the contrary notwithstanding, every domestic life insurance corporation, formed for a limited period under the provisions of its articles of incorporation, may extend its corporate existence for a period not exceeding fifty years in any one instance by amendment to its articles of incorporation on or before the expiration of the term so fixed in said articles ...

To be observed is that the foregoing statute — unlike Republic Act 3531 — expressly authorizes domestic insurance corporations to extend their corporate existence "on or before the expiration of the term" fixed in their articles of incorporation. Republic Act 1932 was approved on June 22, 1957, long before the passage of Republic Act 3531 in 1963. Congress, Alhambra points out, must have been aware of Republic Act 1932 when it passed Republic Act 3531. Since the phrase "on or before", etc., was omitted in Republic Act 3531, which contains no similar limitation, it follows, according to Alhambra, that it is not necessary to extend corporate existence on or before the expiration of its original term.

That Republic Act 3531 stands mute as to when extention of corporate existence may be made, assumes no relevance. We have already said, in the face of a familiar precept, that a defunct corporation is bereft of any legal faculty not otherwise expressly sanctioned by law.

Illuminating here is the explanatory note of H.B. 1774, later Republic Act 3531 — now in dispute. Its first paragraph states that "Republic Act No. 1932 allows the automatic extension of the corporate existence of domestic life insurance corporations upon amendment of their articles of incorporation on or before the expiration of the terms fixed by said articles". The succeeding lines are decisive: "This is a good law, a sane and sound one. There appears to be no valid reason why it should not be made to apply to other private corporations.13

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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 of Alhambra might be that, instead of the new corporation (Alhambra Industries, Inc.) being written off, the old one (Alhambra Cigar & Cigarette Manufacturing Company, Inc.) has to be wound up; and that the old corporate name cannot be retained fully in its exact form.17 What is important though is that the word Alhambra, the name that counts [it has goodwill], remains.

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

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

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[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.

 

D E C I S I O N

REYES, J. B. L., J.:

Appeal under Rule 43 from a decision of the Securities and Exchange Commissioner, denying the right of a sociedad anonima to extend its corporate existence by amendment of its original articles of association, or alternatively, to reform and continue existing under the Corporation Law (Act 1459) beyond the original period.

The Petitioner, the Benguet Consolidated Mining Co. (hereafter termed “Benguet” for short), was organized on June 24,1903, as a sociedad anonima regulated by Articles 151 et seq., of the Spanish Code of Commerce of 1886, then in force in the Philippines. The articles of association expressly provided that it was organized for a term of fifty (50) years. In 1906, the governing Philippine Commission enacted Act 1459, commonly known as the Corporation Law, establishing in the islands the American type of juridical entities known as corporation, to take effect on April 1, 1906. Of its enactment, this Court said in its decision in Harden vs. Benguet Consolidated Mining Co., 58 Phil., 141, at pp. 145-146, and 147:chanroblesvirtuallawlibrary

“When the Philippine Islands passed to the sovereignty of the United States, the attention of the Philippine Commission was early drawn to the fact there is no entity in Spanish law exactly corresponding to the motion of the corporation in English and American law; chan roblesvirtualawlibraryand in the Philippine Bill, approved July 1, 1906, the Congress of the United States inserted certain provisions, under the head of Franchises, which were intended to control the lawmaking power in the Philippine Islands in the matter of granting of franchises, privileges and concessions. These provisions are found in sections 74 and 75 of the Act. The provisions of section 74 have been superseded by section 28 of the Act of Congress of August 29, 1916, but in section 75 there is a provision referring to mining corporations, which still remains the law, as amended. This provision, in its original form, reads as follows:chanroblesvirtuallawlibrary  cralaw it shall be unlawful for any member of a corporation engaged in agriculture or mining and for any corporation organized for any purpose except irrigation to be in any wise interested in any other corporation engaged in agriculture or in mining.

Under the guidance of this and certain other provisions thus enacted by Congress, the Philippine Commission entered upon the enactment of a general law authorizing the creation of corporations in the Philippine Islands. This rather elaborate piece of legislation is embodied in what is called our Corporation Law (Act No. 1459 of the Philippine Commission). The evident purpose of the commission was to introduce the American corporation into the Philippine Islands as the standard commercial entity and to hasten the day when the sociedad anonima of the Spanish law would be obsolete. That statute is a sort of codification of American corporate law.”

“As it was the intention of our lawmakers to stimulate the introduction of the American corporation into the Philippine law in the place of the sociedad anonima, it was necessary to make certain adjustment resulting from the continued co-existence, for a time, of the two forms of commercial entities. Accordingly, in section 75 of the Corporation Law, a provision is found making the sociedad anonima subject to the provisions of the Corporation Law ‘so far as such provisions may be applicable’ and giving to the sociedades anonimas

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previously created in the Islands the option to continue business as such or to reform and organize under the provisions of the Corporation Law. Again, in section 191 of the Corporation Law, the Code of Commerce is repealed in so far as it relates to sociedades anonimas. The purpose of the commission in repealing this part of the Code of Commerce was to compel commercial entities thereafter organized to incorporate under the Corporation Law, unless they should prefer to adopt some form or other of the partnership. To this provision was added another to the effect that existing sociedades anonimas, which elected to continue their business as such, instead of reforming and reorganizing under the Corporation Law, should continue to be governed by the laws that were in force prior to the passage of this Act ‘in relation to their organization and method of transacting business and to the rights of members thereof as between themselves, but their relations to the public and public officials shall be governed by the provisions of this Act.’“

Specifically, the two sections of Act No. 1459 referring to sociedades anonimas then already existing, provide as follows:chanroblesvirtuallawlibrary

“SEC. 75.  Any corporation or a sociedad anonima formed, organized, and existing under the laws of the Philippines on the date of the passage of this Act, shall be subject to the provisions hereof so far as such provisions may be applicable and shall be entitled at its option either to continue business as such corporation or to reform and organize under and by virtue of the provisions of this Act, transferring all corporate interests to the new corporation which, if a stock corporation, is authorized to issue its shares of stock at par to the stockholders or members of the old corporation according to their interests.”

“SEC. 191.  The Code of Commerce, in so far as it relates to corporation or sociedades anonimas, and all other Acts or parts of Acts in conflict or inconsistent with this Act, are hereby repealed with the exception of Act Numbered fifty-two, entitled ‘An Act providing for examinations of banking institutions in the Philippines, and for reports by their officers,’ as amended, and Act Numbered Six hundred sixty-seven, entitled ‘An Act prescribing the method of applying to governments of municipalities, except the city of Manila and of provinces for franchises to contract and operate street railway, electric light and power and telephone lines, the conditions upon which the same may be granted, certain powers of the grantee of said franchises, and of grantees of similar franchises under special Act of the Commission, and for other purposes.’ Provided, however, That nothing in this Act contained shall be deemed to repeal the existing law relating to those classes of associations which are termed sociedades colectivas, and sociedades de cuentas en participacion, as to which association the existing law shall be deemed to be still in force; chan roblesvirtualawlibraryAnd provided, further, That existing corporations or sociedades anonimas, lawfully organized as such, which elect to continue their business as such sociedades anonimas instead of reforming and reorganizing under and by virtue of the provisions of this Act, shall continue to be governed by the laws that were in force prior to the passage of this Act in relation to their organization and method of transacting business and to the rights of members thereof as between themselves, but their relations to the public and public officials shall be governed by the provisions of this Act.”

As the expiration of its original 50 year term of existence approached, the Board of Directors of Benguet adopted in 1946 a resolution to extend its life for another 50 years from July 3, 1946 and submitted it for registration to the Respondent Securities and Exchange Commissioner. Upon advice of the Secretary of Justice (Op. No. 45, Ser. 1917) that such extension was contrary to law, the registration was denied. The matter was dropped, allegedly because the stockholders of Benguet did not approve of the Directors’ action.

Some six years later in 1953, the shareholders of Benguet adopted a resolution empowering the Director to “effectuate the extension of the 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 —

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“Be It

Resolved, that the Company be reformed, reorganized and organized under the provisions of section 75 and other provisions of the Philippine Corporation Law as a Philippine corporation with a corporate life and corporate powers as set forth in the Articles of Incorporation attached hereto as Schedule ‘I’ and made a part hereof by this reference; chan roblesvirtualawlibraryand

Be It

‘FURTHER RESOLVED, that any five or more of the following shareholders of the Company be and they hereby are authorized as instructed to act for and in behalf of the share holders of the Company and of the Company as Incorporators in the reformation, reorganization and organization of the Company under and in accordance with the provisions aforesaid of said Philippine Corporation Law, and in such capacity, they are hereby authorized and instructed to execute the aforesaid Articles of Incorporation attached to these Minutes as Schedule ‘I’ hereof, with such amendments, deletion and additions thereto as any five or more of those so acting shall deem necessary, proper, advisable or convenient to effect prompt registration of said Articles under Philippine Law; chan roblesvirtualawlibraryand five or more of said Incorporators are hereby further authorized and directed to do all things necessary, proper, advisable or convenient to effect such registration.”

In pursuance of such resolution, Benguet submitted in June, 1953, to the Securities and Exchange Commissioner, for alternative registration, two documents:chanroblesvirtuallawlibrary (1) Certification as to the Modification of (the articles of association of) the Benguet Consolidated Mining Company, extending the term of its existence to another fifty years from June 15, 1953; chan roblesvirtualawlibraryand (2) articles of incorporation, covering its reformation or reorganization as a corporation in accordance with section 75 of the Philippine Corporation Law.

Relying mainly upon the adverse opinion of the Secretary of Justice (Op. No. 180, s. 1953), the Securities and Exchange Commissioner denied the registration and ruled:chanroblesvirtuallawlibrary

(1)  That the Benguet, as sociedad anonima, had no right to extend the original term of corporate existence stated in its Articles of Association, by subsequent amendment thereof adopted after enactment of the Corporation Law (Act No. 1459); chan roblesvirtualawlibraryand

(2)  That Benguet, by its conduct, had chosen to continue as sociedad anonima, under section 75 of Act No. 1459, and could no longer exercise the option to reform into a corporation, specially since it would indirectly produce the effect of extending its life.

This ruling is the subject of the present appeal.

Petitioner Benguet contends:chanroblesvirtuallawlibrary

(1)  That the proviso of section 18 of the Corporation Law to the effect —

“that the life of said corporation shall not be extended by amendment beyond the time fixed in the original articles.”

does not apply to sociedades anonimas already in existence at the passage of the law, likePetitioner herein;

(2)  That to apply the said restriction imposed by section 18 of the Corporation Law to sociedades anonimas already functioning when the said law was enacted would be in violation of constitutional inhibitions;

(3)  That even assuming that said restriction was applicable to it, Benguet could still exercise the option of reforming and reorganizing under section 75 of the Corporation Law, thereby prolonging its corporate existence, since the law is silent as to the time when such option may be exercised or availed of.

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The first issue arises because the Code of Commerce of 1886 under which Benguet was organized, contains no prohibition (to extend the period of corporate existence), equivalent to that set forth in section 18 of the Corporation Law. Neither does it expressly authorize the extension. But the text of Article 223, reading:chanroblesvirtuallawlibrary

“ART. 223.  After the termination of the period for which commercial associations are constituted, it shall not be understood as extended by the implied or presumed will of the members; chan roblesvirtualawlibraryand if the members desire to continue in association, they shall draw up new articles, subject to all the formalities prescribed for their creation as provided in Article 119.” (Code of Commerce.)

would seem to imply that the period of existence of the sociedad anonimas (or of any other commercial association for that matter) may be extended if the partners or members so agree before the expiration of the original period.

While the Code of Commerce, in so far as sociedades anonimas are concerned, was repealed by Act No 1459, Benguet claims that article 223 is still operative in its favor under the last proviso of section 191 of the Corporation law (ante, p. 4 to the effect that existing sociedades anonimas would continue to be governed by the law in force before Act 1459,

“in relation to their organization and method of transacting business and to the rights of members among themselves, but their relations to the public and public officials shall be governed by the provisions of this Act.”

Benguet contends that the period of corporate life relates to its organization and the rights of its members inter se, and not to its relations to the public or public officials.

We find this contention untenable.

The term of existence of association (partnership or sociedad anonima) is coterminous with their possession of an independent legal personality, distinct from that of their component members. When the period expires, the sociedad anonima loses the power to deal and enter into further legal relations with other persons;  chan roblesvirtualawlibraryit is no longer possible for it to acquire new rights or incur new obligations, have only as may be required by the process of liquidating and winding up its affairs. By the same token, its officers and agents can no longer represent it after the expiration of the life term prescribed, save for settling its business. Necessarily, therefore, third persons or strangers have an interest in knowing the duration of the juridical personality of the sociedad anonima, since the latter cannot be dealt with after that period; chan roblesvirtualawlibrarywherefore its prolongation or cessation is a matter directly involving the 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:chanroblesvirtuallawlibrary

“La duracion de la Sociedad. — La necesidad de consignar este requisito en el contrato social tiene un valor analogo al que dijimos tenia el mismo al tratar de las compañias colectivas, aun cuando respecto de las anonimas no haya de tenerse en cuenta para nada lo que dijimos entonces acerca de la trascendencia que ello tiene para los socios; chan roblesvirtualawlibraryporque no existiendo en las anonimas la serie de responsibilidades de caracter personal que afectan a los socios colectivos, es claro que la duracion de la sociedad importa conocerla a los socios y los terceros, porque ella marca al limite natural del desenvolvimiento de la empresa constituida y el comienzo de la liquidacion de la sociedad.” (3 Benito, Derecho Mercantil, 292-293.)

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“Interesa, pues, la fijacion de la vida de la compañia, 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 compañia, se recobra despues de realizada, mas o menos cumplidamente, la finalidad comun perseguida; chan roblesvirtualawlibraryy a los terceros, porque les advierte el momento en que, extinguida la compañia, 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 señalar”. (3 Benito, Derecho Mercantil, p. 245.)

The State and its officers also have an obvious interest in the term of life of associations, since the conferment of juridical capacity upon them during such period is a privilege that is derived from statute. It is obvious that no agreement between associates can result in giving rise to a new and distinct personality, possessing independent rights and obligations, unless the law itself shall decree such result. And the State is naturally interested that this privilege be enjoyed only under the conditions and not beyond the period that it sees fit to grant; chan roblesvirtualawlibraryand, particularly, that it be not abused in fraud and to the detriment of other parties; chan roblesvirtualawlibraryand for this reason it has been ruled that “the limitation (of corporate existence) to a definite period is an exercise of control in the interest of the public” (Smith vs. Eastwood Wire Manufacturing Co., 43 Atl. 568).

We cannot assent to the thesis of Benguet that its period of corporate existence has relation to its “organization”. The latter term is defined in Webster’s International Dictionary as:chanroblesvirtuallawlibrary

“The executive structure of a business; chan roblesvirtualawlibrarythe personnel of management, with its several duties and places in administration; chan roblesvirtualawlibrarythe various persons who conduct a business, considered as a unit.”

The legal definitions of the term “organization” are concordant with that given above:chanroblesvirtuallawlibrary

“Organize or ‘organization,’ as used in reference to corporations, has a well-understood meaning, which is the election of officers, providing for the subscription and payment of the capital stock, the adoption of by-laws, and such other steps as are necessary to endow the legal entity with the capacity to transact the legitimate business for which it was created. Waltson vs. Oliver, 30 P. 172, 173, 49 Kan. 107, 33 Am. St. Rep. 355;  chan roblesvirtualawlibraryTopeka Bridge Co. vs. Cummings, 3 Kan. 55, 77; chan roblesvirtualawlibraryHunt vs. Kansas & M. Bridge Co., 11 Kan. 412, 439; chan roblesvirtualawlibraryAspen Water & Light Co., vs. City of Aspen, 37 P. 728, 730, 6 Colo. App. 12; chan roblesvirtualawlibraryNemaha Coal & Mining Co., vs. Settle 38 P. 483, 484, 54 Kan. 424.

Under a statute providing that, until articles of incorporation should be recorded, the corporation should transact no business except its own organization, it is held that the term “organization” means simply the process of forming and arranging into suitable disposition the parties who are to act together in, and defining the objects of, the compound body, and that this process, even when complete in all its parts, does not confer a franchise either valid or defective, but, on the contrary, it is only the act of the individuals, and something else must be done to secure the corporate franchise. Abbott vs. Omaha Smelting & Refining Co. 4 Neb. 416, 421.” (30 Words and Phrases, p. 282.)

It is apparent from the foregoing definitions that the term “organization” relates merely to the systematization and orderly arrangement of the internal and managerial affairs and organs of the Petitioner Benguet, and has nothing to do with the prorogation of its corporate life.

From the double fact that the duration of its corporate life (and juridical personality) has evident connection with the Petitioner’s relations to the public, and that it bears none to thePetitioner’s organization and method of

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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 “compañias 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 compañias anonimas would be extinct, and replace them with the American type of corporation (Harden vs. Benguet Consolidated Mining Co., supra), for the indefinite prorogation of the corporation life of sociedades anonimas would maintain the unnecessary duality of organizational types instead of reducing them to a single one; chan roblesvirtualawlibraryand what is more, it would confer upon these sociedades anonimas, whose obsolescence was sought, the advantageous privilege of perpetual existence that the new corporation could not possess.

Of course, the retroactive application of the limitations on the terms of corporate existence could not be made in violation of constitutional inhibitions specially those securing equal protection of the laws and prohibiting impairment of the obligation of contracts. It needs no argument to show that if Act No. 1459 allowed existing compañias 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;  chan roblesvirtualawlibraryand its members had not entered into any agreement that such period should be extended. It is safe to say that none of the members of Benguet anticipated in 1906 any need to reach an agreement to increase the term of its corporate life, barely three years after it had started. The prorogation was purely speculative; chan roblesvirtualawlibrarya mere possibility that could not be taken for granted. It was as yet conditional, depending upon the ultimate decision of the members and directors. They might agree to extend Benguet’s existence beyond the original 50 years; chan roblesvirtualawlibraryor again they might not. It must be remembered that in 1906, the success of Benguet in its mining ventures was by no means so certain as to warrant continuation of its operations beyond the 50 years set in its articles. The records of this Court show that Benguet ran into financial difficulties in the early part of its existence, to the extent that, as late as 1913, ten years after it was found, 301,100 shares of its capital stock (with a par value of $1 per share) were being offered for sale at 25 centavos per share in order to raise the sum of P75,000 that was needed to rehabilitate the company (Hanlon vs. Hausermann and Beam, 40 Phil., 796). Certainly the prolongation of the corporate existence of Benguet in 1906 was merely a possibility in futuro, a contingency that did not fulfill the requirements of a vested right entitled to constitutional protection, defined by this Court in Balboa vs. Farrales, 51 Phil., 498, 502, as follows:chanroblesvirtuallawlibrary

“Vested right is ‘some right or interest in the property which has become fixed and established, and is no longer open to doubt or controversy,”

“A ‘vested’ right is defined to be an immediate fixed right of present or future enjoyment, and rights are ‘vested’ in contradistinction to being expectant or contingent” (Pearsall vs. Great Northern R. Co., 161 U. S. 646, 40 L. Ed. 838).

In Corpus Juris Secundum we find:chanroblesvirtuallawlibrary

“Rights are vested when the right to enjoyment, present or prospective, has become the property of some particular person or persons as a present interest. The right must be absolute, complete, and unconditional, independent of a contingency, and a mere expectancy of future benefit, or a contingent interest in property founded on anticipated continuance of existing laws, does not constitute a vested right. So, inchoate rights which have not been acted on are not vested.” (16 C.J. S. 214-215.)

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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; chan roblesvirtualawlibraryMondou vs. New York N. H. & H. R. Co., 56 L. Ed. 327; chan roblesvirtualawlibraryRainey vs. U. S., 58 L. Ed. 617; chan roblesvirtualawlibraryLilly Co. vs. Saunders, 125 ALR. 1308; chan roblesvirtualawlibraryShea vs. Olson, 111 ALR. 998).

“There can be no vested right in the continued existence of a statute or rule of the common law which precludes its change or repeal, nor in any omission to legislate on a particular matter or subject. Any right conferred by statute may be taken away by statute before it has become vested, but after a right has vested, repeal of the statute or ordinance which created the right does not and cannot affect much right.” (16 C.J. S. 222-223.)

It is a general rule of constitutional law that a person has no vested right in statutory privileges and exemptions” (Brearly School vs. Ward, 201 NY. 358, 40 LRA NS. 1215; chan roblesvirtualawlibraryalso, Cooley, Constitutional Limitations, 7th ed., p. 546).

It is not amiss to recall here that after Act No. 1459 the Legislature found it advisable to impress further restrictions upon the power of corporations to deal in public lands, or to hold real estate beyond a maximum area; chan roblesvirtualawlibraryand to prohibit any corporation from endeavouring to control or hold more than 15 per cent of the voting stock of an agricultural or mining corporation (Act No. 3518). These prohibitions are so closely integrated with our public policy that Commonwealth Act No. 219 sought to extend such restrictions to associations of all kinds. It would be subversive of that policy to enable Benguet to prolong its peculiar status of sociedad anonimas, and enable it to cast doubt and uncertainty on whether it is, or not, subject to those restrictions on corporate power, as it once endeavoured to do in the previous case of Harden vs. Benguet Mining Corp. 58 Phil., 149.

Stress has been laid upon the fact that the Compañia Maritima (like Benguet, a sociedad anonima established before the enactment of the Corporation Law) has been twice permitted to extend its corporate existence by amendment of its articles of association, without objection from the officers of the defunct Bureau of Commerce and Industry, then in charge of the enforcement of the Corporation Laws, although the exact question was never raised then. Be that as it may, it is a well established rule in this jurisdiction that the government is never estopped by mistake or error on the part of its agents” (Pineda vs. Court of First Instance of Tayabas, 52 Phil., 803, 807), and that estopped cannot give validity to an act that is prohibited by law or is against public policy (Eugenio vs. Perdido, (97 Phil., 41, May 19, 1955; chan roblesvirtualawlibrary19 Am. Jur. 802); chan roblesvirtualawlibraryso that the Respondent, Securities and Exchange Commissioner, was not bound by the rulings of his predecessor if they be inconsistent with law. Much less could erroneous decisions of executive officers bind this Court and induce it to sanction an unwarranted interpretation or application of legal principles.

We now turn to the third and last issue of this appeal, concerning the exercise of the option granted by section 75 of the Corporation Law to every sociedad anonima “formed, organized and existing under the laws of the Philippines on the date of the passage of this Act” to either continue business as such sociedad anonima or to

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reform and organize under the provisions of the Corporation Law. Petitioner-Appellant Benguet contends that as the law does not determine the period within which such option may be exercised, Benguet may exercise it at any time during its corporate existence; chan roblesvirtualawlibraryand that in fact on June 22, 1953, it chose to reform itself into a corporation for a period of 50 years from that date, filing the corresponding papers and by-laws with the Respondent Commissioner of Securities and Exchange registration; chan roblesvirtualawlibrarybut the latter refused to accept them as belatedly made.

The 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; chan roblesvirtualawlibraryit also appears from positive acts. Thus around 1933, Benguet claimed and defended in court its acquisition of shares of the capital stock of the Balatoc Mining Company, on the ground that as a sociedad anonima it (Benguet) was not a corporation within the purview of the laws prohibiting a mining corporation from becoming interested in another mining corporation (Harden vs. Benguet Mining Corp., 58 Phil., p. 149). Even in the present proceedings, Benguet has urged its right to amend its original articles of association as “sociedad anonima” and extend its life as such under the provisions of the Spanish Code of Commerce. Such appeals to privileges as “sociedad anonima” under the Code of 1886 necessarily imply that Benguet has rejected the alternative of reforming under the Corporation Law. As Respondent 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; chan roblesvirtualawlibraryand if it choose to remain as a sociedad anonima, it could not become a corporation.”

Having thus made its choice, Benguet may not now go back and seek to change its position and adopt the reformation that it had formerly repudiated. The election of one of several alternatives is irrevocable once made (as now expressly recognized in article 940 of the new Civil Code of the Philippines):chanroblesvirtuallawlibrary such rule is inherent in the nature of the choice, its purpose being to clarify and render definite the rights of the one exercising the option, so that other persons may act in consequence. While successive choices may be provided there is nothing in section 75 of the Corporation Law to show or hint that a sociedad anonima may make more than one choice thereunder, since only one option is provided for.

While no express period of time is fixed by the law within which sociedades anonimas may elect under section 75 of Act No. 1459 either to reform or to retain their status quo, there are powerful reasons to conclude that the legislature intended such choice to be made within a reasonable time from the effectivity of the Act. To enable a sociedad anonima to choose reformation when its stipulated period of existence is nearly ended, would be to allow it to enjoy a term of existence far longer than that granted to corporations organized under the Corporation Law; chan roblesvirtualawlibraryin Benguet’s case, 50 years as sociedad anonima, and another 50 years as an American type of corporation under Act 1459; chan roblesvirtualawlibrarya result incompatible with

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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; chan roblesvirtualawlibraryif, on the other hand, they can no longer be worked at a profit, then catastrophe becomes inevitable, whether or not Petitioner Benguet retains corporate existence.

Sustaining the opinions of the Respondent Securities and Exchange Commissioner and of the Secretary of Justice, we rule that:chanroblesvirtuallawlibrary

(1)  The prohibition contained in section 18 of Act No. 1459, against extending the period of corporate existence by amendment of the original articles, was intended to apply, and does apply, to sociedades anonimas already formed, organized and existing at the time of the effectivity of the Corporation Law (Act No. 1459) in 1906;

(2)  The statutory prohibition is valid and impairs no vested rights or constitutional inhibition where no agreement to extend the original period of corporate life was perfected before the enactment of the Corporation Law;

(3)  A sociedad anonima, existing before the Corporation Law, that continues to do business as such for a reasonable time after its enactments, is deemed to have made its election and may not subsequently claim to reform into a corporation under section 75 of Act No. 1459.

In view of the foregoing, the order appealed from is affirmed. Costs against Petitioner-Appellant Benguet Consolidated Mining Company.

Padilla, Montemayor, Reyes, A. Labrador, Concepcion and Endencia, JJ., concur.

 

Separate Opinions

PARAS, C.J., dissenting:chanroblesvirtuallawlibrary

The Petitioner, Benguet Consolidated Mining Company, was organized as a sociedad anonima on June 24, 1903, under the provisions of the Code of Commerce, and its term as fixed in the articles of association was fifty years. It has been a leading enterprise, long and widely reputed to have pioneered in and boosted the mining industry, distributed profits among its shareholders, and given employment to thousands. To be more approximately exact, thePetitioner has kept on its payrolls over four thousand Filipino employees who have about twenty thousand dependents. The taxes and other dues paid by it to the Government have been in

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enormous amounts. It has always been subject to such supervision and control of Government officials as are prescribed by law.

When, therefore, the Petitioner on June 3, 1953, presented all necessary documents to theRespondent, the Securities and Exchange Commissioner, with a view to the extension of its term as a sociedad anonima for a period of fifty years from June 15, 1953; chan roblesvirtualawlibrarywhen on June 22, 1953, it filed with said Respondent the necessary articles of incorporation and other documents, with a view to reforming itself as a corporation under the Corporation Law for a period of fifty years from June 22, 1953, followed by the filing on July 22, 1953, of the corresponding by-laws; chan roblesvirtualawlibraryand when on October 27, 1953, the Respondent issued an order denying the registration of the instruments as well for extension as for reformation,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; chan roblesvirtualawlibraryand (2) that as the Petitioner had organized as a sociedad anonima under the Code of Commerce, it has acquired a vested right which cannot subsequently be affected or taken away by the Corporation Law enacted on April 1, 1906. I would not dwell upon these contentions, because I hold that, even under the provisions of the Corporation Law, the Petitioner may either extend its life as a sociedad anonima or reform as a corporation.

Section 75 of the Corporation Law provides:chanroblesvirtuallawlibrary

“Any corporation or sociedad anonima formed, organized and existing under the laws of the Philippine Islands and lawfully transacting business in the Philippine Islands on the date of the passage of this Act, shall be subject to the provisions hereof so far as such provisions may be applicable and shall be entitled at its option either to continue business as such corporation or to reform and organize under, and by virtue of the provisions of this Act, transferring all corporate interests to the new corporation which, if a stock corporation, is authorized to issue its shares of stock at par to the stockholders or members of the old corporation according to their interests.”

Upon the other hand, section 191 reads as follows:chanroblesvirtuallawlibrary

“The Code of Commerce, in so far as it relates to corporations or sociedades anonimas, and all other or parts of Acts in conflict or inconsistent with this Act, are hereby repealed  cralaw And provided, further, That existing corporations or sociedades anonimas lawfully organized as such, which elect to continue their business as such sociedades anonimas instead of reforming and reorganizing under and by virtue of the provisions of this Act, shall continue to be governed by the laws that were in force prior to the passage of this Act in relation to their organization and method of transacting business and to the rights of members thereof as between themselves, but their relations to the public and public officials shall be governed by the provisions of this Act.”

It is noteworthy that section 75 has not limited the optional continuance of a sociedad anonima to its unexpired term, and section 191 expressly allows a sociedad anonima which has elected to continue its business as such to be governed by the laws in force prior to the enactment of the Corporation Law in relation to its organization and method of transacting business and to the rights of members as between themselves. It is admitted that the Code of Commerce, while containing no express provision allowing it, does not prohibit a sociedad anonima from extending its term; chan roblesvirtualawlibraryand commentators Gay de Montella (Tratado Practico de Sociedad Marcantiles — Compañias Anonimas, Tomo II, p. 285) and Cesar Vivante (Tratado de Derecho

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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:chanroblesvirtuallawlibrary “The purpose of the commission in repealing this part of the Code of Commerce was to compel commercial entities thereafter organized to incorporate under the Corporation Law, unless they should prefer to adopt some form or other of the partnership.” This Court already indicated that the commercial entities compelled to incorporate under the Corporation Law were those organized after its enactment.

Section 6, subsection 4, of the Corporation Law provides that the term for which corporations shall exist shall not exceed fifty years; chan roblesvirtualawlibrarysection 18 provides that the life of a corporation shall not be extended by amendment beyond the time fixed in the original articles; chan roblesvirtualawlibraryand section 11 provides that upon the issuance by the Securities and Exchange Commissioner of the certificate of incorporation, the persons organizing the corporation shall constitute a body politic and corporate for the term specified in the articles of incorporation, not exceeding fifty years. The corporations contemplated are those defined in section 22 — corporations organized under the Corporation Law. They cannot be sociedades anonimas formed under the Code of Commerce and licensed to continue as such in virtue of sections 75 and 191. Otherwise the words “or sociedad anonima” would have been added to the term “corporation” in section 18, as was done in sections 75 and 191. A similar observation was made in Harden vs. Benguet Consolidated Mining Co., supra:chanroblesvirtuallawlibrary “But when the word corporation is used in the sense of sociedad anonima and close discrimination is necessary, it should be associated with the Spanish expression sociedad

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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; chan roblesvirtualawlibrarysection 77 fixes three years from the dissolution of a corporation within which it may clear and settle its affairs; chan roblesvirtualawlibraryand section 78 fixes the same period of three years within which a corporation may convey its properties to a trustee for the benefit of its stockholders and other interested persons.

It is not correct to argue that the Petitioner is not entitled to elect to continue as a sociedad anonima and at the same time reform and organize as a regular corporation, because when it continued as a sociedad anonima after the passage of the Corporation Law and during its full term of fifty years, it merely exercised a right it theretofore had; chan roblesvirtualawlibraryand the Petitioner can be said properly to have availed itself of the other option only when in June 1953 it filed the necessary papers of incorporation under the Corporation Law. It is likewise not accurate to contend that, as the Respondent ruled, the Petitioner could reform as and be a regular corporation at most only for the remainder of its term as a sociedad anonima. Section 75, in allowing a sociedad anonima to reform and organize under the Corporation Law, also authorizes the transfer of its corporate interests to the new corporation. This “new” corporation should have the advantage of the prescribed maximum duration, regardless of the original term of the old or substituted entity. There is no basis for the criticism that, if thePetitioner were allowed to exhaust its full term as a sociedad anonima, and afterwards to reform as a regular corporation for another fifty years, it would have a span of life twice as long as that granted to corporations organized under the Corporation Law. The simple reason is that the Petitioner was already a corporate entity before the enactment of the Corporation Law, with a fixed duration under its original articles of association. It was clearly not in parity with any corporation organized under and coming into existence after the effectivity of the Corporation Law which has no choice on the matter and can therefore have only the prerogative granted by said law, — no more no less.

The Respondent has suggested that the Petitioner, if desirous of continuing its business, may organize a new corporation — a suggestion which need not be made because no one would probably think of denying it that

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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 thePetitioner to reform, instead of requiring it technically to form a new corporation. It will acquire no greater rights or obligations by simple reformation than by newly organizing another corporation. Conversely, the public and public officials will acquire no greater benefit or control by requiring the Petitioner to form a new corporation, than by allowing it to reform. And as already stated, whatever interest the public and public officials may have in determining the duration of a sociedad anonima or any corporation for that matter, is amply protected by registration in the Securities and Exchange Commission.

The Respondent and the intervenor, Consolidated Mines, Inc., have tried to show that thePetitioner holds or owns interests in eight mining companies, in violation of section 13, subsection 5 of the Corporation Law, in that it has operating contracts with the intervenor and seven other mining companies, besides owning the majority shares in Balatoc Mining Co. This matter has not merited any attention or favorable comment in the majority decision, and rightly of course. Even so, we may observe that the alleged violation was not the subject of any finding by the Respondent, nor relied upon in his order of denial; chan roblesvirtualawlibrarythat the Petitionerhas denied the charge; chan roblesvirtualawlibrarythat the holding by the Petitioner of shares of stock in Balatoc Mining Co., if really illegal, may look into only in a quo warranto proceeding instituted by the Government; chan roblesvirtualawlibrarythat at any rate the Petitioner has always been ready and willing to dispose of said shares and, in a proper proceeding, it should be given reasonable time to do so, as this Court gave the Philippine Sugar Estates a period of six months after final decision within which to “liquidate, dissolve and separate absolutely in every respect and in all of its relations, complained of in the petition, with the Tayabas Land Company” (Government vs. Philippine Sugar Estates Co., 38 Phil., 15).

With special reference to the intervenor, it may be of some moment to know the antecedents and nature of business relations existing between it and the Petitioner, at least to demonstrate the righteousness of the position of one or the other even from a factual point of view. The following excerpts from “Petitioner’s Reply to a portion of Intervenor’s Brief” are in point:chanroblesvirtuallawlibrary

“What has happened in our case is that prior to the execution of the Operating Agreement of July 9, 1934, the stockholders, directors, and officers of the intervenor, Consolidated Mines, Inc., did not want to risk one centavo of their own funds for the development of their chrome ore mining claims in Zambales province, and proposed to the Petitioner herein, Benguet Consolidated Mining Company, to explore, develop and operate their mining claims, Benguet to furnish all the funds that might be necessary, and to explore, develop, mine and concentrate and market ‘all the pay are found on or within paid claims or properties’, the intervenor, Consolidated Mines, Inc., and the Petitioner, Benguet Consolidated Mining Company, after the latter had reimbursed itself for all its advances, to divide half and half the excess of receipts over disbursements. Benguet agreed to it, and advanced approximately three million pesos, one-half thereof before the war, and the other half after the war (the 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:chanroblesvirtuallawlibrary

‘Initial advances amounting to approximately P1,500,000 made by Defendant during the first phases of said Operating Agreement which had been fully reimbursed to it before the war, end of the amounts likewise advanced by it (Benguet) for rehabilitation amounting to close P1,500,000.00.’

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“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 RespondentSecurities and Exchange Commissioner, extending its life as a sociedad anonima, and reforming itself s a corporation, in accordance with the provisions of section 75 of the Corporation Law.

“Under the foregoing facts, the intervenor, Consolidated Mines, Inc., cannot be heard to complain against Benguet. No court can give now a helping hand to the intervenor, which claims that Benguet no longer lives, and wants to keep for itself all the products of 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 thePetitioner should be allowed either to extend its life as a sociedad anonima or to reform and organize under the provisions of the Corporation Law, but they may aid in resolving inPetitioner’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:chanroblesvirtuallawlibrary

“1.  A loss of employment in the Baguio district by about 4,000 Filipino and a loss of direct living from the Benguet operation supplied to 20,000, that is, the 4,000 employed and their dependents.

“(a)  This would be calamity to the district of the highest order which could very well produce a snow balling depression which could react all over the Philippine Islands.

“2.  Losses of direct and indirect taxes to the Philippine Government in an extremely large yearly amount.

“3.  No one would be able to continue the Benguet and Balatoc mines in operation should a liquidation of Benguet take place because the net profits after labor and material costs and taxes in the last two years or more from the gold mining operations have not warranted their continued operation as independent units. The profits in 1953 certainly do not warrant it. It is merely a case of taking gold out of the ground in order to pay for labor, materials and taxes with very little return to the stockholders and on the huge investment made in the reconstruction since 1946.

“(a)  The relief provided by the elimination of the 17 per cent Excise Tax, the 7 per cent Compensating Tax and the lowering of the Extraction Tax, when counter-balanced against consistently increasing costs from month to month up to this very month, is now nothing but an offsetting item against constantly increasing costs.”

For whatever persuasive effect it may have, we cannot help calling attention to the fact that there are only about nine sociedades anonimas in the country, foremost among them being Compañia Maritima, which have existed for years and along with the Petitioner figured prominently in our economic development. Compañia 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 Compañia Maritima, the same should not warrant the commission of another mistake. But it will go to show that sections 75 and 191 of the Corporation Law are, on the points herein involved, of doubtful construction; chan

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roblesvirtualawlibraryand it is for this reason that we had to advert hereinabove to the somewhat unequitable position of the intervenor and to the possible adverse effect on Philippine economy of the abrupt termination of 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.

 

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.

MORELAND, J.:

This is an action to obtain a writ of mandamus  to compel the chief of the division of achieves of the Executive Bureau to file a certain articles of incorporation.

The chief of the division of archives, the respondent, refused to file the articles of incorporation, hereinafter referred to, upon the ground that the object of the corporation, as stated in the articles, was not lawful and that, in pursuance of section 6 of Act No. 1459, they were not registerable.

The proposed incorporators began an action in the Court of First Instance of the city of Manila to compel the chief of the division of archives to receive and register said articles of incorporation and to do any and all acts necessary for the complete incorporation of the persons named in the articles. The court below found in favor of the defendant and refused to order the registration of the articles mentioned, maintaining ad holding that the defendant, under the Corporation Law, had authority to determine both the sufficiency of the form of the articles and the legality of the object of the proposed corporation. This appeal is taken from that judgment.

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The first question that arises is whether or not the chief of the division of archives has authority, under the Corporation for registration, to decide not only as to the sufficiency of the form of the articles, but also as to the lawfulness of the purpose of the proposed corporation.

It is strongly urged on the part of the appellants that the duties of the defendant are purely ministerial and that he has no authority to pass upon the lawfulness of the object for which the incorporators propose to organize. No authorities are cited to support this proposition and we are of the opinion that it is not sound.

Section 6 of the Corporation Law reads in part as follows:

Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippine Islands, may form a private corporation for any lawful purpose by filing with the division of archives, patents, copyrights, and trademarks if the Executive Bureau articles of incorporation duly executed and acknowledged before a notary public, . . . .

Simply because the duties of an official happens to be ministerial, it does not necessarily follow that he may not, in the administration of his office, determine questions of law. We are of the opinion that it is the duty of the division of archives, when articles of incorporation are presented for registration, to determine whether the objects of the corporation as expressed in the articles are lawful. We do not believe that, simply because articles of incorporation presented foe registration are perfect in form, the division of archives must accept and register them and issue the corresponding certificate of incorporation no matter what the purpose of the corporation may be as expressed in the articles. We do not believe it was intended that the division of archives should issue a certificate of incorporation to, and thereby put the seal of approval of the Government upon, a corporation which was organized for base of immoral purposes. That such corporation might later, if it sought to carry out such purposes, be dissolved, or its officials imprisoned or itself heavily fined furnished no reason why it should have been created in the first instance. It seems to us to be not only the right but the duty of the divisions of archives to determine the lawfulness of the objects and purposes of the corporation before it issues a certificate of incorporation.

It having determined that the division of archives, through its officials, has authority to determine not only the sufficiency as to form of the articles of incorporation offered for registration, but also the lawfulness of the purposes of leads us to the determination of the question whether or not the chief of the division of archives, who is the representative thereof and clothed by it with authority to deal subject to mandamus  in the performance of his duties.

We are of the opinion that he may be mandamused if he act in violation of law or if he refuses, unduly, to comply with the law. While we have held that defendant has power to pass upon the lawfulness of the purposes of the proposed corporation and that he may, in the fulfillment of his duties, determine the question of law whether or not those purposes are lawful and embraced within that class concerning which the law permits corporations to be formed, that does not necessarily mean, as we have already intimated, that his duties are not ministerial. On the contrary, there is no incompatibility in holding, as we do hold, that his duties are ministerial and that he has no authority to exercise discretion in receiving and registering articles of incorporation. He may exercise judgment — that is, the judicial function — in the determination of the question of law referred to, but he may not use discretion. The question whether or not the objects of a proposed corporation are lawful is one that can be decided one way only. If he err in the determination of that question and refuse to file articles which should be filed under the law, the decision is subject to review and correction and, upon proper showing, he will

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be ordered to file the articles. This is the same kind of determination which a court makes when it decides a case upon the merits, the court makes when it decides a case upon the merits. When a case is presented to a court upon the merits, the court can decide only one way and be right. As a matter of law, there is only one way and be right. As a matter of law, there is only one course to pursue. In a case where the court or other official has discretion in the resolution of a question, then, within certain limitations, he may decide the question either way and still be right. Discretion, it may be said generally, is a faculty conferred upon a court or other official by which he may decide a question either way and still be right. The power conferred upon the division of archives with respect to the registration of articles of incorporation is not of that character. It is of the same character as the determination of a lawsuit by a court upon the merits. It can be decided only one way correctly.

If, therefore, the defendant erred in determining the question presented when the articles were offered for registration, then that error will be corrected by this court in this action and he will be compelled to register the articles as offered. If, however, he did not commit an error, but decided that question correctly, then, of course, his action will be affirmed to the extent that we will deny the relief prayed for.

The next question leads us to the determination of whether or not the purposes of the corporation as stated in the articles of incorporation are lawful within the meaning of the Corporation Law.

The purpose of the incorporation as stated in the articles is: "That the object of the corporation is (a) to organize and regulate the management, disposition, administration and control which the barrio of Pulo or San Miguel or its inhabitants or residents have over the common property of said residents or inhabitants or property belonging to the whole barrio as such; and (b) to use the natural products of the said property for institutions, foundations, and charitable works of common utility and advantage to the barrio or its inhabitants."

The municipality of Pasig as recognized by law contains within its limits several barrios or small settlements, like Pulo or San Miguel, which have no local government of their own but are governed by the municipality of Pasig through its municipal president and council. The president and members of the municipal council are elected by a general vote of the municipality, the qualified electors of all the barrios having the right to participate.

The municipality of Pasig is a municipal corporation organized by law. It has the control of all property of the municipality. The various barrios of the municipality have no right to own or hold property, they not being recognized as legal entities by any law. The residents of the barrios participate in the advantages which accrue to the municipality from public property and receive all the benefits incident to residence in a municipality organized by law. If there is any public property situated in the barrio of Pulo or San Miguel not belonging to the general government or the province, it belongs to the municipality of Pasig and the sole authority to manage and administer the same resides in that municipality. Until the present laws upon the subject are charged no other entity can be the owner of such property or control or administer it.

The object of the proposed corporation, as appears from the articles offered for registration, is to make of the barrio of Pulo or San Miguel a corporation which will become the owner of and have the right to control and administer any property belonging to the municipality of Pasig found within the limits of that barrio. This clearly cannot be permitted. Otherwise municipalities as now established by law could be deprived of the property which they now own and administer. Each barrio of the municipality would become under the scheme proposed, a separate corporation, would take over the ownership, administration, and control of that portion of

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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.

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner, vs. HON. COURT OF APPEALS, HOME   INSURANCE   AND GUARANTY CORPORATION, EMDEN ENCARNACION and HORATIO AYCARDO, respondents.

D E C I S I O N

ROMERO, J.:

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).

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-

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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 11. 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

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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

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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:

“x x x 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 x x x 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.”

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.

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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 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?

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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 into 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] (Italics 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

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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                                       xxx

(l)  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                                       xxx

5.  Failure to file by-laws within the required period;

xxx  xxx                                       xxx                                       xxx

In the exercise of the foregoing authority and jurisdiction of the Commissions 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.

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]

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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 Court in Chung Ka Bio v. Intermediate Appellate Court,[20] as follows:

 “x  x  x.  Moreover, failure to file the by-laws does not automatically operate to dissolve a corporation but is now considered only a ground for such dissolution.

Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation Code, provided that the powers of the corporation would cease if it did not formally organize and commence the transaction of its business or the continuation of its works within two years from date of its incorporation. Section 20, which has been reproduced 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 articles of incorporation with the Securities and Exchange Commission, adopt a code of by-laws.’  Whether this provision should be given mandatory or only directory effect 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 period is only a ground for suspension or revocation of the certificate of registration of corporations.

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-laws, which under Section 46 of the Corporation Code, must be adopted ‘within one month after receipt of official notice of the issuance of its certificate of incorporation.’”[21]

That the corporation involved herein is under the supervision of the HIGC does not alter 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, 1986.[22] With respect to homeowners associations, the HIGC shall “exercise all the powers, authorities and responsibilities that are vested on the Securities and Exchange Commission x x x, the provision of Act 1459, as amended by P.D. 902-A, to the contrary notwithstanding.”[23]

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WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned Decision of the Court of Appeals AFFIRMED.  This Decision is immediately executory. Costs against petitioner.

SO ORDERED.

PMI COLLEGES, petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION and ALEJANDRO GALVAN, respondents.

D E C I S I O N

ROMERO, J.:

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

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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.

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

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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 intoto 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. x x x  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.  x x x” (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

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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 arbitrarily or despotically.  For certiorari to lie there must be capricious, arbitrary 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 ever 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.  x x x” [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

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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.

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

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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. x x x

These verified position papers x x x 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. x x x” (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 following is apropos:

“The petitioners should not have assumed that after they submitted their position papers, the Labor Arbiter would call for a formal trial or 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.

x x x

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.

SO ORDERED.

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G.R. No. 91478 February 7, 1991

ROSITA PEÑA 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.

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Martin N. Roque for private respondents.

 

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 Peña 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).

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 Peña, 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.

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Marcelino B. Enriquez on August 15,1975 . . . ;" and that she may now get her money at the Sheriffs Office (Exh. J and J-1).

On September 8, 1975, Peña 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, entitledDante 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 Peña, 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 Peña 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).

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.

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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 Peña 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 Peña 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. 61).

In their answer, defendants Rosita Peña and Washington Distillery denied the material allegations of the complaint and by way of an affirmative and special defense asserted that Peña 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 initiofor 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.

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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 Peña.

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, how ever, 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 Peña 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

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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 Peña 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.

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

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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.

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.

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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.

xxx xxx xxx

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.

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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

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(4) members must be present to constitute a quorum in a special meeting of the board of directors of respondent PAMBUSCO.

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 an 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.

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

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Non-compliance with this requirement renders the donation null andvoid. 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.

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