Corporation Cases 3

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

CAGAYAN FISHING DEEL!"#EN$ C!., INC., plaintiff-appellant,

vs.

$E!D!R! SANDI%!, defendant-appellee.

LA&REL, J.:

This is an appeal from a judgment of the Court of First Instance of Manila absolving the

defendant from the plaintiff's complaint.

Manuel Tabora is the registered owner of four parcels of land situated in the barrio of inao,

town of !parri, "rovince of Caga#an, as evidenced b# transfer certificate of title $o. %& of the

land records of Caga#an, a cop# of which is in evidence as ()hibit &. To guarantee the pa#ment

of a loan in the sum of "*,+++, Manuel Tabora, on !ugust &, &%, e)ecuted in favor of the

"hilippine $ational an/ a first mortgage on the four parcels of land above-mentioned. ! second

mortgage in favor of the same ban/ was in !pril of &0+ e)ecuted b# Tabora over the same lands

to guarantee the pa#ment of another loan amounting to ",+++. ! third mortgage on the same

lands was e)ecuted on !pril &1, &0+ in favor of 2everina u3on to whom Tabora was indebted

in the sum of "%,+++. These mortgages were registered and annotations thereof appear at the

bac/ of transfer certificate of title $o. %&.

4n Ma# 0&, &0+, Tabora e)ecuted a public document entitled 5(scritura de Transpaso de

"ropiedad Inmueble5 6()hibit !7 b# virtue of which the four parcels of land owned b# him was

sold to the plaintiff compan#, said to under process of incorporation, in consideration of one peso

6"&7 subject to the mortgages in favor of the "hilippine $ational an/ and 2everina u3on and,

to the condition that the certificate of title to said lands shall not be transferred to the name of the plaintiff compan# until the latter has full# and completel# paid Tabora's indebtedness to the

"hilippine $ational an/.

The plaintiff compan# filed its article incorporation with the ureau of Commerce and Industr#

on 4ctober %%, &0+ 6()hibit %7. ! #ear later, on 4ctober %*, &0&, the board of directors of said

compan# adopted a resolution 6()hibit 87 authori3ing its president, 9ose :entura, to sell the four

parcels of lands in ;uestion to Teodoro 2andi/o for "%,+++. ()hibits , C and < were thereafter

made and e)ecuted. ()hibit is a deed of sale e)ecuted before a notar# public b# the terms of

which the plaintiff sold ceded and transferred to the defendant all its right, titles, and interest in

and to the four parcels of land described in transfer certificate in turn obligated himself toshoulder the three mortgages hereinbefore referred to. ()hibit C is a promisor# note for "%=,0++.

drawn b# the defendant in favor of the plaintiff, pa#able after one #ear from the date thereof.

()hibit < is a deed of mortgage e)ecuted before a notar# public in accordance with which the

four parcels of land were given a securit# for the pa#ment of the promissor# note, ()hibit C. !ll

these three instrument were dated Februar# &=, &0%.



The defendant having failed to pa# the sum stated in the promissor# note, plaintiff, on 9anuar#

%=, &0, brought this action in the Court of First Instance of Manila pra#ing that judgment be

rendered against the defendant for the sum of "%=,0++, with interest at legal rate from the date of

the filing of the complaint, and the costs of the suits. !fter trial, the court below, on <ecember

&*, &0, rendered judgment absolving the defendant, with costs against the plaintiff. "laintiff

presented a motion for new trial on 9anuar# &, &0=, which motion was denied b# the trial courton 9anuar# & of the same #ear. !fter due e)ception and notice, plaintiff has appealed to this

court and ma/es an assignment of various errors.

In dismissing the complaint against the defendant, the court below, reached the conclusion that

()hibit is invalid because of vice in consent and repugnanc# to law. >hile we do not agree

with this conclusion, we have however voted to affirm the judgment appealed from the reasons

which we shall presentl# state.

The transfer made b# Tabora to the Caga#an fishing <evelopment Co., Inc., plaintiff herein, was

affected on Ma# 0&, &0+ 6()hibit !7 and the actual incorporation of said compan# was affected

later on 4ctober %%, &0+ 6()hibit %7. In other words, the transfer was made almost five months

before the incorporation of the compan#. ?n;uestionabl#, a dul# organi3ed corporation has the

power to purchase and hold such real propert# as the purposes for which such corporation was

formed ma# permit and for this purpose ma# enter into such contracts as ma# be necessar# 6sec.

&0, pars. = and , and sec. &, !ct $o. &=7. ut before a corporation ma# be said to be lawfull#

organi3ed, man# things have to be done. !mong other things, the law re;uires the filing of

articles of incorporation 6secs. 1 et se;., !ct. $o. &=7. !lthough there is a presumption that all

the re;uirements of law have been complied with 6sec. 00, par. 0& Code of Civil "rocedure7, in

the case before us it can not be denied that the plaintiff was not #et incorporated when it entered

into a contract of sale, ()hibit !. The contract itself referred to the plaintiff as 5una sociedad en

vias de incorporacion.5 It was not even a de facto corporation at the time. $ot being in legale)istence then, it did not possess juridical capacit# to enter into the contract.

Corporations are creatures of the law, and can onl# come into e)istence in the manner

prescribed b# law. !s has alread# been stated, general law authori3ing the formation of

corporations are general offers to an# persons who ma# bring themselves within their

provisions@ and if conditions precedent are prescribed in the statute, or certain acts are

re;uired to be done, the# are terms of the offer, and must be complied with substantiall#

before legal corporate e)istence can be ac;uired. 6& C. 9., sec. &&&, p. &&*.7

That a corporation should have a full and complete organi3ation and e)istence as anentit# before it can enter into an# /ind of a contract or transact an# business, would seem

to be self evident. . . . ! corporation, until organi3ed, has no being, franchises or faculties.

$or do those engaged in bringing it into being have an# power to bind it b# contract,

unless so authori3ed b# the charter there is not a corporation nor does it possess franchise

or faculties for it or others to e)ercise, until it ac;uires a complete e)istence. 68ent vs.

Manufacturers and Merchant's Mutual Insurance Compan#, &+ Ill., 1=%, 1=*.7



oiled down to its na/ed realit#, the contract here 6()hibit !7 was entered into not between

Manuel Tabora and a non-e)istent corporation but between the Manuel Tabora as owner of the

four parcels of lands on the one hand and the same Manuel Tabora, his wife and others, as mere

promoters of a corporations on the other hand. For reasons that are self-evident, these promoters

could not have acted as agent for a projected corporation since that which no legal e)istence

could have no agent. ! corporation, until organi3ed, has no life and therefore no faculties. It is, asit were, a child in ventre sa mere. This is not sa#ing that under no circumstances ma# the acts of

promoters of a corporation be ratified b# the corporation if and when subse;uentl# organi3ed.

There are, of course, e)ceptions 6Fletcher C#c. of Corps., permanent edition, &0&, vol. I, secs.

%+ et seq.7, but under the peculiar facts and circumstances of the present case we decline to

e)tend the doctrine of ratification which would result in the commission of injustice or fraud to

the candid and unwar#.6Massachusetts rule, !bbott vs. Aapgood, &=+ Mass., %*@ %% $. (. +,

+*@ = . B. !., =*1@ &= !m. 2t. Bep., &0@ citing (nglish cases@ oppel vs. Massachusetts ric/

Co., &% Mass., %%0@ * $. (., &%*@ Aol#o/e (nvelope Co., vs. ?. 2. (nvelope Co., &*% Mass.,

&&@ 1= $. (., =.7 It should be observed that Manuel Tabora was the registered owner of the

four parcels of land, which he succeeded in mortgaging to the "hilippine $ational an/ so thathe might have the necessar# funds with which to convert and develop them into fisher#. Ae

appeared to have met with financial reverses. Ae formed a corporation composed of himself, his

wife, and a few others. From the articles of incorporation, ()hibit %, it appears that out of the

"*,++, amount of capital stoc/ subscribed, "=,+++ was subscribed b# Manuel Tabora himself

and "=++ b# his wife, Bufina D. de Tabora@ and out of the "0,0++, amount paid on subscription,

"%,&++ is made to appear as paid b# Tabora and "%++ b# his wife. oth Tabora and Ais wife

were directors and the latter was treasurer as well. In fact, to this da#, the lands remain inscribed

in Tabora's name. The defendant alwa#s regarded Tabora as the owner of the lands. Ae dealt with

Tabora directl#. 9ose :entura, president of the plaintiff corporation, intervened onl# to sign the

contract, ()hibit , in behalf of the plaintiff. (ven the "hilippine $ational an/, mortgagee of

the four parcels of land, alwa#s treated Tabora as the owner of the same. 6See ()hibits ( and F.7

Two civil suits 6$os. &0& and 0*1&7 were brought against Tabora in the Court of First Instance

of Manila and in both cases a writ of attachment against the four parcels of land was issued. The

"hilippine $ational an/ threatened to foreclose its mortgages. Tabora approached the defendant

2andi/o and succeeded in the ma/ing him sign ()hibits , C, and < and in ma/ing him, among

other things, assume the pa#ment of Tabora's indebtedness to the "hilippine $ational an/. The

promisor# note, ()hibit C, was made pa#able to the plaintiff compan# so that it ma# not attached

b# Tabora's creditors, two of whom had obtained writs of attachment against the four parcels of

land.

If the plaintiff corporation could not and did not ac;uire the four parcels of land here involved, itfollows that it did not possess an# resultant right to dispose of them b# sale to the defendant,

Teodoro 2andi/o.

2ome of the members of this court are also of the opinion that the transfer from Manuel Tabora

to the Caga#an Fishing <evelopment Compan#, Inc., which transfer is evidenced b# ()hibit !,

was subject to a condition precedent 6condicion suspensiva7, namel#, the pa#ment of the

mortgage debt of said Tabora to the "hilippine $ational an/, and that this condition not having



been complied with b# the Caga#an Fishing <evelopment Compan#, Inc., the transfer was

ineffective. 6!rt. &&&, Civil Code@ >ise E Co. vs. ell# and im, 0 "hil., 11@ Manresa, vol.

*, p. &&.7 Aowever, having arrived at the conclusion that the transfer b# Manuel Tabora to the

Caga#an Fishing <evelopment Compan#, Inc. was null because at the time it was affected the

corporation was non-e)istent, we deem it unnecessar# to discuss this point.lawphil.net

The decision of the lower court is accordingl# affirmed, with costs against the appellant. 2o

4rdered.

G.R. No. L-20993 Se'(ember 2), 19*)

RI+AL LIGH$ ICE C!., INC., petitioner,

vs.

$HE #&NICI"ALI$Y !F #!R!NG, RI+AL / $HE "&LIC SERICE

C!##ISSI!N, respondents.

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

G.R. No. L-21221 Se'(ember 2), 19*)

RI+AL LIGH$ ICE C!., INC., petitioner,

vs.

$HE "&LIC SERICE C!##ISSI!N / #!R!NG ELEC$RIC C!.,

INC., respondents.

Amado A. Amador, Jr. for petitioner.

Atilano C. Bautista and Pompeyo F. Olivas for respondents.

+ALDIAR, J.:

These two cases, being interrelated, are decided together.

Case 8.B. $o. -%+0 is a petition of the Bi3al ight E Ice Co., Inc. to review and set aside the

orders of respondent "ublic 2ervice Commission, & dated !ugust %+, &1%, and Februar# &=,

&10, in "2C Case $o. 0&1, cancelling and revo/ing the certificate of public convenience and

necessit# and forfeiting the franchise of said petitioner. In the same petition, the petitioner pra#ed

for the issuance of a writ of preliminar# injunction e parte suspending the effectivit# of said

orders andor enjoining respondents Commission andor Municipalit# of Morong, Bi3al, from

enforcing in an# wa# the cancellation and revocation of petitioner's franchise and certificate of

public convenience during the pendenc# of this appeal. # resolution of March &%, &10, this

Court denied the petition for injunction, for lac/ of merit.



Case 8. B. -%&%%& is li/ewise a petition of the Bi3al ight E Ice Co., Inc. to review and set

aside the decision of the Commission dated March &0, &10 in "2C Case $o. 1%-=&0 granting a

certificate of public convenience and necessit# to respondent Morong (lectric Co., Inc. % to

operate an electric light, heat and power service in the municipalit# of Morong, Bi3al. In the

petition Bi3al ight E Ice Co., Inc. also pra#ed for the issuance of a writ of preliminar#

injunction e parte suspending the effectivit# of said decision. "er resolution of this Court, datedMa# 1, &10, said petition for injunction was denied.

The facts, as the# appear in the records of both cases, are as followsG

"etitioner Bi3al ight E Ice Co., Inc. is a domestic corporation with business address at Morong,

Bi3al. 4n !ugust &=, &, it was granted b# the Commission a certificate of public convenience

and necessit# for the installation, operation and maintenance of an electric light, heat and power

service in the municipalit# of Morong, Bi3al.

In an order dated <ecember &, &=1, the Commission re;uired the petitioner to appear before it

on Februar# &*, &= to show cause wh# it should not be penali3ed for violation of the

conditions of its certificate of public convenience and the regulations of the Commission, and for

failure to compl# with the directives to raise its service voltage and maintain them within the

limits prescribed in the Bevised 4rder $o. & of the Commission, and to ac;uire and install a

/ilowattmeter to indcate the load in /ilowatts at an# particular time of the generating unit. 0

For failure of the petitioner to appear at the hearing on Februar# &*, &=, the Commission

ordered the cancellation and revocation of petitioner's certificate of public convenience and

necessit# and the forfeiture of its franchise. "etitioner moved for reconsideration of said order on

the ground that its manager, 9uan <. Francisco, was not aware of said hearing. Bespondent

municipalit# opposed the motion alleging that petitioner has not rendered efficient andsatisfactor# service and has not complied with the re;uirements of the Commission for the

improvement of its service. The motion was set for hearing and Mr. "edro 2. Talavera, Chief,

Industrial <ivision of the Commission, was authori3ed to conduct the hearing for the reception

of the evidence of the parties.

Finding that the failure of the petitioner to appear at the hearing set for Februar# &*, &= H the

sole basis of the revocation of petitioner's certificate H was reall# due to the illness of its

manager, 9uan <. Francisco, the Commission set aside its order of revocation. Bespondent

municipalit# moved for reconsideration of this order of reinstatement of the certificate, but the

motion was denied.

In a petition dated 9une %=, &=*, filed in the same case, respondent municipalit# formall# as/ed

the Commission to revo/e petitioner's certificate of public convenience and to forfeit its

franchise on the ground, among other things, that it failed to compl# with the conditions of said

certificate and franchise. 2aid petition was set for hearing jointl# with the order to show cause.

The hearings had been postponed several times.



Meanwhile, inspections had been made of petitioner's electric plant and installations b# the

engineers of the Commission, as followsG !pril &=, &=* b# (ngineer !ntonio M. !lli@

2eptember &*, &=, 9ul# &%-&0, &1+, and 9une %&-%, &1&, b# (ngineer Meliton 2. Martine3.

The inspection on 9une %&-%, &1& was made upon the re;uest of the petitioner who manifested

during the hearing on <ecember &=, &1+ that improvements have been made on its service since

the inspection on 9ul# &%-&0, &1+, and that, on the basis of the inspection report to be submitted,it would agree to the submission of the case for decision without further hearing.

>hen the case was called for hearing on 9ul# =, &1&, petitioner failed to appear. Bespondent

municipalit# was then allowed to present its documentar# evidence, and thereafter the case was

submitted for decision.

4n 9ul# , &1&, petitioner filed a motion to reopen the case upon the ground that it had not been

furnished with a cop# of the report of the 9une %&-%, &1& inspection for it to repl# as

previousl# agreed. In an order dated !ugust %=, &1&, petitioner was granted a period of ten 6&+7

da#s within which to submit its written repl# to said inspection report, on condition that should it

fail to do so within the said period the case would be considered submitted for decision.

"etitioner failed to file the repl#. In consonance with the order of !ugust %=, &1&, therefore, the

Commission proceeded to decide the case. 4n 9ul# %, &1% petitioner's electric plant was

burned.

In its decision, dated !ugust %+, &1%, the Commission, on the basis of the inspection reports of

its aforenamed engineers, found that the petitioner had failed to compl# with the directives

contained in its letters dated Ma# %&, &= and 2eptember , &=, and had violated the

conditions of its certificate of public convenience as well as the rules and regulations of the

Commission. The Commission concluded that the petitioner 5cannot render the efficient,

ade;uate and satisfactor# electric service re;uired b# its certificate and that it is against publicinterest to allow it to continue its operation.5 !ccordingl#, it ordered the cancellation and

revocation of petitioner's certificate of public convenience and the forfeiture of its franchise.

4n 2eptember &*, &1%, petitioner moved for reconsideration of the decision, alleging that

before its electric plant was burned on 9ul# %, &1%, its service was greatl# improved and that it

had still e)isting investment which the Commission should protect. ut eight da#s before said

motion for reconsideration was filed, or on 2eptember &+, &1%, Morong (lectric, having been

granted a municipal franchise on Ma# 1, &1% b# respondent municipalit# to install, operate and

maintain an electric heat, light and power service in said municipalit# H approved b# the

"rovincial oard of Bi3al on !ugust 0&, &1% H filed with the Commission an application for acertificate of public convenience and necessit# for said service. 2aid application was entitled

5Morong (lectric Co., Inc., !pplicant5, and doc/eted as Case $o. 1%-=&0.

"etitioner opposed in writing the application of Morong (lectric, alleging among other things,

that it is a holder of a certificate of public convenience to operate an electric light, heat and

power service in the same municipalit# of Morong, Bi3al, and that the approval of said

application would not promote public convenience, but would onl# cause ruinous and wasteful



competition. !lthough the opposition is dated 4ctober 1, &1%, it was actuall# received b# the

Commission on $ovember *, &1%, or twent# four da#s after the order of general default was

issued in open court when the application was first called for hearing on 4ctober &=, &1%. 4n

$ovember &%, &1%, however, the petitioner filed a motion to lift said order of default. ut

before said motion could be resolved, petitioner filed another motion, dated 9anuar# , &10, this

time as/ing for the dismissal of the application upon the ground that applicant Morong (lectrichad no legal personalit# when it filed its application on 2eptember &+, &1%, because its

certificate of incorporation was issued b# the 2ecurities and ()change Commission onl# on

4ctober &, &1%. This motion to dismiss was denied b# the Commission in a formal order

issued on 9anuar# &, &10 on the premise that applicant Morong (lectric was a de

facto corporation. Conse;uentl#, the case was heard on the merits and both parties presented

their respective evidence. 4n the basis of the evidence adduced, the Commission, in its decision

dated March &0, &10, found that there was an absence of electric service in the municipalit# of

Morong and that applicant Morong (lectric, a Filipino-owned corporation dul# organi3ed and

e)isting under the laws of the "hilippines, has the financial capacit# to maintain said service.

These circumstances, considered together with the denial of the motion for reconsideration filed b# petitioner in Case $o. 0&= on Februar#, &=, &10, such that as far as the Commission was

concerned the certificate of the petitioner was alread# declared revo/ed and cancelled, the

Commission approved the application of Morong (lectric and ordered the issuance in its favor of

the corresponding certificate of public convenience and necessit#.!awph"l.n#t

4n March *, &10, petitioner filed with this Court a petition to review the decision in Case $o.

0&= 6now 8. B. $o. -%+07. Then on !pril %1, &10, petitioner also filed a petition to

review the decision in Case $o. 1%-=&0 6now 8. B. $o. -%&%%&7.

In ;uestioning the decision of the Commission in Case $o. 0&=, petitioner contendsG 6&7 that

the Commission acted without or in e)cess of its jurisdiction when it delegated the hearing of thecase and the reception of evidence to Mr. "edro 2. Talavera who is not allowed b# law to hear the

same@ 6%7 that the cancellation of petitioner's certificate of public convenience was unwarranted

because no sufficient evidence was adduced against the petitioner and that petitioner was not

able to present evidence in its defense@ 607 that the Commission failed to give protection to

petitioner's investment@ and 67 that the Commission erred in imposing the e)treme penalt# of

revocation of the certificate.

In ;uestioning the decision in Case $o. 1%-=&0, petitioner contendsG 6&7 that the Commission

erred in den#ing petitioner's motion to dismiss and proceeding with the hearing of the application

of the Morong (lectric@ 6%7 that the Commission erred in granting Morong (lectric a certificateof public convenience and necessit# since it is not financiall# capable to render the service@ 607

that the Commission erred when it made findings of facts that are not supported b# the evidence

adduced b# the parties at the trial@ and 67 that the Commission erred when it did not give to

petitioner protection to its investment H a reiteration of the third assignment of error in the other

case.!awph"l.n#t

>e shall now discuss the appeals in these two cases separatel#.



$.%. &o. '()*++

&. ?nder the first assignment of error, petitioner contends that while Mr. "edro 2. Talavera, who

conducted the hearings of the case below, is a division chief, he is not a law#er. !s such, under

2ection 0% of Commonwealth !ct $o. &1, as amended, the Commission should not have

delegated to him the authorit# to conduct the hearings for the reception of evidence of the parties.

>e find that, reall#, Mr. Talavera is not a law#er. = ?nder the second paragraph of 2ection 0% of

Commonwealth !ct $o. &1, as amended, 1 the Commission can onl# authori3e a division chief

to hear and investigate a case filed before it if he is a law#er. Aowever, the petitioner is raising

this ;uestion for the first time in this appeal. The record discloses that petitioner never made an#

objection to the authorit# of Mr. Talavera to hear the case and to receive the evidence of the

parties. 4n the contrar#, we find that petitioner had appeared and submitted evidence at the

hearings conducted b# Mr. Talavera, particularl# the hearings relative to the motion for

reconsideration of the order of Februar# &*, &= cancelling and revo/ing its certificate. >e also

find that, through counsel, petitioner had entered into agreements with Mr. Talavera, as hearing

officer, and the counsel for respondent municipalit#, regarding procedure in order to abbreviate

the proceedings. It is onl# after the decision in the case turned out to be adverse to it that

petitioner ;uestioned the proceedings held before Mr. Talavera.

This Court in several cases has ruled that objection to the delegation of authorit# to hear a case

filed before the Commission and to receive the evidence in connection therewith is a procedural,

not a jurisdictional point, and is waived b# failure to interpose timel# the objection and the case

had been decided b# the Commission. * 2ince petitioner has never raised an# objection to the

authorit# of Mr. Talavera before the Commission, it should be deemed to have waived such

procedural defect, and consonant with the precedents on the matter, petitioner's claim that theCommission acted without or in e)cess of jurisdiction in so authori3ing Mr. Talavera should be

dismissed.

%. !nent the second assigned error, the gist of petitioner's contention is that the evidence H

consisting of inspection reports H upon which the Commission based its decision is insufficient

and untrustworth# in that 6&7 the authors of said reports had not been put to test b# wa# of cross-

e)amination@ 6%7 the reports constitute onl# one side of the picture as petitioner was not able to

present evidence in its defense@ 607 judicial notice was not ta/en of the testimon# of Mr. Aarr# .

ernardino, former ma#or of respondent municipalit#, in "2C Case $o. 1%=&0 6the other case,

8. B. $o. -%&%%&7 to the effect that the petitioner had improved its service before its electric power plant was burned on 9ul# %, &1% H which testimon# contradicts the inspection reports@

and 67 the Commission acted both as prosecutor and judge H passing judgment over the ver#

same evidence presented b# it as prosecutor H a situation 5not conducive to the arrival at just

and e;uitable decisions.5

2ettled is the rule that in reviewing the decision of the "ublic 2ervice Commission this Court is

not re;uired to e)amine the proof de novo and determine for itself whether or not the



preponderance of evidence reall# justifies the decision. The onl# function of this Court is to

determine whether or not there is evidence before the Commission upon which its decision might

reasonabl# be based. This Court will not substitute its discretion for that of the Commission on

;uestions of fact and will not interfere in the latter's decision unless it clearl# appears that there is

no evidence to support it. &+ Inasmuch as the onl# function of this Court in reviewing the decision

of the Commission is to determine whether there is sufficient evidence before the Commissionupon which its decision can reasonabl# be based, as it is not re;uired to e)amine the proof de

novo, the evidence that should be made the basis of this Court's determination should be onl#

those presented in this case before the Commission. >hat then was the evidence presented

before the Commission and made the basis of its decision subject of the present appeal !s stated

earlier, the Commission based its decision on the inspection reports submitted b# its engineers

who conducted the inspection of petitioner's electric service upon orders of the

Commission. && 2aid inspection reports specif# in detail the deficiencies incurred, and violations

committed, b# the petitioner resulting in the inade;uac# of its service. >e consider that said

reports are sufficient to serve reasonabl# as bases of the decision in ;uestion. It should be

emphasi3ed, in this connection that said reports, are not mere documentar# proofs presented for the consideration of the Commission, but are the results of the Commission's own observations

and investigations which it can rightfull# ta/e into consideration, &% particularl# in this case where

the petitioner had not presented an# evidence in its defense, and spea/ing of petitioner's failure to

present evidence, as well as its failure to cross-e)amine the authors of the inspection reports,

petitioner should not complain because it had waived not onl# its right to cross-e)amine but also

its right to present evidence. Duoted hereunder are the pertinent portions of the transcripts of the

proceedings where the petitioner, through counsel, manifested in clear language said waiver and

its decision to abide b# the last inspection report of (ngineer Martine3G

Proceedin-s of ecem/er !0, !+1*

C4MMI22I4$G

It appears at the last hearing of this case on 2eptember %0, &1+, that an engineer of this

Commission has been ordered to ma/e an inspection of all electric services in the province of

Bi3al and on that date the engineer of this Commission is still underta/ing that inspection and it

appears that the said engineer had actuall# made that inspection on 9ul# &% and &0, &1+. The

engineer has submitted his report on $ovember &*, &1+ which is attached to the records of this

case.

!TTJ. ?D?( 6Councel for "etitioner7G

... 6>7e respectfull# state that while the report is, as I see it attached to the records, clear and

ver# thorough, it was made sometime 9ul# of this #ear and I understand from the respondent that

there is some improvement since this report was made ... we respectfull# re;uest that an up-to-

date inspection be made ... . !n inspector of this Commission can be sent to the plant and

considering that the engineer of this Commission, (ngineer Meliton Martine3, is ver# ac;uainted

to the points involved we pra# that his report will be used b# us for the reason that he is a



technical man and he /nows well as he has done a good job and I thin/ our proposition would

e)pedite the matter. >e sincerel# believe that the inspection report will be the best evidence to

decide this matter.

) ) ) ) ) ) ) ) )

!TTJ. ?D?(G

... This is a ver# important matter and to show the good faith of respondent in this case we will

not even cross-e)amine the engineer when he ma/es a new report. >e will agree to the findings

and, #our honor please, considering as we have manifested before that (ngineer Martine3 is an

e)perienced engineer of this Commission and the points reported b# (ngineer Martine3 on the

situation of the plant now will prevent the necessit# of having a hearing, of us bringing new

evidence and complainant bringing new evidence. ... .

) ) ) ) ) ) ) ) )

C4MMI22I4$ 6to !tt#. u;ue7G

D <oes the Commission understand from the counsel for applicant that if the

motion is granted he will submit this order to show cause for decision without an# further

hearing and the decision will be based on the report of the engineer of this Commission

! >e respectfull# repl# in this manner that we be allowed or be given an

opportunit# just to read the report and K, we will agree that the report will be the basis

of that decision. >e just want to find out the contents of the report, however, we re;uest

that we be furnished with a cop# of the report before the hearing so that we will just ma/ea manifestation that we will agree.

C4MMI22I4$ 6to !tt#. u;ue7G

D In order to prevent the dela# of the disposition of this case the Commission will

allow counsel for the applicant to submit his written repl# to the report that the engineer

of this Commission. >ill he submit this case without further hearing upon the receipt of

that written repl#

! Jes, #our honor.

Proceedin-s of Au-ust )0, !+1!

!TTJ. ?D?( 6Counsel for petitioner7G

In order to avoid an# dela# in the consideration of this case we are respectfull# move 6sic7 that

instead of our witnesses testif#ing under oath that we will submit a written repl# under oath



together with the memorandum within fifteen 6&=7 da#s and we will furnish a cop# and upon our

submission of said written repl# under oath and memorandum we consider this case submitted.

This suggestion is to abbreviate the necessit# of presenting witnesses here which ma# prolong

the resolution of this case.

!TTJ. 4I:!2 6Counsel for respondent municipalit#7G

I object on the ground that there is no resolution b# this Commission on the action to reopen the

case and second this case has been closed.

!TTJ. ?D?(G

>ith regard to the testimon# on the ground for opposition we respectfull# submit to this

Commission our motion to submit a written repl# together with a memorandum. !lso as stated to

e)pedite the case and to avoid further hearing we will just submit our written repl#. !ccording to

our records we are furnished with a cop# of the report of 9ul# &, &1&. >e submit #our honor.

) ) ) ) ) ) ) ) )

C4MMI22I4$G

To give applicant a chance to have a da# in court the Commission grants the re;uest of applicant

that it be given &+ da#s within which to submit a written repl# on the report of the engineer of

the Commission who inspected the electric service, in the municipalit# of Morong, Bi3al, and

after the submission of the said written repl# within &+ da#s from toda# this case will be

considered submitted for decision.

The above-;uoted manifestation of counsel for the petitioner, specificall# the statement referring

to the inspection report of (ngineer Martine3 as the 5best evidence to decide this matter,5 can

serve as an argument against petitioner's claim that the Commision should have ta/en into

consideration the testimon# of Mr. ernardino. ut the primar# reasons wh# the Commission

could not have ta/en judicial cogni3ance of said testimon# areG first, it is not a proper subject of

judicial notice, as it is not a 5/nown5 fact H that is, well established and authoritativel# settled,

without ;ualification and contention@ &0 second, it was given in a subse;uent and distinct case

after the petitioner's motion for reconsideration was heard b# the Commission en /anc and

submitted for decision, & and third, it was not brought to the attention of the Commission in this

case through an appropriate pleading. &=

Begarding the contention of petitioner that the Commission had acted both as prosecutor and

judge, it should be considered that there are two matters that had to be decided in this case,

namel#, the order to show cause dated <ecember &, &=1, and the petition or complaint b#

respondent municipalit# dated 9une %=, &=*. oth matters were heard jointl#, and the record

shows that respondent municipalit# had been allowed to present its evidence to substantiate its

complaint. It can not be said, therefore, that in this case the Commission had acted as prosecutor



and judge. ut even assuming, for the sa/e of argument, that there was a commingling of the

prosecuting and investigating functions, this e)ercise of dual function is authori3ed b# 2ection

&6a7 of Commonwealth !ct $o. &1, as amended, under which the Commission has power 5to

investigate, upon its own initiative or upon complaint in writing, an# matter concerning an#

public service as regards matters under its jurisdiction@ to, re;uire an# public service to furnish

safe, ade;uate, and proper service as the public interest ma# re;uire and warrant@ to enforcecompliance with an# standard, rule, regulation, order or other re;uirement of this !ct or of the

Commission ... .5 Thus, in the case of Collector of 2nternal %evenue vs. 3state of F. P. Buan , -

&&0*, 9ul# 0&, &=*, this Court held that the power of the Commission to cancel and revo/e a

certificate of public convenience and necessit# ma# be e)ercised b# it even without a formal

charge filed b# an# interested part#, with the onl# limitation that the holder of the certificate

should be given his da# in court.

It ma# not be amiss to add that when prosecuting and investigating duties are delegated b#

statute to an administrative bod#, as in the case of the "ublic 2ervice Commission, said bod#

ma# ta/e steps it believes appropriate for the proper e)ercise of said duties, particularl# in themanner of informing itself whether there is probable violation of the law andor its rules and

regulations. It ma# initiate an investigation, file a complaint, and then tr# the charge as preferred.

2o long as the respondent is given a da# in court, there can be no denial of due process, and

objections to said procedure cannot be sustained.

0. In its third assignment of error, petitioner invo/es the 5protection-of-investment rule5

enunciated b# this Court in Batan-as 4ransportation Co. vs. Orlanes &1 in this wiseG

The 8overnment having ta/en over the control and supervision of all public utilities, so

long as an operator under a prior license complies with the terms and conditions of his

license and reasonable rules and regulations for its operation and meets the reasonabledemands of the public, it is the dut# of the Commission to protect rather than to destro#

his investment b# the granting of the second license to another person for the same thing

over the same route of travel. The granting of such a license does not serve its

convenience or promote the interests of the public.

The above-;uoted rule, however, is not absolute, for nobod# has e)clusive right to secure a

franchise or a certificate of public convenience. & >here, as in the present case, it has been

shown b# ample evidence that the petitioner, despite ample time and opportunit# given to it b#

the Commission, had failed to render ade;uate, sufficient and satisfactor# service and had

violated the important conditions of its certificate as well as the directives and the rules andregulations of the Commission, the rule cannot appl#. To appl# that rule un;ualifiedl# is to

encourage violation or disregard of the terms and conditions of the certificate and the

Commission's directives and regulations, and would close the door to other applicants who could

establish, operate and provide ade;uate, efficient and satisfactor# service for the benefit and

convenience of the inhabitants. It should be emphasi3ed that the paramount consideration should

alwa#s be the public interest and public convenience. The dut# of the Commission to protect

investment of a public utilit# operator refers onl# to operators of good standing H those who



compl# with the laws, rules and regulations H and not to operators who are unconcerned with

the public interest and whose investments have failed or deteriorated because of their own

fault. &*

. The last assignment of error assails the propriet# of the penalt# imposed b# the Commission

on the petitioner H that is, the revocation of the certificate and the forfeiture of the franchise."etitioner contends that the imposition of a fine would have been sufficient, as had been done b#

the Commission in cases of a similar nature.

It should be observed that 2ection &16n7 of Commonwealth !ct $o. &1, as amended, confers

upon the Commission ample power and discretion to order the cancellation and revocation of an#

certificate of public convenience issued to an operator who has violated, or has willfull# and

contumaciousl# refused to compl# with, an# order, rule or regulation of the Commission or an#

provision of law. >hat matters is that there is evidence to support the action of the Commission.

In the instant case, as shown b# the evidence, the contumacious refusal of the petitioner since

&= to compl# with the directives, rules and regulations of the Commission, its violation of the

conditions of its certificate and its incapabilit# to compl# with its commitment as shown b# its

inade;uate service, were the circumstances that warranted the action of the Commission in not

merel# imposing a fine but in revo/ing altogether petitioner's certificate. To allow petitioner to

continue its operation would be to sacrifice public interest and convenience in favor of private

interest.

! grant of a certificate of public convenience confers no propert# rights but is a mere

license or privilege, and such privilege is forfeited when the grantee fails to compl# with

his commitments behind which lies the paramount interest of the public, for public

necessit# cannot be made to wait, nor sacrificed for private convenience. 6Collector of

Internal Bevenue v. (state of F. ". uan, et al., -&&0* and 2antiago 2ambrano, et al. v."2C, et al., -&&0 E -&&=%-1, 9ul# 0&, &=*7

6T7he "ublic 2ervice Commission, ... has the power to specif# and define the terms and

conditions upon which the public utilit# shall be operated, and to ma/e reasonable rules

and regulations for its operation and the compensation which the utilit# shall receive for

its services to the public, and for an# failure to compl# with such rules and regulations or

the violation of an# of the terms and conditions for which the license was granted, the

Commission has ample power to enforce the provisions of the license or even to revo5e

it, for any failure or ne-lect to comply with any of its terms and provisions . 6atangas

Trans. Co. v. 4rlanes, =% "hil. ==, 1+@ emphasis supplied7

"resumabl#, the petitioner has in mind 2ection %& of Commonwealth !ct $o. &1, as amended,

which provides that a public utilit# operator violating or failing to compl# with the terms and

conditions of an# certificate, or an# orders, decisions or regulations of the Commission, shall be

subject to a fine and that the Commission is authori3ed and empowered to impose such fine, after

due notice and hearing. It should be noted, however, that the last sentence of said section states

that the remed# provided therein 5shall not be a bar to, or affect an# other remed# provided in



this !ct but shall be cumulative and additional to such remed# or remedies.5 In other words, the

imposition of a fine ma# onl# be one of the remedies which the Commission ma# resort to, in its

discretion. ut that remed# is not e)clusive of, or has preference over, the other remedies. !nd

this Court will not substitute its discretion for that of the Commission, as long as there is

evidence to support the e)ercise of that discretion b# the Commission.

$. %. &o. '()!))!

Coming now to the other case, let it be stated at the outset that before an# certificate ma# be

granted, authori3ing the operation of a public service, three re;uisites must be complied with,

namel#G 6&7 the applicant must be a citi3en of the "hilippines or of the ?nited 2tates, or a

corporation or co-partnership, association or joint-stoc/ compan# constituted and organi3ed

under the laws of the "hilippines, si)t# per centum at least of the stoc/ or paid-up capital of

which belongs entirel# to citi3ens of the "hilippines or of the ?nited 2tates@ & 6%7 the applicant

must be financiall# capable of underta/ing the proposed service and meeting the responsibilities

incident to its operation@ %+ and 607 the applicant must prove that the operation of the public

service proposed and the authori3ation to do business will promote the public interest in a proper

and suitable manner. %&

!s stated earlier, in the decision appealed from, the Commission found that Morong (lectric is a

corporation dul# organi3ed and e)isting under the laws of the "hilippines, the stoc/holders of

which are Filipino citi3ens, that it is financiall# capable of operating an electric light, heat and

power service, and that at the time the decision was rendered there was absence of electric

service in Morong, Bi3al. >hile the petitioner does not dispute the need of an electric service in

Morong, Bi3al, %% it claims, in effect, that Morong (lectric should not have been granted the

certificate of public convenience and necessit# because 6&7 it did not have a corporate personalit#

at the time it was granted a franchise and when it applied for said certificate@ 6%7 it is notfinanciall# capable of underta/ing an electric service, and 607 petitioner was rendering efficient

service before its electric plant was burned, and therefore, being a prior operator its investment

should be protected and no new part# should be granted a franchise and certificate of public

convenience and necessit# to operate an electric service in the same localit#.

&. The bul/ of petitioner's arguments assailing the personalit# of Morong (lectric dwells on the

proposition that since a franchise is a contract, %0 at least two competent parties are necessar# to

the e)ecution thereof, and parties are not competent e)cept when the# are in being. Aence, it is

contended that until a corporation has come into being, in this jurisdiction, b# the issuance of a

certificate of incorporation b# the 2ecurities and ()change Commission 62(C7 it cannot enter into an# contract as a corporation. The certificate of incorporation of the Morong (lectric was

issued b# the 2(C on 4ctober &, &1%, so onl# from that date, not before, did it ac;uire juridical

personalit# and legal e)istence. "etitioner concludes that the franchise granted to Morong

(lectric on Ma# 1, &1% when it was not #et in esse is null and void and cannot be the subject of

the Commission's consideration. 4n the other hand, Morong (lectric argues, and to which

argument the Commission agrees, that it was a de factocorporation at the time the franchise was

granted and, as such, it was not incapacitated to enter into an# contract or to appl# for and accept



a franchise. $ot having been incapacitated, Morong (lectric maintains that the franchise granted

to it is valid and the approval or disapproval thereof can be properl# determined b# the

Commission.

"etitioner's contention that Morong (lectric did not #et have a legal personalit# on Ma# 1, &1%

when a municipal franchise was granted to it is correct. The juridical personalit# and legale)istence of Morong (lectric began onl# on 4ctober &, &1% when its certificate of

incorporation was issued b# the 2(C. % efore that date, or pending the issuance of said

certificate of incorporation, the incorporators cannot be considered as de facto corporation.%= ut

the fact that Morong (lectric had no corporate e)istence on the da# the franchise was granted in

its name does not render the franchise invalid, because later Morong (lectric obtained its

certificate of incorporation and then accepted the franchise in accordance with the terms and

conditions thereof. This view is sustained b# eminent !merican authorities. Thus, McDuiuin

sa#sG

The fact that a compan# is not completel# incorporated at the time the grant is made to it

b# a municipalit# to use the streets does not, in most jurisdictions, affect the validit# of

the grant. ut such grant cannot ta/e effect until the corporation is organi3ed. !nd in

Illinois it has been decided that the ordinance granting the franchise ma# be presented

before the corporation grantee is full# organi3ed, where the organi3ation is completed

before the passage and acceptance. 6McDuillin, Municipal Corporations, 0rd (d., :ol. &%,

Chap. 0, 2ec. 0.%&7

Fletcher sa#sG

>hile a franchise cannot ta/e effect until the grantee corporation is organi3ed, the

franchise ma#, nevertheless, be applied for before the compan# is full# organi3ed.

! grant of a street franchise is valid although the corporation is not created until

afterwards. 6Fletcher, C#clopedia Corp. "ermanent (dition, Bev. :ol. 1-!, 2ec. %**&7

!nd Thompson gives the reason for the ruleG

6I7n the matter of the secondar# franchise the authorities are numerous in support of the

proposition that an ordinance granting a privilege to a corporation is not void because the

beneficiar# of the ordinance is not full# organi3ed at the time of the introduction of the

ordinance. It is enough that organi3ation is complete prior to the passage and acceptanceof the ordinance. The reason is that a privilege of this character is a mere license to the

corporation until it accepts the grant and complies with its terms and conditions.

6Thompson on Corporations, :ol. , 0rd (d., 2ec. %%7 %1

The incorporation of Morong (lectric on 4ctober &, &1% and its acceptance of the franchise as

shown b# its action in prosecuting the application filed with the Commission for the approval of

said franchise, not onl# perfected a contract between the respondent municipalit# and Morong



(lectric but also cured the deficienc# pointed out b# the petitioner in the application of Morong

(Iectric. Thus, the Commission did not err in den#ing petitioner's motion to dismiss said

application and in proceeding to hear the same. The efficac# of the franchise, however, arose

onl# upon its approval b# the Commission on March &0, &10. The reason is that H

?nder !ct $o. 11, as amended b# !ct $o. &+%%, a municipal council has the power togrant electric franchises, subject to the approval of the provincial board and the "resident.

Aowever, under 2ection &16b7 of Commonwealth !ct $o. &1, as amended, the "ublic

2ervice Commission is empowered 5to approve, subject to constitutional limitations an#

franchise or privilege granted under the provisions of !ct $o. 11, as amended b# !ct

$o. &+%%, b# an# political subdivision of the "hilippines when, in the judgment of the

Commission, such franchise or privilege will properl# conserve the public interests and

the Commission shall in so approving impose such conditions as to construction,

e;uipment, maintenance, service, or operation as the public interests and convenience

ma# reasonabl# re;uire, and to issue certificates of public convenience and necessit#

when such is re;uired or provided b# an# law or franchise.5 Thus, the efficac# of amunicipal electric franchise arises, therefore, onl# after the approval of the "ublic 2ervice

Commission. 6!lmendras vs. Bamos, + "hil. %0&7 .

The conclusion herein reached regarding the validit# of the franchise granted to Morong (lectric

is not incompatible with the holding of this Court in Ca-ayan Fishin- evelopment Co., 2nc. vs.

4eodoro Sandi5o % upon which the petitioner leans heavil# in support of its position. In said case

this Court held that a corporation should have a full and complete organi3ation and e)istence as

an entit# before it can enter into an# /ind of a contract or transact an# business. It should be

pointed out, however, that this Court did not sa# in that case that the rule is absolute or that under

no circumstances ma# the acts of promoters of a corporation be ratified or accepted b# the

corporation if and when subse;uentl# organi3ed. 4f course, there are e)ceptions. It will be notedthat !merican courts generall# hold that a contract made b# the promoters of a corporation on its

behalf ma# be adopted, accepted or ratified b# the corporation when organi3ed. %*

%. The validit# of the franchise and the corporate personalit# of Morong (lectric to accept the

same having been shown, the ne)t ;uestion to be resolved is whether said compan# has the

financial ;ualification to operate an electric light, heat and power service. "etitioner challenges

the financial capabilit# of Morong (lectric, b# pointing out the inconsistencies in the testimon#

of Mr. 9ose ". Ingal, president of said compan#, regarding its assets and the amount of its initial

investment for the electric plant. In this connection it should be stated that on the basis of the

evidence presented on the matter, the Commission has found the Morong (lectric to be5financiall# ;ualified to install, maintain and operate the proposed electric light, heat and power

service.5 This is essentiall# a factual determination which, in a number of cases, this Court has

said it will not disturb unless patentl# unsupported b# evidence. !n e)amination of the record of

this case readil# shows that the testimon# of Mr. Ingal and the documents he presented to

establish the financial capabilit# of Morong (lectric provide reasonable grounds for the above

finding of the Commission.



It is now a ver# well-settled rule in this jurisdiction that the findings and conclusions of

fact made b# the "ublic 2ervice Commission, after weighing the evidence adduced b# the

parties in a public service case, will not be disturbed b# the 2upreme Court unless those

findings and conclusions appear not to be reasonabl# supported b# evidence. 6a

Mallorca and "ampanga us Co. vs. Mercado, -&&%+, $ovember %, &1=7

For purposes of appeal, what is decisive is that said testimonial evidence provides

reasonable support for the "ublic 2ervice Commission's findings of financial capacit# on

the part of applicants, rendering such findings be#ond our power to disturb. 6<el "ilar

Transit vs. 2ilva, -%&=, 9ul# &=, &117

It ma# be worthwhile to mention in this connection that per inspection report dated 9anuar# %+,

&1 % of Mr. Meliton Martine3 of the Commission, who inspected the electric service of

Morong on 9anuar# &=-&1, &1, Morong (lectric 5is serving electric service to the entire area

covered b# its approved plan and has constructed its line in accordance with the plans and

specifications approved b# the Commission.5 # reason thereof, it was recommended that the

re;uests of Morong (lectric 6&7 for the withdrawal of its deposit in the amount of "&,+++.++ with

the Treasurer of the "hilippines, and 6%7 for the approval of Besolution $o. &1+ of the Municipal

Council of Morong, Bi3al, e)empting the operator from ma/ing the additional ",+++.++ deposit

mentioned in its petition, dated 2eptember &1, &10, be granted. This report removes an# doubt

as to the financial capabilit# of Morong (lectric to operate and maintain an electric light, heat

and power service.

0. >ith the financial ;ualification of Morong (lectric be#ond doubt, the remaining ;uestion to be

resolved is whether, or not, the findings of fact of the Commission regarding petitioner's service

are supported b# evidence. It is the contention of the petitioner that the Commission made some

findings of fact prejudicial to its position but which do not find support from the evidence presented in this case. 2pecificall#, petitioner refers to the statements or findings that its service

had 5turned from bad to worse,5 that it miserabl# failed to compl# with the oft-repeated promises

to bring about the needed improvement, that its e;uipment is unserviceable, and that it has no

longer an# plant site and, therefore, has discredited itself. "etitioner further states that such

statements are not onl# devoid of evidentiar# support but contrar# to the testimon# of its witness,

Mr. Aarr# ernardino, who testified that petitioner was rendering efficient and satisfactor#

service before its electric plant was burned on 9ul# %, &1%.

4n the face of the decision appealed from, it is obvious that the Commission in describing the

/ind of service petitioner was rendering before its certificate was ordered revo/ed and cancelled,too/ judicial notice of the records of the previous case 6"2C Case $o. 0&=7 where the ;ualit#

of petitioner's service had been s;uarel# put in issue. It will be noted that the findings of the

Commission were made notwithstanding the fact that the aforementioned testimon# of Mr.

ernardino had been emphasi3ed and pointed out in petitioner's Memorandum to the

Commission. 0+ The implication is simpleG that as between the testimon# of Mr. ernardino and

the inspection reports of the engineers of the Commission, which served as the basis of the

revocation order, the Commission gave credence to the latter. $aturall#, whatever conclusion or



finding of fact that the Commission arrived at regarding the ;ualit# of petitioner's service are not

borne out b# the evidence presented in this case but b# evidence in the previous case. 0& In this

connection, we repeat, the conclusion, arrived at b# the Commission after weighing the

conflicting evidence in the two related cases, is a conclusion of fact which this Court will not

disturb.

!nd it has been held time and again that where the Commission has reached a conclusion

of fact after weighing the conflicting evidence, that conclusion must be respected, and the

2upreme Court will not interfere unless it clearl# appears that there is no evidence to

support the decision of the Commission. 6a Mallorca and "ampanga us Co., Inc. vs.

Mercado, -&&%+, $ovember %, &1= citing "angasinan Trans. Co., Inc. vs. <ela Cru3,

1 "hil. %*7

For that matter, petitioner's pretension that it has a prior right to the operation of an electric

service in Morong, Bi3al, is not tenable@ and its plea for protection of its investment, as in the

previous case, cannot be entertained.

>A(B(F4B(, the two decisions of the "ublic 2ervice Commission, appealed from, should be,

as the# are hereb# affirmed, with costs in the two cases against petitioner Bi3al ight E Ice Co.,

Inc. It is so ordered.

G.R. No. L-4)*27 e 30, 19)7

FER#IN +. CARA#, R. / R!SA !. DE CARA#, petitionersvs.

$HE H!N!RALE C!&R$ !F A""EALS / ALER$! . ARELLAN!, respondents.

CR&+, J.:

>e gave limited due course to this petition on the ;uestion of the solidar# liabilit# of the

petitioners with their co-defendants in the lower court 1 because of the challenge to the following

paragraph in the dispositive portion of the decision of the respondent courtG

&. <efendants are hereb# ordered to jointl# and severall# pa# the plaintiff the

amount of "=+,+++.++ for the preparation of the project stud# and his technical

services that led to the organi3ation of the defendant corporation, plus "&+,+++.++

attorne#'s fees@ 2



The petitioners claim that this order has no support in fact and law because the# had no contract

whatsoever with the private respondent regarding the above-mentioned services. Their position is

that as mere subse;uent investors in the corporation that was later created, the# should not be

held solidaril# liable with the Filipinas 4rient !irwa#s, a separate juridical entit#, and with

arretto and 8arcia, their co-defendants in the lower court, who were the ones who re;uested

the said services from the private respondent. 3

>e are not concerned here with the petitioners' co-defendants, who have not appealed the

decision of the respondent court and ma#, for this reason, be presumed to have accepted the

same. For purposes of resolving this case before us, it is not necessar# to determine whether it is

the promoters of the proposed corporation, or the corporation itself after its organi3ation, that

shall be responsible for the e)penses incurred in connection with such organi3ation.

The onl# ;uestion we have to decide now is whether or not the petitioners themselves

are also and personallyliable for such e)penses and, if so, to what e)tent.

The reasons for the said order are given b# the respondent court in its decision in this wiseG

!s to the th assigned error we hold that as to the remuneration due the plaintiff

for the preparation of the project stud# and the pre-organi3ational services in the

amount of "=+,+++.++, not onl# the defendant corporation but the other

defendants including defendants Caram should be jointl# and severall# liable for

this amount. !s we above related it was upon the re;uest of defendants arretto

and 8arcia that plaintiff handled the preparation of the project stud# which project

stud# was presented to defendant Caram so the latter was convinced to invest in

the proposed airlines. The project stud# was revised for purposes of presentation

to financiers and the ban/s. It was on the basis of this stud# that defendantcorporation was actuall# organi3ed and rendered operational. <efendants 8arcia

and Caram, and arretto became members of the oard andor officers of

defendant corporation. Thus, not onl# the defendant corporation but all the other

defendants who were involved in the preparator# stages of the incorporation, who

caused the preparation andor benefited from the project stud# and the technical

services of plaintiff must be liable. 4

It would appear from the above justification that the petitioners were not reall# involved in the

initial steps that finall# led to the incorporation of the Filipinas 4rient !irwa#s. (lsewhere in the

decision, arretto was described as 5the moving spirit.5 The finding of the respondent court isthat the project stud# was underta/en b# the private respondent at the re;uest of arretto and

8arcia who, upon its completion, presented it to the petitioners to induce them to invest in the

proposed airline. The stud# could have been presented to other prospective investors. !t an# rate,

the airline was eventuall# organi3ed on the basis of the project stud# with the petitioners as

major stoc/holders and, together with arretto and 8arcia, as principal officers.

The following portion of the decision in ;uestion is also worth consideringG



... 2ince defendant arretto was the moving spirit in the pre-organi3ation wor/ of

defendant corporation based on his e)perience and e)pertise, hence he was

logicall# compensated in the amount of "%++,+++.++ shares of stoc/ not as

industrial partner but more for his technical services that brought to fruition the

defendant corporation. # the same to/en, >e find no reason wh# the plaintiff

should not be similarl# compensated not onl# for having activel# participated inthe preparation of the project stud# for several months and its subse;uent revision

but also in his having been involved in the pre-organi3ation of the defendant

corporation, in the preparation of the franchise, in inviting the interest of the

financiers and in the training and screening of personnel. >e agree that for these

special services of the plaintiff the amount of "=+,+++.++ as compensation is

reasonable. 5

The above finding bolsters the conclusion that the petitioners were not involved in the initial

stages of the organi3ation of the airline, which were being directed b# arretto as the main

promoter. It was he who was putting all the pieces together, so to spea/. The petitioners weremerel# among the financiers whose interest was to be invited and who were in fact persuaded, on

the strength of the project stud#, to invest in the proposed airline.

2ignificantl#, there was no showing that the Filipinas 4rient !irwa#s was a fictitious corporation

and did not have a separate juridical personalit#, to justif# ma/ing the petitioners, as principal

stoc/holders thereof, responsible for its obligations. !s a /ona fide corporation, the Filipinas

4rient !irwa#s should alone be liable for its corporate acts as dul# authori3ed b# its officers and

directors.

In the light of these circumstances, we hold that the petitioners cannot be held personall# liable

for the compensation claimed b# the private respondent for the services performed b# him in theorgani3ation of the corporation. To repeat, the petitioners did not contract such services. It was

onl# the results of such services that arretto and 8arcia presented to them and which persuaded

them to invest in the proposed airline. The most that can be said is that the# benefited from such

services, but that surel# is no justification to hold them personall# liable therefor. 4therwise, all

the other stoc/holders of the corporation, including those who came in later, and regardless of

the amount of their share holdings, would be e;uall# and personall# liable also with the

petitioners for the claims of the private respondent.

The petition is rather ha3# and seems to be flawed b# an ambiguous ambivalence. 4ur

impression is that it is opposed to the imposition of solidar# responsibilit# upon the Carams butseems to be willing, in a vague, une)pressed offer of compromise, to accept joint liabilit#. >hile

it is true that it does here and there disclaim total liabilit#, the thrust of the petition seems to be

against the imposition of solidar# liabilit# onl# rather than against an# liabilit# at all, which is

what it should have categoricall# argued.

Categoricall#, the Court holds that the petitioners are not liable at all, jointl# or jointl# and

severall#, under the first paragraph of the dispositive portion of the challenged decision. 2o



holding, we find it unnecessar# to e)amine at this time the rules on solidar# obligations, which

the parties-needlessl#, as it turns out have belabored unto death.

>A(B(F4B(, the petition is granted. The petitioners are declared not liable under the

challenged decision, which is hereb# modified accordingl#. It is so ordered.

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



NA+ARI! $RILLANA, administrator-appellee,vs.&E+!N C!LLEGE, INC., claimant-appellant.

Sin-son, Barnes, 6ap and Blanco for appellant.

el-ado, Flores 7 8acapa-al for appellee.

"ARAS, J.

<amasa Crisostomo sent the following letter to the oard of Trustees of the Due3on CollegeG

9une &, &*

The 4!B< 4F TB?2T((2Due3on CollegeManila

8entlemenG

"lease enter m# subscription to dalawang daan 6%++7 shares of #our capital stoc/ with a par value of "&++ each. (nclosed #ou will find 6aba#aran /ong lahat pag/atapos na a/oa# ma/apag-pahuli ng isda7 pesos as m# initial pa#ment and the balance pa#able inaccordance with law and the rules and regulations of the Due3on College. I hereb# agreeto shoulder the e)penses connected with said shares of stoc/. I further submit m#self toall lawful demands, decisions or directives of the oard of Trustees of the Due3onCollege and all its dul# constituted officers or authorities 6ang nasa itaas a# binasa atipinaliwanag sa a/in sa wi/ang tagalog na a/ing nalalaman7.

:er# respectfull#,

62gd.7 <!M!2! CBI242T4M42ignature of subscriber

$ilagdaan sa aming harapanG

942( CBI242T4M4(<?!B<4 CBI242T4M4

<amasa Crisostomo died on 4ctober %1, &*. !s no pa#ment appears to have been made on thesubscription mentioned in the foregoing letter, the Due3on College, Inc. presented a claim beforethe Court of First Instance of ulacan in her testate proceeding, for the collection of the sum of



"%+,+++, representing the value of the subscription to the capital stoc/ of the Due3on College,Inc. This claim was opposed b# the administrator of the estate, and the Court of First Instance of ulacan, after hearing issued an order dismissing the claim of the Due3on College, Inc. on theground that the subscription in ;uestion was neither registered in nor authori3ed b# the 2ecuritiesand ()change Commission. From this order the Due3on College, Inc. has appealed.

It is not necessar# for us to discuss at length appellant's various assignments of error relating tothe propriet# of the ground relief upon b# the trial court, since, as pointed out in the brief for theadministrator and appellee, there are other decisive considerations which, though not touched b#the lower court, ampl# sustained the appealed order.

It appears that the application sent b# <amasa Crisostomo to the Due3on College, Inc. waswritten on a general form indicating that an applicant will enclose an amount as initial pa#mentand will pa# the balance in accordance with law and the regulations of the College. 4n the other hand, in the letter actuall# sent b# <amasa Crisostomo, the latter 6who re;uested that her subscription for %++ shares be entered7 not onl# did not enclose an# initial pa#ment but stated

that 5baba#aran /ong lahat pag/atapos na a/o a# ma/apagpahuli ng isda.5 There is nothing in therecord to show that the Due3on College, Inc. accepted the term of pa#ment suggested b# <amasaCrisostomo, or that if there was an# acceptance the same came to her /nowledge during her lifetime. !s the application of <amasa Crisostomo is obviousl# at variance with the termsevidenced in the form letter issued b# the Due3on College, Inc., there was absolute necessit# onthe part of the College to e)press its agreement to <amasa's offer in order to bind the latter.Conversel#, said acceptance was essential, because it would be unfair to immediatel# obligate theDue3on College, Inc. under <amasa's promise to pa# the price of the subscription after she hadcaused fish to be caught. In other words, the relation between <amasa Crisostomo and theDue3on College, Inc. had onl# thus reached the preliminar# stage whereb# the latter offered itsstoc/ for subscription on the terms stated in the form letter, and <amasa applied for subscription

fi)ing her own plan of pa#ment, H a relation, in the absence as in the present case of acceptance b# the Due3on College, Inc. of the counter offer of <amasa Crisostomo, that had not ripened intoan enforceable contract.

Indeed, the need for e)press acceptance on the part of the Due3on College, Inc. becomes themore imperative, in view of the proposal of <amasa Crisostomo to pa# the value of thesubscription after she has harvested fish, a condition obviousl# dependent upon her sole will and,therefore, facultative in nature, rendering the obligation void, under article &&&= of the old CivilCode which provides as followsG 5If the fulfillment of the condition should depend upon thee)clusive will of the debtor, the conditional obligation shall be void. If it should depend uponchance, or upon the will of a third person, the obligation shall produce all its effects inaccordance with the provisions of this code.5 It cannot be argued that the condition solel# is void, because it would have served to create the obligation to pa#, unli/e a case, e)emplified b# Osme9a vs. %ama 6& "hil., 7, wherein onl# the potestative condition was held void because it referred merel# to the fulfillment of an alread# e)isting indebtedness.

In the case of 4aylor vs. :y 4ien- Piao, et al . 60 "hil., *0, *7, this Court alread# held that 5acondition, facultative as to the debtor, is obno)ious to the first sentence contained in article &&&=and renders the whole obligation void.5



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

G.R. No6. L-4)195 / 4)19* # 1, 1942

S!FR!NI! $. AYLA, E$ AL., petitioners,vs.SILANG $RAFFIC C!., INC., respondent.SILANG $RAFFIC C!., 'e(8(8oer, 6. S!FR!NI! AYLA, E$ AL., respondents.

3. A. Beltran for petitioners.

Conrado ;. Sanche<, 8elchor C. Benite<, and 3nrique 8. Fernando for respondent.

!+AE$A, J.:

"etitioners in 8.B. $o. *&= instituted this action in the Court of First Instance of Caviteagainst the respondent 2ilang Traffic Co., Inc. 6cross-petitioner in 8.B. $o. *&17, to recover certain sums of mone# which the# had paid severall# to the corporation on account of shares of stoc/ the# individuall# agreed to ta/e and pa# for under certain specified terms and conditions,of which the following referring to the petitioner 9osefa $aval, is t#picalG

!8B((M($T F4B I$2T!M($T 2!( 4F 2A!B(2 I$ TA( 52I!$8TB!FFIC C4M"!$J, I$C.,5

2ilang, Cavite, ". I.

TAI2 !8B((M($T, made and entered into between Mrs. 9osefa $aval, of legal age,married and resident of the Municipalit# of 2ilang, "rovince of Cavite, "hilippineIslands, part# of the First "art, hereinafter called the subscriber, and the 52ilang TrafficCompan#, Inc.,5 a corporation dul# organi3ed and e)isting b# virtue of and under thelaws of the "hilippine Islands, with its principal office in the Municipalit# of 2ilang,"rovince of Cavite, "hilippine Islands, part# of the 2econd "art, hereinafter called theseller,

>IT$(22(TAG

That the subscriber promises to pa# personall# or b# his dul# authori3ed agent to theseller at the Municipalit# of 2ilang, "rovince of Cavite, "hilippine Islands, the sum of one thousand five hundred pesos 6"&,=++7, "hilippine currenc#, as purchase price of FIFT(($ 6&=7 shares of capital stoc/, said purchase price to be paid as follows, to witGfive 6=K7 per cent upon the e)ecution of the contract, the receipt whereof is hereb#



ac/nowledged and confessed, and the remainder in installments of five per cent, pa#ablewithin the first month of each and ever# ;uarter thereafter, commencing on the &st da# of 9ul#, &0=, with interest on deferred pa#ments at the rate of 2IL 61K7 per cent per annumuntil paid.

That the said subscriber further agrees that if he fails to pa# an# of said installment whendue, or to perform an# of the aforesaid conditions, or if said shares shall be attached or levied upon b# creditors of the said subscriber, then the said shares are to revert to theseller and the pa#ments alread# made are to be forfeited in favor of said seller, and thelatter ma# then ta/e possession, without resorting to court proceedings.

The said seller upon receiving full pa#ment, at the time and manner hereinbeforespecified, agrees to e)ecute and deliver to said subscriber, or to his heirs and assigns, thecertificate of title of said shares, free and clear of all encumbrances.

In testimon# whereof, the parties have hereunto set their hands in the Municipalit# of

2ilang, "rovince of Cavite, "hilippine Islands, this 0+th da# of March, &0=.

62gd.7 942(F! $!:!2I!$8 TB!FFIC C4M"!$J, I$C. Su/scri/er

# 62gd.7 I$4 84M( President .

6()hibit &. $otarial ac/nowledgment omitted.7

The agreements signed b# the other petitioners were of the same date 6March 0+, &0=7 and inidentical terms as the foregoing e)cept as to the number of shares and the corresponding purchase price. The petitioners agreed to purchase the following number of shares and, up to!pril 0+, &0, had paid the following sums on account thereofG

2ofronio T.a#la.......

* shares "01+

:enancioToledo........

* shares 0=

9osefa &= shares 1=



$aval..............

"a3Toledo................

&= shares 1=

"etitioners' action for the recover# of the sums above mentioned is based on a resolution b# the board of directors of the respondent corporation on !ugust &, &0, of the following tenorG

! mocion sel 2r. Marcos Caparas # secundado por el 2r. !lejandro a#la, ;ue para el bien de la corporacion # la pronta terminacion del asunto civil $o. 0&%= titulado 5:icenteF. :illanueva et al. vs. ino 8ome3 et al.,5 en el 9u3gado de "rimera Instancia de Cavite,donde se gasto # se gastara no poca cantidad de la Corporacion, se resolvio # se aprobo

por la 9unta <irectiva los siguientesG

6a7 Due se dejara sin efecto lo aprobado por la 9unta <irectiva el 0 de mar3o, &0=, art.&&, sec. &1%, sobre las cobran3as ;ue se haran por el 2ecretario Tesorero de laCorporacion a los accionistas ;ue habian tomado o suscrito nuevas acciones # ;ue se permitia a estos pagar %+K del valor de las acciones suscritas en un aNo, con interes de1K # el pago o jornal ;ue se hara por trimestre.

6b7 2e dejara sin efecto, en vista de ;ue aun no esta pagado todo el valor de las &%0acciones, tomadas de las acciones no e)pedidas 6unissued stoc/7 de la Corporacion # ;uefueron suscritas por los siguienesG

ino8ome3.....................

&+ !cciones

:enancioToledo.............

* !cciones

Melchor ".enite3........

& !cciones



Isaias:ideNa.................

& !cciones

(steban:elasco............

&+ !cciones

$umeriano 2.!ldaba....

&= !cciones

InocencioCru3.................

* !cciones

9osefa $aval ..................

&= !cciones

2ofronioa#la.................

* !cciones

<ionisio<ungca.............

0 !cciones

# devolver a las personas arriba descritas toda la cantidad ;ue estas habian pagado por las &%0acciones.

6c7 Due se dejara sin efecto lo aprobado por la 9unta <irectiva el 0 mar3o, &0=, art. :.

sec. &1=, sobre el cambio o true;ue de las 0& acciones del Treasur# 2toc/, contra las 0%acciones del 2r. $umeriano !ldaba, en la corporacion $orthern u3on Transportation Co.# ;ue se devuelva al 2r. $umeriano !ldaba las 0% acciones mencionadas despues ;ue elha#a devuelto el certificado de las 0& acciones de la 2ilang Traffic Co., Inc.

6d7 "ermitir al Tesorero de la Corporacion para ;ue devuelva a las personas arribaindicadas, las cantidades pagadas por las &%0 acciones. 6()hibit !-&.7



The respondent corporation set up the following defensesG 6&7 That the above-;uoted resolutionis not applicable to the petitioners 2ofronio T. a#la, 9osefa $aval, and "a3 Toledo because onthe date thereof 5their subscribed shares of stoc/ had alread# automaticall# reverted to thedefendant, and the installments paid b# them had alread# been forfeited5@ and 6%7 that saidresolution of !ugust &, &0, was revo/ed and cancelled b# a subse;uent resolution of the board

of directors of the defendant corporation dated !ugust %%, &0.

The trial court absolved the defendant from the complaint and declared canceled 6forfeited7 infavor of the defendant the shares of stoc/ in ;uestion. It held that the resolution of !ugust &,&0, was null and void, citing;elasco vs. Poi<at 60 "hil., *+%7, wherein this Court held that 5acorporation has no legal capacit# to release an original subscriber to its capital stoc/ from theobligation to pa# for shares@ and an# agreement to this effect is invalid5 "laintiffs below appealedto the Court of !ppeals, which modified of the trial court as followsG

That part of the judgment dismissing plaintiff's complaint is affirmed, but that partthereof declaring their subscription canceled is reversed. <efendant is directed to grant

plaintiffs 0+ da#s after final judgment within which to pa# the arrears on their subscription. >ithout pronouncement as to costs.

oth parties appealed to this Court b# petition and cross-petition for certiorari. "etitioners insistthat the# have the right to recover the amounts involved under the resolution of !ugust &, &0,while the respondent and cross-petitioner on its part contends that said amounts have beenautomaticall# forfeited and the shares of stoc/ have reverted to the corporation under theagreement hereinabove ;uoted.

The parties litigant, the trial court, and the Court of !ppeals have interpreted or considered thesaid agreement as a contract of subscription to the capital stoc/ of the respondent corporation. It

should be noted, however, that said agreement is entitled 5!greement for Installment 2ale of 2hares in the 2ilang Traffic Compan#, Inc.,5@ that while the purchaser is designated as5subscriber,5 the corporation is described as 5seller5@ that the agreement was entered into onMarch 0+, &0=, long after the incorporation and organi3ation of the corporation, which too/ place in &%@ and that the price of the stoc/ was pa#able in ;uarterl# installments spread over a period of five #ears. It also appears that in civil case $o. 0&%= of the Court of First Instance of Cavite mentioned in the resolution of !ugust &, &0, the right of the corporation to sell theshares of stoc/ to the person named in said resolution 6including herein petitioners7 wasimpugned b# the plaintiffs in said case, who claimed a preferred right to bu# said shares.

>hether a particular contract is a subscription or a sale of stoc/ is a matter of construction anddepends upon its terms and the intention of the parties 6 Fletcher, C#clopedia of CorporationOpermanent editionP, %, cited in 2almon, <e)ter E Co. vs. ?nson 6 "hil. 1, 1=%7. In the?nson case just cited, this Court held that a subscription to stoc/ in an e)isting corporation is, as between the subscriber and the corporation, simpl# a contract of purchase and sale.

It seems clear from the terms of the contracts in ;uestion that the# are contracts of sale and not of subscription. The lower courts erred in overloo/ing the distinction between subscription and purchase 5! subscription, properl# spea/ing, is the mutual agreement of the subscribers to ta/e



and pa# for the stoc/ of a corporation, while a purchase is an independent agreement between theindividual and the corporation to bu# shares of stoc/ from it at stipulated price.5 6&* C. 9. 2.,1+.7 In some particulars the rules governing subscriptions and sales of shares are different. For instance, the provisions of our Corporation aw regarding calls for unpaid subscription andassessment of stoc/ 6sections 0-=+7 do not appl# to a purchase of stoc/. i/ewise the rule that

corporation has no legal capacit# to release an original subscriber to its capital stoc/ from theobligation to pa# for his shares, is inapplicable to a contract of purchase of shares.

The ne)t ;uestion to determine is whether under the contract between the parties the failure of the purchaser to pa# an# of the ;uarterl# installments on the purchase price automaticall# gaverise to the forfeiture of the amounts alread# paid and the reversion of the shares to thecorporation. The contract provides for interest of the rate of si) per centum per annum ondeferred pa#ments. It is also provides that if the purchaser fails to pa# an# of said installmentswhen due, the said shares are to revert to the seller and the pa#ments alread# made are to beforfeited in favor of said seller. The respondent corporation contends that when the petitionersfailed to pa# the installment which fell due on or before 9ul# 0&, &0, forfeiture automaticall#

too/ place, that is to sa#, without the necessit# of an# demand from the corporation, and thattherefore the resolution of !ugust &, &0, authori3ing the refund of the installments alread# paidwas inapplicable to the petitioners, who had alread# lost an# and all rights under said contract.The contention is, we thin/, untenable. The provision regarding interest on deferred pa#mentswould not have been inserted if it had been the intention of the parties to provide for automaticforfeiture and cancelation of the contract. Moreover, the contract did not e)pressl# provide thatthe failure of the purchaser to pa# an# installment would give rise to forfeiture and cancelationwithout the necessit# of an# demand from the seller@ and under article &&++ of the Civil Code persons obliged to deliver or do something are not in default until the moment the creditor demands of them judiciall# or e)trajudiciall# the fulfillment of their obligation, unless 6&7 theobligation or the law e)pressl# provides that demand shall not be necessar# in order that default

ma# arise, 6%7 b# reason of the nature and circumstances of the obligation it shall appear that thedesignation of the time at which that thing was to be delivered or the service rendered was the principal inducement to the creation of the obligation.

Is the resolution of !ugust &, &0, valid The contract in ;uestion being one of purchase and notsubscription as we have heretofore pointed out, we see no legal impediment to its rescission b#agreement of the parties. !ccording to the resolution of !ugust &, &0, the recission was madefor the good of the corporation and in order to terminate the then pending civil case involving thevalidit# of the sale of the shares in ;uestion among others. To that rescission the herein petitioners apparentl# agreed, as shown b# their demand for the refund of the amounts the# had paid as provided in said resolution. It appears from the record that said civil case wassubse;uentl# dismissed, and that the purchasers of shares of stoc/, other than the herein petitioners, who were mentioned in said resolution were able to benefit b# said resolution. Itwould be an unjust discrimination to den# the same benefit to the herein petitioners.

>e ma# add that there is no intimation in this case that the corporation was insolvent, or that theright of an# creditor of the same was in an# wa# prejudiced b# the rescission.



The attempted revocation of said rescission b# the resolution of !ugust %%, &0, was invalid, itnot having been agreed to b# the petitioners.

>herefore, the judgment of the court of appeals is hereb# reversed and another judgment will beentered against the defendant 2ilang Traffic Co., Inc., ordering it to pa# to the plaintiffs 2ofronio

T. a#la, :enancio Toledo, 9osefa $aval, and "a3 Toledo, the sums of "01+, "0=, "1=, and"1=, respectivel#, with legal interest on each of said sums from Ma# %*, &0*, the date of thefiling of the complaint, until the date of pa#ment, and with costs in the three instances. 2oordered.

March &=, &&*

8.B. $o. &&=%*

#IG&EL ELASC!, 668:ee o; $<e "<8=8''8e C<em8c= "ro/c( Co. >L(/.?, plaintiff-

appellant,

vs.

EAN #. "!I+A$, defendant-appellee.

;icente %odri-ue< for appellant.

A. J. Bur5e for appellee.

S$REE$, J.

From the amended complaint filed in this cause upon Februar# =, &&=, it appears that the

plaintiff, as assignee in insolvenc# of 5The "hilippine Chemical "roduct Compan#5 6td.7 is

see/ing to recover of the defendant, 9ean M. "oi3at, the sum of "&,=++, upon a subscription

made b# him to the corporate stoc/ of said compan#. It appears that the corporation in ;uestion

was originall# organi3ed b# several residents of the cit# of Manila, where the compan# had its principal place of business, with a capital of "=+,+++, divided into =++ shares. The defendant

subscribed for %+ shares of the stoc/ of the compan#, an paid in upon his subscription the sum of

"=++, the par value of = shares . The action was brought to recover the amount subscribed upon

the remaining shares.



It appears that the defendant was a stoc/ holder in the compan# from the inception of the

enterprise, and for sometime acted as its treasurer and manager. >hile serving in this capacit# he

called in and collected all subscriptions to the capital stoc/ of the compan#, e)cept the aforesaid

&= shares subscribed b# himself and another &= shares owned b# 9ose B. Infante.

?pon 9ul# &0, &&, a meeting of the board of directors of the compan# was held at which a

majorit# of the stoc/ was presented. ?pOon this occasion two resolutions, important to be here

noted, were adopted. The first was a proposal that the directors, or shareholders, of the compan#

should ma/e good b# new subscriptions, in proportion to their respective holdings, &= shares

which had been surrendered b# Infante. It seems that this shareholder had alread# paid %= per

cent of his subscription upon %+ shares, leaving &= shares unpaid for, and an understanding had

been reached b# him and the management b# which he was to be released from the obligation of

his subscription, it being understood that what he had alread# paid should not be refunded.

!ccordingl# the directors present at this meeting subscribed "&,%++ toward ta/ing up his shares,

leaving a deficienc# of "0++ to be recovered b# voluntar# subscriptions from stoc/holders not

present at the meeting.

The other proposition was o the effect that 9uan O9eanP M. "oi3at, who was absent, should be

re;uired to pa# the amount of his subscription upon the &= shares for which he was still indebted

to the compan#. The resolution further provided that, in case he should refuse to ma/e such

pa#ment, the management of the corporation should be authori3ed to underta/e judicial

proceedings against him. >hen notification of this resolution reached "oi3at through the mail it

evo/ed from him a manifestation of surprise and pain, which found e)pression in a letter written

b# him in repl#, dated 9ul# %, &&, and addressed to :elasco, as treasurer and administrator. In

this letter "oi3at states that he had been given to understand b# some member of the board of

directors that he was to be relieved from his subscription upon the terms conceded to Infante@ and

he addedG

M# desire to be relieved from the pa#ment of the remaining = per cent arises from the

poor opinion which I entertain of the business and the faint hope of ever recovering an#

mone# invested. In conse;uence, I prefer to lose the whole of the %= per cent I have

alread# paid rather than to continue investing more mone# in what I consider to be

ruinous proposition.



>ithin a short while the unfavorable opinion entertained b# "oi3at as to the prospect of the

compan# was found to be full# justified, as the compan# soon went into voluntar# insolvenc#,

:elasco being named as the assignee. Ae ;ualified at once b# giving bond, and was dul#

inducted into the office of assignee upon $ovember %=, &&, b# virtue of a formal transfer

e)ecuted b# the cler/ in pursuance of section 0% of !ct $o. &=1 .

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

consisting of a concatenation of statements more appropriate for a demurrer than as material for

a special defense. The principal contention is that the call made b# the board of directors of the

compan# on 9ul# &0, && , was not made pursuant to the re;uirements of sections 0 and 0* of

the Corporation aw 6!ct $o. &=7 , and in particular that the action was instituted before the

e)piration of the 0+ da#s specified in section 0*.

!t the hearing of the Court of First Instance, judgment was rendered in favor of the defendant,

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

>e thin/ that "oi3at is liable upon this subscription. ! stoc/ subscription is a contract between

the corporation on one side, and the subscriber on the other, and courts will enforce it for or

against either. It is a rule, accepted b# the 2upreme Court of the ?nited 2tates, that a subscription

for shares of stoc/ does not re;uire an e)press promise to pa# the amount subscribed, as the law

implies a promise to pa# on the part of the subscriber. 6 Buling Case aw, sec. &&.7 2ection 01

of the Corporation aw clearl# recogni3es that a stoc/ subscription is subsisting liabilit# from

the time the subscription is made, since it re;uires the subscriber to pa# interest ;uarterl# from

that date unless he is relieved from such liabilit# b# the b#-laws of the corporation. The

subscriber is as much bound to pa# the amount of the share subscribed b# him as he would be to

pa# an# other debt, and the right of the compan# to demand pa#ment is no less incontestable.

The provisions of the Corporation aw 6!ct $o. &=7 given recognition of two remedies for the

enforcement of stoc/ subscriptions. The first and most special remed# given b# the statuteconsists in permitting the corporation to put up the unpaid stoc/ for sale and dispose of it for the

account of the delin;uent subscriber. In this case the provisions of section 0* to *, inclusive , of

the Corporation aw are applicable and must be followed. The other remed# is b# action in

court, concerning which we find in section the following provisionG

http://philippinelaw.info/statutes/act1956.html


http://philippinelaw.info/statutes/act1459-the-corporation-law.html






$othing in this !ct shall prevent the directors from collecting, b# action in an# court of

proper jurisdiction, the amount due on an# unpaid subscription, together with accrued

interest and costs and e)penses incurred.

It is generall# accepted doctrine that the statutor# right to sell the subscriber's stoc/ is merel# a

remed# in addition to that which proceeds b# action in court@ and it has been held that the

ordinar# legal remed# b# action e)ists even though no e)press mention thereof is made in the

statute. 6Instone vs. Fran/fort ridge Co., % ibb O#.P, =1@ = !m. <ec., 10*.7

$o attempt is made in the Corporation aw to define the precise conditions under which an

action ma# be maintained upon a stoc/ subscription, as such conditions should be determined

with reference to the rules governing contract liabilit# in general@ and where it appears as in this

case that a matured stoc/ subscription is unpaid, none of the provisions contained in section 0*

to *, inclusive, of !ct $o. &=can be permitted to obstruct or impede the action to recover

thereon. # virtue of the first subsection of section 01 of the Insolvenc# aw 6!ct $o. &=17 the

assignee of the insolvent corporation succeeds to all the corporate rights of action vested in the

corporation prior to its insolvenc#@ and the assignee therefore has the same freedom with respect

to suing upon the stoc/ subscription as the directors themselves would have had under section

above cited.

ut there is another reason wh# the present plaintiff must prevail in this case, even supposing

that the failure of the directors to compl# with the re;uirements of the provisions of sections 0*

to *, inclusive, of !ct $o. &= might have been an obstacle to a recover# b# the corporation

itself. That reason is thisG >hen insolvenc# supervenes upon a corporation and the court assumes

jurisdiction to wind up, all unpaid stoc/ subscriptions become pa#able on demand, and are at

once recoverable in an action instituted b# the assignee or receiver appointed b# the court. This

rule apparentl# had origin in a recognition of the principle that a court of e;uit#, having

jurisdiction of the insolvenc# proceedings, could, if necessar#, ma/e the call itself, in its capacit#

as successor to the powers e)ercised b# the board of directors of the defunct compan#. ater a

further rule gained recognition to the effect that the receiver or assignee, in an action instituted

b# proper authorit#, could himself proceed to collect the subscription without the necessit# of

an# prior call whatever. This conclusion is well supported b# reference to the following

authoritiesG









. . . a court of e;uit# ma# enforce pa#ment of the stoc/ subscriptions, although there have

been no calls for them b# the compan#. 6Aatch vs. <ana, &+& ?. 2., %+=.7

It is again insisted that the plaintiffs cannot recover because the suit was not preceded b#

a call or assessment against no right of action accrues. In a suit b# a solvent going

corporation to collect a subscription, and in certain suits provided b# the statute this

would be true@ but it is now ;uite well settled that when the corporation becomes

insolvent, with proceedings instituted b# creditors to wind up and distribute its assets, no

call or assessment is necessar# before the institution of suits to collect unpaid balances on

subscription. 6Boss-Meehan 2hoe F. Co. vs.2outhern Malleable Iron Co., % Fed., =,

1+@ see also Aenr# vs. :ermillion etc. B. B. Co., & 4hio, &*, and Thompson on

Corporations %d ed., vol. 0, sec. %1.7

It evidentl# cannot be permitted that a subscriber should escape from his lawful obligation b#

reason of the failure of the officers of the corporation to perform their dut# in ma/ing a call@ and

when the original model of ma/ing the call becomes impracticable, the obligation must be

treated as due upon demand. If the corporation must be treated still an active entit#, and this

action should be dismissed for irregularit# in the ma/ing of the call, other steps could be ta/en

b# the board to cure the defect and another action could be brought@ but where the compan# is

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

insolvenc# supervenes all unpaid subscriptions become at once due and enforceable.

The printed bill of e)ceptions in this cause does not contain the original complaint, nor does it

state who was plaintiff therein or the date when the action was instituted. It ma#, however, be

gathered from the papers transmitted to this court that the action was originall# instituted in the

name of the "hilippine Chemical "roduct Co. 6td.7, prior to its insolvenc#, and that later the

assignee was substituted as plaintiff and then filed the amended complaint, with the permission

of the court. $ow, if we concede that no right of action e)isted when the original complaint was

filed, a right of action certainl# e)isted when the assignee filed his amended complaint@ and as

the bill of e)ceptions fails to show that an# e)ception was ta/en to the action of the court in

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

ground that the action was prematurel# brought.



The circumstance that the board of directors in their meeting of 9ul# &0, &&, resolved to release

Infante from his obligation upon a subscription for &= shares is no wise prejudicial to the right of

the corporation or its assignee to recover from "oi3at upon a subscription made b# him. In

releasing Infante the board transcended its powers, and he no doubt still remained liable on such

of his shares as were not ta/en up and paid for b# other persons.

The general doctrine is that the corporation has no legal capacit# to release an original

subscriber to its capital stoc/ from the obligation of pa#ing for his shares, in whole or in

part, . . . 6&+ C#c., =+.7

The suggestion contained in "oi3at's letter of 9ul# %, &&, to the effect that he understood that

he was to be relieved upon the same terms as Infante is, for the same reason, of no merit as

matter of defense, even if an agreement to that effect had been dul# proved.

From what has been said it is manifest that the defendant is liable for "&,=++, the amount of his

subscription upon the unpaid shares. ?nder section 01 of the Corporation aw he is also liable

for interest at the lawful rate from the date of his subscription, unless relieved from this liabilit#

b# the b#-laws of the compan#. These b#-laws have not been introduced in evidence and there is

no proof showing the e)act date upon which the subscription was made, though it is alleged in

the original complaint that the compan# was organi3ed upon March %0, &&. This allegation is

not admitted in the agreed statement of facts. The defendant, however, inferentiall# admits in his

letter of 9ul# %, &&, that his subscription had been made prior to 9ul# &0, &&. It resulted that

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

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

the plaintiff and against the defendant for the sum of one thousand five hundred pesos 6"&,=++7,

with interest from 9ul# &0, &+&, and costs of both instances. 2o ordered.



G.R. No6. L-24177-)5 e 29, 19*)

"HILI""INE NA$I!NAL AN%, plaintiff-appellee,

vs.

I$&L!% SA@#ILL, INC., DINGALAN L&#ER C!., INC., SIERRA #ADRE

L&#ER C!., INC., NASI"I$ L&#ER C!., INC., @!!D@!R%S, INC., G!N+AL!

"&YA$, $!#AS . #!RA$!, FINDLAY #ILLAR L&#ER C!., INC., E$ AL.,

INS&LAR L&#ER C!., ANA%AN L&#ER C!., AND CAN$ILAN L&#ER C!.,

INC., defendants-appellees.

4omas Besa, Simplicio &. An-eles and Jose B. $alan- for plaintiff(appellee.

Bausa, Ampil and Suare< for defendant(appellant =oodwor5s, 2nc.

Pacifico de Ocampo for defendant(appellant Ana5an 'um/er Co.

%oss, Selph, Salcedo, el %osario, Bito and 8isa for defendant(appellant 2nsular 'um/er Co.

$arin, Boquiren and 4amesis for defendant(appellant &asipit 'um/er Co., 2nc.

Feria, 8an-lapus and Associates for defendant(appellant $on<alo Puyat.

Sycip, Sala<ar and Associates for defendant(appellant Cantilan 'um/er Co., 2nc.

O<aeta, $i//s and O<aeta for defendant(appellant Findlay 8illar 'um/er Co., 2nc.

ominador Alafri< for defendant(appellant Bitulo5 Sawmill, 2nc.

e la Costa and e la Costa for defendant(appellant 4omas B. 8orato.

FERNAND!, J.:

In the face of a statutor# norm, which, as interpreted in a uniform line of decisions b# this Court,

spea/s une;uivocall# and is free from doubt, the lower court with full recognition that the case

for the plaintiff creditor, "hilippine $ational an/, 5is meritorious strictl# from the legal

standpoint5 & but apparentl# unable to 5close its e#es to the e;uit# of the case5 % dismissed nine

67 cases filed b# it, see/ing 5to recover from the defendant lumber producers Oitulo/ 2awmill,

Inc.@ <ingalan umber Co., Inc., 2ierra Madre umber Co., Inc.@ $asipit umber Co., Inc.@

>oodwor/s, Inc.@ 8on3alo "u#at@ Tomas . Morato@ Findla# Millar umber Co., Inc.@ Insular

umber Co., Inc.@ !na/an umber Co., Inc.@ and Cantilan umber Co., Inc.P the balance of their stoc/ subscriptions to the "hilippine umber <istributing !genc#, Inc.5 0 In essence then, the

crucial ;uestion posed b# this appeal from such a decision of the lower court is adherence to the

rule of law. 4therwise stated, would non-compliance with a plain statutor# command,

considering the persuasiveness of the plea that defendants-appellees would 5not have subscribed

to OtheP capital stoc/5 of the "hilippine umber <istributing !genc# 5were it not for the

assurance of the OthenP "resident of the Bepublic of the "hilippines that the 8overnment would

bac/ OitP up b# investing ".++ for ever# peso5 subscribed, a condition which was not fulfilled,



such commitment not having been complied with, be justified The answer must be in the

negative.

It cannot be otherwise even if an element of unfairness and injustice could be predicated, as the

lower court, in a rather s#mpathetic mood, did find in the plaintiff ban/, as creditor, compelling

defendant lumber producers under the above circumstances to pa# the balance of their subscriptions. For a plain and statutor# command, if applicable, must be respected. The rule of

law cannot be satisfied with an#thing less. The appeal must be sustained.

In these various suits decided jointl#, the "hilippine $ational an/, as creditor, and therefore the

real part# in interest, was allowed b# the lower court to substitute the receiver of the "hilippine

umber <istributing !genc# in these respective actions for the recover# from defendant lumber

producers the balance of their stoc/ subscriptions. The amount sought to be collected from

defendants-appellees itulo/ 2awmill, Inc., <ingalan umber Co., Inc., and 2ierra Madre

umber Co., Inc., is "=,+++.++, defendants-appellees having made a partial pa#ment of

"&=,+++.++ of their total subscription worth "%+,+++.++@ from defendant-appellee $asipit

umber Co., Inc., the sum of "&+,+++.++, defendant-appellee having made a partial pa#ment of

"&+,+++.++ of its total subscription worth "%+,+++.++@ from defendant-appellee >oodwor/s,

Inc., the sum of "&+,**1.++, defendant-appellee having made a partial pa#ment of ",&&.++ of

its total subscription worth "%+,+++.++@ from defendant-appellee 8on3alo "u#at the sum of

"&+,+++.++, defendant-appellee having made a partial pa#ment of "&+,+++.++ of his total

subscription worth "%+,+++.++@ from defendant-appellee Tomas Morato the sum of "&+,+++.++,

defendant-appellee having made a partial pa#ment of "&+,+++.++ of his total subscription worth

"%+,+++.++@ from defendant-appellee Findla# Millar umber Co., Inc., the sum of "&+,+++.++,

defendant-appellee having made a partial pa#ment of "&+,+++.++ of its total subscription worth

"%+,+++.++@ from defendant-appellee Insular umber Co., Inc., the sum of "=,+++.++, defendant-

appellee having made a partial pa#ment of "&=,+++.++ of its total subscription worth "%+,+++.++@from defendant-appellee !na/an umber Co., Inc., the sum of "&=,+++.++, defendant-appellee

having made a partial pa#ment of "=,+++.++ of its total subscription worth "%+,+++.++@ and from

defendant-appellee Cantilan umber Co., Inc., the sum of ",=++.++, defendant-appellee having

made a partial pa#ment of "%,=++.++ of its total subscription worth "&+,+++.++, plus interest at

the legal rate from the filing of the suits and the costs of the suits in all the nine 67 cases.

The "hilippine umber <istributing !genc#, Inc., according to the lower court, 5was organi3ed

sometime in the earl# part of & upon the initiative and insistence of the late "resident Manuel

Bo)as of the Bepublic of the "hilippines who for the purpose, had called several conferences

between him and the subscribers and organi3ers of the "hilippine umber <istributing !genc#,Inc.5 = The purpose was praiseworth#, to insure a stead# suppl# of lumber, which could be sold at

reasonable prices to enable the war sufferers to rehabilitate their devastated homes. The decision

continuesG 5Ae convinced the lumber producers to form a lumber cooperative and to pool their

sources together in order to wrest, particularl#, the retail trade from aliens who were acting as

middlemen in the distribution of lumber. !t the beginning, the lumber producers were reluctant

to organi3e the cooperative agenc# as the# believed that it would not be eas# to eliminate from

the retail trade the alien middlemen who had been in this business from time immemorial, but



because the late "resident Bo)as made it clear that such a cooperative agenc# would not be

successful without a substantial wor/ing capital which the lumber producers could not entirel#

shoulder, and as an inducement he promised and agreed to finance the agenc# b# ma/ing the

8overnment invest ".++ b# wa# of counterpart for ever# peso that the members would invest

therein,....5 1

This was the assurance relied upon according to the decision, which stated that the amount thus

contributed b# such lumber producers was not enough for the operation of its business especiall#

having in mind the primar# purpose of putting an end to alien domination in the retail trade of

lumber products. $or was there an# appropriation b# the legislature of the counterpart fund to be

put up b# the 8overnment, namel#, ".++ for ever# peso invested b# defendant lumber

producers. !ccordingl#, 5the late "resident Bo)as instructed the Aon. (milio !bello, then

()ecutive 2ecretar# and Chairman of the oard of <irectors of the "hilippine $ational an/, for

the latter to grant said agenc# an overdraft in the original sum of "%=+,+++.++ which was later

increased to "0=+,+++.++, which was approved b# said oard of <irectors of the "hilippine

$ational an/ on 9ul# %*, &, pa#able on or before !pril 0+, &=*, with interest at the rate of 1K per annum, and secured b# the chattel mortgages on the stoc/ of lumber of said

agenc#.5 The "hilippine 8overnment did not invest the ".++ for ever# peso coming from

defendant lumber producers. The loan e)tended to the "hilippine umber <istributing !genc# b#

the "hilippine $ational an/ was not paid. Aence, these suits.

For the lower court, the above facts sufficed for their dismissal. To its mind 5it is grossl# unfair

and unjust for the plaintiff ban/ now to compel the lumber producers to pa# the balance of their

subscriptions .... Indeed, when the late "resident Bo)as made representations to the plaintiff

ban/, thru the Aon. (milio !bello, who was then the ()ecutive 2ecretar# and Chairman of its

oard of <irectors, to grant said overdraft to the agenc#, it was the onl# wa# b# which "resident

Bo)as could ma/e good his commitment that the 8overnment would invest in said agenc# to thee)tent alread# mentioned because, according to said late "resident Bo)as, the legislature had not

appropriated an# amount for such counterpart. Conse;uentl#, viewing from all considerations of

e;uit# in the case, the Court finds that plaintiff ban/ should not collect an# more from the

defendants the balance of their subscriptions to the capital stoc/ of the "hilippine umber

<istributing !genc#, Inc.5 *

(ven with the case for defendant lumber producers being put forth in its strongest possible light

in the appealed decision, the plaintiff creditor, the "hilippine $ational an/, should have been

the prevailing part#. 4n the law as it stands, the judgment reached b# the lower court cannot be

sustained. The appeal, as earlier made clear, possesses merit.

In Philippine 4rust Co. v. %ivera, citing the leading case of ;elasco v. Poi<at , &+ this Court heldG

5It is established doctrine that subscriptions to the capital of a corporation constitute a fund to

which creditors have a right to loo/ for satisfaction of their claims and that the assignee in

insolvenc# can maintain an action upon an# unpaid stoc/ subscription in order to reali3e assets

for the pa#ment of its debt.... ! corporation has no power to release an original subscriber to its

capital stoc/ from the obligation of pa#ing for his shares, without a valuable consideration for



such release@ and as against creditors a reduction of the capital stoc/ can ta/e place onl# in the

manner and under the conditions prescribed b# the statute or the charter or the articles of

incorporation. Moreover, strict compliance with the statutor# regulations is necessar#....5 The

"oi3at doctrine found acceptance in later cases. &&4ne of the latest cases, 'in-ayen $ulf 3lectric

Power v. Balta<ar , &% 2pea/s to this effectG 5In the case of ;elasco v. Poi<at , &0 the corporation

involved was insolvent, in which case all unpaid stoc/ subscriptions become pa#able on demandand are immediatel# recoverable in an action instituted b# the assignee.5

It would be unwarranted to ascribe to the late "resident Bo)as the view that the pa#ment of the

stoc/ subscriptions, as thus re;uired b# law, could be condoned in the event that the counterpart

fund to be invested b# the 8overnment would not be available. (ven if such were the case,

however, and such a promise were in fact made, to further the laudable purpose to which the

proposed corporation would be devoted and the possibilit# that the lumber producers would lose

mone# in the process, still the plain and specific wording of the applicable legal provision as

interpreted b# this Court must be controlling. It is a well-settled principle that with all the vast

powers lodged in the ()ecutive, he is still devoid of the prerogative of suspending the operationof an# statute or an# of its terms.

The emphatic and categorical language of an !merican decision cited b# the late 9ustice aurel,

in People v. ;era,& comes to mindG 5# the twentieth article of the declaration of rights in the

constitution of this commonwealth, it is declared that the power of suspending the laws, or the

e)ecution of the laws, ought never to be e)ercised but b# the legislature, or b# authorit# derived

from it, to be e)ercised in such particular cases onl# as the legislature shall e)pressl# provide

for....5 $or could it be otherwise considering that the Constitution specificall# enjoins the

"resident to see to it that all laws be faithfull# e)ecuted. &= There ma# be a discretion as to what a

particular legal provision re;uires@ there can be none whatsoever as to the enforcement and

application thereof once its meaning has been ascertained. >hat it decrees must be followed@what it commands must be obe#ed. It must be respected, the wishes of the "resident, to the

contrar# notwithstanding, even if impelled b# the most worth# of motives and the most

persuasive e;uitable considerations. To repeat, such is not the case here. For at no time did

"resident Bo)as ever give defendant lumber producers to understand that the failure of the

8overnment for an# reason to put up the counterpart fund could terminate their statutor#

liabilit#.

2uch is not the law. ?nfortunatel#, the lower court was of a different mind. That is not to pa#

homage to the rule of law. Its decision then, one it is to be repeated influenced b# what it

considered to be the 5e;uit# of the case5, is not legall# impeccable.

>A(B(F4B(, the decision of the lower court is reversed and the cases remanded to the lower

court for judgment according to law, with full consideration of the legal defenses raised b#

defendants-appellees, itulo/ 2awmill, Inc.@ <ingalan umber Co., Inc.@ 2ierra Madre umber

Co., Inc.@ $asipit umber Co., Inc.@ >oodwor/s, Inc.@ 8on3alo "u#at@ Tomas . Morato@ Findla#

Millar umber Co., Inc.@ !na/an umber Co., Inc.@ and Cantilan umber Co., Inc. $o

pronouncement as to costs.



G.R. No. L-30*4* r 30, 1929

$HE G!ERN#EN$ !F $HE "HILI""INE ISLANDS, petitioner,

vs.

$HE #ANILA RAILR!AD C!#"ANY / !SE "AE+ 6 #:er o; 68/

Com', respondents.

Attorney($eneral Jaranilla for petitioner.

Jose A/reu for respondents.

!HNS!N, J.:



This is a petition in the 2upreme Court of the e)traordinar# legal writ of mandamus presented b#

the 8overnment of the "hilippine Islands, pra#ing that the writ be issued to compel the Manila

Bailroad Compan# and 9ose "ae3, as its manager, to provide and e;uip the telegraph poles of

said compan# between the municipalit# of "ani;ui, "rovince of Tarlac, and the Municipalit# of

2an Fernando, "rovince of a ?nion, with crosspieces for si) telegraph wires belonging to the

8overnment, which, it is alleged, are necessar# for public service between said municipalities.

The onl# ;uestion raised b# the petition is whether the dependant compan# is re;uired to provide

and e;uip its telegraph poles with crosspieces to carr# si) telegraph wires of the 8overnment, or

whether it is onl# re;uired to furnish poles with crosspieces sufficient to carr# four wires onl#.

It is admitted that the present poles and crosspieces between said municipalities are sufficient to

carr# four telegraph wires and that the# do now carr# four telegraph wires, b# virtue of an

agreement between the respondents and the ureau of the "osts of the "hilippine 8overnment. It

is admitted that the poles and not sufficient to carr# si) telegraph wires.

The petitioner relies upon the provisions of section * of act $o. &=. !ct $o. &= is the

8eneral Corporation aw and was adopted b# the ?nited 2tates "hilippine Commission on

March &, &+1. 6:ol. =, "ub. aws, pp. %%-%1*.7 2ection * of the said !ct providesG

The railroad corporation shall establish along the whole length of the road a telegraph

line for the use of the railroad. The posts of this line ma# be used for 8overnment wires

and shall be of sufficient length and strength and e;uipped with sufficient crosspiece to

carr# the number of wires which the 8overnment ma# consider necessar# for the public

service. The establishment, protection, and maintenance of the wires and stations

necessar# for the public service shall be at the cost of the 8overnment. 6:ol. =, ". ., p.

%.7

The plaintiff contends that under said section * the defendant compan# is re;uired to erect and

maintain posts for its telegraph wires, of sufficient length and strength, and e;uipped with

sufficient crosspieces to carr# the number of wires which the 8overnment ma# consider

necessar# for the public service, and that si) wires are now necessar# for the public service.

The respondents answered b# a general and special defense. In their special defense the# contend

that section * of !ct $o. &= has been repealed b# section &, paragraph * of !ct $o. &=&+ of

the ?nited 2tates "hilippine Commission 6vol. =, ". ., pp. 0=+-0=*7, and that under the

provisions of said !ct $o. &=&+ the 8overnment is entitled to place on the poles of the compan#four wires onl#. !ct $o. &=&+ is the charter of the Manila Bailroad Compan#. It was adopted b#

the ?nited 2tates "hilippine Commission on 9ul# , &+1. 2ection &, paragraph *, of said !ct $o.

&=&+ providesG

*. The grantee 6the Manila Bailroad Compan#7 shall have the right to construct and

operate telegraph, telephone, and electrical transmission lines over said railwa#s for the

use of the railwa#s and their business, and also, with the approval of the 2ecretar# of >ar,



for public service and commercial purposes but these latter privileges shall be subject to

the following provisionsG

In the construction of telegraph or telephone lines along the right of wa# the grantee 6the

Manila Bailroad Compan#7 shall erect and maintain poles with sufficient space thereon to

permit the "hilippine 8overnment, at the e)pense of said 8overnment, to place, operate,and maintain four wires for telegraph, telephone, and electrical transmission for an#

8overnment purposes between the termini of the lines of railwa#s main or branch@ and

the "hilippine 8overnment reserves to itself the right to construct, maintain, and operate

telegraph, telephone, or electrical transmission lines over the right of wa# of said

railwa#s for commercial militar#, or government purposes, without unreasonabl#

interfering with the construction, maintenance, and operation b# the grantee of its

railwa#s, telegraph, telephone, and electrical transmission lines.

To answer the ;uestion above stated, it becomes necessar# to determine whether section * of

!ct $o. &= is applicable to the Manila Bailroad Compan#, or whether the manila Bailroad

Compan# is governed b# section &, paragraph *, of !ct $o. &=&+. !s has been said, !ct $o.

&= is a general law applicable to corporations generall#, while !ct $o. &=&+ is the charter of

the Manila Bailroad Compan# and constitute a contract between it and the 8overnment.

Inasmuch as !ct $o. &=&+ is the charter of Manila Bailroad Compan# and constitute a contract

between it and the 8overnmemnt, it would seem that the compan# is governd b# its contract and

not b# the provisions of an# general law upon ;uestions covered b# said contract. From a reading

of the said charter or contract it would be seen that there is no indication that the 8overnment

intended to impose upon said compan# an# other conditions as obligations not e)pressl# found in

said charter or contract. If that is true, then certainl# the 8overnment cannot impose upon said

compan# an# conditions or obligations found in an# general law, which does not e)pressl#modif# said contract.

2ection * of the Corporation aw 6!ct $o. &=7 was intended to appl# to all railwa#s in the

"hilippine Islands which did not have a special charter contract. !ct $o. &=&+ applies onl# to the

Manila Bailroad Compan#, one of the respondents, and being a special charter of said compan#,

its adoption had the effect of superseding the provisions of the general Corporation aw which

are applicable to railraods in general. The special charter 6!ct $o. &=&+7 had the effect of

superseding the general Corporation aw upon all matters covered b# said special charter. 2aid

!ct, inasmuch as it contained a special provision relating to the erection of telegraph and

telephone poles, and the number of wires which the 8overnment might place thereon,superseded the general law upon that ;uestion.

!ct $o. &=&+ is a special charter of the respondent compan#. It constitutes a contract between the

respondent compan# and the state@ and the state and the grantee of a charter are e;uall# bound b#

its provisions. For the state to impose an obligation or a dut# upon the respondent compan#,

which is not e)pressl# provided for in the charter 6!ct $o. &=&+7, would amount to a violation of

said contract between the state and the respondent compan#. The provisions of !ct $o. &=



relating to the number of wires which the 8overnment ma# place upon the poles of the compan#

are different and more enerous than the provisions of the charter upon the same ;uestion.

Therefore, to allow the plaintiff to re;uire of the respondent compan# a compliance with said

section * of !ct $o. &=, would be to re;uire of the respondent compan# and the performance

of an obligation which is not imposed upon it b# its charter. The charter of a corporation is a

contract between three partiesG 6a7 it is a contract between the state and the corporation to whichthe charter is granted@ 6b7 it is a contact between the stoc/holders and the state and 6c7 it is also a

contract between the corporation and its stoc/holders. 6Coo/ on Corporations, vol. %, sec.

and cases cited.7

The ;uestion is not whether !ct $o. &=&+ repealed !ct $o. &=@ but whether, after the adoption

of !ct $o. &=&+, the respondents are obliged to compl# with the special provision above

mentioned, contained in !ct $o. &=. >e must answer that ;uestion in the native. oth laws are

still in force, unless otherwise repealed. !ct $o. &=&+ is applicable to respondents upon the

;uestion before us, while !ct $o. &= is not applicable.

The petitioner, in view of all the foregoing facts and the law applicable thereto, has not shown

itself entitled to the remed# pra#ed for. The pra#er of the petition must, therefore, be denied. !nd

without an# finding as to costs, it is so ordered.



G.R. No. 9**74 e 2*, 1992

R&RAL AN% !F SALINAS, INC., #AN&EL SAL&D, L&+I#INDA $RIAS /

FRANCISC! $RIAS, petitioners,

vs.

C!&R$ !F A""EALS, SEC&RI$IES AND ECHANGE C!##ISSI!N, #ELANIA A.

G&ERRER!, L&+ ANDIC!, @ILHE#INA G. R!SALES, FRANCISC! #.

G&ERRER!, R., / FRANCISC! G&ERRER! , SR.,respondents.

"ARAS, J.:

The basic controvers# in this case is whether or not the respondent court erred in sustaining the

2ecurities and ()change Commission when it compelled b# 8andamus the Bural an/ of

2alinas to register in its stoc/ and transfer boo/ the transfer of 0 shares of stoc/ to private

respondents. "etitioners maintain that the "etition for 8andamus should have been denied upon

the following grounds.

6&7 8andamus cannot be a remed# cogni3able b# the 2ecurities and ()change Commission

when the purpose is to register certificates of stoc/ in the names of claimants who are not #et

stoc/holders of a corporationG

6%7 There e)ist valid reasons for refusing to register the transfer of the subject of stoc/, namel#G

6a7 a pending controvers# over the ownership of the certificates of stoc/ with the

Begional Trial Court@

6b7 claims that the <eeds of !ssignment covering the subject certificates of stoc/

were fictitious and antedated@ and

6c7 claims on a resultant possible deprivation of inheritance share in relation with

a conflicting claim over the subject certificates of stoc/.

The facts are not disputed.

4n 9une &+, &, Clemente 8. 8uerrero, "resident of the Bural an/ of 2alinas, Inc., e)ecuted

a Special Power of Attorney in favor of his wife, private respondent Melania 8uerrero, giving

and granting the latter full power and authorit# to sell or otherwise dispose of andor mortgage

0 shares of stoc/ of the an/ registered in his name 6represented b# the an/'s stoc/



certificates nos. %1, and 1=7, to e)ecute the proper documents therefor, and to receive and sign

receipts for the dispositions.

4n Februar# %, &*+, and pursuant to said 2pecial "ower of !ttorne#, private respondent

Melania 8uerrero, as !ttorne#-in-Fact, e)ecuted a eed of Assi-nment for % shares out of the

0 shares, in favor of private respondents u3 !ndico 6= shares7, >ilhelmina Bosales 6&+shares7 and Francisco 8uerrero, 9r. 6= shares7.

!lmost four months later, or two 6%7 da#s before the death of Clemente 8uerrero on 9une %,

&*+, private respondent Melania 8uerrero, pursuant to the same 2pecial "ower of !ttorne#,

e)ecuted a eed of Assi-nment for the remaining one 6&7 share of stoc/ in favor of private

respondent Francisco 8uerrero, 2r.

2ubse;uentl#, private respondent Melania 8uerrero presented to petitioner Bural an/ of 2alinas

the two 6%7 <eeds of !ssignment for registration with a re;uest for the transfer in the an/'s

stoc/ and transfer boo/ of the 0 shares of stoc/ so assigned, the cancellation of stoc/

certificates in the name of Clemente 8. 8uerrero, and the issuance of new stoc/ certificates

covering the transferred shares of stoc/s in the name of the new owners thereof. Aowever,

petitioner an/ denied the re;uest of respondent Melania 8uerrero.

4n <ecember =, &*+, private respondent Melania 8uerrero filed with the 2ecurities and

()change Commission5 62(C7 an action for mandamus against petitioners Bural an/ of

2alinas, its "resident and Corporate 2ecretar#. The case was doc/eted as 2(C Case $o. &.

"etitioners filed their !nswer with counterclaim on <ecember &, &*+ alleging the upon the

death of Clemente 8. 8uerrero, his 0 shares of stoc/ became the propert# of his estate, and his

propert# and that of his widow should first be settled and li;uidated in accordance with law before an# distribution can be effected so that petitioners ma# not be a part# to an# scheme to

evade pa#ment of estate or inheritance ta) and in order to avoid liabilit# to an# third persons or

creditors of the late Clemente 8. 8uerrero.

4n 9anuar# %, &*&, a motion for intervention was filed b# Maripol 8uerrero, a legall# adopted

daughter of the late Clemente 8. 8uerrero and private respondent Melania 8uerrero, who stated

therein that on $ovember %1, &*+ 6almost two wee/s before the filing of the petition

for 8andamus7 a "etition for the administration of the estate of the late Clemente 8. 8uerrero

had been filed with the Begional Trial Court, "asig, ranch LI, doc/eted as 2pecial "roceedings

$o. ++. Maripol 8uerrero further claimed that the <eeds of !ssignment for the subject sharesof stoc/ are fictitious and antedated@ that said conve#ances are donations since the considerations

therefor are below the boo/ value of the shares, the assigneesprivate respondents being close

relatives of private respondent Melania 8uerrero@ and that the transfer of the shares in ;uestion

to assigneesprivate respondents, other than private respondent Melania 8uerrero, would deprive

her 6Maripol 8uerrero7 of her rightful share in the inheritance. The 2(C hearing officer denied

the Motion for Intervention for lac/ of merit. 4n appeal, the 2(C 3n Banc affirmed the decision

of the hearing officer.



Intervenor 8uerrero filed a complaint before the then Court of First Instance of Bi3al, Due3on

Cit# ranch, against private respondents for the annulment of the <eeds of !ssignment,

doc/eted as Civil Case $o. D-0%+=+. "etitioners, on the other hand, filed a Motion to <ismiss

andor to 2uspend Aearing of 2(C Case $o. & until after the ;uestion of whether the subject

<eeds of !ssignment are fictitious, void or simulated is resolved in Civil Case $o. D-0%+=+. The

2(C Aearing 4fficer denied said motion.

4n <ecember &+, &*, the 2(C Aearing 4fficer rendered a <ecision granting the writ

of 8andamus pra#ed for b# the private respondents and directing petitioners to cancel stoc/

certificates nos. %1, and 1= of the an/, all in the name of Clemente 8. 8uerrero, and to issue

new certificates in the names of private respondents, e)cept Melania 8uerrero. The dispositive,

portion of the decision readsG

>A(B(F4B(, judgment is hereb# rendered in favor of the petitioners and

against the respondents, directing the latter, particularl# the corporate secretar# of

respondent Bural an/ of 2alinas, Inc., to register in the latter's 2toc/ and

Transfer oo/ the transfer of 0 shares of stoc/ of respondent an/ and to

cancel 2toc/ Certificates $os. %1, = and 1= and issue new 2toc/ Certificates

covering the transferred shares in favor of petitioners, as followsG

&. u3 !ndico = shares

%. >ilhelmina Bosales &+ shares

0. Francisco 8uerrero, 9r. = shares

. Francisco 8uerrero, 2r. & share

and to pa# to the above-named petitioners, the dividends for said shares

corresponding to the #ears &*&, &*%, &*0 and &* without interest.

$o pronouncement as to costs.

24 4B<(B(<. 6p. **, %ollo7

4n appeal, the 2(C 3n Banc affirmed the decision of the Aearing 4fficer. "etitioner filed a

petition for review with the Court of !ppeals but said Court li/ewise affirmed the decision of the

2(C.

>e rule in favor of the respondents.

2ection = 6b7 of ".<. $o. +%-! grants to the 2(C the original and e)clusive jurisdiction to hear

and decide cases involving intracorporate controversies. !n intracorporate controvers# has been

defined as one which arises between a stoc/holder and the corporation. There is no distinction,



;ualification, nor an# e)ception whatsoever 6Bivera vs. Florendo, & 2CB! 10 O&*1P7. The

case at bar involves shares of stoc/, their registration, cancellation and issuances thereof b#

petitioner Bural an/ of 2alinas. It is therefore within the power of respondent 2(C to

adjudicate.

Bespondent 2(C correctl# ruled in favor of the registering of the shares of stoc/ in ;uestion in private respondent's names. 2uch ruling finds support under 2ection 10 of the Corporation Code,

to witG

2ec. 10. . . . 2hares of stoc/ so issued are personal propert# and ma# be

transferred b# deliver# of the certificate or certificates indorsed b# the owner or

his attorne#-in-fact or other person legall# authori3ed to ma/e the transfer. $o

transfer, however, shall be valid, e)cept as between the parties, until the transfer is

recorded in the boo/s of the corporation . . .

In the case of Fleisher vs. Botica &olasco, "hil. =*0, the Court interpreted 2ec. 10 in

his wiseG

2aid 2ection 62ec. 0= of !ct &= Onow 2ec. 10 of the Corporation CodeP7

contemplates no restriction as to whom the stoc/s ma# be transferred. It does not

suggest that an# discrimination ma# be created b# the corporation in favor of, or

against a certain purchaser. The owner of shares, as owner of personal propert#, is

at libert#, under said section to dispose them in favor of whomever he pleases,

without limitation in this respect, than the general provisions of law. . . .

The onl# limitation imposed b# 2ection 10 of the Corporation Code is when the

corporation holds an# unpaid claim against the shares intended to be transferred, which isabsent here.

! corporation, either b# its board, its b#-laws, or the act of its officers, cannot create restrictions

in stoc/ transfers, becauseG

. . . Bestrictions in the traffic of stoc/ must have their source in legislative

enactment, as the corporation itself cannot create such impediment. #-laws are

intended merel# for the protection of the corporation, and prescribe regulation,

not restriction@ the# are alwa#s subject to the charter of the corporation. The

corporation, in the absence of such power, cannot ordinaril# in;uire into or passupon the legalit# of the transactions b# which its stoc/ passes from one person to

another, nor can it ;uestion the consideration upon which a sale is based. . . .

6Tomson on Corporation 2ec. &0, cited in Fleisher vs. $olasco, Supra7.

The right of a transfereeassignee to have stoc/s transferred to his name is an inherent right

flowing from his ownership of the stoc/s. ThusG



>henever a corporation refuses to transfer and register stoc/ in cases li/e the

present, mandamuswill lie to compel the officers of the corporation to transfer

said stoc/ in the boo/s of the corporation5 6%1, C#c. 0, A#er vs. r#an, & "hil.

&0*@ Fleisher vs. otica $olasco, "hil. =*0, =7.

The corporation's obligation to register is ministerial.

In transferring stoc/, the secretar# of a corporation acts in purel# ministerial

capacit#, and does not tr# to decide the ;uestion of ownership. 6Fletcher, 2ec.

==%*, page 07.

The dut# of the corporation to transfer is a ministerial one and if it refuses to

ma/e such transaction without good cause, it ma# be compelled to do so

b# mandamus. 6See. ==&*, &% Fletcher 07

For the petitioner Bural an/ of 2alinas to refuse registration of the transferred shares in its stoc/

and transfer boo/, which dut# is ministerial on its part, is to render nugator# and ineffectual the

spirit and intent of 2ection 10 of the Corporation Code. Thus, respondent Court of !ppeals did

not err in upholding the <ecision of respondent 2(C affirming the <ecision of its Aearing

4fficer directing the registration of the 0 shares in the stoc/ and transfer boo/ in the names of

private respondents. !t all events, the registration is without prejudice to the proceedings in court

to determine the validit# of the <eeds of !ssignment of the shares of stoc/ in ;uestion.

>A(B(F4B(, the petition is <I2MI22(< for lac/ of merit.

24 4B<(B(<.

G.R. No. 41570 Se'(ember *, 1934

RED LINE $RANS"!R$A$I!N C!., petitioner-appellant,

vs.R&RAL $RANSI$ C!., L$D., respondent-appellee.

'. . 'oc5wood for appellant.

Ohnic5 and Opisso for appellee.

&$$E, J.:



This case is before us on a petition for review of an order of the "ublic 2ervice Commission

entered <ecember %&, &0%, granting to the Bural Transit Compan#, td., a certificate of public

convenience to operate a transportation service between Ilagan in the "rovince of Isabela and

Tuguegarao in the "rovince of Caga#an, and additional trips in its e)isting e)press service

between Manila Tuguegarao.

4n 9une , &0%, the Bural Transit Compan#, td., a "hilippine corporation, filed with the "ublic

Compan# 2ervice Commission an application in which it is stated in substance that it is the

holder of a certificate or public convenience to operate a passenger bus service between Manila

and Tuguegarao@ that it is the onl# operator of direct service between said points and the present

authori3ed schedule of onl# one trip dail# is not sufficient@ that it will be also to the public

convenience to grant the applicant a certificate for a new service between Tuguegarao and

Ilagan.

4n 9ul# %%, &0%, the appellant, Bed ine Transportation Compan#, filed an opposition to the

said application alleging in substance that as to the service between Tuguegarao and Ilagan, the

oppositor alread# holds a certificate of public convenience and is rendering ade;uate and

satisfactor# service@ that the granting of the application of the Bural Transit Compan#, td.,

would not serve public convenience but would constitute a ruinous competition for the oppositor

over said route.

!fter testimon# was ta/en, the commission, on <ecember %&, &0%, approved the application of

the Bural Transit Compan#, td., and ordered that the certificate of public convenience applied

for be 5issued to the applicant Bural Transit Compan#, td.,5 with the condition, among others,

that 5all the other terms and conditions of the various certificates of public convenience of the

herein applicant and herein incorporated are made a part hereof.5

4n 9anuar# &, &00, the oppositor Bed ine Transportation Compan# filed a motion for

rehearing and reconsideration in which it called the commission's attention to the fact that there

was pending in the Court of First Instance of Manila case $. %00, an application for the

voluntar# dissolution of the corporation, Bural Transit Compan#, td. 2aid motion for

reconsideration was set down for hearing on March %, &00. 4n March %0, &00, the Bural

Transit Compan#, td., the applicant, filed a motion for postponement. This motion was verified

b# M. 4lsen who swears 5that he was the secretar# of the Bural Transit Compan#, td., in the

above entitled case.5 ?pon the hearing of the motion for reconsideration, the commission

admitted without objection the following documents filed in said case $o. %00 in the Court of

First Instance of Manila for the dissolution of the Bural Transit Compan#, td. the petition for dissolution dated 9ul# 1, &0%, the decision of the said Court of First Instance of Manila, dated

Februar# %*, &00, decreeing the dissolution of the Bural Transit Compan#, td.

!t the trial of this case before the "ublic 2ervice Commission an issue was raised as to who was

the real part# in interest ma/ing the application, whether the Bural Transit Compan#, td., as

appeared on the face of the application, or the achrach Motor Compan#, Inc., using name of the



Bural Transit Compan#, td., as a trade name. The evidence given b# the applicant's secretar#,

4lsen, is certainl# ver# dubious and confusing, as ma# be seen from the followingG

D. >ill #ou please answer the ;uestion whether it is the achrach Motor Compan#

operating under the trade name of the Bural Transit Compan#, imited, or whether it is

the Bural Transit Compan#, imited in its own name this application was filed

!. The achrach Motor Compan# is the principal stoc/holder.

D. "lease answer the ;uestion.

(2"((T!. 4bjecion por;ue la pregunta #a ha sido contestada.

9?(. "uede contestar.

!. I do not /now what the legal construction or relationship e)isting between the

two.

9?<8(. I do not /now what is in #our mind b# not telling the real applicant in this case

!. It is the Bural Transit Compan#, td.

9?<8(. !s an entit# b# itself and not b# the achrach Motor Compan#

!. I do not /now. I have not given that phase of the matter much thought, as in

previous occassion had not necessitated.

9?<8(. In filing this application, #ou filed it for the operator on that line Is it notQ

!. Jes, sir.

9?<8(. >ho is that operator

!. The Bural Transit Compan#, td.

9?<8(. # itself, or as a commercial name of the achrach Motor Compan#

!. I cannot sa#.

(2"((T!. The Bural Transit Compan#, td., is a corporation dul# established in

accordance with the laws of the "hilippine Islands.



9?<8(. !ccording to the records of this commission the achrach Motor Compan# is

the owner of the certificates and the Bural Transit Compan#, td., is operating without

an# certificate.

9?<8(. If #ou filed this application for the Bural Transit Compan#, td., and afterwards

it is found out that the Bural Transit Compan#, td., is not an operator, ever#thing will beturned down.

9?<8(. M# ;uestion was, when #ou filed this application #ou evidentl# made it for the

operator

!. Jes, sir.

9?<8(. >ho was that operator #ou had in mind

!. !ccording to the status of the ownership of the certificates of the former Bural

Transit Compan#, the operator was the operator authori3ed in case $o. %0%& to whom all

of the assets of the former Bural Transit Compan# were sold.

9?<8(. achrach Motor Compan#

!. !ll actions have been prosecuted in the name of the Bural Transit Compan#,

td.

9?<8(. Jou mean the achrach Motor Compan#, Inc., doing business under the name

of the Bural Transit Compan#, td.

!. Jes, sir.

4C>44<. I move that this case be dismissed, #our Aonor, on the ground that this

application was made in the name of one part# but the real owner is another part#.

(2"((T!. >e object to that petition.

9?<8(. I will have that in mind when I decide the case. If I agree with #ou ever#thing

would be finished.

The achrach Motor Compan#, Inc., entered no appearance and ostensibl# too/ no part in the

hearing of the application of the Bural Transit Compan#, td. It ma# be a matter of some surprise

that the commission did not on its own motion order the amendment of the application b#

substituting the achrach Motor Compan#, Inc., as the applicant. Aowever, the hearing

proceeded on the application as filed and the decision of <ecember %, &0%, was rendered in

favor of the Bural Transit Compan#, td., and the certificate ordered to be issued in its name, in

the face of the evidence that the said corporation was not the real part# in interest. In its said



decision, the commission undertoo/ to meet the objection b# referring to its resolution of

$ovember %1, &0%, entered in another case. This resolution in case $o. %0%& concludes as

followsG

"remises considered we hereb# authori3e the achrach Motor Co., Inc., to continue using

the name of 5Bural Transit Co., td.,5 as its trade name in all the applications, motions or other petitions to be filed in this commission in connection with said business and that

this authorit# is given retroactive effect as of the date, of filing of the application in this

case, to wit, !pril %, &0+.

>e /now of no law that empowers the "ublic 2ervice Commission or an# court in this

jurisdiction to authori3e one corporation to assume the name of another corporation as a trade

name. oth the Bural Transit Compan#, td., and the achrach Motor Co., Inc., are "hilippine

corporations and the ver# law of their creation and continued e)istence re;uires each to adopt

and certif# a distinctive name. The incorporators 5constitute a bod# politic and corporate under

the name stated in the certificate.5 62ection &&, !ct $o. &=, as amended.7 ! corporation has the

power 5of succession /y its corporate name.5 62ection &0, i/id .7 The name of a corporation is

therefore essential to its e)istence. It cannot change its name e)cept in the manner provided b#

the statute. # that name alone is it authori3ed to transact business. The law gives a corporation

no e)press or implied authorit# to assume another name that is unappropriatedG still less that of

another corporation, which is e)pressl# set apart for it and protected b# the law. If an#

corporation could assume at pleasure as an unregistered trade name the name of another

corporation, this practice would result in confusion and open the door to frauds and evasions and

difficulties of administration and supervision. The polic# of the law e)pressed in our corporation

statute and the Code of Commerce is clearl# against such a practice. 6Cf. 2carsdale "ub. Co.

Colonial "ress vs. Carter, &&1 $ew Jor/ 2upplement, 0&@ 2vens/a $at. F. i. C. vs. 2wedish $at.

!ssn., %+= Illinois O!ppellate CourtsP, %*, 0.7

The order of the commission of $ovember %1, &0%, authori3ing the achrach Motor Co.,

Incorporated, to assume the name of the Bural Transit Co., td. li/ewise in corporated, as its

trade name being void, and accepting the order of <ecember %&, &0%, at its face as granting a

certificate of public convenience to the applicant Bural Transit Co., td., the said order last

mentioned is set aside and vacated on the ground that the Bural Transit Compan#, td., is not the

real part# in interest and its application was fictitious.

In view of the dissolution of the Bural Transit Compan#, td. b# judicial decree of Februar# %*,

&00, we do not see how we can assess costs against said respondent, Bural Transit Compan#,td.



G.R. No. L-2*370 = 31, 1970

"HILI""INE FIRS$ INS&RANCE C!#"ANY, INC., plaintiff-appellant,

vs.

#ARIA CAR#EN HAR$IGAN, CGH, / !. ENG%EE, defendants-appellees.

Bausa, Ampil 7 Suare< for plaintiff(appellant.

&icasio 3. 8artin for defendants(appellees.

ARRED!, J.:

!ppeal from the decision dated 1 4ctober &1% of the Court of First Instance of Manila H

dismissing the action in its Civil Case $o. *%= H brought b# the herein plaintiff-appellant

"hilippine First Insurance Co., Inc. to the Court of !ppeals which could, upon finding that the

said appeal raises purel# ;uestions of law, declared itself without jurisdiction to entertain the

same and, in its resolution dated &= 9ul# &11, certified the records thereof to this Court for proper determination.

The antecedent facts are set forth in the pertinent portions of the resolution of the Court of

!ppeals referred to as followsG



!ccording to the complaint, plaintiff was originall# organi3ed as an insurance

corporation under the name of 'The Je/ Tong in Fire and Marine Insurance Co.,

td.' The articles of incorporation originall# presented before the 2ecurit# and

()change Commissioner and ac/nowledged before $otar# "ublic Mr. (. <.

Ignacio on 9une &, &=0 state that the name of the corporation was 'The Je/ Tong

in Fire and Marine Insurance Co., td.' 4n Ma# %1, &1& the articles of incorporation were amended pursuant to a certificate of the oard of <irectors

dated March *, &1& changing the name of the corporation to '"hilippine First

Insurance Co., Inc.'.

The complaint alleges that the plaintiff "hilippine First Insurance Co., Inc., doing

business under the name of 'The Je/ Tong in Fire and Marine Insurance Co., t.'

signed as co-ma/er together with defendant Maria Carmen Aartigan, C8A, a

promissor# note for "=,+++.++ in favor of the China an/ing Corporation pa#able

within 0+ da#s after the date of the promissor# note with the usual ban/ing

interest@ that the plaintiff agreed to act as such co-ma/er of the promissor# noteupon the application of the defendant Maria Carmen Aartigan, C8A, who

together with !ntonio F. Chua and Chang a Fu, signed an indemnit# agreement

in favor of the plaintiff, underta/ing jointl# and severall#, to pa# the plaintiff

damages, losses or e)penses of whatever /ind or nature, including attorne#'s fees

and legal costs, which the plaintiff ma# sustain as a result of the e)ecution b# the

plaintiff and co-ma/er of Maria Carmen Aartigan, C8A, of the promissor# note

above-referred to@ that as a result of the e)ecution of the promissor# note b# the

plaintiff and Maria Carmen Aartigan, C8A, the China an/ing Corporation

delivered to the defendant Maria Carmen Aartigan, C8A, the sum of "=,+++.++

which said defendant failed to pa# in full, such that on !ugust 0&, &1& the same

was. renewed and as of $ovember %, &1& there was due on account of the promissor# note the sum of ",==.=+ including interest. The complaint ends with

a pra#er for judgment against the defendants, jointl# and severall#, for the sum of

",==.=+ with interest at the rate of &%K per annum from $ovember %0, &1&

plus "&&.+ b# wa# of attorne#'s fees and costs.

!lthough 4. (ng/ee was made as part# defendant in the caption of the complaint,

his name is not mentioned in the bod# of said complaint. Aowever, his name

!ppears in the !nne) ! attached to the complaint which is the counter indemnit#

agreement supposed to have been signed according to the complaint b# Maria

Carmen Aartigan, C8A, !ntonio F. Chua and Chang a Fu.

In their answer the defendants den# the allegation that the plaintiff formerl#

conducted business under the name and st#le of 'The Je/ Tong in Fire and

Marine Insurance Co., td.' The# admit the e)ecution of the indemnit# agreement

but the# claim that the# signed said agreement in favor of the Je/ Tong in Fire

and Marine Insurance Co., td.' and not in favor of the plaintiff. The# li/ewise

admit that the# failed to pa# the promissor# note when it fell due but the# allege



that since their obligation with the China an/ing Corporation based on the

promissor# note still subsists, the suret# who co-signed the promissor# note is not

entitled to collect the value thereof from the defendants otherwise the# will be

liable for double amount of their obligation, there being no allegation that the

suret# has paid the obligation to the creditor.

# wa# of special defense, defendants claim that there is no privit# of contract

between the plaintiff and the defendants and conse;uentl#, the plaintiff has no

cause of action against them, considering that the complaint does not allege that

the plaintiff and the 'Je/ Tong in Fire and Marine Insurance Co., td.' are one

and the same or that the plaintiff has ac;uired the rights of the latter. The parties

after the admission of ()hibit ! which is the amended articles of incorporation

and ()hibit & which is a demand letter dated !ugust &1, &1% signed b# the

manager of the loans and discount department of the China an/ing Corporation

showing that the promissor# note up to said date in the sum of ",=++.++ was still

unpaid, submitted the case for decision based on the pleadings.

?nder date of 1 4ctober &1%, the Court of First Instance of Manila rendered the decision

appealed. It dismissed the action with costs against the plaintiff "hilippine First Insurance Co.,

Inc., reasoning as followsG

... >ith these undisputed facts in mind, the parties correctl# concluded that the

issues for resolution b# this Court are as followsG

6a7 >hether or not the plaintiff is the real part# in interest that ma# validl# sue on

the indemnit# agreement signed b# the defendants and the Je/ Tong in Fire E

Marine Insurance Co., td. 6!nne) ! to plaintiff's complaint 7@ and

6b7 >hether or not a suit for indemnit# or reimbursement ma# under said

indemnit# agreement prosper without plaintiff having #et paid the amount due

under said promissor# note.

In the first place, the change of name of the Je/ Tong in Fire E Marine

Insurance Co., td. to the "hilippines First Insurance Co., Inc. is of dubious

validit#. 2uch change of name in effect dissolved the original corporation b# a

process of dissolution not authori3ed b# our corporation law 6see 2ecs. 1% and 1,

inclusive, of our Corporation aw7. Moreover, said change of name, amounting toa dissolution of the Je/ Tong in Fire E Marine Insurance Co., td., does not

appear to have been effected with the written note or assent of stoc/holders

representing at least two-thirds of the subscribed capital stoc/ of the corporation,

a voting proportion re;uired not onl# for the dissolution of a corporation but also

for an# amendment of its articles of incorporation 62ecs. &* and 1%, Corporation

aw7. Furthermore, such change of corporate name appears to be against public

polic# and ma# be effected onl# b# e)press authorit# of law 6Bed ine



Transportation Co. v. Bural Transit Co., td., 1+ "hil. =, ===@ Cincinnati

Cooperage Co., td. vs. :ate, %1 2> =0*, =0@ "ilsen rewing Co. vs. >allace,

&%= $( &7, but there is nothing in our corporation law authori3ing the change

of corporate name in this jurisdiction.

In the second place, assuming that the change of name of the Je/ Tong in Fire EMarine Insurance Co. td., to "hilippines pine First Insurance Co., Inc., as

accomplished on March *, &1&, is valid, that would mean that the original

corporation, the Je/ Tong in Fire E Marine Insurance Co., td., became

dissolved and of no further e)istence since March *, &1&, so that on Ma# &=,

&1&, the date the indemnit# agreement, !nne) !, was e)ecuted, said original

corporation bad no more power to enter into an# agreement with the defendants,

and the agreement entered into b# it was ineffective for lac/ of capacit# of said

dissolved corporation to enter into said agreement. !t an# rate, even if we hold

that said change of name is valid, the fact remains that there is no evidence

showing that the new entit#, the "hilippine First Insurance Co., Inc. has with theconsent of the original parties, assumed the obligations or was assigned the rights

of action in the original corporation, the Je/ Tong in Fire E Marine Insurance

Co., td. In other words, there is no evidence of conventional subrogation of the

"laintiffs in the rights of the Je/ Tong in Fire E Marine Insurance Co., td.

under said indemnit# agreement 6!rts. &0++, &0+&, $ew Civil Code7. without

such subrogation assignment of rights, the herein plaintiff has no cause of action

against the defendants, and is, therefore, not the right part# in interest as plaintiff.

ast, but not least, assuming that the said change of name was legal and operated

to dissolve the original corporation, the dissolved corporation, must pursuant to

2ec. of our corporation law, be deemed as continuing as a bod# corporate for three 607 #ears from March *, &1& for the purpose of prosecuting and defending

suits. It is, therefore, the Je/ Tong in Fire E Marine Insurance Co., td. that is

the proper part# to sue the defendants under said indemnit# agreement up to

March *, &1.

Aaving arrived at the foregoing conclusions, this Court need not s;uarel# pass

upon issue 6b7 formulated above.

>A(B(F4B(, plaintiff's action is hereb# dismissed, with costs against the

plaintiff.

In due time, the "hilippine First Insurance Compan#, Inc. moved for reconsideration of the

decision aforesaid, but said motion was denied on <ecember 0, &1% in an order worded thusG

The motion for reconsideration, dated $ovember *, &1%, raises no new issue that

we failed to consider in rendering our decision of 4ctober 1, &1%. Aowever, it



gives us an opportunit# to amplif# our decision as regards the ;uestion of change

of name of a corporation in this jurisdiction.

>e find nothing in our Corporation aw authori3ing a change of name of a

corporation organi3ed pursuant to its provisions. 2ec. &* of the Corporation aw

authori3es, in our opinion, amendment to the !rticles of Incorporation of acorporation onl# as to matters other than its corporate name. 4nce a corporation is

organi3ed in this jurisdiction b# the e)ecution and registration of its !rticles of

Incorporation, it shall continue to e)ist under its corporate name for the lifetime of

its corporate e)istence fi)ed in its !rticles of Incorporation, unless sooner legall#

dissolved 62ec. &&, Corp. aw7. 2ignificantl#, change of name is not one of the

methods of dissolution of corporations e)pressl# authori3ed b# our Corporation

aw. !lso significant is the fact that the power to change its corporate name is not

one of the general powers conferred on corporations in this jurisdiction 62ec. &0,

Corp. aw7. The enumeration of corporate powers made in our Corporation aw

implies the e)clusion of all others 6Thomas v. >est 9erse# B. Co., &+& ?.2. &, %=. ed. =+7. It is obvious, in this connection, that change of name is not one of the

powers necessar# to the e)ercise of the powers conferred on corporations b# said

2ec. &0 6see 2ec. &, Corp. aw7.

To rule that 2ec. &* of our Corporation aw authori3es the change of name of a

corporation b# amendment of its !rticles of Incorporation is to indulge in judicial

legislation. >e have e)amined the cases cited in :olume &0 of !merican

9urisprudence in support of the proposition that the general power to alter or

amend the charter of a corporation necessaril# includes the power to alter the

name of a corporation, and find no justification for said conclusion arrived at b#

the editors of !merican 9urisprudence. 4n the contrar#, the annotations in favor of plaintiff's view appear to have been based on decisions in cases where the statute

itself e)pressl# authori3es change of corporate name b# amendment of its !rticles

of Incorporation. The correct rule in harmon# with the provisions of our

Corporation aw is well e)pressed in an (nglish case as followsG

!fter a compan# has been completel# register without defect or

omission, so as to be incorporated b# the name set forth in the deed

of settlement, such incorporated compan# has not the power to

change its name ... !lthough the ing b# his prerogative might

incorporate b# a new name, and the newl# named corporationmight retain former rights, and sometimes its former name also, ...

it never appears to be such an act as the corporation could do b#

itself, but re;uired the same power as created the corporation.

6Beg. v. Begistrar of 9oint 2toc/ Cos &+ D.. *0, = (.C.. *07.

The contrar# view appears to represent the minorit# doctrine, judging from the

annotations on decided cases on the matter.



The movant invo/es as persuasive precedent the action of the 2ecurities

Commissioner in tacitl# approving the !mended, !rticles of Incorporation on

Ma# %1, &1&. >e regret that we cannot in good conscience lend approval to this

action of the 2ecurities and ()change Commissioner. >e find no justification,

legal, moral, or practical, for adhering to the view ta/en b# the 2ecurities and

()change Commissioner that the name of a corporation in the "hilippines ma# bechanged b# mere amendment of its !rticles of Incorporation as to its corporate

name. ! change of corporate name would serve no useful purpose, but on the

contrar# would most probabl# cause confusion. 4nl# a dubious purpose could

inspire a change of a corporate. name which, unli/e a natural person's name, was

chosen b# the incorporators themselves@ and our Courts should not lend their

assistance to the accomplishment of dubious purposes.

>A(B(F4B(, we hereb# den# plaintiff's motion for reconsideration, dated

$ovember *, &1%, for lac/ of merit.

In this appeal appellant contends that H

I

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!ppellant's "osition is correct@ all the above assignments of error are well ta/en. The whole case,

however, revolves around onl# one ;uestion. Ma# a "hilippine corporation change its name and

still retain its original personalit# and individualit# as such

The answer is not difficult to find. True, under 2ection 1 of the Corporation aw, the first thing

re;uired to be stated in the !rticles of Incorporation of an# corn corporation is its name, but it is

onl# one among man# matters e;uall# if not more important, that must be stated therein. Thus, it

is also re;uired, for e)ample, to state the number and names of and residences of the

incorporators and the residence or location of the principal office of the corporation, its term of

e)istence, the amount of its capital stoc/ and the number of shares into which it is divided, etc.,

etc.

4n the other hand, 2ection &* e)plicitl# permits the articles of incorporation to be amended thusG

2ec. &*. H !n# corporation ma# for legitimate corporate purpose or purposes,

amend its articles of incorporation b# a majorit# vote of its board of directors or

trustees and the vote or written assent of two-thirds of its members, if it be a

nonstoc/ corporation or, if it be a stoc/ corporation, b# the vote or written assent

of the stoc/holders representing at least two-thirds of the subscribed capital stoc/ of the corporation Provided , however , That if such amendment to the articles of

incorporation should consist in e)tending the corporate e)istence or in an# change

in the rights of holders of shares of an# class, or would authori3e shares with

preferences in an# respect superior to those of outstanding shares of an# class, or

would restrict the rights of an# stoc/holder, then an# stoc/holder who did not

vote for such corporate action ma#, within fort# da#s after the date upon which

such action was authori3ed, object thereto in writing and demand "a#ment for his

shares. If, after such a demand b# a stoc/holder, the corporation and the

stoc/holder cannot agree upon the value of his share or shares at the time such

corporate action was authori3ed, such values all be ascertained b# threedisinterested persons, one of whom shall be named b# the stoc/holder, another b#

the corporation, and the third b# the two thus chosen. The findings of the

appraisers shall be final, and if their award is not paid b# the corporation within

thirt# da#s after it is made, it ma# be recovered in an action b# the stoc/holder

against the corporation. ?pon pa#ment b# the corporation to the stoc/holder of

the agreed or awarded price of his share or shares, the stoc/holder shall forthwith

transfer and assign the share or shares held b# him as directed b# the



corporationG Provided , however , That their own shares of stoc/ purchased or

otherwise ac;uired b# ban/s, trust companies, and insurance companies, should

be disposed of within si) months after ac;uiring title thereto.

?nless and until such amendment to the articles of incorporation shall have been

abandoned or the action rescinded, the stoc/holder ma/ing such demand inwriting shall cease to be a stoc/holder and shall have no rights with respect to

such shares, e)cept the right to receive pa#ment therefor as aforesaid.

! stoc/holder shall not be entitled to pa#ment for his shares under the provisions

of this section unless the value of the corporate assets which would remain after

such pa#ment would be at least e;ual to the aggregate amount of its debts and

liabilities and the aggregate par value andor issued value of the remaining

subscribed capital stoc/.

! cop# of the articles of incorporation as amended, dul# certified to be correct b#

the president and the secretar# of the corporation and a majorit# of the board of

directors or trustees, shall be filed with the 2ecurities and ()change

Commissioner, who shall attach the same to the original articles of incorporation,

on file in his office. From the time of filing such cop# of the amended articles of

incorporation, the corporation shall have the same powers and it and the members

and stoc/holders thereof shall thereafter be subject to the same liabilities as if

such amendment had been embraced in the original articles of

incorporationG Provided, however , That should the amendment consist in

e)tending the corporate life, the e)tension shall not e)ceed =+ #ears in an# one

instance. Provided, further , That the original articles and amended articles

together shall contain all provisions re;uired b# law to be set out in the articles of incorporationG And provided, further , That nothing in this section shall be

construed to authori3e an# corporation to increase or diminish its capital stoc/ or

so as to effect an# rights or actions which accrued to others between the time of

filing the original articles of incorporation and the filing of the amended articles.

The 2ecurities and, ()change Commissioner shall be entitled to collect and receive the sum of

ten pesos for filing said cop# of the amended articles of incorporation. Provided, however , That

when the amendment consists in e)tending the term of corporate e)istence, the 2ecurities and

()change Commissioner shall be entitled to collect and receive for the filing of its amended

articles of incorporation the same fees collectible under e)isting law for the filing of articles of incorporation. The 2ecurities E ()change Commissioner shall not hereafter file an# amendment

to the articles of incorporation of an# ban/, ban/ing institution, or building and loan association

unless accompanied b# a certificate of the Monetar# oard 6of the Central an/7 to the effect

that such amendment is in accordance with law. 6!s further amended b# !ct $o. 01&+, 2ec. %

and 2ec. . B.!. $o. 00 and B.!. $o. 0=0&.7



It can be gleaned at once that this section does not onl# authori3e corporations to amend their

charter@ it also la#s down the procedure for such amendment@ and, what is more relevant to the

present discussion, it contains provisos restricting the power to amend when it comes to the term

of their e)istence and the increase or decrease of the capital stoc/. There is no prohibition therein

against the change of name. The inference is clear that such a change is allowed, for if the

legislature had intended to enjoin corporations from changing names, it would have e)pressl#stated so in this section or in an# other provision of the law.

$o doubt, 56the7 name 6of a corporation7 is peculiarl# important as necessar# to the ver#

e)istence of a corporation. The general rule as to corporations is that each corporation shall have

a name b# which it is to sue and be sued and do all legal acts. The name of a corporation in this

respect designates the corporation in the same manner as the name of an individual designates

the person.5 1 2ince an individual has the right to change his name under certain conditions, there

is no compelling reason wh# a corporation ma# not enjo# the same right. There is nothing

sacrosanct in a name when it comes to artificial beings. The sentimental considerations which

individuals attach to their names are not present in corporations and partnerships. 4f course, asin the case of an individual, such change ma# not be made e)clusivel#. b# the corporation's own

act. It has to follow the procedure prescribed b# law for the purpose@ and this is what is important

and indispensabl# prescribed H strict adherence to such procedure.

ocal well /nown corporation law commentators are unanimous in the view that a corporation

ma# change its name b# merel# amending its charter in the manner prescribed b#

law. 2 !merican authorities which have persuasive force here in this regard because our

corporation law is of !merican origin, the same being a sort of codification of !merican

corporate law, 3 are of the same opinion.

! general power to alter or amend the charter of a corporation necessaril#includes the power to alter the name of the corporation. Ft. Pitt Bld-., etc., Assoc.

v. 8odel Plan Bld-., etc., Assoc., &= "a. 2t. 0+*, %* !tl. %&=@ 2n re Fidelit# Mut.

!id !ssoc., &% >.$.C. 6"a.7 %&@ ()celsior 4il Co., 0 "a. Co. Ct. &*@ >etherill

2teel Casting Co., = "a. Co. Ct. 00.

))) ))) )))

?nder the 8eneral aws of Bhode Island, c &1, sec. , relating to an increase of

the capital stoc/ of a corporation, it is provided that 'such agreement ma# be

amended in an# other particular, e)cepting as provided in the following section',which relates to a decrease of the capital stoc/ This section has been held to

authori3e a change in the name of a corporation. Armin-ton v. Palmer , %& B.I.

&+, % !tl. 0+*, 0, .B.!. =, !m. 2t. Bep. *1. 6:ol. &, !merican and

(nglish !nnotated Cases, p. &%0.7

Fletcher, a standard authorit# on !merican an corporation law also sa#sG



2tatutes are to be found in the various jurisdictions dealing with the matter of

change in corporate names. 2uch statutes have been subjected to judicial

construction and have, in the main, been upheld as constitutional. 2n direct terms

or /y necessary implication, they authori<e corporations new names and prescribe

the mode of procedure for that purpose. The same steps must be ta/en under some

statutes to effect a change in a corporate name, as when an# other amendment of the corporate charter is sought .... >hen the general law thus deals with the

subject, a corporation can change its name onl# in the manner provided. 61

Fletcher, C#clopedia of the aw of "rivate Corporations, &1* Bevised :olume,

pp. %&%-%&0.7 6(mphasis supplied7

The learned trial judge held that the above-;uoted proposition are not supported b# the weight of

authorit# because the# are based on decisions in cases where the statutes e)pressl# authori3e

change of corporate name b# amendment of the articles of incorporation. >e have carefull#

e)amined these authorities and >e are satisfied of their relevance. (ven ord <enman who has

been ;uoted b# Ais Aonor from 2n %e-. v. %e-istrar of Joint Stoc5 Cos. &+, D.., = (.C..maintains merel# that the change of its name never appears to be such an act as the corporation

could do for itself, but re;uired @the same "ower as created a corporation.5 >hat seems to have

been overloo/ed, therefore, is that the procedure prescribes b# 2ection &* of our Corporation

aw for the amendment of corporate charters is practicall# identical with that for the

incorporation itself of a corporation.

In the appealed order of dismissal, the trial court, made the observation that, according to this

Court in %ed 'ine 4ransportation Co. v. %ural 4ransit Co., 'td ., 1+ "hil, =, ===, change of

name of a corporation is against public polic#. >e must clarif# that such is not the import of 4ur

said decision. >hat this Court held in that case is simpl# thatG

>e /now of no law that empowers the "ublic 2ervice Commission or an# court in

this jurisdiction to authori3e one corporation to assume the name of another

corporation as a trade name. oth the Bural Transit Compan#, td., and the

achrach Motor Co., Inc., are "hilippine corporations and the ver# law of their

creation and continued e)istence re;uires each to adopt and certif# a distinctive

name. The incorporators 'constitute a bod# politic and corporate under the name

stated in the certificate.' 62ection &&, !ct $o. &=, as amended.7 ! corporation

has the power >of succession /y its corporate name.> 62ection &0, i/id .7 The name

of a corporation is therefore essential to its e)istence. It cannot change its name

e)cept in the manner provided b# the statute. # that name alone is it authori3edto transact business. The law gives a corporation no e)press or implied authorit#

to assume another name that is unappropriated@ still less that of another

corporation, which is e)pressl# set apart for it and protected b# the law. If an#

corporation could assume at pleasure as an unregistered trade name the name of

another corporation, this practice would result in confusion and open the door to

frauds and evasions and difficulties of administration and supervision. The polic#

of the law as e)pressed our corporation statute and the Code of Commerce is



clearl# against such a practice. 6Cf. 2carsdale "ub. Co. H Colonial "ress vs.

Carter, &&1 $ew Jor/ 2upplement, 0&@ 2vens/a $at. F. i. C. vs. 2wedish $at.

!ssn., %+= Illinois O!ppellate CourtsP, %*, 0.7

In other words, what >e have held to be contrar# to public polic# is the use b# one corporation

of the name of another corporation as its trade name. >e are certain no one will disagree thatsuch an act can onl# 5result in confusion and open the door to frauds and evasions and

difficulties of administration and supervision.5 2urel#, the Bed ine case was not one of change

of name.

$either can >e share the posture of Ais Aonor that the change of name of a corporation results

in its dissolution. There is unanimit# of authorities to the contrar#.

!n authori3ed change in the name of a corporation has no more effect upon its

identit# as a corporation than a change of name of a natural person has upon his

identit#. It does not affect the rights of the corporation or lessen or add to its

obligations. !fter a corporation has effected a change in its name it should sue and

be sued in its new name .... 6&0 !m. 9ur. %1-%, citing cases.7

! mere change in the name of a corporation, either b# the legislature or b# the

corporators or stoc/holders under legislative authorit#, does not, generall#

spea/ing, affect the identit# of the corporation, nor in an# wa# affect the rights,

privileges, or obligations previousl# ac;uired or incurred b# it. Indeed, it has been

said that a change of name b# a corporation has no more effect upon the identit#

of the corporation than a change of name b# a natural person has upon the identit#

of such person. The corporation, upon such change in its name, is in no sense a

new corporation, nor the successor of the original one, but remains and continuesto be the original corporation. It is the same corporation with a different name,

and its character is in no respect changed. ... 61 Fletcher, C#clopedia of the aw of

"rivate Corporations, %%-%%=, citing cases.7

The change in the name of a corporation has no more effect upon its identit# as a

corporation than a change of name of a natural person has upon his identit#. It

does not affect the rights of the corporation, or lessen or add to its obligations.

3n-land. H oe v. &orton, && M. E >. &0, 9ur. =&, &% . 9. ()ch. &*.

:nited States. H 8etropolitan &at. Ban5 v. Cla--ett, && ?.2. =%+, &% 2. Ct. 1+,

0= ?.2. 6. ed.7 *&.

Ala/ama. H 'om/ v. Pioneer Sav., etc., Co., &+1 !la. =&, & 2o. 1+@ &orth

Birmin-ham 'um/er Co. v. Sims, &= !la. ==, * 2o. *.

Connecticut . H 4rinity Church v. ?all , %% Com. &%=.



2llinois. H 8t. Palatine Academy v. @leinschnit< %* III, &00@ St. 'ouis etc. %. Co.

v. 8iller , 0 Ill. &@ %eadin- v. =edder, 11 III. *+.

2ndiana. H %osenthal v. 8adison etc., Plan5 %oad Co., &+ Ind. 0=*.

@entuc5y. H Cahill v. Bi--er, * . Mon. %&&@ =ilhite v. Convent of $ood Shepherd , & #. %=&, * 2. >. &0*.

8aryland. Phinney v. Sheppard 7 3noch Pratt ?ospital , ** Md. 100, % !tl.

=*, writ of error dismissed, & ?.2. &+, %+ 2. Ct. =0, ?.2. 6. ed.7 %+.

8issouri. H ean v. 'a 8otte 'ead Co., = Mo. =%0.

&e/ras5a. Carlon v. City Sav. Ban5 , *% $eb. =*%, &** $. >. 00. &ew 6or5

First Soc of 8.3. Church v. Brownell , = Aun 1.

Pennsylvania. Com. v. Pitts/ur-h, & "a. 2t. %*.

South Carolina. H South Carolina 8ut 2ns. Co. v. Price 1 2.C. %+, = 2.(. &0.

;ir-inia. H =ilson v. Chesapea5e etc., B. Co., %& 8ratt 1=@ =ri-ht(Caesar

4o/acco Co. v. ?oen,&+= :a. 0%, = 2.(. 0+.

=ashin-ton. H @in- v. 2lwaco B. etc., Co., & >ash. &%. %0 "ac. %.

=isconsin. %acine Country Ban5 v. Ayers, &% >is. =&%.

The fact that the corporation b# its old name ma/es a format transfer of its

propert# to the corporation b# its new name does not of itself show that the

change in name has affected a change in the identit# of the corporation. Palfrey v.

Association for Belief, etc., &&+ a. =%, 0 2o. 1++. The fact that a corporation

organi3ed as a state ban/ afterwards becomes a national ban/ b# compl#ing with

the provisions of the $ational an/ing !ct, and changes its name accordingl#, has

no effect on its right to sue upon obligations or liabilities incurred to it b# its

former name. Michigan Ins. an/ v. (ldred &0 ?.2. %0, &% 2. Ct. =+, 01 ?.2.

6. ed.7 &1%.

! deed of land to a church b# a particular name has been held not to be affected

b# the fact that the church afterwards too/ a different name. Cahill v. igger, * .

Mon 6/#7 %&&.

! change in the name of a corporation is not a divestiture of title or such a change

as re;uires a regular transfer of title to propert#, whether real or personal, from the

corporation under one name to the same corporation under another



name. 8cClos5ey v. oherty, #. 0++, 0+ 2. >. 1. 6& !merican and (nglish

!nnotated Cases &%%-&%0.7

!s was ver# aptl# said in Pacific Ban5 v. e %o 0 Cal. =0*, 5The changing of the

name of a corporation is no more the creation of a corporation than the changing

of the name of a natural person is the begetting of a natural person. The act, in both cases, would seem to be what the language which we use to designate it

imports H a change of name, and not a change of being.

Aaving arrived at the above conclusion, >e have agree with appellant's pose that the lower court

also erred in holding that it is not the right part# in interest to sue defendants-appellees. 4 !s

correctl# pointed out b# appellant, the approval b# the stoc/holders of the amendment of its

articles of incorporation changing the name 5The Je/ Tong in Fire E Marine Insurance Co.,

td.5 to 5"hilippine First Insurance Co., Inc.5 on March *, &1&, did not automaticall# change

the name of said corporation on that date. To be effective, 2ection &* of the Corporation aw,

earlier ;uoted, re;uires that 5a cop# of the articles of incorporation as amended, dul# certified to

be correct b# the president and the secretar# of the corporation and a majorit# of the board of

directors or trustees, shall be filed with the 2ecurities E ()change Commissioner5, and it is only

from the time of such filin- , that 5the corporation shall have the same powers and it and the

members and stoc/holders thereof shall thereafter be subject to the same liabilities as if such

amendment had been embraced in the original articles of incorporation.5 It goes without sa#ing

then that appellant rightl# acted in its old name when on Ma# &=, &1&, it entered into the

indemnit# agreement, !nne) !, with the defendant-appellees@ for onl# after the filing of the

amended articles of incorporation with the 2ecurities E ()change Commission on Ma# %1,

&1&, did appellant legall# ac;uire its new name@ and it was perfectl# right for it to file the

present case In that new name on <ecember 1, &1&. 2uch is, but the logical effect of the change

of name of the corporation upon its actions.

!ctions brought b# a corporation after it has changed its name should be brought

under the new name although for the enforcement of rights e)isting at the time the

change was made. 'om/ v. Pioneer Sav., etc., Co., &+1 !la. =&, & 2o.

1+G &ewlan v. 'om/ard :niversity, 1% III. &=@ 4homas v. ;isitor of Frederic5

County School , 8ill E 9 6Md.7 0**@ elaware, etc., %. Co. v. 4ric5 , %0 $. 9. .

0%&@ &orthum/erland Country Ban5 v. 3yer , 1+ "a. 2t. 01@ =ilson v. Chesapea5e

etc., B. Co., %& 8ratt 6:a.7 1=.

The change in the name of the corporation does not affect its right to bring anaction on a note given to the corporation under its former name. Cum/erland

Colle-e v. 2sh, %%. Cal. 1&@ &orthwestern Colle-e v. Schwa-ler, 0 Ia. =. 6&

!merican and (nglish !nnotated Cases &%0.7

In conse;uence, >e hold that the lower court erred in dismissing appellant's complaint. >e ta/e

this opportunit#, however, to e)press the Court's feeling that it is apparent that appellee's position

is more technical than otherwise. $owhere in the record is it seriousl# pretended that the



indebtedness sued upon has alread# been paid. If appellees entertained an# fear that the# might

again be made liable to Je/ Tong in Fire E Marine Insurance Co. td., or to someone else in its

behalf, a cursor# e)amination of the records of the 2ecurities E ()change Commission would

have sufficed to clear up the fact that Je/ Tong in had just changed its name but it had not

ceased to be their creditor. (ver#one should reali3e that when the time of the courts is utili3ed for

cases which do not involve substantial ;uestions and the claim of one of the parties, therein is based on pure technicalit# that can at most dela# onl# the ultimate outcome necessaril# adverse

to such part# because it has no real cause on the merits, grave injustice is committed to

numberless litigants whose meritorious cases cannot be given all the needed time b# the courts.

>e address this appeal once more to all members of the bar, in particular, since it is their

bounden dut# to the profession and to our countr# and people at large to help ease as fast as

possible the clogged doc/ets of the courts. et us not wait until the people resort to other means

to secure speed#, just and ine)pensive determination of their cases.

>A(B(F4B(, judgment of the lower court is reversed, and this case is remanded to the trial

court for further proceedings consistent herewith >ith costs against appellees.

G.R. No. L-2)351 = 2), 1977

&NIERSAL #ILLS C!R"!RA$I!N, petitioner,

vs.

&NIERSAL $E$ILE #ILLS, INC., respondent.

3mi-dio $. 4anuatco for petitioner.

Pica<o, Santayana, %eyes, 4ayao 7 Alfonso for respondent.

ARRED!, J.:

!ppeal from the order of the 2ecurities and ()change Commission in 2.(.C. Case $o. &+,

entitled In the Matter of the :niversal 4etile 8ills, 2nc. vs. :niversal 8ills Corporation, a

petition to have appellant change its corporate name on the ground that such name is

5confusingl# and deceptivel# similar5 to that of appellee, which petition the Commission

granted.



!ccording to the order, 5the ?niversal Te)tile Mills, Inc. was organ on <ecember %, &=0, as a

te)tile manufacturing firm for which it was issued a certificate of registration on 9anuar# *, &=.

The ?niversal Mills Corporation, on the other hand, was registered in this Commission on

4ctober %, &=, under its original name, ?niversal Aosier# Mills Corporation, having as its

primar# purpose the 5manufacture and production of hosieries and wearing apparel of all /inds.5

4n Ma# %, &10, it filed an amendment to its articles of incorporation changing its name to?niversal Mills Corporation, its present name, for which this Commission issued the certificate

of approval on 9une &+, &10.

The immediate cause of this present complaint, however, was the occurrence of a fire which

gutted respondent's spinning mills in "asig, Bi3al. "etitioner alleged that as a result of this fire

and because of the similarit# of respondent's name to that of herein complainant, the news items

appearing in the various metropolitan newspapers carr#ing reports on the fire created uncertaint#

and confusion among its ban/ers, friends, stoc/holders and customers prompting petitioner to

ma/e announcements, clarif#ing the real Identit# of the corporation whose propert# was burned.

"etitioner presented documentar# and testimonial evidence in support of this allegation.

4n the other hand, respondent's position is that the names of the two corporations

are not similar and even if there be some similarit#, it is not confusing or

deceptive@ that the onl# reason that respondent changed its name was because it

e)panded its business to include the manufacture of fabrics of all /inds@ and that

the word 'te)tile' in petitioner's name is dominant and prominent enough to

distinguish the two. It further argues that petitioner failed to present evidence of

confusion or deception in the ordinar# course of business@ that the onl# supposed

confusion proved b# complainant arose out of an e)traordinar# occurrence H a

disastrous fire. 6pp. &1-E&, Becord.7

?pon these premises, the Commission heldG

From the facts proved and the jurisprudence on the matter, it appears necessar#

under the circumstances to enjoin the respondent ?niversal Mills Corporation

from further using its present corporate name. 9udging from what has alread#

happened, confusion is not onl# apparent, but possible. It does not matter that the

instance of confusion between the two corporate names was occasioned onl# b# a

fire or an e)traordinar# occurrence. It is precisel# the dut# of this Commission to

prevent such confusion at all times and under all circumstances not onl# for the

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

In toda#'s modern business life where people go b# tradenames and corporate

images, the corporate name becomes the more important. This Commission

cannot close its e#es to the fact that usuall# it is the sound of all the other words

composing the names of business corporations that stic/s to the mind of those

who deal with them. The word 5te)tile5 in ?niversal Te)tile Mills, Inc.' can not



possibl# assure the e)clusion of all other entities with similar names from the

mind of the public especiall# so, if the business the# are engaged in are the same,

li/e in the instant case.

This Commission further ta/es cogni3ance of the fact that when respondent filed

the amendment changing its name to ?niversal Mills Corporation, itcorrespondingl# filed a written underta/ing dated 9une =, &10 and signed b# its

"resident, Mr. Mariano Co/iat, promising to change its name in the event that

there is another person, firm or entit# who has obtained a prior right to the use of

such name or one similar to it. That promise is still binding upon the corporation

and its responsible officers. 6pp. &-&*, Becord.7

It is obvious that the matter at issue is within the competence of the 2ecurities and ()change

Commission to resolve in the first instance in the e)ercise of the jurisdiction it used to possess

under Commonwealth !ct %* as amended b# Bepublic !ct &+== to administer the application

and enforcement of all laws affecting domestic corporations and associations, reserving to the

courts onl# conflicts of judicial nature, and, of course, the 2upreme Court's authorit# to review

the Commissions actuations in appropriate instances involving possible denial of due process and

grave abuse of discretion. Thus, in the case at bar, there being no claim of denial of an#

constitutional right, all that >e are called upon to determine is whether or not the order of the

Commission enjoining petitioner to its corporate name constitutes, in the light of the

circumstances found b# the Commission, a grave abuse of discretion.

>e believe it is not. Indeed, it cannot be said that the impugned order is arbitrar# and capricious.

Clearl#, it has rational basis. The corporate names in ;uestion are not Identical, but the# are

indisputabl# so similar that even under the test of 5reasonable care and observation as the public

generall# are capable of using and ma# be e)pected to e)ercise5 invo/ed b# appellant, >e areapprehensive confusion will usuall# arise, considering that under the second amendment of its

articles of incorporation on !ugust &, &1, appellant included among its primar# purposes the

5manufacturing, d#eing, finishing and selling of fabrics of all /inds5 in which respondent had

been engaged for more than a decade ahead of petitioner. Factuall#, the Commission found

e)istence of such confusion, and there is evidence to support its conclusion. 2ince respondent is

not claiming damages in this proceeding, it is, of course, immaterial whether or not appellant has

acted in good faith, but >e cannot perceive wh# of all names, it had to choose a name alread#

being used b# another firm engaged in practicall# the same business for more than a decade

enjo#ing well earned patronage and goodwill, when there are so man# other appropriate names it

could possibl# adopt without arousing an# suspicion as to its motive and, more importantl#, an#degree of confusion in the mind of the public which could mislead even its own customers,

e)isting or prospective. "remises considered, there is no warrant for our interference.

!s this is purel# a case of injunction, and considering the time that has elapsed since the facts

complained of too/ place, this decision should not be deemed as foreclosing an# further remed#

which appellee ma# have for the protection of its interests.



>A(B(F4B(, with the reservation alread# mentioned, the appealed decision is affirmed. Costs

against petitioners.

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



&Y SI&LI!NG, #ARIAN! LI#A", GAC& &NG IENG, EDILER$! CALI$! /

&Y CH! YEE, petitioners,vs.$HE DIREC$!R !F C!##ERCE AND IND&S$RY, respondent.

@incaid and Per5ins for petitioners. Attorney($eneral Paredes for respondent.

!HNS!N, J.:

The purpose of this action is to obtain the writ of mandamus to re;uire the respondentto file and re-ister , upon the pa#ment of the lawful fee, articles of incorporation, and to issue tothe petitioners as the incorporators of a certain corporation to be /nown as 52iuliong #CompaNia, Inc.,5 a certificate under the seal of the office of said respondent, certif#ing that the

articles of incorporation have been dul# filed and registered in his office in accordance with thelaw.

To the petition the respondent demurred and the cause was finall# submitted upon the petitionand demurrer.

The important facts necessar# for the solution of the ;uestion presented, which are found in the petition, ma# be stated as followsG

&. That prior to the presentation of the petition the petitioners had been associated together as partners, which partnership was /nown as 5mercantil regular colectiva, under the st#le and firm

name of 52iuliong # Cia.@5

%. That the petitioners herein, who had theretofore been members of said partnership of 52iuliong# Cia.,5 desired to dissolve said partnership and to form a corporation composed of the same persons as incorporators, to be /nown as 52iulong # CompaNia, Incorporada@5

0. That the purpose of said corporation, 52iuliong # Cia., Inc.,5 is 6a7 to ac;uire the business of the partnership theretofore /nown as 2iuliong E Co., and 6b7 to continue said business with someof its objects or purposes@

. That an e)amination of the articles of incorporation of the said 52iuliong # CompaNia,

Incorporada5 6()hibit !7 shows that it is to be organi3ed for the following purposesG

6a7 The purchase and sale, importation and e)portation, of the products of the countr# as well asof foreign countries@

6/7 To discount promissor# notes, bills of e)change, and other negotiable instruments@



6c7 The purchase and sale of bills of e)change, bonds, stoc/s, or 5participaciones de sociedadesmercantiles e industriales Ojoint account of mercantile and industrial associationsP,5 and of allclasses of mercantile documents@ 5comisiones OcommissionsP@5 5consignacionesOconsignmentsP@5

6d 7 To act as agents for life, marine and fire insurance companies@ lawphi!.net

6e7 To purchase and sell boats of all classes 5# fletamento de los mismos Oand charterage of sameP@5 and

6 f 7 To purchase and sell industrial and mercantile establishments.

>hile the articles of incorporation of 52iuliong # Cia., Inc.5 states that its purpose is to ac;uireand continue the business, with some of its objects or purposes, of 2iuliong E Co., it will befound upon an e)amination of the purposes enumerated in the proposed articles of incorporationof 52iuliong # Cia., Inc.,5 that some of the purposes of the original partnership of 52iuliong #

Cia.5 have been omitted. For e)ample, the articles of partnership of 52iuliong # Cia.5 gave saidcompan# the authorit# to purchase and sell all classes 5de fincas rusticas # urbanas Oof rural andcit# real estateP5 as well as the right to act as agents for the establishment of an# other businesswhich it might esteem convenient for the interests of 5la compaNia Othe compan#P.5 6()hibit C7.

The respondent in his argument in support of the demurrer contends 6a7 that the proposed articlesof incorporation presented for file and registr# permitted the petitioners to engage in a businesswhich had for its end more than one purpose@ 6 /7 that it permitted the petitioners to engage in the ban/ing business, and 6c7 to deal in real estate, in violation of the !ct of Congress of 9ul# &,&+%.

The petitioners, in repl# to said argument of the respondent, while insisting that said proposedarticles of incorporation do not permit it to enter into the ban/ing business nor to engage in the purchase and sale of real estate in violation of said !ct of Congress, e)pressl# renounced in opencourt their right to engage in such business under their articles of incorporation, even though saidarticles might be interpreted in a wa# to authori3e them to so to do. That renouncement on the part of the petitioners eliminates from the purposes of said proposed corporation 6of 52iuliong #Cia., Inc.57 an# right to engage in the ban/ing business as such, or in the purchase and sale of real estate.

>e come now to the consideration of the principal ;uestion raised b# the respondent, to witG thatthe proposed articles of incorporation of 52iuliong # Cia., Inc.,5 permits it to engage in a business

with more than one purpose.

If upon an e)amination of the articles of incorporation we find that its purpose is to engage in a business with butone principal purpose, then that contention of the respondent will have beenanswered and it will be unnecessar# to discuss at length the ;uestion whether or not acorporation organi3ed for commercial purposes in the "hilippine Islands can be organi3ed for more than one purpose.



The attorne# for the respondent, at the time of the argument, admitted in open court thatcorporations in the "hilippine Islands might be organi3ed for both the 5importation ande)portation5 of merchandise and that there might be no relation between the /ind of merchandiseimported with the class of merchandise e)ported.

Beferring again to be proposed articles of incorporation, a cop# of which is united with theoriginal petition and mar/ed ()hibit !, it will be seen that the onl# purpose of said corporationare those enumerated in subparagraphs 6a7, 6/7, 6c7, 6d 7, 6e7 and 6 f 7 of paragraph above. >hilesaid articles of incorporation are somewhat loosel# drawn, it is clear from a reading of the samethat the principal purpose of said corporation is to engage in a mercantile /usiness, with the power to do and perform the particular acts enumerated in said subparagraphs above referred to.

>ithout discussing or deciding at this time whether a corporation organi3ed under the laws of the"hilippine Islands ma# be organi3ed for more than one purpose, we are of the opinion and sodecide that a corporation ma# be organi3ed under the laws of the "hilippine Islandsfor mercantile purposes, and to engage in such incidental /usiness as may /e

necessary and advisa/le to -ive effect to, and aid in, the successful operation and conduct of the principal /usiness.!awphi!.net

In the present case we are full# persuaded that all of the power and authority included in the

articles of incorporation of Siulion- y Cia., 2nc.,5 enumerated above in paragraph 6()hibit !7are onl# incidental to the principal purpose of said proposed incorporation, to witG mercantile

/usiness. The purchase and sale, importation and e)portation of the products of the countr#, aswell as of foreign countries, might ma/e it necessar# to purchase and discount promissor# notes, bills of e)change, bonds, negotiable instruments, stoc/, and interest in other mercantile andindustrial associations. It might also become important and advisable for the successful operationof the corporation to act as agent for insurance companies as well as to bu#, sell and e;uip boats

and to bu# and sell other establishments, and industrial and mercantile businesses.

>hile we have arrived at the conclusion that the proposed articles of incorporation do notauthori3e the petitioners to engage in a business with more than one purpose, we do not mean to be understood as having decided that corporations under the laws of the "hilippine Islands ma#not engage in a business with more than one purpose. 2uch an interpretation might wor/ a greatinjustice to corporations organi3ed under the "hilippine laws. 2uch an interpretation would giveforeign corporations, which are permitted to be registered under the laws here and which ma# beorgani3ed for more than one purpose, a great advantage over domestic corporations. >e do not believe that it was the intention of the legislature to give foreign corporations such an advantageover domestic corporations.

Considering the particular purposes and objects of the proposed articles of incorporation whichare speciall# enumerated above, we are of the opinion that it contains nothing which violates inthe slightest degree an# of the provisions of the laws of the "hilippine Islands, and the petitionersare, therefore, entitled to have such articles of incorporation filed and re-istered as pra#ed for b#them and to have issued to them a certificate under the seal of the office of the respondent,setting forth that such articles of incorporation have been dul# filed in his office. 62ec. &&, !ct $o. &=.7



Therefore, the petition pra#ed for is hereb# granted, and without an# finding as to costs, it is soordered.

Arellano, C.J., 4orres and Avance9a, JJ., concur.

Se'r(e !'88o6

S$REE$, J., concurringG

The petitioners in this case are desirous of forming a corporation to ta/e over and continue a business which for a number of #ears has been conducted in the cit# of Manila as an ordinar#collective mercantile partnership under the name of 52iuliong # CompaNia.5 To this end it isnecessar# that the articles of incorporation should be filed in the office of the <irector of Commerce and Industr#, who, it appears, has withheld approval of the articles submitted to himand has refused to file the same in his office.

The position ta/en b# the <irector of Commerce and Industr# is that the articles of the proposedcorporation state more than one corporate purpose, contrar# to the provisions of !ct $o. &=6the Corporation aw7. In order to ascertain whether this contention is sound it becomesnecessar# to e)amine the provisions contained in the proposed articles in relation with there;uirements of the !ct mentioned.

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

2econd. That the object for which said corporation is organi3ed areG to ac;uire the

business of the regular partnership 52iuliong # CompaNia,5 and to continue operating said business in all its parts, and incidental to the principal object, the corporation shall have powers to transact the followingG the bu#ing and selling, importation and e)portation, of native as well as foreign merchandise@ the discount of promissor# notes, bills of e)changeand other negotiable instruments@ the bu#ing and selling of bills of e)change, bonds,shares, and interests in mercantile and industrial partnerships@ commissions@consignments@ life, maritime, and fire insuranceG the bu#ing and selling of vessels of all



/inds and charterage of same@ and the bu#ing and selling of industrial or mercantile plants.

This language is substantiall# a reproduction of the fourth clause of the partnership articles under which the business of 2iuliong E Compan# is being now conducted, as ma# be seen b# a

comparison with the wording of said fourth clause, which is as followsG

Fourth. The object of the partnership shall be the continuation of all the business of the partnership 52iuliong # CompaNia5 which is dissolved on this date, 9une 0+, &&1, or rather the bu#ing and selling, the importation and e)portation, of native as well as foreign products@ the bu#ing and selling is bills of e)change and of all /inds of commercialdocuments@ commissions@ consignments@ maritime and fire insurance@ the bu#ing andselling of all /inds of rural and cit# real estate, as well as vessels of all /inds and their charterage@ and the manager is hereb# authori3ed to organi3e an# other /ind of businesswhich he ma# deem convenient for the compan#'s interest.

It must be admitted that the second clause of the proposed articles of incorporation is e)pressedin a wa# which invites criticism@ and if I m# be permitted so to suggest the provision would have been better conceived if it had started off something li/e thisG

The general object of this corporation is to engage in commercial activities, such as the bu#ingand selling of merchandise and commodities of ever# /ind@ the importation and e)portationthereof@ the conduct of the business of commission merchants, consignees, and insuranceagencies@ the bu#ing and selling of boats and the chartering thereof, as well as the bu#ing andselling of industrial and mercantile plants@ etc., etc.

In setting out the corporate purpose with a view to defining the legitimate range of the faculties

of the corporation, it is undesirable to state that its primar# purpose is to ta/e over the business of some e)isting concern. ?ndoubtedl# a corporation ma# obtain its capital and draw its resourcesfrom a prior enterprise, but it ac;uires such business b# transfer@ and the nature of the activitiesof the older business has no bearing on the faculties of the new corporation. !ll the powers that acorporation can lawfull# e)ercise are derived from the state b# virtue of the laws governing thecreation and conduct of corporations.

$ow, what are limits upon the activities for which a corporation ma# be created The answer isto be found, if an#where, in the Corporation aw. The first chapter of that law deals withcorporations in general and contains the provisions common to all corporations. In the secondchapter are found various special provisions applicable to particular forms of corporate activities.

4f these there are several varieties, to wit, railroad corporations, savings and mortgage ban/s, ban/ing corporations, trust corporations, domestic insurance corporations, religious corporations,colleges and institutions of learning, and building and loan corporations.

It is obvious that no single corporation can be permitted to e)ercise the mi)ed functions of morethan one of these classes@ and the <irector of Commerce and Industr# would be clearl# actingwithin his power in rejecting an# proposed articles of a corporation which confers or appears toconfer powers particularl# appropriate to more than one of these forms of corporate enterprise.



!side from the lines that are laid down in the fundamental classification contained in theCorporation aw, there seems to be no limit upon the legitimate activities of corporate enterprise.For instance, a corporation organi3ed for commercial purposes can lawfull# engage in an# one of the thousand or more activities which ma# be imagined under the head of commercial@ but itmust abstain from activities peculiar to the forms of corporate enterprise for which special

provisions are made.

This implies that the word 5purpose5 as used in the e)pression 5the purpose for which thecorporation is formed,5 in subsection % of section 1 of the Corporation aw, ma# properl# beconceived as including the plural as well as the singular. ut the purposes, when there are morethan one, must be capable of being lawfull# combined, that is not obno)ious to the classificationcreated b# the law.

It is not necessar#, and indeed will rarel# be found desirable, to attempt to set out in the articlesof incorporation the multitude of activities in which the corporation can engage incidentall#, asreasonabl# necessar# to accomplish the purpose or purposes for which the corporation was

primaril# formed. There is general authorit# for the e)ercise of all such implied powers insection &0 of the Corporation aw, and the# need not be e)pressed.

Beturning now to the second clause of the proposed articles of incorporation for 52iuliong #CompaNia, Incorporated,5 I entertain a doubt as to the propriet# of admitting into that documentthe words 5discounts of notes, bills, and other negotiable documents5 and 5the bu#ing and sellingof bills, bonds, stoc/s, and shares of mercantile and industrial partnership, as well as mercantiledocuments of ever# sort.5 The reason simpl# is that in so far as it is necessar# to engage in theseactivities for the accomplishment of the general purposes of the corporation, it ma# all be done inthe e)ercise of the implied power e)pressed in section &0@ and the insertion into the articles of the words ;uoted ma# give rise to the inference that the incorporators ma# desire to engage in a

line of business appropriate onl# to corporations created for ban/ing purposes. 62ee sec. &&1 of !ct $o. &=.7 4n the other hand, it ma# be said that the activities e)pressed in the words ;uotedare those peculiar to the business of stoc/-bro/ers@ and one reason is apparent wh# the businessof stoc/-bro/ing might not be lawfull# combined under one corporate chapter with the other mercantile activities mentioned in the second clause of the articles.

4n the whole, as I understand the opinion written b# 9ustice 9ohnson, this court intends to holdthat the second clause of the proposed articles, when propert# interpreted, means that thecompan# to be formed intends primaril# to dedicate itself to industrial and mercantile activities,as its principal object and that the other activities mentioned are purel# subordinate. I have nospecial criticism to ma/e of this view@ and inasmuch as the interpretation which the court thus places upon the proposed charter removes the possibilit# that the corporation ma#, under the protection thereof, engage in illegitimate lines of enterprise, I am content to e)press m#concurrence in the result reached b# the court. ut I reall# thin/ the proposed articles ought to beamended.

M!C4M, 9., concurs in the result, reserving his opinion concerning the suggestion in thethird paragraph from the last of the principal decision.



G.R. No. L-2223) Febrr 1), 19*7

CLAECILLIA RADI! SYS$E#, petitioner-appellant,

vs.

H!N. AG&S$IN AN$ILL!N, 6 C8( /:e o; (<e #8c8'= Cor( o; C: /e !ro

C8(

/ NE@ CAGAYAN GR!CERY, respondents-appellees.

B. C. Padua for petitioner and appellant.

Pa/lo S. %eyes for respondents and appellees.

REGALA, J.:

This is an appeal from an order of the Court of First Instance of Misamis 4riental dismissing the

petition of the Clavecilla Badio 2#stem to prohibit the Cit# 9udge of Caga#an de 4ro from ta/ing

cogni3ance of Civil Case $o. &+* for damages.

It appears that on 9une %%, &10, the $ew Caga#an 8rocer# filed a complaint against the

Clavecilla Badio 2#stem alleging, in effect, that on March &%, &10, the following message,



addressed to the former, was filed at the latter's acolod ranch 4ffice for transmittal thru its

branch office at Caga#an de 4roG

$(C!8B4 C!8!J!$ <( 4B4 6C!:(CI!7

B(?BT( >!2A(< $4T !:!I!( B(FI$(< T>($TJ FIFTJ IF !8B((!(2A! 2AI" !T(B B("J "4A!$8

The Caga#an de 4ro branch office having received the said message omitted, in

delivering the same to the $ew Caga#an 8rocer#, the word 5$4T5 between the words

5>!2A(<5 and 5!:!I!(,5 thus changing entirel# the contents and purport of the

same and causing the said addressee to suffer damages. !fter service of summons, the

Clavecilla Badio 2#stem filed a motion to dismiss the complaint on the grounds that it

states no cause of action and that the venue is improperl# laid. The $ew Caga#an

8rocer# interposed an opposition to which the Clavecilla Badio 2#stem filed its

rejoinder. Thereafter, the Cit# 9udge, on 2eptember &*, &10, denied the motion to

dismiss for lac/ of merit and set the case for hearing.!DwphE!.9t

Aence, the Clavecilla Badio 2#stem filed a petition for prohibition with preliminar# injunction

with the Court of First Instance pra#ing that the Cit# 9udge, Aonorable !gustin !ntillon, be

enjoined from further proceeding with the case on the ground of improper venue. The

respondents filed a motion to dismiss the petition but this was opposed b# the petitioner. ater,

the motion was submitted for resolution on the pleadings.

In dismissing the case, the lower court held that the Clavecilla Badio 2#stem ma# be sued either

in Manila where it has its principal office or in Caga#an de 4ro Cit# where it ma# be served, as

in fact it was served, with summons through the Manager of its branch office in said cit#. Inother words, the court upheld the authorit# of the cit# court to ta/e cogni3ance of the

case.!DwphE!.9t

In appealing, the Clavecilla Badio 2#stem contends that the suit against it should be filed in

Manila where it holds its principal office.

It is clear that the case for damages filed with the cit# court is based upon tort and not upon a

written contract. 2ection & of Bule of the $ew Bules of Court, governing venue of actions in

inferior courts, provides in its paragraph 6b7 607 that when 5the action is not upon a written

contract, then in the municipality where the defendant or any of the defendants resides or may /e served with summons.5 6(mphasis supplied7

2ettled is the principle in corporation law that the residence of a corporation is the place where

its principal office is established. 2ince it is not disputed that the Clavecilla Badio 2#stem has its

principal office in Manila, it follows that the suit against it ma# properl# be filed in the Cit# of

Manila.



The appellee maintain, however, that with the filing of the action in Caga#an de 4ro Cit#, venue

was properl# laid on the principle that the appellant ma# also be served with summons in that

cit# where it maintains a branch office. This Court has alread# held in the case of Cohen vs.

Ben-uet Commercial Co., 'td., 0 "hil. =%1@ that the term 5ma# be served with summons5 does

not appl# when the defendant resides in the "hilippines for, in such case, he ma# be sued onl# in

the municipalit# of his residence, regardless of the place where he ma# be found and served withsummons. !s an# other corporation, the Clavecilla Badio 2#stem maintains a residence which is

Manila in this case, and a person can have onl# one residence at a time 62ee !lcantara vs.

2ecretar# of the Interior, 1& "hil. =@ (vangelists vs. 2antos, *1 "hil. 0*7. The fact that it

maintains branch offices in some parts of the countr# does not mean that it can be sued in an# of

these places. To allow an action to be instituted in an# place where a corporate entit# has its

branch offices would create confusion and wor/ untold inconvenience to the corporation.

It is important to remember, as was stated b# this Court in 3van-elista vs. Santos, et al., supra,

that the la#ing of the venue of an action is not left to plaintiff's caprice because the matter is

regulated b# the Bules of Court. !ppl#ing the provision of the Bules of Court, the venue in thiscase was improperl# laid.

The order appealed from is therefore reversed, but without prejudice to the filing of the action in

>hich the venue shall be laid properl#. >ith costs against the respondents-appellees.

G.R. No. L-23*0* = 29, 19*)

ALHA#RA CIGAR CIGARE$$E #AN&FAC$&RING C!#"ANY, INC., petitioner,

vs.

SEC&RI$IES ECHANGE C!##ISSI!N, respondent.



$am/oa and $am/oa for petitioner.

Office of the Solicitor $eneral for respondent.

SANCHE+, J.:

To the ;uestion H Ma# a corporation e)tend its life b# amendment of its articles of incorporation effected during the three-#ear statutor# period for li;uidation when its original

term of e)istence had alread# e)pired H the answer of the 2ecurities and ()change

Commissioner was in the negative. 4ffshoot is this appeal.

That problem emerged out of the following controlling factsG

"etitioner !lhambra Cigar and Cigarette Manufacturing Compan#, Inc. 6hereinafter referred to

simpl# as Alham/ra7 was dul# incorporated under "hilippine laws on 9anuar# &=, &&%. # its

corporate articles it was to e)ist for fift# 6=+7 #ears from incorporation. Its term of e)istence

e)pired on 9anuar# &=, &1%. 4n that date, it ceased transacting business, entered into a state of

li;uidation.

Thereafter, a new corporation. H !lhambra Industries, Inc. H was formed to carr# on the

business of !lhambra.

4n Ma# &, &1%, !lhambra's stoc/holders, b# resolution named !ngel 2. 8amboa trustee to ta/e

charge of its li;uidation.

4n 9une %+, &10 H within !lhambra's three-#ear statutor# period for li;uidation - Bepublic !ct

0=0& was enacted into law. It amended 2ection &* of the Corporation aw@ it empowered

domestic private corporations to e)tend their corporate life be#ond the period fi)ed b# thearticles of incorporation for a term not to e)ceed fift# #ears in an# one instance. "revious to

Bepublic !ct 0=0&, the ma)imum non-e)tendible term of such corporations was fift# #ears.

4n 9ul# &=, &10, at a special meeting, !lhambra's board of directors resolved to amend

paragraph 5Fourth5 of its articles of incorporation to e)tend its corporate life for an additional

fift# #ears, or a total of &++ #ears from its incorporation.

4n !ugust %1, &10, !lhambra's stoc/holders, representing more than two-thirds of its

subscribed capital stoc/, voted to approve the foregoing resolution. The 5Fourth5 paragraph of

!lhambra's articles of incorporation was thus altered to readG

F4?BTA. That the term for which said corporation is to e)ist is fift# 6=+7 #ears from and

after the date of incorporation, and for an additional period of fifty G0*H years thereafter.

4n 4ctober %*, &10, !lhambra's articles of incorporation as so amended certified correct b# its

president and secretar# and a majorit# of its board of directors, were filed with respondent

2ecurities and ()change Commission 62(C7.



4n $ovember &*, &10, 2(C, however, returned said amended articles of incorporation to

!lhambra's counsel with the ruling that Bepublic !ct 0=0& 5which too/ effect onl# on 9une %+,

&10, cannot be availed of b# the said corporation, for the reason that its term of e)istence had

alread# e)pired when the said law too/ effect in short, said law has no retroactive effect.5

4n <ecember 0, &10, !lhambra's counsel sought reconsideration of 2(C's ruling aforesaid,refiled the amended articles of incorporation.

4n 2eptember *, &1, 2(C, after a conference hearing, issued an order den#ing the

reconsideration sought.

!lhambra now invo/es the jurisdiction of this Court to overturn the conclusion below.&

&. !lhambra relies on Bepublic !ct 0=0&, which amended 2ection &* of the Corporation aw.

>ell it is to ta/e note of the old and the new statutes as the# are framed. 2ection &*, prior to and

after its modification b# Bepublic !ct 0=0&, covers the subject of amendment of the articles of

incorporation of private corporations. ! provision thereof which remains unaltered is that a

corporation ma# amend its articles of incorporation 5b# a majorit# vote of its board of directors

or trustees and ... b# the vote or written assent of the stoc/holders representing at least two-thirds

of the subscribed capital stoc/ ... 5

ut prior to amendment b# Bepublic !ct 0=0&, an e)plicit prohibition e)isted in 2ection &*,

thusG

... Provided, however , That the life of said corporation shall not be e)tended b# said

amendment be#ond the time fi)ed in the original articlesG ...

This was displaced b# Bepublic !ct 0=0& which enfranchises all private corporations to e)tend

their corporate e)istence. Thus incorporated into the structure of 2ection &* are the followingG

... Provided, however , That should the amendment consist in e)tending the corporate life,

the e)tension shall not e)ceed fift# #ears in an# one instanceG "rovided, further, That the

original articles, and amended articles together shall contain all provisions re;uired b#

law to be set out in the articles of incorporationG ...

!s we loo/ in retrospect at the facts, we find theseG From 9ul# &= to 4ctober %*, &10, when

!lhambra made its attempt to e)tend its corporate e)istence, its original term of fift# #ears had

alread# e)pired 69anuar# &=, &1%7@ it was in the midst of the three-#ear grace period statutoril#

fi)ed in 2ection of the Corporation aw, thusG .

2(C. . (ver# corporation whose charter e)pires b# its own limitation or is annulled b#

forfeiture or otherwise, or whose corporate e)istence for other purposes is terminated in

an# other manner, shall nevertheless be continued as a bod# corporate for three #ears

after the time when it would have been so dissolved, for the purpose of prosecutin- and



defendin- suits /y or a-ainst it and of ena/lin- it -radually to settle and close its affairs,

to dispose of and convey its property and to divide its capital stoc5, /ut not for the

purpose of continuin- the /usiness for which it was esta/lished.%

"lain from the language of the provision is its meaningG continuance of a 5dissolved5 corporation

as a bod# corporate for three #ears has for its purpose the final closure of its affairs, and nootherI the corporation is specificall# enjoined from 5continuing the business for which it was

established5. The li;uidation of the corporation's affairs set forth in 2ection became necessar#

precisel# because its life had ended. For this reason alone, the corporate e)istence and juridical

personalit# of that corporation to do business ma# no longer be e)tended.

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

The common law rule, at the beginning, was rigid and infle)ible in that upon its dissolution, a

corporation became legall# dead for all purposes. 2tatutor# authori3ations had to be provided for

its continuance after dissolution 5for limited and specified purposes incident to complete

li;uidation of its affairs5.0 Thus, the moment a corporation's right to e)ist as an 5artificial person5

ceases, its corporate powers are terminated 5just as the powers of a natural person to ta/e part in

mundane affairs cease to e)ist upon his death5. There is nothing left but to conduct, as it were,

the settlement of the estate of a deceased juridical person.

%. Bepublic !ct 0=0&, amending 2ection &* of the Corporation aw, is silent, it is true, as to

when such act of e)tension ma# be made. ut even with a superficial /nowledge of corporate

principles, it does not ta/e much effort to reach a correct conclusion. For, implicit in 2ection

heretofore ;uoted is that the privilege given to prolon- corporate life under the amendment must

be e)ercised before the e)pir# of the term fi)ed in the articles of incorporation.

2ilence of the law on the matter is not hard to understand. 2pecificit# is not reall# necessar#. The

authorit# to prolong corporate life was inserted b# Bepublic !ct 0=0& into a section of the law

that deals with the power of a corporation to amend its articles of incorporation. 6For, the manner

of prolongation is through an amendment of the articles.7 !nd it should be clearl# evident that

under 2ection no corporation in a state of li;uidation can act in an# wa#, much less amend its

articles, 5for the purpose of continuing the business for which it was established5.

!ll these dilute !lhambra's position that it could revivif# its corporate life simpl# because when

it attempted to do so, !lhambra was still in the process of li;uidation. It is surel# impermissible

for us to stretch the law H that merel# empowers a corporation to act in li;uidation H to injecttherein the power to e)tend its corporate e)istence.

0. $ot that we are alone in this view. Fletcher has writtenG 52ince the privilege of e)tension is

purel# statutor#, all of the statutor# conditions precedent must be complied with in order that the

e)tension ma# be effectuated. !nd, generall# these conditions must be complied with, and the

steps necessar# to effect the e)tension must be ta/en,durin- the life of the corporation, and

/efore the epiration of the term of eistence as ori-inal fied /y its charter or the -eneral law,



since, as a rule, the corporation is ipso facto dissolved as soon as that time epires. 2o where the

e)tension is b# amendment of the articles of incorporation, the amendment must /e adopted

/efore that time. !nd, similarl#, the filing and recording of a certificate of e)tension after that

time cannot relate bac/ to the date of the passage of a resolution b# the stoc/holders in favor of

the e)tension so as to save the life of the corporation. The contrar# is true, however, and the

doctrine of relation will appl#, where the dela# is due to the neglect of the officer with whom thecertificate is re;uired to be filed, or to a wrongful refusal on his part to receive it. !nd statutes in

some states specificall# provide that a renewal ma# be had within a specified time before or after

the time fi)ed for the termination of the corporate e)istence5.=

The logic of this position is well e)pressed in a fours;uare case decided b# the Court of !ppeals

of entuc/#.1There, pronouncement was made as followsG

... ut section =1& 6section %&7 provides that, when an# corporation e)pires b# the

terms of its articles of incorporation, it ma# be thereafter continued to act for the purpose

of closing up its business, but for no other purpose. The corporate life of the Aome

uilding !ssociation e)pired on Ma# 0, &+=. !fter that date, b# 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 9anuar# &1, &+*, or nearl# three

#ears after the corporation e)pired b# the terms of the articles of incorporation. =hen the

corporate life of the corporation was ended, there was nothin- to etend. Aere it was

proposed nearl# three #ears after the corporate life of the association had e)pired to

revivif# the dead bod#, and to ma/e that relate bac/ some two #ears and eight months. In

other words, the association for two #ears and eight months had onl# e)isted for the

purpose of winding up its business, and, after this length of time, it was proposed to

revivif# it and ma/e it a live corporation for the two #ears 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 ma# be e)tended b# the court, but under this provision it has uniforml# been

held that when the time was e)pired, there is nothing to e)tend, and that the appeal must

be dismissed... 2o, when the articles of a corporation have e)pired, it is too late to adopt

an amendment e)tending the life of a corporation@ for, the corporation having

e)pired, this is in effect to create a new corporation ...5

True it is, that the !labama 2upreme Court has stated in one case.* that a corporation empowered

b# statute torenew its corporate e)istence ma# do so even after the e)piration of its corporate life, provided renewal is ta/en advantage of within the e)tended statutor# period for purposes of

li;uidation. That ruling, however, is inherentl# wea/ as persuasive authorit# for the situation at

bar for at least two reasonsG First . That case was a suit for mandamus to compel a former

corporate officer to turn over boo/s and records that came into his possession and control b#

virtue of his office. It was there held that such officer was obliged to surrender his boo/s and

records even if the corporation had alread# e)pired. The holding on the continued e)istence of

the corporation was a mere dictum. Second . !labama's law is different. Corporations in that state



were authori3ed not onl# to e)tend but also to renew their corporate e)istence.4hat very

case defined the word 5renew5 as follows@ 5To ma/e new again@ to restore to freshness@ to ma/e

new spirituall#@ to regenerate@ to begin again@ to recommence@ to resume@ to restore to e)istence,

to revive@ to re-establish@ to recreate@ to replace@ to grant or obtain an e)tension of >ebster's $ew

International <ict.@ 0 C#c. &00+@ Carter v. Broo5lyn 'ife 2ns. Co., &&+ $.J. &=, %&, %%, & $.(.

01@ = C.9. 0. 2ec5.

4n this point, we again draw from FletcherG 5There is a broad distinction between the e)tension

of a charter and the grant of a new one. To renew a charter is to revive a charter which has

e)pired, or, in other words, 5to give a new e)istence to one which has been forfeited, or which

has lost its vitalit# b# lapse of time5. To 5e)tend5 a charter is 5to increase the time for the

e)istence of one which would otherwise reach its limit at an earlier period5.&+ $owhere in our

statute H 2ection &*, Corporation aw, as amended b# Bepublic !ct 0=0& H do we find the

word 5renew5 in reference to the authorit# given to corporations to protract their lives. 4ur law

limits itself to etension of corporate e)istence. !nd, as so understood, e)tension ma# be

made only before the term provided in the corporate charter e)pires.

!lhambra draws attention to another case&& which declares that until the end of the e)tended

period for li;uidation, a dissolved corporation 5does not become an e)tinguished entit#5. ut this

statement was obviousl# lifted out of conte)t. That case dissected the ;uestion whether or not

suits can be commenced b# or against a corporation within its li;uidation period. >hich was

answered in the affirmative. For, the corporation still e)ists for the settlement of its affairs.

People, e rel. vs. $reen,&% also invo/ed b# !lhambra, is as unavailing. There, although the

corporation amended its articles to e)tend its e)istence at a time when it had no legal authorit#

#et, it adopted the amended articles later on when it had the power to e)tend its life and durin-

its ori-inal term when it could amend its articles.

The foregoing notwithstanding, !lhambra falls bac/ on the contention that its case is arguabl#

within the purview of the law. It sa#s that before cessation of its corporate life, it could not have

e)tended the same, for the simple reason that Bepublic !ct 0=0& had not then become law. It

must be remembered that Bepublic !ct 0=0& too/ effect on 9une %+, &10, while the original

term of !lhambra's e)istence e)pired before that date H on 9anuar# &=, &1%. The mischief that

flows from this theor# is at once apparent. It would certainl# open the gates for all defunct

corporations H whose charters have e)pired even long before Bepublic !ct 0=0& came into

being H to resuscitate their corporate e)istence.

. !lhambra brings into argument Bepublic !ct &0%, which amends 2ection &1 of the

Insurance !ct, now reading as followsG !DwphE!.9t

2(C. &1. !n# provision of law to the contrar# notwithstanding, ever# domestic life

insurance corporation, formed for a limited period under the provisions of its articles of

incorporation, ma# e)tend its corporate e)istence for a period not e)ceeding fift# #ears in



an# one instance b# amendment to its articles of incorporation on or before the e)piration

of the term so fi)ed in said articles ...

To be observed is that the foregoing statute H unli/e Bepublic !ct 0=0& H e)pressl# authori3es

domestic insurance corporations to e)tend their corporate e)istence 5on or before the e)piration

of the term5 fi)ed in their articles of incorporation. Bepublic !ct &0% was approved on 9une %%,&=, long before the passage of Bepublic !ct 0=0& in &10. Congress, !lhambra points out,

must have been aware of Bepublic !ct &0% when it passed Bepublic !ct 0=0&. 2ince the phrase

5on or before5, etc., was omitted in Bepublic !ct 0=0&, which contains no similar limitation, it

follows, according to !lhambra, that it is not necessar# to e)tend corporate e)istence on or

before the e)piration of its original term.

That Bepublic !ct 0=0& stands mute as to when e)tention of corporate e)istence ma# be made,

assumes no relevance. >e have alread# said, in the face of a familiar precept, that a defunct

corporation is bereft of an# legal facult# not otherwise e)pressl# sanctioned b# law.

Illuminating here is the e)planator# note of A.. &, later Bepublic !ct 0=0& H now in

dispute. Its first paragraph states that 5Bepublic !ct $o. &0% allows the automatic e)tension of

the corporate e)istence of domestic life insurance corporations upon amendment of their articles

of incorporation on or before the e)piration of the terms fi)ed b# said articles5. The succeeding

lines are decisiveG 5This is a good law, a sane and sound one. 4here appears to /e no valid

reason why it should not /e made to apply to other private corporations .&0

The situation here presented is not one where the law under consideration is ambiguous, where

courts have to put in harness e)trinsic aids such as a loo/ at another statute to disentangle doubts.

It is an elementar# rule in legal hermeneutics that where the terms of the law are clear, no

statutor# construction ma# be permitted. ?pon the basic conceptual scheme under whichcorporations operate, and with 2ection of the Corporation aw particularl# in mind, we find

no vagueness in 2ection &*, as amended b# Bepublic !ct 0=0&. !s we view it, b# directing

attention to Bepublic !ct &0%, !lhambra would see/ to create obscurit# in the law@ and, with

that, as/ of us a ruling that such obscurit# be e)plained. This, we dare sa#, cannot be done.

The pari materia rule of statutor# construction, in fact, commands that statutes must be

harmoni3ed with each other.& 2o harmoni3ing, the conclusion is clear that 2ection &* of the

Corporation aw, as amended b# Bepublic !ct 0=0& in reference to e)tensions of corporate

e)istence, is to be read in the same light as Bepublic !ct &0%. >hich means that domestic

corporations in general, as with domestic insurance companies, can e)tend corporate e)istenceonl# on or before the e)piration of the term fi)ed in their charters.

=. !lhambra pleads for munificence in interpretation, one which brushes technicalities aside.

ases for this posture are that Bepublic !ct 0=0& is a remedial statute, and that e)tension of

corporate life is beneficial to the econom#.



!lhambra's stance does not induce assent. ()pansive construction is possible only when there is

something to e)pand. !t the time of the passage of Bepublic !ct 0=0&, !lhambra's corporate life

had alread# e)pired. It had overstepped the limits of its limited e)istence. $o life there is to

prolong.

esides, a new corporation H !lhambra Industries, Inc., with but slight change instoc/holdings&= H has alread# been established. Its purpose is to carr# on, and it actuall# does

carr# on,&1 the business of the dissolved entit#. The beneficial-effects argument is off the mar/.

The wa# the whole case shapes up then, the onl# possible drawbac/s of !lhambra might be that,

instead of the new corporation 6!lhambra Industries, Inc.7 being written off, the old one

6!lhambra Cigar E Cigarette Manufacturing Compan#, Inc.7 has to be wound up@ and that the

old corporate name cannot be retained full# in its e)act form.& >hat is important though is that

the word Alham/ra, the name that counts Oit has goodwillP, remains.

F4B TA( B(!24$2 8I:($, the ruling of the 2ecurities and ()change Commission of

$ovember &*, &10, and its order of 2eptember *, &1, both here under review, are hereb#

affirmed.

Costs against petitioner !lhambra Cigar E Cigarette Manufacturing Compan#, Inc. 2o ordered.

BG.R. No. L-7231. #rc< 2), 195*.

ENG&E$ C!NS!LIDA$ED #INING C!., Petitioner , 6. #ARIAN! "INEDA, 8 <86c'c8( 6 Secr8(8e6 / Ec<:e Comm8668oer, Respondent . C!NS!LIDA$ED

#INES, INC., Intervenor .

D E C I S I ! N

REYES, . . L., J.:



!ppeal under Bule 0 from a decision of the 2ecurities and ()change Commissioner, den#ingthe right of a sociedad anonima to e)tend its corporate e)istence b# amendment of its originalarticles of association, or alternativel#, to reform and continue e)isting under the Corporationaw 6!ct &=7 be#ond the original period.

The Petitioner , the enguet Consolidated Mining Co. 6hereafter termed RenguetS for short7,

was organi3ed on 9une %,&+0, as a sociedad anonima regulated b# !rticles &=& et se;., of the2panish Code of Commerce of &**1, then in force in the "hilippines. The articles of associatione)pressl# provided that it was organi3ed for a term of fift# 6=+7 #ears. In &+1, the governing"hilippine Commission enacted !ct &=, commonl# /nown as the Corporation aw,establishing in the islands the !merican t#pe of juridical entities /nown as corporation, to ta/eeffect on !pril &, &+1. 4f its enactment, this Court said in its decision in Aarden vs. enguetConsolidated Mining Co., =* "hil., &&, at pp. &=-&1, and &Gchanroblesvirtuallawlibrar#

R>hen the "hilippine Islands passed to the sovereignt# of the ?nited 2tates, the attention of the"hilippine Commission was earl# drawn to the fact there is no entit# in 2panish law e)actl#corresponding to the motion of the corporation in (nglish and !merican law@ chanroblesvirtualawlibrar#and in the "hilippine ill, approved 9ul# &, &+1, the Congress of the?nited 2tates inserted certain provisions, under the head of Franchises, which were intended tocontrol the lawma/ing power in the "hilippine Islands in the matter of granting of franchises, privileges and concessions. These provisions are found in sections and = of the !ct. The provisions of section have been superseded b# section %* of the !ct of Congress of !ugust%, &&1, but in section = there is a provision referring to mining corporations, which stillremains the law, as amended. This provision, in its original form, reads asfollowsGchanroblesvirtuallawlibrar# cralaw it shall be unlawful for an# member of a corporationengaged in agriculture or mining and for an# corporation organi3ed for an# purpose e)ceptirrigation to be in an# wise interested in an# other corporation engaged in agriculture or inmining.

?nder the guidance of this and certain other provisions thus enacted b# Congress, the "hilippineCommission entered upon the enactment of a general law authori3ing the creation of corporations in the "hilippine Islands. This rather elaborate piece of legislation is embodied inwhat is called our Corporation aw 6!ct $o. &= of the "hilippine Commission7. The evident purpose of the commission was to introduce the !merican corporation into the "hilippine Islandsas the standard commercial entit# and to hasten the da# when the sociedad anonima of the2panish law would be obsolete. That statute is a sort of codification of !merican corporate law.S

R!s it was the intention of our lawma/ers to stimulate the introduction of the !mericancorporation into the "hilippine law in the place of the sociedad anonima, it was necessar# toma/e certain adjustment resulting from the continued co-e)istence, for a time, of the two formsof commercial entities. !ccordingl#, in section = of the Corporation aw, a provision is found

ma/ing the sociedad anonima subject to the provisions of the Corporation aw so far as such provisions ma# be applicableU and giving to the sociedades anonimas previousl# created in theIslands the option to continue business as such or to reform and organi3e under the provisions of the Corporation aw. !gain, in section && of the Corporation aw, the Code of Commerce isrepealed in so far as it relates to sociedades anonimas. The purpose of the commission inrepealing this part of the Code of Commerce was to compel commercial entities thereafter organi3ed to incorporate under the Corporation aw, unless the# should prefer to adopt someform or other of the partnership. To this provision was added another to the effect that e)isting



sociedades anonimas, which elected to continue their business as such, instead of reforming andreorgani3ing under the Corporation aw, should continue to be governed b# the laws that were inforce prior to the passage of this !ct in relation to their organi3ation and method of transacting business and to the rights of members thereof as between themselves, but their relations to the public and public officials shall be governed b# the provisions of this !ct.UR

2pecificall#, the two sections of !ct $o. &= referring to sociedades anonimas then alread#e)isting, provide as followsGchanroblesvirtuallawlibrar#

R2(C. =. !n# corporation or a sociedad anonima formed, organi3ed, and e)isting under thelaws of the "hilippines on the date of the passage of this !ct, shall be subject to the provisionshereof so far as such provisions ma# be applicable and shall be entitled at its option either tocontinue business as such corporation or to reform and organi3e under and b# virtue of the provisions of this !ct, transferring all corporate interests to the new corporation which, if a stoc/ corporation, is authori3ed to issue its shares of stoc/ at par to the stoc/holders or members of theold corporation according to their interests.S

R2(C. &&. The Code of Commerce, in so far as it relates to corporation or sociedades

anonimas, and all other !cts or parts of !cts in conflict or inconsistent with this !ct, are hereb#repealed with the e)ception of !ct $umbered fift#-two, entitled !n !ct providing for e)aminations of ban/ing institutions in the "hilippines, and for reports b# their officers,U asamended, and !ct $umbered 2i) hundred si)t#-seven, entitled !n !ct prescribing the methodof appl#ing to governments of municipalities, e)cept the cit# of Manila and of provinces for franchises to contract and operate street railwa#, electric light and power and telephone lines, theconditions upon which the same ma# be granted, certain powers of the grantee of said franchises,and of grantees of similar franchises under special !ct of the Commission, and for other purposes.U "rovided, however, That nothing in this !ct contained shall be deemed to repeal thee)isting law relating to those classes of associations which are termed sociedades colectivas, andsociedades de cuentas en participacion, as to which association the e)isting law shall be deemed

to be still in force@ chan roblesvirtualawlibrar#!nd provided, further, That e)isting corporationsor sociedades anonimas, lawfull# organi3ed as such, which elect to continue their business assuch sociedades anonimas instead of reforming and reorgani3ing under and b# virtue of the provisions of this !ct, shall continue to be governed b# the laws that were in force prior to the passage of this !ct in relation to their organi3ation and method of transacting business and to therights of members thereof as between themselves, but their relations to the public and publicofficials shall be governed b# the provisions of this !ct.S

!s the e)piration of its original =+ #ear term of e)istence approached, the oard of <irectors of enguet adopted in &1 a resolution to e)tend its life for another =+ #ears from 9ul# 0, &1and submitted it for registration to the %espondent 2ecurities and ()change Commissioner. ?ponadvice of the 2ecretar# of 9ustice 64p. $o. =, 2er. &&7 that such e)tension was contrar# to

law, the registration was denied. The matter was dropped, allegedl# because the stoc/holders of enguet did not approve of the <irectorsU action.

2ome si) #ears later in &=0, the shareholders of enguet adopted a resolution empowering the<irector to Reffectuate the e)tension of the Compan#Us business life for not less than %+ and notmore than =+ #ears, and this b# either 6&7 an amendment to the !rticles of !ssociation or Charter of this Compan# or 6%7 b# reforming and reorgani3ing the Compan# as a "hilippine Corporation,



or 607 b# both or 67 b# an# other means.S !ccordingl#, the oard of <irectors on Ma# %, &=0,adopted a resolution to the following effect H

Re It

Besolved, that the Compan# be reformed, reorgani3ed and organi3ed under the provisions of

section = and other provisions of the "hilippine Corporation aw as a "hilippine corporationwith a corporate life and corporate powers as set forth in the !rticles of Incorporation attachedhereto as 2chedule IU and made a part hereof b# this reference@ chan roblesvirtualawlibrar#and

e It

F?BTA(B B(24:(<, that an# five or more of the following shareholders of the Compan# beand the# hereb# are authori3ed as instructed to act for and in behalf of the share holders of theCompan# and of the Compan# as Incorporators in the reformation, reorgani3ation andorgani3ation of the Compan# under and in accordance with the provisions aforesaid of said"hilippine Corporation aw, and in such capacit#, the# are hereb# authori3ed and instructed toe)ecute the aforesaid !rticles of Incorporation attached to these Minutes as 2chedule IU hereof,with such amendments, deletion and additions thereto as an# five or more of those so acting shalldeem necessar#, proper, advisable or convenient to effect prompt registration of said !rticlesunder "hilippine aw@ chan roblesvirtualawlibrar#and five or more of said Incorporators arehereb# further authori3ed and directed to do all things necessar#, proper, advisable or convenientto effect such registration.S

In pursuance of such resolution, enguet submitted in 9une, &=0, to the 2ecurities and()change Commissioner, for alternative registration, twodocumentsGchanroblesvirtuallawlibrar# 6&7 Certification as to the Modification of 6the articles of association of7 the enguet Consolidated Mining Compan#, e)tending the term of its e)istence toanother fift# #ears from 9une &=, &=0@ chan roblesvirtualawlibrar#and 6%7 articles of incorporation, covering its reformation or reorgani3ation as a corporation in accordance with

section = of the "hilippine Corporation aw.Bel#ing mainl# upon the adverse opinion of the 2ecretar# of 9ustice 64p. $o. &*+, s. &=07, the2ecurities and ()change Commissioner denied the registration andruledGchanroblesvirtuallawlibrar#

6&7 That the enguet, as sociedad anonima, had no right to e)tend the original term of corporatee)istence stated in its !rticles of !ssociation, b# subse;uent amendment thereof adopted after enactment of the Corporation aw 6!ct $o. &=7@ chan roblesvirtualawlibrar#and

6%7 That enguet, b# its conduct, had chosen to continue as sociedad anonima, under section =of !ct $o. &=, and could no longer e)ercise the option to reform into a corporation, speciall#since it would indirectl# produce the effect of e)tending its life.

This ruling is the subject of the present appeal.

Petitioner enguet contendsGchanroblesvirtuallawlibrar#

6&7 That the proviso of section &* of the Corporation aw to the effect H

Rthat the life of said corporation shall not be e)tended b# amendment be#ond the time fi)ed inthe original articles.S



does not appl# to sociedades anonimas alread# in e)istence at the passage of the law,li/e Petitioner herein@

6%7 That to appl# the said restriction imposed b# section &* of the Corporation aw tosociedades anonimas alread# functioning when the said law was enacted would be in violation of constitutional inhibitions@

607 That even assuming that said restriction was applicable to it, enguet could still e)ercise theoption of reforming and reorgani3ing under section = of the Corporation aw, thereb# prolonging its corporate e)istence, since the law is silent as to the time when such option ma# bee)ercised or availed of.

The first issue arises because the Code of Commerce of &**1 under which enguet wasorgani3ed, contains no prohibition 6to e)tend the period of corporate e)istence7, e;uivalent tothat set forth in section &* of the Corporation aw. $either does it e)pressl# authori3e thee)tension. ut the te)t of !rticle %%0, readingGchanroblesvirtuallawlibrar#

R!BT. %%0. !fter the termination of the period for which commercial associations areconstituted, it shall not be understood as e)tended b# the implied or presumed will of themembers@ chan roblesvirtualawlibrar#and if the members desire to continue in association, the#shall draw up new articles, subject to all the formalities prescribed for their creation as providedin !rticle &&.S 6Code of Commerce.7

would seem to impl# that the period of e)istence of the sociedad anonimas 6or of an# other commercial association for that matter7 ma# be e)tended if the partners or members so agree before the e)piration of the original period.

>hile the Code of Commerce, in so far as sociedades anonimas are concerned, was repealed b#!ct $o &=, enguet claims that article %%0 is still operative in its favor under the last provisoof section && of the Corporation law 6ante, p. to the effect that e)isting sociedades anonimaswould continue to be governed b# the law in force before !ct &=,

Rin relation to their organi3ation and method of transacting business and to the rights of membersamong themselves, but their relations to the public and public officials shall be governed b# the provisions of this !ct.S

enguet contends that the period of corporate life relates to its organi3ation and the rights of itsmembers inter se, and not to its relations to the public or public officials.

>e find this contention untenable.

The term of e)istence of association 6partnership or sociedad anonima7 is coterminous with their possession of an independent legal personalit#, distinct from that of their component members.>hen the period e)pires, the sociedad anonima loses the power to deal and enter into further

legal relations with other persons@ chan roblesvirtualawlibrar#it is no longer possible for it toac;uire new rights or incur new obligations, have onl# as ma# be re;uired b# the process of li;uidating and winding up its affairs. # the same to/en, its officers and agents can no longer represent it after the e)piration of the life term prescribed, save for settling its business. $ecessaril#, therefore, third persons or strangers have an interest in /nowing the duration of the juridical personalit# of the sociedad anonima, since the latter cannot be dealt with after that period@ chan roblesvirtualawlibrar#wherefore its prolongation or cessation is a matter directl#involving the compan#Us relations to the public at large.



4n the importance of the term of e)istence set in the articles of association of commercialcompanies under the 2panish Code of Commerce, <. oren3o enito # (ndar, professor of mercantile law in the ?niversidad Central de Madrid, has this to sa#Gchanroblesvirtuallawlibrar#

Ra duracion de la 2ociedad. H a necesidad de consignar este re;uisito en el contrato socialtiene un valor analogo al ;ue dijimos tenia el mismo al tratar de las compaNias colectivas, aun

cuando respecto de las anonimas no ha#a de tenerse en cuenta para nada lo ;ue dijimos entoncesacerca de la trascendencia ;ue ello tiene para los socios@ chan roblesvirtualawlibrar#por;ue noe)istiendo en las anonimas la serie de responsibilidades de caracter personal ;ue afectan a lossocios colectivos, es claro ;ue la duracion de la sociedad importa conocerla a los socios # losterceros, por;ue ella marca al limite natural del desenvolvimiento de la empresa constituida # elcomien3o de la li;uidacion de la sociedad.S 60 enito, <erecho Mercantil, %%-%0.7

RInteresa, pues, la fijacion de la vida de la compaNia, desenvolviendose con normalidad #regularidad, tanto a los asociados como a los terceros. ! a;uellos, por;ue su libertad economica,en cierto modo limitada por la e)istencia del contrato de compaNia, se recobra despues dereali3ada, mas o menos cumplidamente, la finalidad comun perseguida@ chanroblesvirtualawlibrar## a los terceros, por;ue les advierte el momento en ;ue, e)tinguida lacompaNia, no cabe # a la creacion con ella de nuevas relaciones juridicas, de ;ue na3canreciprocamente derechos # obligaciones, sino solo la li;uidacion de los negocios hasta entoncesconvenidos, sin otra e)cepcion ;ue la ;ue luego mas adelante habremos de seNalarS. 60 enito,<erecho Mercantil, p. %=.7

The 2tate and its officers also have an obvious interest in the term of life of associations, sincethe conferment of juridical capacit# upon them during such period is a privilege that is derivedfrom statute. It is obvious that no agreement between associates can result in giving rise to a newand distinct personalit#, possessing independent rights and obligations, unless the law itself shalldecree such result. !nd the 2tate is naturall# interested that this privilege be enjo#ed onl# under the conditions and not be#ond the period that it sees fit to grant@ chan roblesvirtualawlibrar#and,

particularl#, that it be not abused in fraud and to the detriment of other parties@ chanroblesvirtualawlibrar#and for this reason it has been ruled that Rthe limitation 6of corporatee)istence7 to a definite period is an e)ercise of control in the interest of the publicS 62mith vs.(astwood >ire Manufacturing Co., 0 !tl. =1*7.

>e cannot assent to the thesis of enguet that its period of corporate e)istence has relation to itsRorgani3ationS. The latter term is defined in >ebsterUs International <ictionar#asGchanroblesvirtuallawlibrar#

RThe e)ecutive structure of a business@ chan roblesvirtualawlibrar#the personnel of management,with its several duties and places in administration@ chan roblesvirtualawlibrar#the various persons who conduct a business, considered as a unit.S

The legal definitions of the term Rorgani3ationS are concordant with that givenaboveGchanroblesvirtuallawlibrar#

R4rgani3e or organi3ation,U as used in reference to corporations, has a well-understood meaning,which is the election of officers, providing for the subscription and pa#ment of the capital stoc/,the adoption of b#-laws, and such other steps as are necessar# to endow the legal entit# with thecapacit# to transact the legitimate business for which it was created. >altson vs. 4liver, 0+ ".&%, &0, an. &+, 00 !m. 2t. Bep. 0==@ chan roblesvirtualawlibrar#Tope/a ridge Co. vs.



Cummings, 0 an. ==, @ chan roblesvirtualawlibrar#Aunt vs. ansas E M. ridge Co., &&an. &%, 0@ chan roblesvirtualawlibrar#!spen >ater E ight Co., vs. Cit# of !spen, 0 ".%*, 0+, 1 Colo. !pp. &%@ chan roblesvirtualawlibrar#$emaha Coal E Mining Co., vs. 2ettle 0*". *0, *, = an. %.

?nder a statute providing that, until articles of incorporation should be recorded, the corporation

should transact no business e)cept its own organi3ation, it is held that the term Rorgani3ationSmeans simpl# the process of forming and arranging into suitable disposition the parties who areto act together in, and defining the objects of, the compound bod#, and that this process, evenwhen complete in all its parts, does not confer a franchise either valid or defective, but, on thecontrar#, it is onl# the act of the individuals, and something else must be done to secure thecorporate franchise. !bbott vs. 4maha 2melting E Befining Co. $eb. &1, %&.S 60+ >ordsand "hrases, p. %*%.7

It is apparent from the foregoing definitions that the term Rorgani3ationS relates merel# to thes#stemati3ation and orderl# arrangement of the internal and managerial affairs and organs of the Petitioner enguet, and has nothing to do with the prorogation of its corporate life.

From the double fact that the duration of its corporate life 6and juridical personalit#7 has evidentconnection with the Petitioner Us relations to the public, and that it bears none to the Petitioner Usorgani3ation and method of transacting business, we derive the conclusion that the prohibitioncontained in section &* of the Corporation aw 6!ct $o. &=7 against e)tension of corporatelife b# amendment of the original articles was designed and intended to appl# to RcompaNiasanonimasS that, li/e Petitioner enguet, were alread# e)isting at the passage of said law. Thisconclusion is reinforced b# the avowed polic# of the law to hasten the da# when compaNiasanonimas would be e)tinct, and replace them with the !merican t#pe of corporation 6Aarden vs.enguet Consolidated Mining Co., supra7, for the indefinite prorogation of the corporation life of sociedades anonimas would maintain the unnecessar# dualit# of organi3ational t#pes instead of reducing them to a single one@ chan roblesvirtualawlibrar#and what is more, it would confer

upon these sociedades anonimas, whose obsolescence was sought, the advantageous privilege of perpetual e)istence that the new corporation could not possess.

4f course, the retroactive application of the limitations on the terms of corporate e)istence couldnot be made in violation of constitutional inhibitions speciall# those securing e;ual protection of the laws and prohibiting impairment of the obligation of contracts. It needs no argument to showthat if !ct $o. &= allowed e)isting compaNias anonimas to be governed b# the old law inrespect to their organi3ation, methods of transacting business and the rights of the membersamong themselves, it was precisel# in deference to the vested rights alread# ac;uired b# theentit# and its members at the time the Corporation aw was enacted. ut we do not agreewith Petitioner enguet 6and here lies the second issue in this appeal7 that the possibilit# toe)tend its corporate life under the Code of Commerce constituted a right alread# vested when

!ct $o. &= was adopted. !t that time, enguetUs e)istence was well within the =+ #ears periodset in its articles of association@ chan roblesvirtualawlibrar#and its members had not entered intoan# agreement that such period should be e)tended. It is safe to sa# that none of the members of enguet anticipated in &+1 an# need to reach an agreement to increase the term of its corporatelife, barel# three #ears after it had started. The prorogation was purel# speculative@ chanroblesvirtualawlibrar#a mere possibilit# that could not be ta/en for granted. It was as #etconditional, depending upon the ultimate decision of the members and directors. The# mightagree to e)tend enguetUs e)istence be#ond the original =+ #ears@ chan roblesvirtualawlibrar#or



again the# might not. It must be remembered that in &+1, the success of enguet in its miningventures was b# no means so certain as to warrant continuation of its operations be#ond the =+#ears set in its articles. The records of this Court show that enguet ran into financial difficultiesin the earl# part of its e)istence, to the e)tent that, as late as &&0, ten #ears after it was found,0+&,&++ shares of its capital stoc/ 6with a par value of V& per share7 were being offered for sale

at %= centavos per share in order to raise the sum of "=,+++ that was needed to rehabilitate thecompan# 6Aanlon vs. Aausermann and eam, + "hil., 17. Certainl# the prolongation of thecorporate e)istence of enguet in &+1 was merel# a possibilit# in futuro, a contingenc# that didnot fulfill the re;uirements of a vested right entitled to constitutional protection, defined b# thisCourt in alboa vs. Farrales, =& "hil., *, =+%, as followsGchanroblesvirtuallawlibrar#

R:ested right is some right or interest in the propert# which has become fi)ed and established,and is no longer open to doubt or controvers#,S

R! vestedU right is defined to be an immediate fi)ed right of present or future enjo#ment, andrights are vestedU in contradistinction to being e)pectant or contingentS 6"earsall vs. 8reat $orthern B. Co., &1& ?. 2. 11, + . (d. *0*7.

In Corpus 9uris 2ecundum we findGchanroblesvirtuallawlibrar#RBights are vested when the right to enjo#ment, present or prospective, has become the propert#of some particular person or persons as a present interest. The right must be absolute, complete,and unconditional, independent of a contingenc#, and a mere e)pectanc# of future benefit, or acontingent interest in propert# founded on anticipated continuance of e)isting laws, does notconstitute a vested right. 2o, inchoate rights which have not been acted on are not vested.S6&1 C.J. 2. %&-%&=.7

2ince there was no agreement as #et to e)tend the period of enguetUs corporate e)istence6be#ond the original =+ #ears7 when the Corporation aw was adopted in &+1, neither enguetnor its members had an# actual or vested right to such e)tension at that time. Therefore, when the

Corporation aw, b# section &*, forbade e)tensions of corporate life, neither enguet nor itsmembers were deprived of an# actual or fi)ed right constitutionall# protected.

To hold, as Petitioner enguet as/s, that the legislative power could not deprive enguet or itsmembers of the possibilit# to enter at some indefinite future time into an agreement to e)tendenguetUs corporate life, solel# because such agreements were authori3ed b# the Code of Commerce, would be tantamount to sa#ing that the said Code was irrepealable on that point. It isa well settled rule that no person has a vested interest in an# rule of law entitling him to insistthat it shall remain unchanged for his benefit. 6$ew Jor/ C. B. Co. vs. >hite, 1& . (d 6?.2.711@ chan roblesvirtualawlibrar#Mondou vs. $ew Jor/ $. A. E A. B. Co., =1 . (d. 0%@ chanroblesvirtualawlibrar#Baine# vs. ?. 2., =* . (d. 1&@ chan roblesvirtualawlibrar#ill# Co. vs.2aunders, &%= !B. &0+*@ chan roblesvirtualawlibrar#2hea vs. 4lson, &&& !B. *7.

RThere can be no vested right in the continued e)istence of a statute or rule of the common lawwhich precludes its change or repeal, nor in an# omission to legislate on a particular matter or subject. !n# right conferred b# statute ma# be ta/en awa# b# statute before it has become vested, but after a right has vested, repeal of the statute or ordinance which created the right does not andcannot affect much right.S 6&1 C.J. 2. %%%-%%0.7



It is a general rule of constitutional law that a person has no vested right in statutor# privilegesand e)emptionsS 6rearl# 2chool vs. >ard, %+& $J. 0=*, + B! $2. &%&=@ chanroblesvirtualawlibrar#also, Coole#, Constitutional imitations, th ed., p. =17.

It is not amiss to recall here that after !ct $o. &= the egislature found it advisable to impressfurther restrictions upon the power of corporations to deal in public lands, or to hold real estate

be#ond a ma)imum area@ chan roblesvirtualawlibrar#and to prohibit an# corporation fromendeavouring to control or hold more than &= per cent of the voting stoc/ of an agricultural or mining corporation 6!ct $o. 0=&*7. These prohibitions are so closel# integrated with our public polic# that Commonwealth !ct $o. %& sought to e)tend such restrictions to associations of all/inds. It would be subversive of that polic# to enable enguet to prolong its peculiar status of sociedad anonimas, and enable it to cast doubt and uncertaint# on whether it is, or not, subject tothose restrictions on corporate power, as it once endeavoured to do in the previous case of Aarden vs. enguet Mining Corp. =* "hil., &.

2tress has been laid upon the fact that the CompaNia Maritima 6li/e enguet, a sociedad anonimaestablished before the enactment of the Corporation aw7 has been twice permitted to e)tend itscorporate e)istence b# amendment of its articles of association, without objection from theofficers of the defunct ureau of Commerce and Industr#, then in charge of the enforcement of the Corporation aws, although the e)act ;uestion was never raised then. e that as it ma#, it is awell established rule in this jurisdiction that the government is never estopped b# mista/e or error on the part of its agentsS 6"ineda vs. Court of First Instance of Ta#abas, =% "hil., *+0, *+7,and that estopped cannot give validit# to an act that is prohibited b# law or is against public polic# 6(ugenio vs. "erdido, 6 "hil., &, Ma# &, &==@ chan roblesvirtualawlibrar#& !m. 9ur.*+%7@ chan roblesvirtualawlibrar#so that the %espondent , 2ecurities and ()changeCommissioner, was not bound b# the rulings of his predecessor if the# be inconsistent with law.Much less could erroneous decisions of e)ecutive officers bind this Court and induce it tosanction an unwarranted interpretation or application of legal principles.

>e now turn to the third and last issue of this appeal, concerning the e)ercise of the optiongranted b# section = of the Corporation aw to ever# sociedad anonima Rformed, organi3ed ande)isting under the laws of the "hilippines on the date of the passage of this !ctS to either continue business as such sociedad anonima or to reform and organi3e under the provisions of the Corporation aw. Petitioner - Appellant enguet contends that as the law does not determinethe period within which such option ma# be e)ercised, enguet ma# e)ercise it at an# timeduring its corporate e)istence@ chan roblesvirtualawlibrar#and that in fact on 9une %%, &=0, itchose to reform itself into a corporation for a period of =+ #ears from that date, filing thecorresponding papers and b#-laws with the %espondent Commissioner of 2ecurities and()change registration@ chan roblesvirtualawlibrar#but the latter refused to accept them as belatedl# made.

The Petitioner Us argument proceeds from the une)pressed assumption that enguet, as sociedadanonima, had not e)ercised the option given b# section = of the Corporation aw until &=0.This we find to be incorrect. ?nder that section, b# continuing to do business as sociedadanonima, enguet in fact rejected the alternative to reform as a corporation under !ct $o. &=.It will be noted from the te)t of section = 6;uoted earlier in this opinion7 that no special act or manifestation is re;uired b# the law from the e)isting sociedades anonimas that prefer to remainand continue as such. It is when the# choose to reform and organi3e under the Corporation awthat the# must, in the words of the section, Rtransfer all corporate interests to the new



corporationS. Aence if the# do not so transfer, the sociedades anonimas affected are to beunderstood to have elected the alternative Rto continue business as such corporationS 6sociedadanonima7 %

The election of enguet to remain a sociedad anonima after the enactment of the Corporationaw is evidence, not onl# b# its failure, from &+1 to &=0, to adopt the alternative to transfer its

corporate interests to a new corporation, as re;uired b# section =@ chan roblesvirtualawlibrar#italso appears from positive acts. Thus around &00, enguet claimed and defended in court itsac;uisition of shares of the capital stoc/ of the alatoc Mining Compan#, on the ground that as asociedad anonima it 6enguet7 was not a corporation within the purview of the laws prohibiting amining corporation from becoming interested in another mining corporation 6Aarden vs. enguetMining Corp., =* "hil., p. &7. (ven in the present proceedings, enguet has urged its right toamend its original articles of association as Rsociedad anonimaS and e)tend its life as such under the provisions of the 2panish Code of Commerce. 2uch appeals to privileges as RsociedadanonimaS under the Code of &**1 necessaril# impl# that enguet has rejected the alternative of reforming under the Corporation aw. !s %espondent CommissionerUs order, now under appeal,has stated H

R! sociedad anonima could not claim the benefit of both, but must have to choose one anddiscard the other. If it elected to become a corporation it could not continue as a sociedadanonima@ chan roblesvirtualawlibrar#and if it choose to remain as a sociedad anonima, it couldnot become a corporation.S

Aaving thus made its choice, enguet ma# not now go bac/ and see/ to change its position andadopt the reformation that it had formerl# repudiated. The election of one of several alternativesis irrevocable once made 6as now e)pressl# recogni3ed in article + of the new Civil Code of the "hilippines7Gchanroblesvirtuallawlibrar# such rule is inherent in the nature of the choice, its purpose being to clarif# and render definite the rights of the one e)ercising the option, so thatother persons ma# act in conse;uence. >hile successive choices ma# be provided there is

nothing in section = of the Corporation aw to show or hint that a sociedad anonima ma# ma/emore than one choice thereunder, since onl# one option is provided for.

>hile no e)press period of time is fi)ed b# the law within which sociedades anonimas ma# electunder section = of !ct $o. &= either to reform or to retain their status ;uo, there are powerfulreasons to conclude that the legislature intended such choice to be made within a reasonable timefrom the effectivit# of the !ct. To enable a sociedad anonima to choose reformation when itsstipulated period of e)istence is nearl# ended, would be to allow it to enjo# a term of e)istencefar longer than that granted to corporations organi3ed under the Corporation aw@ chanroblesvirtualawlibrar#in enguetUs case, =+ #ears as sociedad anonima, and another =+ #ears asan !merican t#pe of corporation under !ct &=@ chan roblesvirtualawlibrar#a resultincompatible with the avowed purpose of the !ct to hasten the disappearance of the sociedades

anonimas. Moreover, such belated election, if permitted, would enable sociedades anonimas toreap the full advantage of both t#pes of organi3ation. Finall#, it would permit sociedadesanonimas to prolong their corporate e)istence indirectl# b# belated reformation into corporationsunder !ct $o. &=, when the# could not do so directl# b# amending their articles of association.

Much stress is laid upon allegedl# improper motives on the part of the intervenor, ConsolidatedMines, Inc., in supporting the orders appealed from, on the ground that intervenor see/s toterminate enguetUs operating contract and appropriate the profits that are the result of enguetUs



efforts in developing the mines of the intervenor. 2uffice it to sa# that whatever such motivesshould be, the# are wholl# irrelevant to the issues in this appeal, that e)clusivel# concern thelegal soundness of the order of the %espondent 2ecurities and ()change Commissioner rejectingthe claims of the enguet Consolidated Mining Compan# to e)tend its corporate life.

$either are we impressed b# the prophesies of economic chaos that would allegedl# ensure with

the cessation of enguetUs activities. If its mining properties are reall# susceptible of profitableoperation, ine)orable economic laws will ensure their e)ploitation@ chan roblesvirtualawlibrar#if,on the other hand, the# can no longer be wor/ed at a profit, then catastrophe becomes inevitable,whether or not Petitioner enguet retains corporate e)istence.

2ustaining the opinions of the %espondent 2ecurities and ()change Commissioner and of the2ecretar# of 9ustice, we rule thatGchanroblesvirtuallawlibrar#

6&7 The prohibition contained in section &* of !ct $o. &=, against e)tending the period of corporate e)istence b# amendment of the original articles, was intended to appl#, and does appl#,to sociedades anonimas alread# formed, organi3ed and e)isting at the time of the effectivit# of the Corporation aw 6!ct $o. &=7 in &+1@

6%7 The statutor# prohibition is valid and impairs no vested rights or constitutional inhibitionwhere no agreement to e)tend the original period of corporate life was perfected before theenactment of the Corporation aw@

607 ! sociedad anonima, e)isting before the Corporation aw, that continues to do business assuch for a reasonable time after its enactments, is deemed to have made its election and ma# notsubse;uentl# claim to reform into a corporation under section = of !ct $o. &=.

In view of the foregoing, the order appealed from is affirmed. Costs against Petitioner - Appellant enguet Consolidated Mining Compan#.

"/8==, #o(emor, Ree6, A. Lbr/or, Coce'c8o / E/ec8, JJ., cocr.

Se'r(e !'88o6

PARAS, C.J., dissenting:chanroblesvirtuallawlibrary

The Petitioner , enguet Consolidated Mining Compan#, was organi3ed as a sociedad anonimaon 9une %, &+0, under the provisions of the Code of Commerce, and its term as fi)ed in thearticles of association was fift# #ears. It has been a leading enterprise, long and widel# reputed tohave pioneered in and boosted the mining industr#, distributed profits among its shareholders,and given emplo#ment to thousands. To be more appro)imatel# e)act, the Petitioner has /ept onits pa#rolls over four thousand Filipino emplo#ees who have about twent# thousand dependents.The ta)es and other dues paid b# it to the 8overnment have been in enormous amounts. It has

alwa#s been subject to such supervision and control of 8overnment officials as are prescribed b#law.

>hen, therefore, the Petitioner on 9une 0, &=0, presented all necessar# documents tothe %espondent , the 2ecurities and ()change Commissioner, with a view to the e)tension of itsterm as a sociedad anonima for a period of fift# #ears from 9une &=, &=0@ chanroblesvirtualawlibrar#when on 9une %%, &=0, it filed with said %espondent the necessar# articlesof incorporation and other documents, with a view to reforming itself as a corporation under the



Corporation aw for a period of fift# #ears from 9une %%, &=0, followed b# the filing on 9ul#%%, &=0, of the corresponding b#-laws@ chan roblesvirtualawlibrar#and when on 4ctober %,&=0, the %espondent issued an order den#ing the registration of the instruments as well for e)tension as for reformation, Petitioner Us corporate life was being snapped out with suchlightning abruptness as undoubtedl# to spell damage and prejudice not so much to its

shareholders as to its beneficiaries H thousands of emplo#ees and their dependents H and evento the 8overnment which stands to lose a good source of revenue.

The Petitioner contends 6&7 that the %espondent had the ministerial dut# of registering thedocuments presented either for e)tension of Petitioner Us term as a sociedad anonima or for itsreformation under the Corporation aw, in the absence 6as in this case7 of an# pretense that saiddocuments are formall# defective or that Petitioner Us purposes are unlawful@ chanroblesvirtualawlibrar#and 6%7 that as the Petitioner had organi3ed as a sociedad anonima under the Code of Commerce, it has ac;uired a vested right which cannot subse;uentl# be affected or ta/en awa# b# the Corporation aw enacted on !pril &, &+1. I would not dwell upon thesecontentions, because I hold that, even under the provisions of the Corporation aw,the Petitioner ma# either e)tend its life as a sociedad anonima or reform as a corporation.

2ection = of the Corporation aw providesGchanroblesvirtuallawlibrar#

R!n# corporation or sociedad anonima formed, organi3ed and e)isting under the laws of the"hilippine Islands and lawfull# transacting business in the "hilippine Islands on the date of the passage of this !ct, shall be subject to the provisions hereof so far as such provisions ma# beapplicable and shall be entitled at its option either to continue business as such corporation or toreform and organi3e under, and b# virtue of the provisions of this !ct, transferring all corporateinterests to the new corporation which, if a stoc/ corporation, is authori3ed to issue its shares of stoc/ at par to the stoc/holders or members of the old corporation according to their interests.S

?pon the other hand, section && reads as followsGchanroblesvirtuallawlibrar#

RThe Code of Commerce, in so far as it relates to corporations or sociedades anonimas, and allother or parts of !cts in conflict or inconsistent with this !ct, are hereb# repealed cralaw !nd provided, further, That e)isting corporations or sociedades anonimas lawfull# organi3ed as such,which elect to continue their business as such sociedades anonimas instead of reforming andreorgani3ing under and b# virtue of the provisions of this !ct, shall continue to be governed b#the laws that were in force prior to the passage of this !ct in relation to their organi3ation andmethod of transacting business and to the rights of members thereof as between themselves, buttheir relations to the public and public officials shall be governed b# the provisions of this !ct.S

It is noteworth# that section = has not limited the optional continuance of a sociedad anonima toits une)pired term, and section && e)pressl# allows a sociedad anonima which has elected tocontinue its business as such to be governed b# the laws in force prior to the enactment of the

Corporation aw in relation to its organi3ation and method of transacting business and to therights of members as between themselves. It is admitted that the Code of Commerce, whilecontaining no e)press provision allowing it, does not prohibit a sociedad anonima frome)tending its term@ chan roblesvirtualawlibrar#and commentators 8a# de Montella 6Tratado"ractico de 2ociedad Marcantiles H CompaNias !nonimas, Tomo II, p. %*=7 and Cesar :ivante6Tratado de <erecho Mercantil, pp. %=, %=*7 have observed that a sociedad anonima ma# prolong its corporate duration b# amendment of its articles of association before the e)piration of the term.



>hen a business or commercial association is organi3ed, the members are naturall# interested in/nowing not onl# their rights and obligations but also the duration of their legal relations. >hileRorgani3ationS in a strict sense ma# refer to formalities li/e election of officers, adoption of b#-laws, and subscription and pa#ment of capital stoc/, it cannot be spo/en of or conceived in awider sense without necessaril# involving the specification of the term of the entit# formed.

()tension of corporation life is thus essentiall# an incident of Rorgani3ationS and, in an# event, amatter directl# affecting or in relation to the rights of the shareholders as between themselves,within the contemplation of section &&, and should accordingl# be governed b# the Code of Commerce. !s pointed out b# the 2upreme Court of >#oming in the case of <rew vs. ec/with,6&& ". %d. *7, e)tension Rmerel# involves an additional privilege to carr# out the business of enterprise underta/en b# the corporation,S and is Rbut an enlargement of the enterpriseunderta/en b# the corporation.S It is true that the duration of a sociedad anonima is of someconcern to the public and public officials who ought to /now the time when it will cease to e)istand its business will be wound up. $otice to the world is however served b# the registrationof Petitioner Us articles of association as a sociedad anonima or articles of incorporation as areformed corporation with the 2ecurities and ()change Commission.

>hen section && mentions Rrelations to the public and public officialsS as being governed b#the provisions of the Corporation aw, the idea is obviousl# more to enable the 8overnment toenforce its powers of supervision, inspection and investigation, than to restrict the freedom of thecorporate entit# as to organi3ational or substantive rights of members as between themselves. Inone of the public hearings conducted b# the "hilippine Commission before the enactment of theCorporation aw, Commissioner Ide pertinentl# e)pressed, R4f course, whether the#6sociedades7 come under the new law or not the# would be subject to inspection, regulations, ande)amination for the purpose of protecting the communit#.S The !ttorne# 8eneral in turn heldthat sociedades anonimas, although governed b# the Code of Commerce, are subject to thee)amination provided in section = of the Corporation aw 6= 4p. !tt#. 8en. %7. In thisconnection, the Petitioner has admittedl# subjected itself to the provisions of the Corporation

aw.

In Aarden vs. enguet Consolidated Mining Co., =* "hil., &&, it wasremar/edGchanroblesvirtuallawlibrar# RThe purpose of the commission in repealing this part of the Code of Commerce was to compel commercial entities thereafter organi3ed to incorporateunder the Corporation aw, unless the# should prefer to adopt some form or other of the partnership.S This Court alread# indicated that the commercial entities compelled to incorporateunder the Corporation aw were those organi3ed after its enactment.

2ection 1, subsection , of the Corporation aw provides that the term for which corporationsshall e)ist shall not e)ceed fift# #ears@ chan roblesvirtualawlibrar#section &* provides that thelife of a corporation shall not be e)tended b# amendment be#ond the time fi)ed in the original

articles@ chan roblesvirtualawlibrar#and section && provides that upon the issuance b# the2ecurities and ()change Commissioner of the certificate of incorporation, the persons organi3ingthe corporation shall constitute a bod# politic and corporate for the term specified in the articlesof incorporation, not e)ceeding fift# #ears. The corporations contemplated are those defined insection %% H corporations organi3ed under the Corporation aw. The# cannot be sociedadesanonimas formed under the Code of Commerce and licensed to continue as such in virtue of sections = and &&. 4therwise the words Ror sociedad anonimaS would have been added to theterm RcorporationS in section &*, as was done in sections = and &&. ! similar observation was



made in Aarden vs. enguet Consolidated Mining Co., supraGchanroblesvirtuallawlibrar# Rutwhen the word corporation is used in the sense of sociedad anonima and close discrimination isnecessar#, it should be associated with the 2panish e)pression sociedad anonima either in parenthesis or connected b# the word orU. This latter device was adopted in sections = and &&of the Corporation aw.S

The citation from 0 enito, <erecho Mercantil, p. %=, invo/ed in the majorit# decision, to theeffect that the duration of a sociedad anonima is of interest both to its members and to third persons, is clearl# an authorit# for our conclusions that the e)tension of Petitioner Us term is inrelation Rto the rights of members thereof as between themselves.S 2ection && does not sa# thata sociedad anonima shall be governed b# the provisions of the Corporation aw when the matter involved affects not onl# Rthe rights of members thereof as between themselvesS but also Rthe public and public officials.S

>e are also of the opinion that alternativel#, under section =, the Petitioner ma# elect to reformand organi3e under the Corporation aw, transferring all its corporate interests to the newcorporation. Contrar# to the ruling of the %espondent , we are convinced that, as no period wasfi)ed within which it should e)ercise the option either of continuing as a sociedad anonima or reforming and organi3ing under the Corporation aw, the Petitioner was entitled to have itsarticles of incorporation and b#-laws presented respectivel# on 9une %% and 9ul# %%, &=0,registered b# the %espondent . 2ection = did not ta/e awa# Petitioner Us right to e)haust its termas a sociedad anonima, alread# vested before the enactment of the Corporation aw, but merel#granted it the choice to organi3e as a regular corporation, instead of e)tending its life as asociedad anonima. The onl# limitation imposed is that prescribed in section &&, namel#, that if asociedad anonima elects to continue its business as such, it shall be governed b# the prior law inrelation to its organi3ation and method of transacting business and to the rights of its members as between themselves, and b# the provisions of the Corporation aw as to its relations to the public and public officials. If the intention were to fi) a period for reformation, the law wouldhave e)pressl# so provided, in the same wa# that section & fi)es two #ears during which acorporation should formall# organi3e and commence the transaction of its business, otherwise itscorporate powers would cease@ chan roblesvirtualawlibrar#section fi)es three #ears from thedissolution of a corporation within which it ma# clear and settle its affairs@ chanroblesvirtualawlibrar#and section * fi)es the same period of three #ears within which acorporation ma# conve# its properties to a trustee for the benefit of its stoc/holders and other interested persons.

It is not correct to argue that the Petitioner is not entitled to elect to continue as a sociedadanonima and at the same time reform and organi3e as a regular corporation, because when itcontinued as a sociedad anonima after the passage of the Corporation aw and during its fullterm of fift# #ears, it merel# e)ercised a right it theretofore had@ chan roblesvirtualawlibrar#and

the Petitioner can be said properl# to have availed itself of the other option onl# when in 9une&=0 it filed the necessar# papers of incorporation under the Corporation aw. It is li/ewise notaccurate to contend that, as the %espondent ruled, the Petitioner could reform as and be a regular corporation at most onl# for the remainder of its term as a sociedad anonima. 2ection =, inallowing a sociedad anonima to reform and organi3e under the Corporation aw, also authori3esthe transfer of its corporate interests to the new corporation. This RnewS corporation should havethe advantage of the prescribed ma)imum duration, regardless of the original term of the old or substituted entit#. There is no basis for the criticism that, if the Petitioner were allowed to e)haust



its full term as a sociedad anonima, and afterwards to reform as a regular corporation for another fift# #ears, it would have a span of life twice as long as that granted to corporations organi3edunder the Corporation aw. The simple reason is that the Petitioner was alread# a corporateentit# before the enactment of the Corporation aw, with a fi)ed duration under its originalarticles of association. It was clearl# not in parit# with an# corporation organi3ed under and

coming into e)istence after the effectivit# of the Corporation aw which has no choice on thematter and can therefore have onl# the prerogative granted b# said law, H no more no less.

The %espondent has suggested that the Petitioner , if desirous of continuing its business, ma#organi3e a new corporation H a suggestion which need not be made because no one would probabl# thin/ of den#ing it that right. ut we cannot see an# cogent reason or practical purposefor the suggestion. In the first place, the filing of Petitioner Us articles of incorporation and b#-laws in 9ul#, &=0, in effect amounted to the formation of a new corporation. To re;uire more isto give greater importance to form than to substance. In the second place, the public and publicofficials ma# not as a matter of fact be adversel# affected b# allowing the Petitioner to reform,instead of re;uiring it technicall# to form a new corporation. It will ac;uire no greater rights or obligations b# simple reformation than b# newl# organi3ing another corporation. Conversel#, the

public and public officials will ac;uire no greater benefit or control b# re;uiring the Petitioner toform a new corporation, than b# allowing it to reform. !nd as alread# stated, whatever interestthe public and public officials ma# have in determining the duration of a sociedad anonima or an# corporation for that matter, is ampl# protected b# registration in the 2ecurities and ()changeCommission.

The %espondent and the intervenor, Consolidated Mines, Inc., have tried to show thatthe Petitioner holds or owns interests in eight mining companies, in violation of section &0,subsection = of the Corporation aw, in that it has operating contracts with the intervenor andseven other mining companies, besides owning the majorit# shares in alatoc Mining Co. Thismatter has not merited an# attention or favorable comment in the majorit# decision, and rightl#of course. (ven so, we ma# observe that the alleged violation was not the subject of an# finding b# the %espondent , nor relied upon in his order of denial@ chan roblesvirtualawlibrar#thatthe Petitioner has denied the charge@ chan roblesvirtualawlibrar#that the holding b#the Petitioner of shares of stoc/ in alatoc Mining Co., if reall# illegal, ma# loo/ into onl# in a;uo warranto proceeding instituted b# the 8overnment@ chan roblesvirtualawlibrar#that at an#rate the Petitioner has alwa#s been read# and willing to dispose of said shares and, in a proper proceeding, it should be given reasonable time to do so, as this Court gave the "hilippine 2ugar (states a period of si) months after final decision within which to Rli;uidate, dissolve andseparate absolutel# in ever# respect and in all of its relations, complained of in the petition, withthe Ta#abas and Compan#S 68overnment vs. "hilippine 2ugar (states Co., 0* "hil., &=7.

>ith special reference to the intervenor, it ma# be of some moment to /now the antecedents and

nature of business relations e)isting between it and the Petitioner , at least to demonstrate therighteousness of the position of one or the other even from a factual point of view. The followinge)cerpts from R Petitioner Us Bepl# to a portion of IntervenorUs riefS are in pointGchanroblesvirtuallawlibrar#

R>hat has happened in our case is that prior to the e)ecution of the 4perating !greement of 9ul#, &0, the stoc/holders, directors, and officers of the intervenor, Consolidated Mines, Inc., didnot want to ris/ one centavo of their own funds for the development of their chrome ore miningclaims in ambales province, and proposed to the Petitioner herein, enguet Consolidated



Mining Compan#, to e)plore, develop and operate their mining claims, enguet to furnish all thefunds that might be necessar#, and to e)plore, develop, mine and concentrate and mar/et all the pa# are found on or within paid claims or propertiesU, the intervenor, Consolidated Mines, Inc.,and the Petitioner , enguet Consolidated Mining Compan#, after the latter had reimbursed itself for all its advances, to divide half and half the e)cess of receipts over disbursements. enguet

agreed to it, and advanced appro)imatel# three million pesos, one-half thereof before the war,and the other half after the war 6the intervenorUs properties having been destro#ed during thewar7. "aragraph LII of the intervenorUs complaint in the civil action instituted b# it againstenguet in the Court of First Instance of Manila, $o. &*0*, and to which counsel for theintervenor refer in page = of their brief, ma/es mention of the large sums of mone# that enguetadvanced, as followsGchanroblesvirtuallawlibrar#

Initial advances amounting to appro)imatel# "&,=++,+++ made b# efendant during the first phases of said 4perating !greement which had been full# reimbursed to it before the war, end of the amounts li/ewise advanced b# it 6enguet7 for rehabilitation amounting to close"&,=++,+++.++.U

R>hile enguet ris/ed and poured appro)imatel# three million pesos 6"0,+++,+++7 into theventure, and while enguet was loo/ing for, and establishing, a mar/et for intervenorUs chromeore, the intervenor, Consolidated Mines, Inc., considered the said 4perating !greement of 9ul# ,&0, as valid. $ow that enguetUs efforts have been crowned with success, and enguet hasestablished a mar/et for intervenorUs chrome ore, the intervenor claims that its said operating!greement of 9ul# , &0, with the Petitioner , enguet, is contrar# to law because enguet has become interested in intervenorUs chrome ore mining claims 6although the agreement e)pressl#states that enguet has no interest therein7, and objects to the registration of the documentswhich enguet filed with the %espondent 2ecurities and ()change Commissioner, e)tending itslife as a sociedad anonima, and reforming itself s a corporation, in accordance with the provisions of section = of the Corporation aw.

R?nder the foregoing facts, the intervenor, Consolidated Mines, Inc., cannot be heard tocomplain against enguet. $o court can give now a helping hand to the intervenor, which claimsthat enguet no longer lives, and wants to /eep for itself all the products of enguetUs effortsafter the latter ris/ed into the venture appro)imatel# three million pesos 6"0,+++,+++7.S

The foregoing considerations ma# not constitute a legal justification for ruling thatthe Petitioner should be allowed either to e)tend its life as a sociedad anonima or to reform andorgani3e under the provisions of the Corporation aw, but the# ma# aid in resolvingin Petitioner Us favor and doubt as to the clarit# or definiteness of sections = and && of theCorporation aw regarding its right to e)ercise either option in the manner claimed b# it.

The same result ma# be arrived at if, in addition, we bear in mind the possible economic harm

that ma# be brought about b# the affirmance of the order complained of. This aspect isade;uatel# touched in Petitioner Us brief, as followsGchanroblesvirtuallawlibrar#

R&. ! loss of emplo#ment in the aguio district b# about ,+++ Filipino and a loss of directliving from the enguet operation supplied to %+,+++, that is, the ,+++ emplo#ed and their dependents.

R6a7 This would be calamit# to the district of the highest order which could ver# well produce asnow balling depression which could react all over the "hilippine Islands.



R%. osses of direct and indirect ta)es to the "hilippine 8overnment in an e)tremel# large #earl#amount.

R0. $o one would be able to continue the enguet and alatoc mines in operation should ali;uidation of enguet ta/e place because the net profits after labor and material costs and ta)esin the last two #ears or more from the gold mining operations have not warranted their continued

operation as independent units. The profits in &=0 certainl# do not warrant it. It is merel# a caseof ta/ing gold out of the ground in order to pa# for labor, materials and ta)es with ver# littlereturn to the stoc/holders and on the huge investment made in the reconstruction since &1.

R6a7 The relief provided b# the elimination of the & per cent ()cise Ta), the per centCompensating Ta) and the lowering of the ()traction Ta), when counter-balanced againstconsistentl# increasing costs from month to month up to this ver# month, is now nothing but anoffsetting item against constantl# increasing costs.S

For whatever persuasive effect it ma# have, we cannot help calling attention to the fact that thereare onl# about nine sociedades anonimas in the countr#, foremost among them being CompaNiaMaritima, which have e)isted for #ears and along with the Petitioner figured prominentl# in our

economic development. CompaNia Maritima, in particular, has been twice allowed to e)tend itslife b# amendment of its articles of incorporation. It ma# be argued that if there was an officialmista/e in acceding to the e)tension of the term of CompaNia Maritima, the same should notwarrant the commission of another mista/e. ut it will go to show that sections = and && of theCorporation aw are, on the points herein involved, of doubtful construction@ chanroblesvirtualawlibrar#and it is for this reason that we had to advert hereinabove to the somewhatune;uitable position of the intervenor and to the possible adverse effect on "hilippine econom#of the abrupt termination of Petitioner Us corporate e)istence.

# and large, it is m# considered opinion that the %espondent Us order of denial dated 4ctober %,&=0, should be reversed and the %espondent ordered to register at least the documents presented b# the Petitioner , reforming and organi3ing itself as a corporation under the provisions of the

Corporation aw. This would be in line with the polic# of doing awa# with sociedad anonimas,at the same time saving Rthe goose that la#s the golden egg.S

:o / (86( A:e=o, JJ., cocr.

G.R. No. 9321 Se'(ember 24, 1914



N!RER$! AS&NCI!N, E$ AL., petitioners-appellants,

vs.

#AN&EL DE YRIAR$E, respondent-appellee.

8odesto %eyes for appellants.

Attorney($eneral ;illamor for appellee.

#!RELAND, J.:

This is an action to obtain a writ of mandamus to compel the chief of the division of achieves of

the ()ecutive ureau to file a certain articles of incorporation.

The chief of the division of archives, the respondent, refused to file the articles of incorporation,

hereinafter referred to, upon the ground that the object of the corporation, as stated in the articles,

was not lawful and that, in pursuance of section 1 of !ct $o. &=, the# were not registerable.

The proposed incorporators began an action in the Court of First Instance of the cit# of Manila to

compel the chief of the division of archives to receive and register said articles of incorporation

and to do an# and all acts necessar# for the complete incorporation of the persons named in the

articles. The court below found in favor of the defendant and refused to order the registration of

the articles mentioned, maintaining ad holding that the defendant, under the Corporation aw,

had authorit# to determine both the sufficienc# of the form of the articles and the legalit# of the

object of the proposed corporation. This appeal is ta/en from that judgment.

The first ;uestion that arises is whether or not the chief of the division of archives has authorit#,

under the Corporation for registration, to decide not onl# as to the sufficienc# of the form of the

articles, but also as to the lawfulness of the purpose of the proposed corporation.

It is strongl# urged on the part of the appellants that the duties of the defendant are purel#

ministerial and that he has no authorit# to pass upon the lawfulness of the object for which the

incorporators propose to organi3e. $o authorities are cited to support this proposition and we are

of the opinion that it is not sound.

2ection 1 of the Corporation aw reads in part as followsG

Five or more persons, not e)ceeding fifteen, a majorit# of whom are residents of the

"hilippine Islands, ma# form a private corporation for an# lawful purpose b# filing with

the division of archives, patents, cop#rights, and trademar/s if the ()ecutive ureau

articles of incorporation dul# e)ecuted and ac/nowledged before a notar# public, . . . .

2impl# because the duties of an official happens to be ministerial, it does not necessaril# follow

that he ma# not, in the administration of his office, determine ;uestions of law. >e are of the

opinion that it is the dut# of the division of archives, when articles of incorporation are presented

for registration, to determine whether the objects of the corporation as e)pressed in the articles



are lawful. >e do not believe that, simpl# because articles of incorporation presented foe

registration are perfect in form, the division of archives must accept and register them and issue

the corresponding certificate of incorporation no matter what the purpose of the corporation ma#

be as e)pressed in the articles. >e do not believe it was intended that the division of archives

should issue a certificate of incorporation to, and thereb# put the seal of approval of the

8overnment upon, a corporation which was organi3ed for base of immoral purposes. That suchcorporation might later, if it sought to carr# out such purposes, be dissolved, or its officials

imprisoned or itself heavil# fined furnished no reason wh# it should have been created in the first

instance. It seems to us to be not onl# the right but the dut# of the divisions of archives to

determine the lawfulness of the objects and purposes of the corporation before it issues a

certificate of incorporation.

It having determined that the division of archives, through its officials, has authorit# to determine

not onl# the sufficienc# as to form of the articles of incorporation offered for registration, but

also the lawfulness of the purposes of leads us to the determination of the ;uestion whether or

not the chief of the division of archives, who is the representative thereof and clothed b# it withauthorit# to deal subject to mandamus in the performance of his duties.

>e are of the opinion that he ma# be mandamused if he act in violation of law or if he refuses,

undul#, to compl# with the law. >hile we have held that defendant has power to pass upon the

lawfulness of the purposes of the proposed corporation and that he ma#, in the fulfillment of his

duties, determine the ;uestion of law whether or not those purposes are lawful and embraced

within that class concerning which the law permits corporations to be formed, that does not

necessaril# mean, as we have alread# intimated, that his duties are not ministerial. 4n the

contrar#, there is no incompatibilit# in holding, as we do hold, that his duties are ministerial and

that he has no authorit# to e)ercise discretion in receiving and registering articles of

incorporation. Ae ma# e)ercise judgment H that is, the judicial function H in the determinationof the ;uestion of law referred to, but he ma# not use discretion. The ;uestion whether or not the

objects of a proposed corporation are lawful is one that can be decided one wa# onl#. If he err in

the determination of that ;uestion and refuse to file articles which should be filed under the law,

the decision is subject to review and correction and, upon proper showing, he will be ordered to

file the articles. This is the same /ind of determination which a court ma/es when it decides a

case upon the merits, the court ma/es when it decides a case upon the merits. >hen a case is

presented to a court upon the merits, the court can decide onl# one wa# and be right. !s a matter

of law, there is onl# one wa# and be right. !s a matter of law, there is onl# one course to pursue.

In a case where the court or other official has discretion in the resolution of a ;uestion, then,

within certain limitations, he ma# decide the ;uestion either wa# and still be right. <iscretion, itma# be said generall#, is a facult# conferred upon a court or other official b# which he ma#

decide a ;uestion either wa# and still be right. The power conferred upon the division of archives

with respect to the registration of articles of incorporation is not of that character. It is of the

same character as the determination of a lawsuit b# a court upon the merits. It can be decided

onl# one wa# correctl#.



If, therefore, the defendant erred in determining the ;uestion presented when the articles were

offered for registration, then that error will be corrected b# this court in this action and he will be

compelled to register the articles as offered. If, however, he did not commit an error, but decided

that ;uestion correctl#, then, of course, his action will be affirmed to the e)tent that we will den#

the relief pra#ed for.

The ne)t ;uestion leads us to the determination of whether or not the purposes of the corporation

as stated in the articles of incorporation are lawful within the meaning of the Corporation aw.

The purpose of the incorporation as stated in the articles isG 5That the object of the corporation is

6a7 to organi3e and regulate the management, disposition, administration and control which the

barrio of "ulo or 2an Miguel or its inhabitants or residents have over the common propert# of

said residents or inhabitants or propert# belonging to the whole barrio as such@ and 6 /7 to use the

natural products of the said propert# for institutions, foundations, and charitable wor/s of

common utilit# and advantage to the barrio or its inhabitants.5

The municipalit# of "asig as recogni3ed b# law contains within its limits several barrios or small

settlements, li/e "ulo or 2an Miguel, which have no local government of their own but are

governed b# the municipalit# of "asig through its municipal president and council. The president

and members of the municipal council are elected b# a general vote of the municipalit#, the

;ualified electors of all the barrios having the right to participate.

The municipalit# of "asig is a municipal corporation organi3ed b# law. It has the control of all

propert# of the municipalit#. The various barrios of the municipalit# have no right to own or hold

propert#, the# not being recogni3ed as legal entities b# an# law. The residents of the barrios

participate in the advantages which accrue to the municipalit# from public propert# and receive

all the benefits incident to residence in a municipalit# organi3ed b# law. If there is an# public propert# situated in the barrio of "ulo or 2an Miguel not belonging to the general government or

the province, it belongs to the municipalit# of "asig and the sole authorit# to manage and

administer the same resides in that municipalit#. ?ntil the present laws upon the subject are

charged no other entit# can be the owner of such propert# or control or administer it.

The object of the proposed corporation, as appears from the articles offered for registration, is to

ma/e of the barrio of "ulo or 2an Miguel a corporation which will become the owner of and

have the right to control and administer an# propert# belonging to the municipalit# of "asig

found within the limits of that barrio. This clearl# cannot be permitted. 4therwise municipalities

as now established b# law could be deprived of the propert# which the# now own andadminister. (ach barrio of the municipalit# would become under the scheme proposed, a separate

corporation, would ta/e over the ownership, administration, and control of that portion of the

municipal territor# within its limits. This would disrupt, in a sense, the municipalities of the

Islands b# dividing them into a series of smaller municipalities entirel# independent of the

original municipalit#.



>hat the law does not permit cannot be obtained b# indirection. The object of the proposed

corporation is clearl# repugnant to the provisions of the Municipal Code and the governments of

municipalities as the# have been organi3ed thereunder. 6!ct $o. *%, "hilippine Commission.7

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

Corporation Cases 3

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