1. LBC Express, Inc. vs. Court of Appeals, G.R. No.

108670, 236 SCRA 602 , September 21, 1994

G.R. No. 108670 September 21, 1994
LBC EXPRESS, INC., petitioner,
vs.
THE COURT OF APPEALS, ADOLFO M. CARLOTO, and RURAL BANK OF LABASON, INC., respondents.
Emmanuel D. Agustin for petitioner.
Bernardo P. Concha for private respondents.
PUNO, J.:
In this Petition for Review on Certiorari, petitioner LBC questions the decision 1 of respondent Court of Appeals affirming the
judgment of the Regional Trial Court of Dipolog City, Branch 8, awarding moral and exemplary damages, reimbursement of
P32,000.00, and costs of suit; but deleting the amount of attorney's fees.
Private respondent Adolfo Carloto, incumbent President-Manager of private respondent Rural Bank of Labason, alleged that on
November 12, 1984, he was in Cebu City transacting business with the Central Bank Regional Office. He was instructed to
proceed to Manila on or before November 21, 1984 to follow-up the Rural Bank's plan of payment of rediscounting obligations
with Central Bank's main office in Manila. 2 He then purchased a round trip plane ticket to Manila. He also phoned his sister
Elsie Carloto-Concha to send him ONE THOUSAND PESOS (P1,000.00) for his pocket money in going to Manila and some
rediscounting papers thru petitioner's LBC Office at Dipolog City. 3
On November 16, 1984, Mrs. Concha thru her clerk, Adelina Antigo consigned thru LBC Dipolog Branch the pertinent
documents and the sum of ONE THOUSAND PESOS (P1,000.00) to respondent Carloto at No. 2 Greyhound Subdivision,
Kinasangan, Pardo, Cebu City. This was evidenced by LBC Air Cargo, Inc., Cashpack Delivery Receipt No. 34805.
On November 17, 1984, the documents arrived without the cashpack. Respondent Carloto made personal follow-ups on that
same day, and also on November 19 and 20, 1984 at LBC's office in Cebu but petitioner failed to deliver to him the cashpack.
Consequently, respondent Carloto said he was compelled to go to Dipolog City on November 24, 1984 to claim the money at
LBC's office. His effort was once more in vain. On November 27, 1984, he went back to Cebu City at LBC's office. He was,
however, advised that the money has been returned to LBC's office in Dipolog City upon shipper's request. Again, he
demanded for the ONE THOUSAND PESOS (P1,000.00) and refund of FORTY-NINE PESOS (P49.00) LBC revenue charges.
He received the money only on December 15, 1984 less the revenue charges.
Respondent Carloto claimed that because of the delay in the transmittal of the cashpack, he failed to submit the rediscounting
documents to Central Bank on time. As a consequence, his rural bank was made to pay the Central Bank THIRTY-TWO
THOUSAND PESOS (P32,000.00) as penalty interest. 4 He allegedly suffered embarrassment and humiliation.
Petitioner LBC, on the other hand, alleged that the cashpack was forwarded via PAL to LBC Cebu City branch on November
22, 1984. 5 On the same day, it was delivered at respondent Carloto's residence at No. 2 Greyhound Subdivision, Kinasangan,
Pardo, Cebu City. However, he was not around to receive it. The delivery man served instead a claim notice to insure he would
personally receive the money. This was annotated on Cashpack Delivery Receipt No. 342805. Notwithstanding the said notice,
respondent Carloto did not claim the cashpack at LBC Cebu. On November 23, 1984, it was returned to the shipper, Elsie
Carloto-Concha at Dipolog City.
Claiming that petitioner LBC wantonly and recklessly disregarded its obligation, respondent Carloto instituted an action for
Damages Arising from Non-performance of Obligation docketed as Civil Case No. 3679 before the Regional Trial Court of
Dipolog City on January 4, 1985. On June 25, 1988, an amended complaint was filed where respondent rural bank joined as
one of the plaintiffs and prayed for the reimbursement of THIRTY-TWO THOUSAND PESOS (P32,000.00).
After hearing, the trial court rendered its decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Ordering the defendant LBC Air Cargo, Inc. to pay unto plaintiff Adolfo M. Carloto and Rural Bank of Labason, Inc., moral
damages in the amount of P10,000.00; exemplary damages in the amount of P5,000.00; attorney's fees in the amount of
P3,000.00 and litigation expenses of P1,000.00;
2. Sentencing defendant LBC Air Cargo, Inc., to reimburse plaintiff Rural Bank of Labason, Inc. the sum of P32,000.00 which
the latter paid as penalty interest to the Central Bank of the Philippines as penalty interest for failure to rediscount its due bills
on time arising from the defendant's failure to deliver the cashpack, with legal interest computed from the date of filing of this
case; and
3. Ordering defendant to pay the costs of these proceedings.
SO ORDERED. 6
On appeal, respondent court modified the judgment by deleting the award of attorney's fees. Petitioner's Motion for
Reconsideration was denied in a Resolution dated January 11, 1993.
Hence, this petition raising the following questions, to wit:
1. Whether or not respondent Rural Bank of Labason Inc., being an artificial person should be awarded moral damages.
2. Whether or not the award of THIRTY-TWO THOUSAND PESOS (P32,000.00) was made with grave abuse of discretion.

3. Whether or not the respondent Court of Appeals gravely abused its discretion in affirming the trial court's decision ordering
petitioner LBC to pay moral and exemplary damages despite performance of its obligation.
We find merit in the petition.
The respondent court erred in awarding moral damages to the Rural Bank of Labason, Inc., an artificial person.
Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. 7 A corporation, being an artificial person
and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience
physical suffering and mental anguish. 8 Mental suffering can be experienced only by one having a nervous system and it flows
from real ills, sorrows, and griefs of life 9 all of which cannot be suffered by respondent bank as an artificial person.
We can neither sustain the award of moral damages in favor of the private respondents. The right to recover moral damages is
based on equity. Moral damages are recoverable only if the case falls under Article 2219 of the Civil Code in relation to Article
21. 10 Part of conventional wisdom is that he who comes to court to demand equity, must come with clean hands.
In the case at bench, respondent Carloto is not without fault. He was fully aware that his rural bank's obligation would mature
on November 21, 1984 and his bank has set aside cash for these bills payable. 11 He was all set to go to Manila to settle this
obligation. He has received the documents necessary for the approval of their rediscounting application with the Central Bank.
He has also received the plane ticket to go to Manila. Nevertheless, he did not immediately proceed to Manila but instead
tarried for days allegedly claiming his ONE THOUSAND PESOS (P1,000.00) pocket money. Due to his delayed trip, he failed
to submit the rediscounting papers to the Central Bank on time and his bank was penalized THIRTY-TWO THOUSAND
PESOS (P32,000.00) for failure to pay its obligation on its due date. The undue importance given by respondent Carloto to his
ONE THOUSAND PESOS (P1,000.00) pocket money is inexplicable for it was not indispensable for him to follow up his
bank's rediscounting application with Central Bank. According to said respondent, he needed the money to "invite people for a
snack or dinner." 12 The attitude of said respondent speaks ill of his ways of business dealings and cannot be countenanced by
this Court. Verily, it will be revolting to our sense of ethics to use it as basis for awarding damages in favor of private
respondent Carloto and the Rural Bank of Labason, Inc.
We also hold that respondents failed to show that petitioner LBC's late delivery of the cashpack was motivated by personal
malice or bad faith, whether intentional or thru gross negligence. In fact, it was proved during the trial that the cashpack was
consigned on November 16, 1984, a Friday. It was sent to Cebu on November 19, 1984, the next business day. Considering this
circumstance, petitioner cannot be charged with gross neglect of duty. Bad faith under the law can not be presumed; it must be
established by clearer and convincing evidence. 13 Again, the unbroken jurisprudence is that in breach of contract cases where
the defendant is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable
consequences of the branch of the obligation which the parties had foreseen or could reasonable have foreseen. The damages,
however, will not include liability for moral damages. 14
Prescinding from these premises, the award of exemplary damages made by the respondent court would have no legal leg to
support itself. Under Article 2232 of the Civil Code, in a contractual or quasi-contractual relationship, exemplary damages may
be awarded only if the defendant had acted in "a wanton, fraudulent, reckless, oppressive, or malevolent manner." The
established facts of not so warrant the characterization of the action of petitioner LBC.
IN VIEW WHEREOF, the Decision of the respondent court dated September 30, 1992 is REVERSED and SET ASIDE; and
the Complaint in Civil Case No. 3679 is ordered DISMISSED. No costs.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Mendoza, JJ., concur.
#Footnotes
1 Herrera, Manuel, J., Ponente; Torres, Justo, and Gutierrez, Angelina, JJ., concurring.
2 Rollo, Court of Appeals Decision, p. 78.
3 Ibid.
4 Ibid., p. 79.
5 Ibid.
6 Rollo, pp. 127-128, penned by Regional Trial Court Judge Pelagio R. Lachica.
7 Civil Code, Article 2217.
8 Tamayo vs. University of Negros Occidental, 58 OG No. 37, p. 6023, September 10, 1962.
9 Supra., at p. 6032.
10 Garciano vs. Court of Appeals, G.R. No. 96126, August 10, 1992, 212 SCRA 436.
11 Rollo, p. 214.
12 Id., p. 216.
13 See People's Bank and Trust Co. vs. Syvel's Inc., No. L-29280, August 11, 1988, 164 SCRA 247.
14 See China Airlines Limited vs. Court of Appeals, G.R. No. 94590, July 29, 1992, 211 SCRA 897.

CIR vs CAMPOS RUEDA

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-13250

October 29, 1971

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
ANTONIO CAMPOS RUEDA, respondent.
Assistant Solicitor General Jose P. Alejandro and Special Attorney Jose G. Azurin, (O.S.G.) for petitioner.
Ramirez and Ortigas for respondent.

DECISION
FERNANDO, J.:
The basic issue posed by petitioner Collector of Internal Revenue in this appeal from a decision of the Court of Tax Appeals as
to whether or not the requisites of statehood, or at least so much thereof as may be necessary for the acquisition of an
international personality, must be satisfied for a foreign country to fall within the exemption of Section 122 of the National
Internal Revenue Code 1 is now ripe for adjudication(negotiation). The Court of Tax Appeals answered the question in the
negative, and thus reversed the action taken by petitioner Collector, who would hold respondent Antonio Campos Rueda, as
administrator of the estate of the late Estrella Soriano Vda. de Cerdeira, liable for the sum of P161,874.95 as deficiency(lack)
estate and inheritance taxes for the transfer of intangible personal properties in the Philippines, the deceased, a Spanish national
having been a resident of Tangier, Morocco from 1931 up to the time of her death in 1955. In an earlier resolution promulgated
May 30, 1962, this Court on the assumption that the need for resolving the principal question would be obviated, referred the
matter back to the Court of Tax Appeals to determine whether the alleged law of Tangier did grant the reciprocal tax exemption
required by the aforesaid Section 122. Then came an order from the Court of Tax Appeals submitting copies of legislation of
Tangier that would manifest (clear) that the element of reciprocity was not lacking. It was not until July 29, 1969 that the case
was deemed submitted for decision. When the petition for review was filed on January 2, 1958, the basic issue raised was
impressed(overcome) with an element of novelty. Four days thereafter, however, on January 6, 1958, it was held by this Court
that the aforesaid provision does not require that the foreign country possess an international personality to come within its
terms. 2 Accordingly, we have to affirm.
The decision of the Court of Tax Appeals, now under review, sets forth the background facts as follows: This is an appeal
interposed by petitioner Antonio Campos Rueda as administrator of the estate of the deceased Doa Maria de la Estrella
Soriano Vda. de Cerdeira, from the decision of the respondent Collector of Internal Revenue, assessing against and demanding
from the former the sum P161,874.95 as deficiency estate and inheritance taxes, including interest and penalties, on the transfer
of intangible personal properties situated in the Philippines and belonging to said Maria de la Estrella Soriano Vda. de
Cerdeira. Maria de la Estrella Soriano Vda. de Cerdeira (Maria Cerdeira for short) is a Spanish national, by reason of her
marriage to a Spanish citizen and was a resident of Tangier, Morocco from 1931 up to her death on January 2, 1955. At the time
of her demise she left, among others, intangible personal properties in the Philippines. 3 Then came this portion: On
September 29, 1955, petitioner filed a provisional estate and inheritance tax return on all the properties of the late Maria
Cerdeira. On the same date, respondent, pending investigation, issued an assessment for state and inheritance taxes in the

respective amounts of P111,592.48 and P157,791.48, or a total of P369,383.96 which tax liabilities were paid by petitioner .
On November 17, 1955, an amended return was filed wherein intangible personal properties with the value of P396,308.90
were claimed as exempted from taxes. On November 23, 1955, respondent, pending investigation, issued another assessment
for estate and inheritance taxes in the amounts of P202,262.40 and P267,402.84, respectively, or a total of P469,665.24 . In
a letter dated January 11, 1956, respondent denied the request for exemption on the ground that the law of Tangier is not
reciprocal to Section 122 of the National Internal Revenue Code. Hence, respondent demanded the payment of the sums of
P239,439.49 representing deficiency estate and inheritance taxes including ad valorem penalties, surcharges, interests and
compromise penalties . In a letter dated February 8, 1956, and received by respondent on the following day, petitioner
requested for the reconsideration of the decision denying the claim for tax exemption of the intangible personal properties and
the imposition of the 25% and 5% ad valorem penalties . However, respondent denied request, in his letter dated May 5,
1956 and received by petitioner on May 21, 1956. Respondent premised the denial on the grounds that there was no
reciprocity [with Tangier, which was moreover] a mere principality, not a foreign country. Consequently, respondent demanded
the payment of the sums of P73,851.21 and P88,023.74 respectively, or a total of P161,874.95 as deficiency estate and
inheritance taxes including surcharges, interests and compromise penalties. 4
The matter was then elevated to the Court of Tax Appeals. As there was no dispute between the parties regarding the values of
the properties and the mathematical correctness of the deficiency assessments, the principal question as noted dealt with the
reciprocity aspect as well as the insisting by the Collector of Internal Revenue that Tangier was not a foreign country within the
meaning of Section 122. In ruling against the contention of the Collector of Internal Revenue, the appealed decision states: In
fine, we believe, and so hold, that the expression foreign country, used in the last proviso of Section 122 of the National
Internal Revenue Code, refers to a government of that foreign power which, although not an international person in the sense of
international law, does not impose transfer or death upon intangible person properties of our citizens not residing therein, or
whose law allows a similar exemption from such taxes. It is, therefore, not necessary that Tangier should have been recognized
by our Government order to entitle the petitioner to the exemption benefits of the proviso of Section 122 of our Tax. Code. 5
Hence appeal to this court by petitioner. The respective briefs of the parties duly submitted, but as above indicated, instead of
ruling definitely on the question, this Court, on May 30, 1962, resolve to inquire further into the question of reciprocity and
sent back the case to the Court of Tax Appeals for the motion of evidence thereon. The dispositive portion of such resolution
reads as follows: While section 122 of the Philippine Tax Code aforequoted speaks of intangible personal property in both
subdivisions (a) and (b); the alleged laws of Tangier refer to bienes muebles situados en Tanger, bienes muebles radicantes
en Tanger, movables and movable property. In order that this Court may be able to determine whether the alleged laws of
Tangier grant the reciprocal tax exemptions required by Section 122 of the Tax Code, and without, for the time being, going
into the merits of the issues raised by the petitioner-appellant, the case is [remanded] to the Court of Tax Appeals for the
reception of evidence or proof on whether or not the words `bienes muebles, movables and movable properties as used in
the Tangier laws, include or embrace intangible person property, as used in the Tax Code. 6 In line with the above resolution,
the Court of Tax Appeals admitted evidence submitted by the administrator petitioner Antonio Campos Rueda, consisting of
exhibits of laws of Tangier to the effect that the transfers by reason of death of movable properties, corporeal or incorporeal,
including furniture and personal effects as well as of securities, bonds, shares, , were not subject, on that date and in said
zone, to the payment of any death tax, whatever might have been the nationality of the deceased or his heirs and legatees. It
was further noted in an order of such Court referring the matter back to us that such were duly admitted in evidence during the
hearing of the case on September 9, 1963. Respondent presented no evidence. 7
The controlling legal provision as noted is a proviso in Section 122 of the National Internal Revenue Code. It reads thus: That
no tax shall be collected under this Title in respect of intangible personal property (a) if the decedent at the time of his death
was a resident of a foreign country which at the time of his death did not impose a transfer tax or death tax of any character in
respect of intangible person property of the Philippines not residing in that foreign country, or (b) if the laws of the foreign
country of which the decedent was a resident at the time of his death allow a similar exemption from transfer taxes or death
taxes of every character in respect of intangible personal property owned by citizens of the Philippines not residing in that
foreign country. 8 The only obstacle therefore to a definitive ruling is whether or not as vigorously insisted upon by petitioner
the acquisition of internal personality is a condition sine qua non to Tangier being considered a foreign country. Deference to
the De Lara ruling, as was made clear in the opening paragraph of this opinion, calls for an affirmance of the decision of the
Court of Tax Appeals.

It does not admit of doubt that if a foreign country is to be identified with a state, it is required in line with Pounds formulation
that it be a politically organized sovereign community independent of outside control bound by penalties of nationhood, legally
supreme within its territory, acting through a government functioning under a regime of law. 9 It is thus a sovereign person with
the people composing it viewed as an organized corporate society under a government with the legal competence to exact
obedience to its commands. 10 It has been referred to as a body-politic organized by common consent for mutual defense and
mutual safety and to promote the general welfare. 11 Correctly has it been described by Esmein as the juridical personification
of the nation. 12 This is to view it in the light of its historical development. The stress is on its being a nation, its people
occupying a definite territory, politically organized, exercising by means of its government its sovereign will over the
individuals within it and maintaining its separate international personality. Laski could speak of it then as a territorial society
divided into government and subjects, claiming within its allotted area a supremacy over all other institutions. 13 McIver
similarly would point to the power entrusted to its government to maintain within its territory the conditions of a legal order
and to enter into international relations. 14 With the latter requisite satisfied, international law do not exact independence as a
condition of statehood. So Hyde did opine. 15
Even on the assumption then that Tangier is bereft of international personality, petitioner has not successfully made out a case.
It bears repeating that four days after the filing of this petition on January 6, 1958 in Collector of Internal Revenue v. De
Lara, 16 it was specifically held by us: Considering the State of California as a foreign country in relation to section 122 of our
Tax Code we believe and hold, as did the Tax Court, that the Ancillary Administrator is entitled the exemption from the
inheritance tax on the intangible personal property found in the Philippines. 17 There can be no doubt that California as a state
in the American Union was in the alleged requisite of international personality. Nonetheless, it was held to be a foreign country
within the meaning of Section 122 of the National Internal Revenue Code. 18
What is undeniable is that even prior to the De Lara ruling, this Court did commit itself to the doctrine that even a tiny
principality, that of Liechtenstein, hardly an international personality in the sense, did fall under this exempt category. So it
appears in an opinion of the Court by the then Acting Chief Justice Bengson who thereafter assumed that position in a
permanent capacity, in Kiene v. Collector of Internal Revenue. 19 As was therein noted: The Board found from the documents
submitted to it proof of the laws of Liechtenstein that said country does not impose estate, inheritance and gift taxes on
intangible property of Filipino citizens not residing in that country. Wherefore, the Board declared that pursuant to the
exemption above established, no estate or inheritance taxes were collectible, Ludwig Kiene being a resident of Liechtenstein
when he passed away. 20 Then came this definitive ruling: The Collector hereafter named the respondent cites decisions
of the United States Supreme Court and of this Court, holding that intangible personal property in the Philippines belonging to
a non-resident foreigner, who died outside of this country is subject to the estate tax, in disregard of the principle mobilia
sequuntur personam. Such property is admittedly taxable here. Without the proviso above quoted, the shares of stock owned
here by the Ludwig Kiene would be concededly subject to estate and inheritance taxes. Nevertheless our Congress chose to
make an exemption where conditions are such that demand reciprocity as in this case. And the exemption must be
honored. 21
WHEREFORE, the decision of the respondent Court of Tax Appeals of October 30, 1957 is AFFIRMED. Without
pronouncement as to costs.
Concepcion, C.J., Makalintal, Zaldivar, Castro, Villamor and Makasiar, JJ., concur.
Reyes, J.B.L., J., concurs in the result.
Teehankee and Barredo, JJ., took no part.

4. G.R. No. 22619, National Coal Company v. Collector of Internal Revenue, 46 Phil. 583
Republic of the Philippines
SUPREME COURT
Manila

EN BANC
December 2, 1924
G.R. No. 22619
NATIONAL COAL COMPANY, plaintiff-appellee,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellant.
Attorney-General Villa-Real for appellant.
Perfecto J. Salas Rodriguez for appellee.

JOHNSON, J.:
This action was brought in the Court of First Instance of the City of Manila on the 17th day of July, 1923, for the purpose of
recovering the sum of P12,044.68, alleged to have been paid under protest by the plaintiff company to the defendant, as
specific tax on 24,089.3 tons of coal. Said company is a corporation created by Act No. 2705 of the Philippine Legislature for
the purpose of developing the coal industry in the Philippine Islands and is actually engaged in coal mining on reserved lands
belonging to the Government. It claimed exemption from taxes under the provision of sections 14 and 15 of Act No. 2719, and
prayed for a judgment ordering the defendant to refund to the plaintiff said sum of P12,044.68, with legal interest from the date
of the presentation of the complaint, and costs against the defendant.
The defendant answered denying generally and specifically all the material allegations of the complaint, except the legal
existence and personality of the plaintiff. As a special defense, the defendant alleged (a) that the sum of P12,044.68 was paid
by the plaintiff without protests, and (b) that said sum was due and owing from the plaintiff to the Government of the
Philippine Islands under the provisions of section 1496 of the Administrative Code and prayed that the complaint be dismissed,
with costs against the plaintiff.
Upon the issue thus presented, the case was brought on for trial. After a consideration of the evidence adduced by both parties,
the Honorable Pedro Conception, judge, held that the words "lands owned by any person, etc.," in section 15 of Act No.
2719 should be understood to mean "lands held in lease or usufruct," in harmony with the other provision of said Act; that the
coal lands possessed by the plaintiff, belonging to the Government, fell within the provisions of section 15 of Act No. 2719;
and that a tax of P0.04 per ton of 1,016 kilos on each ton of coal extracted therefrom, as provided in said section, was the only
tax which should be collected from the plaintiff; and sentenced the defendant to refund to the plaintiff the sum of P11,081.11
which is the difference between the amount collected under section 1496 of the Administrative Code and the amount which
should have been collected under the provisions of said section 15 ofAct No. 2719. From that sentence the defendant appealed,
and now makes the following assignments of error:
I. The court below erred in holding that section 15 of Act No. 2719 does not refer to coal lands owned by persons and
corporations.
II. The court below erred in holding that the plaintiff was not subject to the tax prescribed in section 1496 of the Administrative
Code.
The question confronting us in this appeal is whether the plaintiff is subject to the taxes under section 15 of Act No. 2719, or to
the specific taxes under section 1496 of the Administrative Code.
The plaintiff corporation was created on the 10th day of March, 1917, by Act No. 2705, for the purpose of developing the coal
industry in the Philippine Island, in harmony with the general plan of the Government to encourage the development of the
natural resources of the country, and to provided facilities therefor. By said Act, the company was granted the general powers

of a corporation "and such other powers as may be necessary to enable it to prosecute the business of developing coal deposits
in the Philippine Island and of mining, extracting, transporting and selling the coal contained in said deposits." (Sec. 2, Act No.
2705.) By the same law (Act No. 2705) the Government of the Philippine Islands is made the majority stockholder, evidently in
order to insure proper government supervision and control, and thus to place the Government in a position to render all possible
encouragement, assistance and help in the prosecution and furtherance of the company's business.
On May 14, 1917, two months after the passage of Act No. 2705, creating the National Coal Company, the Philippine
Legislature passed Act No. 2719 "to provide for theleasing and development of coal lands in the Philippine Islands." On
October 18, 1917, upon petition of the National Coal Company, the Governor-General, by Proclamation No. 39, withdrew
"from settlement, entry, sale or other disposition, all coal-bearing public lands within the Province of Zamboanga, Department
of Mindanao and Sulu, and the Island of Polillo, Province of Tayabas." Almost immediately after the issuance of said
proclamation the National Coal Company took possession of the coal lands within the said reservation, with an area of about
400 hectares, without any further formality, contract or lease. Of the 30,000 shares of stock issued by the company, the
Government of the Philippine Islands is the owner of 29,809 shares, that is, of 99 1/3 per centum of the whole capital stock.
If we understand the theory of the plaintiff-appellee, it is, that it claims to be the owner of the land from which it has mined the
coal in question and is therefore subject to the provisions of section 15 of Act No. 2719 and not to the provisions of the section
1496 of the Administrative Code. That contention of the plaintiff leads us to an examination of the evidence upon the question
of the ownership of the land from which the coal in question was mined. Was the plaintiff the owner of the land from which the
coal in question was mined? If the evidence shows the affirmative, then the judgment should be affirmed. If the evidence shows
that the land does not belong to the plaintiff, then the judgment should be reversed, unless the plaintiff's rights fall under
section 3 of said Act.
The only witness presented by the plaintiff upon the question of the ownership of the land in question was Mr. Dalmacio
Costas, who stated that he was a member of the board of directors of the plaintiff corporation; that the plaintiff corporation took
possession of the land in question by virtue of the proclamation of the Governor-General, known as Proclamation No. 39 of the
year 1917; that no document had been issued in favor of the plaintiff corporation; that said corporation had received no
permission from the Secretary of Agriculture and Natural Resources; that it took possession of said lands covering an area of
about 400 hectares, from which the coal in question was mined, solely, by virtue of said proclamation (Exhibit B, No. 39).
Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then Governor-General, on the 18th day of October,
1917, and provided: "Pursuant to the provision of section 71 of Act No. 926, I hereby withdraw from settlement, entry, sale, or
other disposition, all coal-bearing public lands within the Province of Zamboanga, Department of Mindanao and Sulu, and the
Island of Polillo, Province of Tayabas." It will be noted that said proclamation only provided that all coal-bearing public lands
within said province and island should be withdrawn from settlement, entry, sale, or other disposition. There is nothing in said
proclamation which authorizes the plaintiff or any other person to enter upon said reversations and to mine coal, and no
provision of law has been called to our attention, by virtue of which the plaintiff was entitled to enter upon any of the lands so
reserved by said proclamation without first obtaining permission therefor.
The plaintiff is a private corporation. The mere fact that the Government happens to the majority stockholder does not make it a
public corporation. Act No. 2705, as amended by Act No. 2822, makes it subject to all of the provisions of the Corporation
Law, in so far as they are not inconsistent with said Act (No. 2705). No provisions of Act No. 2705 are found to be inconsistent
with the provisions of the Corporation Law. As a private corporation, it has no greater rights, powers or privileges than any
other corporation which might be organized for the same purpose under the Corporation Law, and certainly it was not the
intention of the Legislature to give it a preference or right or privilege over other legitimate private corporations in the mining
of coal. While it is true that said proclamation No. 39 withdrew "from settlement, entry, sale, or other disposition of coalbearing public lands within the Province of Zamboanga . . . and the Island of Polillo," it made no provision for the occupation
and operation by the plaintiff, to the exclusion of other persons or corporations who might, under proper permission, enter upon
the operate coal mines.
On the 14th day of May, 1917, and before the issuance of said proclamation, the Legislature of the Philippine Island in "an Act
for the leasing and development of coal lands in the Philippine Islands" (Act No. 2719), made liberal provision. Section 1 of

said Act provides: "Coal-bearing lands of the public domain in the Philippine Island shall not be disposed of in any manner
except as provided in this Act," thereby giving a clear indication that no "coal-bearing lands of the public domain" had been
disposed of by virtue of said proclamation.
Neither is there any provision in Act No. 2705 creating the National Coal Company, nor in the amendments thereof found in
Act No. 2822, which authorizes the National Coal Company to enter upon any of the reserved coal lands without first having
obtained permission from the Secretary of Agriculture and Natural Resources.
The following propositions are fully sustained by the facts and the law:
(1) The National Coal Company is an ordinary private corporation organized under Act No. 2705, and has no greater powers
nor privileges than the ordinary private corporation, except those mentioned, perhaps, in section 10 of Act No. 2719, and they
do not change the situation here.
(2) It mined on public lands between the month of July, 1920, and the months of March, 1922, 24,089.3 tons of coal.
(3) Upon demand of the Collector of Internal Revenue it paid a tax of P0.50 a ton, as taxes under the provisions of article 1946
of the Administrative Code on the 15th day of December, 1922.
(4) It is admitted that it is neither the owner nor the lessee of the lands upon which said coal was mined.
(5) The proclamation of Francis Burton Harrison, Governor-General, of the 18th day of October, 1917, by authority of section
1 of Act No. 926, withdrawing from settlement, entry, sale, or other dispositon all coal-bearing public lands within the Province
of Zamboanga and the Island of Polillo, was not a reservation for the benefit of the National Coal Company, but for any person
or corporation of the Philippine Islands or of the United States.
(6) That the National Coal Company entered upon said land and mined said coal, so far as the record shows, without any lease
or other authority from either the Secretary of Agriculture and Natural Resources or any person having the power to grant a
leave or authority.
From all of the foregoing facts we find that the issue is well defined between the plaintiff and the defendant. The plaintiff
contends that it was liable only to pay the internal revenue and other fees and taxes provided for under section 15 of Act No.
2719; while the defendant contends, under the facts of record, the plaintiff is obliged to pay the internal revenue duty provided
for in section 1496 of the Administrative Code. That being the issue, an examination of the provisions of Act No.
2719 becomes necessary.
An examination of said Act (No. 2719) discloses the following facts important for consideration here:
First. All "coal-bearing lands of the public domain in the Philippine Islands shall not be disposed of in any manner except as
provided in this Act." Second. Provisions for leasing by the Secretary of Agriculture and Natural Resources of "unreserved,
unappropriated coal-bearing public lands," and the obligation to the Government which shall be imposed by said Secretary
upon the lessee.
Third. The internal revenue duty and tax which must be paid upon coal-bearing lands owned by any person, firm, association or
corporation.
To repeat, it will be noted, first, that Act No. 2719 provides an internal revenue duty and tax upon unreserved, unappropriated
coal-bearing public lands which may be leased by the Secretary of Agriculture and Natural Resources; and, second, that said
Act (No. 2719) provides an internal revenue duty and tax imposed upon any person, firm, association or corporation, who may
be the owner of "coal-bearing lands." A reading of said Act clearly shows that the tax imposed thereby is imposed upon two
classes of persons only lessees and owners.

The lower court had some trouble in determining what was the correct interpretation of section 15 of said Act, by reason of
what he believed to be some difference in the interpretation of the language used in Spanish and English. While there is some
ground for confusion in the use of the language in Spanish and English, we are persuaded, considering all the provisions of said
Act, that said section 15 has reference only to persons, firms, associations or corporations which had already, prior to the
existence of said Act, become the owners of coal lands. Section 15 cannot certainty refer to "holders or lessees of coal lands'
for the reason that practically all of the other provisions of said Act has reference to lessees or holders. If section 15 means that
the persons, firms, associations, or corporation mentioned therein are holders or lessees of coal lands only, it is difficult to
understand why the internal revenue duty and tax in said section was made different from the obligations mentioned in section
3 of said Act, imposed upon lessees or holders.
From all of the foregoing, it seems to be made plain that the plaintiff is neither a lessee nor an owner of coal-bearing lands, and
is, therefore, not subject to any other provisions of Act No. 2719. But, is the plaintiff subject to the provisions of section 1496
of the Administrative Code?
Section 1496 of the Administrative Code provides that "on all coal and coke there shall be collected, per metric ton, fifty
centavos." Said section (1496) is a part of article, 6 which provides for specific taxes. Said article provides for a specific
internal revenue tax upon all things manufactured or produced in the Philippine Islands for domestic sale or consumption, and
upon things imported from the United States or foreign countries. It having been demonstrated that the plaintiff has produced
coal in the Philippine Islands and is not a lessee or owner of the land from which the coal was produced, we are clearly of the
opinion, and so hold, that it is subject to pay the internal revenue tax under the provisions of section 1496 of the Administrative
Code, and is not subject to the payment of the internal revenue tax under section 15 of Act No. 2719, nor to any other
provisions of said Act.
Therefore, the judgment appealed from is hereby revoked, and the defendant is hereby relieved from all responsibility under
the complaint. And, without any finding as to costs, it is so ordered.
Street, Malcolm, Avancea, Villamor, Ostrand and Romualdez, JJ., concur.

G.R. No. 41570, Red Line Transportation Co. v. Rural Transit Co., 60 Phil. 549
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
September 6, 1934
G.R. No. 41570
RED LINE TRANSPORTATION CO., petitioner-appellant,
vs.
RURAL TRANSIT CO., LTD., respondent-appellee.
L. D. Lockwood for appellant.
Ohnick and Opisso for appellee.
BUTTE, J.:
This case is before us on a petition for review of an order of the Public Service Commission entered December 21, 1932,
granting to the Rural Transit Company, Ltd., a certificate of public convenience to operate a transportation service between

Ilagan in the Province of Isabela and Tuguegarao in the Province of Cagayan, and additional trips in its existing express service
between Manila Tuguegarao.
On June 4, 1932, the Rural Transit Company, Ltd., a Philippine corporation, filed with the Public Company Service
Commission an application in which it is stated in substance that it is the holder of a certificate or public convenience to
operate a passenger bus service between Manila and Tuguegarao; that it is the only operator of direct service between said
points and the present authorized schedule of only one trip daily is not sufficient; that it will be also to the public convenience
to grant the applicant a certificate for a new service between Tuguegarao and Ilagan.
On July 22, 1932, the appellant, Red Line Transportation Company, filed an opposition to the said application alleging in
substance that as to the service between Tuguegarao and Ilagan, the oppositor already holds a certificate of public convenience
and is rendering adequate and satisfactory service; that the granting of the application of the Rural Transit Company, Ltd.,
would not serve public convenience but would constitute a ruinous competition for the oppositor over said route.
After testimony was taken, the commission, on December 21, 1932, approved the application of the Rural Transit Company,
Ltd., and ordered that the certificate of public convenience applied for be "issued to the applicant Rural Transit Company,
Ltd.," with the condition, among others, that "all the other terms and conditions of the various certificates of public
convenience of the herein applicant and herein incorporated are made a part hereof."
On January 14, 1933, the oppositor Red Line Transportation Company filed a motion for rehearing and reconsideration in
which it called the commission's attention to the fact that there was pending in the Court of First Instance of Manila case N.
42343, an application for the voluntary dissolution of the corporation, Rural Transit Company, Ltd. Said motion for
reconsideration was set down for hearing on March 24, 1933. On March 23, 1933, the Rural Transit Company, Ltd., the
applicant, filed a motion for postponement. This motion was verified by M. Olsen who swears "that he was the secretary of the
Rural Transit Company, Ltd., in the above entitled case." Upon the hearing of the motion for reconsideration, the commission
admitted without objection the following documents filed in said case No. 42343 in the Court of First Instance of Manila for
the dissolution of the Rural Transit Company, Ltd. the petition for dissolution dated July 6, 1932, the decision of the said Court
of First Instance of Manila, dated February 28, 1933, decreeing the dissolution of the Rural Transit Company, Ltd.
At the trial of this case before the Public Service Commission an issue was raised as to who was the real party in interest
making the application, whether the Rural Transit Company, Ltd., as appeared on the face of the application, or the Bachrach
Motor Company, Inc., using name of the Rural Transit Company, Ltd., as a trade name. The evidence given by the applicant's
secretary, Olsen, is certainly very dubious and confusing, as may be seen from the following:
Q.
Will you please answer the question whether it is the Bachrach Motor Company operating under the trade name of
the Rural Transit Company, Limited, or whether it is the Rural Transit Company, Limited in its own name this application was
filed?
A.

The Bachrach Motor Company is the principal stockholder.

Q.

Please answer the question.

ESPELETA. Objecion porque la pregunta ya ha sido contestada.

JUEZ. Puede contestar.
A.

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

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

It is the Rural Transit Company, Ltd.

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

A.

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

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

Yes, sir.

JUDGE. Who is that operator?

A.

The Rural Transit Company, Ltd.

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

A.

I cannot say.

ESPELETA. The Rural Transit Company, Ltd., is a corporation duly established in accordance with the laws of the Philippine
Islands.
JUDGE. According to the records of this commission the Bachrach Motor Company is the owner of the certificates and the
Rural Transit Company, Ltd., is operating without any certificate.
JUDGE. If you filed this application for the Rural Transit Company, Ltd., and afterwards it is found out that the Rural Transit
Company, Ltd., is not an operator, everything will be turned down.
JUDGE. My question was, when you filed this application you evidently made it for the operator?
A.

Yes, sir.

JUDGE. Who was that operator you had in mind?

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

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

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

Yes, sir.

LOCKWOOD. I move that this case be dismissed, your Honor, on the ground that this application was made in the name of
one party but the real owner is another party.
ESPELETA. We object to that petition.
JUDGE. I will have that in mind when I decide the case. If I agree with you everything would be finished.
The Bachrach Motor Company, Inc., entered no appearance and ostensibly took no part in the hearing of the application of the
Rural Transit Company, Ltd. It may be a matter of some surprise that the commission did not on its own motion order the
amendment of the application by substituting the Bachrach Motor Company, Inc., as the applicant. However, the hearing
proceeded on the application as filed and the decision of December 2, 1932, was rendered in favor of the Rural Transit
Company, Ltd., and the certificate ordered to be issued in its name, in the face of the evidence that the said corporation was not

the real party in interest. In its said decision, the commission undertook to meet the objection by referring to its resolution of
November 26, 1932, entered in another case. This resolution in case No. 23217 concludes as follows:
Premises considered we hereby authorize the Bachrach Motor Co., Inc., to continue using the name of "Rural Transit Co.,
Ltd.," as its trade name in all the applications, motions or other petitions to be filed in this commission in connection with said
business and that this authority is given retroactive effect as of the date, of filing of the application in this case, to wit, April 29,
1930.
We know of no law that empowers the Public Service Commission or any court in this jurisdiction to authorize one corporation
to assume the name of another corporation as a trade name. Both the Rural Transit Company, Ltd., and the Bachrach Motor
Co., Inc., are Philippine corporations and the very law of their creation and continued existence requires each to adopt and
certify a distinctive name. The incorporators "constitute a body politic and corporate under the name stated in the certificate."
(Section 11, Act No. 1459, as amended.) A corporation has the power "of succession by its corporate name." (Section 13, ibid.)
The name of a corporation is therefore essential to its existence. It cannot change its name except in the manner provided by the
statute. By that name alone is it authorized to transact business. The law gives a corporation no express or implied authority to
assume another name that is unappropriated: still less that of another corporation, which is expressly set apart for it and
protected by the law. If any corporation could assume at pleasure as an unregistered trade name the name of another
corporation, this practice would result in confusion and open the door to frauds and evasions and difficulties of administration
and supervision. The policy of the law expressed in our corporation statute and the Code of Commerce is clearly against such a
practice. (Cf. Scarsdale Pub. Co. Colonial Press vs. Carter, 116 New York Supplement, 731; Svenska Nat. F. i. C. vs. Swedish
Nat. Assn., 205 Illinois [Appellate Courts], 428, 434.)
The order of the commission of November 26, 1932, authorizing the Bachrach Motor Co., Incorporated, to assume the name of
the Rural Transit Co., Ltd. likewise in corporated, as its trade name being void, and accepting the order of December 21, 1932,
at its face as granting a certificate of public convenience to the applicant Rural Transit Co., Ltd., the said order last mentioned
is set aside and vacated on the ground that the Rural Transit Company, Ltd., is not the real party in interest and its application
was fictitious.
In view of the dissolution of the Rural Transit Company, Ltd. by judicial decree of February 28, 1933, we do not see how we
can assess costs against said respondent, Rural Transit Company, Ltd.
Malcolm, Villa-Real, Imperial and Goddard, JJ., concur.

CASE DIGEST: Universal Mills Corporation vs. Universal Textile Mills

78 SCRA 62 (1977)
FACTS:
This is an appeal from the order of the Securities and Exchange Commission granting a petition by the respondent to have the
petitioners corporate name be changed as it is confusingly and deceptively similar to that of the former.
On January 8, 1954, respondent Universal Textile Mills was issued a certificate of Corporation as a textile manufacturing firm.
On the other hand, petitioner, which deals in the production of hosieries and apparels, acquired its current name by amending
its articles of incorporation, changing its name from Universal Hosiery mills Corporation to Universal Mills corporation.
ISSUE:
Whether or not petioners trade name is confusingly similar with that of respondents.
HELD:
Yes. The corporate names in question are not identical, but they are indisputably so similar that even under the test of

reasonable care and observation as the public generally are capable of using and may be expected to exercise invoked by
appellant. We are apprehensive confusion will usually arise, considering that x x x appellant included among its primary
purposes the manufacturing, dyeing, finishing and selling of fabrics of all kinds which respondent had been engaged for more
than a decade ahead of petitioner.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 101897. March 5, 1993.

LYCEUM OF THE PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS, LYCEUM OF APARRI, LYCEUM OF
CABAGAN, LYCEUM OF CAMALANIUGAN, INC., LYCEUM OF LALLO, INC., LYCEUM OF TUAO, INC., BUHI
LYCEUM, CENTRAL LYCEUM OF CATANDUANES, LYCEUM OF SOUTHERN PHILIPPINES, LYCEUM OF
EASTERN MINDANAO, INC. and WESTERN PANGASINAN LYCEUM, INC., respondents.
Quisumbing, Torres & Evangelista Law Offices and Ambrosio Padilla for petitioner.
Antonio M. Nuyles and Purungan, Chato, Chato, Tarriela & Tan Law Offices for respondents.
Froilan Siobal for Western Pangasinan Lyceum.
SYLLABUS
1. CORPORATION LAW; CORPORATE NAMES; REGISTRATION OF PROPOSED NAME WHICH IS IDENTICAL OR
CONFUSINGLY SIMILAR TO THAT OF ANY EXISTING CORPORATION, PROHIBITED; CONFUSION AND
DECEPTION EFFECTIVELY PRECLUDED BY THE APPENDING OF GEOGRAPHIC NAMES TO THE WORD
"LYCEUM". The Articles of Incorporation of a corporation must, among other things, set out the name of the corporation.
Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate names are concerned: "Section 18.
Corporate name. No corporate name may be allowed by the Securities an Exchange Commission if the proposed name is
identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law
or is patently deceptive, confusing or contrary to existing laws. When a change in the corporate name is approved, the
Commission shall issue an amended certificate of incorporation under the amended name." The policy underlying the
prohibition in Section 18 against the registration of a corporate name which is "identical or deceptively or confusingly similar"
to that of any existing corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing laws," is the
avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the evasion of legal
obligations and duties, and the reduction of difficulties of administration and supervision over corporations. We do not consider
that the corporate names of private respondent institutions are "identical with, or deceptively or confusingly similar" to that of
the petitioner institution. True enough, the corporate names of private respondent entities all carry the word "Lyceum" but
confusion and deception are effectively precluded by the appending of geographic names to the word "Lyceum." Thus, we do
not believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the Philippines, or that the
"Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines.
2. ID.; ID.; DOCTRINE OF SECONDARY MEANING; USE OF WORD "LYCEUM," NOT ATTENDED WITH
EXCLUSIVITY. It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning in relation
to petitioner with the result that word, although originally a generic, has become appropriable by petitioner to the exclusion of
other institutions like private respondents herein. The doctrine of secondary meaning originated in the field of trademark law.
Its application has, however, been extended to corporate names sine the right to use a corporate name to the exclusion of others
is based upon the same principle which underlies the right to use a particular trademark or tradename. In Philippine Nut
Industry, Inc. v. Standard Brands, Inc., the doctrine of secondary meaning was elaborated in the following terms: " . . . a word
or phrase originally incapable of exclusive appropriation with reference to an article on the market, because geographically or

otherwise descriptive, might nevertheless have been used so long and so exclusively by one producer with reference to his
article that, in that trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was
his product." The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name
has been for such length of time and with such exclusivity as to have become associated or identified with the petitioner
institution in the mind of the general public (or at least that portion of the general public which has to do with schools). The
Court of Appeals recognized this issue and answered it in the negative: "Under the doctrine of secondary meaning, a word or
phrase originally incapable of exclusive appropriation with reference to an article in the market, because geographical or
otherwise descriptive might nevertheless have been used so long and so exclusively by one producer with reference to this
article that, in that trade and to that group of the purchasing public, the word or phrase has come to mean that the article was his
produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been referred to as the distinctiveness into which
the name or phrase has evolved through the substantial and exclusive use of the same for a considerable period of time. . . . No
evidence was ever presented in the hearing before the Commission which sufficiently proved that the word 'Lyceum' has indeed
acquired secondary meaning in favor of the appellant. If there was any of this kind, the same tend to prove only that the
appellant had been using the disputed word for a long period of time. . . . In other words, while the appellant may have proved
that it had been using the word 'Lyceum' for a long period of time, this fact alone did not amount to mean that the said word
had acquired secondary meaning in its favor because the appellant failed to prove that it had been using the same word all by
itself to the exclusion of others. More so, there was no evidence presented to prove that confusion will surely arise if the same
word were to be used by other educational institutions. Consequently, the allegations of the appellant in its first two assigned
errors must necessarily fail." We agree with the Court of Appeals. The number alone of the private respondents in the case at
bar suggests strongly that petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for
applicability of the doctrine of secondary meaning. Petitioner's use of the word "Lyceum" was not exclusive but was in truth
shared with the Western Pangasinan Lyceum and a little later with other private respondent institutions which registered with
the SEC using "Lyceum" as part of their corporation names. There may well be other schools using Lyceum or Liceo in their
names, but not registered with the SEC because they have not adopted the corporate form of organization.
3. ID.; ID.; MUST BE EVALUATED IN THEIR ENTIRETY TO DETERMINE WHETHER THEY ARE CONFUSINGLY
OR DECEPTIVELY SIMILAR TO ANOTHER CORPORATE ENTITY'S NAME. petitioner institution is not entitled to a
legally enforceable exclusive right to use the word "Lyceum" in its corporate name and that other institutions may use
"Lyceum" as part of their corporate names. To determine whether a given corporate name is "identical" or "confusingly or
deceptively similar" with another entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in
both names. One must evaluate corporate names in their entirety and when the name of petitioner is juxtaposed with the names
of private respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other.
DECISION
FELICIANO, J p:
Petitioner is an educational institution duly registered with the Securities and Exchange Commission ("SEC"). When it first
registered with the SEC on 21 September 1950, it used the corporate name Lyceum of the Philippines, Inc. and has used that
name ever since.
On 24 February 1984, petitioner instituted proceedings before the SEC to compel the private respondents, which are also
educational institutions, to delete the word "Lyceum" from their corporate names and permanently to enjoin them from using
"Lyceum" as part of their respective names.
Some of the private respondents actively participated in the proceedings before the SEC. These are the following, the dates of
their original SEC registration being set out below opposite their respective names:
Western Pangasinan Lyceum 27 October 1950
Lyceum of Cabagan 31 October 1962
Lyceum of Lallo, Inc. 26 March 1972
Lyceum of Aparri 28 March 1972
Lyceum of Tuao, Inc. 28 March 1972

Lyceum of Camalaniugan 28 March 1972

The following private respondents were declared in default for failure to file an answer despite service of summons:
Buhi Lyceum;
Central Lyceum of Catanduanes;
Lyceum of Eastern Mindanao, Inc.; and
Lyceum of Southern Philippines
Petitioner's original complaint before the SEC had included three (3) other entities:
1. The Lyceum of Malacanay;
2. The Lyceum of Marbel; and
3. The Lyceum of Araullo
The complaint was later withdrawn insofar as concerned the Lyceum of Malacanay and the Lyceum of Marbel, for failure to
serve summons upon these two (2) entities. The case against the Liceum of Araullo was dismissed when that school motu
proprio change its corporate name to "Pamantasan ng Araullo."
The background of the case at bar needs some recounting. Petitioner had sometime before commenced in the SEC a proceeding
(SEC-Case No. 1241) against the Lyceum of Baguio, Inc. to require it to change its corporate name and to adopt another name
not "similar [to] or identical" with that of petitioner. In an Order dated 20 April 1977, Associate Commissioner Julio Sulit held
that the corporate name of petitioner and that of the Lyceum of Baguio, Inc. were substantially identical because of the
presence of a "dominant" word, i.e., "Lyceum," the name of the geographical location of the campus being the only word which
distinguished one from the other corporate name. The SEC also noted that petitioner had registered as a corporation ahead of
the Lyceum of Baguio, Inc. in point of time, 1 and ordered the latter to change its name to another name "not similar or
identical [with]" the names of previously registered entities.
The Lyceum of Baguio, Inc. assailed the Order of the SEC before the Supreme Court in a case docketed as G.R. No. L-46595.
In a Minute Resolution dated 14 September 1977, the Court denied the Petition for Review for lack of merit. Entry of judgment
in that case was made on 21 October 1977. 2
Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote all the educational institutions it could find
using the word "Lyceum" as part of their corporate name, and advised them to discontinue such use of "Lyceum." When, with
the passage of time, it became clear that this recourse had failed, petitioner instituted before the SEC SEC-Case No. 2579 to
enforce what petitioner claims as its proprietary right to the word "Lyceum." The SEC hearing officer rendered a decision
sustaining petitioner's claim to an exclusive right to use the word "Lyceum." The hearing officer relied upon the SEC ruling in
the Lyceum of Baguio, Inc. case (SEC-Case No. 1241) and held that the word "Lyceum" was capable of appropriation and that
petitioner had acquired an enforceable exclusive right to the use of that word.
On appeal, however, by private respondents to the SEC En Banc, the decision of the hearing officer was reversed and set aside.
The SEC En Banc did not consider the word "Lyceum" to have become so identified with petitioner as to render use thereof by
other institutions as productive of confusion about the identity of the schools concerned in the mind of the general public.
Unlike its hearing officer, the SEC En Banc held that the attaching of geographical names to the word "Lyceum" served
sufficiently to distinguish the schools from one another, especially in view of the fact that the campuses of petitioner and those
of the private respondents were physically quite remote from each other. 3
Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28 June 1991, however, the Court of Appeals
affirmed the questioned Orders of the SEC En Banc. 4 Petitioner filed a motion for reconsideration, without success.
Before this Court, petitioner asserts that the Court of Appeals committed the following errors:

1. The Court of Appeals erred in holding that the Resolution of the Supreme Court in G.R. No. L-46595 did not constitute stare
decisis as to apply to this case and in not holding that said Resolution bound subsequent determinations on the right to
exclusive use of the word Lyceum.
2. The Court of Appeals erred in holding that respondent Western Pangasinan Lyceum, Inc. was incorporated earlier than
petitioner.
3. The Court of Appeals erred in holding that the word Lyceum has not acquired a secondary meaning in favor of petitioner.
4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be appropriated by the petitioner to the
exclusion of others. 5
We will consider all the foregoing ascribed errors, though not necessarily seriatim. We begin by noting that the Resolution of
the Court in G.R. No. L-46595 does not, of course, constitute res adjudicata in respect of the case at bar, since there is no
identity of parties. Neither is stare decisis pertinent, if only because the SEC En Banc itself has re-examined Associate
Commissioner Sulit's ruling in the Lyceum of Baguio case. The Minute Resolution of the Court in G.R. No. L-46595 was not a
reasoned adoption of the Sulit ruling.
The Articles of Incorporation of a corporation must, among other things, set out the name of the corporation. 6 Section 18 of
the Corporation Code establishes a restrictive rule insofar as corporate names are concerned:
"SECTION 18. Corporate name. No corporate name may be allowed by the Securities an Exchange Commission if the
proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name
already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change in the corporate name
is approved, the Commission shall issue an amended certificate of incorporation under the amended name." (Emphasis
supplied)
The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical or
deceptively or confusingly similar" to that of any existing corporation or which is "patently deceptive" or "patently confusing"
or "contrary to existing laws," is the avoidance of fraud upon the public which would have occasion to deal with the entity
concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over
corporations. 7
We do not consider that the corporate names of private respondent institutions are "identical with, or deceptively or confusingly
similar" to that of the petitioner institution. True enough, the corporate names of private respondent entities all carry the word
"Lyceum" but confusion and deception are effectively precluded by the appending of geographic names to the word "Lyceum."
Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the Philippines,
or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines.
Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn referred to a locality on the river
Ilissius in ancient Athens "comprising an enclosure dedicated to Apollo and adorned with fountains and buildings erected by
Pisistratus, Pericles and Lycurgus frequented by the youth for exercise and by the philosopher Aristotle and his followers for
teaching." 8 In time, the word "Lyceum" became associated with schools and other institutions providing public lectures and
concerts and public discussions. Thus today, the word "Lyceum" generally refers to a school or an institution of learning. While
the Latin word "lyceum" has been incorporated into the English language, the word is also found in Spanish (liceo) and in
French (lycee). As the Court of Appeals noted in its Decision, Roman Catholic schools frequently use the term; e.g., "Liceo de
Manila," "Liceo de Baleno" (in Baleno, Masbate), "Liceo de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as generic in
character as the word "university." In the name of the petitioner, "Lyceum" appears to be a substitute for "university;" in other
places, however, "Lyceum," or "Liceo" or "Lycee" frequently denotes a secondary school or a college. It may be (though this is
a question of fact which we need not resolve) that the use of the word "Lyceum" may not yet be as widespread as the use of
"university," but it is clear that a not inconsiderable number of educational institutions have adopted "Lyceum" or "Liceo" as
part of their corporate names. Since "Lyceum" or "Liceo" denotes a school or institution of learning, it is not unnatural to use
this word to designate an entity which is organized and operating as an educational institution.
It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning in relation to petitioner with
the result that that word, although originally a generic, has become appropriable by petitioner to the exclusion of other
institutions like private respondents herein.

The doctrine of secondary meaning originated in the field of trademark law. Its application has, however, been extended to
corporate names sine the right to use a corporate name to the exclusion of others is based upon the same principle which
underlies the right to use a particular trademark or tradename. 10 In Philippine Nut Industry, Inc. v. Standard Brands, Inc., 11
the doctrine of secondary meaning was elaborated in the following terms:
" . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on the market, because
geographically or otherwise descriptive, might nevertheless have been used so long and so exclusively by one producer with
reference to his article that, in that trade and to that branch of the purchasing public, the word or phrase has come to mean that
the article was his product." 12
The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name has been for
such length of time and with such exclusivity as to have become associated or identified with the petitioner institution in the
mind of the general public (or at least that portion of the general public which has to do with schools). The Court of Appeals
recognized this issue and answered it in the negative:
"Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive appropriation with reference to
an article in the market, because geographical or otherwise descriptive might nevertheless have been used so long and so
exclusively by one producer with reference to this article that, in that trade and to that group of the purchasing public, the word
or phrase has come to mean that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has
been referred to as the distinctiveness into which the name or phrase has evolved through the substantial and exclusive use of
the same for a considerable period of time. Consequently, the same doctrine or principle cannot be made to apply where the
evidence did not prove that the business (of the plaintiff) has continued for so long a time that it has become of consequence
and acquired a good will of considerable value such that its articles and produce have acquired a well-known reputation, and
confusion will result by the use of the disputed name (by the defendant) (Ang Si Heng vs. Wellington Department Store, Inc.,
92 Phil. 448).
With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the aforementioned requisites. No evidence was
ever presented in the hearing before the Commission which sufficiently proved that the word 'Lyceum' has indeed acquired
secondary meaning in favor of the appellant. If there was any of this kind, the same tend to prove only that the appellant had
been using the disputed word for a long period of time. Nevertheless, its (appellant) exclusive use of the word (Lyceum) was
never established or proven as in fact the evidence tend to convey that the cross-claimant was already using the word 'Lyceum'
seventeen (17) years prior to the date the appellant started using the same word in its corporate name. Furthermore, educational
institutions of the Roman Catholic Church had been using the same or similar word like 'Liceo de Manila,' 'Liceo de Baleno' (in
Baleno, Masbate), 'Liceo de Masbate,' 'Liceo de Albay' long before appellant started using the word 'Lyceum'. The appellant
also failed to prove that the word 'Lyceum' has become so identified with its educational institution that confusion will surely
arise in the minds of the public if the same word were to be used by other educational institutions.
In other words, while the appellant may have proved that it had been using the word 'Lyceum' for a long period of time, this
fact alone did not amount to mean that the said word had acquired secondary meaning in its favor because the appellant failed
to prove that it had been using the same word all by itself to the exclusion of others. More so, there was no evidence presented
to prove that confusion will surely arise if the same word were to be used by other educational institutions. Consequently, the
allegations of the appellant in its first two assigned errors must necessarily fail." 13 (Underscoring partly in the original and
partly supplied)
We agree with the Court of Appeals. The number alone of the private respondents in the case at bar suggests strongly that
petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for applicability of the doctrine of
secondary meaning. It may be noted also that at least one of the private respondents, i.e., the Western Pangasinan Lyceum, Inc.,
used the term "Lyceum" seventeen (17) years before the petitioner registered its own corporate name with the SEC and began
using the word "Lyceum." It follows that if any institution had acquired an exclusive right to the word "Lyceum," that
institution would have been the Western Pangasinan Lyceum, Inc. rather than the petitioner institution.
In this connection, petitioner argues that because the Western Pangasinan Lyceum, Inc. failed to reconstruct its records before
the SEC in accordance with the provisions of R.A. No. 62, which records had been destroyed during World War II, Western
Pangasinan Lyceum should be deemed to have lost all rights it may have acquired by virtue of its past registration. It might be
noted that the Western Pangasinan Lyceum, Inc. registered with the SEC soon after petitioner had filed its own registration on
21 September 1950. Whether or not Western Pangasinan Lyceum, Inc. must be deemed to have lost its rights under its original
1933 registration, appears to us to be quite secondary in importance; we refer to this earlier registration simply to underscore
the fact that petitioner's use of the word "Lyceum" was neither the first use of that term in the Philippines nor an exclusive use
thereof. Petitioner's use of the word "Lyceum" was not exclusive but was in truth shared with the Western Pangasinan Lyceum

and a little later with other private respondent institutions which registered with the SEC using "Lyceum" as part of their
corporation names. There may well be other schools using Lyceum or Liceo in their names, but not registered with the SEC
because they have not adopted the corporate form of organization.
We conclude and so hold that petitioner institution is not entitled to a legally enforceable exclusive right to use the word
"Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of their corporate names. To determine
whether a given corporate name is "identical" or "confusingly or deceptively similar" with another entity's corporate name, it is
not enough to ascertain the presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate names in their
entirety and when the name of petitioner is juxtaposed with the names of private respondents, they are not reasonably regarded
as "identical" or "confusingly or deceptively similar" with each other.
WHEREFORE, the petitioner having failed to show any reversible error on the part of the public respondent Court of Appeals,
the Petition for Review is DENIED for lack of merit, and the Decision of the Court of Appeals dated 28 June 1991 is hereby
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ ., concur.
Gutierrez, Jr., J ., on terminal leave.
Footnotes
1. Rollo, pp. 54-61.
2. Id., pp. 62-63.
3. Records, pp. 6-8, 10-16.
4. Rollo, pp. 42-51.
5. Petition for Review, p. 8; Rollo, p. 16.
6. Section 14, Corporation Code.
7. Red Line Transportation Co. v. Rural Transit Co., 60 Phil. 549 (1934). See also Universal Mills Corp. v. Universal Textile
Mills, Inc., 78 SCRA 62 (1977); and Philippine First Insurance Co., Inc. v. Hartigan, 34 SCRA 252 (1970).
8. Webster's Geographical Dictionary, p. 643 (1949).
9. Decision, Court of Appeals, Rollo, p. 46. In the preceding century, "Liceo" was also used to designate an association devoted
to the promotion of the arts and literature; as in the "Liceo Artistico Literario de Manila." (see L.M. Guerrero, "The First
Filipino: A Biography of Jose Rizal" 73 [1969]).
10. 6 Fletcher, Cyclopedia of Corporations, Section 2423 (Permanent ed., 1968); Burnside Veneer Co. v. New Burnside Veneer
Co. 247 S.W. 2d. 524 (1952); Economy Food Products Co. v. Economy Grocery Stores Corp., 183 N.E. 49 1932).
11. 65 SCRA 575 (1975).
12. 65 SCRA at 576.
13. Rollo, pp. 46-47.
The Lawphil Project - Arellano Law Foundation

PhilippineLaw.info Jurisprudence 1969 March

PhilippineLaw.info Jurisprudence SCRA Vol. 27
13. G.R. No. L-28113, Municipality of Malabang, Lanao del Sur and Balindong v. Benito et al., 27 SCRA 533
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
March 28, 1969
G.R. No. L-28113
THE MUNICIPALITY OF MALABANG, LANAO DEL SUR, and AMER MACAORAO BALINDONG, petitioners,
vs.
PANGANDAPUN BENITO, HADJI NOPODIN MACAPUNUNG, HADJI HASAN MACARAMPAD, FREDERICK V.
DUJERTE MONDACO ONTAL, MARONSONG ANDOY, MACALABA INDAR LAO. respondents.
L. Amores and R. Gonzales for petitioners.
Jose W. Diokno for respondents.
CASTRO, J.:
The petitioner Amer Macaorao Balindong is the mayor of Malabang, Lanao del Sur, while the respondent Pangandapun Bonito
is the mayor, and the rest of the respondents are the councilors, of the municipality of Balabagan of the same province.
Balabagan was formerly a part of the municipality of Malabang, having been created on March 15, 1960, by Executive Order
386 of the then President Carlos P. Garcia, out of barrios and sitios [[1]] of the latter municipality.
The petitioners brought this action for prohibition to nullify Executive Order 386 and to restrain the respondent municipal
officials from performing the functions of their respective office relying on the ruling of this Court in Pelaez v. Auditor
General[[2]] andMunicipality of San Joaquin v. Siva.[[3]]
In Pelaez this Court, through Mr. Justice (now Chief Justice) Concepcion, ruled: (1) that section 23 of Republic Act
2370 [Barrio Charter Act, approved January 1, 1960], by vesting the power to create barrios in the provincial board, is a
"statutory denial of the presidential authority to create a new barrio [and] implies a negation of the biggerpower to create
municipalities," and (2) that section 68 of the Administrative Code, insofar as it gives the President the power to create
municipalities, is unconstitutional (a) because it constitutes an undue delegation of legislative power and (b) because it offends
against section 10 (1) of article VII of the Constitution, which limits the President's power over local governments to mere
supervision. As this Court summed up its discussion: "In short, even if it did not entail an undue delegation of legislative
powers, as it certainly does, said section 68, as part of the Revised Administrative Code, approved on March 10, 1917, must be
deemed repealed by the subsequent adoption of the Constitution, in 1935, which is utterly incompatible and inconsistent with
said statutory enactment."
On the other hand, the respondents, while admitting the facts alleged in the petition, nevertheless argue that the rule announced
in Pelaez can have no application in this case because unlike the municipalities involved in Pelaez, the municipality of
Balabagan is at least a de facto corporation, having been organized under color of a statute before this was declared
unconstitutional, its officers having been either elected or appointed, and the municipality itself having discharged its corporate
functions for the past five years preceding the institution of this action. It is contended that as a de facto corporation, its
existence cannot be collaterally attacked, although it may be inquired into directly in an action for quo warranto at the instance
of the State and not of an individual like the petitioner Balindong.
It is indeed true that, generally, an inquiry into the legal existence of a municipality is reserved to the State in a proceeding
for quo warranto or other direct proceeding, and that only in a few exceptions may a private person exercise this function of
government.[[4]] But the rule disallowing collateral attacks applies only where the municipal corporation is at least a de
facto corporations.[[5]] For where it is neither a corporation de jure nor de facto, but a nullity, the rule is that its existence may
be, questioned collaterally or directly in any action or proceeding by any one whose rights or interests ate affected thereby,
including the citizens of the territory incorporated unless they are estopped by their conduct from doing so. [[6]]
And so the threshold question is whether the municipality of Balabagan is a de factocorporation. As earlier stated, the claim
that it is rests on the fact that it was organized before the promulgation of this Court's decision in Pelaez.[[7]]
Accordingly, we address ourselves to the question whether a statute can lend color of validity to an attempted organization of a
municipality despite the fact that such statute is subsequently declared unconstitutional.
This has been a litigiously prolific question, sharply dividing courts in the United States. Thus, some hold that a de
facto corporation cannot exist where the statute or charter creating it is unconstitutional because there can be no de
facto corporation where there can be no de jure one,[[8]] while others hold otherwise on the theory that a statute is binding until
it is condemned as unconstitutional.[[9]]

An early article in the Yale Law Journal offers the following analysis:
It appears that the true basis for denying to the corporation a de facto status lay in the absence of any legislative act to give
vitality to its creation. An examination of the cases holding, some of them unreservedly, that a de facto office or municipal
corporation can exist under color of an unconstitutional statute will reveal that in no instance did the invalid act give life to the
corporation, but that either in other valid acts or in the constitution itself the office or the corporation was potentially created..
The principle that color of title under an unconstitutional statute can exist only where there is some other valid law under which
the organization may be effected, or at least an authority in potentia by the state constitution, has its counterpart in the negative
propositions that there can be no color of authority in an unconstitutional statute that plainly so appears on its face or that
attempts to authorize the ousting of a de jure or de facto municipal corporation upon the same territory; in the one case the fact
would imply the imputation of bad faith, in the other the new organization must be regarded as a mere usurper..
As a result of this analysis of the cases the following principles may be deduced which seem to reconcile the apparently
conflicting decisions:
I. The color of authority requisite to the organization of a de facto municipal corporation may be:
1. A valid law enacted by the legislature.
2. An unconstitutional law, valid on its face, which has either (a) been upheld for a time by the courts or (b) not
yet been declared void;provided that a warrant for its creation can be found in some other valid law or in the
recognition of its potential existence by the general laws or constitution of the state.
II. There can be no de facto municipal corporation unless either directly or potentially, such a de
jure corporation is authorized by some legislative fiat.
III. There can be no color of authority in an unconstitutional statute alone, the invalidity of which is apparent
on its face.
IV. There can be no de facto corporation created to take the place of an existing de jure corporation, as such
organization would clearly be a usurper.[[10]]
In the cases where a de facto municipal corporation was recognized as such despite the fact that the statute creating it was later
invalidated, the decisions could fairly be made to rest on the consideration that there was some other valid law giving corporate
vitality to the organization. Hence, in the case at bar, the mere fact that Balabagan was organized at a time when the statute had
not been invalidated cannot conceivably make it a de facto corporation, as, independently of the Administrative Code provision
in question, there is no other valid statute to give color of authority to its creation. Indeed, in Municipality of San Joaquin v.
Siva, [[11]] this Court granted a similar petition for prohibition and nullified an executive order creating the municipality of
Lawigan in Iloilo on the basis of the Pelaez ruling, despite the fact that the municipality was created in 1961, before section 68
of the Administrative Code, under which the President had acted, was invalidated. 'Of course the issue of de facto municipal
corporation did not arise in that case.
In Norton v. Shelby Count, [[12]] Mr. Justice Field said: "An unconstitutional act is not a law; it confers no rights; it imposes no
duties; it affords no protection; it creates no office; it is, in legal contemplation, as inoperative as though it had never been
passed." Accordingly, he held that bonds issued by a board of commissioners created under an invalid statute were
unenforceable.
Executive Order 386 "created no office." This is not to say, however, that the acts done by the municipality of Balabagan in the
exercise of its corporate powers are a nullity because the executive order "is, in legal contemplation, as inoperative as though it
had never been passed." For the existence of Executive, Order 386 is "an operative fact which cannot justly be ignored." As
Chief Justice Hughes explained in Chicot County Drainage District v. Baxter State Bank: [[13]]
The courts below have proceeded on the theory that the Act of Congress, having been found to be unconstitutional, was not a
law; that it was inoperative, conferring no rights and imposing no duties, and hence affording no basis for the challenged
decree. Norton v. Shelby County, 118 U.S. 425, 442; Chicago, I. & L. Ry. Co. v. Hackett, 228 U.S. 559, 566. It is quite clear,
however, that such broad statements as to the effect of a determination of unconstitutionality must be taken with qualifications.
The actual existence of a statute, prior to such a determination, is an operative fact and may have consequences which cannot
justly be ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to
invalidity may have to be considered in various aspects with respect to particular relations, individual and corporate, and
particular conduct, private and official. Questions of rights claimed to have become vested, of status of prior determinations
deemed to have finality and acted upon accordingly, of public policy in the light of the nature both of the statute and of its
previous application, demand examination. These questions are among the most difficult of those which have engaged the
attention of courts, state and federal, and it is manifest from numerous decisions that an all-inclusive statement of a principle of
absolute retroactive invalidity cannot be justified.
There is then no basis for the respondents' apprehension that the invalidation of the executive order creating Balabagan would
have the effect of unsettling many an act done in reliance upon the validity of the creation of that municipality. [[14]]

ACCORDINGLY, the petition is granted, Executive Order 386 is declared void, and the respondents are hereby permanently
restrained from performing the duties and functions of their respective offices. No pronouncement as to costs.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez and Capistrano, JJ., concur.
Teehankee and Barredo, JJ., took no part.
Separate Opinions
FERNANDO, J., concurring:
I concur fully with the well-written opinion of Justice Castro. It breaks new ground; it strikes out new paths. It is precisely
because of its impact on the power of judicial review of executive acts that I deem a few additional words would not be amiss.
1. Insofar as the effect of a declaration of unconstitionality is concerned, the latter and more realistic trend reflected in Chicot
County Drainage District v. Baxter State Bank[[1]] had previously elicited our approval. Thus: "'Rutter vs. Esteban (93 Phil. 68)
may be construed to mean that at the time of the decision the Moratorium law could no longer be validly applied because of the
prevailing circumstances. At any rate, although the general rule is that an unconstitutional statute 'confers no right, creates
no office, affords no protection and justifies no acts performed under it.' ... there are several instances wherein courts, out of
equity, have relaxed its operation ... or qualified its effects 'since the actual existence of a statute prior to such declaration is an
operative fact, and may have consequences which cannot justly be ignored' ... and a realistic approach is eroding the general
doctrine ....'"[[2]] Also: "We have taken note, of the fact that, on June 30, 1961, Section 25 of Reorganization Plan No. 20-A had
been declared unconstitutional by this Court in the case of Corominas, et al. v. The Labor Standards Commission, et al., .... It
appears, however, that the Plaintiff had filed his claim before Regional Office No. 4 of the Department of Labor on July 26,
1960, or about one year before said Section 25 had been declared unconstitutional. The circumstance that Section 25 of
Reorganization Plan No. 20-A had been declared unconstitutional should not be counted against the defendant in the present
case. In the case of Manila Motor Co., Inc. v. Flores, ..., this Court upheld the right of a party under the Moratorium Law which
had accrued in his favor before said law was declared unconstitutional by this Court in the case of Rutter v. Esteban, 93 Phil.
68."[[3]]
2. Nothing can be clearer therefore in the light of the two above cases than that a previous declaration of invalidity of
legislative acts would not be bereft of legal results. Would that view hold true of nullification of executive acts? There might
have been doubts as to the correct answer before. There is none now.
A judicial decision annulling a presidential exercise of authority[[4]] is not without its effect either. That much is evident from
the holding now reached. The act stricken down, whether proceeding from the legislature or the Executive, could in the
language of the Chicot County case, be considered, prior to the declaration of invalidity, as "an operative fact and may have
consequences which cannot justly be ignored."
Thus the frontiers of the law have been extended, a doctrine which to some may come into play when a statute is voided is now
considered equally applicable to a Presidential act that has met a similar fate. Such a result should not occasion surprise. That is
to be expected.
There would be an unjustified deviation from the doctrine of separation of powers if a consequence attached to the annulment
of a statue is considered as not operative where an executive order is involved. The doctrine of co-equal or coordinate
departments would be meaningless if a discrimination of the above sort were considered permissible. The cognizance taken of
the prior existence of an enactment subsequently declared unconstitutional applies as well as to a Presidential act thereafter
successfully assailed. There was a time when it too did exist and, as such, a fact to be reckoned with, though an infirm source
of a legal right, if, as subsequently held, considered violative of a constitutional command.
3. Precisionists may cavil at the above view; they may assert, and with some degree of plausibility, that the holding in the
Pelaez case goes no further than to locate a statutory infirmity in the Presidential act there challenged, creating municipal
corporations under what the then Executive considered a grant of authority found in the Revised Administrative Code. [[5]] Such
a power having been found not to exist, the decision, so it may be asserted, did not reach the constitutional issue of nondelegation of legislative power. Tersely put, there was no finding of nullity based on a violation of the Constitution.
To such a claim, it suffices to answer that while the challenged Administrative Code provision was in fact held as not
containing within itself the authority conferred on the President to create municipal corporations, the opinion by the then
Justice, now Chief Justice, Concepcion went further. As was pointed out by him: "Although Congress may delegate to another
branch of the Government the power to fill in the details in the execution, enforcement or administration of a law, it is essential,
to forestall a violation of the principle of separation of powers, that said law: (a) be complete in itself it must set forth
therein the policy to be executed, carried out or implemented by the delegate and (b) fix a standard the limits of which
are sufficiently determinate or determinable to which the delegate must conform in the performance of his functions.
Indeed, without a statutory declaration of policy, the delegate would, in effect, make or formulate such policy, which is the
essence of every law; and without the aforementioned standard, there would be no means to determine, with reasonable
certainty, whether the delegate has acted within or beyond the scope of his authority. Hence, he could thereby arrogate upon
himself the power, not only to make the law, but also and this is worse to unmake it, by adopting measures inconsistent

with the end sought to be attained by the Act of Congress, thus nullifying the principle of separation of powers and the system
of checks and balances, and, consequently, undermining the very foundation of our Republican system." [[6]]
From which, it would follow, in the language of the opinion: "Section 68 of the Revised Administrative Code does not meet
these well-settled requirements for a valid delegation of the power to fix the details in the enforcement of a law. It does not
enunciate any policy to be carried out or implemented by the President. Neither does it give a standard sufficiently precise to
avoid the evil effects above referred to."[[7]]
It is thus clear that while it might not be strictly accurate to advance the view that there was a finding of unconstitutionality of a
challenged statutory norm, there could be no objection to the view that the holding was one of unconstitutional application.
Nor is this all. If there be admission of the force of the assertion that the Pelaez opinion went no further than to locate in the
challenged Executive orders creating municipal corporations an act in excess of statutory authority, then our decision in this
case is all the more noteworthy for the more hospitable scope accorded the Chicot doctrine. For as originally formulated, it
would merely recognize that during its existence, prior to its being declared violative of the constitute, the statute must be
deemed an operative fact. Today we decide that such a doctrine extends to a Presidential act held void not only on the ground
of unconstitutional infirmity but also because in excess of the statutory power conferred. That to me is the more significant
aspect of this decision. To repeat, to that point of view I yield full concurrence.
I do so because it appears to me a logical corollary to the principle of separation of powers. Once we accept the basic doctrine
that each department as a coordinate agency of government is entitled to the respect of the other two, it would seem to follow
that at the very least, there is a presumption of the validity of the act performed by it, unless subsequently declared void in
accordance with legally accepted principles. The rule of law cannot be satisfied with anything less.
Since under our Constitution, judicial review exists precisely to test the validity of executive or legislative acts in an
appropriate legal proceeding, there is always the possibility of their being declared inoperative and void. Realism compels the
acceptance of the thought that there could be a time-lag between the initiation of such Presidential or congressional exercise of
power and the final declaration of nullity. In the meanwhile, it would be productive of confusion, perhaps at times even of
chaos, if the parties affected were left free to speculate as to its fate being one of doom, thus leaving them free to disobey it in
the meanwhile. Since, however, the orderly processes of government not to mention common sense, requires that the
presumption of validity be accorded an act of Congress or an order of the President, it would be less than fair, and it may be
productive of injustice, if no notice of its existence as a fact be paid to it, even if thereafter, it is stricken down as contrary, in
the case of Presidential act, either to the Constitution or a controlling statute.
The far-reaching import in the above sense of the decision we now render calls, to my mind, for an articulation of further
reflection on its varied implications. We have here an illustration to paraphrase Dean Pound, of the law being stable and yet far
from standing still. That is as it ought to be; that is how law grows. It is in that sense that the judicial process is impressed with
creativity, admittedly within limits rather narrowly confined. That in itself is to hold fast to the appropriate role of the judiciary,
far from insignificant as our decision discloses. Hence, this separate concurring opinion, which, I trust, will make manifest why
my agreement with what Justice Castro had so ably expressed in the opinion of the Court is wholehearted and entire.
Concepcion, C.J., concurs.
Footnotes
[[ ]]
1 The barrios and sitios are Barorao, Baguiangan Kalilangan, Balabagan, Itil, Banago, Budas, Igabay, Magolalong, Dagoan,
Matimus, Bongabon and Lusain.
[[ ]]
2 64 O.G. 4781 (1965).
[[ ]]
3 L-19870, March 18, 1967, 19 SCRA 599.
[[ ]]
4 E.g., 1 E. McQuillin, The Law of Municipal Corporations, sec. 3.49, p. 592 (3rd ed. 1949).
[[ ]]
5 Hunt v. Atkinson, (Tex. Com. App.) 12 S.W. 2d 142, 145 (1929), rev'g 300 S.W. 656 (1927).
[[ ]]
6 1 E. McQuillin, op. cit. supra, note 4, at sec. 3.50, p. 595-96.
[[ ]]
7 Supra, note 2.
[[ ]]
8 E.g., Brandenstein v. Hoke 101 Cal. 131, 35 P. 562 (1894) (levee district organized under statute earlier declared to be
unconstitutional); Atchison T. & S.F.R.R. v. Board of Comm'rs 58 Kan 19, 48 P. 583 (1897) (county organized under statute
void on its face).
[[ ]]
9 See, e.g., Lang v. City of Bayonne, 74 N.J.L. 455, 68 A. 90 (1907); St. Louis v. Shields, 62 Mo. 247 (1876); School District
No. 25, v. State, 29 Kan. 57 (1882).
[[
10]] Tooke De facto Municipal Corporations under Unconstitutional Statutes, 37 Yale L.J. 935, 951-53 (1928).
[[
11]] Supra, note 3.
[[
12]] 118 U.S. 425, 442 (1886) (emphasis added).
[[
13]] 308 U.S. 371, 374 (1940): accord: Rutter v. Esteban, 93 Phil. 68 (1953); Manila Motor Co., Inc. v. Flores 99 Phil. 739
(1956); Fernandez v. Cuerva & Co., L-21114, Nov. 28, 1967, 21 SCRA 1102.
[[
14]] Compare the technique of prospective overruling in Linkletter v. Walker, 381 U.S. 618 (1965), refusing to give

retrospective effect to Mapp v. Ohio, 367 U.S. 643 (1961) (exclusionary rule), with that in Johnson v. New Jersey, 384 U.S. 719
(1966) holding that the rule concerning counsel as announced in Gideon v. Wainwright, 372 U.S. 335 (1963) was to be applied
retrospectively.
FERNANDO, J., concurring:
[[ ]]
1 308 US 371 (1940).
[[ ]]
2 Manila Motor Co., Inc. v. Flores, 99 Phil. 738, 739 (1956).
[[ ]]
3 Fernandez v. Cuerva & Co., 21 SCRA 1095, 1102 (1967).
[[ ]]
4 Pelaez v. Auditor General, L-23825, Dec. 24, 1965.
[[ ]]
5 Section 68.
[[ ]]
6 Pelaez v. Auditor General, L-23825, Dec. 24, 1965.
[[ ]]
7 Ibid.
14. PhilippineLaw.info Jurisprudence 1950 June
PhilippineLaw.info Jurisprudence Phil. Rep. Vol. 86
G.R. No. L-2598, Hall and Hall v. Piccio et al., 86 Phil. 603
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
June 29, 1950
G.R. No. L-2598
C. ARNOLD HALL and BRADLEY P. HALL, petitioners,
vs.
EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN, EMMA BROWN, HIPOLITA
CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber and Commercial Co., Inc., respondents.
Claro M. Recto for petitioners.
Ramon Diokno and Jose W. Diokno for respondents.
BENGZON, J.:
This is petition to set aside all the proceedings had in civil case No. 381 of the Court of First Instance of Leyte and to enjoin the
respondent judge from further acting upon the same.
Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents Fred Brown, Emma
Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the article of incorporation of the Far
Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber business to carry on as general contractors,
operators and managers, etc. Attached to the article was an affidavit of the treasurer stating that 23,428 shares of stock had been
subscribed and fully paid with certain properties transferred to the corporation described in a list appended thereto.
(2) Immediately after the execution of said articles of incorporation, the corporation proceeded to do business with the adoption
of by-laws and the election of its officers.
(3) On December 2, 1947, the said articles of incorporation were filed in the office of the Securities and Exchange
Commissioner, for the issuance of the corresponding certificate of incorporation.
(4) On March 22, 1948, pending action on the articles of incorporation by the aforesaid governmental office, the respondents
Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed before the Court of First Instance of Leyte the
civil case numbered 381, entitled "Fred Brown et al. vs. Arnold C. Hall et al.", alleging among other things that the Far Eastern

Lumber and Commercial Co. was an unregistered partnership; that they wished to have it dissolved because of bitter dissension
among the members, mismanagement and fraud by the managers and heavy financial losses.
(5) The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss, contesting the court's
jurisdiction and the sufficiently of the cause of action.
(6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and at the request of plaintiffs,
appointed of the properties thereof, upon the filing of a P20,000 bond.
(7) The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the receiver, but the
respondent judge refused to accept the offer and to discharge the receiver. Whereupon, the present special civil action was
instituted in this court. It is based upon two main propositions, to wit:
(a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company, because it being a de
facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding instituted in accordance with section
19 of the Corporation Law.
(b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of incorporation but only a partnership.
Discussion: The second proposition may at once be dismissed. All the parties are informed that the Securities and Exchange
Commission has not, so far, issued the corresponding certificate of incorporation. All of them know, or sought to know, that the
personality of a corporation begins to exist only from the moment such certificate is issued not before (sec. 11, Corporation
Law). The complaining associates have not represented to the others that they were incorporated any more than the latter had
made similar representations to them. And as nobody was led to believe anything to his prejudice and damage, the principle of
estoppel does not apply. Obviously this is not an instance requiring the enforcement of contracts with the corporation through
the rule of estoppel.
The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern Lumber and Commercial Co., is
a de facto corporation, section 19 of the Corporation Law applies, and therefore the court had not jurisdiction to take
cognizance of said civil case number 381. Section 19 reads as follows:
. . . The due incorporation of any corporations claiming in good faith to be a corporation under this Act and its right to exercise
corporate powers shall not be inquired into collaterally in any private suit to which the corporation may be a party, but such
inquiry may be had at the suit of the Insular Government on information of the Attorney-General.
There are least two reasons why this section does not govern the situation. Not having obtained the certificate of incorporation,
the Far Eastern Lumber and Commercial Co. even its stockholders may not probably claim "in good faith" to be a
corporation.
Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of a certificate of incorporation by the
Director of the Bureau of Commerce and Industry which calls a corporation into being. The immunity if collateral attack is
granted to corporations "claiming in good faith to be a corporation under this act." Such a claim is compatible with the
existence of errors and irregularities; but not with a total or substantial disregard of the law. Unless there has been an evident
attempt to comply with the law the claim to be a corporation "under this act" could not be made "in good faith." (Fisher on the
Philippine Law of Stock Corporations, p. 75. See also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.)
Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders of the alleged
corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may be terminated in a
private suit for its dissolution between stockholders, without the intervention of the state.
There might be room for argument on the right of minority stockholders to sue for dissolution; [[1]] but that question does not
affect the court's jurisdiction, and is a matter for decision by the judge, subject to review on appeal. Whkch brings us to one

principal reason why this petition may not prosper, namely: the petitioners have their remedy by appealing the order of
dissolution at the proper time.
There is a secondary issue in connection with the appointment of a receiver. But it must be admitted that receivership is proper
in proceedings for dissolution of a company or corporation, and it was no error to reject the counter-bond, the court having
declared the dissolution. As to the amount of the bond to be demanded of the receiver, much depends upon the discretion of the
trial court, which in this instance we do not believe has been clearly abused.
Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction heretofore issued will be dissolved.
Ozaeta, Pablo, Tuason, Montemayor, and Reyes, JJ., concur.
Footnotes
[[ ]]

1 Cf. Thompson on Corporations, 3rd. ed., secs. 6455-6457. But the suit might be viewed as one of the rescission of contract,
the agreement between incorporators being contractual in nature. Fisher op. cit., p. 14.

15. Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 125221

June 19, 1997

REYNALDO M. LOZANO, petitioner,

vs.
HON. ELIEZER R. DE LOS SANTOS, Presiding Judge, RTC, Br. 58, Angeles City; and ANTONIO
ANDA, respondents.

DECISION
PUNO, J.:
This petition for certiorari seeks to annul and set aside the decision of the Regional Trial Court, Branch 58, Angeles City which
ordered the Municipal Circuit Trial Court, Mabalacat and Magalang, Pampanga to dismiss Civil Case No. 1214 for lack of
jurisdiction.
The facts are undisputed. On December 19, 1995, petitioner Reynaldo M. Lozano filed Civil Case No. 1214 for damages
against respondent Antonio Anda before the Municipal Circuit Trial Court (MCTC), Mabalacat and Magalang, Pampanga.
Petitioner alleged that he was the president of the Kapatirang Mabalacat-Angeles Jeepney Drivers Association, Inc.
(KAMAJDA) while respondent Anda was the president of the Samahang Angeles-Mabalacat Jeepney Operators and Drivers
Association, Inc. (SAMAJODA); in August 1995, upon the request of the Sangguniang Bayan of Mabalacat, Pampanga,
petitioner and private respondent agreed to consolidate their respective associations and form the Unified Mabalacat-Angeles
Jeepney Operators and Drivers Association, Inc. (UMAJODA); petitioner and private respondent also agreed to elect one set

of officers who shall be given the sole authority to collect the daily dues from the members of the consolidated association;
elections were held on October 29, 1995 and both petitioner and private respondent ran for president; petitioner won; private
respondent protested and, alleging fraud, refused to recognize the results of the election; private respondent also refused to
abide by their agreement and continued collecting the dues from the members of his association despite several demands to
desist. Petitioner was thus constrained to file the complaint to restrain private respondent from collecting the dues and to order
him to pay damages in the amount of P25,000.00 and attorneys fees of P500.00. 1
Private respondent moved to dismiss the complaint for lack of jurisdiction, claiming that jurisdiction was lodged with the
Securities and Exchange Commission (SEC). The MCTC denied the motion on February 9, 1996. 2 It denied reconsideration on
March 8, 1996. 3
Private respondent filed a petition for certiorari before the Regional Trial Court, Branch 58, Angeles City. 4 The trial court
found the dispute to be intracorporate, hence, subject to the jurisdiction of the SEC, and ordered the MCTC to dismiss Civil
Case No. 1214 accordingly. 5 It denied reconsideration on May 31, 1996. 6
Hence this petition. Petitioner claims that:
THE RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION AND SERIOUS ERROR OF LAW IN CONCLUDING THAT THE SECURITIES AND EXCHANGE
COMMISSION HAS JURISDICTION OVER A CASE OF DAMAGES BETWEEN HEADS/PRESIDENTS OF TWO (2)
ASSOCIATIONS WHO INTENDED TO CONSOLIDATE/MERGE THEIR ASSOCIATIONS BUT NOT YET [SIC]
APPROVED AND REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION. 7
The jurisdiction of the Securities and Exchange Commission (SEC) is set forth in Section 5 of Presidential Decree No. 902-A.
Section 5 reads as follows:
Sec. 5. . . . [T]he Securities and Exchange Commission [has] original and exclusive jurisdiction to hear and decide cases
involving:
(a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners,
amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders,
partners, members of associations or organizations registered with the Commission.
(b) Controversies arising out of intracorporate or partnership relations, between and among stockholders, members or
associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members,
or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their
individual franchise or right to exist as such entity.
(c) Controversies in the election or appointment of directors, trustees, officers or managers of such corporations, partnerships
or associations.
(d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where
the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of
meeting them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient
assets to over its liabilities, but is under the management of a Rehabilitation Receiver or Management Committee created
pursuant to this Decree.
The grant of jurisdiction to the SEC must be viewed in the light of its nature and function under the law. 8This jurisdiction is
determined by a concurrence of two elements: (1) the status or relationship of the parties; and (2) the nature of the question that
is the subject of their controversy. 9

The first element requires that the controversy must arise out of intracorporate or partnership relations between and among
stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they
are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State in
so far as it concerns their individual franchises. 10 The second element requires that the dispute among the parties be
intrinsically connected with the regulation of the corporation, partnership or association or deal with the internal affairs of the
corporation, partnership or association. 11 After all, the principal function of the SEC is the supervision and control of
corporations, partnership and associations with the end in view that investments in these entities may be encouraged and
protected, and their entities may be encouraged and protected, and their activities pursued for the promotion of economic
development. 12
There is no intracorporate nor partnership relation between petitioner and private respondent. The controversy between them
arose out of their plan to consolidate their respective jeepney drivers and operators associations into a single common
association. This unified association was, however, still a proposal. It had not been approved by the SEC, neither had its
officers and members submitted their articles of consolidation is accordance with Sections 78 and 79 of the Corporation Code.
Consolidation becomes effective not upon mere agreement of the members but only upon issuance of the certificate of
consolidation by the SEC. 13 When the SEC, upon processing and examining the articles of consolidation, is satisfied that the
consolidation of the corporations is not inconsistent with the provisions of the Corporation Code and existing laws, it issues a
certificate of consolidation which makes the reorganization official. 14 The new consolidated corporation comes into existence
and the constituent corporations dissolve and cease to exist. 15
The KAMAJDA and SAMAJODA to which petitioner and private respondent belong are duly registered with the SEC, but
these associations are two separate entities. The dispute between petitioner and private respondent is not within the KAMAJDA
nor the SAMAJODA. It is between members of separate and distinct associations. Petitioner and private respondent have no
intracorporate relation much less do they have an intracorporate dispute. The SEC therefore has no jurisdiction over the
complaint.
The doctrine of corporation by estoppel 16 advanced by private respondent cannot override jurisdictional requirements.
Jurisdiction is fixed by law and is not subject to the agreement of the parties. 17 It cannot be acquired through or waived,
enlarged or diminished by, any act or omission of the parties, neither can it be conferred by the acquiescence of the court.

18

Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness. 19It applies when
persons assume to form a corporation and exercise corporate functions and enter into business relations with third person.
Where there is no third person involved and the conflict arises only among those assuming the form of a corporation, who
therefore know that it has not been registered, there is no corporation by estoppel. 20
IN VIEW WHEREOF, the petition is granted and the decision dated April 18, 1996 and the order dated May 31, 1996 of the
Regional Trial Court, Branch 58, Angeles City are set aside. The Municipal Circuit Trial Court of Mabalacat and Magalang,
Pampanga is ordered to proceed with dispatch in resolving Civil Case No. 1214. No costs.
SO ORDERED.
Regalado, Romero, Mendoza and Torres, Jr., JJ., concur.

READ CASE DIGEST HERE.

Footnotes
1 Complaint, Annex C to the Petition, Rollo, pp. 25-28.
2 Annex D to the Petition, Rollo, pp. 35-37.

3 Annex E to the Petition, Rollo, p. 37.

4 Civil Case No. 8237.
5 Annex A to the Petition, Rollo, pp. 18-21.
6 Annex B to the Petition, Rollo, pp. 22-24.
7 Petition, p. 6, Rollo, p. 8.
8 Union Glass & Container Corporation v. Securities and Exchange Commission, 126 SCRA 32, 38 [1983].
9 Macapalan v. Katalbas-Moscardon, 227 SCRA 49, 54 [1993]; Viray v. Court of Appeals, 191 SCRA 308, 323 [1990].
10 Union Glass & Container Corporation v. Securities and Exchange Commission, supra, at 38; Agpalo, Comments on the
Corporation Code of the Philippines, pp. 447-448 [1993].
11 Dee v. Securities and Exchange Commission, 199 SCRA 238, 250 [1991]; Union Glass & Container Corporation v.
Securities and Exchange Commission, supra, at 38.
12 Union Glass & Container Corporation v. Securities and Exchange Commission, supra, at 38, citing Whereas Clauses of P.D.
902-A.
13 Section 79, Corporation Code; Campos, The Corporation Code, Comments, Notes and Selected Cases, vol. 2, p. 447 [1990].
14 Lopez, The Corporation Code of the Philippines Annotated, vol. 2, p. 940 [1994].
15 Section 80, Corporation Code.
16 Section 21, Corporation Code.
17 De Leon v. Court of Appeals, 245 SCRA 166, 176 [1995]; Lozon v. National Labor Relations Commission, 240 SCRA 1, 11
[1995].
18 Lozon v. National Labor Relations Commission, supra, at 11 [1995]; De Jesus v. Garcia, 19 SCRA 554, 558 [1967];
Calimlim v. Ramirez, 118 SCRA 399, 406 [1982].
19 Lopez, supra, v. 1, pp. 340-341 [1994].
20 Hall v. Piccio, 86 Phil. 603, 605 [1950]; also cited in Agpalo, supra, at 85.

G.R. No. L-15275, Albert v. University Publishing Co., 109 Phil. 780
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

October 24, 1960

G.R. No. L-15275
MARIANO A. ALBERT, plaintiff-appellee,
vs.
UNIVERSITY PUBLISHING CO., defendant-appellant.
Jose Arguego and Pastor P. Mamaril for appellant.
Antonio M. Molina, Uy and Artiaga for appellee.
GUTIERREZ DAVID, J.:
This is an appeal by defendant from the order of the Court of First Instance of Manila for the issuance of a writ of execution
ordering it to pay plaintiff through the administrator of the intestate estate of Mariano A. Albert, the sum of P15,000.00, plus
legal interests thereon from filing of the complaint until fully paid and P22.00 as costs.
It appears that for the sum of 30,000.00 to be paid in 8 quarterly installments, plaintiff agreed to write a manuscript defendant
and deliver it on or before December 31, 1948. Defendant defaulted after having paid P7,000.00, so plaintiff sued for the
balance of P23,000.00. Defendant claimed that plaintiff failed to deliver the manuscript on time. However, the Court of First
Instance of Manila, finding that defendant had breached the contract, ordered it to pay plaintiff P23,000.00 (Civil case No.
9267). On appeal, this Court reduced the damages to P15,000.00, and with this modification affirmed the lower court's decision
(G.R. No. L-9300, April 18, 1958). Plaintiff having moved for execution upon finality of the decision, the trial court issued the
order now subject of appeal.
Defendant claims that it should be made to pay only P8,000.00, arguing that the P7,000.00 it had previously paid to plaintiff
must be deducted from the P15,000.00 which this Court ordered it to pay.
Defendant's stand is untenable(weak). For breach of contract, the trial court found defendant liable to plaintiff for liquidated
damages of P30,000.00, deducted from this the P7,000.00 and, in the dispositive part of its decision, ordered defendant to pay
plaintiff "P23,000.00 with legal interest from the date of the filing of the complaint until the whole amount shall have been
fully paid." In equitably reducing the liquidated damages to P15,000.00, this Court had already taken into consideration the fact
that the trial court had deducted the P7,000.00 from the amount of P30,000.00. The same P7,000.00 cannot be deducted the
second time from the P15,000.00 liquidated damages awarded by this court, it having been previously deducted in arriving at
the amount of P23,000.00. Defendant's appeal was from the judgment ordering it to pay P23,000.00 the very amount which
was reduced by this Court to P15,000.00.
This being the sole modification made on the lower court's judgment, defendant should, therefore, pay legal interest from the
filing of the complaint until it pays in full the amount of P15,000.00.
Wherefore, the appealed order is affirmed with costs.
Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes J.B.L., Barrera and Paredes, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-11442

May 23, 1958

MANUELA T. VDA. DE SALVATIERRA, petitioner,

vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte, Branch II, and
SEGUNDINO REFUERZO, respondents.
Jimenez, Tantuico, Jr. and Tolete for petitioner.
Francisco Astilla for respondent Segundino Refuerzo.

DECISION
FELIX, J.:
This is a petition for certiorari filed by Manuela T. Vda. de Salvatierra seeking to nullify the order of the Court of First
Instance of Leyte in Civil Case No. 1912, dated March 21, 1956, relieving Segundino Refuerzo of liability for the contract
entered into between the former and the Philippine Fibers Producers Co., Inc., of which Refuerzo is the president. The facts of
the case are as follows:
Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of land located at Maghobas, Poblacion, Burauen, Leyte.
On March 7, 1954, said landholder entered into a contract of lease with the Philippine Fibers Producers Co., Inc., allegedly a
corporation duly organized and existing under the laws of the Philippines, domiciled at Burauen, Leyte, Philippines, and with
business address therein, represented in this instance by Mr. Segundino Q. Refuerzo, the President. It was provided in said
contract, among other things, that the lifetime of the lease would be for a period of 10 years; that the land would be planted to
kenaf, ramie or other crops suitable to the soil; that the lessor would be entitled to 30 per cent of the net income accruing from
the harvest of any, crop without being responsible for the cost of production thereof; and that after every harvest, the lessee was
bound to declare at the earliest possible time the income derived therefrom and to deliver the corresponding share due the
lessor.
Apparently, the aforementioned obligations imposed on the alleged corporation were not complied with because on April 5,
1955, Manuela T. Vda. de Salvatierra filed with the Court of First Instance of Leyte a complaint against the Philippine Fibers
Producers Co., Inc., and Segundino Q. Refuerzo, for accounting, rescission and damages (Civil Case No. 1912). She averred
that sometime in April, 1954, defendants planted kenaf on 3 hectares of the leased property which crop was, at the time of the
commencement of the action, already harvested, processed and sold by defendants; that notwithstanding that fact, defendants
refused to render an accounting of the income derived therefrom and to deliver the lessors share; that the estimated gross
income was P4,500, and the deductible expenses amounted to P1,000; that as defendants refusal to undertake such task was in
violation of the terms of the covenant entered into between the plaintiff and defendant corporation, a rescission was but proper.
As defendants apparently failed to file their answer to the complaint, of which they were allegedly notified, the Court declared
them in default and proceeded to receive plaintiffs evidence. On June 8, 1955, the lower Court rendered judgment granting
plaintiffs prayer, and required defendants to render a complete accounting of the harvest of the land subject of the proceeding
within 15 days from receipt of the decision and to deliver 30 per cent of the net income realized from the last harvest to
plaintiff, with legal interest from the date defendants received payment for said crop. It was further provide that upon
defendants failure to abide by the said requirement, the gross income would be fixed at P4,200 or a net income of P3,200 after
deducting the expenses for production, 30 per cent of which or P960 was held to be due the plaintiff pursuant to the
aforementioned contract of lease, which was declared rescinded.

No appeal therefrom having been perfected within the reglementary period, the Court, upon motion of plaintiff, issued a writ of
execution, in virtue of which the Provincial Sheriff of Leyte caused the attachment of 3 parcels of land registered in the name
of Segundino Refuerzo. No property of the Philippine Fibers Producers Co., Inc., was found available for attachment. On
January 31, 1956, defendant Segundino Refuerzo filed a motion claiming that the decision rendered in said Civil Case No.
1912 was null and void with respect to him, there being no allegation in the complaint pointing to his personal liability and thus
prayed that an order be issued limiting such liability to defendant corporation. Over plaintiffs opposition, the Court a
quo granted the same and ordered the Provincial Sheriff of Leyte to release all properties belonging to the movant that might
have already been attached, after finding that the evidence on record made no mention or referred to any fact which might hold
movant personally liable therein. As plaintiffs petition for relief from said order was denied, Manuela T. Vda. de Salvatierra
instituted the instant action asserting that the trial Judge in issuing the order complained of, acted with grave abuse of
discretion and prayed that same be declared a nullity.
From the foregoing narration of facts, it is clear that the order sought to be nullified was issued by tile respondent Judge upon
motion of defendant Refuerzo, obviously pursuant to Rule 38 of the Rules of Court. Section 3 of said Rule, however, in
providing for the period within which such a motion may be filed, prescribes that:
SEC. 3. WHEN PETITION FILED; CONTENTS AND VERIFICATION. A petition provided for in either of the preceding
sections of this rule must be verified, filed within sixty days after the petitioner learns of the judgment, order, or other
proceeding to be set aside, and not more than six months after such judgment or order was entered, or such proceeding was
taken; and must be must be accompanied with affidavit showing the fraud, accident, mistake, or excusable negligence relied
upon, and the facts constituting the petitioner is good and substantial cause of action or defense, as the case may be, which he
may prove if his petition be granted. (Rule 38)
The aforequoted provision treats of 2 periods, i.e., 60 days after petitioner learns of the judgment, and not more than 6 months
after the judgment or order was rendered, both of which must be satisfied. As the decision in the case at bar was under date of
June 8, 1955, whereas the motion filed by respondent Refuerzo was dated January 31, 1956, or after the lapse of 7 months and
23 days, the filing of the aforementioned motion was clearly made beyond the prescriptive period provided for by the rules.
The remedy allowed by Rule 38 to a party adversely affected by a decision or order is certainly an alert of grace or benevolence
intended to afford said litigant a penultimate opportunity to protect his interest. Considering the nature of such relief and the
purpose behind it, the periods fixed by said rule are non-extendible and never interrupted; nor could it be subjected to any
condition or contingency because it is of itself devised to meet a condition or contingency (Palomares vs. Jimenez, * G.R. No.
L-4513, January 31, 1952). On this score alone, therefore, the petition for a writ of certiorari filed herein may be granted.
However, taking note of the question presented by the motion for relief involved herein, We deem it wise to delve in and pass
upon the merit of the same.
Refuerzo, in praying for his exoneration from any liability resulting from the non-fulfillment of the obligation imposed on
defendant Philippine Fibers Producers Co., Inc., interposed the defense that the complaint filed with the lower court contained
no allegation which would hold him liable personally, for while it was stated therein that he was a signatory to the lease
contract, he did so in his capacity as president of the corporation. And this allegation was found by the Court a quo to be
supported by the records. Plaintiff on the other hand tried to refute this averment by contending that her failure to specify
defendants personal liability was due to the fact that all the time she was under the impression that the Philippine Fibers
Producers Co., Inc., represented by Refuerzo was a duly registered corporation as appearing in the contract, but a subsequent
inquiry from the Securities and Exchange Commission yielded otherwise. While as a general rule a person who has contracted
or dealt with an association in such a way as to recognize its existence as a corporate body is estopped from denying the same
in an action arising out of such transaction or dealing, (Asia Banking Corporation vs. Standard Products Co., 46 Phil., 114;
Compania Agricola de Ultramar vs. Reyes, 4 Phil., 1; Ohta Development Co.; vs. Steamship Pompey, 49 Phil., 117), yet this
doctrine may not be held to be applicable where fraud takes a part in the said transaction. In the instant case, on plaintiffs
charge that she was unaware of the fact that the Philippine Fibers Producers Co., Inc., had no juridical personality, defendant
Refuerzo gave no confirmation or denial and the circumstances surrounding the execution of the contract lead to the
inescapable conclusion that plaintiff Manuela T. Vda. de Salvatierra was really made to believe that such corporation was duly
organized in accordance with law.

There can be no question that a corporation with registered has a juridical personality separate and distinct from its component
members or stockholders and officers such that a corporation cannot be held liable for the personal indebtedness of a
stockholder even if he should be its president (Walter A. Smith Co. vs. Ford, SC-G.R. No. 42420) and conversely, a stockholder
or member cannot be held personally liable for any financial obligation be, the corporation in excess of his unpaid subscription.
But this rule is understood to refer merely to registered corporations and cannot be made applicable to the liability of members
of an unincorporated association. The reason behind this doctrine is obvious-since an organization which before the law is nonexistent has no personality and would be incompetent to act and appropriate for itself the powers and attribute of a corporation
as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to
act as its representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that
a person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all the
rights and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no
valid existence assumes such privileges and obligations and comes personally liable for contracts entered into or for other acts
performed as such, agent (Fay vs. Noble, 7 Cushing [Mass.] 188. Cited in II Tolentinos Commercial Laws of the Philippines,
Fifth Ed., P. 689-690). Considering that defendant Refuerzo, as president of the unregistered corporation Philippine Fibers
Producers Co., Inc., was the moving spirit behind the consummation of the lease agreement by acting as its representative, his
liability cannot be limited or restricted that imposed upon corporate shareholders. In acting on behalf of a corporation which he
knew to be unregistered, he assumed the risk of reaping the consequential damages or resultant rights, if any, arising out of
such transaction.
Wherefore, the order of the lower Court of March 21, 1956, amending its previous decision on this matter and ordering the
Provincial Sheriff of Leyte to release any and all properties of movant therein which might have been attached in the execution
of such judgment, is hereby set aside and nullified as if it had never been issued. With costs against respondent Segundino
Refuerzo. It is so ordered.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., and Endencia,
JJ., concur.