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Saniwares, a domestic corporation, was incorporated for the primary
purpose of manufacturing and marketing sanitary wares. One of the
incorporators, Mr. Young went abroad to look for foreign partners. ASI, a
foreign corporation domiciled in the US entered into an agreement with
Saniwares and some Filipino investors whereby ASI and the Filipino
investors agreed to participate in the ownership of an enterprise
which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad
China and sanitarywares. The parties agreed that the business
operations in the Philippines shall be carried on by an
incorporated enterprise which name shall be Sanitary Wares Manufacturing
Corporation. The agreement has the provision that the management of the
corporation shall be vested in the Board of Directors (BOD) which shall
consists of 9 individuals. And as long as ASIwill own 30% of the
outstanding capital stock, 3 of the 9 directors shall be
designated by ASI and the other directors by the other stockholders.
Veto power was also given to ASI which is designed to protect it as a
minority group. The joint enterprise prospered. However, disagreements
came up due to objection of ASI of the desired expansion of the Filipino
group. When the time came to elect the BOD, instead of 9 nominees, 11
were nominated contrary to the usual practice. The meeting was
subsequently adjourned.ASI, other stockholders and Salazar, one of the
nominees as director continued the meeting at the elevator lobby
of ASI Building and consequently, 5 directors were elected as
certified by the acting secretary.
ISSUE: Whether or not the directors as nominated by the
ASI group are valid members of the BOD of Saniwares
No. A corporation cannot enter into a partnership contract but may engage in
a joint venture with other. Since the relationship is a joint venture, the
agreement of the parties governs.


Petitioner Excellent Quality Apparel, Inc. then represented by
Max L.F. Ying,Vice-President for Productions, and Alfiero R.
Orden, Treasurer, entered into a contract with Multi-Rich
Builders (Multi-Rich) represented by Wilson G. Chua(Chua),
its President and General Manager, for the construction of a
garment factory within the Cavite Philippine Economic
Zone Authority (CPEZ).

The duration of the project was for a maximum period of five

(5) months or 150consecutive calendar days. Included in the
contract is an arbitration clause.Respondent Win Multi-Rich Builders, Inc. (Win) was
incorporated with the Securities and Exchange Commission
(SEC) on 20 February 1997 with Chua asits President and
General Manager.-

On 26 January 2004, Win filed a complaint for a sum of

money against petitioner and Mr. Ying amounting to
P8,634,448.20.Petitioner filed an Omnibus Motion claiming that it was
neither about to close. It also denied owing anything to Win,
as it had already paid all its obligations to it.Petitioner pointed to the presence of the Arbitration Clause
and it asserted that the case should be referred to the
Construction Industry Arbitration Commission(CIAC)
pursuant to Executive Order (E.O.) No. 1008.In the hearing held, the counsel of Win moved that its name in
the case be changed from "Win Multi-Rich Builders, Inc." to
"Multi-Rich Builders, Inc."It was only then that petitioner apparently became aware of
the variance in the name of the plaintiff.In the Reply filed by petitioner, it moved to dismiss the case
since Win was not the contractor and neither a party to the
contract, thus it cannot institute the case.Petitioner obtained a Certificate of Non-Registration of
from the SEC which certified that the latter did not have any
records of a "Multi-Rich Builders, Inc."Moreover, Win in its Rejoinder did not oppose the allegations
in the Reply. Win admitted that it was only incorporated on 20
February 1997 while the construction contract was executed
on 26 March 1996. Likewise, it admitted that at the time
of execution of the contract, Multi-Rich was a registered sole
proprietorship and was issued a business permit by the Office
of the Mayor of Manila.RTC denied the motion but was reversed by CA.Hence, this petition.
1. does Win have a legal personality to institute the present
case;2. does the RTC have jurisdiction over the case
notwithstanding the presence of the arbitration clause;
A suit seeking to enforce the contractual rights of a single
proprietorship, that is, collection of receivables arising from a
construction agreement must be brought in the name of the
proprietor himself. Such suit cannot be brought either in the
name of a corporation organized by the proprietor in view of
the separate personality of a corporation there being no
showing that the proprietor assigned the receivables to the
corporation, or even in the registered name of the single
proprietorship as a sole proprietorship is not vested with any
juridical personality to file or defend an action.

G.R. No. 195580

April 21, 2014


CORP., Respondent.

Sometime in December 2006, respondent Redmont
Consolidated Mines Corp. (Redmont), a domestic corporation
organized and existing under Philippine laws, took interest in
mining and exploring certain areas of the province of Palawan.
After inquiring with the Department of Environment and
Natural Resources (DENR), it learned that the areas where it
wanted to undertake exploration and mining activities where
already covered by Mineral Production Sharing Agreement
(MPSA) applications of petitioners Narra, Tesoro and
Petitioner McArthur Narra and Tesoro, filed an application for
an MPSA and Exploration Permit (EP) which was
subsequently issued.
On January 2, 2007, Redmont filed before the Panel of
Arbitrators (POA) of the DENR three (3) separate petitions for
the denial of petitioners applications for MPSA.
Redmont alleged that at least 60% of the capital stock of
McArthur, Tesoro and Narra are owned and controlled by
MBMI Resources, Inc. (MBMI), a 100% Canadian
corporation. Redmont reasoned that since MBMI is a
considerable stockholder of petitioners, it was the driving
force behind petitioners filing of the MPSAs over the areas
covered by applications since it knows that it can only
participate in mining activities through corporations which are
deemed Filipino citizens. Redmont argued that given that
petitioners capital stocks were mostly owned by MBMI, they
were likewise disqualified from engaging in mining activities
through MPSAs, which are reserved only for Filipino citizens.
Petitioners averred that they were qualified persons under
Section 3(aq) of Republic Act No. (RA) 7942 or the Philippine
Mining Act of 1995. They stated that their nationality as
applicants is immaterial because they also applied for
Financial or Technical Assistance Agreements (FTAA)
denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08
for Tesoro and AFTA-IVB-07 for Narra, which are granted to
foreign-owned corporations. Nevertheless, they claimed that
the issue on nationality should not be raised since McArthur,
Tesoro and Narra are in fact Philippine Nationals as 60% of
their capital is owned by citizens of the Philippines.
On December 14, 2007, the POA issued a Resolution
disqualifying petitioners from gaining MPSAs. The POA
considered petitioners as foreign corporations being

"effectively controlled" by MBMI, a 100% Canadian company

and declared their MPSAs null and void.
Pending the resolution of the appeal filed by petitioners with
the MAB, Redmont filed a Complaint with the Securities and
Exchange Commission (SEC), seeking the revocation of the
certificates for registration of petitioners on the ground that
they are foreign-owned or controlled corporations engaged in
mining in violation of Philippine laws.
CA found that there was doubt as to the nationality of
petitioners when it realized that petitioners had a common
major investor, MBMI, a corporation composed of 100%
Canadians. Pursuant to the first sentence of paragraph 7 of
Department of Justice (DOJ) Opinion No. 020, Series of 2005,
adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to
the exploitation of natural resources, the CA used the
"grandfather rule" to determine the nationality of petitioners.
In determining the nationality of petitioners, the CA
looked into their corporate structures and their corresponding
common shareholders. Using the grandfather rule, the CA
discovered that MBMI in effect owned majority of the
common stocks of the petitioners as well as at least 60%
equity interest of other majority shareholders of
petitioners through joint venture agreements. The CA
found that through a "web of corporate layering, it is clear
that one common controlling investor in all mining
corporations involved x x x is MBMI."Thus, it concluded
that petitioners McArthur, Tesoro and Narra are also in
partnership with, or privies-in-interest of, MBMI.

Whether or notthe Court of Appeals ruling that
Narra, Tesoro and McArthur are foreign corporations based on
the "Grandfather Rule" is contrary to law, particularly the
express mandate of the Foreign Investments Act of 1991, as
amended, and the FIA Rules.

No. There are two acknowledged tests in determining
the nationality of a corporation: the control test and the
grandfather rule. Paragraph 7 of DOJ Opinion No. 020,
Series of 2005, adopting the 1967 SEC Rules which
implemented the requirement of the Constitution and other
laws pertaining to the controlling interests in enterprises
engaged in the exploitation of natural resources owned by
Filipino citizens, provides:

Shares belonging to corporations or

partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of
Philippine nationality(CONTROL TEST), but if the
percentage of Filipino ownership in the corporation
or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be
nationality(GRANDFATHER RULE). Thus, if
100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital
stock or capital, respectively, of which belong to
Filipino citizens, all of the shares shall be recorded as
owned by Filipinos. But if less than 60%, or say, 50%
of the capital stock or capital of the corporation or
partnership, respectively, belongs to Filipino citizens,
only 50,000 shares shall be counted as owned by
Filipinos and the other 50,000 shall be recorded as
belonging to aliens.
The grandfather rule, petitioners reasoned, has no leg to stand
on in the instant case since the definition of a "Philippine
National" under Sec. 3 of the FIA does not provide for it. They
further claim that the grandfather rule "has been abandoned
and is no longer the applicable rule." They also opined that the
last portion of Sec. 3 of the FIA admits the application of a
"corporate layering" scheme of corporations. Petitioners claim
that the clear and unambiguous wordings of the statute
preclude the court from construing it and prevent the courts
use of discretion in applying the law. They said that the plain,
literal meaning of the statute meant the application of the
control test is obligatory.
SC disagreed. "Corporate layering" is admittedly
allowed by the FIA; but if it is used to circumvent the
Constitution and pertinent laws, then it becomes illegal.
Further, the pronouncement of petitioners that the grandfather
rule has already been abandoned must be discredited for lack
of basis.
Petitioners McArthur, Tesoro and Narra are not Filipino since
MBMI, a 100% Canadian corporation, owns 60% or more of
their equity interests. Such conclusion is derived from
grandfathering petitioners corporate owners, namely: MMI,
SMMI and PLMDC. The "control test" is still the prevailing
mode of determining whether or not a corporation is a Filipino
corporation, within the ambit of Sec. 2, Art. II of the 1987
Constitution, entitled to undertake the exploration,
development and utilization of the natural resources of the
Philippines. When in the mind of the Court there is doubt,
based on the attendant facts and circumstances of the case, in
the 60-40 Filipino-equity ownership in the corporation, then it
may apply the "grandfather rule."

THE PHILIPPINES, respondent.
Before the Court are consolidated petitions (1) for review
of the decision of the Court of Appeals in CA-G.R. SP No.
62658,[1] which set aside the Order dated October 18, 2000 of
the Regional Trial Court of Makati City, Branch 133, in Civil
Case No. 98-782;[2] and (2) to cite Landbank President
Margarito Teves, and Landbanks counsel, in contempt of
The undisputed facts are as follows: In 1995, petitioner
Gateway Electronics Corporation applied for a loan in the
amount of one billion pesos with respondent Landbank to
finance the construction and acquisition of machineries and
equipment for a semi-conductor plant at Gateway Business
Park in Javalera, General Trias, Cavite. However, Landbank
was only able to extend petitioner a loan in the amount of six
hundred million pesos (P600,000,000.00). Hence, it offered to
assist petitioner in securing additional funding through its
investment banking services, which offer petitioner
accepted. Thereafter, Landbank released to petitioner the
initial amount of P250,000,000.00, with the balance of
P350,000,000.00 to be released in June 1996. As security for
the said loans, petitioner mortgaged in favor of Landbank two
parcels of land[3] located in Barangay Jalavera, General Trias,
Cavite, the movable properties as well as the machineries to be
installed therein.[4]
After petitioners acceptance of Landbanks financial
banking services, the latter prepared an Information
Memorandum which it disseminated to various banks to
attract them into providing additional funding for
petitioner. The Information Memorandum stated that the
security for the proposed loan syndication will be the
Mortgage Trust Indenture (MTI) on the project assets
including land, building and equipment.[5] In a letter dated
July 30, 1996, Landbank informed petitioner of its willingness
to share the loan collateral which the latter constituted in its
favor as part of the collateral for the syndicated loan from the
other banks.[6] On August 20, 1996, Landbank confirmed its
undertaking to share the said collateral with the other creditor
banks, to wit:
In case of failure of syndication of the loan, allow the banks
that have granted loans to GEC [Gateway Electronics
Corporation] in anticipation of the loan syndication to have a
registered pari passu mortgage with you over the property, the
intention being that all banks, including Landbank, shall be on
equal footing where the aforesaid collateral is concerned.[7]

Consequently, Philippine Commercial International Bank

(PCIB), Union Bank of the Philippines, (UBP), Rizal
Commercial Banking Corporation-Trust Investment Division
(RCBC), and Asia Trust Bank (Asia Trust) joined the loan
syndication and released various loans to petitioner. On
October 10, 1996, a Memorandum of Understanding
(MOU)[8] was executed by Landbank, PCIB, UBP, RCBC,
Asiatrust and the petitioner, with RCBC as the trustee of the
loan syndication. Under the Memorandum of Understanding,
the said signatories agreed to
enter into a Mortgage Trust Indenture (herein, the MTI),
under which GEC will constitute a mortgage over the land,
building, other land improvements, machinery and equipment
of GEC located within Gateway Business Park, Crisanto de
Los Reyes Avenue, Javalera, General Trias, Cavite as well as
the assets to be acquired by GEC under the Project (as
hereinafter defined) in favor of RCBC-TID as trustee, for the
benefit of the Creditors (as defined in the MTI), to secure the
payment by GEC of its loan obligations.[9]
Meanwhile, the negotiations for the execution of an MTI
failed because Landbank and the petitioner were unable to
agree on the valuation of the equipment and machineries to be
acquired by the latter. The petitioner insisted on a 70%
valuation, while the former wanted a 50% valuation. To break
the impasse, PCIB, RCBC, UBP, and Asiatrust proposed,
subject to the approval of their respective Executive
Committees or Board of Directors, to execute a Joint Real
Estate Mortgage (JREM)[10] as the new mode to secure [their]
respective loan vis--vis [petitioners] collaterals.[11] Under
the proposed JREM, the six hundred million peso-loan granted
by Land Bank shall be secured up to 94.42%, while the loans
granted by PCIB, RCBC, and UBP would be similarly secured
up to 75.22%.[12] Land Bank, however, refused to agree to the
said proposal unless 100% of its loan exposure is secured,
pursuant to the Loan Agreement it executed with petitioner.[13]
On February 27, 1998, Land Bank informed petitioner of
its intention not to share collaterals with the other banks. In
the meantime, petitioners loan with PCIB became due
because of its failure to comply with the collateral requirement
under the MTI or JREM, or to provide acceptable substitute
collaterals. Hence, petitioner filed with the Regional Trial
Court of Makati City, Branch 133, a complaint against Land
Bank for specific performance and damages with prayer for
the issuance of preliminary mandatory injunction.
After hearing, the trial court issued an order on October
18, 2000 granting petitioners prayer for the issuance of a writ
of preliminary mandatory injunction, the dispositive portion of
which reads:
Wherefore, in view of the foregoing, the application for a writ
of preliminary mandatory injunction is granted, conditioned
upon the filing of a bond in the amount of three hundred
thousand pesos (P300,000.00).
Defendant is hereby directed to accede to the terms of the draft
MTI and/or to agree to share collaterals under a joint real
estate mortgage [JREM] with long-term creditors of plaintiff

(including PCIB) as joint mortgagees and with defendant as

custodian of the titles.
With the denial of its motion for reconsideration,
respondent filed a petition for certiorari with the Court of
Appeals, on the ground that the trial court gravely abused its
discretion in issuing the assailed writ of preliminary
mandatory injunction. On March 23, 2001, the Court of
Appeals, on motion of Landbank, issued a temporary
restraining order enjoining the trial court from enforcing the
October 18, 2000 Order.[15]
In a decision rendered on April 12, 2002, the Court of
Appeals annulled the assailed order of the trial court.[16] It
ruled that petitioner failed to prove the requisite clear and
legal right that would justify the issuance of the writ of
preliminary mandatory injunction; and that respondent cannot
be compelled to accede to the terms of the MTI and/or JREM
which was supposed to cover the syndicated loan of petitioner
inasmuch as the said schemes were never executed nor
approved by the petitioner and the participating banks.
Hence, the instant petition for review filed by petitioner
which was docketed as G.R. No. 155217. On December 10,
2002, petitioner filed an omnibus motion seeking, inter alia,
the issuance of a temporary restraining order enjoining
Landbank from proceeding and completing the foreclosure
proceedings over its mortgaged properties.[17] On January 22,
2003, the Court denied said motion for lack of
merit.[18] Petitioners motion for reconsideration was likewise
denied on March 26, 2003.[19]
Meanwhile, on January 10, 2003, petitioner filed a
petition to cite Landbank President Margarito Teves and
Landbanks lawyer in contempt of Court for proceeding and
concluding the foreclosure proceedings and public auction
sale.[20] Petitioner contended that Landbanks acts constitute
improper conduct which directly or indirectly impede,
obstruct, or degrade the administration of justice. The petition
was docketed as G.R. No. 156393.
On March 12, 2003, the consolidation of G.R. No.
156393 and G.R. No. 155217 was ordered. [21]
The issues to be resolved in this petition are as follows:
(1) Is Landbank bound to share the properties mortgaged to it
by respondent with the other creditor banks in the loan
syndication? (2) If the answer is in the affirmative, can
Landbank be compelled at this point to agree with the terms of
the MTI or JREM?
Anent the first issue, the Court finds that Landbank is
bound by a perfected contract to share petitioners collateral
with the participating banks in the loan syndication. Article
1305 of the Civil Code defines a contract as a meeting of
minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some
service. A contract undergoes three distinct stages (1)
preparation or negotiation; (2) perfection; and (3)
consummation. Negotiation begins from the time the
prospective contracting parties manifest their interest in the
contract and ends at the moment of agreement of the

parties. The perfection or birth of the contract takes place

when the parties agree upon the essential elements of the
contract. The last stage is the consummation of the contract
wherein the parties fulfill or perform the terms agreed upon in
thereof. Article 1315 of the Civil Code, on the other hand,
provides that a contract is perfected by mere consent, which is
manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the
In the case at bar, a perfected contract for the sharing of
collaterals is evident from the exchange of communications
between Landbank and petitioner and the participating banks,
as well as in the Memorandum of Understanding executed by
petitioner and the participating banks, including Landbank. In
its July 31, 1996 letter to petitioner, Landbank stated that it is
willing to submit the properties covered by the real estate
mortgage (REM) in its favor as part of [petitioners] assets
that will be covered by a Mortgage Trust Indenture
(MTI). Thus, the Information Memorandum distributed by
Landbank to entice other banks to participate in the loan
syndication, expressly stated that the security for the
syndicated loan will be the MTI on project assets including
land, building and equipment.[23] Finally, on October 10,
1996, petitioner, Landbank, PCIB, RCBC, UBP, and Asiatrust
executed a Memorandum of Understanding confirming the
said collateral sharing agreement. To effect said sharing, they
decided to enter into a Mortgage Trust Indenture (MTI) which
will be secured by the same properties previously mortgaged
by petitioner to Landbank, or more specifically, to
enter into a Mortgage Trust Indenture (herein, the MTI),
under which GEC will constitute a mortgage over the land,
building, other land improvements, machinery and equipment
of GEC located within Gateway Business Park, Crisanto de
Los Reyes Avenue, Javalera, General Trias, Cavite as well as
the assets to be acquired by GEC under the Project (as
hereinafter defined) in favor of RCBC-TID as trustee, for the
benefit of the Creditors (as defined in the MTI), to secure the
payment by GEC of its loan obligations.[24]
Clearly, there was an acceptance by petitioner and by
PCIB, RCBC, UBP, and Asiatrust of Lanbanks offer to share
collaterals, culminating in the execution of the Memorandum
of Understanding. We agree with petitioner that the MTI
and/or the JREM belong to the realm of consummation of said
Memorandum of Understanding, being the proposed vehicles
or modes to effect the sharing agreement. Thus, in the JREM
which was approved by Landbank, except for its loan security
coverage, the participating banks expressly acknowledged that
[t]he Joint Real Estate Mortgage [is] pursued by [them] as a
new mode to secure [their] respective loans vis--vis GECs
collateral.[25] Verily, the perfection of the collateral sharing
agreement is not dependent upon the execution of the MTI or
the JREM. The failure to execute said schemes did not affect
the perfected and binding collateral sharing contract.
With respect, however, to the second issue, we find that
the issuance by the trial court of the writ of preliminary
mandatory injunction directing Landbank to agree with the
terms of the MTI or JREM was premature. This is so because

the MTI and/or JREM that were supposed to consummate the

perfected collateral sharing agreement have not yet come into
existence. As correctly held by the Court of Appeals,
Landbank cannot be compelled to agree with the terms of the
MTI considering that no such terms were finalized and
approved by the petitioner and the participating
banks. Simply stated, Landbank cannot be forced to give its
conformity to an inexistent contract. So, also, the proposed
JREM was never approved by the petitioner and the
participating banks. Notably, the JREM expressly stated that
we hereby appeal to the GECs senior management to decide
swiftly and to favorably approve our humble requests so that,
in turn, we can seek respective approvals from our senior
management to culminate this long term project financing deal
of ours.[26] No such approval, however, appears in the
As to the questioned security coverage under the JREM,
Landbank cannot be compelled to agree to the proposed
94.42% loan security coverage over its six hundred million
peso-loan to petitioner. The security coverage of the
participating banks on the collaterals of petitioner was not
agreed upon in the Memorandum of Understanding. While it
is true that Landbank informed petitioner in its letter dated
July 30, 1996 that the participating banks in the loan
syndication will have equal security position,[27] and that on
August 20, 1996, Landbank confirmed to PCIB that the
participating banks, shall be on equal footing where the
aforesaid collateral is concerned,[28] no such stipulation was
embodied in the Memorandum of Understanding executed by
petitioner, Landbank, PCIB, RCBC, UBP, and Asiatrust on
October 10, 1996. As the repository of the terms and
conditions agreed upon by the parties, the Memorandum of
Understanding is considered as containing all their stipulations
and there can be no evidence of such terms other than the
contents thereof.[29] Inasmuch as the parties to the
Memorandum of Understanding did not agree on the terms of
the security coverage of the participating banks in the MTI or
JREM, we can neither add such a stipulation nor direct
Landbank to agree to the security coverage stated in the
JREM. Furthermore, the reasonableness of the terms of the
MTI and JREM, as well as the good faith or bad faith of the
parties in negotiating the terms of the said schemes, are
matters that should be determined at the trial, and cannot at
this point be passed upon by this Court.
Furthermore, the other participating banks, namely
PCIB, RCBC, UBP, and Asiatrust, are not parties to the
instant case and cannot, therefore, be bound by an order
directing Landbank to accede to the terms of the MTI or the
JREM. We are not even aware if said banks are amenable to
the said schemes or pursuing other modes to effect the sharing
agreement. Indeed, the scheme or mode and the terms that
would consummate the collateral sharing agreement are
matters that the signatories of the Memorandum of
Understanding have yet to come up with. The rule in this
jurisdiction is that the contracting parties may establish any
agreement, term, and condition they may deem advisable,
provided they are not contrary to law, morals or public
policy. The right to enter into lawful contracts constitutes one
of the liberties guaranteed by the Constitution. It cannot be
struck down or arbitrarily interfered with without violating the
freedom to enter into lawful contracts.[30]

A writ of mandatory injunction requires the performance

of a particular act and is granted only upon a showing of the
following requisites (1) the invasion of the right is material
and substantial; (2) the right of a complainant is clear and
unmistakable; and (3) there is an urgent and permanent
necessity for the writ to prevent serious damage. Since it
commands the performance of an act, a mandatory injunction
does not preserve the status quo and is thus more cautiously
regarded than a mere prohibitive injunction. Accordingly, the
issuance of the former is justified only in a clear case, free
from doubt and dispute. [31]
While it is true that petitioner has a right to compel
Landbank to comply with the collateral sharing agreement, its
right to enforce the same by way of an inexistent MTI or
JREM is certainly not clear and unmistakable. At this stage,
Landbank cannot be compelled to agree to the terms of the
MTI and/or JREM. At the most, Landbank can be compelled
to comply with its obligation to share with the other
participating banks of the loan syndication the properties
mortgaged to it by petitioner and to execute the necessary
contract that would implement said collateral sharing
Coming now to the petition for contempt, we find that
Landbanks acts of foreclosing and selling at public auction
contumacious. Landbank
proceedings upon an honest belief that petitioner had defaulted
in the payment of its obligation. Having acted in good faith,
the officers of the bank cannot be held in contempt of
court. However, in order not to render this decision moot and
ineffectual, the sale at public auction should be annulled.
WHEREFORE, in view of all the foregoing, the
petition in G.R. No. 155217 is GRANTED. The decision of
the Court of Appeals dated April 12, 2002 in CA-G.R. SP. No.
62658 is SET ASIDE. The assailed Order dated October 18,
2000 of the Regional Trial Court of Makati City, Branch 133,
in Civil Case No. 98-782 is MODIFIED as follows:
respondent Landbank is directed to implement its agreement
under the Memorandum of Understanding dated October 10,
1996 to share with Philippine Commercial International Bank
(PCIB), Union Bank of the Philippines, (UBP), Rizal
Commercial Banking Corporation-Trust Investment Division
(RCBC), and Asia Trust Bank (Asia Trust) the properties
mortgaged to it by petitioner Gateway Electronics
Corporation, as collaterals for the syndicated loan.
In G.R. No. 156393, the petition to cite Landbank
President Margarito Teves and Landbanks lawyer in
contempt of Court is DENIED for lack of merit.


Section 1. Title of the Code. - This Code shall be known as

"The Corporation Code of the Philippines".


G.R. No. L-37331, March 18, 1933
FACTS: Benguet Consolidated Mining Co. was organized in
June, 1903, as a sociedad anonima in conformity with the
provisions of Spanish law. Balatoc Mining Co. was organized
in December 1925, as a corporation, in conformity with the
provisions of the Corporation Law (Act No. 1459). Both were
organized for mining of gold and their respective properties
are located only a few miles apart in Benguet. Balatoc capital
stock consists of one million shares of the par value of one
peso (P1) each.
When the Balatoc was first organized, its properties were
largely undeveloped. To improve its operations, the
companys committee approached A. W. Beam, then president
and general manager of the Benguet Company, to secure the
capital necessary to the development of the Balatoc property.
A contract was entered into wherein Benguet will (1) construct
a milling plant for the Balatoc mine, of a capacity of 100 tons
of ore per day, and with an extraction of at least 85 per cent of
the gold content; (2) erect an appropriate power plant. In
return, Benguet will receive from Balatoc shares of a par value
of P600,000.
The total cost incurred by Benguet in developing Balatoc was
P1,417,952.15. A certificate for 600,000 shares of the stock of
the Balatoc Company was given to Benguet and the excess
value was paid to Benguet by Balatoc in cash. Due to the
improvements made by Benguet, the value of shares of
Balatoc increased in the market (from P1 to more than P11)
and dividends enriched its stockholders. Harden, the owner of
thousands of shares of Balatoc, questioned the transfer of
600,000 shares to Benguet with the success of the
ISSUE: W/N it is unlawful for Benguet Company to hold any
interest in a mining corporation.
W/N, assuming the first question to be answered in
the affirmative, the Benguet Company, which was organized
as a sociedad anonima, is a
corporation within the meaning of the language used
by the Congress of the United States, and later by the
Philippine Legislature, prohibiting a
mining corporation from becoming interested in
another mining corporation.
1st Issue: The defendant Benguet Company has committed no
civil wrong against the plaintiffs, and if a public wrong has
been committed, the directors of the Balatoc Company, and
the plaintiff Harden himself, were the active inducers of the
commission of that wrong. The contract, supposing it to have
been unlawful in fact, has been performed on both sides.
2nd Issue: Having shown that the plaintiffs in this case have no
right of action against the Benguet Company for the infraction
of law supposed to have been committed, we forego any
discussion of the further question whether a sociedad anonima

created under Spanish law, such as the Benguet Company, is a

corporation within the meaning of the prohibitory provision
already so many times mentioned.
A sociedad anonima is something very much like the English
joint stock company, with features resembling those of both
the partnership is shown in the fact that sociedad, the generic
component of its name in Spanish, is the same word that is
used in that language to designate other forms of partnership,
and in its organization it is constructed along the same general
lines as the ordinary partnership.
In section 75 of the Corporation Law, a provision is found
making the sociedad anonima subject to the provisions of the
Corporation Law "so far as such provisions may be
applicable", and giving to the sociedades anonimas previously
created in the Islands the option to continue business as such
or to reform and organize under the provisions of the
Corporation Law.
The provision in Section 75 of the Act Congress of July 1,
1902 (Philippine Bill), generally prohibiting corporations
engaged in mining and members of such from being interested
in any other corporation engaged in mining, was amended by
section 7 of Act No. 3518 of the Philippine Legislature,
approved by Congress March 1, 1929. The change in the law
effected by this amendment was in the direction of
liberalization. Thus, the inhibition contained in the original
provision against members of a corporation engaged in
agriculture or mining from being interested in other
corporations engaged in agriculture or in mining was so
modified as merely to prohibit any such member from holding
more than fifteen per centum of the outstanding capital stock
of another such corporation. Moreover, the explicit prohibition
against the holding by any corporation (except for irrigation)
of an interest in any other corporation engaged in agriculture
or in mining was so modified as to limit the restriction to
corporations organized for the purpose of engaging in
agriculture or in mining.



This is a Petition for Review on Certiorari under Rule 45 of

the 1997 Rules of Civil Procedure, assailing the Court of
Appeals' Decision1 and Resolution2 in CA-G.R. SP No. 89001.
The appellate court's decision dismissed the petition
for certiorari, which sought to set aside the Order3 dated 08
November 2004 issued by Hon. Marie Christine Jacob,
Presiding Judge of the Regional Trial Court (RTC) of Quezon
City, Branch 100. The appellate court's resolution denied
petitioners' motion for reconsideration of the decision.
As culled from the records, the following factual antecedents
On 5 March 2004, the City Government of Quezon City,
represented by Mayor Feliciano Belmonte, Jr., entered into a
construction contract4 with M.R. Vargas Construction,
represented by Marcial Vargas in his capacity as general
manager of the said business enterprise, for the improvement

and concreting of Panay Avenue.5 Pursuant to the contract, the

business enterprise commenced its clearing operations by
removing the structures and uprooting the trees along the
thoroughfare. Its foreman, Renato Agarao, supervised the
clearing operations.6
Claiming that the clearing operations lacked the necessary
permit and prior consultation, petitioners Bienvenido Ejercito
and Jose Martinez, as well as a certain Oscar Baria, brought
the matter to the attention of the barangay authorities, Mayor
Belmonte, Senator Ma. Ana Consuelo A.S. Madrigal, the
Department of Environment and Natural Resources and the
Philippine Coconut Authority.7
The efforts of petitioners proved unsuccessful. Hence, on 10
September 2004, they filed a petition for injunction before the
Quezon City RTC. The petition named "M.R. Vargas
Construction Co., represented by herein Marcial R. Vargas
and Renato Agarao," as respondent.8
The Petition,9 docketed as Civil Case No. Q-04-53687,
indicated that "Respondent M.R. Vargas Construction, is an
entity, with office address at the 4th Floor, President Tower,
Timog Avenue corner Scout Ybardaloza [sic] St., Quezon
City, represented herein by its President Marcial Vargas and
its construction foreman Renato Agarao, where they may be
served with summons and other court processes." 10
The petition was accompanied with an application for a
temporary restraining order (TRO) and a writ of preliminary
injunction.11 Thus, the Office of the Clerk of Court forthwith
issued summons and notice of raffle on 10 September
2004.12 Upon service of the processes on the aforementioned
address, they were returned unserved on the ground that
respondent enterprise was unknown thereat.13
The petition was subsequently raffled to the sala of Judge
Jacob, before which petitioners' application for a temporary
restraining order was heard on 15 September 2004. 14 On the
same day, when Agarao was also present in court, Judge Jacob
issued a TRO directing respondent enterprise to desist from
cutting, damaging or transferring the trees found along Panay
On 23 September 2004, the Mangoba Tan Agus Law Offices
filed a special appearance on behalf of respondent enterprise
and moved for the dismissal of the petition as well as the
quashal of the temporary restraining order on the ground of
lack of jurisdiction over respondent enterprise. The motion
also assailed the raffle of the case for having been conducted
in violation of Section 4, Rule 58 of the Rules of Court; the
issuance of the TRO without requiring the posting of a bond;
the failure to implead the Government of Quezon City despite
its being the real party-in-interest; and petitioners' application
for the injunctive writ which was allegedly grossly defective
in form and substance.16
The motion to dismiss the petition and to quash the TRO was
heard on 24 September 2004.17 Before the hearing, a court
interpreter showed to respondent enterprise's counsel a copy of
the summons and of the notice of raffle in which appear a

signature at the bottom of each copy, apparently indicating the

receipt of the summons.18 On the mistaken belief that the
summons was received by respondent enterprise, at the
hearing of the motion, its counsel withdrew two of the grounds
stated in the motion, to wit, lack of jurisdiction and
irregularity in the raffle of the case.19



At the hearing of petitioners' application for a writ of

preliminary injunction on 1 October 2004, the counsel for
respondent enterprise manifested that he was adopting the
arguments in the motion to quash the TRO.20 On 6 October
2004, the RTC issued an Order granting petitioners'
application for a writ of preliminary injunction. 21
On 7 October 2004, counsel for respondent enterprise filed a
manifestation with urgent omnibus motion to nullify the
proceedings and to cite petitioners and the process server in
contempt of court.22 He argued that respondent enterprise
failed to receive the summons, alleging that it was herein
petitioner Jose Martinez who signed as recipient thereof as
well as of the notice of raffle that was served on 10 September
On 18 October 2004, the writ of preliminary injunction was
issued. Subsequently, petitioners filed a motion for ocular
inspection and another motion praying that respondent
enterprise be ordered to
restore the structures damaged by its clearing operations. 24
On 8 November 2004, the RTC issued the assailed
Order,25 nullifying the proceedings thus far conducted in the
case.26 Petitioners sought reconsideration, but the motion was
denied in an Order dated 20 December 2004.27
Thus, petitioners filed a petition for certiorari before the Court
of Appeals assailing the 8 November 2004 Order issued by
Judge Jacob.28 This time, aside from Judge Jacob and the
enterprise "M.R. Vargas Construction" itself, the petition also
named Marcial R. Vargas and Renato Agarao, the enterprise's
owner and foreman, respectively, as individual respondents.
The separate addresses of said respondents were also indicated
in the initial part of the petition.
It was argued in the petition that Judge Jacob committed grave
abuse of direction in nullifying the proceedings on the ground
of lack of jurisdiction in view of Agarao's presence at the
hearing on petitioners' application for TRO, in failing to act on
petitioners' pending motions and in directing instead the
issuance of new summons on respondent enterprise.29
On 10 October 2005, the Court of Appeals rendered the
assailed Decision dismissing the petition for certiorari for lack
of merit.30 In its Order dated 28 April 2006, the Court of
Appeals denied petitioners' motion for reconsideration.


The instant petition which similarly impleads the enterprise,
M.R. Vargas Construction, Marcial R. Vargas and Renato
Agarao as respondents' raises two issues, namely: (1) whether
the trial court acquired jurisdiction over respondent enterprise
and (2) whether the defense of lack of jurisdiction had been
Jurisdiction over the defendant is acquired either upon a valid
service of summons or the defendant's voluntary appearance in
court. When the defendant does not voluntarily submit to the
court's jurisdiction or when there is no valid service of
summons, any judgment of the court, which has no
jurisdiction over the person of the defendant is null and void.
In an action strictly in personam, personal service on the
defendant is the preferred mode of service, that is, by handing
a copy of the summons to the defendant in person.32
Citing the jurisdictional implications of the failure of service
of summons, the Court of Appeals concluded that no grave
abuse of discretion was committed by Judge Jacob in
nullifying the proceedings thus far conducted in the case based
on the finding that the summons had not been served on
respondent enterprise and that Agarao, despite being present at
the 15 September 2004 hearing, was not authorized to
represent respondent enterprise in said hearing.
Petitioners take exception. They argue that the trial court
acquired jurisdiction over respondent enterprise, an entity
without juridical personality, through the appearance of its
foreman, Agarao, at the 15 September 2004 hearing on the
TRO application. Petitioners theorize that the voluntary
appearance of Agarao in said hearing was equivalent to
service of summons binding upon respondent enterprise,
following by analogy, Section 8, Rule 1433 which allows the
service of summons on any of the defendants associated to an
entity without juridical personality. Furthermore, they contend
that the receipt by a certain Rona Adol of the court processes
was binding upon respondent enterprise because the latter did
not deny the authority of Adol to receive communications on
its behalf.
Petitioners' argument is untenable.

Hence, the instant petition attributes the following errors to the

Court of Appeals:

At the outset, it is worthy to note that both the Court of

Appeals and the trial court found that summons was not
served on respondent enterprise. The Officer's Return stated

essentially that the server failed to serve the summons on

respondent enterprise because it could not be found at the
address alleged in the petition. This factual finding, especially
when affirmed by the appellate court, is conclusive upon this
Court and should not be disturbed because this Court is not a
trier of facts.
A sole proprietorship does not possess a juridical personality
separate and distinct from the personality of the owner of the
enterprise. The law does not vest a separate legal personality
on the sole proprietorship or empower it to file or defend an
action in court.34Only natural or juridical persons or entities
authorized by law may be parties to a civil action and every
action must be prosecuted and defended in the name of the
real parties-in-interest.35
The records show that respondent enterprise, M.R. Vargas
Construction Co., is a sole proprietorship and, therefore, an
entity without juridical personality. Clearly, the real party-ininterest is Marcial R. Vargas who is the owner of the
enterprise. Thus, the petition for injunction should have
impleaded him as the party respondent either simply by
mention of his name or by denominating him as doing
business under the name and style of "M.R. Vargas
Construction Co." It was erroneous to refer to him, as the
petition did in both its caption and body, as representing the
enterprise. Petitioners apparently realized this procedural lapse
when in the petition for certiorari filed before the Court of
Appeals and in the instant petition, M.R. Vargas Construction,
Marcial R. Vargas and Renato Agaro were separately named
as individual respondents.
Since respondent enterprise is only a sole proprietorship, an
entity without juridical personality, the suit for injunction may
be instituted only against its owner, Marcial Vargas.
Accordingly summons should have been served on Vargas
himself, following Rule 14, Sections 636 and 737 of the Rules
of Court on personal service and substituted service. In the
instant case, no service of summons, whether personal or
substituted, was effected on Vargas. It is well-established that
summons upon a respondent or a defendant must be served by
handing a copy thereof to him in person or, if he refuses to
receive it, by tendering it to him. Personal service of summons
most effectively ensures that the notice desired under the
constitutional requirement of due process is accomplished. If
however efforts to find him personally would make prompt
service impossible, service may be completed by substituted
service, i.e., by leaving copies of the summons at his dwelling
house or residence with some person of suitable age and
discretion then residing therein or by leaving the copies at his
office or regular place of business with some competent
person in charge thereof.38
The modes of service of summons should be strictly followed
in order that the court may acquire jurisdiction over the
respondents, and failure to strictly comply with the
requirements of the rules regarding the order of its publication
is a fatal defect in the service of summons. It cannot be
overemphasized that the statutory requirements on service of
summons, whether personally, by substituted service or by
publication, must be followed strictly, faithfully and fully, and

any mode of service other than that prescribed by the statute is

considered ineffective.39
Agarao was not a party respondent in the injunction case
before the trial court. Certainly, he is not a real party-ininterest against whom the injunction suit may be brought,
absent any showing that he is also an owner or he acts as an
agent of respondent enterprise. Agarao is only a foreman,
bereft of any authority to defend the suit on behalf of
respondent enterprise. As earlier mentioned, the suit against an
entity without juridical personality like respondent enterprise
may be instituted only by or against its owner. Impleading
Agarao as a party-respondent in the suit for injunction would
have no legal consequence. In any event, the petition for
injunction described Agarao only as a representative of M.R.
Vargas Construction Co., which is a mere inconsequentiality
considering that only Vargas, as its sole owner, is authorized
by the Rules of Court to defend the suit on behalf of the
Despite Agarao's not being a party-respondent, petitioners
nevertheless confuse his presence or attendance at the hearing
on the application for TRO with the notion of voluntary
appearance, which interpretation has a legal nuance as far as
jurisdiction is concerned. While it is true that an appearance in
whatever form, without explicitly objecting to the jurisdiction
of the court over the person, is a submission to the jurisdiction
of the court over the person, the appearance must constitute a
positive act on the part of the litigant manifesting an intention
to submit to the court's jurisdiction.40 Thus, in the instances
where the Court upheld the jurisdiction of the trial court over
the person of the defendant, the parties showed the intention to
participate or be bound by the proceedings through the filing
of a motion, a plea or an answer.41
Neither is the service of the notice of hearing on the
application for a TRO on a certain Rona Adol binding on
respondent enterprise. The records show that Rona Adol
received the notice of hearing on behalf of an entity named
JCB. More importantly, for purposes of acquiring jurisdiction
over the person of the defendant, the Rules require the service
of summons and not of any other court processes.
Petitioners also contend that respondent enterprise waived the
defense of lack of jurisdiction when its counsel actively
demanded positive action on the omnibus motion. The
argument is implausible.
It should be noted that when the defendant's appearance is
made precisely to object to the jurisdiction of the court over
his person, it cannot be considered as appearance in
court.42 Such was the purpose of the omnibus motion, as
counsel for respondent enterprise precisely manifested therein
that he erroneously believed that Vargas himself had received
the summons when in fact it was petitioner Martinez who
signed as recipient of the summons. Noteworthy is the fact
that when the counsel first appeared in court his appearance
was "special" in character and was only for the purpose of
questioning the court's jurisdiction over Vargas, considering
that the latter never received the summons. However, the
counsel was shown a copy of the summons where a signature

appears at the bottom which led him to believe that the

summons was actually received by Vargas when in fact it was
petitioner Martinez himself who affixed his signature as
recipient thereof. When the counsel discovered his mistake, he
lost no time pleading that the proceedings be nullified and that
petitioners and the process server be cited for contempt of
court. Both the trial and appellate courts concluded that the
improvident withdrawal of the defense of lack of jurisdiction
was an innocuous error, proceeding on the undeniable fact that
the summons was not properly served on Vargas. Thus, the
Court of Appeals did not commit a reversible error when it
affirmed the trial court's nullification of the proceedings for
lack of jurisdiction.
for certiorari is DENIED. The Decision and Resolution of the
Court of Appeals in CA-G.R. SP No. 89001
are AFFIRMED in toto. Costs against petitioners.
The temporary restraining order issued in this case