Cases June t Corporation

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 63201 May 27, 1992

PHILIPPINE NATIONAL BANK, petitioner, vs.THE COURT OF FIRST INSTANCE OF RIZAL, PASIG — BRANCH XXI, PRESIDED BY JUDGE GREGORIO G. PINEDA, CHUNG SIONG PEK @ BONIFACIO CHUNG SIONG PEK AND VICTORIA CHING GENG TY @ VICTORIA CHENG GENG TY, and THE REGISTER OF DEEDS OF RIZAL, PASIG, METRO MANILA AND/OR HIS DEPUTIES AND AGENTS,respondents.

MEDIALDEA, J.:

This is a petition for certiorari under Rule 65 of the Rules of Court seeking to annul and set aside the orders of respondent Court of First Instance of Rizal, Pasig, Branch 21 (now Regional Trial Court) dated April 22, 1982, September 14, 1982 and January 12, 1983 in LRC Case No. R-2744 on the ground that they had been issued without or in excess of jurisdiction and with grave abuse of discretion.

The antecedent facts of this case are as follows:

Private respondents are the registered owners of three parcels of land in Pasig, Metro Manila covered by OCT No. 853, TCT Nos. 32843 and 32897 of the Registry of Deeds of Rizal.

On March 1, 1954, private respondents entered into a contract of lease with Philippine Blooming Mills, Co., Inc., (PBM for brevity) whereby the letter shall lease the aforementioned parcels of land as factory site. PBM was duly organized and incorporated on January 19, 1952 with a corporate term of twenty-five (25) years. This leasehold right of PBM covering the parcels of land was duly annotated at the back of the above stated certificates of title as Entry No. 9367/T-No. 32843.

The contract of lease provides that the term of the lease is for twenty years beginning from the date of the contract and "is extendable for another term of twenty years at the option of the LESSEE should its term of existence be extended in accordance with law." (p. 76,  Rollo). The contract also states that the lessee agrees to "use the property as factory site and for that purpose to construct whatever buildings or improvements may be necessary or convenient and/or . . . for any purpose it may deem fit; and before the termination of the lease to remove all such buildings and improvements" (pp. 76-77 Rollo).

In accordance with the contract, PBM introduced on the land, buildings, machineries and other useful improvements. These constructions and improvements were registered with the Registry of Deeds of Rizal and annotated at the back of the respondents' certificates of title as Entry No. 85213/T-No. 43338.

On October 11, 1963, PBM executed in favor of Philippine National Bank (PNB for brevity), petitioner herein, a deed of assignment, conveying and transferring all its rights and interests under the contract of lease which it executed with private respondents. The assignment was for and in consideration of the loans granted by PNB to PBM. The deed of assignment was registered and annotated at the back of the private respondents' certificates of title as Entry No. 85215/T-No. 32843.

On November 6, 1963 and December 23, 1963 respectively, PBM executed in favor of PNB a real estate mortgage for a loan of P100,000.00 and an addendum to real estate mortgage for another loan of P1,590,000.00, covering all the improvements constructed by PBM on the leased premises. These mortgages were registered and annotated at the back of respondents' certificates as Entry No. 85214/T-No. 43338 and Entry No. 870971/T-No. 32843, respectively.

PBM filed a petition for registration of improvements in the titles of real property owned by private respondents docketed as Case No. 6530.

On October 7, 1981, private respondents filed a motion in the same proceedings which was given a different case number to wit, LRC Case No. R-2744, because of the payment of filing fees for the motion. The motion sought to cancel the annotations on respondents' certificates of title pertaining to the assignment by PBM to PNB of the former's leasehold rights, inclusion of improvements and the real estate

mortgages made by PBM in favor of PNB, on the ground that the contract of lease entered into between PBM and respondents-movants had already expired by the failure of PBM and/or its assignee to exercise the option to renew the second 20-year lease commencing on March 1, 1974 and also by the failure of PBM to extend its corporate existence in accordance with law. The motion also states that since PBM failed to remove its improvements on the leased premises before the expiration of the contract of lease, such improvements shall accrue to respondents as owners of the land.

On April 22, 1982, respondent court issued an order directing the cancellation of the inscriptions on respondents' certificates of title. The dispositive portion of the order provides:

WHEREFORE, the Register of Deeds having jurisdiction over the movant's land Certificates of Title Nos. 853, 32843 and 32897 is hereby ordered, upon the payment of the corresponding fees, to cancel therein memoranda/inscriptions/entries Nos. 85213/T-No. 43338, 85215/T-No. 32843, 85214/T-No. 43338 and 87097/T-No. 32843.

SO ORDERED. (pp. 147-148, Rollo)

Petitioner PNB filed a motion for reconsideration of the above order of the respondent court but the latter denied it on June 28, 1982.

On August 25, 1982, private respondents filed a motion for entry of final judgment and issuance of a writ of execution of the order of April 22, 1982.

On September 14, 1982, respondent court granted the aforesaid motion for entry of final judgment and ordered the Register of Deeds of Pasig, Rizal to cancel the entries on respondents' certificates of title stated in the order of April 22, 1982.

Petitioner PNB filed an omnibus motion to set aside the entry of judgment as ordered by the respondent court on the ground that it has no prior notice or knowledge of the order of respondent court dated June 28, 1982 which denied its motion for reconsideration of the order of April 22, 1982 and that while there was a certification from the Bureau of Posts that three registry notices were sent to petitioner's counsel, there was no allegation or certification whatsoever that said notices were actually received by the addressee.

On January 12, 1983, the respondent court denied the omnibus motion.

Hence, this petition.

Petitioner alleges that respondent court acted capriciously and arbitrarily in issuing the orders of September 14, 1982 and January 12, 1983 which considered its previous order of April 22, 1982 as having become final on the ground that it had no notice or knowledge that the order of June 28, 1982 denying its motion for reconsideration was issued; that the notices of registered mail allegedly containing the order of June 28, 1982 were not received by petitioner's counsel of record, and that the certification of the Bureau of Posts refers only to the fact that registry notices were sent, and not to the fact that the notices were actually received by the addressee.

In resolving this matter, the respondent court stated in the questioned order of January 12, 1983 as follows:

The respondent PNB filed a motion of May 20, 1982 to set aside the Order of April 22, 1982. This was denied by the Order of June 28, 1982. Then the movants filed a motion of August 25, 1982 for entry of judgment, based on the postmaster's certification that not only one but three notices of the registered mail containing a copy of the order of June 28, 1982 was sent to respondent PNB's counsel at the PNB Building at Escolta, Manila which is his address of record in this case. Consequently the entry of judgment Order of September 14, 1982.

xxx xxx xxx

The respondent PNB's counsel at the hearing of said incidents on October 12, 1982 admitted that the aforesaid registered notices could have been received by PNB's regular Receiving Section at the PNB Building at the Escolta but could not have been forwarded by said Receiving Section to said counsel's Litigation and Collection Division, Legal Department at an upper floor of the same building. Thus the presumption that official duty was regularly performed by the postmaster was not overcome, as most recently reiterated by the Supreme Court in Feraren vs. Santos promulgated on April 27, 1982, 113, SCRA 707 . . . (p. 195, Rollo)

Section 8 of Rule 13 of the Rules of Court, as amended, provides that service by registered mail is complete upon actual receipt by the addressee; but if he fails to claim his mail from the post office within five (5) days from the date of first notice of the postmaster, service shall take effect at the expiration of such time. The fair and just application of that exception depends upon the conclusive proof that the first notice was sent by the postmaster to the addressee. The best evidence of that fact would be the certification from the postmaster (Barrameda v. Castillo, L-27211, July 6, 1977, 78 SCRA 1).

In the instant case, the respondent court found that the postmaster's certification stated that three (3) notices of the registered mail which contained the order of June 28, 1982 denying the motion for reconsideration of the order of April 22, 1982, were sent to petitioner PNB's counsel at Escolta, Manila which is the address stated in the record of the case. The factual findings of the trial court bear great weight and is binding upon this Court. Hence, as between the denial of the petitioners' counsel that he received the notice of the registered mail and the postmaster's certification that said notices were sent to him, the postmaster's claim should prevail. The postmaster has the official duty to send notices of registered mail and the presumption is that official duty was regularly performed (Aportadera, Sr. v. Court of Appeals, G.R. No. 41358, March 16, 1988, 158 SCRA 695).

Petitioner alleges that it is not the respondent court but the Securities and Exchange Commission which has jurisdiction over the private respondents' motions, which raised as issue the corporate existence of PBM. Petitioner further submits that the respondent court committed grave abuse of discretion in ordering the cancellation of entries in the certificates of title of respondents on the following grounds: 1) the motion for cancellation would amount to a collateral attack upon the due incorporation of PBM which cannot be done legally, 2) the contract of lease between PBM as petitioner's assignor and private respondents did not expire since PBM exercised its option to renew the lease with the acquiescence of private respondents, and 3) respondent court's ruling that ownership over the improvements passed from PBM to private respondents upon the expiration of lease violates the law and the contract between the parties.

Even if We were to set aside the questioned orders directing the entry of finality of the order cancelling entries in the titles, petitioner's case must still fail on the merits.

Private respondent's motion with the respondent court was for the cancellation of the entries on their titles on the ground that the contract of lease executed between them and PBM had expired. This action is civil in nature and is within the jurisdiction of the respondent court. The circumstance that PBM as one of the contracting parties is a corporation whose corporate term had expired and which fact was made the basis for the termination of the lease is not sufficient to confer jurisdiction on the Securities and Exchange Commission over the case. Presidential Decree No. 902-A, as amended, enumerates the cases over which the SEC has exclusive jurisdiction and authority to resolve. The case at bar is not covered by the enumeration.

Anent the issue of whether the cancellation of the entries on respondent's certificates of title is valid and proper, We find that the respondent court did not act in excess of its jurisdiction, in ordering the same.

The contract of lease expressly provides that the term of the lease shall be twenty years from the execution of the contract but can be extended for another period of twenty years at the option of the lessee should the corporate term be extended in accordance with law. Clearly, the option of the lessee to extend the lease for another period of twenty years can be exercised only if the lessee as corporation renews or extends its corporate term of existence in accordance with the Corporation Code which is the applicable law. Contracts are to be interpreted according to their literal meaning and should not be interpreted beyond their obvious intendment. Thus, in the instant case, the initial term of the contract of lease which commenced on March 1, 1954 ended on March 1, 1974. PBM as lessee continued to occupy the leased premises beyond that date with the acquiescence and consent of the respondents as lessor. Records show however, that PBM as a corporation had a corporate life of only twenty-five (25) years which ended an January 19, 1977. It should be noted however that PBM allowed its corporate term to expire without complying with the requirements provided by law for the extension of its corporate term of existence.

Section 11 of Corporation Code provides that a corporation shall exist for a period not exceeding fifty (50) years from the date of incorporation unless sooner dissolved or unless said period is extended. Upon the expiration of the period fixed in the articles of incorporation in the absence of compliance with the legal requisites for the extension of the period, the corporation ceases to exist and is dissolved ipso facto (16 Fletcher 671 cited by Aguedo F. Agbayani, Commercial Laws of the Philippines, Vol. 3, 1988 Edition p. 617). When the period of corporate life expires, the corporation ceases to be a body corporate for the purpose of continuing the business for which it was organized. But it 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 enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its assets (Sec. 122, Corporation Code). There is no need for the institution of a proceeding forquo warranto to determine the time or date of the dissolution of a corporation because the period of corporate existence is provided in the articles of incorporation. When such period expires and without any extension having been made pursuant to law, the corporation is dissolved automatically insofar as the continuation of its business is concerned. The  quo warranto proceeding under Rule 66 of the Rules of Court, as amended, may be instituted by the Solicitor General only for the involuntary dissolution of a corporation on the following grounds: a) when the corporation has offended against a provision of an Act for its creation or renewal; b) when it has forfeited its privileges and franchises by non-user; c) when it has committed or omitted an act which amounts to a surrender of its corporate rights, privileges or franchises; d) when it has mis-used a right, privilege or franchise conferred upon it by law, or when it has exercised a right, privilege or franchise in contravention of law. Hence, there is no need for the SEC to make an involuntary dissolution of a corporation whose corporate term had ended because its articles of incorporation had in effect expired by its own limitation.

Considering the foregoing in relation to the contract of lease between the parties herein, when PBM's corporate life ended on January 19, 1977 and its 3-year period for winding up and liquidation expired on January 19, 1980, the option of extending the lease was likewise terminated on January 19, 1977 because PBM failed to renew or extend its corporate life in accordance with law. From then on, the respondents can exercise their right to terminate the lease pursuant to the stipulations in the contract.

We now come to the question of the ownership over the improvements constructed by PBM over the leased premises, which improvements were mortgaged in favor of PNB, petitioner herein.

The rights of the lessor and the lessee over the improvements which the latter constructed on the leased premises is governed by Article 1678 of the Civil Code which provides:

Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall not however, cause any more impairment upon the property leased than is necessary. . . .

The aforequoted provision gives the lessee the right to remove the improvements if the lessor chooses not to pay one-half of the value thereof. However, in the case at bar, the law will not apply because the parties herein have stipulated in the contract their own terms and conditions concerning the improvements, to wit, that the lessee, namely PBM, bound itself to remove the improvements before the termination of the lease. Petitioner PNB, as assignee of PBM succeeded to the obligation of the latter under the contract of lease. It could not possess rights more than what PBM had as lessee under the contract. Hence, petitioner was duty bound to remove the improvements before the expiration of the period of lease as what we have already discussed in the preceding paragraphs. Its failure to do so when the lease was terminated was tantamount to a waiver of its rights and interests over the improvements on the leased premises.

In view of the foregoing, this Court finds that respondent court did not act with grave abuse of discretion in directing the cancellation of entries on private respondents' certificates of title as set forth in the questioned order.

ACCORDINGLY, the petition is DISMISSED and the assailed orders of respondent court dated April 22, 1982, September 14, 1982 and January 12, 1983 are AFFIRMED.

SO ORDERED.

Cruz, Griño-Aquino and Bellosillo, JJ., concur.

epublic of the PhilippinesSUPREME COURT

Manila

EN BANC

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 asAlhambra) was duly incorporated under Philippine laws on January 15, 1912. By its corporate articles it was to exist for fifty (50) years from incorporation. Its term of existence expired on January 15, 1962. On that date, it ceased transacting business, entered into a state of liquidation.

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

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

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

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

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

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

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

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

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

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

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

1. Alhambra relies on Republic Act 3531, which 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

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 toprolong corporate life under the amendment must be exercised before the expiry of the term fixed in the articles of incorporation.

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

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

3. Not that we are alone in this view. Fletcher has written: "Since the privilege of extension is purely statutory, all of the statutory conditions precedent must be complied with in order that the extension may be effectuated. And, generally these conditions must be complied with, and the steps necessary to effect the extension must be taken,during the life of the corporation, and before the expiration of 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

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 extensionof corporate

existence. And, as so understood, extension may be made only before the term provided in the corporate charter expires.

Alhambra draws attention to another 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

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.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Angeles and Fernando, JJ., concur.

Footnotes

1Rule 43, Rules of Court.

2Emphasis supplied.

319 C.J.S., p. 1487.

4Id., p. 1485, at footnote 76, citing Sharp vs. Eagle Lake Lumber Co., 212 P. 933, 60 Cal. App. 386.

58 Fletcher, Cyclopedia Corporations, Perm, ed., 1931, pp. 559-560, citing cases. Emphasis supplied.

6Home Bldg. Ass'n vs. Bruner, 120 S.W. 306, 307.

7Citing cases; emphasis supplied.

8Rayburn vs. Guntersville Realty Company, 93 A.L.R. 1055, 1059-1060, cited by petitioner.

9At p. 1059.

10Fletcher, p. 535. In 18 Am. Jur. 2d., p. 612, we find at footnote 14 the following: "Loeffler v. Federal Supply Co. 187 Okla 373, 102 P2d 862, wherein the court notes a distinction between the words "extend" and

"renew." The court said that the word "extend" means to prolong or lengthen in time, whereas the word "renew" means to restore to existence, to revive, re-establish, or recreate.

11Abercrombie vs. United Light & Power Co., 7 F. Supp. 530, 542.

12116 Mich. 505, 74 N.W. 714.

13Emphasis supplied.

1482 C.J.S., p. 801.

15Tr., p. 18.

16Tr., p. 17.

17Tr., pp. 17-19.

SPECIAL SECOND DIVISION

[G.R. No. 144476. April 8, 2003]

ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG, and JULIE ONG ALONZO, petitioners, vs. DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C. TIU, INTRALAND RESOURCES DEVELOPMENT CORP., MASAGANA TELAMART, INC., REGISTER OF DEEDS OF PASAY CITY, and the SECURITIES AND EXCHANGE COMMISSION, respondents.

[G.R. No. 144629. April 8, 2003]

DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C. TIU, and INTRALAND RESOURCES DEVELOPMENT CORP., petitioners, vs. ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG, and JULIA ONG ALONZO, respondents.

R E S O L U T I O N

CORONA, J.:

Before us are the (1) motion for reconsideration, dated March 15, 2002, of petitioner movants Ong Yong, Juanita Tan Ong, Wilson Ong, Anna Ong, William Ong, Willie Ong and Julia Ong Alonzo (the Ongs); (2) motion for partial reconsideration, dated March 15, 2002, of petitioner movant Willie Ong seeking a reversal of this Courts Decision, [1] dated February 1, 2002, in G.R. Nos. 144476 and 144629 affirming with modification the decision [2] of the Court of Appeals, dated October 5, 1999, which in turn upheld, likewise with modification, the decision of the SEC en banc, dated September 11, 1998; and (3) motion for issuance of writ of execution of petitioners David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (the Tius) of our February 1, 2002 Decision.

A brief recapitulation of the facts shows that:

In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage and incompletion when its owner, the First Landlink Asia Development Corporation (FLADC), which was owned by the Tius, encountered dire financial difficulties. It was heavily indebted to the Philippine National Bank (PNB) for P190 million. To stave off foreclosure of the mortgage on the two lots where the mall was being built, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC. Under the Pre-Subscription Agreement they entered into, the Ongs and the Tius agreed to maintain equal shareholdings in FLADC: the Ongs were to subscribe to 1,000,000 shares at a par value of P100.00 each while the Tius were to subscribe to an additional 549,800 shares at P100.00 each in addition to their already existing subscription of 450,200 shares. Furthermore, they agreed that the Tius were entitled to nominate the Vice-President and the Treasurer plus five directors while the Ongs were entitled to nominate the President, the Secretary and six directors (including the chairman) to the board of directors of FLADC. Moreover, the Ongs were given the right to manage and operate the mall.

Accordingly, the Ongs paid P100 million in cash for their subscription to 1,000,000 shares of stock while the Tius committed to contribute to FLADC a four-storey building and two parcels of land respectively valued at P20 million (for 200,000 shares), P30 million (for 300,000 shares) and P49.8 million (for 49,800 shares) to cover their additional 549,800 stock subscription therein. The Ongs paid in anotherP70 million[3] to FLADC and P20 million to the Tius over and above their P100 million investment, the total sum of which (P190 million) was used to settle the P190 million mortgage indebtedness of FLADC to PNB.

The business harmony between the Ongs and the Tius in FLADC, however, was shortlived because the Tius, on February 23, 1996, rescinded the Pre-Subscription Agreement. The Tius accused the Ongs of (1) refusing to credit to them the FLADC shares covering their real property contributions; (2) preventing David S. Tiu and Cely Y. Tiu from assuming the positions of and performing their duties as Vice-President and Treasurer, respectively, and (3) refusing to give them the office spaces agreed upon.

According to the Tius, the agreement was for David S. Tiu and Cely S. Tiu to assume the positions and perform the duties of Vice-President and Treasurer, respectively, but the Ongs prevented them from doing so. Furthermore, the Ongs refused to provide them the space for their executive offices as Vice-President and Treasurer. Finally, and most serious of all, the Ongs refused to give them the shares corresponding to their property contributions of a four-story building, a 1,902.30 square-meter lot and a 151 square-meter lot.  Hence, they felt they were justified in setting aside their Pre-Subscription Agreement with the Ongs who allegedly refused to comply with their undertakings.

In their defense, the Ongs said that David S. Tiu and Cely Y. Tiu had in fact assumed the positions of Vice-President and Treasurer of FLADC but that it was they who refused to comply with the corporate duties assigned to them. It was the contention of the Ongs that they wanted the Tius to sign the checks of the corporation and undertake their management duties but that the Tius shied away from helping them manage the corporation. On the issue of office space, the Ongs pointed out that the Tius did in fact already have existing executive offices in the mall since they owned it 100% before the Ongs came in. What the Tius really wanted were new offices which were anyway subsequently provided to them. On the most important issue of their alleged failure to credit the Tius with the FLADC shares commensurate to the Tius property contributions, the Ongs asserted that, although the Tius executed a deed of assignment for the 1,902.30 square-meter lot in favor of FLADC, they (the Tius) refused to pay P 570,690 for capital gains tax and documentary stamp tax. Without the payment thereof, the SEC would not approve the valuation of the Tius property contribution (as opposed to cash contribution). This, in turn, would make it impossible to secure a new Transfer Certificate of Title (TCT) over the property in FLADCs name. In any event, it was easy for the Tius to simply pay the said transfer taxes and, after the new TCT was issued in FLADCs name, they could then be given the corresponding shares of stocks. On the 151 square-meter property, the Tius never executed a deed of assignment in favor of FLADC. The Tius initially claimed that they could not as yet surrender the TCT because it was still being reconstituted by the Lichaucos from whom the Tius bought it.The Ongs later on discovered that FLADC had in reality owned the property all along, even before their Pre-Subscription Agreement was executed in 1994. This meant that the 151 square-meter property was at that time already the corporate property of FLADC for which the Tius were not entitled to the issuance of new shares of stock.

The controversy finally came to a head when this case was commenced [4] by the Tius on February 27, 1996 at the Securities and Exchange Commission (SEC), seeking confirmation of their rescission of the Pre-Subscription Agreement. After hearing, the SEC, through then Hearing Officer Rolando G. Andaya, Jr., issued a decision on May 19, 1997 confirming the rescission sought by the Tius, as follows:

WHEREFORE, judgment is hereby rendered confirming the rescission of the Pre-Subscription Agreement, and consequently ordering:

(a) The cancellation of the 1,000,000 shares subscription of the individual defendants in FLADC;

(b) FLADC to pay the amount of P170,000,000.00 to the individual defendants representing the return of their contribution for 1,000,000 shares of FLADC;

( c) The plaintiffs to submit with (sic) the Securities and Exchange Commission amended articles of incorporation of FLADC to conform with this decision;

(d) The defendants to surrender to the plaintiffs TCT Nos. 132493, 132494, 134066 (formerly 15587), 135325 and 134204 and any other title or deed in the name of FLADC, failing in which said titles are declared void;

(e) The Register of Deeds to issue new certificates of titles in favor of the plaintiffs and to cancel the annotation of the Pre-Subscription Agreement dated 15 August 1994 on TCT No. 134066 (formerly 15587);

(f) The individual defendants, individually and collectively, their agents and representatives, to desist from exercising or performing any and all acts pertaining to stockholder, director or officer of FLADC or in any manner intervene in the management and affairs of FLADC;

(g) The individual defendants, jointly and severally, to return to FLADC interest payment in the amount of P8,866,669.00 and all interest payments as well as any payments on principal received from the P70,000,000.00 inexistent loan, plus the legal rate of interest thereon from the date of their receipt of such payment until fully paid;

(h) The plaintiff David Tiu to pay individual defendants the sum of P20,000,000.00 representing his loan from said defendants plus legal interest from the date of receipt of such amount.

SO ORDERED.[5]

On motion of both parties, the above decision was partially reconsidered but only insofar as the Ongs P70 million was declared not as a premium on capital stock but an advance (loan) by the Ongs to FLADC and that the imposition of interest on it was correct.[6]

Both parties appealed[7] to the SEC en banc which rendered a decision on September 11, 1998, affirming the May 19, 1997 decision of the Hearing Officer. The SEC en banc confirmed the rescission of the Pre-Subscription Agreement but reverted to classifying the P70 million paid by the Ongs as premium on capital and not as a loan or advance to FLADC, hence, not entitled to earn interest.[8]

On appeal, the Court of Appeals (CA) rendered a decision on October 5, 1999, thus:

WHEREFORE, the Order dated September 11, 1998 issued by the Securities and Exchange Commission En Banc in SEC AC CASE NOS. 598 and 601 confirming the rescission of the Pre-Subscription Agreement dated August 15, 1994 is hereby AFFIRMED, subject to the following MODIFICATIONS:

1. The Ong and Tiu Groups are ordered to liquidate First Landlink Asia Development Corporation in accordance with the following cash and property contributions of the parties therein.

(a) Ong Group P100,000,000.00 cash contribution for one (1) million shares in First Landlink Asia Development Corporation at a par value of P100.00 per share;

(b) Tiu Group:

1) P45,020,000.00 original cash contribution for 450,200 shares in First Landlink Asia Development Corporation at a par value of P100.00 per share;

2) A four-storey building described in Transfer Certificate of Title No. 15587 in the name of Intraland Resources and Development Corporation valued at P20,000,000.00 for 200,000 shares in First Landlink Asia Development Corporation at a par value of P100.00 per share;

3) A 1,902.30 square-meter parcel of land covered by Transfer Certificate of Title No. 15587 in the name of Masagana Telamart, Inc. valued at P30,000,000.00 for 300,000 shares in First Landlink Asia Development Corporation at a par value of P100.00 per share.

2) Whatever remains of the assets of the First Landlink Asia Development Corporation and the management thereof is (sic) hereby ordered transferred to the Tiu Group.

3) First Landlink Asia Development Corporation is hereby ordered to pay the amount of P70,000,000.00 that was advanced to it by the Ong Group upon the finality of this decision. Should the former incur in delay in the payment thereof, it shall pay the legal interest thereon pursuant to Article 2209 of the New Civil Code.

4) The Tius are hereby ordered to pay the amount of P20,000,000.00 loaned them by the Ongs upon the finality of this decision. Should the former incur in delay in the payment thereof, it shall pay the legal interest thereon pursuant to Article 2209 of the New Civil Code.

SO ORDERED.[9]

An interesting sidelight of the CA decision was its description of the rescission made by the Tius as the height of ingratitude and as pulling a fast one on the Ongs.  The CA moreover found the Tius guilty of withholding FLADC funds from the Ongs and diverting corporate income to their own MATTERCO account.[10] These were findings later on affirmed in our own February 1, 2002 Decision which is the subject of the instant motion for reconsideration. [11]

But there was also a strange aspect of the CA decision. The CA concluded that both the Ongs and the Tius were in pari delicto (which would not have legally entitled them to rescission) but, for practical considerations, that is, their inability to work together, it was best to separate the two groups by rescinding the Pre-Subscription Agreement, returning the original investment of the Ongs and awarding practically everything else to the Tius.

Their motions for reconsideration having been denied, both parties filed separate petitions for review before this Court.

In their petition docketed as G.R. No. 144476, Ong et al. vs. Tiu et al., the Ongs argued that the Tius may not properly avail of rescission under Article 1191 of the Civil Code considering that the Pre-Subscription Agreement did not provide for reciprocity of obligations; that the rights over the subject matter of the rescission (capital assets and properties) had been acquired by a third party (FLADC); that they did not commit a substantial and fundamental breach of their agreement since they did not prevent the Tius from assuming the positions of Vice-President and Treasurer of FLADC, and that the failure to credit the 300,000 shares corresponding to the 1,902.30 square-meter property covered by TCT No. 134066 (formerly 15587) was due to the refusal of the Tius to pay the required transfer taxes to secure the approval of the SEC for the property contribution and, thereafter, the issuance of title in FLADCs name. They also argued that the liquidation of FLADC may not legally be ordered by the appellate court even for so called practical considerations or even to prevent further squabbles and numerous litigations, since the same are not valid grounds under the

Corporation Code. Moreover, the Ongs bewailed the failure of the CA to grant interest on their P70 million and P20 million advances to FLADC and David S. Tiu, respectively, and to award costs and damages.

In their petition docketed as G.R. No. 144629, Tiu et al. vs. Ong et al., the Tius, on the other hand, contended that the rescission should have been limited to the restitution of the parties respective investments and not the liquidation of FLADC based on the erroneous perception by the court that: the Masagana Citimall was threatened with incompletion since FLADC was in financial distress; that the Tius invited the Ongs to invest in FLADC to settle its P190 million loan from PNB; that they violated the Pre-Subscription Agreement when it was the Lichaucos and not the Tius who executed the deed of assignment over the 151 square-meter property commensurate to 49,800 shares in FLADC thereby failing to pay the price for the said shares; that they did not turn over to the Ongs the entire amount of FLADC funds; that they were diverting rentals from lease contracts due to FLADC to their own MATTERCO account; that the P70 million paid by the Ongs was an advance and not a premium on capital; and that, by rescinding the Pre-Subscription Agreement, they wanted to wrestle away the management of the mall and prevent the Ongs from enjoying the profits of their P190 million investment in FLADC.

On February 1, 2002, this Court promulgated its Decision (the subject of the instant motions), affirming the assailed decision of the Court of Appeals but with the following modifications:

1. the P20 million loan extended by the Ongs to the Tius shall earn interest at twelve percent (12%) per annum to be computed from the time of judicial demand which is from April 23, 1996;

2. the P70 million advanced by the Ongs to the FLADC shall earn interest at ten percent (10%) per annum to be computed from the date of the FLADC Board Resolution which is June 19, 1996; and

3. the Tius shall be credited with 49,800 shares in FLADC for their property contribution, specifically, the 151 sq. m. parcel of land.

This Court affirmed the fact that both the Ongs and the Tius violated their respective obligations under the Pre-Subscription Agreement.The Ongs prevented the Tius from assuming the positions of Vice-President and Treasurer of the corporation. On the other hand, the Decision established that the Tius failed to turn over FLADC funds to the Ongs and that the Tius diverted rentals due to FLADC to their MATTERCO account. Consequently, it held that rescission was not possible since both parties were in pari delicto. However, this Court agreed with the Court of Appeals that the remedy of specific performance, as espoused by

the Ongs, was not practical and sound either and would only lead to further squabbles and numerous litigations between the parties.

On March 15, 2002, the Tius filed before this Court a Motion for Issuance of a Writ of Execution on the grounds that: (a) the SEC order had become executory as early as September 11, 1998 pursuant to Sections 1 and 12, Rule 43 of the Rules of Court; (b) any further delay would be injurious to the rights of the Tius since the case had been pending for more than six years; and (c) the SEC no longer had quasi-judicial jurisdiction under RA 8799 (Securities Regulation Code). The Ongs filed their opposition, contending that the Decision dated February 1, 2002 was not yet final and executory; that no good reason existed to issue a warrant of execution; and that, pursuant to Section 5.2 of RA 8799, the SEC retained jurisdiction over pending cases involving intra-corporate disputes already submitted for final resolution upon the effectivity of the said law.

Aside from their opposition to the Tius Motion for Issuance of Writ of Execution, the Ongs filed their own Motion for Reconsideration; Alternatively, Motion for Modification (of the February 1, 2002 Decision) on March 15, 2002, raising two main points: (a) that specific performance and not rescission was the proper remedy under the premises; and (b) that, assuming rescission to be proper, the subject decision of this Court should be modified to entitle movants to their proportionate share in the mall.

On their first point (specific performance and not rescission was the proper remedy), movants Ong argue that their alleged breach of the Pre-Subscription Agreement was, at most, casual which did not justify the rescission of the contract. They stress that providing appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-President and Treasurer, respectively, had no bearing on their obligations under the Pre-Subscription Agreement since the said obligation (to provide executive offices) pertained to FLADC itself. Such obligation arose from the relations between the said officers and the corporation and not any of the individual parties such as the Ongs. Likewise, the alleged failure of the Ongs to credit shares of stock in favor of the Tius for their property contributions also pertained to the corporation and not to the Ongs. Just the same, it could not be done in view of the Tius refusal to pay the necessary transfer taxes which in turn resulted in the inability to secure SEC approval for the property contributions and the issuance of a new TCT in the name of FLADC.

Besides, according to the Ongs, the principal objective of both parties in entering into the Pre-Subscription Agreement in 1994 was to raise the P190 million desperately needed for the payment of FLADCs loan to PNB. Hence, in this light, the alleged failure to provide office space for the two corporate officers was no more than an inconsequential infringement. For rescission to be justified, the law requires that the breach of contract should be so substantial or fundamental as to defeat the primary objective of the parties in making the agreement.  At

any rate, the Ongs claim that it was the Tius who were guilty of fundamental violations in failing to remit funds due to FLADC and diverting the same to their MATTERCO account.

The Ongs also allege that, in view of the findings of the Court that both parties were guilty of violating the Pre-Subscription Agreement, neither of them could resort to rescission under the principle of pari delicto. In addition, since the cash and other contributions now sought to be returned already belong to FLADC, an innocent third party, said remedy may no longer be availed of under the law.

On their second point (assuming rescission to be proper, the Ongs should be given their proportionate share of the mall), movants Ong vehemently take exception to the second item in the dispositive portion of the questioned Decision insofar as it decreed that whatever remains of the assets of FLADC and the management thereof (after liquidation) shall be transferred to the Tius. They point out that the mall itself, which would have been foreclosed by PNB if not for their timely investment of P190 million in 1994 and which is now worth about P1 billion mainly because of their efforts, should be included in any partition and distribution. They (the Ongs) should not merely be given interest on their capital investments. The said portion of our Decision, according to them, amounted to the unjust enrichment of the Tius and ran contrary to our own pronouncement that the act of the Tius in unilaterally rescinding the agreement was the height of ingratitude and an attempt to pull a fast one as it would prevent the Ongs from enjoying the fruits of their P190 million investment in FLADC. It also contravenes this Courts assurance in the questioned Decision that the Ongs and Tius will have a bountiful return of their respective investments derived from the profits of the corporation.

Willie Ong filed a separate Motion for Partial Reconsideration dated March 8, 2002, pointing out that there was no violation of the Pre-Subscription Agreement on the part of the Ongs; that, after more than seven years since the mall began its operations, rescission had become not only impractical but would also adversely affect the rights of innocent parties; and that it would be highly inequitable and unfair to simply return the P100 million investment of the Ongs and give the remaining assets now amounting to about P1 billion to the Tius.

The Tius, in their opposition to the Ongs motion for reconsideration, counter that the arguments therein are a mere re-hash of the contentions in the Ongs petition for review and previous motion for reconsideration of the Court of Appeals decision. The Tius compare the arguments in said pleadings to prove that the Ongs do not raise new issues, and, based on well-settled jurisprudence,[12] the Ongs present motion is therefore pro-forma and did not prevent the Decision of this Court from attaining finality.

On January 29, 2003, the Special Second Division of this Court held oral arguments on the respective positions of the parties. On February 27, 2003, Dr. Willie Ong and the rest of

the movants Ong filed their respective memoranda. On February 28, 2003, the Tius submitted their memorandum.

We grant the Ongs motions for reconsideration.

This is not the first time that this Court has reversed itself on a motion for reconsideration. In Philippine Consumers Foundation, Inc. vs. National Telecommunications Commission,[13] this Court, through then Chief Justice Felix V. Makasiar, said that its members may and do change their minds, after a re-study of the facts and the law, illuminated by a mutual exchange of views.[14] After a thorough re-examination of the case, we find that our Decision of February 1, 2002 overlooked certain aspects which, if not corrected, will cause extreme and irreparable damage and prejudice to the Ongs, FLADC and its creditors.

The procedural rule on pro-forma motions pointed out by the Tius should not be blindly applied to meritorious motions for reconsideration. As long as the same adequately raises a valid ground[15] (i.e., the decision or final order is contrary to law), this Court has to evaluate the merits of the arguments to prevent an unjust decision from attaining finality. In Security Bank and Trust Company vs. Cuenca,[16] we ruled that a motion for reconsideration is not pro-forma for the reason alone that it reiterates the arguments earlier passed upon and rejected by the appellate court. We explained there that a movant may raise the same arguments, if only to convince this Court that its ruling was erroneous. Moreover, the rule (that a motion is pro-forma if it only repeats the arguments in the previous pleadings) will not apply if said arguments were not squarely passed upon and answered in the decision sought to be reconsidered. In the case at bar, no ruling was made on some of the petitioner Ongs arguments. For instance, no clear ruling was made on why an order distributing corporate assets and property to the stockholders would not violate the statutory preconditions for corporate dissolution or decrease of authorized capital stock. Thus, it would serve the ends of justice to entertain the subject motion for reconsideration since some important issues therein, although mere repetitions, were not considered or clearly resolved by this Court.

Going now to the merits, we resolve whether the Tius could legally rescind the Pre-Subscription Agreement. We rule that they could not.

FLADC was originally incorporated with an authorized capital stock of 500,000 shares with the Tius owning 450,200 shares representing the paid-up capital. When the Tius invited the Ongs to invest in FLADC as stockholders, an increase of the authorized capital stock became necessary to give each group equal (50-50) shareholdings as agreed upon in the Pre-Subscription Agreement. The authorized capital stock was thus increased from 500,000 shares to 2,000,000 shares with a par value of P100 each, with the Ongs subscribing to 1,000,000 shares and the Tius to 549,800 more shares in addition to their 450,200 shares to complete 1,000,000 shares. Thus, the subject matter of the contract was the

1,000,000 unissued shares of FLADC stock allocated to the Ongs. Since these were unissued shares, the parties Pre-Subscription Agreement was in fact a subscription contract as defined under Section 60, Title VII of the Corporation Code:

Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties refer to it as a purchase or some other contract (Italics supplied).

A subscription contract necessarily involves the corporation as one of the contracting parties since the subject matter of the transaction is property owned by the corporation its shares of stock. Thus, the subscription contract (denominated by the parties as a Pre-Subscription Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock was, from the viewpoint of the law, one between the Ongs and FLADC, not between the Ongs and the Tius. Otherwise stated, the Tius did not contract in their personal capacities with the Ongs since they were not selling any of their own shares to them. It was FLADC that did.

Considering therefore that the real contracting parties to the subscription agreement were FLADC and the Ongs alone, a civil case for rescission on the ground of breach of contract filed by the Tius in their personal capacities will not prosper. Assuming it had valid reasons to do so, only FLADC (and certainly not the Tius) had the legal personality to file suit rescinding the subscription agreement with the Ongs inasmuch as it was the real party in interest therein. Article 1311 of the Civil Code provides that contracts take effect only between the parties, their assigns and heirs Therefore, a party who has not taken part in the transaction cannot sue or be sued for performance or for cancellation thereof, unless he shows that he has a real interest affected thereby. [17]

In their February 28, 2003 Memorandum, the Tius claim that there are two contracts embodied in the Pre-Subscription Agreement: a shareholders agreement between the Tius and the Ongs defining and governing their relationship and a subscription contract between the Tius, the Ongs and FLADC regarding the subscription of the parties to the corporation. They point out that these two component parts form one whole agreement and that their terms and conditions are intrinsically related and dependent on each other. Thus, the breach of the shareholders agreement, which was allegedly the consideration for the subscription contract, was also a breach of the latter.

Aside from the fact that this is an entirely new angle never raised in any of their previous pleadings until after the oral arguments on January 29, 2003, we find this argument too strained for comfort. It is obviously intended to remedy and cover up the Tius lack of legal personality to rescind an agreement in which they were personally not parties-in-interest. Assuming arguendo that there were two sub-agreements embodied in the Pre-Subscription

Agreement, this Court fails to see how the shareholders agreement between the Ongs and Tius can, within the bounds of reason, be interpreted as the consideration of the subscription contract between FLADC and the Ongs. There was nothing in the Pre-Subscription Agreement even remotely suggesting such alleged interdependence. Be that as it may, however, the Tius are nevertheless not the proper parties to raise this point because they were not parties to the subscription contract between FLADC and the Ongs. Thus, they are not in a position to claim that the shareholders agreement between them and the Ongs was what induced FLADC and the Ongs to enter into the subscription contract. It is the Ongs alone who can say that. Though FLADC was represented by the Tius in the subscription contract, FLADC had a separate juridical personality from the Tius. The case before us does not warrant piercing the veil of corporate fiction since there is no proof that the corporation is being used as a cloak or cover for fraud or illegality, or to work injustice.[18]

The Tius also argue that, since the Ongs represent FLADC as its management, breach by the Ongs is breach by FLADC. This must also fail because such an argument disregards the separate juridical personality of FLADC.

The Tius allege that they were prevented from participating in the management of the corporation. There is evidence that the Ongs did prevent the rightfully elected Treasurer, Cely Tiu, from exercising her function as such. The records show that the President, Wilson Ong, supervised the collection and receipt of rentals in the Masagana Citimall; [19] that he ordered the same to be deposited in the bank;[20] and that he held on to the cash and properties of the corporation.[21] Section 25 of the Corporation Code prohibits the President from acting concurrently as Treasurer of the corporation. The rationale behind the provision is to ensure the effective monitoring of each officers separate functions.

However, although the Tius were adversely affected by the Ongs unwillingness to let them assume their positions, rescission due to breach of contract is definitely the wrong remedy for their personal grievances. The Corporation Code, SEC rules and even the Rules of Court provide for appropriate and adequate intra-corporate remedies, other than rescission, in situations like this. Rescission is certainly not one of them, specially if the party asking for it has no legal personality to do so and the requirements of the law therefor have not been met. A contrary doctrine will tread on extremely dangerous ground because it will allow just any stockholder, for just about any real or imagined offense, to demand rescission of his subscription and call for the distribution of some part of the corporate assets to him without complying with the requirements of the Corporation Code.

Hence, the Tius, in their personal capacities, cannot seek the ultimate and extraordinary remedy of rescission of the subject agreement based on a less than substantial breach of subscription contract. Not only are they not parties to the subscription contract between the Ongs and FLADC; they also have other available and effective remedies under the law.

All this notwithstanding, granting but not conceding that the Tius possess the legal standing to sue for rescission based on breach of contract, said action will nevertheless still not prosper since rescission will violate the Trust Fund Doctrine and the procedures for the valid distribution of assets and property under the Corporation Code.

The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine Trust Co. vs. Rivera,[22] provides that subscriptions to the capital stock of a corporation constitute a fund to which the creditors have a right to look for the satisfaction of their claims.[23] This doctrine is the underlying principle in the procedure for the distribution of capital assets, embodied in the Corporation Code, which allows the distribution of corporate capital only in three instances: (1) amendment of the Articles of Incorporation to reduce the authorized capital stock,[24] (2) purchase of redeemable shares by the corporation, regardless of the existence of unrestricted retained earnings, [25] and (3) dissolution and eventual liquidation of the corporation. Furthermore, the doctrine is articulated in Section 41 on the power of a corporation to acquire its own shares[26] and in Section 122 on the prohibition against the distribution of corporate assets and property unless the stringent requirements therefor are complied with.[27]

The distribution of corporate assets and property cannot be made to depend on the whims and caprices of the stockholders, officers or directors of the corporation, or even, for that matter, on the earnest desire of the court a quo to prevent further squabbles and future litigations unless the indispensable conditions and procedures for the protection of corporate creditors are followed. Otherwise, the corporate peace laudably hoped for by the court will remain nothing but a dream because this time, it will be the creditors turn to engage in squabbles and litigations should the court order an unlawful distribution in blatant disregard of the Trust Fund Doctrine.

In the instant case, the rescission of the Pre-Subscription Agreement will effectively result in the unauthorized distribution of the capital assets and property of the corporation, thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission of a subscription agreement is not one of the instances when distribution of capital assets and property of the corporation is allowed.

Contrary to the Tius allegation, rescission will, in the final analysis, result in the premature liquidation of the corporation without the benefit of prior dissolution in accordance with Sections 117, 118, 119 and 120 of the Corporation Code. [28] The Tius maintain that rescinding the subscription contract is not synonymous to corporate liquidation because all rescission will entail would be the simple restoration of thestatus quo ante and a return to the two groups of their cash and property contributions. We wish it were that simple. Very noticeable is the fact that the Tius do not explain why rescission in the instant case will not effectively result in liquidation. The Tius merely refer in cavalier fashion to the end-result of rescission (which

incidentally is 100% favorable to them) but turn a blind eye to its unfair, inequitable and disastrous effect on the corporation, its creditors and the Ongs.

In their Memorandum dated February 28, 2003, the Tius claim that rescission of the agreement will not result in an unauthorized liquidation of the corporation because their case is actually a petition to decrease capital stock pursuant to Section 38 of the Corporation Code. Section 122 of the law provides that (e)xcept by decrease of capital stock, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. The Tius claim that their case for rescission, being a petition to decrease capital stock, does not violate the liquidation procedures under our laws. All that needs to be done, according to them, is for this Court to order (1) FLADC to file with the SEC a petition to issue a certificate of decrease of capital stock and (2) the SEC to approve said decrease. This new argument has no merit.

The Tius case for rescission cannot validly be deemed a petition to decrease capital stock because such action never complied with the formal requirements for decrease of capital stock under Section 33 of the Corporation Code. No majority vote of the board of directors was ever taken. Neither was there any stockholders meeting at which the approval of stockholders owning at least two-thirds of the outstanding capital stock was secured. There was no revised treasurers affidavit and no proof that said decrease will not prejudice the creditors rights. On the contrary, all their pleadings contained were alleged acts of violations by the Ongs to justify an order of rescission.

Furthermore, it is an improper judicial intrusion into the internal affairs of the corporation to compel FLADC to file at the SEC a petition for the issuance of a certificate of decrease of stock. Decreasing a corporations authorized capital stock is an amendment of the Articles of Incorporation. It is a decision that only the stockholders and the directors can make, considering that they are the contracting parties thereto. In this case, the Tius are actually not just asking for a review of the legality and fairness of a corporate decision. They want this Court to make a corporate decision for FLADC. We decline to intervene and order corporate structural changes not voluntarily agreed upon by its stockholders and directors.

Truth to tell, a judicial order to decrease capital stock without the assent of FLADCs directors and stockholders is a violation of the business judgment rule which states that:

xxx xxx xxx (C)ontracts intra vires entered into by the board of directors are binding upon the corporation and courts will not interfere unless such contracts are so unconscionable and oppressive as to amount to wanton destruction to the rights of the minority, as when plaintiffs aver that the defendants (members of the board), have concluded a transaction among themselves as will result in serious injury to the plaintiffs stockholders.[29]

The reason behind the rule is aptly explained by Dean Cesar L. Villanueva, an esteemed author in corporate law, thus:

Courts and other tribunals are wont to override the business judgment of the board mainly because, courts are not in the business of business, and thelaissez faire rule or the free enterprise system prevailing in our social and economic set-up dictates that it is better for the State and its organs to leave business to the businessmen; especially so, when courts are ill-equipped to make business decisions. More importantly, the social contract in the corporate family to decide the course of the corporate business has been vested in the board and not with courts.[30]

Apparently, the Tius do not realize the illegal consequences of seeking rescission and control of the corporation to the exclusion of the Ongs. Such an act infringes on the law on reduction of capital stock. Ordering the return and distribution of the Ongs capital contribution without dissolving the corporation or decreasing its authorized capital stock is not only against the law but is also prejudicial to corporate creditors who enjoy absolute priority of payment over and above any individual stockholder thereof.

Stripped to its barest essentials, the issue of rescission in this case is not difficult to understand. If rescission is denied, will injustice be inflicted on any of the parties? The answer is no because the financial interests of both the Tius and the Ongs will remain intact and safe within FLADC. On the other hand, if rescission is granted, will any of the parties suffer an injustice? Definitely yes because the Ongs will find themselves out in the streets with nothing but the money they had in 1994 while the Tius will not only enjoy a windfall estimated to be anywhere from P450 million to P900 million[31] but will also take over an extremely profitable business without much effort at all.

Another very important point follows. The Court of Appeals and, later on, our Decision dated February 1, 2002, stated that both groups were in pari delicto, meaning, that both the Tius and the Ongs committed breaches of the Pre-Subscription Agreement. This may be true to a certain extent but, judging from the comparative gravity of the acts separately committed by each group, we find that the Ongs acts were relatively tame vis--vis those committed by the Tius in not surrendering FLADC funds to the corporation and diverting corporate income to their own MATTERCO account. The Ongs were right in not issuing to the Tius the shares corresponding to the four-story building and the 1,902.30 square-meter lot because no title for it could be issued in FLADCs name, owing to the Tius refusal to pay the transfer taxes.  And as far as the 151 square-meter lot was concerned, why should FLADC issue additional shares to the Tius for property already owned by the corporation and which, in the final analysis, was already factored into the shareholdings of the Tius before the Ongs came in?

We are appalled by the attempt by the Tius, in the words of the Court of Appeals, to pull a fast one on the Ongs because that was where the problem precisely started.  It is clear that, when the finances of FLADC improved considerably after the equity infusion of the Ongs, the Tius started planning to take over the corporation again and exclude the Ongs from it.  It appears that the Tius refusal to pay transfer taxes might not have really been at all unintentional because, by failing to pay that relatively small amount which they could easily afford, the Tius should have expected that they were not going to be given the corresponding shares. It was, from every angle, the perfect excuse for blackballing the Ongs. In other words, the Tius created a problem then used that same problem as their pretext for showing their partners the door. In the process, they stood to be rewarded with a bonanza of anywhere between P450 million to P900 million in assets (from an investment of only P45 million which was nearly foreclosed by PNB), to the extreme and irreparable damage of the Ongs, FLADC and its creditors.

After all is said and done, no one can close his eyes to the fact that the Masagana Citimall would not be what it has become today were it not for the timely infusion of P190 million by the Ongs in 1994. There are no ifs or buts about it.

Without the Ongs, the Tius would have lost everything they originally invested in said mall. If only for this and the fact that this Resolution can truly pave the way for both groups to enjoy the fruits of their investments assuming good faith and honest intentions we cannot allow the rescission of the subject subscription agreement. The Ongs shortcomings were far from serious and certainly less than substantial; they were in fact remediable and correctable under the law. It would be totally against all rules of justice, fairness and equity to deprive the Ongs of their interests on petty and tenuous grounds.

WHEREFORE, the motion for reconsideration, dated March 15, 2002, of petitioners Ong Yong, Juanita Tan Ong, Wilson Ong, Anna Ong, William Ong, Willie Ong and Julie Ong Alonzo and the motion for partial reconsideration, dated March 15, 2002, of petitioner Willie Ong are hereby GRANTED. The Petition for Confirmation of the Rescission of the Pre-Subscription Agreement docketed as SEC Case No. 02-96-5269 is hereby DISMISSED for lack of merit. The unilateral rescission by the Tius of the subject Pre-Subscription Agreement, dated August 15, 1994, is hereby declared as null and void.

The motion for the issuance of a writ of execution, dated March 15, 2002, of petitioners David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu is hereby DENIED for being moot.

Accordingly, the Decision of this Court, dated February 1, 2002, affirming with modification the decision of the Court of Appeals, dated October 5, 1999, and the SEC en banc, dated September 11, 1998, is hereby REVERSED.

Costs against the petitioner Tius.

SO ORDERED.

Bellosillo, (Chairman), Quisumbing, and Callejo, Sr., JJ., concur.

[1] Ong Yong, et.al   vs . Tiu, et. al, G.R. No. 144476 ; Tiu, et.al. vs. Ong Yong, et.al., G.R. No. 144629.

[2] Rollo of G.R. No. 144476, pp. 111-135.

[3] The testimony of Wilson Ong, never refuted by the Tius, was that the parties original agreement was to increase FLADCs authorized capital stock from P50 million to P340 million (which explains the Ongs 50% share of P170 million). Later on, the parties decided to downgrade the proposed new authorized capital stock to only P200 million but the Ongs decided to leave the overpayment of P70 million in FLADC to help pay off the loan to PNB. (TSN at the SEC, January 29, 1997 cited in CA Rollo, pp. 429-452; TSN at the SEC, February 6, 1997 cited in CA Rollo, pp. 485-489).

[4] Docketed as SEC Case No. 02-96-5269.

[5] Rollo of G.R. No. 144476, pp. 114-116.

[6] Ibid., pp. 116-117.

[7] Docketed as SEC Cases Nos. 598 and 601.

[8] Rollo of G.R. No. 144476, pp. 117-118.

[9] Ibid., pp. 133-135.

[10] CA Decision dated October 5, 1999, p. 18; CA Records, p. 1045; Penned by Associate Justice Ramon A. Barcelona and concurred in by Associate Justices Mariano M. Umali and Edgardo P. Cruz. Then Associate Justice Demetrio G. Demetria dissented while also then Associate Justice Conchita Carpio Morales concurred and dissented.

[11] Supreme Court Decision dated February 1, 2002, pp. 34-35; Rollo, pp. 299-300.

[12] Estrada vs. Sto. Domingo, 28 SCRA 890 [1969]; Cruz vs. Tuazon & Co., Inc., 76 SCRA 543 [1977]; Llanter vs. Court of Appeals, 105 SCRA 609 [1981]; Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., 86 SCRA 305 [1978].

[13] 131 SCRA 200 [1984].

[14] Id at 221.

[15] See Section 1, Rule 37 of the 1997 Rules of Civil Procedure.

[16] G.R. No. 138544, October 3, 2000 citing Guerra Enterprises vs. CFI, 32 SCRA 314 [1970].

[17] Sustiguer vs. Tamayo, 176 SCRA 579 [1989] citing Marimperio Compania Naviera vs. Court of Appeals, 156 SCRA 368 [1987].

[18] Boyer-Roxas vs. Court of Appeals, 211 SCRA 470 [1992].

[19] TSN, December 11, 1996, pp. 699-702, Rollo, pp. 705-706.

[20] TSN, December 17, 1996, pp. 28-34; Rollo, pp. 699-702.

[21] TSN, January 17, 1997, pp. 92-93; Rollo, pp. 705-706.

[22] 44 Phil 469 [1923].

[23] Id; Garcia vs. Lim Chu Sing, 59 Phil. 562 [1934]; Boman Environmental Devt. Corp. vs. Court of Appeals, 167 SCRA 540 [1988].

[24] Section 38 of the Corporation Code provides for the process to be followed for reduction of the authorized capital stock. First, a proposal to decrease capital stock must be approved by a majority vote of the board of directors and affirmed by stockholders who own 2/3 of the outstanding capital stock in a meeting duly called for that purpose. Written notice of the time and place of the meeting on the proposed decrease in the capital stock must be served to each of the stockholders at his place of residence as shown in the corporate books. Thereafter, the SEC shall approve the certificate of decrease of capital stock only if the same is accompanied by a new treasurers affidavit stating that 25% of the authorized

capital stock has been subscribed while 25% of the subscribed capital stock has been paid-up, and also if said decrease will not prejudice the rights of corporate creditors.

[25] Section 8 of the Corporation Code provides that :

SEC. 8. Redeemable shares Redeemable shares may be issued by the corporation when expressly so provided in the articles of incorporation. They may be purchased or taken up by the corporation upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of the corporation, and upon such other terms and conditions as may be stated in the articles of incorporation, which terms and conditions must also be stated in the certificate of stock representing said shares.

Section 5, par. 5, SEC Rules Governing Redeemable and Treasury Shares provides that redeemable shares may be redeemed regardless of the existence of unrestricted retained earning, provided that the corporation has, after such redemption, assets in its books to cover debts and liabilities of capital stock. Therefore, redemption, according to SEC Opinion, January 23, 1985, may not be made where the corporation is insolvent or if such redemption would cause insolvency or inability of the corporation to meet its debts as they mature. (cited in Hector De Leon, The Corporation Code of the Philippines, 1999 Ed., pp. 96-97).

[26] Section 41 of the Corporation Code provides that:

Sec. 41. Power to acquire own shares. A stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose or purposes, including but not limited to the following cases: Provided, That the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired:

(1) To eliminate fractional shares arising out of stock dividends;

(2) To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale; and

(3) To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code.(Italics supplied)

[27] xxx xxx xxx

Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities.

[28] Sections 117, 118, 119, and 120 of the Corporation Code provide that:

SEC. 117. Methods of dissolution. - A corporation formed or organized under the provisions of this Code may be dissolved voluntarily or involuntarily. (n)

SEC. 118. Voluntary dissolution where no creditors are affected. - If dissolution of a corporation does not prejudice the rights of any creditor having a claim against it, the dissolution may be effected by majority vote of the board of directors or trustees, and by a resolution duly adopted by the affirmative vote of the stockholders owning at least two thirds (2/3) of the outstanding capital  or of at least two-thirds (2/3) of the members at a meeting to be held upon call of the directors or trustees after publication of the notice of time, place and object of the meeting for three (3) consecutive weeks in a newspaper published in the place where the principal office of said corporation is located; and if no newspaper is published in such place, then in a newspaper of general circulation in the Philippines, after sending such notice to each stockholder or member either by registered mail or by personal delivery at least thirty (30) days prior to said meeting. A copy of the resolution authorizing the dissolution shall be certified by a majority of the board of directors or trustees and countersigned by the secretary of the corporation. The Securities and Exchange Commission shall thereupon issue the certificate of dissolution. (62a)

SEC. 119. Voluntary dissolution where creditors are affected. - Where the dissolution of a corporation may prejudice the rights of any creditor, the petition for dissolution shall be filed with the Securities and Exchange Commission. The petition shall be signed by a majority of its board of directors or trustees or other officers having the management of its affairs, verified by its president or secretary or one of its directors or trustees, and shall set forth all claims and demands against it, and that its dissolution was resolved upon by the affirmative vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members, at a meeting of its stockholders or members called for that purpose.

If the petition is sufficient in form and substance, the Commission shall, by an order reciting the purpose of the petition, fix a date on or before which objections thereto may be filed by any person, which date shall not be less than thirty (30) days nor more than sixty (60) days after the entry of the order. Before such date, a copy of the order shall be published at least once a week for three (3) consecutive weeks in a newspaper of general circulation published in municipality or city where the principal office of the corporation is situated, or if there be no such newspaper, then in a newspaper of general circulation in the Philippines, and a similar copy shall be posted for three (3) consecutive weeks in three (3) public places in such municipality or city.

Upon five (5) days notice, given after the date on which the right to file objections as fixed in the order has expired, the Commission shall proceed to hear the petition and try any issue made by the objections filed; and if no such objection is sufficient, and the material allegations of the petition are true, it shall render judgment dissolving the corporation and directing such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation.  (Rule 104, RCa)

SEC. 120. Dissolution by shortening corporate term. - A voluntary dissolution may be effected by amending the articles of incorporation to shorten the corporate term pursuant to the provisions of this Code. A copy of the amended articles of incorporation shall be submitted to the Securities and Exchange Commission in accordance with this Code. Upon approval of the amended articles of incorporation or the expiration of the shortened term, as the case may be, the corporation shall be deemed dissolved without any further proceedings, subject to the provisions of this Code on liquidation. (n)

[29] Gamboa vs. Victoriano, 90 SCRA 40 [1979].

[30] Cesar L. Villanueva, Philippine Corporate Law, 1998 Ed., p. 228.

[31] Estimates of FLADCs current net worth cited during the oral arguments on January 29, 2003 ranged from P450 million to P1 billion.

Republic of the PhilippinesSupreme Court

ManilaFIRST DIVISION

JAKA INVESTMENTS CORPORATION,

Petitioner,    

- versus -    COMMISSIONER OF INTERNAL REVENUE,

Respondent.

G.R. No. 147629  

Present: CORONA, C.J.,Chairperson,VELASCO, JR.,LEONARDO-DE CASTRO,DEL CASTILLO, andPEREZ, JJ.Promulgated: July 28, 2010

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x  

D E C I S I O N  

LEONARDO-DE CASTRO, J.: 

Before the Court is a petition for review of the Decision[1] of the Court of Appeals dated August 22, 2000 sustaining the Court of Tax Appeals in denying petitioners (JAKA Investments Corporations) claim for refund of its alleged overpayment of documentary stamp tax and surcharges, as well as the Resolution[2] dated March 27, 2001 likewise denying petitioners Motion for Reconsideration.

The antecedent facts are undisputed. 

Sometime in 1994, petitioner sought to invest in JAKA Equities Corporation (JEC), which was then planning to undertake an initial public offering (IPO) and listing of its shares of stock with the Philippine Stock Exchange. JEC increased its authorized capital stock from One Hundred Eighty-Five Million Pesos (P185,000,000.00) to Two Billion Pesos (P2,000,000,000.00). Petitioner proposed to subscribe to Five Hundred Eight Million Eight Hundred Six Thousand Two Hundred Pesos (P508,806,200.00) out of the increase in the authorized capital stock of JEC through a tax-free exchange under Section 34(c)(2) of the National Internal Revenue Code (NIRC) of 1977, as amended, which was effected by the execution of a Subscription Agreement and Deed of Assignment of Property in Payment of Subscription. Under this Agreement, as payment for its subscription, petitioner will assign and transfer to JEC the following shares of stock:

(a)  154,208,404 shares in Republic Glass Holdings Corporation (RGHC),(b) 2,822,500 shares in Philippine Global Communications, Inc. (PGCI),(c)  7,495,488 shares in United Coconut Planters Bank (UCPB), and(d) 1,313,176 shares in Far East Bank and Trust Company (FEBTC).[3]

The intended IPO and listing of shares of JEC did not materialize. However, JEC still decided to proceed with the increase in its authorized capital stock and petitioner agreed to subscribe thereto, but under different terms of payment. Thus, petitioner and JEC executed the Amended Subscription Agreement[4] on September 5, 1994, wherein the above-enumerated RGHC, PGCI, and UCPB shares of stock were transferred to JEC. In lieu of the FEBTC shares, however, the amount of Three Hundred Seventy Million Seven Hundred Sixty-Six Thousand Pesos (P370,766,000.00) was paid for in cash by petitioner to JEC.

On October 14, 1994, petitioner paid One Million Three Thousand Eight Hundred Ninety-Five Pesos and Sixty-Five Centavos (P1,003,895.65) for basic documentary

stamp tax inclusive of the 25% surcharge for late payment on the Amended Subscription Agreement, broken down as follows:

 Documentary Stamp Tax - P803,116.7225% Surcharge - 200,778.93Total P1,003,895.65[5]  

On October 17, 1994, Revenue District Officer (RDO) Atty. Sixto S. Esquivias IV (RDO Esquivias) issued three Certifications,[6] as follows:

 Cert. No. Shares of Stock Documentary Stamps 94-10-17-07 7,495,488 UCPB shares P 23,423.1494-10-17-08 154,208,403 RGHC shares 481,901.8894-10-17-14 2,822,500 PGCI shares 88,203.13P593,528.15  

Petitioner, after seeing the RDOs certifications, the total amount of which was less than the actual amount it had paid as documentary stamp tax, concluded that it had overpaid. Petitioner subsequently sought a refund for the alleged excess documentary stamp tax and surcharges it had paid on the Amended Subscription Agreement in the amount of Four Hundred Ten Thousand Three Hundred Sixty-Seven Pesos (P410,367.00), the difference between the amount of documentary stamp tax it had paid and the amount of documentary stamp tax certified to by the RDO, through a letter-request[7] to the BIR dated October 10, 1996.

On October 11, 1996, petitioner filed a petition for refund before the Court of Tax Appeals, docketed as C.T.A. Case No. 5428, which was denied in a Decision[8] dated January 19, 1999. The Court of Tax Appeals likewise denied petitioners Motion for Reconsideration in its Resolution[9] dated March 1, 1999.

Petitioner appealed to the Court of Appeals by way of petition for review. The Court of Appeals sustained the Court of Tax Appeals in its Decision on CA-G.R. SP No.

51834 dated August 22, 2000 as well as in its Resolution dated March 27, 2001 of petitioners Motion for Reconsideration.

Hence, petitioner is now before this Court to seek the reversal of the questioned Decision and Resolution of the Court of Appeals.

Petitioners main contention in this claim for refund is that the tax base for the documentary stamp tax on the Amended Subscription Agreement should have been only the shares of stock in RGHC, PGCI, and UCPB that petitioner had transferred to JEC as payment for its subscription to the JEC shares, and should not have included the cash portion of its payment, based onSection 176 of the National Internal Revenue Code of 1977, as amended by Republic Act No. 7660, or the New Documentary Stamps Tax Law (the 1994 Tax Code), the law applicable at the time of the transaction. Petitioner argues that the cash component of its payment for its subscription to the JEC shares, totaling Three Hundred Seventy Million Seven Hundred Sixty-Six Thousand Pesos (P370,766,000.00) should not have been charged any documentary stamp tax. Petitioner claims that there was overpayment because the tax due on the transferred shares was only Five Hundred Ninety-Three Thousand Five Hundred Twenty-Eight and 15/100 Pesos (P593,528.15), as indicated in the certifications issued by RDO Esquivias. Petitioner alleges that it is entitled to a refund for the overpayment, which is the difference in the amount it had actually paid (P1,003,895.65) and the amount of documentary stamp tax due on the transfer of said shares (P593,528.15), or a total of Four Hundred Ten Thousand Three Hundred Sixty-Seven Pesos (P410,367.00).

Petitioner contends that both the Court of Appeals and the Court of Tax Appeals erroneously relied on respondents (Commissioner of Internal Revenues) assertions that it had paid the documentary stamp tax on the original issuance of the shares of stock of JEC under Section 175 of the 1994 Tax Code.

Petitioner explains that in this instance where shares of stock are used as subscription payment, there are two documentary stamp tax incidences, namely, the documentary stamp tax on the original issuance of the shares subscribed (the JEC

shares), which is imposed under Section 175; and the documentary stamp tax on the shares transferred in payment of such subscription (the transfer of the RGHC, PGCI and UCPB shares of stock from petitioner to JEC), which is imposed under Section 176 of the 1994 Tax Code.Petitioner argues that the documentary stamp tax imposed under Section 175 is due on original issuances of certificates of stock and is computed based on the aggregate par value of the shares to be issued; and that these certificates of stock are issued only upon full payment of the subscription price such that under the Bureau of Internal Revenues (BIRs) Revised Documentary Stamp Tax Regulations,[10] it is stated that the documentary stamp tax on the original issuance of certificates of stock is imposed on fully paid shares of stock only. Petitioner alleges that it is the issuing corporation which is primarily liable for the payment of the documentary stamp tax on the original issuance of shares of stock. Petitioner further argues that the documentary stamp tax on Section 176 of the 1994 Tax Code is imposed for every transfer of shares or certificates of stock, computed based on the par value of the shares to be transferred, and is due whether a certificate of stock is actually issued, indorsed or delivered pursuant to such transfer. It is the transferor who is liable for the documentary stamp tax on the transfer of shares.

Petitioner claims that the documentary stamp tax under Section 175 attaches to the certificate/s of stock to be issued by virtue of petitioners subscription while the documentary stamp tax under Section 176 attaches to the Amended Subscription Agreement, since it is this instrument that evidences the transfer of the RGHC, PGCI and UCPB shares from petitioner to JEC.

Petitioner contends that at the time of the execution of the Amended Subscription Agreement, the JEC shares or certificates subscribed by petitioner could not have been issued by JEC because the same were yet to be sourced from the increase in authorized capital stock of JEC, which in turn had yet to be approved by the Securities and Exchange Commission (SEC). Petitioner thus reasons that the documentary stamp tax under Section 175 could not have accrued at the time the Amended Subscription Agreement was executed because no right to the shares had neither been nor could be established in favor of the petitioner at such time.Petitioner theorizes that the earliest

time that the subscription could actually be executed would be when the SEC approves the increase in the authorized capital stock of JEC. On the other hand, upon the execution of the Amended Subscription Agreement, the assignment or the transfer of RGHC, PGCI and UCPB shares in favor of JEC (which is evidenced by said agreement), is deemed immediately enforceable as this is a necessary requirement of the SEC.

Petitioner points out that Section 175 of the 1994 Tax Code imposes a documentary stamp tax on every original issuance ofcertificates of stock, whereas Republic Act No. 8424, the Tax Reform Act of 1997 (the 1997 Tax Code), amended this provision and imposed a documentary stamp tax on the original issuance of shares of stock. Petitioner argues that under Section 175 of the 1994 Tax Code, there was no documentary stamp tax due on the mere execution of a subscription agreement to shares of stock, and the tax only accrued upon issuance of the certificates of stock. In this case, the change in wording introduced by the 1997 Tax Code cannot be made applicable to the Amended Subscription Agreement, which was executed in 1994, because it is a well-settled doctrine in taxation that a law must have prospective application.

Lastly, petitioner alleges that it is entitled to refund under the NIRC.[11] 

In his Comment (To Petition for Review),[12] respondent avers that the lower courts did not err in denying petitioners claim for refund, and that petitioner is raising issues in this petition which were not raised in the lower courts.

Respondent maintains that the documentary stamp tax imposed in this case is on the original issue of certificates of stock of JEC on the subscription by the petitioner of the P508,806,200.00 shares out of the increase in the authorized capital stock of the former pursuant to Section 175 of the NIRC. The documentary stamp tax was not imposed on the shares of stock owned by petitioner in RGHC, PGCI, and UCPB, which merely form part of the partial payment of the subscribed shares in JEC. Respondent avers that the amounts indicated in the Certificates of RDO Esquivias are the amounts of documentary stamp tax representing the equivalent of each group of shares being

applied for payment. Considering that the amount of documentary stamp tax represented by the shares of stock in the aforementioned companies amounted only to P593,528.15, while the basic documentary stamp tax for the entire subscription of P508,806,200.00 was computed by respondents revenue officers to the tune of P803,116.72, exclusive of the penalties, leaving a balance of P209,588.57, is a clear indication that the payment made with the shares of stock is insufficient.

Respondent claims that the certifications were issued by RDO Esquivias purposely to allow the registration of transfer of the shares of stock used in payment of the subscribed shares in the name of JEC from petitioner by the Corporate Secretary of the UCPB and are not evidence of the payment of the documentary stamp tax on the issuance of the increased shares of stocks of JEC.[13]

Respondent argues that the documentary stamp tax attaches upon acceptance by the corporation of the stockholders subscription in the capital stock of the corporation, and that the term original issue of the certificate of stock means the point at which the stockholder acquires and may exercise attributes of ownership over the stocks.[14] Respondent further argues that the stocks can be alienated; the dividends or fruits derived therefrom can be enjoyed; and they can be conveyed, pledged, or encumbered; that the certificate, irrespective of whether or not it is in the actual constructive possession of the stockholder, is considered issued because it is with value and, hence, the documentary stamp tax must be paid; and concludes that a person may own shares of stock without possessing a certificate of stock. Respondent cites Commissioner of Internal Revenue v. Construction Resources of Asia, Inc.,[15] where the Court held:

 The delivery of the certificates of stocks to the private respondent's stockholders

whether actual or constructive, is not essential for the documentary and science stamps taxes to attach. What is taxed is the privilege of issuing shares of stock and, therefore, the taxes accrue at the time the shares are issued. The only question before us is whether or not said private respondents issued the certificates of stock covering the paid-in-capital of P17,880,000.00.

Respondent claims that it is well-settled as a general rule of Corporation Law that a subscriber for stock in a corporation or purchaser of stock becomes a stockholder as soon as his subscription is accepted by the corporation whether a certificate of stock is issued to him or not, and although he may have no certificate, he is thereupon entitled to all the rights and is subject to all the liabilities of a stockholder.

Respondent argues, based on the above, that the contention of petitioner that the documentary stamp tax under Section 175 of the 1994 Tax Code could not have accrued at the time the Amended Subscription Agreement was executed since the increase in capital stock of JEC had yet to be approved by the SEC was inaccurate. He states that it is evident from the Amended Subscription Agreement that the subscribed shares from the increase in JECs stock were fully paid through cash and shares of stock.

Respondent submits that the change in wording, from certificates to shares of stock, introduced to Section 175 by the 1997 Tax Code, was a mere clarification and codification of the foregoing principle or policy.

Respondent stresses that the documentary stamp tax can be levied or collected from the person making, signing, issuing, accepting, or transferring the obligation or property, as provided in Section 173 of the Tax Code.

In its Reply to Respondents Comment to the Petition,[16] petitioner contends that respondent erroneously insists that the documentary stamp tax sought to be refunded is the one imposed on the subscription by petitioner to P508,806,200.00 new shares of JEC. Petitioner further contends that since the documentary stamp tax due on the issuance of new shares or on original shares isP2.00 for every P200 under Section 175 of the Tax Code, then the documentary stamp tax on petitioners subscription to JEC shares should amount to P5,088,062.00, which is much higher than the P803,116.72 basic documentary stamp tax paid under ATAP No. 1511920.[17] Petitioner argues that at the time the documentary stamp tax was paid, before a taxpayer was allowed to pay the taxes due, a BIR revenue officer would first compute the tax due and then issue an

authority to accept payment (ATAP) and it was very unlikely that the revenue officer could have made such a glaring mistake.

Petitioner alleges that there is no BIR certification requirement prior to the issuance of original shares of stock; and that it is only upon the regular annual audit of the books of a corporation that the BIR determines if the documentary stamp tax on new or original issuances of shares, if any were issued, had in fact been paid. If not, then a deficiency assessment, with penalties and surcharges, would then be made by the BIR. Petitioner further alleges that, on the other hand, before the transfer of issued and outstanding shares to a new owner is recorded in the books of a corporation, the capital gains tax thereon and the documentary stamp tax on the transfer must first be paid, and a BIR certification must be presented to the Corporate Secretary authorizing the corporation to record the transfer, otherwise, the corporate secretary shall be subjected to penalties.

Petitioner claims that the three BIR certifications in this case specifically allow the registration of the UCPB, RGHC, and PGCI shares in the name of JEC, the transferee, and that said certifications evidence payment of the taxes due on the transfer of the shares from petitioner to JEC, not on the original issuance of shares of JEC. 

The parties respective memoranda contained reiterations of the allegations raised in their respective pleadings as discussed above.

The sole issue to be resolved is whether petitioner is entitled to a partial refund of the documentary stamp tax and surcharges it paid on the execution of the Amended Subscription Agreement.

In claims for refund, the burden of proof is on the taxpayer to prove entitlement to such refund. As we held in Compagnie Financiere Sucres Et Denrees v. Commissioner of Internal Revenue[18] -

Along with police power and eminent domain, taxation is one of the three basic and necessary attributes of sovereignty. Thus, the State cannot be deprived of this most essential power and attribute of sovereignty by vague implications of law. Rather, being derogatory of sovereignty, the governing principle is that tax exemptions are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority; and he who claims an exemption must be able to justify his claim by the clearest grant of statute.

 x x x Tax refunds are a derogation of the State's taxing power. Hence, like tax

exemptions, they are construed strictly against the taxpayer and liberally in favor of the State. Consequently, he who claims a refund or exemption from taxes has the burden of justifying the exemption by words too plain to be mistaken and too categorical to be misinterpreted. x x x.

It was thus incumbent upon petitioner to show clearly its basis for claiming that it is entitled to a tax refund. This, to our mind, the petitioner failed to do.

The Court of Tax Appeals construed the claim for exemption strictly against petitioner and held that:

 The focal issue which is presented for our consideration is whether or not the

transfer of the 1,313,176 FEBTC shares under the Amended Subscription Agreement and Deed of Assignment of Property in Payment of Subscription should be excluded in the taxable base for the computation of DST, thus entitling petitioner to the refund of the amount of P410,367.00.

 We find nothing ambiguous nor obscure in the language of Section 173,

taken in relation to Section 175 of the 1994 Tax Code x x x insofar as the same is brought to bear upon the circumstances in the instant case. These provisions furnish the best means of their own exposition that a documentary stamp tax (DST) is due and payable on documents, instruments, loan agreements and papers, acceptances, assignments, sales and transfers which evidenced the transaction agreed upon by the parties and should be paid by the person making, signing, issuing, accepting or transferring the property, right or obligation.

 Sec. 173. Stamp taxes upon documents, instruments, and papers.

Upon documents, instruments, and papers, and upon acceptances, assignments, sales, and transfers of the obligation, or property incident

thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following sections of this Title, by the person making, signing, issuing, accepting, or transferring the same, whenever the document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines, and at the same time such act is done or transaction had: Provided, That whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. (as amended by R.A. No. 7660)

 x x x x

 Understood to mean what it plainly expressed, the DST imposition is essentially

addressed and directly brought to bear upon the DOCUMENT evidencing the transaction of the parties which establishes its rights and obligations.

 In the case at bar, the rights and obligations between petitioner JAKA

Investments Corporation and JAKA Equities Corporation are established and enforceable at the time the Amended Subscription Agreement and Deed of Assignment of Property in Payment of Subscription were signed by the parties and their witness, so is the right of the state to tax the aforestated document evidencing the transaction. DST is a tax on the document itself and therefore the rate of tax must be determined on the basis of what is written or indicated on the instrument itself independent of any adjustment which the parties may agree on in the future x x x. The DST upon the taxable document should be paid at the time the contract is executed or at the time the transaction is accomplished. The overriding purpose of the law is the collection of taxes. So that when it paid in cash the amount of P370,766,000.00 in substitution for, or replacement of the 1,313,176 FEBTC shares, its payment of P1,003,835.65 documentary stamps tax pursuant to Section 175 of NIRC is in order.

 Thus, applying the settled rule in this jurisdiction that, a claim for refund is

in the nature of a claim for exemption, thus, should be construed in strictissimi juris against the taxpayer (Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 332) and since the petitioner failed to adduce evidence that will show that it is exempt from DST under Section 199 or other provision of the tax code, We rule the focal issue in the negative.[19] (Emphases ours.)

In the questioned Decision, the Court of Appeals concurred with the findings of the Court of Tax Appeals and we quote with approval the relevant portions below:

 Petitioner alleges, though, that considering that the assessment of payment of

documentary stamp tax was made payable only to the aforesaid issuances of certificates of [stock] exclusive of that of FEBTC shares of stock which were paid in cash, and that it has paid a total of Php1,003,895.65 inclusive of surcharges for late payment, the petitioner is entitled to a refund of Php410,367.00. This argument does not hold water. As discussed earlier, a documentary stamp is levied upon the privilege, the opportunity and the facility offered at exchanges for the transaction of the business. This being the case, and as correctly found by the tax court, the documentary stamp tax imposition is essentially addressed and directly brought to bear upon the document evidencing the transaction of the parties which establishes its rights and obligations, which in the case at bar, was established and enforceable upon the execution of the Amended Subscription Agreement and Deed of Assignment of Property in Payment of Subscription.

 Moreover, the documentary stamp tax is imposed on the entire subscription

(i.e., subscribed capital stock) which is the amount of the capital stock subscribed whether fully paid or not. It connotes an original subscription contract for the acquisition by a subscriber of unissued shares in a corporation, which in this case is equivalent to a total par value of Php508,806,200.00.

 Besides, a tax cannot be imposed unless it is supported by the clear and express

language of a statute; on the other hand, once the tax is unquestionably imposed, a claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. And since a claim for refund is in the nature of a claim for exemption the same is likewise construed in strictissimi jurisagainst the taxpayer. Furthermore, it is a basic rule in taxation that the factual findings of the Court of Tax Appeals, when supported by substantial evidence, will not be disturbed on appeal unless it [is] shown that the said court committed gross error in the appreciation of facts. In this case, the tax court did not deviate from this rule.

We find no error in the above pronouncements of the Court of Appeals. 

A documentary stamp tax is in the nature of an excise tax. It is not imposed upon the business transacted but is an excise upon the privilege, opportunity or facility offered

at exchanges for the transaction of the business. It is an excise upon the facilities used in the transaction of the business separate and apart from the business itself. Documentary stamp taxes are levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments.[20]

Thus, we have held that documentary stamp taxes are levied independently of the legal status of the transactions giving rise thereto. The documentary stamp taxes must be paid upon the issuance of the said instruments, without regard to whether the contracts which gave rise to them are rescissible, void, voidable, or unenforceable.[21]

The relevant provisions of the Tax Code at the time of the transaction are quoted below:

 Sec. 175. Stamp tax on original issue of certificates of stock. On every original

issue, whether on organization, reorganization or for any lawful purpose, of certificates of stock by any association, company, or corporations, there shall be collected a documentary stamp tax of Two pesos (P2.00) on each two hundred pesos, or fractional part thereof, of the par value of such certificates: Provided, That in the case of the original issue of stock without par value the amount of the documentary stamp tax herein prescribed shall be based upon the actual consideration received by the association, company, or corporation for the issuance of such stock, and in the case of stock dividends on the actual value represented by each share.

 Sec. 176. Stamp tax on sales, agreements to sell, memoranda of sales,

deliveries or transfer of due-bills, certificates of obligation, or shares or certificates of stock. On all sales, or agreements to sell, or memoranda of sales, or deliveries, or transfer of due-bills, certificates of obligation, or shares or certificates of stock in any association, company or corporation, or transfer of such securities by assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such due-bills, certificates of obligation or stock, or to secure the future payment of money, or for the future transfer of any due-bill, certificates of obligation or stock, there shall be collected a documentary stamp tax of One peso (P1.00) on each two hundred pesos, or fractional part thereof, of the par value of such due-bill, certificates of obligation or stock: Provided, That only one tax shall be collected on each sale or transfer of stock or

securities from one person to another, regardless of whether or not a certificate of stock or obligation is issued, endorsed, or delivered in pursuance of such sale or transfer: and Provided, further, That in the case of stock without par value the amount of the documentary stamp herein prescribed shall be equivalent to twenty-five per centum of the documentary stamp tax paid upon the original issue of said stock: Provided, furthermore, That the tax herein imposed shall be increased to One peso and fifty centavos (P1.50) beginning 1996.

We find our discussion in the case of Commissioner of Internal Revenue v. First Express Pawnshop Company, Inc.[22]regarding these same provisions of the Tax Code to be instructive, and we quote:

 In Section 175 of the Tax Code, DST is imposed on the original issue of shares

of stock. The DST, as an excise tax, is levied upon the privilege, the opportunity and the facility of issuing shares of stock. In Commissioner of Internal Revenue v. Construction Resources of Asia, Inc., this Court explained that the DST attaches upon acceptance of the stockholder's subscription in the corporation's capital stock regardless of actual or constructive delivery of the certificates of stock. Citing Philippine Consolidated Coconut Ind., Inc. v. Collector of Internal Revenue, the Court held:

 The documentary stamp tax under this provision of the law may

be levied only once, that is upon the original issue of the certificate. The crucial point therefore, in the case before Us is the proper interpretation of the word 'issue'. In other words, when is the certificate of stock deemed 'issued' for the purpose of imposing the documentary stamp tax? Is it at the time the certificates of stock are printed, at the time they are filled up (in whose name the stocks represented in the certificate appear as certified by the proper officials of the corporation), at the time they are released by the corporation, or at the time they are in the possession (actual or constructive) of the stockholders owning them?

 x x x x Ordinarily, when a corporation issues a certificate of stock

(representing the ownership of stocks in the corporation to fully paid subscription) the certificate of stock can be utilized for the exercise of the attributes of ownership over the stocks mentioned on its face. The stocks can be alienated; the dividends or fruits derived therefrom can be enjoyed, and they can be conveyed, pledged or encumbered. The

certificate as issued by the corporation, irrespective of whether or not it is in the actual or constructive possession of the stockholder, is considered issued because it is with value and hence the documentary stamp tax must be paid as imposed by Section 212 of the National Internal Revenue Code, as amended.

 In Section 176 of the Tax Code, DST is imposed on the sales, agreements to sell,

memoranda of sales, deliveries or transfer of shares or certificates of stock in any association, company, or corporation, or transfer of such securities by assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such certificates of stock, or to secure the future payment of money, or for the future transfer of certificates of stock. InCompagnie Financiere Sucres et Denrees v. Commissioner of Internal Revenue, this Court held that under Section 176 of the Tax Code, sales to secure the future transfer of due-bills, certificates of obligation or certificates of stock are subject to documentary stamp tax.

 Revenue Memorandum Order No. 08-98 (RMO 08-98) provides the guidelines

on the corporate stock documentary stamp tax program. RMO 08-98 states that: 1. All existing corporations shall file the Corporation Stock DST

Declaration, and the DST Return, if applicable when DST is still due on the subscribed share issued by the corporation, on or before the tenth day of the month following publication of this Order.

 x x x xSTDEH3. All existing corporations with authorization for increased capital stock

shall file their Corporate Stock DST Declaration, together with the DST Return, if applicable when DST is due on subscriptions made after the authorization, on or before the tenth day of the month following the date of authorization. (Boldfacing supplied)

 RMO 08-98, reiterating Revenue Memorandum Circular No. 47-97 (RMC 47-

97), also states that what is being taxed is the privilege of issuing shares of stock, and, therefore, the taxes accrue at the time the shares are issued. RMC 47-97 also defines issuance as the point in which the stockholder acquires and may exercise attributes of ownership over the stocks.

As pointed out by the CTA, Sections 175 and 176 of the Tax Code contemplate a subscription agreement in order for a taxpayer to be liable to pay the DST. A subscription contract is defined as any contract for the acquisition of unissued stocks in an existing corporation or a corporation still to be formed. A stock subscription is a contract by which the subscriber agrees to take a certain number of shares of the capital stock of a corporation, paying for the same or expressly or impliedly promising to pay for the same. (Emphases ours.)

Petitioner claims overpayment of the documentary stamp tax but its basis for such is not clear at all. While insisting that the documentary stamp tax it had paid for was not based on the original issuance of JEC shares as provided in Section 175 of the 1994 Tax Code, petitioner failed in showing, even through a mere basic computation of the tax base and the tax rate, that the documentary stamp tax was based on the transfer of shares under Section 176 either. It would have been helpful for petitioners cause had it submitted proof of the par value of the shares of stock involved, to show the actual basis for the documentary stamp tax computation. For comparison, the original Subscription Agreement ought to have been submitted as well.

All that petitioner submitted to back up its claim were the certifications issued by then RDO Esquivias. As correctly pointed out by respondent, however, the amounts in the RDO certificates were the amounts of documentary stamp tax representing the equivalent of each group of shares being applied for payment. The purpose for issuing such certifications was to allow registration of transfer of shares of stock used in partial payment for petitioners subscription to the original issuance of JEC shares. It should not be used as evidence of payment of documentary stamp tax. Neither should it be the lone basis of a claim for a documentary stamp tax refund.

The fact that it was petitioner and not JEC that paid for the documentary stamp tax on the original issuance of shares is of no moment, as Section 173 of the 1994 Tax Code states that the documentary stamp tax shall be paid by the person making, signing, issuing, accepting or transferring the property, right or obligation.

Lastly, we deem it appropriate to reiterate the well-established doctrine that as a matter of practice and principle, this Court will not set aside the conclusion reached by an agency, like the Court of Tax Appeals, especially if affirmed by the Court of Appeals. By the very nature of its function, it has dedicated itself to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority on its part, which we find is not present here.[23]

WHEREFORE, premises considered, the petition is hereby DISMISSED. SO ORDERED.    

TERESITA J. LEONARDO-DE CASTROAssociate Justice

WE CONCUR:     

RENATO C. CORONAChief JusticeChairperson

PRESBITERO J. VELASCO, JR. MARIANO C. DEL CASTILLO

Associate Justice Associate Justice                  

JOSE PORTUGAL PEREZAssociate Justice

CERTIFICATION  

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.   

RENATO C. CORONAChief Justice

[1] Penned by Justice Delilah Vidallon-Magtolis with Associate Justices Eloy R. Bello, Jr. and Elvi John S. Asuncion, concurring; rollo, pp. 33-41.

[2] Rollo, p. 43.[3] Id. at 5.[4] Id. at 44-49.[5] As shown in the Authority to Accept Payment (BIR Form No. 2319) SN:1511920, rollo, p. 50.[6] Rollo, pp. 51-53.[7] Id. at 54-57.[8] Id. at 22-29.[9] Id. at 31.[10] BIR Revenue Regulations No. 9-94 effective January 1994.[11] Sec. 295. Authority of Commissioner to make compromise and to refund taxes. The

Commissioner may:

x x x x(3) Credit or refund taxes erroneously or illegally received, or penalties imposed without authority, refund the value of

internal revenue stamps when they are returned in good condition by the purchaser, and in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction.  No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two years after the payment of the tax or penalty.

[12] Rollo, pp. 90-100.[13] Id. at 95.[14] Id. at 97.[15] 230 Phil. 76, 81 (1986).[16] Rollo, pp. 103-111.[17] Id. at 50.[18] G.R. No. 133834, August 28, 2006, 499 SCRA 664, 667-668.[19] Rollo, pp. 26-29.[20] Antam Pawnshop Corporation v. Commissioner of Internal Revenue, G.R. No.

167962, September 19, 2008, 566 SCRA 57, 70.[21] Philippine Home Assurance Corporation v. Court of Appeals, 361 Phil. 368, 373

(1999).[22] G.R. Nos. 172045-46, June 16, 2009, 589 SCRA 253, 265-267.[23] Compagnie Financiere Sucres Et Denrees v. Commissioner of Internal

Revenue, supra note 18 at 669.Republic of the Philippines

SUPREME COURTManila

 FIRST DIVISION

 KUKAN INTERNATIONAL CORPORATION,Petitioner,

 - versus -

  HON. AMOR REYES, in her capacity as Presiding Judge of the Regional Trial Court of Manila,

  G.R. No. 182729 Present: CORONA, C.J., Chairperson,CARPIO,*VELASCO, JR.,LEONARDO-DE CASTRO, andPEREZ, JJ. 

Branch 21, and ROMEO M. MORALES, doing business under the name and style RM Morales Trophies and Plaques,Respondents.

 Promulgated: September 29, 2010

x-----------------------------------------------------------------------------------------x  

D E C I S I O N 

VELASCO, JR., J.: 

The Case 

This Petition for Review on Certiorari under Rule 45 seeks to nullify and reverse the January 23, 2008 Decision[1] and the April 16, 2008 Resolution[2] rendered by the Court of Appeals (CA) in CA-G.R. SP No. 100152. 

The assailed CA decision affirmed the March 12, 2007[3] and June 7, 2007[4] Orders of the Regional Trial Court (RTC) of Manila, Branch 21, in Civil Case No. 99-93173, entitled Romeo M. Morales, doing business under the name and style RM Morales Trophies and Plaques v. Kukan, Inc. In the said orders, the RTC disregarded the separate corporate identities of Kukan, Inc. and Kukan International Corporation and declared them to be one and the same entity. Accordingly, the RTC held Kukan International Corporation, albeit not impleaded in the underlying complaint of Romeo M. Morales, liable for the judgment award decreed in a Decision dated November 28, 2002[5] in favor of Morales and against Kukan, Inc.

The Facts 

Sometime in March 1998, Kukan, Inc. conducted a bidding for the supply and installation of signages in a building being constructed in Makati City. Morales tendered the winning bid and was awarded the PhP 5 million contract. Some of the items in the

project award were later excluded resulting in the corresponding reduction of the contract price to PhP 3,388,502. Despite his compliance with his contractual undertakings, Morales was only paid the amount of PhP 1,976,371.07, leaving a balance of PhP 1,412,130.93, which Kukan, Inc. refused to pay despite demands. Shortchanged, Morales filed a Complaint[6] with the RTC against Kukan, Inc. for a sum of money, the case docketed as Civil Case No. 99-93173 and eventually raffled to Branch 17 of the court.

Following the joinder of issues after Kukan, Inc. filed an answer with counterclaim, trial ensued. However, starting November 2000, Kukan, Inc. no longer appeared and participated in the proceedings before the trial court, prompting the RTC to declare Kukan, Inc. in default and paving the way for Morales to present his evidence ex parte.

On November 28, 2002, the RTC rendered a Decision finding for Morales and against Kukan, Inc., disposing as follows:

 WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil

Procedure, and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering Kukan, Inc.:

 1.      to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN

HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per annum from February 17, 1999 until full payment;

 2.      to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;

 3.      to pay the sum of TWENTY THOUSAND PESOS, (P20,000.00) as reasonable

attorneys fees; and 

4.      to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses.

 For lack of factual foundation, the counterclaim is DISMISSED.IT IS SO ORDERED.[7] 

After the above decision became final and executory, Morales moved for and secured a writ of execution[8] against Kukan, Inc. The sheriff then levied upon various personal properties found at what was supposed to be Kukan, Inc.s office at Unit 2205, 88Corporate Center, Salcedo Village, Makati City. Alleging that it owned the properties thus levied and that it was a different corporation from Kukan, Inc., Kukan International Corporation (KIC) filed an Affidavit of Third-Party Claim. Notably, KIC was incorporated in August 2000, or shortly after Kukan, Inc. had stopped participating in Civil Case No. 99-93173. 

In reaction to the third party claim, Morales interposed an Omnibus Motion dated April 30, 2003. In it, Morales prayed, applying the principle of piercing the veil of corporate fiction, that an order be issued for the satisfaction of the judgment debt of Kukan, Inc. with the properties under the name or in the possession of KIC, it being alleged that both corporations are but one and the same entity. KIC opposed Morales motion. By Order of May 29, 2003[9] as reiterated in a subsequent order, the court denied the omnibus motion.In a bid to establish the link between KIC and Kukan, Inc., and thus determine the true relationship between the two, Morales filed aMotion for Examination of Judgment Debtors dated May 4, 2005. In this motion Morales sought that subponae be issued against the primary stockholders of Kukan, Inc., among them Michael Chan, a.k.a. Chan Kai Kit. This too was denied by the trial court in an Order dated May 24, 2005.[10] 

Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who eventually granted the motion. The case was re-raffled to Branch 21, presided by public respondent Judge Amor Reyes. 

Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of Corporate Fiction to declare KIC as having no existence separate from Kukan, Inc. This time around, the RTC, by Order dated March 12, 2007, granted the motion, the dispositive portion of which reads: 

WHEREFORE, premises considered, the motion is hereby GRANTED. The Court hereby declares as follows: 

1.                  defendant Kukan, Inc. and newly created Kukan International Corp. as one and the same corporation; 

2.                  the levy made on the properties of Kukan International Corp. is hereby valid;

 3.                  Kukan International Corp. and Michael Chan are jointly and

severally liable to pay the amount awarded to plaintiff pursuant to the decision of November [28], 2002 which has long been final and executory.

 SO ORDERED. 

From the above order, KIC moved but was denied reconsideration in another Order dated June 7, 2007. 

KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and June 7, 2007 RTC Orders. 

On January 23, 2008, the CA rendered the assailed decision, the dispositive portion of which states: 

WHEREFORE, premises considered, the petition is hereby DENIED and the assailed Orders dated March 12, 2007 and June 7, 2007 of the court a quo are both AFFIRMED. No costs. 

SO ORDERED.[11] 

The CA later denied KICs motion for reconsideration in the assailed resolution. 

Hence, the instant petition for review, with the following issues KIC raises for the Courts consideration:

 1.      There is no legal basis for the [CA] to resolve and declare that petitioners

Constitutional Right to Due Process was not violated by the public respondent in rendering the Orders dated March 12, 2007 and June 7, 2007 and in declaring petitioner to be liable for the judgment obligations of the corporation Kukan, Inc. to private respondent as petitioner is a stranger to the case and was never made a party in the case before the trial court nor was it ever served a summons and a copy of the complaint. 

2.      There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12, 2007 and June 7, 2007 rendered by public respondent declaring the petitioner liable to the judgment obligations of the corporation Kukan, Inc. to private respondent are valid as said orders of the public respondent modify and/or amend the trial courts final and executory decision rendered on November 28, 2002.

 3.      There is no legal basis for the [CA] to resolve and declare that the Orders dated

March 12, 2007 and June 7, 2007 rendered by public respondent declaring the petitioner [KIC] and the corporation Kukan, Inc. as one and the same, and, therefore, the Veil of Corporate Fiction between them be pierced as the procedure undertaken by public respondent which the [CA] upheld is not sanctioned by the Rules of Court and/or established jurisprudence enunciated by this Honorable Supreme Court.[12]

In gist, the issues to be resolved boil down to the question of, first, whether the trial court can, after the judgment against Kukan, Inc. has attained finality, execute it against the property of KIC; second, whether the trial court acquired jurisdiction over KIC; and third, whether the trial and appellate courts correctly applied, under the premises, the principle of piercing the veil of corporate fiction.

The Ruling of the Court 

The petition is meritorious. 

First Issue: Against Whom Can a Final andExecutory Judgment Be Executed

The preliminary question that must be answered is whether or not the trial court can, after adjudging Kukan, Inc. liable for a sum of money in a final and executory judgment, execute such judgment debt against the property of KIC. 

The poser must be answered in the negative. 

In Carpio v. Doroja,[13] the Court ruled that the deciding court has supervisory control over the execution of its judgment: 

A case in which an execution has been issued is regarded as still pending so that all proceedings on the execution are proceedings in the suit. There is no question that the court which rendered the judgment has a general supervisory control over its process of execution, and this power carries with it the right to determine every question of fact and law which may be involved in the execution. 

We reiterated the above holding in Javier v. Court of Appeals[14] in this wise: The said branch has a general supervisory control over its processes in the execution of its judgment with a right to determine every question of fact and law which may be involved in the execution. 

The courts supervisory control does not, however, extend as to authorize the alteration or amendment of a final and executory decision, save for certain recognized exceptions, among which is the correction of clerical errors. Else, the court violates the principle of finality of judgment and its immutability, concepts which the Court, in Tan v. Timbal,[15] defined:

As we held in Industrial Management International Development Corporation vs. NLRC: 

It is an elementary principle of procedure that the resolution of the court in a given issue as embodied in the dispositive part of a decision or order is the controlling factor as to settlement of rights of the parties. Once a decision or order becomes final and executory, it is removed from the power or jurisdiction of the court which rendered it to further alter or amend it. It

thereby becomes immutable and unalterable and any amendment or alteration which substantially affects a final and executory judgment is null and void for lack of jurisdiction, including the entire proceedings held for that purpose. An order of execution which varies the tenor of the judgment or exceeds the terms thereof is a nullity. (Emphasis supplied.)

Republic v. Tango[16] expounded on the same principle and its exceptions: Deeply ingrained in our jurisprudence is the principle that a decision that has

acquired finality becomes immutable and unalterable. As such, it may no longer be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and whether it will be made by the court that rendered it or by the highest court of the land. x x x

 The doctrine of finality of judgment is grounded on the fundamental principle of

public policy and sound practice that, at the risk of occasional error, the judgment of courts and the award of quasi-judicial agencies must become final on some definite date fixed by law.The only exceptions to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause no prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision which render its execution unjust and inequitable. None of the exceptions obtains here to merit the review sought. (Emphasis added.)  

So, did the RTC, in breach of the doctrine of immutability and inalterability of judgment, order the execution of its final decision in a manner as would amount to its prohibited alteration or modification?

We repair to the dispositive portion of the final and executory RTC decision. Pertinently, it provides:

  WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering Kukan, Inc.: 

1.      to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per annum from February 17, 1999 until full payment;

 2.      to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral

damages; 

3.      to pay the sum of TWENTY THOUSAND PESOS (P20,000.00) as reasonable attorneys fees; and

 4.      to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY

PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses.

x x x x (Emphasis supplied.)  

As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay the aforementioned awards to Morales.Thus, making KIC, thru the medium of a writ of execution, answerable for the above judgment liability is a clear case of altering a decision, an instance of granting relief not contemplated in the decision sought to be executed. And the change does not fall under any of the recognized exceptions to the doctrine of finality and immutability of judgment. It is a settled rule that a writ of execution must conform to the fallo of the judgment; as an inevitable corollary, a writ beyond the terms of the judgment is a nullity.[17]

Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an examination of the other issues raised by KIC would be proper. 

Second Issue: Propriety of the RTCAssuming Jurisdiction over KIC

The next issue turns on the validity of the execution the trial court authorized against KIC and its property, given that it was neither made a party nor impleaded in Civil Case No. 99-93173, let alone served with summons. In other words, did the trial court acquire jurisdiction over KIC?

In the assailed decision, the appellate court deemed KIC to have voluntarily submitted itself to the jurisdiction of the trial court owing to its filing of four (4) pleadings adverted to earlier, namely: (a) the Affidavit of Third-Party Claim;[18] (b) the Comment and Opposition to Plaintiffs Omnibus Motion;[19] (c) the Motion for Reconsideration of the RTC Order dated March 12, 2007;[20] and (d) the Motion for Leave to Admit Reply.[21] The CA, citing Section 20, Rule 14 of the Rules of Court, stated that the procedural rule on service of summons can be waived by voluntary submission to the courts jurisdiction through any form of appearance by the party or its counsel.[22]

We cannot give imprimatur to the appellate courts appreciation of the thrust of Sec. 20, Rule 14 of the Rules in concluding that the trial court acquired jurisdiction over KIC.

Orion Security Corporation v. Kalfam Enterprises, Inc.[23] explains how courts acquire jurisdiction over the parties in a civil case:

 Courts acquire jurisdiction over the plaintiffs upon the filing of the

complaint. On the other hand, jurisdiction over the defendants in a civil case is acquired either through the service of summons upon them or through their voluntary appearance in court and their submission to its authority. (Emphasis supplied.)

In the fairly recent Palma v. Galvez,[24] the Court reiterated its holding in Orion Security Corporation, stating: [I]n civil cases, the trial court acquires jurisdiction over the person of the defendant either by the service of summons or by the latters voluntary appearance and submission to the authority of the former. 

The courts jurisdiction over a party-defendant resulting from his voluntary submission to its authority is provided under Sec. 20, Rule 14 of the Rules, which states: 

Section 20. Voluntary appearance. The defendants voluntary appearance in the actions shall be equivalent to service of summons. The inclusion in a motion to dismiss

of other grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance.

To be sure, the CAs ruling that any form of appearance by the party or its counsel is deemed as voluntary appearance finds support in the kindred Republic v. Ker & Co., Ltd.[25] and De Midgely v. Ferandos.[26]

Republic and De Midgely, however, have already been modified if not altogether superseded[27] by La Naval Drug Corporation v. Court of Appeals,[28] wherein the Court essentially ruled and elucidated on the current view in our jurisdiction, to wit: [A] special appearance before the courtchallenging its jurisdiction over the person through a motion to dismiss even if the movant invokes other groundsis not tantamount to estoppel or a waiver by the movant of his objection to jurisdiction over his person; and such is not constitutive of a voluntary submission to the jurisdiction of the court.[29] 

In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173. Even if it is conceded that it raised affirmative defenses through its aforementioned pleadings, KIC never abandoned its challenge, however implicit, to the RTCs jurisdiction over its person. The challenge was subsumed in KICs primary assertion that it was not the same entity as Kukan, Inc. Pertinently, in itsComment and Opposition to Plaintiffs Omnibus Motion dated May 20, 2003, KIC entered its special but not voluntary appearance alleging therein that it was a different entity and has a separate legal personality from Kukan, Inc. And KIC would consistently reiterate this assertion in all its pleadings, thus effectively resisting all along the RTCs jurisdiction of its person. It cannot be overemphasized that KIC could not file before the RTC a motion to dismiss and its attachments in Civil Case No. 99-93173, precisely because KIC was neither impleaded nor served with summons. Consequently, KIC could only assert and claim through its affidavits, comments, and motions filed by special appearance before the RTC that it is separate and distinct from Kukan, Inc. 

Following La Naval Drug Corporation,[30] KIC cannot be deemed to have waived its objection to the courts lack of jurisdiction over its person. It would defy logic to say that

KIC unequivocally submitted itself to the jurisdiction of the RTC when it strongly asserted that it and Kukan, Inc. are different entities. In the scheme of things obtaining, KIC had no other option but to insist on its separate identity and plead for relief consistent with that position. 

Third Issue: Piercing theVeil of Corporate Fiction

The third and main issue in this case is whether or not the trial and appellate courts correctly applied the principle of piercing the veil of corporate entitycalled also as disregarding the fiction of a separate juridical personality of a corporationto support a conclusion that Kukan, Inc. and KIC are but one and the same corporation with respect to the contract award referred to at the outset. This principle finds its context on the postulate that a corporation is an artificial being invested with a personality separate and distinct from those of the stockholders and from other corporations to which it may be connected or related.[31] 

In Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations Commission,[32] the Court revisited the subject principle of piercing the veil of corporate fiction and wrote:

 Under the doctrine of piercing the veil of corporate fiction, the court looks at the

corporation as a mere collection of individuals or an aggregation of persons undertaking business as a group, disregarding the separate juridical personality of the corporation unifying the group. Another formulation of this doctrine is that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or as one and the same. 

Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. x x x (Emphasis supplied.)

The same principle was the subject and discussed in Rivera v. United Laboratories, Inc.: 

While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case of two corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.

 To disregard the separate juridical personality of a corporation, the

wrongdoing must be established clearly and convincingly. It cannot be presumed.[33] (Emphasis supplied.)

Now, as before the appellate court, petitioner KIC maintains that the RTC violated its right to due process when, in the execution of its November 28, 2002 Decision, the court authorized the issuance of the writ against KIC for Kukan, Inc.s judgment debt, albeit KIC has never been a party to the underlying suit. As a counterpoint, Morales argues that KICs specific concern on due process and on the validity of the writ to execute the RTCs November 28, 2002 Decision would be mooted if it were established that KIC and Kukan, Inc. are indeed one and the same corporation. 

Morales contention is untenable. 

The principle of piercing the veil of corporate fiction, and the resulting treatment of two related corporations as one and the same juridical person with respect to a given

transaction, is basically applied only to determine established liability;[34] it is not available to confer on the court a jurisdiction it has not acquired, in the first place, over a party not impleaded in a case. Elsewise put, a corporation not impleaded in a suit cannot be subject to the courts process of piercing the veil of its corporate fiction. In that situation, the court has not acquired jurisdiction over the corporation and, hence, any proceedings taken against that corporation and its property would infringe on its right to due process. Aguedo Agbayani, a recognized authority on Commercial Law, stated as much:

23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x

 This is so because the doctrine of piercing the veil of corporate fiction comes

to play only during the trial of the case after the court has already acquired jurisdiction over the corporation. Hence, before this doctrine can be applied, based on the evidence presented, it is imperative that the court must first have jurisdiction over the corporation.[35] x x x (Emphasis supplied.)

The implication of the above comment is twofold: (1) the court must first acquire jurisdiction over the corporation or corporations involved before its or their separate personalities are disregarded; and (2) the doctrine of piercing the veil of corporate entity can only be raised during a full-blown trial over a cause of action duly commenced involving parties duly brought under the authority of the court by way of service of summons or what passes as such service. 

The issue of jurisdiction or the lack of it over KIC has already been discussed. Anent the matter of the time and manner of raising the principle in question, it is undisputed that no full-blown trial involving KIC was had when the RTC disregarded the corporate veil of KIC. The reason for this actuality is simple and undisputed: KIC was not impleaded in Civil Case No. 99-93173 and that the RTC did not acquire jurisdiction over it. It was dragged to the case after it reacted to the improper execution of its properties and veritably hauled to court, not thru the usual process of service of summons, but by mere motion of a party with whom it has no privity of contract and after the decision in the main case had already become final and executory. As to the propriety of a plea for the application of the principle by mere motion, the following excerpts are instructive:

 Generally, a motion is appropriate only in the absence of remedies by

regular pleadings, and is not available to settle important questions of law, or to dispose of the merits of the case. A motion is usually a proceeding incidental to an action, but it may be a wholly distinct or independent proceeding. A motion in this sense is not within this discussion even though the relief demanded is denominated an order.

 A motion generally relates to procedure and is often resorted to in order to

correct errors which have crept in along the line of the principal actions progress. Generally, where there is a procedural defect in a proceeding and no method under statute or rule of court by which it may be called to the attention of the court, a motion is an appropriate remedy. In many jurisdictions, the motion has replaced the common-law pleas testing the sufficiency of the pleadings, and various common-law writs, such as writ of error coram nobis and audita querela. In some cases, a motion may be one of several remedies available. For example, in some jurisdictions, a motion to vacate an order is a remedy alternative to an appeal therefrom.

 Statutes governing motions are given a liberal construction.[36] (Emphasis

supplied.)

The bottom line issue of whether Morales can proceed against KIC for the judgment debt of Kukan, Inc.assuming hypothetically that he can, applying the piercing the corporate veil principleresolves itself into the question of whether a mere motion is the appropriate vehicle for such purpose. 

Verily, Morales espouses the application of the principle of piercing the corporate veil to hold KIC liable on theory that Kukan, Inc. was out to defraud him through the use of the separate and distinct personality of another corporation, KIC. In net effect, Morales adverted motion to pierce the veil of corporate fiction dated January 3, 2007 stated a new cause of action, i.e., for the liability of judgment debtor Kukan, Inc. to be borne by KIC on the alleged identity of the two corporations. This new cause of action should be properly ventilated in another complaint and subsequent trial where the doctrine of piercing the corporate veil can, if appropriate, be applied, based on the evidence adduced. Establishing the claim of Morales and the corresponding liability of KIC for Kukan Inc.s indebtedness could hardly be the subject, under the premises, of a mere

motion interposed after the principal action against Kukan, Inc. alone had peremptorily been terminated. After all, a complaint is one where the plaintiff alleges causes of action. 

In any event, the principle of piercing the veil of corporate fiction finds no application to the instant case. 

As a general rule, courts should be wary of lifting the corporate veil between corporations, however related. Philippine National Bank v. Andrada Electric Engineering Company[37] explains why:

  A corporation is an artificial being created by operation of law. x x x It has a

personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related. This is basic. 

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons. 

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application. 

This Court has pierced the corporate veil to ward off a judgment credit, to avoid inclusion of corporate assets as part of the estate of the decedent, to escape liability arising from a debt, or to perpetuate fraud and/or confuse legitimate issues either to promote or to shield unfair objectives or to cover up an otherwise blatant violation of the prohibition against forum-shopping. Only in these and similar instances may the veil be pierced and disregarded. (Emphasis supplied.)

In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear and convincing proof that the separate and distinct personality of the corporation was purposefully employed to evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings. To be sure, the Court has, on numerous occasions,[38] applied the principle where a corporation is dissolved and its assets are transferred to another to avoid a financial liability of the first corporation with the result that the second corporation should be considered a continuation and successor of the first entity. 

In those instances when the Court pierced the veil of corporate fiction of two corporations, there was a confluence of the following factors:

1.           A first corporation is dissolved; 

2.           The assets of the first corporation is transferred to a second corporation to avoid a financial liability of the first corporation; and

3.           Both corporations are owned and controlled by the same persons such that the second corporation should be considered as a continuation and successor of the first corporation.

In the instant case, however, the second and third factors are conspicuously absent. There is, therefore, no compelling justification for disregarding the fiction of corporate entity separating Kukan, Inc. from KIC. In applying the principle, both the RTC and the CA miserably failed to identify the presence of the abovementioned factors. Consider:

The RTC disregarded the separate corporate personalities of Kukan, Inc. and KIC based on the following premises and arguments: 

While it is true that a corporation has a separate and distinct personality from its stockholder, director and officers, the law expressly provides for an exception. When Michael Chan, the Managing Director of defendant Kukan, Inc. (majority stockholder of the newly formed corporation [KIC]) confirmed the award to plaintiff to supply and

install interior signages in the Enterprise Center he (Michael Chan, Managing Director of defendant Kukan, Inc.) knew that there was no sufficient corporate funds to pay its obligation/account, thus implying bad faith on his part and fraud in contracting the obligation. Michael Chan neither returned the interior signages nor tendered payment to the plaintiff. This circumstance may warrant the piercing of the veil of corporation fiction. Having been guilty of bad faith in the management of corporate matters the corporate trustee, director or officer may be held personally liable. x x x

 Since fraud is a state of mind, it need not be proved by direct evidence but may

be inferred from the circumstances of the case. x x x [A]nd the circumstances are: the signature of Michael Chan, Managing Director of Kukan, Inc. appearing in the confirmation of the award sent to the plaintiff; signature of Chan Kai Kit, a British National appearing in the Articles of Incorporation and signature of Michael Chan also a British National appearing in the Articles of Incorporation [of] Kukan International Corp. give the impression that they are one and the same person, that Michael Chan and Chan Kai Kit are both majority stockholders of Kukan International Corp. and Kukan, Inc. holding 40% of the stocks; that Kukan International Corp. is practically doing the same kind of business as that of Kukan, Inc.[39] (Emphasis supplied.)

As is apparent from its disquisition, the RTC brushed aside the separate corporate existence of Kukan, Inc. and KIC on the main argument that Michael Chan owns 40% of the common shares of both corporations, obviously oblivious that overlapping stock ownership is a common business phenomenon. It must be remembered, however, that KICs properties were the ones seized upon levy on execution and not that of Kukan, Inc. or of Michael Chan for that matter. Mere ownership by a single stockholder or by another corporation of a substantial block of shares of a corporation does not, standing alone, provide sufficient justification for disregarding the separate corporate personality.[40] For this ground to hold sway in this case, there must be proof that Chan had control or complete dominion of Kukan and KICs finances, policies, and business practices; he used such control to commit fraud; and the control was the proximate cause of the financial loss complained of by Morales. The absence of any of the elements prevents the piercing of the corporate veil.[41] And indeed, the records do not show the presence of these elements. 

On the other hand, the CA held:

 In the present case, the facts disclose that Kukan, Inc. entered into a contractual obligation x x x worth more than three million pesos although it had only Php5,000.00 paid-up capital; [KIC] was incorporated shortly before Kukan, Inc. suddenly ceased to appear and participate in the trial; [KICs] purpose is related and somewhat akin to that of Kukan, Inc.; and in [KIC] Michael Chan, a.k.a., Chan Kai Kit, holds forty percent of the outstanding stocks, while he formerly held the same amount of stocks in Kukan Inc. These would lead to the inescapable conclusion that Kukan, Inc. committed fraudulent representation by awarding to the private respondent the contract with full knowledge that it was not in a position to comply with the obligation it had assumed because of inadequate paid-up capital. It bears stressing that shareholders should in good faith put at the risk of the business, unencumbered capital reasonably adequate for its prospective liabilities. The capital should not be illusory or trifling compared with the business to be done and the risk of loss.

 Further, it is clear that [KIC] is a continuation and successor of Kukan, Inc.

Michael Chan, a.k.a. Chan Kai Kit has the largest block of shares in both business enterprises. The emergence of the former was cleverly timed with the hasty withdrawal of the latter during the trial to avoid the financial liability that was eventually suffered by the latter. The two companies have a related business purpose.Considering these circumstances, the obvious conclusion is that the creation of Kukan International Corporation served as a device to evade the obligation incurred by Kukan, Inc. and yet profit from the goodwill attained by the name Kukan by continuing to engage in the same line of business with the same list of clients.[42] (Emphasis supplied.)

Evidently, the CA found the meager paid-up capitalization of Kukan, Inc. and the similarity of the business activities in which both corporations are engaged as a jumping board to its conclusion that the creation of KIC served as a device to evade the obligation incurred by Kukan, Inc. The appellate court, however, left a gaping hole by failing to demonstrate that Kukan, Inc. and its stockholders defrauded Morales. In fine, there is no showing that the incorporation, and the separate and distinct personality, of KIC was used to defeat Morales right to recover from Kukan, Inc. Judging from the records, no serious attempt was made to levy on the properties of Kukan, Inc. Morales could not, thus, validly argue that Kukan, Inc. tried to avoid liability or had no property against which to proceed. 

Morales further contends that Kukan, Inc.s closure is evidenced by its failure to file its 2001 General Information Sheet (GIS) with the Securities and Exchange Commission. However, such fact does not necessarily mean that Kukan, Inc. had altogether ceased operations, as Morales would have this Court believe, for it is stated on the face of the GIS that it is only upon a failure to file the corporate GIS for five (5) consecutive years that non-operation shall be presumed. 

The fact that Kukan, Inc. entered into a PhP 3.3 million contract when it only had a paid-up capital of PhP 5,000 is not an indication of the intent on the part of its management to defraud creditors. Paid-up capital is merely seed money to start a corporation or a business entity. As in this case, it merely represented the capitalization upon incorporation in 1997 of Kukan, Inc.Paid-up capitalization of PhP 5,000 is not and should not be taken as a reflection of the firms capacity to meet its recurrent and long-term obligations. It must be borne in mind that the equity portion cannot be equated to the viability of a business concern, for the best test is the working capital which consists of the liquid assets of a given business relating to the nature of the business concern.

Neither should the level of paid-up capital of Kukan, Inc. upon its incorporation be viewed as a badge of fraud, for it is in compliance with Sec. 13 of the Corporation Code,[43] which only requires a minimum paid-up capital of PhP 5,000.

The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and controlled as they are by the same stockholders, stands without factual basis. It is true that Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the outstanding capital stock of both corporations. But such circumstance, standing alone, is insufficient to establish identity. There must be at least a substantial identity of stockholders for both corporations in order to consider this factor to be constitutive of corporate identity.

It would not avail Morales any to rely[44] on General Credit Corporation v. Alsons Development and Investment Corporation.[45] General Credit Corporation is factually not on all fours with the instant case. There, the common stockholders of the corporations represented 90% of the outstanding capital stock of the companies, unlike

here where Michael Chan merely represents 40% of the outstanding capital stock of both KIC and Kukan, Inc., not even a majority of it. In that case, moreover, evidence was adduced to support the finding that the funds of the second corporation came from the first. Finally, there was proof inGeneral Credit Corporation of complete control, such that one corporation was a mere dummy or alter ego of the other, which is absent in the instant case.

Evidently, the aforementioned case relied upon by Morales cannot justify the application of the principle of piercing the veil of corporate fiction to the instant case. As shown by the records, the name Michael Chan, the similarity of business activities engaged in, and incidentally the word Kukan appearing in the corporate names provide the nexus between Kukan, Inc. and KIC. As illustrated, these circumstances are insufficient to establish the identity of KIC as the alter ego or successor of Kukan, Inc.

It bears reiterating that piercing the veil of corporate fiction is frowned upon. Accordingly, those who seek to pierce the veil must clearly establish that the separate and distinct personalities of the corporations are set up to justify a wrong, protect fraud, or perpetrate a deception. In the concrete and on the assumption that the RTC has validly acquired jurisdiction over the party concerned, Morales ought to have proved by convincing evidence that Kukan, Inc. was collapsed and thereafter KIC purposely formed and operated to defraud him. Morales has not to us discharged his burden.

WHEREFORE, the petition is hereby GRANTED. The CAs January 23, 2008 Decision and April 16, 2008 Resolution in CA-G.R. SP No. 100152 are hereby REVERSED and SET ASIDE. The levy placed upon the personal properties of Kukan International Corporation is hereby ordered lifted and the personal properties ordered returned to Kukan International Corporation. The RTC of Manila, Branch 21 is hereby directed to execute the RTC Decision dated November 28, 2002 against Kukan, Inc. with reasonable dispatch. 

No costs. 

SO ORDERED. 

 PRESBITERO J. VELASCO, JR.

Associate Justice 

  WE CONCUR:   

 RENATO C. CORONA

Chief JusticeChairperson

    ANTONIO T. CARPIO TERESITA J. LEONARDO-DE CASTRO Associate Justice Associate Justice

 JOSE PORTUGAL PEREZ

Associate Justice   

C E R T I F I C A T I O N   Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.    RENATO C. CORONA

Chief Justice

* Additional member per September 22, 2010 raffle.

[1] Rollo, pp. 62-76. Penned by Associate Justice Mariano C. Del Castillo (now a member of this Court) and concurred in by Associate Justices Arcangelita Romilla-Lontok and Romeo F. Barza.

[2] Id. at 78-79.[3] Id. at 171-173.[4] Id. at 216-217.[5] Id. at 89-91.[6] Id. at 80-88.[7] Id. at 90-91.[8] Id. at 97, dated February 7, 2003.

[9] Id. at 127.[10] Id. at 141.[11] Id. at 75.[12] Id. at 28-29. Original in upper case.[13] G.R. No. 84516, December 5, 1989, 180 SCRA 1, 7.[14] G.R. No. 97795, February 16, 2004, 423 SCRA 11, 33.[15] G.R. No. 141926, July 14, 2004, 434 SCRA 381, 386.[16] G.R. No. 161062, July 31, 2009, 594 SCRA 560, 568.

[17] B.E. San Diego, Inc. v. Alzul, G.R. No. 169501, June 8, 2007, 524 SCRA 402, 433; citing Villoria v. Piccio, et al., 95 Phil. 802, 805-806 (1954).

[18] Rollo, pp. 98-101.[19] Id. at 117-126.[20] Id. at 174-187.[21] Id. at 198-200.[22] Id. at 69-70.[23] G.R. No. 163287, April 27, 2007, 522 SCRA 617, 622.[24] G.R. No. 165273, March 10, 2010.[25] No. L-21609, September 29, 1966, 18 SCRA 207, 213-214. The Court ruled:We observed that the motion to dismiss filed on April 14, 1962, aside from disputing the lower courts jurisdiction

over defendants person, prayed for dismissal of the complaint on the ground that plaintiffs cause of action had prescribed. By interposing such second ground in its motion to dismiss, Ker & Co., Ltd. availed of an affirmative defense on the basis of which it prayed the court to resolve controversy in its favor. For the court to validly decide the said plea of defendant Ker & Co., Ltd., it necessarily had to acquire jurisdiction upon the latters person, who, being the proponent of the affirmative defense, should be deemed to have abandoned its special appearance and voluntarily submitted itself to the jurisdiction of the court.

Voluntary appearance cures defects of summons, if any x x x. A defendant can not be permitted to speculate upon the judgment of the court by objecting to the courts jurisdiction over its person if the judgment is adverse to it, and acceding to jurisdiction over its person if and when the judgment sustains its defenses.

[26] No. L-34313, May 13, 1975, 64 SCRA 23, 31. The Court also ruled:When the appearance is by motion for the purpose of objecting to the jurisdiction of the court over the person, it

must be for the sole and separate purpose of objecting to the jurisdiction of the court. If his motion is for any other purpose than to object to the jurisdiction of the court over his person, he thereby submits himself to the jurisdiction of the court. A special appearance by motion made for the purpose of objecting to the jurisdiction of the court over the person will be held to be a general appearance, if the party in said motion should, for example, ask for a dismissal of the action upon the further ground that the court had no jurisdiction over the subject matter.

[27] Perkin Elmer Singapore Pte Ltd. v. Dakila Trading Corporation, G.R. No. 172242, August 14, 2007, 530 SCRA 170.

[28] G.R. No. 103200, August 31, 1994, 236 SCRA 78, 87-88. The Court held, thus:

The doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law and right. It is a principle intended to avoid a clear case of injustice. The term is hardly distinguishable from a waiver of right. Estoppel, like its said counterpart, must be unequivocal and intentional for, when misapplied, it can easily become a most convenient and effective means of injustice. Estoppel is not understood to be a principle that, as a rule, should prevalently apply but, such as it concededly is, as a mere exception from the standard legal norms of general application that can be invoked only in highly exceptional and justifiable cases.

Tested by the above criteria, the Court sees it propitious to re-examine specifically the question of  whether or not the submission of other issues in a motion to dismiss, or of an affirmative defense (as distinguished from an affirmative relief) in an answer, would necessarily foreclose, and have the effect of a waiver of, the right of a defendant to set up the courts lack of jurisdiction over the person of the defendant.

Not inevitably.Section 1, Rule 16, of the Rules of Court, provides that a motion to dismiss may be made on the following

grounds:(a) That the court has no jurisdiction over the person of the defendant or over the subject of the action or suit;(b) That the court has no jurisdiction over the nature of the action or suit;(c) The venue is improperly laid;(d) That the plaintiff has no legal capacity to sue;(e) That there is another action pending between the same parties for the same cause;(f) That the cause of action is barred by a prior judgment or by statute of limitations;(g) That the complaint states no cause of action;(h) That the claim or demand set forth in the plaintiff's pleading has been paid, waived, abandoned, or otherwise

extinguished;(i) That the claim on which the action or suit is founded is unenforceable under the provisions of the statute of frauds;(j) That the suit is between members of the same family and no earnest efforts towards a compromise have been made.

Any ground for dismissal in a motion to dismiss, except improper venue, may, as further set forth in Section 5 of the same rule, be pleaded as an affirmative defense and a preliminary hearing may be had thereon as if a motion to dismiss had been filed. An answer itself contains the negative, as well as affirmative, defenses upon which the defendant may rely (Section 4, Rule 6, Rules of Court). A negative defense denies the material facts averred in the complaint essential to establish the plaintiffs cause of action, while an affirmative defense in an allegation of a new matter which, while admitting the material allegations of the complaint, would, nevertheless, prevent or bar recovery by the plaintiff. Inclusive of these defenses are those mentioned in Rule 16 of the Rules of Court which would permit the filing of a motion to dismiss.

In the same manner that the plaintiff may assert two or more causes of action in a court suit, a defendant is likewise expressly allowed, under Section 2, Rule 8, of the Rules of Court, to put up his own defenses alternatively or even hypothetically. Indeed, under Section 2, Rule 9, of the Rules of Court, defenses and objections not pleaded either in a motion to dismiss or in an answer, except for the failure to state a cause of action, are deemed waived.  We take this to mean that a defendant may, in fact, feel enjoined to set up, along with his objection to the courts jurisdiction over his person, all other possible defenses. It thus appears that it is not the invocation of any of such defenses, but the failure to so raise them, that can result in waiver or estoppel. By defenses, of course, we refer to the grounds provided for in Rule 16 of the Rules of Court that must be asserted in a motion to dismiss or by way of affirmative defenses in an answer. (Emphasis supplied.)

[29] Garcia v. Sandiganbayan, G.R. Nos. 170122 & 171381, October 12, 2009, 603 SCRA 348, 367.

[30] Supra note 28.[31] Jardine Davies, Inc. v. JRB Realty, Inc., G.R. No. 151438, July 15, 2005, 463

SCRA 555, 563.[32] G.R. No. 170689, March 17, 2009, 581 SCRA 598, 613-614.[33] G.R. No. 155639, April 22, 2009, 586 SCRA 269, 300.

[34] Heirs of the Late Panfilo V. Pajarillo v. Court of Appeals, G.R. Nos. 155056-57, October 19, 2007, 537 SCRA 96, 112.

[35] 3 A. Agbayani, COMMENTARIES AND JURISPRUDENCE ON THE COMMERCIAL LAWS OF THE PHILIPPINES 18 (1991).

[36] 56 AmJur 2d, Motions, Rules, and Orders, 4, p. 5 (citations omitted).[37] G.R. No. 142936, April 17, 2002, 381 SCRA 244, 254-255.[38] Concept Builders, Inc. v. National Labor Relations Commission, G.R. No.

108734, May 29, 1996, 257 SCRA 149; Avon Dale Garments, Inc. v. National Labor Relations Commission, G.R. No. 117932, July 20, 1995, 246 SCRA 733; Pepsi-Cola Bottling Co. v. National Labor Relations Commission, G.R. No. 101900, June 23, 1992, 210 SCRA 277; Philippine Bank of Communications v. Court of Appeals, G.R. No. 92067, March 22, 1991, 195 SCRA 567; Cagayan Valley Enterprises, Inc. v. Court of Appeals, G.R. No. 78413, November 8, 1989, 179 SCRA 218; A.C. Ransom Labor Union CCLU v. National Labor Relations Commission, G.R. No. 69494, May 29, 1987, 150 SCRA 498; National Federation of Labor Unions (NAFLU) v. Ople, G.R. No. 68661, July 22, 1986, 143 SCRA 128; Claparols v. Court of Industrial Relations, No. L-30822, July 31, 1975, 65 SCRA 613.

[39] Rollo, p. 173.[40] Francisco v. Mejia, G.R. No. 141617, August 14, 2001, 362 SCRA 738.[41] Manila Hotel Corp. v. National Labor Relations Commission, G.R. No.

120077, October 13, 2000, 343 SCRA 1, 15.[42] Rollo, p. 74.[43] Sec. 13. Amount of capital stock to be subscribed and paid for the purposes

of incorporation.At least twenty-five percent (25%) of the authorized capital stock as stated in the articles of incorporation must be subscribed at the time of incorporation, and at least twenty-five (25%) per cent of the total subscription must be paid upon subscription, the balance to be payable on a date or dates fixed in the contract of subscription without need of call, or in the absence of a fixed date or dates, upon call for payment by the board of directors: Provided, however, That in no case shall the paid-up capital be less than five thousand (P5,000.00) pesos. (Emphasis supplied.)

[44] Rollo, p. 305.[45] G.R. No. 154975, January 29, 2007, 513 SCRA 225.