Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 63201 May 27, 1992

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

MEDIALDEA, J.:
This is a petition for certiorari under Rule 65 of the Rules of Court seeking to annul and set aside the orders of respondent Court of First
Instance of Rizal, Pasig, Branch 21 (now Regional Trial Court) dated April 22, 1982, September 14, 1982 and January 12, 1983 in LRC
Case No. R-2744 on the ground that they had been issued without or in excess of jurisdiction and with grave abuse of discretion.
The antecedent facts of this case are as follows:
Private respondents are the registered owners of three parcels of land in Pasig, Metro Manila covered by OCT No. 853, TCT Nos. 32843
and 32897 of the Registry of Deeds of Rizal.
On March 1, 1954, private respondents entered into a contract of lease with Philippine Blooming Mills, Co., Inc., (PBM for brevity)
whereby the letter shall lease the aforementioned parcels of land as factory site. PBM was duly organized and incorporated on January 19,
1952 with a corporate term of twenty-five (25) years. This leasehold right of PBM covering the parcels of land was duly annotated at the
back of the above stated certificates of title as Entry No. 9367/T-No. 32843.
The contract of lease provides that the term of the lease is for twenty years beginning from the date of the contract and "is extendable for
another term of twenty years at the option of the LESSEE should its term of existence be extended in accordance with law." (p. 76, Rollo).
The contract also states that the lessee agrees to "use the property as factory site and for that purpose to construct whatever buildings or
improvements may be necessary or convenient and/or . . . for any purpose it may deem fit; and before the termination of the lease to
remove all such buildings and improvements" (pp. 76-77 Rollo).
In accordance with the contract, PBM introduced on the land, buildings, machineries and other useful improvements. These constructions
and improvements were registered with the Registry of Deeds of Rizal and annotated at the back of the respondents' certificates of title as
Entry No. 85213/T-No. 43338.
On October 11, 1963, PBM executed in favor of Philippine National Bank (PNB for brevity), petitioner herein, a deed of assignment,
conveying and transferring all its rights and interests under the contract of lease which it executed with private respondents. The
assignment was for and in consideration of the loans granted by PNB to PBM. The deed of assignment was registered and annotated at the
back of the private respondents' certificates of title as Entry No. 85215/T-No. 32843.
On November 6, 1963 and December 23, 1963 respectively, PBM executed in favor of PNB a real estate mortgage for a loan of
P100,000.00 and an addendum to real estate mortgage for another loan of P1,590,000.00, covering all the improvements constructed by
PBM on the leased premises. These mortgages were registered and annotated at the back of respondents' certificates as Entry No.
85214/T-No. 43338 and Entry No. 870971/T-No. 32843, respectively.
PBM filed a petition for registration of improvements in the titles of real property owned by private respondents docketed as Case No.
6530.
On October 7, 1981, private respondents filed a motion in the same proceedings which was given a different case number to wit, LRC
Case
No.
R-2744, because of the payment of filing fees for the motion. The motion sought to cancel the annotations on respondents' certificates of

title pertaining to the assignment by PBM to PNB of the former's leasehold rights, inclusion of improvements and the real estate
mortgages made by PBM in favor of PNB, on the ground that the contract of lease entered into between PBM and respondents-movants
had already expired by the failure of PBM and/or its assignee to exercise the option to renew the second 20-year lease commencing on
March 1, 1974 and also by the failure of PBM to extend its corporate existence in accordance with law. The motion also states that since
PBM failed to remove its improvements on the leased premises before the expiration of the contract of lease, such improvements shall
accrue to respondents as owners of the land.
On April 22, 1982, respondent court issued an order directing the cancellation of the inscriptions on respondents' certificates of title. The
dispositive portion of the order provides:
WHEREFORE, the Register of Deeds having jurisdiction over the movant's land Certificates of Title Nos. 853, 32843
and 32897 is hereby ordered, upon the payment of the corresponding fees, to cancel therein
memoranda/inscriptions/entries Nos. 85213/T-No. 43338, 85215/T-No. 32843, 85214/T-No. 43338 and 87097/T-No.
32843.
SO ORDERED. (pp. 147-148, Rollo)
Petitioner PNB filed a motion for reconsideration of the above order of the respondent court but the latter denied it on June 28, 1982.
On August 25, 1982, private respondents filed a motion for entry of final judgment and issuance of a writ of execution of the order of
April 22, 1982.
On September 14, 1982, respondent court granted the aforesaid motion for entry of final judgment and ordered the Register of Deeds of
Pasig, Rizal to cancel the entries on respondents' certificates of title stated in the order of April 22, 1982.
Petitioner PNB filed an omnibus motion to set aside the entry of judgment as ordered by the respondent court on the ground that it has no
prior notice or knowledge of the order of respondent court dated June 28, 1982 which denied its motion for reconsideration of the order of
April 22, 1982 and that while there was a certification from the Bureau of Posts that three registry notices were sent to petitioner's
counsel, there was no allegation or certification whatsoever that said notices were actually received by the addressee.
On January 12, 1983, the respondent court denied the omnibus motion.
Hence, this petition.
Petitioner alleges that respondent court acted capriciously and arbitrarily in issuing the orders of September 14, 1982 and January 12,
1983 which considered its previous order of April 22, 1982 as having become final on the ground that it had no notice or knowledge that
the order of June 28, 1982 denying its motion for reconsideration was issued; that the notices of registered mail allegedly containing the
order of June 28, 1982 were not received by petitioner's counsel of record, and that the certification of the Bureau of Posts refers only to
the fact that registry notices were sent, and not to the fact that the notices were actually received by the addressee.
In resolving this matter, the respondent court stated in the questioned order of January 12, 1983 as follows:
The respondent PNB filed a motion of May 20, 1982 to set aside the Order of April 22, 1982. This was denied by the
Order of June 28, 1982. Then the movants filed a motion of August 25, 1982 for entry of judgment, based on the
postmaster's certification that not only one but three notices of the registered mail containing a copy of the order of
June 28, 1982 was sent to respondent PNB's counsel at the PNB Building at Escolta, Manila which is his address of
record in this case. Consequently the entry of judgment Order of September 14, 1982.
xxx xxx xxx
The respondent PNB's counsel at the hearing of said incidents on October 12, 1982 admitted that the aforesaid
registered notices could have been received by PNB's regular Receiving Section at the PNB Building at the Escolta
but could not have been forwarded by said Receiving Section to said counsel's Litigation and Collection Division,
Legal Department at an upper floor of the same building. Thus the presumption that official duty was regularly
performed by the postmaster was not overcome, as most recently reiterated by the Supreme Court in Feraren vs.
Santos promulgated on April 27, 1982, 113, SCRA 707 . . . (p. 195, Rollo)
Section 8 of Rule 13 of the Rules of Court, as amended, provides that service by registered mail is complete upon actual receipt by the
addressee; but if he fails to claim his mail from the post office within five (5) days from the date of first notice of the postmaster, service
shall take effect at the expiration of such time. The fair and just application of that exception depends upon the conclusive proof that the

first notice was sent by the postmaster to the addressee. The best evidence of that fact would be the certification from the postmaster
(Barrameda v. Castillo, L-27211, July 6, 1977, 78 SCRA 1).
In the instant case, the respondent court found that the postmaster's certification stated that three (3) notices of the registered mail which
contained the order of June 28, 1982 denying the motion for reconsideration of the order of April 22, 1982, were sent to petitioner PNB's
counsel at Escolta, Manila which is the address stated in the record of the case. The factual findings of the trial court bear great weight
and is binding upon this Court. Hence, as between the denial of the petitioners' counsel that he received the notice of the registered mail
and the postmaster's certification that said notices were sent to him, the postmaster's claim should prevail. The postmaster has the official
duty to send notices of registered mail and the presumption is that official duty was regularly performed (Aportadera, Sr. v. Court of
Appeals, G.R. No. 41358, March 16, 1988, 158 SCRA 695).
Petitioner alleges that it is not the respondent court but the Securities and Exchange Commission which has jurisdiction over the private
respondents' motions, which raised as issue the corporate existence of PBM. Petitioner further submits that the respondent court
committed grave abuse of discretion in ordering the cancellation of entries in the certificates of title of respondents on the following
grounds: 1) the motion for cancellation would amount to a collateral attack upon the due incorporation of PBM which cannot be done
legally, 2) the contract of lease between PBM as petitioner's assignor and private respondents did not expire since PBM exercised its
option to renew the lease with the acquiescence of private respondents, and 3) respondent court's ruling that ownership over the
improvements passed from PBM to private respondents upon the expiration of lease violates the law and the contract between the parties.
Even if We were to set aside the questioned orders directing the entry of finality of the order cancelling entries in the titles, petitioner's
case must still fail on the merits.
Private respondent's motion with the respondent court was for the cancellation of the entries on their titles on the ground that the contract
of lease executed between them and PBM had expired. This action is civil in nature and is within the jurisdiction of the respondent court.
The circumstance that PBM as one of the contracting parties is a corporation whose corporate term had expired and which fact was made
the basis for the termination of the lease is not sufficient to confer jurisdiction on the Securities and Exchange Commission over the case.
Presidential Decree No. 902-A, as amended, enumerates the cases over which the SEC has exclusive jurisdiction and authority to resolve.
The case at bar is not covered by the enumeration.
Anent the issue of whether the cancellation of the entries on respondent's certificates of title is valid and proper, We find that the
respondent court did not act in excess of its jurisdiction, in ordering the same.
The contract of lease expressly provides that the term of the lease shall be twenty years from the execution of the contract but can be
extended for another period of twenty years at the option of the lessee should the corporate term be extended in accordance with law.
Clearly, the option of the lessee to extend the lease for another period of twenty years can be exercised only if the lessee as corporation
renews or extends its corporate term of existence in accordance with the Corporation Code which is the applicable law. Contracts are to be
interpreted according to their literal meaning and should not be interpreted beyond their obvious intendment. Thus, in the instant case, the
initial term of the contract of lease which commenced on March 1, 1954 ended on March 1, 1974. PBM as lessee continued to occupy the
leased premises beyond that date with the acquiescence and consent of the respondents as lessor. Records show however, that PBM as a
corporation had a corporate life of only twenty-five (25) years which ended an January 19, 1977. It should be noted however that PBM
allowed its corporate term to expire without complying with the requirements provided by law for the extension of its corporate term of
existence.
Section 11 of Corporation Code provides that a corporation shall exist for a period not exceeding fifty (50) years from the date of
incorporation unless sooner dissolved or unless said period is extended. Upon the expiration of the period fixed in the articles of
incorporation in the absence of compliance with the legal requisites for the extension of the period, the corporation ceases to exist and is
dissolved ipso facto (16 Fletcher 671 cited by Aguedo F. Agbayani, Commercial Laws of the Philippines, Vol. 3, 1988 Edition p. 617).
When the period of corporate life expires, the corporation ceases to be a body corporate for the purpose of continuing the business for
which it was organized. But it shall nevertheless be continued as a body corporate for three years after the time when it would have been
so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it gradually to settle and close its affairs, to
dispose of and convey its property and to divide its assets (Sec. 122, Corporation Code). There is no need for the institution of a
proceeding forquo warranto to determine the time or date of the dissolution of a corporation because the period of corporate existence is
provided in the articles of incorporation. When such period expires and without any extension having been made pursuant to law, the
corporation is dissolved automatically insofar as the continuation of its business is concerned. The quo warranto proceeding under Rule
66 of the Rules of Court, as amended, may be instituted by the Solicitor General only for the involuntary dissolution of a corporation on
the following grounds: a) when the corporation has offended against a provision of an Act for its creation or renewal; b) when it has
forfeited its privileges and franchises by non-user; c) when it has committed or omitted an act which amounts to a surrender of its

corporate rights, privileges or franchises; d) when it has mis-used a right, privilege or franchise conferred upon it by law, or when it has
exercised a right, privilege or franchise in contravention of law. Hence, there is no need for the SEC to make an involuntary dissolution of
a corporation whose corporate term had ended because its articles of incorporation had in effect expired by its own limitation.
Considering the foregoing in relation to the contract of lease between the parties herein, when PBM's corporate life ended on January 19,
1977 and its 3-year period for winding up and liquidation expired on January 19, 1980, the option of extending the lease was likewise
terminated on January 19, 1977 because PBM failed to renew or extend its corporate life in accordance with law. From then on, the
respondents can exercise their right to terminate the lease pursuant to the stipulations in the contract.
We now come to the question of the ownership over the improvements constructed by PBM over the leased premises, which
improvements were mortgaged in favor of PNB, petitioner herein.
The rights of the lessor and the lessee over the improvements which the latter constructed on the leased premises is governed by Article
1678 of the Civil Code which provides:
Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is
intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease
shall pay the lessee one-half of the value of the improvements at that time. Should the lessor refuse to reimburse said
amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He
shall not however, cause any more impairment upon the property leased than is necessary. . . .
The aforequoted provision gives the lessee the right to remove the improvements if the lessor chooses not to pay one-half of the value
thereof. However, in the case at bar, the law will not apply because the parties herein have stipulated in the contract their own terms and
conditions concerning the improvements, to wit, that the lessee, namely PBM, bound itself to remove the improvements before the
termination of the lease. Petitioner PNB, as assignee of PBM succeeded to the obligation of the latter under the contract of lease. It could
not possess rights more than what PBM had as lessee under the contract. Hence, petitioner was duty bound to remove the improvements
before the expiration of the period of lease as what we have already discussed in the preceding paragraphs. Its failure to do so when the
lease was terminated was tantamount to a waiver of its rights and interests over the improvements on the leased premises.
In view of the foregoing, this Court finds that respondent court did not act with grave abuse of discretion in directing the cancellation of
entries on private respondents' certificates of title as set forth in the questioned order.
ACCORDINGLY, the petition is DISMISSED and the assailed orders of respondent court dated April 22, 1982, September 14, 1982 and
January 12, 1983 are AFFIRMED.
SO ORDERED.
Cruz, Grio-Aquino and Bellosillo, JJ., concur.

epublic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-23606

July 29, 1968

ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC., petitioner,

vs.
SECURITIES & EXCHANGE COMMISSION, respondent.
Gamboa and Gamboa for petitioner.
Office of the Solicitor General for respondent.
SANCHEZ, J.:
To the question May a corporation extend its life by amendment of its articles of incorporation effected during the
three-year statutory period for liquidation when its original term of existence had already expired? the answer of
the Securities and Exchange Commissioner was in the negative. Offshoot is this appeal.

That problem emerged out of the following controlling facts:

Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter referred to simply asAlhambra)
was duly incorporated under Philippine laws on January 15, 1912. By its corporate articles it was to exist for fifty (50)
years from incorporation. Its term of existence expired on January 15, 1962. On that date, it ceased transacting
business, entered into a state of liquidation.
Thereafter, a new corporation. Alhambra Industries, Inc. was formed to carry on the business of Alhambra.
On May 1, 1962, Alhambra's stockholders, by resolution named Angel S. Gamboa trustee to take charge of its
liquidation.
On June 20, 1963 within Alhambra's three-year statutory period for liquidation - Republic Act 3531 was enacted
into law. It amended Section 18 of the Corporation Law; it empowered domestic private corporations to extend their
corporate life beyond the period fixed by the articles of incorporation for a term not to exceed fifty years in any one
instance. Previous to Republic Act 3531, the maximum non-extendible term of such corporations was fifty years.
On July 15, 1963, at a special meeting, Alhambra's board of directors resolved to amend paragraph "Fourth" of its
articles of incorporation to extend its corporate life for an additional fifty years, or a total of 100 years from its
incorporation.
On August 26, 1963, Alhambra's stockholders, representing more than two-thirds of its subscribed capital stock, voted
to approve the foregoing resolution. The "Fourth" paragraph of Alhambra's articles of incorporation was thus altered
to read:
FOURTH. That the term for which said corporation is to exist is fifty (50) years from and after the date of
incorporation, and for an additional period of fifty (50) years thereafter.
On October 28, 1963, Alhambra's articles of incorporation as so amended certified correct by its president and
secretary and a majority of its board of directors, were filed with respondent Securities and Exchange Commission
(SEC).
On November 18, 1963, SEC, however, returned said amended articles of incorporation to Alhambra's counsel with
the ruling that Republic Act 3531 "which took effect only on June 20, 1963, cannot be availed of by the said
corporation, for the reason that its term of existence had already expired when the said law took effect in short, said
law has no retroactive effect."
On December 3, 1963, Alhambra's counsel sought reconsideration of SEC's ruling aforesaid, refiled the amended
articles of incorporation.
On September 8, 1964, SEC, after a conference hearing, issued an order denying the reconsideration sought.
Alhambra now invokes the jurisdiction of this Court to overturn the conclusion below.1
1. Alhambra relies on Republic Act 3531, which amended Section 18 of the Corporation Law. Well it is to take note of
the old and the new statutes as they are framed. Section 18, prior to and after its modification by Republic Act 3531,
covers the subject of amendment of the articles of incorporation of private corporations. A provision thereof which
remains unaltered is that a corporation may amend its articles of incorporation "by a majority vote of its board of
directors or trustees and ... by the vote or written assent of the stockholders representing at least two-thirds of the
subscribed capital stock ... "
But prior to amendment by Republic Act 3531, an explicit prohibition existed in Section 18, thus:

... Provided, however, That the life of said corporation shall not be extended by said amendment beyond the
time fixed in the original articles: ...
This was displaced by Republic Act 3531 which enfranchises all private corporations to extend their corporate
existence. Thus incorporated into the structure of Section 18 are the following:
... Provided, however, That should the amendment consist in extending the corporate life, the extension shall
not exceed fifty years in any one instance: Provided, further, That the original articles, and amended articles
together shall contain all provisions required by law to be set out in the articles of incorporation: ...
As we look in retrospect at the facts, we find these: From July 15 to October 28, 1963, when Alhambra made its
attempt to extend its corporate existence, its original term of fifty years had already expired (January 15, 1962); it was
in the midst of the three-year grace period statutorily fixed in Section 77 of the Corporation Law, thus: .
SEC. 77. Every corporation whose charter expires by its own limitation or is annulled by forfeiture or
otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall
nevertheless be continued as a body corporate for three years after the time when it would have been so
dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to
settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the
purpose of continuing the business for which it was established. 2
Plain from the language of the provision is its meaning: continuance of a "dissolved" corporation as a body corporate
for three years has for its purpose the final closure of its affairs, and no other; the corporation is specifically enjoined
from "continuing the business for which it was established". The liquidation of the corporation's affairs set forth in
Section 77 became necessary precisely because its life had ended. For this reason alone, the corporate existence and
juridical personality of that corporation to do business may no longer be extended.
Worth bearing in mind, at this juncture, is the basic development of corporation law.
The common law rule, at the beginning, was rigid and inflexible in that upon its dissolution, a corporation became
legally dead for all purposes. Statutory authorizations had to be provided for its continuance after dissolution "for
limited and specified purposes incident to complete liquidation of its affairs". 3 Thus, the moment a corporation's right
to exist as an "artificial person" ceases, its corporate powers are terminated "just as the powers of a natural person to
take part in mundane affairs cease to exist upon his death". 4 There is nothing left but to conduct, as it were, the
settlement of the estate of a deceased juridical person.
2. Republic Act 3531, amending Section 18 of the Corporation Law, is silent, it is true, as to when such act of
extension may be made. But even with a superficial knowledge of corporate principles, it does not take much effort to
reach a correct conclusion. For, implicit in Section 77 heretofore quoted is that the privilege given toprolong corporate
life under the amendment must be exercised before the expiry of the term fixed in the articles of incorporation.
Silence of the law on the matter is not hard to understand. Specificity is not really necessary. The authority to prolong
corporate life was inserted by Republic Act 3531 into a section of the law that deals with the power of a corporation
to amend its articles of incorporation. (For, the manner of prolongation is through an amendment of the articles.) And
it should be clearly evident that under Section 77 no corporation in a state of liquidation can act in any way, much
less amend its articles, "for the purpose of continuing the business for which it was established".
All these dilute Alhambra's position that it could revivify its corporate life simply because when it attempted to do so,
Alhambra was still in the process of liquidation. It is surely impermissible for us to stretch the law that merely
empowers a corporation to act in liquidation to inject therein the power to extend its corporate existence.

3. Not that we are alone in this view. Fletcher has written: "Since the privilege of extension is purely statutory, all of
the statutory conditions precedent must be complied with in order that the extension may be effectuated. And,
generally these conditions must be complied with, and the steps necessary to effect the extension must be
taken,during the life of the corporation, and before the expiration of the term of existence as original fixed by its
charter or the general law, since, as a rule, the corporation is ipso facto dissolved as soon as that time expires. So
where the extension is by amendment of the articles of incorporation, the amendment must be adopted before that
time. And, similarly, the filing and recording of a certificate of extension after that time cannot relate back to the date
of the passage of a resolution by the stockholders in favor of the extension so as to save the life of the corporation.
The contrary is true, however, and the doctrine of relation will apply, where the delay is due to the neglect of the
officer with whom the certificate is required to be filed, or to a wrongful refusal on his part to receive it. And statutes
in some states specifically provide that a renewal may be had within a specified time before or after the time fixed for
the termination of the corporate existence".5
The logic of this position is well expressed in a foursquare case decided by the Court of Appeals of Kentucky. 6There,
pronouncement was made as follows:
... But section 561 (section 2147) provides that, when any corporation expires by the terms of its articles of
incorporation, it may be thereafter continued to act for the purpose of closing up its business, but for no other
purpose. The corporate life of the Home Building Association expired on May 3, 1905. After that date, by the
mandate of the statute, it could continue to act for the purpose of closing up its business, but for no other
purpose. The proposed amendment was not made until January 16, 1908, or nearly three years after the
corporation expired by the terms of the articles of incorporation. When the corporate life of the corporation
was ended, there was nothing to extend. Here it was proposed nearly three years after the corporate life of the
association had expired to revivify the dead body, and to make that relate back some two years and eight
months. In other words, the association for two years and eight months had only existed for the purpose of
winding up its business, and, after this length of time, it was proposed to revivify it and make it a live
corporation for the two years and eight months daring which it had not been such.
The law gives a certain length of time for the filing of records in this court, and provides that the time may be
extended by the court, but under this provision it has uniformly been held that when the time was expired,
there is nothing to extend, and that the appeal must be dismissed... So, when the articles of a corporation have
expired, it is too late to adopt an amendment extending the life of a corporation; for, the corporation having
expired, this is in effect to create a new corporation ..."7
True it is, that the Alabama Supreme Court has stated in one case. 8 that a corporation empowered by statute
torenew its corporate existence may do so even after the expiration of its corporate life, provided renewal is taken
advantage of within the extended statutory period for purposes of liquidation. That ruling, however, is inherently weak
as persuasive authority for the situation at bar for at least two reasons: First. That case was a suit for mandamus to
compel a former corporate officer to turn over books and records that came into his possession and control by virtue
of his office. It was there held that such officer was obliged to surrender his books and records even if the corporation
had already expired. The holding on the continued existence of the corporation was a mere dictum. Second. Alabama's
law is different. Corporations in that state were authorized not only to extend but also to renew their corporate
existence.That very case defined the word "renew" as follows; "To make new again; to restore to freshness; to make
new spiritually; to regenerate; to begin again; to recommence; to resume; to restore to existence, to revive; to reestablish; to recreate; to replace; to grant or obtain an extension of Webster's New International Dict.; 34 Cyc.
1330; Carter v. Brooklyn Life Ins. Co., 110 N.Y. 15, 21, 22, 17 N.E. 396; 54 C.J. 379. Sec".9
On this point, we again draw from Fletcher: "There is a broad distinction between the extension of a charter and the
grant of a new one. To renew a charter is to revive a charter which has expired, or, in other words, "to give a new

existence to one which has been forfeited, or which has lost its vitality by lapse of time". To "extend" a charter is "to
increase the time for the existence of one which would otherwise reach its limit at an earlier period". 10Nowhere in our
statute Section 18, Corporation Law, as amended by Republic Act 3531 do we find the word "renew" in
reference to the authority given to corporations to protract their lives. Our law limits itself to extensionof corporate
existence. And, as so understood, extension may be made only before the term provided in the corporate charter
expires.
Alhambra draws attention to another case11 which declares that until the end of the extended period for liquidation, a
dissolved corporation "does not become an extinguished entity". But this statement was obviously lifted out of
context. That case dissected the question whether or not suits can be commenced by or against a corporation within its
liquidation period. Which was answered in the affirmative. For, the corporation still exists for the settlement of its
affairs.
People, ex rel. vs. Green, 12 also invoked by Alhambra, is as unavailing. There, although the corporation amended its
articles to extend its existence at a time when it had no legal authority yet, it adopted the amended articles later on
when it had the power to extend its life and during its original term when it could amend its articles.
The foregoing notwithstanding, Alhambra falls back on the contention that its case is arguably within the purview of
the law. It says that before cessation of its corporate life, it could not have extended the same, for the simple reason
that Republic Act 3531 had not then become law. It must be remembered that Republic Act 3531 took effect on June
20, 1963, while the original term of Alhambra's existence expired before that date on January 15, 1962. The
mischief that flows from this theory is at once apparent. It would certainly open the gates for all defunct corporations
whose charters have expired even long before Republic Act 3531 came into being to resuscitate their corporate
existence.
4. Alhambra brings into argument Republic Act 1932, which amends Section 196 of the Insurance Act, now reading as
follows:
1wph1.t

SEC. 196. Any provision of law to the contrary notwithstanding, every domestic life insurance corporation,
formed for a limited period under the provisions of its articles of incorporation, may extend its corporate
existence for a period not exceeding fifty years in any one instance by amendment to its articles of
incorporation on or before the expiration of the term so fixed in said articles ...
To be observed is that the foregoing statute unlike Republic Act 3531 expressly authorizes domestic insurance
corporations to extend their corporate existence "on or before the expiration of the term" fixed in their articles of
incorporation. Republic Act 1932 was approved on June 22, 1957, long before the passage of Republic Act 3531 in
1963. Congress, Alhambra points out, must have been aware of Republic Act 1932 when it passed Republic Act 3531.
Since the phrase "on or before", etc., was omitted in Republic Act 3531, which contains no similar limitation, it
follows, according to Alhambra, that it is not necessary to extend corporate existence on or before the expiration of its
original term.
That Republic Act 3531 stands mute as to when extention of corporate existence may be made, assumes no relevance.
We have already said, in the face of a familiar precept, that a defunct corporation is bereft of any legal faculty not
otherwise expressly sanctioned by law.
Illuminating here is the explanatory note of H.B. 1774, later Republic Act 3531 now in dispute. Its first paragraph
states that "Republic Act No. 1932 allows the automatic extension of the corporate existence of domestic life
insurance corporations upon amendment of their articles of incorporation on or before the expiration of the terms
fixed by said articles". The succeeding lines are decisive: "This is a good law, a sane and sound one.There appears to
be no valid reason why it should not be made to apply to other private corporations.13

The situation here presented is not one where the law under consideration is ambiguous, where courts have to put in
harness extrinsic aids such as a look at another statute to disentangle doubts. It is an elementary rule in legal
hermeneutics that where the terms of the law are clear, no statutory construction may be permitted. Upon the basic
conceptual scheme under which corporations operate, and with Section 77 of the Corporation Law particularly in
mind, we find no vagueness in Section 18, as amended by Republic Act 3531. As we view it, by directing attention to
Republic Act 1932, Alhambra would seek to create obscurity in the law; and, with that, ask of us a ruling that such
obscurity be explained. This, we dare say, cannot be done.
The pari materia rule of statutory construction, in fact, commands that statutes must be harmonized with each
other.14 So harmonizing, the conclusion is clear that Section 18 of the Corporation Law, as amended by Republic Act
3531 in reference to extensions of corporate existence, is to be read in the same light as Republic Act 1932. Which
means that domestic corporations in general, as with domestic insurance companies, can extend corporate existence
only on or before the expiration of the term fixed in their charters.
5. Alhambra pleads for munificence in interpretation, one which brushes technicalities aside. Bases for this posture are
that Republic Act 3531 is a remedial statute, and that extension of corporate life is beneficial to the economy.
Alhambra's stance does not induce assent. Expansive construction is possible only when there is something to expand.
At the time of the passage of Republic Act 3531, Alhambra's corporate life had already expired. It had overstepped the
limits of its limited existence. No life there is to prolong.
Besides, a new corporation Alhambra Industries, Inc., with but slight change in stockholdings 15 has already
been established. Its purpose is to carry on, and it actually does carry on, 16 the business of the dissolved entity. The
beneficial-effects argument is off the mark.
The way the whole case shapes up then, the only possible drawbacks of Alhambra might be that, instead of the new
corporation (Alhambra Industries, Inc.) being written off, the old one (Alhambra Cigar & Cigarette Manufacturing
Company, Inc.) has to be wound up; and that the old corporate name cannot be retained fully in its exact form. 17 What
is important though is that the word Alhambra, the name that counts [it has goodwill], remains.
FOR THE REASONS GIVEN, the ruling of the Securities and Exchange Commission of November 18, 1963, and its
order of September 8, 1964, both here under review, are hereby affirmed.
Costs against petitioner Alhambra Cigar & Cigarette Manufacturing Company, Inc. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Angeles and Fernando, JJ., concur.
Footnotes
1Rule 43, Rules of Court.
2Emphasis supplied.
319 C.J.S., p. 1487.
4Id., p. 1485, at footnote 76, citing Sharp vs. Eagle Lake Lumber Co., 212 P. 933, 60 Cal. App. 386.
58 Fletcher, Cyclopedia Corporations, Perm, ed., 1931, pp. 559-560, citing cases. Emphasis supplied.
6Home Bldg. Ass'n vs. Bruner, 120 S.W. 306, 307.
7Citing cases; emphasis supplied.
8Rayburn vs. Guntersville Realty Company, 93 A.L.R. 1055, 1059-1060, cited by petitioner.
9At p. 1059.

10Fletcher, p. 535. In 18 Am. Jur. 2d., p. 612, we find at footnote 14 the following: "Loeffler v. Federal

Supply Co. 187 Okla 373, 102 P2d 862, wherein the court notes a distinction between the words "extend" and
"renew." The court said that the word "extend" means to prolong or lengthen in time, whereas the word
"renew" means to restore to existence, to revive, re-establish, or recreate.
11Abercrombie vs. United Light & Power Co., 7 F. Supp. 530, 542.
12116 Mich. 505, 74 N.W. 714.
13Emphasis supplied.
1482 C.J.S., p. 801.
15Tr., p. 18.
16Tr., p. 17.
17Tr., pp. 17-19.

SPECIAL SECOND DIVISION

[G.R. No. 144476. April 8, 2003]

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

[G.R. No. 144629. April 8, 2003]

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

RESOLUTION
CORONA, J.:

Before us are the (1) motion for reconsideration, dated March 15, 2002, of petitioner
movants Ong Yong, Juanita Tan Ong, Wilson Ong, Anna Ong, William Ong, Willie Ong and
Julia Ong Alonzo (the Ongs); (2) motion for partial reconsideration, dated March 15, 2002, of
petitioner movant Willie Ong seeking a reversal of this Courts Decision, [1] dated February 1,
2002, in G.R. Nos. 144476 and 144629 affirming with modification the decision [2] of the Court
of Appeals, dated October 5, 1999, which in turn upheld, likewise with modification, the
decision of the SEC en banc, dated September 11, 1998; and (3) motion for issuance of writ
of execution of petitioners David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence
Y. Tiu, John Yu and Lourdes C. Tiu (the Tius) of our February 1, 2002 Decision.
A brief recapitulation of the facts shows that:
In 1994, the construction of the Masagana Citimall in Pasay City was threatened with
stoppage and incompletion when its owner, the First Landlink Asia Development Corporation
(FLADC), which was owned by the Tius, encountered dire financial difficulties. It was heavily
indebted to the Philippine National Bank (PNB) for P190 million. To stave off foreclosure of
the mortgage on the two lots where the mall was being built, the Tius invited Ong Yong,
Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the
Ongs), to invest in FLADC. Under the Pre-Subscription Agreement they entered into, the
Ongs and the Tius agreed to maintain equal shareholdings in FLADC: the Ongs were to
subscribe to 1,000,000 shares at a par value of P100.00 each while the Tius were to
subscribe to an additional 549,800 shares at P100.00 each in addition to their already existing
subscription of 450,200 shares. Furthermore, they agreed that the Tius were entitled to
nominate the Vice-President and the Treasurer plus five directors while the Ongs were
entitled to nominate the President, the Secretary and six directors (including the chairman) to
the board of directors of FLADC. Moreover, the Ongs were given the right to manage and
operate the mall.
Accordingly, the Ongs paid P100 million in cash for their subscription to 1,000,000 shares
of stock while the Tius committed to contribute to FLADC a four-storey building and two
parcels of land respectively valued at P20 million (for 200,000 shares), P30 million (for
300,000 shares) and P49.8 million (for 49,800 shares) to cover their additional 549,800 stock
subscription therein. The Ongs paid in anotherP70 million[3] to FLADC and P20 million to the
Tius over and above their P100 million investment, the total sum of which (P190 million) was
used to settle the P190 million mortgage indebtedness of FLADC to PNB.

The business harmony between the Ongs and the Tius in FLADC, however, was
shortlived because the Tius, on February 23, 1996, rescinded the Pre-Subscription
Agreement. The Tius accused the Ongs of (1) refusing to credit to them the FLADC shares
covering their real property contributions; (2) preventing David S. Tiu and Cely Y. Tiu from
assuming the positions of and performing their duties as Vice-President and Treasurer,
respectively, and (3) refusing to give them the office spaces agreed upon.
According to the Tius, the agreement was for David S. Tiu and Cely S. Tiu to assume the
positions and perform the duties of Vice-President and Treasurer, respectively, but the Ongs
prevented them from doing so. Furthermore, the Ongs refused to provide them the space for
their executive offices as Vice-President and Treasurer. Finally, and most serious of all, the
Ongs refused to give them the shares corresponding to their property contributions of a fourstory building, a 1,902.30 square-meter lot and a 151 square-meter lot. Hence, they felt they
were justified in setting aside their Pre-Subscription Agreement with the Ongs who allegedly
refused to comply with their undertakings.
In their defense, the Ongs said that David S. Tiu and Cely Y. Tiu had in fact assumed the
positions of Vice-President and Treasurer of FLADC but that it was they who refused to
comply with the corporate duties assigned to them. It was the contention of the Ongs that they
wanted the Tius to sign the checks of the corporation and undertake their management duties
but that the Tius shied away from helping them manage the corporation. On the issue of office
space, the Ongs pointed out that the Tius did in fact already have existing executive offices in
the mall since they owned it 100% before the Ongs came in. What the Tius really wanted
were new offices which were anyway subsequently provided to them. On the most important
issue of their alleged failure to credit the Tius with the FLADC shares commensurate to the
Tius property contributions, the Ongs asserted that, although the Tius executed a deed of
assignment for the 1,902.30 square-meter lot in favor of FLADC, they (the Tius) refused to
pay P 570,690 for capital gains tax and documentary stamp tax. Without the payment thereof,
the SEC would not approve the valuation of the Tius property contribution (as opposed to
cash contribution). This, in turn, would make it impossible to secure a new Transfer Certificate
of Title (TCT) over the property in FLADCs name. In any event, it was easy for the Tius to
simply pay the said transfer taxes and, after the new TCT was issued in FLADCs name, they
could then be given the corresponding shares of stocks. On the 151 square-meter property,
the Tius never executed a deed of assignment in favor of FLADC. The Tius initially claimed
that they could not as yet surrender the TCT because it was still being reconstituted by the
Lichaucos from whom the Tius bought it.The Ongs later on discovered that FLADC had in
reality owned the property all along, even before their Pre-Subscription Agreement was
executed in 1994. This meant that the 151 square-meter property was at that time already the
corporate property of FLADC for which the Tius were not entitled to the issuance of new
shares of stock.

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

WHEREFORE, judgment is hereby rendered confirming the rescission of the PreSubscription Agreement, and consequently ordering:
(a) The cancellation of the 1,000,000 shares subscription of the individual defendants in
FLADC;
(b) FLADC to pay the amount of P170,000,000.00 to the individual defendants representing
the return of their contribution for 1,000,000 shares of FLADC;
( c) The plaintiffs to submit with (sic) the Securities and Exchange Commission amended
articles of incorporation of FLADC to conform with this decision;
(d) The defendants to surrender to the plaintiffs TCT Nos. 132493, 132494, 134066 (formerly
15587), 135325 and 134204 and any other title or deed in the name of FLADC, failing in
which said titles are declared void;
(e) The Register of Deeds to issue new certificates of titles in favor of the plaintiffs and to
cancel the annotation of the Pre-Subscription Agreement dated 15 August 1994 on TCT
No. 134066 (formerly 15587);
(f) The individual defendants, individually and collectively, their agents and representatives, to
desist from exercising or performing any and all acts pertaining to stockholder, director or
officer of FLADC or in any manner intervene in the management and affairs of FLADC;
(g) The individual defendants, jointly and severally, to return to FLADC interest payment in
the amount of P8,866,669.00 and all interest payments as well as any payments on
principal received from the P70,000,000.00 inexistent loan, plus the legal rate of interest
thereon from the date of their receipt of such payment until fully paid;
(h) The plaintiff David Tiu to pay individual defendants the sum of P20,000,000.00
representing his loan from said defendants plus legal interest from the date of receipt of
such amount.

SO ORDERED.[5]
On motion of both parties, the above decision was partially reconsidered but only insofar
as the Ongs P70 million was declared not as a premium on capital stock but an advance
(loan) by the Ongs to FLADC and that the imposition of interest on it was correct. [6]

Both parties appealed[7] to the SEC en banc which rendered a decision on September 11,
1998, affirming the May 19, 1997 decision of the Hearing Officer. The SEC en banc confirmed
the rescission of the Pre-Subscription Agreement but reverted to classifying the P70 million
paid by the Ongs as premium on capital and not as a loan or advance to FLADC, hence, not
entitled to earn interest.[8]
On appeal, the Court of Appeals (CA) rendered a decision on October 5, 1999, thus:

WHEREFORE, the Order dated September 11, 1998 issued by the Securities and
Exchange Commission En Banc in SEC AC CASE NOS. 598 and 601 confirming the
rescission of the Pre-Subscription Agreement dated August 15, 1994 is hereby
AFFIRMED, subject to the following MODIFICATIONS:
1. The Ong and Tiu Groups are ordered to liquidate First Landlink Asia
Development Corporation in accordance with the following cash and
property contributions of the parties therein.
(a) Ong Group P100,000,000.00 cash contribution for one (1) million
shares in First Landlink Asia Development Corporation at a par value
of P100.00 per share;
(b) Tiu Group:
1) P45,020,000.00 original cash contribution for 450,200 shares in
First Landlink Asia Development Corporation at a par value of
P100.00 per share;
2) A four-storey building described in Transfer Certificate of Title No.
15587 in the name of Intraland Resources and Development
Corporation valued at P20,000,000.00 for 200,000 shares in First
Landlink Asia Development Corporation at a par value of P100.00
per share;
3) A 1,902.30 square-meter parcel of land covered by Transfer
Certificate of Title No. 15587 in the name of Masagana Telamart,
Inc. valued at P30,000,000.00 for 300,000 shares in First Landlink
Asia Development Corporation at a par value of P100.00 per share.
2) Whatever remains of the assets of the First Landlink Asia Development
Corporation and the management thereof is (sic) hereby ordered
transferred to the Tiu Group.

3) First Landlink Asia Development Corporation is hereby ordered to pay the

amount of P70,000,000.00 that was advanced to it by the Ong Group upon
the finality of this decision. Should the former incur in delay in the
payment thereof, it shall pay the legal interest thereon pursuant to Article
2209 of the New Civil Code.
4) The Tius are hereby ordered to pay the amount of P20,000,000.00 loaned
them by the Ongs upon the finality of this decision. Should the former
incur in delay in the payment thereof, it shall pay the legal interest thereon
pursuant to Article 2209 of the New Civil Code.
SO ORDERED.[9]
An interesting sidelight of the CA decision was its description of the rescission made by
the Tius as the height of ingratitude and as pulling a fast one on the Ongs. The CA moreover
found the Tius guilty of withholding FLADC funds from the Ongs and diverting corporate
income to their own MATTERCO account.[10] These were findings later on affirmed in our own
February 1, 2002 Decision which is the subject of the instant motion for reconsideration. [11]
But there was also a strange aspect of the CA decision. The CA concluded that both the
Ongs and the Tius were in pari delicto (which would not have legally entitled them to
rescission) but, for practical considerations, that is, their inability to work together, it was best
to separate the two groups by rescinding the Pre-Subscription Agreement, returning the
original investment of the Ongs and awarding practically everything else to the Tius.
Their motions for reconsideration having been denied, both parties filed separate petitions
for review before this Court.
In their petition docketed as G.R. No. 144476, Ong et al. vs. Tiu et al., the Ongs argued
that the Tius may not properly avail of rescission under Article 1191 of the Civil Code
considering that the Pre-Subscription Agreement did not provide for reciprocity of obligations;
that the rights over the subject matter of the rescission (capital assets and properties) had
been acquired by a third party (FLADC); that they did not commit a substantial and
fundamental breach of their agreement since they did not prevent the Tius from assuming the
positions of Vice-President and Treasurer of FLADC, and that the failure to credit the 300,000
shares corresponding to the 1,902.30 square-meter property covered by TCT No. 134066
(formerly 15587) was due to the refusal of the Tius to pay the required transfer taxes to
secure the approval of the SEC for the property contribution and, thereafter, the issuance of
title in FLADCs name. They also argued that the liquidation of FLADC may not legally be
ordered by the appellate court even for so called practical considerations or even to prevent
further squabbles and numerous litigations, since the same are not valid grounds under the

Corporation Code. Moreover, the Ongs bewailed the failure of the CA to grant interest on
their P70 million and P20 million advances to FLADC and David S. Tiu, respectively, and to
award costs and damages.
In their petition docketed as G.R. No. 144629, Tiu et al. vs. Ong et al., the Tius, on the
other hand, contended that the rescission should have been limited to the restitution of the
parties respective investments and not the liquidation of FLADC based on the erroneous
perception by the court that: the Masagana Citimall was threatened with incompletion since
FLADC was in financial distress; that the Tius invited the Ongs to invest in FLADC to settle
its P190 million loan from PNB; that they violated the Pre-Subscription Agreement when it
was the Lichaucos and not the Tius who executed the deed of assignment over the 151
square-meter property commensurate to 49,800 shares in FLADC thereby failing to pay the
price for the said shares; that they did not turn over to the Ongs the entire amount of FLADC
funds; that they were diverting rentals from lease contracts due to FLADC to their own
MATTERCO account; that the P70 million paid by the Ongs was an advance and not a
premium on capital; and that, by rescinding the Pre-Subscription Agreement, they wanted to
wrestle away the management of the mall and prevent the Ongs from enjoying the profits of
their P190 million investment in FLADC.
On February 1, 2002, this Court promulgated its Decision (the subject of the instant
motions), affirming the assailed decision of the Court of Appeals but with the following
modifications:
1. the P20 million loan extended by the Ongs to the Tius shall earn interest at twelve percent
(12%) per annum to be computed from the time of judicial demand which is from April 23,
1996;
2. the P70 million advanced by the Ongs to the FLADC shall earn interest at ten percent
(10%) per annum to be computed from the date of the FLADC Board Resolution which is
June 19, 1996; and
3. the Tius shall be credited with 49,800 shares in FLADC for their property contribution,
specifically, the 151 sq. m. parcel of land.

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

the Ongs, was not practical and sound either and would only lead to further squabbles and
numerous litigations between the parties.
On March 15, 2002, the Tius filed before this Court a Motion for Issuance of a Writ of
Execution on the grounds that: (a) the SEC order had become executory as early as
September 11, 1998 pursuant to Sections 1 and 12, Rule 43 of the Rules of Court; (b) any
further delay would be injurious to the rights of the Tius since the case had been pending for
more than six years; and (c) the SEC no longer had quasi-judicial jurisdiction under RA 8799
(Securities Regulation Code). The Ongs filed their opposition, contending that the Decision
dated February 1, 2002 was not yet final and executory; that no good reason existed to issue
a warrant of execution; and that, pursuant to Section 5.2 of RA 8799, the SEC retained
jurisdiction over pending cases involving intra-corporate disputes already submitted for final
resolution upon the effectivity of the said law.
Aside from their opposition to the Tius Motion for Issuance of Writ of Execution, the Ongs
filed their own Motion for Reconsideration; Alternatively, Motion for Modification (of the
February 1, 2002 Decision) on March 15, 2002, raising two main points: (a) that specific
performance and not rescission was the proper remedy under the premises; and (b) that,
assuming rescission to be proper, the subject decision of this Court should be modified to
entitle movants to their proportionate share in the mall.
On their first point (specific performance and not rescission was the proper remedy),
movants Ong argue that their alleged breach of the Pre-Subscription Agreement was, at most,
casual which did not justify the rescission of the contract. They stress that providing
appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-President and Treasurer,
respectively, had no bearing on their obligations under the Pre-Subscription Agreement since
the said obligation (to provide executive offices) pertained to FLADC itself. Such obligation
arose from the relations between the said officers and the corporation and not any of the
individual parties such as the Ongs. Likewise, the alleged failure of the Ongs to credit shares
of stock in favor of the Tius for their property contributions also pertained to the corporation
and not to the Ongs. Just the same, it could not be done in view of the Tius refusal to pay the
necessary transfer taxes which in turn resulted in the inability to secure SEC approval for the
property contributions and the issuance of a new TCT in the name of FLADC.
Besides, according to the Ongs, the principal objective of both parties in entering into the
Pre-Subscription Agreement in 1994 was to raise the P190 million desperately needed for the
payment of FLADCs loan to PNB. Hence, in this light, the alleged failure to provide office
space for the two corporate officers was no more than an inconsequential infringement. For
rescission to be justified, the law requires that the breach of contract should be so substantial
or fundamental as to defeat the primary objective of the parties in making the agreement. At

any rate, the Ongs claim that it was the Tius who were guilty of fundamental violations in
failing to remit funds due to FLADC and diverting the same to their MATTERCO account.
The Ongs also allege that, in view of the findings of the Court that both parties were guilty
of violating the Pre-Subscription Agreement, neither of them could resort to rescission under
the principle of pari delicto. In addition, since the cash and other contributions now sought to
be returned already belong to FLADC, an innocent third party, said remedy may no longer be
availed of under the law.
On their second point (assuming rescission to be proper, the Ongs should be given their
proportionate share of the mall), movants Ong vehemently take exception to the second item
in the dispositive portion of the questioned Decision insofar as it decreed that whatever
remains of the assets of FLADC and the management thereof (after liquidation) shall be
transferred to the Tius. They point out that the mall itself, which would have been foreclosed
by PNB if not for their timely investment of P190 million in 1994 and which is now worth
about P1 billion mainly because of their efforts, should be included in any partition and
distribution. They (the Ongs) should not merely be given interest on their capital
investments. The said portion of our Decision, according to them, amounted to the unjust
enrichment of the Tius and ran contrary to our own pronouncement that the act of the Tius in
unilaterally rescinding the agreement was the height of ingratitude and an attempt to pull a
fast one as it would prevent the Ongs from enjoying the fruits of their P190 million investment
in FLADC. It also contravenes this Courts assurance in the questioned Decision that the Ongs
and Tius will have a bountiful return of their respective investments derived from the profits of
the corporation.
Willie Ong filed a separate Motion for Partial Reconsideration dated March 8, 2002,
pointing out that there was no violation of the Pre-Subscription Agreement on the part of the
Ongs; that, after more than seven years since the mall began its operations, rescission had
become not only impractical but would also adversely affect the rights of innocent parties; and
that it would be highly inequitable and unfair to simply return the P100 million investment of
the Ongs and give the remaining assets now amounting to about P1 billion to the Tius.
The Tius, in their opposition to the Ongs motion for reconsideration, counter that the
arguments therein are a mere re-hash of the contentions in the Ongs petition for review and
previous motion for reconsideration of the Court of Appeals decision. The Tius compare the
arguments in said pleadings to prove that the Ongs do not raise new issues, and, based on
well-settled jurisprudence,[12] the Ongs present motion is therefore pro-forma and did not
prevent the Decision of this Court from attaining finality.
On January 29, 2003, the Special Second Division of this Court held oral arguments on
the respective positions of the parties. On February 27, 2003, Dr. Willie Ong and the rest of

the movants Ong filed their respective memoranda. On February 28, 2003, the Tius submitted
their memorandum.
We grant the Ongs motions for reconsideration.
This is not the first time that this Court has reversed itself on a motion for reconsideration.
In Philippine Consumers Foundation, Inc. vs. National Telecommunications Commission,
[13] this Court, through then Chief Justice Felix V. Makasiar, said that its members may and do
change their minds, after a re-study of the facts and the law, illuminated by a mutual
exchange of views.[14] After a thorough re-examination of the case, we find that our Decision
of February 1, 2002 overlooked certain aspects which, if not corrected, will cause extreme
and irreparable damage and prejudice to the Ongs, FLADC and its creditors.
The procedural rule on pro-forma motions pointed out by the Tius should not be blindly
applied to meritorious motions for reconsideration. As long as the same adequately raises a
valid ground[15] (i.e., the decision or final order is contrary to law), this Court has to evaluate
the merits of the arguments to prevent an unjust decision from attaining finality. In Security
Bank and Trust Company vs. Cuenca,[16] we ruled that a motion for reconsideration is not proforma for the reason alone that it reiterates the arguments earlier passed upon and rejected
by the appellate court. We explained there that a movant may raise the same arguments, if
only to convince this Court that its ruling was erroneous. Moreover, the rule (that a motion
is pro-forma if it only repeats the arguments in the previous pleadings) will not apply if said
arguments were not squarely passed upon and answered in the decision sought to be
reconsidered. In the case at bar, no ruling was made on some of the petitioner Ongs
arguments. For instance, no clear ruling was made on why an order distributing corporate
assets and property to the stockholders would not violate the statutory preconditions for
corporate dissolution or decrease of authorized capital stock. Thus, it would serve the ends of
justice to entertain the subject motion for reconsideration since some important issues
therein, although mere repetitions, were not considered or clearly resolved by this Court.
Going now to the merits, we resolve whether the Tius could legally rescind the PreSubscription Agreement. We rule that they could not.
FLADC was originally incorporated with an authorized capital stock of 500,000 shares
with the Tius owning 450,200 shares representing the paid-up capital. When the Tius invited
the Ongs to invest in FLADC as stockholders, an increase of the authorized capital stock
became necessary to give each group equal (50-50) shareholdings as agreed upon in the
Pre-Subscription Agreement. The authorized capital stock was thus increased from 500,000
shares to 2,000,000 shares with a par value of P100 each, with the Ongs subscribing to
1,000,000 shares and the Tius to 549,800 more shares in addition to their 450,200 shares to
complete 1,000,000 shares. Thus, the subject matter of the contract was the

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

Any contract for the acquisition of unissued stock in an existing corporation or a

corporation still to be formed shall be deemed a subscription within the meaning of this
Title, notwithstanding the fact that the parties refer to it as a purchase or some other
contract (Italics supplied).
A subscription contract necessarily involves the corporation as one of the contracting
parties since the subject matter of the transaction is property owned by the corporation its
shares of stock. Thus, the subscription contract (denominated by the parties as a PreSubscription Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of
stock was, from the viewpoint of the law, one between the Ongs and FLADC, not between the
Ongs and the Tius. Otherwise stated, the Tius did not contract in their personal capacities with
the Ongs since they were not selling any of their own shares to them. It was FLADC that did.
Considering therefore that the real contracting parties to the subscription agreement were
FLADC and the Ongs alone, a civil case for rescission on the ground of breach of contract
filed by the Tius in their personal capacities will not prosper. Assuming it had valid reasons to
do so, only FLADC (and certainly not the Tius) had the legal personality to file suit rescinding
the subscription agreement with the Ongs inasmuch as it was the real party in interest
therein. Article 1311 of the Civil Code provides that contracts take effect only between the
parties, their assigns and heirs Therefore, a party who has not taken part in the transaction
cannot sue or be sued for performance or for cancellation thereof, unless he shows that he
has a real interest affected thereby. [17]
In their February 28, 2003 Memorandum, the Tius claim that there are two contracts
embodied in the Pre-Subscription Agreement: a shareholders agreement between the Tius
and the Ongs defining and governing their relationship and a subscription contract between
the Tius, the Ongs and FLADC regarding the subscription of the parties to the corporation.
They point out that these two component parts form one whole agreement and that their
terms and conditions are intrinsically related and dependent on each other. Thus, the breach
of the shareholders agreement, which was allegedly the consideration for the subscription
contract, was also a breach of the latter.
Aside from the fact that this is an entirely new angle never raised in any of their previous
pleadings until after the oral arguments on January 29, 2003, we find this argument too
strained for comfort. It is obviously intended to remedy and cover up the Tius lack of legal
personality to rescind an agreement in which they were personally not parties-in-interest.
Assuming arguendo that there were two sub-agreements embodied in the Pre-Subscription

Agreement, this Court fails to see how the shareholders agreement between the Ongs and
Tius can, within the bounds of reason, be interpreted as the consideration of the subscription
contract between FLADC and the Ongs. There was nothing in the Pre-Subscription
Agreement even remotely suggesting such alleged interdependence. Be that as it may,
however, the Tius are nevertheless not the proper parties to raise this point because they
were not parties to the subscription contract between FLADC and the Ongs. Thus, they are
not in a position to claim that the shareholders agreement between them and the Ongs was
what induced FLADC and the Ongs to enter into the subscription contract. It is the Ongs
alone who can say that. Though FLADC was represented by the Tius in the subscription
contract, FLADC had a separate juridical personality from the Tius. The case before us does
not warrant piercing the veil of corporate fiction since there is no proof that the corporation is
being used as a cloak or cover for fraud or illegality, or to work injustice. [18]
The Tius also argue that, since the Ongs represent FLADC as its management, breach by
the Ongs is breach by FLADC. This must also fail because such an argument disregards the
separate juridical personality of FLADC.
The Tius allege that they were prevented from participating in the management of the
corporation. There is evidence that the Ongs did prevent the rightfully elected Treasurer, Cely
Tiu, from exercising her function as such. The records show that the President, Wilson Ong,
supervised the collection and receipt of rentals in the Masagana Citimall; [19] that he ordered
the same to be deposited in the bank; [20] and that he held on to the cash and properties of the
corporation.[21] Section 25 of the Corporation Code prohibits the President from acting
concurrently as Treasurer of the corporation. The rationale behind the provision is to ensure
the effective monitoring of each officers separate functions.
However, although the Tius were adversely affected by the Ongs unwillingness to let them
assume their positions, rescission due to breach of contract is definitely the wrong remedy for
their personal grievances. The Corporation Code, SEC rules and even the Rules of Court
provide for appropriate and adequate intra-corporate remedies, other than rescission,
in situations like this. Rescission is certainly not one of them, specially if the party asking for
it has no legal personality to do so and the requirements of the law therefor have not been
met. A contrary doctrine will tread on extremely dangerous ground because it will allow just
any stockholder, for just about any real or imagined offense, to demand rescission of his
subscription and call for the distribution of some part of the corporate assets to him without
complying with the requirements of the Corporation Code.
Hence, the Tius, in their personal capacities, cannot seek the ultimate and extraordinary
remedy of rescission of the subject agreement based on a less than substantial breach of
subscription contract. Not only are they not parties to the subscription contract between the
Ongs and FLADC; they also have other available and effective remedies under the law.

All this notwithstanding, granting but not conceding that the Tius possess the legal
standing to sue for rescission based on breach of contract, said action will nevertheless still
not prosper since rescission will violate the Trust Fund Doctrine and the procedures for the
valid distribution of assets and property under the Corporation Code.
The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine
Trust Co. vs. Rivera,[22] provides that subscriptions to the capital stock of a corporation
constitute a fund to which the creditors have a right to look for the satisfaction of their claims.
[23] This doctrine is the underlying principle in the procedure for the distribution of capital
assets, embodied in the Corporation Code, which allows the distribution of corporate capital
only in three instances: (1) amendment of the Articles of Incorporation to reduce the
authorized capital stock,[24] (2) purchase of redeemable shares by the corporation, regardless
of the existence of unrestricted retained earnings, [25] and (3) dissolution and eventual
liquidation of the corporation. Furthermore, the doctrine is articulated in Section 41 on the
power of a corporation to acquire its own shares [26] and in Section 122 on the prohibition
against the distribution of corporate assets and property unless the stringent requirements
therefor are complied with.[27]
The distribution of corporate assets and property cannot be made to depend on the
whims and caprices of the stockholders, officers or directors of the corporation, or even, for
that matter, on the earnest desire of the court a quo to prevent further squabbles and future
litigations unless the indispensable conditions and procedures for the protection of corporate
creditors are followed. Otherwise, the corporate peace laudably hoped for by the court will
remain nothing but a dream because this time, it will be the creditors turn to engage in
squabbles and litigations should the court order an unlawful distribution in blatant disregard of
the Trust Fund Doctrine.
In the instant case, the rescission of the Pre-Subscription Agreement will effectively result
in the unauthorized distribution of the capital assets and property of the corporation, thereby
violating the Trust Fund Doctrine and the Corporation Code, since rescission of a subscription
agreement is not one of the instances when distribution of capital assets and property of the
corporation is allowed.
Contrary to the Tius allegation, rescission will, in the final analysis, result in the premature
liquidation of the corporation without the benefit of prior dissolution in accordance with
Sections 117, 118, 119 and 120 of the Corporation Code. [28] The Tius maintain that rescinding
the subscription contract is not synonymous to corporate liquidation because all rescission will
entail would be the simple restoration of thestatus quo ante and a return to the two groups of
their cash and property contributions. We wish it were that simple. Very noticeable is the fact
that the Tius do not explain why rescission in the instant case will not effectively result in
liquidation. The Tius merely refer in cavalier fashion to the end-result of rescission (which

incidentally is 100% favorable to them) but turn a blind eye to its unfair, inequitable and
disastrous effect on the corporation, its creditors and the Ongs.
In their Memorandum dated February 28, 2003, the Tius claim that rescission of the
agreement will not result in an unauthorized liquidation of the corporation because their case
is actually a petition to decrease capital stock pursuant to Section 38 of the Corporation Code.
Section 122 of the law provides that (e)xcept by decrease of capital stock, no corporation
shall distribute any of its assets or property except upon lawful dissolution and after payment
of all its debts and liabilities. The Tius claim that their case for rescission, being a petition to
decrease capital stock, does not violate the liquidation procedures under our laws. All that
needs to be done, according to them, is for this Court to order (1) FLADC to file with the SEC
a petition to issue a certificate of decrease of capital stock and (2) the SEC to approve said
decrease. This new argument has no merit.
The Tius case for rescission cannot validly be deemed a petition to decrease capital stock
because such action never complied with the formal requirements for decrease of capital
stock under Section 33 of the Corporation Code. No majority vote of the board of directors
was ever taken. Neither was there any stockholders meeting at which the approval of
stockholders owning at least two-thirds of the outstanding capital stock was secured. There
was no revised treasurers affidavit and no proof that said decrease will not prejudice the
creditors rights. On the contrary, all their pleadings contained were alleged acts of violations
by the Ongs to justify an order of rescission.
Furthermore, it is an improper judicial intrusion into the internal affairs of the corporation
to compel FLADC to file at the SEC a petition for the issuance of a certificate of decrease of
stock. Decreasing a corporations authorized capital stock is an amendment of the Articles of
Incorporation. It is a decision that only the stockholders and the directors can make,
considering that they are the contracting parties thereto. In this case, the Tius are actually not
just asking for a review of the legality and fairness of a corporate decision. They want this
Court to make a corporate decision for FLADC. We decline to intervene and order corporate
structural changes not voluntarily agreed upon by its stockholders and directors.
Truth to tell, a judicial order to decrease capital stock without the assent of FLADCs
directors and stockholders is a violation of the business judgment rule which states that:

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

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

Courts and other tribunals are wont to override the business judgment of the board
mainly because, courts are not in the business of business, and thelaissez faire rule or the
free enterprise system prevailing in our social and economic set-up dictates that it is
better for the State and its organs to leave business to the businessmen; especially so,
when courts are ill-equipped to make business decisions. More importantly, the social
contract in the corporate family to decide the course of the corporate business has been
vested in the board and not with courts.[30]
Apparently, the Tius do not realize the illegal consequences of seeking rescission and
control of the corporation to the exclusion of the Ongs. Such an act infringes on the law on
reduction of capital stock. Ordering the return and distribution of the Ongs capital contribution
without dissolving the corporation or decreasing its authorized capital stock is not only against
the law but is also prejudicial to corporate creditors who enjoy absolute priority of payment
over and above any individual stockholder thereof.
Stripped to its barest essentials, the issue of rescission in this case is not difficult to
understand. If rescission is denied, will injustice be inflicted on any of the parties? The answer
is no because the financial interests of both the Tius and the Ongs will remain intact and safe
within FLADC. On the other hand, if rescission is granted, will any of the parties suffer an
injustice? Definitely yes because the Ongs will find themselves out in the streets with nothing
but the money they had in 1994 while the Tius will not only enjoy a windfall estimated to be
anywhere from P450 million to P900 million [31] but will also take over an extremely profitable
business without much effort at all.
Another very important point follows. The Court of Appeals and, later on, our Decision
dated February 1, 2002, stated that both groups were in pari delicto, meaning, that both the
Tius and the Ongs committed breaches of the Pre-Subscription Agreement. This may be true
to a certain extent but, judging from the comparative gravity of the acts separately committed
by each group, we find that the Ongs acts were relatively tame vis--vis those committed by
the Tius in not surrendering FLADC funds to the corporation and diverting corporate income
to their own MATTERCO account. The Ongs were right in not issuing to the Tius the shares
corresponding to the four-story building and the 1,902.30 square-meter lot because no title for
it could be issued in FLADCs name, owing to the Tius refusal to pay the transfer taxes. And
as far as the 151 square-meter lot was concerned, why should FLADC issue additional
shares to the Tius for property already owned by the corporation and which, in the final
analysis, was already factored into the shareholdings of the Tius before the Ongs came in?

We are appalled by the attempt by the Tius, in the words of the Court of Appeals, to pull a
fast one on the Ongs because that was where the problem precisely started. It is clear that,
when the finances of FLADC improved considerably after the equity infusion of the Ongs, the
Tius started planning to take over the corporation again and exclude the Ongs from it. It
appears that the Tius refusal to pay transfer taxes might not have really been at all
unintentional because, by failing to pay that relatively small amount which they could easily
afford, the Tius should have expected that they were not going to be given the corresponding
shares. It was, from every angle, the perfect excuse for blackballing the Ongs. In other words,
the Tius created a problem then used that same problem as their pretext for showing their
partners the door. In the process, they stood to be rewarded with a bonanza of anywhere
between P450 million to P900 million in assets (from an investment of only P45 million which
was nearly foreclosed by PNB), to the extreme and irreparable damage of the Ongs, FLADC
and its creditors.
After all is said and done, no one can close his eyes to the fact that the Masagana
Citimall would not be what it has become today were it not for the timely infusion of P190
million by the Ongs in 1994. There are no ifs or buts about it.
Without the Ongs, the Tius would have lost everything they originally invested in said
mall. If only for this and the fact that this Resolution can truly pave the way for both groups to
enjoy the fruits of their investments assuming good faith and honest intentions we cannot
allow the rescission of the subject subscription agreement. The Ongs shortcomings were far
from serious and certainly less than substantial; they were in fact remediable and correctable
under the law. It would be totally against all rules of justice, fairness and equity to deprive the
Ongs of their interests on petty and tenuous grounds.
WHEREFORE, the motion for reconsideration, dated March 15, 2002, of petitioners Ong
Yong, Juanita Tan Ong, Wilson Ong, Anna Ong, William Ong, Willie Ong and Julie Ong
Alonzo and the motion for partial reconsideration, dated March 15, 2002, of petitioner Willie
Ong are hereby GRANTED. The Petition for Confirmation of the Rescission of the PreSubscription Agreement docketed as SEC Case No. 02-96-5269 is hereby DISMISSED for
lack of merit. The unilateral rescission by the Tius of the subject Pre-Subscription Agreement,
dated August 15, 1994, is hereby declared as null and void.
The motion for the issuance of a writ of execution, dated March 15, 2002, of petitioners
David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and
Lourdes C. Tiu is hereby DENIED for being moot.
Accordingly, the Decision of this Court, dated February 1, 2002, affirming with
modification the decision of the Court of Appeals, dated October 5, 1999, and the SEC en
banc, dated September 11, 1998, is hereby REVERSED.

Costs against the petitioner Tius.

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

[1]

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

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

[3] The testimony of Wilson Ong, never refuted by the Tius, was that the parties original
agreement was to increase FLADCs authorized capital stock from P50 million to
P340 million (which explains the Ongs 50% share of P170 million). Later on, the
parties decided to downgrade the proposed new authorized capital stock to only
P200 million but the Ongs decided to leave the overpayment of P70 million in
FLADC to help pay off the loan to PNB. (TSN at the SEC, January 29, 1997 cited
in CA Rollo, pp. 429-452; TSN at the SEC, February 6, 1997 cited in CA Rollo,
pp. 485-489).
[4] Docketed as SEC Case No. 02-96-5269.
[5] Rollo of G.R. No. 144476, pp. 114-116.
[6] Ibid., pp. 116-117.
[7] Docketed as SEC Cases Nos. 598 and 601.
[8] Rollo of G.R. No. 144476, pp. 117-118.
[9] Ibid., pp. 133-135.
[10] CA Decision dated October 5, 1999, p. 18; CA Records, p. 1045; Penned by
Associate Justice Ramon A. Barcelona and concurred in by Associate Justices
Mariano M. Umali and Edgardo P. Cruz. Then Associate Justice Demetrio G.
Demetria dissented while also then Associate Justice Conchita Carpio Morales
concurred and dissented.
[11] Supreme Court Decision dated February 1, 2002, pp. 34-35; Rollo, pp. 299-300.

[12] Estrada vs. Sto. Domingo, 28 SCRA 890 [1969]; Cruz vs. Tuazon & Co., Inc., 76
SCRA 543 [1977]; Llanter vs. Court of Appeals, 105 SCRA 609 [1981]; Luzon
Brokerage Co., Inc. vs. Maritime Building Co., Inc., 86 SCRA 305 [1978].
[13] 131 SCRA 200 [1984].
[14] Id at 221.
[15] See Section 1, Rule 37 of the 1997 Rules of Civil Procedure.
[16] G.R. No. 138544, October 3, 2000 citing Guerra Enterprises vs. CFI, 32 SCRA 314
[1970].
[17] Sustiguer vs. Tamayo, 176 SCRA 579 [1989] citing Marimperio Compania
Naviera vs. Court of Appeals, 156 SCRA 368 [1987].
[18] Boyer-Roxas vs. Court of Appeals, 211 SCRA 470 [1992].
[19] TSN, December 11, 1996, pp. 699-702, Rollo, pp. 705-706.
[20] TSN, December 17, 1996, pp. 28-34; Rollo, pp. 699-702.
[21] TSN, January 17, 1997, pp. 92-93; Rollo, pp. 705-706.
[22] 44 Phil 469 [1923].
[23] Id; Garcia vs. Lim Chu Sing, 59 Phil. 562 [1934]; Boman Environmental Devt.
Corp. vs. Court of Appeals, 167 SCRA 540 [1988].
[24] Section 38 of the Corporation Code provides for the process to be followed for
reduction of the authorized capital stock. First, a proposal to decrease capital
stock must be approved by a majority vote of the board of directors and affirmed
by stockholders who own 2/3 of the outstanding capital stock in a meeting duly
called for that purpose. Written notice of the time and place of the meeting on the
proposed decrease in the capital stock must be served to each of the stockholders
at his place of residence as shown in the corporate books. Thereafter, the SEC
shall approve the certificate of decrease of capital stock only if the same is
accompanied by a new treasurers affidavit stating that 25% of the authorized

capital stock has been subscribed while 25% of the subscribed capital stock has
been paid-up, and also if said decrease will not prejudice the rights of corporate
creditors.
[25] Section 8 of the Corporation Code provides that :
SEC. 8. Redeemable shares Redeemable shares may be issued by the corporation when expressly so provided
in the articles of incorporation. They may be purchased or taken up by the corporation upon the
expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of
the corporation, and upon such other terms and conditions as may be stated in the articles of
incorporation, which terms and conditions must also be stated in the certificate of stock representing
said shares.
Section 5, par. 5, SEC Rules Governing Redeemable and Treasury Shares provides that redeemable shares
may be redeemed regardless of the existence of unrestricted retained earning, provided that the
corporation has, after such redemption, assets in its books to cover debts and liabilities of capital stock.
Therefore, redemption, according to SEC Opinion, January 23, 1985, may not be made where the
corporation is insolvent or if such redemption would cause insolvency or inability of the corporation to
meet its debts as they mature. (cited in Hector De Leon, The Corporation Code of the Philippines, 1999
Ed., pp. 96-97).

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

Sec. 41. Power to acquire own shares. A stock corporation shall have the power to purchase or acquire its own
shares for a legitimate corporate purpose or purposes, including but not limited to the following cases:
Provided, That the corporation has unrestricted retained earnings in its books to cover the shares to be
purchased or acquired:
(1) To eliminate fractional shares arising out of stock dividends;
(2) To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a
delinquency sale, and to purchase delinquent shares sold during said sale; and
(3) To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this
Code.(Italics supplied)

[27] xxx xxx xxx

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

[28] Sections 117, 118, 119, and 120 of the Corporation Code provide that:
SEC. 117. Methods of dissolution. - A corporation formed or organized under the provisions of this Code may be
dissolved voluntarily or involuntarily. (n)

SEC. 118. Voluntary dissolution where no creditors are affected. - If dissolution of a corporation does not
prejudice the rights of any creditor having a claim against it, the dissolution may be effected by majority
vote of the board of directors or trustees, and by a resolution duly adopted by the affirmative vote of the
stockholders owning at least two thirds (2/3) of the outstanding capital or of at least two-thirds (2/3) of
the members at a meeting to be held upon call of the directors or trustees after publication of the notice
of time, place and object of the meeting for three (3) consecutive weeks in a newspaper published in the
place where the principal office of said corporation is located; and if no newspaper is published in such
place, then in a newspaper of general circulation in the Philippines, after sending such notice to each
stockholder or member either by registered mail or by personal delivery at least thirty (30) days prior to
said meeting. A copy of the resolution authorizing the dissolution shall be certified by a majority of the
board of directors or trustees and countersigned by the secretary of the corporation. The Securities and
Exchange Commission shall thereupon issue the certificate of dissolution. (62a)
SEC. 119. Voluntary dissolution where creditors are affected. - Where the dissolution of a corporation may
prejudice the rights of any creditor, the petition for dissolution shall be filed with the Securities and
Exchange Commission. The petition shall be signed by a majority of its board of directors or trustees or
other officers having the management of its affairs, verified by its president or secretary or one of its
directors or trustees, and shall set forth all claims and demands against it, and that its dissolution was
resolved upon by the affirmative vote of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or by at least two-thirds (2/3) of the members, at a meeting of its stockholders
or members called for that purpose.
If the petition is sufficient in form and substance, the Commission shall, by an order reciting the purpose of the
petition, fix a date on or before which objections thereto may be filed by any person, which date shall not
be less than thirty (30) days nor more than sixty (60) days after the entry of the order. Before such date,
a copy of the order shall be published at least once a week for three (3) consecutive weeks in a
newspaper of general circulation published in municipality or city where the principal office of the
corporation is situated, or if there be no such newspaper, then in a newspaper of general circulation in
the Philippines, and a similar copy shall be posted for three (3) consecutive weeks in three (3) public
places in such municipality or city.
Upon five (5) days notice, given after the date on which the right to file objections as fixed in the order has
expired, the Commission shall proceed to hear the petition and try any issue made by the objections
filed; and if no such objection is sufficient, and the material allegations of the petition are true, it shall
render judgment dissolving the corporation and directing such disposition of its assets as justice
requires, and may appoint a receiver to collect such assets and pay the debts of the corporation. (Rule
104, RCa)
SEC. 120. Dissolution by shortening corporate term. - A voluntary dissolution may be effected by amending the
articles of incorporation to shorten the corporate term pursuant to the provisions of this Code. A copy of
the amended articles of incorporation shall be submitted to the Securities and Exchange Commission in
accordance with this Code. Upon approval of the amended articles of incorporation or the expiration of
the shortened term, as the case may be, the corporation shall be deemed dissolved without any further
proceedings, subject to the provisions of this Code on liquidation. (n)

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

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

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

Republic of the Philippines

Supreme Court
Manila
FIRST DIVISION
JAKA
INVESTMENTS
CORPORATION,
Petitioner,

- versus -

G.R. No. 147629

Present:
CORONA, C.J.,
Chairperson,
VELASCO, JR.,
LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.
Promulgated:

COMMISSIONER OF INTERNAL
REVENUE,
July 28, 2010
Respondent.
x----------------------------------------------------x

DECISION

LEONARDO-DE CASTRO, J.:

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

The antecedent facts are undisputed.

Sometime in 1994, petitioner sought to invest in JAKA Equities Corporation
(JEC), which was then planning to undertake an initial public offering (IPO) and listing
of its shares of stock with the Philippine Stock Exchange. JEC increased its authorized
capital stock from One Hundred Eighty-Five Million Pesos (P185,000,000.00) to Two
Billion Pesos (P2,000,000,000.00). Petitioner proposed to subscribe to Five Hundred
Eight Million Eight Hundred Six Thousand Two Hundred Pesos (P508,806,200.00) out
of the increase in the authorized capital stock of JEC through a tax-free exchange under
Section 34(c)(2) of the National Internal Revenue Code (NIRC) of 1977, as amended,
which was effected by the execution of a Subscription Agreement and Deed of
Assignment of Property in Payment of Subscription. Under this Agreement, as payment
for its subscription, petitioner will assign and transfer to JEC the following shares of
stock:
(a) 154,208,404 shares in Republic Glass Holdings Corporation (RGHC),
(b) 2,822,500 shares in Philippine Global Communications, Inc. (PGCI),
(c) 7,495,488 shares in United Coconut Planters Bank (UCPB), and
(d) 1,313,176 shares in Far East Bank and Trust Company (FEBTC).[3]
The intended IPO and listing of shares of JEC did not materialize. However, JEC
still decided to proceed with the increase in its authorized capital stock and petitioner
agreed to subscribe thereto, but under different terms of payment. Thus, petitioner and
JEC executed the Amended Subscription Agreement[4] on September 5, 1994,
wherein the above-enumerated RGHC, PGCI, and UCPB shares of stock were
transferred to JEC. In lieu of the FEBTC shares, however, the amount of Three Hundred
Seventy Million Seven Hundred Sixty-Six Thousand Pesos (P370,766,000.00) was paid
for in cash by petitioner to JEC.
On October 14, 1994, petitioner paid One Million Three Thousand Eight Hundred
Ninety-Five Pesos and Sixty-Five Centavos (P1,003,895.65) for basic documentary

stamp tax inclusive of the 25% surcharge for late payment on the Amended Subscription
Agreement, broken down as follows:
Documentary Stamp Tax - P803,116.72
25% Surcharge - 200,778.93
Total P1,003,895.65[5]

On October 17, 1994, Revenue District Officer (RDO) Atty. Sixto S. Esquivias IV
(RDO Esquivias) issued three Certifications,[6] as follows:
Cert. No. Shares of Stock Documentary Stamps
94-10-17-07 7,495,488 UCPB shares P 23,423.14
94-10-17-08 154,208,403 RGHC shares 481,901.88
94-10-17-14 2,822,500 PGCI shares 88,203.13
P593,528.15

Petitioner, after seeing the RDOs certifications, the total amount of which was less
than the actual amount it had paid as documentary stamp tax, concluded that it had
overpaid. Petitioner subsequently sought a refund for the alleged excess documentary
stamp tax and surcharges it had paid on the Amended Subscription Agreement in the
amount of Four Hundred Ten Thousand Three Hundred Sixty-Seven Pesos
(P410,367.00), the difference between the amount of documentary stamp tax it had paid
and the amount of documentary stamp tax certified to by the RDO, through a letterrequest[7] to the BIR dated October 10, 1996.
On October 11, 1996, petitioner filed a petition for refund before the Court of Tax
Appeals, docketed as C.T.A. Case No. 5428, which was denied in a Decision[8] dated
January 19, 1999. The Court of Tax Appeals likewise denied petitioners Motion for
Reconsideration in its Resolution[9] dated March 1, 1999.
Petitioner appealed to the Court of Appeals by way of petition for review. The
Court of Appeals sustained the Court of Tax Appeals in its Decision on CA-G.R. SP No.

51834 dated August 22, 2000 as well as in its Resolution dated March 27, 2001 of
petitioners Motion for Reconsideration.
Hence, petitioner is now before this Court to seek the reversal of the questioned
Decision and Resolution of the Court of Appeals.
Petitioners main contention in this claim for refund is that the tax base for the
documentary stamp tax on the Amended Subscription Agreement should have been only
the shares of stock in RGHC, PGCI, and UCPB that petitioner had transferred to JEC as
payment for its subscription to the JEC shares, and should not have included the cash
portion of its payment, based onSection 176 of the National Internal Revenue Code of
1977, as amended by Republic Act No. 7660, or the New Documentary Stamps Tax Law
(the 1994 Tax Code), the law applicable at the time of the transaction. Petitioner argues
that the cash component of its payment for its subscription to the JEC shares, totaling
Three Hundred Seventy Million Seven Hundred Sixty-Six Thousand Pesos
(P370,766,000.00) should not have been charged any documentary stamp tax. Petitioner
claims that there was overpayment because the tax due on the transferred shares was
only Five Hundred Ninety-Three Thousand Five Hundred Twenty-Eight and 15/100
Pesos (P593,528.15), as indicated in the certifications issued by RDO
Esquivias. Petitioner alleges that it is entitled to a refund for the overpayment, which is
the difference in the amount it had actually paid (P1,003,895.65) and the amount of
documentary stamp tax due on the transfer of said shares (P593,528.15), or a total of
Four Hundred Ten Thousand Three Hundred Sixty-Seven Pesos (P410,367.00).
Petitioner contends that both the Court of Appeals and the Court of Tax Appeals
erroneously relied on respondents (Commissioner of Internal Revenues) assertions that it
had paid the documentary stamp tax on the original issuance of the shares of stock of
JEC under Section 175 of the 1994 Tax Code.
Petitioner explains that in this instance where shares of stock are used as
subscription payment, there are two documentary stamp tax incidences, namely, the
documentary stamp tax on the original issuance of the shares subscribed (the JEC

shares), which is imposed under Section 175; and the documentary stamp tax on the
shares transferred in payment of such subscription (the transfer of the RGHC, PGCI and
UCPB shares of stock from petitioner to JEC), which is imposed under Section 176 of
the 1994 Tax Code.Petitioner argues that the documentary stamp tax imposed under
Section 175 is due on original issuances of certificates of stock and is computed based
on the aggregate par value of the shares to be issued; and that these certificates of stock
are issued only upon full payment of the subscription price such that under the Bureau of
Internal Revenues (BIRs) Revised Documentary Stamp Tax Regulations,[10] it is stated
that the documentary stamp tax on the original issuance of certificates of stock is
imposed on fully paid shares of stock only. Petitioner alleges that it is the issuing
corporation which is primarily liable for the payment of the documentary stamp tax on
the original issuance of shares of stock. Petitioner further argues that the documentary
stamp tax on Section 176 of the 1994 Tax Code is imposed for every transfer of shares
or certificates of stock, computed based on the par value of the shares to be transferred,
and is due whether a certificate of stock is actually issued, indorsed or delivered
pursuant to such transfer. It is the transferor who is liable for the documentary stamp tax
on the transfer of shares.
Petitioner claims that the documentary stamp tax under Section 175 attaches to
the certificate/s of stock to be issued by virtue of petitioners subscription while the
documentary stamp tax under Section 176 attaches to the Amended Subscription
Agreement, since it is this instrument that evidences the transfer of the RGHC, PGCI
and UCPB shares from petitioner to JEC.
Petitioner contends that at the time of the execution of the Amended Subscription
Agreement, the JEC shares or certificates subscribed by petitioner could not have been
issued by JEC because the same were yet to be sourced from the increase in authorized
capital stock of JEC, which in turn had yet to be approved by the Securities and
Exchange Commission (SEC). Petitioner thus reasons that the documentary stamp tax
under Section 175 could not have accrued at the time the Amended Subscription
Agreement was executed because no right to the shares had neither been nor could be
established in favor of the petitioner at such time.Petitioner theorizes that the earliest

time that the subscription could actually be executed would be when the SEC approves
the increase in the authorized capital stock of JEC. On the other hand, upon the
execution of the Amended Subscription Agreement, the assignment or the transfer of
RGHC, PGCI and UCPB shares in favor of JEC (which is evidenced by said agreement),
is deemed immediately enforceable as this is a necessary requirement of the SEC.
Petitioner points out that Section 175 of the 1994 Tax Code imposes a
documentary stamp tax on every original issuance ofcertificates of stock,
whereas Republic Act No. 8424, the Tax Reform Act of 1997 (the 1997 Tax Code),
amended this provision and imposed a documentary stamp tax on the original issuance
of shares of stock. Petitioner argues that under Section 175 of the 1994 Tax Code, there
was no documentary stamp tax due on the mere execution of a subscription agreement to
shares of stock, and the tax only accrued upon issuance of the certificates of stock. In
this case, the change in wording introduced by the 1997 Tax Code cannot be made
applicable to the Amended Subscription Agreement, which was executed in 1994,
because it is a well-settled doctrine in taxation that a law must have prospective
application.
Lastly, petitioner alleges that it is entitled to refund under the NIRC.[11]
In his Comment (To Petition for Review),[12] respondent avers that the lower
courts did not err in denying petitioners claim for refund, and that petitioner is raising
issues in this petition which were not raised in the lower courts.
Respondent maintains that the documentary stamp tax imposed in this case is on
the original issue of certificates of stock of JEC on the subscription by the petitioner of
the P508,806,200.00 shares out of the increase in the authorized capital stock of the
former pursuant to Section 175 of the NIRC. The documentary stamp tax was not
imposed on the shares of stock owned by petitioner in RGHC, PGCI, and UCPB, which
merely form part of the partial payment of the subscribed shares in JEC. Respondent
avers that the amounts indicated in the Certificates of RDO Esquivias are the amounts of
documentary stamp tax representing the equivalent of each group of shares being

applied for payment. Considering that the amount of documentary stamp tax represented
by the shares of stock in the aforementioned companies amounted only to P593,528.15,
while the basic documentary stamp tax for the entire subscription of P508,806,200.00
was computed by respondents revenue officers to the tune of P803,116.72, exclusive of
the penalties, leaving a balance of P209,588.57, is a clear indication that the payment
made with the shares of stock is insufficient.
Respondent claims that the certifications were issued by RDO Esquivias
purposely to allow the registration of transfer of the shares of stock used in payment of
the subscribed shares in the name of JEC from petitioner by the Corporate Secretary of
the UCPB and are not evidence of the payment of the documentary stamp tax on the
issuance of the increased shares of stocks of JEC.[13]
Respondent argues that the documentary stamp tax attaches upon acceptance by
the corporation of the stockholders subscription in the capital stock of the corporation,
and that the term original issue of the certificate of stock means the point at which the
stockholder acquires and may exercise attributes of ownership over the stocks.
[14] Respondent further argues that the stocks can be alienated; the dividends or fruits
derived therefrom can be enjoyed; and they can be conveyed, pledged, or encumbered;
that the certificate, irrespective of whether or not it is in the actual constructive
possession of the stockholder, is considered issued because it is with value and, hence,
the documentary stamp tax must be paid; and concludes that a person may own shares of
stock without possessing a certificate of stock. Respondent cites Commissioner of
Internal Revenue v. Construction Resources of Asia, Inc.,[15] where the Court held:
The delivery of the certificates of stocks to the private respondent's stockholders
whether actual or constructive, is not essential for the documentary and science stamps
taxes to attach. What is taxed is the privilege of issuing shares of stock and, therefore,
the taxes accrue at the time the shares are issued. The only question before us is whether
or not said private respondents issued the certificates of stock covering the paid-incapital of P17,880,000.00.

Respondent claims that it is well-settled as a general rule of Corporation Law that

a subscriber for stock in a corporation or purchaser of stock becomes a stockholder as
soon as his subscription is accepted by the corporation whether a certificate of stock is
issued to him or not, and although he may have no certificate, he is thereupon entitled to
all the rights and is subject to all the liabilities of a stockholder.
Respondent argues, based on the above, that the contention of petitioner that the
documentary stamp tax under Section 175 of the 1994 Tax Code could not have accrued
at the time the Amended Subscription Agreement was executed since the increase in
capital stock of JEC had yet to be approved by the SEC was inaccurate. He states that it
is evident from the Amended Subscription Agreement that the subscribed shares from
the increase in JECs stock were fully paid through cash and shares of stock.
Respondent submits that the change in wording, from certificates to shares of
stock, introduced to Section 175 by the 1997 Tax Code, was a mere clarification and
codification of the foregoing principle or policy.
Respondent stresses that the documentary stamp tax can be levied or collected
from the person making, signing, issuing, accepting, or transferring the obligation or
property, as provided in Section 173 of the Tax Code.
In its Reply to Respondents Comment to the Petition,[16] petitioner contends
that respondent erroneously insists that the documentary stamp tax sought to be refunded
is the one imposed on the subscription by petitioner to P508,806,200.00 new shares of
JEC. Petitioner further contends that since the documentary stamp tax due on the
issuance of new shares or on original shares isP2.00 for every P200 under Section 175 of
the Tax Code, then the documentary stamp tax on petitioners subscription to JEC shares
should amount to P5,088,062.00, which is much higher than the P803,116.72 basic
documentary stamp tax paid under ATAP No. 1511920.[17] Petitioner argues that at the
time the documentary stamp tax was paid, before a taxpayer was allowed to pay the
taxes due, a BIR revenue officer would first compute the tax due and then issue an

authority to accept payment (ATAP) and it was very unlikely that the revenue officer
could have made such a glaring mistake.
Petitioner alleges that there is no BIR certification requirement prior to the
issuance of original shares of stock; and that it is only upon the regular annual audit of
the books of a corporation that the BIR determines if the documentary stamp tax on new
or original issuances of shares, if any were issued, had in fact been paid. If not, then a
deficiency assessment, with penalties and surcharges, would then be made by the
BIR. Petitioner further alleges that, on the other hand, before the transfer of issued and
outstanding shares to a new owner is recorded in the books of a corporation, the capital
gains tax thereon and the documentary stamp tax on the transfer must first be paid, and a
BIR certification must be presented to the Corporate Secretary authorizing the
corporation to record the transfer, otherwise, the corporate secretary shall be subjected to
penalties.
Petitioner claims that the three BIR certifications in this case specifically allow
the registration of the UCPB, RGHC, and PGCI shares in the name of JEC, the
transferee, and that said certifications evidence payment of the taxes due on the transfer
of the shares from petitioner to JEC, not on the original issuance of shares of JEC.
The parties respective memoranda contained reiterations of the allegations raised
in their respective pleadings as discussed above.
The sole issue to be resolved is whether petitioner is entitled to a partial
refund of the documentary stamp tax and surcharges it paid on the execution of the
Amended Subscription Agreement.
In claims for refund, the burden of proof is on the taxpayer to prove entitlement to
such refund. As we held in Compagnie Financiere Sucres Et Denrees v. Commissioner
of Internal Revenue[18] -

Along with police power and eminent domain, taxation is one of the three basic
and necessary attributes of sovereignty. Thus, the State cannot be deprived of this most
essential power and attribute of sovereignty by vague implications of law. Rather, being
derogatory of sovereignty, the governing principle is that tax exemptions are to be
construed in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority; and he who claims an exemption must be able to justify his claim by the
clearest grant of statute.
x x x Tax refunds are a derogation of the State's taxing power. Hence, like tax
exemptions, they are construed strictly against the taxpayer and liberally in favor of the
State. Consequently, he who claims a refund or exemption from taxes has the burden of
justifying the exemption by words too plain to be mistaken and too categorical to be
misinterpreted. x x x.

It was thus incumbent upon petitioner to show clearly its basis for claiming that it
is entitled to a tax refund. This, to our mind, the petitioner failed to do.
The Court of Tax Appeals construed the claim for exemption strictly against
petitioner and held that:
The focal issue which is presented for our consideration is whether or not the
transfer of the 1,313,176 FEBTC shares under the Amended Subscription Agreement
and Deed of Assignment of Property in Payment of Subscription should be excluded in
the taxable base for the computation of DST, thus entitling petitioner to the refund of the
amount of P410,367.00.
We find nothing ambiguous nor obscure in the language of Section 173,
taken in relation to Section 175 of the 1994 Tax Code x x x insofar as the same is
brought to bear upon the circumstances in the instant case. These provisions
furnish the best means of their own exposition that a documentary stamp tax
(DST) is due and payable on documents, instruments, loan agreements and papers,
acceptances, assignments, sales and transfers which evidenced the transaction
agreed upon by the parties and should be paid by the person making, signing,
issuing, accepting or transferring the property, right or obligation.
Sec. 173. Stamp taxes upon documents, instruments, and papers.
Upon documents, instruments, and papers, and upon acceptances,
assignments, sales, and transfers of the obligation, or property incident

thereto, there shall be levied, collected and paid for, and in respect of the
transaction so had or accomplished, the corresponding documentary
stamp taxes prescribed in the following sections of this Title, by the
person making, signing, issuing, accepting, or transferring the same,
whenever the document is made, signed, issued, accepted or transferred
when the obligation or right arises from Philippine sources or the
property is situated in the Philippines, and at the same time such act is
done or transaction had: Provided, That whenever one party to the
taxable document enjoys exemption from the tax herein imposed, the
other party thereto who is not exempt shall be the one directly liable for
the tax. (as amended by R.A. No. 7660)
xxxx
Understood to mean what it plainly expressed, the DST imposition is essentially
addressed and directly brought to bear upon the DOCUMENT evidencing the
transaction of the parties which establishes its rights and obligations.
In the case at bar, the rights and obligations between petitioner JAKA
Investments Corporation and JAKA Equities Corporation are established and
enforceable at the time the Amended Subscription Agreement and Deed of Assignment
of Property in Payment of Subscription were signed by the parties and their witness, so
is the right of the state to tax the aforestated document evidencing the transaction. DST
is a tax on the document itself and therefore the rate of tax must be determined on
the basis of what is written or indicated on the instrument itself independent of any
adjustment which the parties may agree on in the future x x x. The DST upon the
taxable document should be paid at the time the contract is executed or at the time the
transaction is accomplished. The overriding purpose of the law is the collection of
taxes. So that when it paid in cash the amount of P370,766,000.00 in substitution for, or
replacement of the 1,313,176 FEBTC shares, its payment of P1,003,835.65 documentary
stamps tax pursuant to Section 175 of NIRC is in order.
Thus, applying the settled rule in this jurisdiction that, a claim for refund is
in the nature of a claim for exemption, thus, should be construed in strictissimi
juris against the taxpayer (Commissioner of Internal Revenue vs. Tokyo Shipping
Co., Ltd., 244 SCRA 332) and since the petitioner failed to adduce evidence that
will show that it is exempt from DST under Section 199 or other provision of the
tax code, We rule the focal issue in the negative.[19] (Emphases ours.)

In the questioned Decision, the Court of Appeals concurred with the findings of
the Court of Tax Appeals and we quote with approval the relevant portions below:
Petitioner alleges, though, that considering that the assessment of payment of
documentary stamp tax was made payable only to the aforesaid issuances of certificates
of [stock] exclusive of that of FEBTC shares of stock which were paid in cash, and that
it has paid a total of Php1,003,895.65 inclusive of surcharges for late payment, the
petitioner is entitled to a refund of Php410,367.00. This argument does not hold
water. As discussed earlier, a documentary stamp is levied upon the privilege, the
opportunity and the facility offered at exchanges for the transaction of the
business. This being the case, and as correctly found by the tax court, the
documentary stamp tax imposition is essentially addressed and directly brought to
bear upon the document evidencing the transaction of the parties which establishes
its rights and obligations, which in the case at bar, was established and enforceable
upon the execution of the Amended Subscription Agreement and Deed of Assignment of
Property in Payment of Subscription.
Moreover, the documentary stamp tax is imposed on the entire subscription
(i.e., subscribed capital stock) which is the amount of the capital stock subscribed
whether fully paid or not. It connotes an original subscription contract for the acquisition
by a subscriber of unissued shares in a corporation, which in this case is equivalent to a
total par value of Php508,806,200.00.
Besides, a tax cannot be imposed unless it is supported by the clear and express
language of a statute; on the other hand, once the tax is unquestionably imposed, a claim
of exemption from tax payments must be clearly shown and based on language in the
law too plain to be mistaken. And since a claim for refund is in the nature of a claim for
exemption the same is likewise construed in strictissimi jurisagainst the
taxpayer. Furthermore, it is a basic rule in taxation that the factual findings of the Court
of Tax Appeals, when supported by substantial evidence, will not be disturbed on appeal
unless it [is] shown that the said court committed gross error in the appreciation of
facts. In this case, the tax court did not deviate from this rule.

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

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

at exchanges for the transaction of the business. It is an excise upon the facilities used in
the transaction of the business separate and apart from the business itself. Documentary
stamp taxes are levied on the exercise by persons of certain privileges conferred by law
for the creation, revision, or termination of specific legal relationships through the
execution of specific instruments.[20]
Thus, we have held that documentary stamp taxes are levied independently of
the legal status of the transactions giving rise thereto. The documentary stamp taxes
must be paid upon the issuance of the said instruments, without regard to whether the
contracts which gave rise to them are rescissible, void, voidable, or unenforceable.
[21]
The relevant provisions of the Tax Code at the time of the transaction are quoted
below:
Sec. 175. Stamp tax on original issue of certificates of stock. On every original
issue, whether on organization, reorganization or for any lawful purpose, of certificates
of stock by any association, company, or corporations, there shall be collected a
documentary stamp tax of Two pesos (P2.00) on each two hundred pesos, or
fractional part thereof, of the par value of such certificates: Provided, That in the
case of the original issue of stock without par value the amount of the documentary
stamp tax herein prescribed shall be based upon the actual consideration received by the
association, company, or corporation for the issuance of such stock, and in the case of
stock dividends on the actual value represented by each share.
Sec. 176. Stamp tax on sales, agreements to sell, memoranda of sales,
deliveries or transfer of due-bills, certificates of obligation, or shares or certificates of
stock. On all sales, or agreements to sell, or memoranda of sales, or deliveries, or
transfer of due-bills, certificates of obligation, or shares or certificates of stock in any
association, company or corporation, or transfer of such securities by assignment in
blank, or by delivery, or by any paper or agreement, or memorandum or other evidences
of transfer or sale whether entitling the holder in any manner to the benefit of such duebills, certificates of obligation or stock, or to secure the future payment of money, or for
the future transfer of any due-bill, certificates of obligation or stock, there shall be
collected a documentary stamp tax of One peso (P1.00) on each two hundred pesos, or
fractional part thereof, of the par value of such due-bill, certificates of obligation or
stock: Provided, That only one tax shall be collected on each sale or transfer of stock or

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

We find our discussion in the case of Commissioner of Internal Revenue

v. First Express Pawnshop Company, Inc.[22]regarding these same provisions of the
Tax Code to be instructive, and we quote:
In Section 175 of the Tax Code, DST is imposed on the original issue of shares
of stock. The DST, as an excise tax, is levied upon the privilege, the opportunity and the
facility of issuing shares of stock. In Commissioner of Internal Revenue v. Construction
Resources of Asia, Inc., this Court explained that the DST attaches upon acceptance of
the stockholder's subscription in the corporation's capital stock regardless of
actual or constructive delivery of the certificates of stock. Citing Philippine
Consolidated Coconut Ind., Inc. v. Collector of Internal Revenue, the Court held:
The documentary stamp tax under this provision of the law may
be levied only once, that is upon the original issue of the certificate. The
crucial point therefore, in the case before Us is the proper interpretation
of the word 'issue'. In other words, when is the certificate of stock
deemed 'issued' for the purpose of imposing the documentary stamp tax?
Is it at the time the certificates of stock are printed, at the time they are
filled up (in whose name the stocks represented in the certificate appear
as certified by the proper officials of the corporation), at the time they are
released by the corporation, or at the time they are in the possession
(actual or constructive) of the stockholders owning them?
xxxx
Ordinarily, when a corporation issues a certificate of stock
(representing the ownership of stocks in the corporation to fully paid
subscription) the certificate of stock can be utilized for the exercise of the
attributes of ownership over the stocks mentioned on its face. The stocks
can be alienated; the dividends or fruits derived therefrom can be
enjoyed, and they can be conveyed, pledged or encumbered. The

certificate as issued by the corporation, irrespective of whether or not it is

in the actual or constructive possession of the stockholder, is considered
issued because it is with value and hence the documentary stamp tax
must be paid as imposed by Section 212 of the National Internal Revenue
Code, as amended.
In Section 176 of the Tax Code, DST is imposed on the sales, agreements to sell,
memoranda of sales, deliveries or transfer of shares or certificates of stock in any
association, company, or corporation, or transfer of such securities by assignment in
blank, or by delivery, or by any paper or agreement, or memorandum or other evidences
of transfer or sale whether entitling the holder in any manner to the benefit of such
certificates of stock, or to secure the future payment of money, or for the future transfer
of certificates of stock. InCompagnie Financiere Sucres et Denrees v. Commissioner of
Internal Revenue, this Court held that under Section 176 of the Tax Code, sales to secure
the future transfer of due-bills, certificates of obligation or certificates of stock are
subject to documentary stamp tax.
Revenue Memorandum Order No. 08-98 (RMO 08-98) provides the guidelines
on the corporate stock documentary stamp tax program. RMO 08-98 states that:
1. All existing corporations shall file the Corporation Stock DST
Declaration, and the DST Return, if applicable when DST is still
due on the subscribed share issued by the corporation, on or
before the tenth day of the month following publication of this
Order.
xxxx
STDEH
3. All existing corporations with authorization for increased capital stock
shall file their Corporate Stock DST Declaration, together with
the DST Return, if applicable when DST is due on subscriptions
made after the authorization, on or before the tenth day of the
month following the date of authorization. (Boldfacing supplied)
RMO 08-98, reiterating Revenue Memorandum Circular No. 47-97 (RMC 4797), also states that what is being taxed is the privilege of issuing shares of stock, and,
therefore, the taxes accrue at the time the shares are issued. RMC 47-97 also defines
issuance as the point in which the stockholder acquires and may exercise attributes of
ownership over the stocks.

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

Petitioner claims overpayment of the documentary stamp tax but its basis for such
is not clear at all. While insisting that the documentary stamp tax it had paid for was not
based on the original issuance of JEC shares as provided in Section 175 of the 1994 Tax
Code, petitioner failed in showing, even through a mere basic computation of the tax
base and the tax rate, that the documentary stamp tax was based on the transfer of shares
under Section 176 either. It would have been helpful for petitioners cause had it
submitted proof of the par value of the shares of stock involved, to show the actual basis
for the documentary stamp tax computation. For comparison, the original Subscription
Agreement ought to have been submitted as well.
All that petitioner submitted to back up its claim were the certifications issued by
then RDO Esquivias. As correctly pointed out by respondent, however, the amounts in
the RDO certificates were the amounts of documentary stamp tax representing the
equivalent of each group of shares being applied for payment. The purpose for issuing
such certifications was to allow registration of transfer of shares of stock used in partial
payment for petitioners subscription to the original issuance of JEC shares. It should not
be used as evidence of payment of documentary stamp tax. Neither should it be the lone
basis of a claim for a documentary stamp tax refund.
The fact that it was petitioner and not JEC that paid for the documentary stamp
tax on the original issuance of shares is of no moment, as Section 173 of the 1994 Tax
Code states that the documentary stamp tax shall be paid by the person making, signing,
issuing, accepting or transferring the property, right or obligation.

Lastly, we deem it appropriate to reiterate the well-established doctrine that as a

matter of practice and principle, this Court will not set aside the conclusion reached by
an agency, like the Court of Tax Appeals, especially if affirmed by the Court of Appeals.
By the very nature of its function, it has dedicated itself to the study and consideration of
tax problems and has necessarily developed an expertise on the subject, unless there has
been an abuse or improvident exercise of authority on its part, which we find is not
present here.[23]
WHEREFORE, premises considered, the petition is hereby DISMISSED.
SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

PRESBITERO J. VELASCO, JR.

MARIANO C. DEL CASTILLO

Associate Justice

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

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

RENATO C. CORONA
Chief Justice

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

[2] Rollo, p. 43.

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

xxxx
(3) Credit or refund taxes erroneously or illegally received, or penalties imposed without authority, refund the value of
internal revenue stamps when they are returned in good condition by the purchaser, and in his discretion, redeem or
change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No
credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a
claim for credit or refund within two years after the payment of the tax or penalty.

[12] Rollo, pp. 90-100.

[13] Id. at 95.
[14] Id. at 97.
[15] 230 Phil. 76, 81 (1986).
[16] Rollo, pp. 103-111.
[17] Id. at 50.
[18] G.R. No. 133834, August 28, 2006, 499 SCRA 664, 667-668.
[19] Rollo, pp. 26-29.
[20] Antam Pawnshop Corporation v. Commissioner of Internal Revenue, G.R. No.
167962, September 19, 2008, 566 SCRA 57, 70.
[21] Philippine Home Assurance Corporation v. Court of Appeals, 361 Phil. 368, 373
(1999).
[22] G.R. Nos. 172045-46, June 16, 2009, 589 SCRA 253, 265-267.
[23] Compagnie Financiere Sucres Et Denrees v. Commissioner of Internal
Revenue, supra note 18 at 669.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

KUKAN INTERNATIONAL
CORPORATION,
Petitioner,
- versus HON. AMOR REYES, in her
capacity as Presiding Judge of the
Regional Trial Court of Manila,

G.R. No. 182729

Present:
CORONA, C.J., Chairperson,
CARPIO,
VELASCO, JR.,
LEONARDO-DE CASTRO, and
PEREZ, JJ.

Branch 21, and ROMEO M.

Promulgated:
MORALES, doing business under
the name and style RM Morales
September 29, 2010
Trophies and Plaques,
Respondents.
x-----------------------------------------------------------------------------------------x

DECISION
VELASCO, JR., J.:

The Case
This Petition for Review on Certiorari under Rule 45 seeks to nullify and reverse the
January 23, 2008 Decision[1] and the April 16, 2008 Resolution[2] rendered by the
Court of Appeals (CA) in CA-G.R. SP No. 100152.
The assailed CA decision affirmed the March 12, 2007[3] and June 7, 2007[4] Orders of
the Regional Trial Court (RTC) of Manila, Branch 21, in Civil Case No. 99-93173,
entitled Romeo M. Morales, doing business under the name and style RM Morales
Trophies and Plaques v. Kukan, Inc. In the said orders, the RTC disregarded the separate
corporate identities of Kukan, Inc. and Kukan International Corporation and declared
them to be one and the same entity. Accordingly, the RTC held Kukan International
Corporation, albeit not impleaded in the underlying complaint of Romeo M. Morales,
liable for the judgment award decreed in a Decision dated November 28, 2002[5] in
favor of Morales and against Kukan, Inc.
The Facts
Sometime in March 1998, Kukan, Inc. conducted a bidding for the supply and
installation of signages in a building being constructed in Makati City. Morales tendered
the winning bid and was awarded the PhP 5 million contract. Some of the items in the

project award were later excluded resulting in the corresponding reduction of the
contract price to PhP 3,388,502. Despite his compliance with his contractual
undertakings, Morales was only paid the amount of PhP 1,976,371.07, leaving a balance
of PhP 1,412,130.93, which Kukan, Inc. refused to pay despite demands. Shortchanged,
Morales filed a Complaint[6] with the RTC against Kukan, Inc. for a sum of money, the
case docketed as Civil Case No. 99-93173 and eventually raffled to Branch 17 of the
court.
Following the joinder of issues after Kukan, Inc. filed an answer with
counterclaim, trial ensued. However, starting November 2000, Kukan, Inc. no longer
appeared and participated in the proceedings before the trial court, prompting the RTC to
declare Kukan, Inc. in default and paving the way for Morales to present his evidence ex
parte.
On November 28, 2002, the RTC rendered a Decision finding for Morales and
against Kukan, Inc., disposing as follows:
WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil
Procedure, and by preponderance of evidence, judgment is hereby rendered in favor of
the plaintiff, ordering Kukan, Inc.:
1.

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

2.

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

3.

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

attorneys fees; and

4.

to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and
SIX CENTAVOS (P7,960.06) as litigation expenses.
For lack of factual foundation, the counterclaim is DISMISSED.
IT IS SO ORDERED.[7]

After the above decision became final and executory, Morales moved for and secured a
writ of execution[8] against Kukan, Inc. The sheriff then levied upon various personal
properties found at what was supposed to be Kukan, Inc.s office at Unit 2205,
88Corporate Center, Salcedo Village, Makati City. Alleging that it owned the properties
thus levied and that it was a different corporation from Kukan, Inc., Kukan International
Corporation (KIC) filed an Affidavit of Third-Party Claim. Notably, KIC was
incorporated in August 2000, or shortly after Kukan, Inc. had stopped participating in
Civil Case No. 99-93173.
In reaction to the third party claim, Morales interposed an Omnibus Motion dated April
30, 2003. In it, Morales prayed, applying the principle of piercing the veil of corporate
fiction, that an order be issued for the satisfaction of the judgment debt of Kukan, Inc.
with the properties under the name or in the possession of KIC, it being alleged that both
corporations are but one and the same entity. KIC opposed Morales motion. By Order of
May 29, 2003[9] as reiterated in a subsequent order, the court denied the omnibus
motion.
In a bid to establish the link between KIC and Kukan, Inc., and thus determine the true
relationship between the two, Morales filed aMotion for Examination of Judgment
Debtors dated May 4, 2005. In this motion Morales sought that subponae be issued
against the primary stockholders of Kukan, Inc., among them Michael Chan, a.k.a. Chan
Kai Kit. This too was denied by the trial court in an Order dated May 24, 2005.[10]
Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who
eventually granted the motion. The case was re-raffled to Branch 21, presided by public
respondent Judge Amor Reyes.
Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of
Corporate Fiction to declare KIC as having no existence separate from Kukan, Inc. This
time around, the RTC, by Order dated March 12, 2007, granted the motion, the
dispositive portion of which reads:

WHEREFORE, premises considered, the motion is hereby GRANTED. The Court

hereby declares as follows:
1.

defendant Kukan, Inc. and newly created

International Corp. as one and the same corporation;

Kukan

2.

the levy made on the properties of Kukan International

Corp. is hereby valid;

3.

Kukan International Corp. and Michael Chan are jointly and

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

SO ORDERED.

From the above order, KIC moved but was denied reconsideration in another Order
dated June 7, 2007.
KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and
June 7, 2007 RTC Orders.
On January 23, 2008, the CA rendered the assailed decision, the dispositive
portion of which states:
WHEREFORE, premises considered, the petition is hereby DENIED and the assailed
Orders dated March 12, 2007 and June 7, 2007 of the court a quo are both AFFIRMED.
No costs.
SO ORDERED.[11]

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

Hence, the instant petition for review, with the following issues KIC raises for the
Courts consideration:
1.

There is no legal basis for the [CA] to resolve and declare that petitioners
Constitutional Right to Due Process was not violated by the public respondent in
rendering the Orders dated March 12, 2007 and June 7, 2007 and in declaring
petitioner to be liable for the judgment obligations of the corporation Kukan, Inc. to
private respondent as petitioner is a stranger to the case and was never made a party
in the case before the trial court nor was it ever served a summons and a copy of the
complaint.

2.

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

3.

There is no legal basis for the [CA] to resolve and declare that the Orders dated
March 12, 2007 and June 7, 2007 rendered by public respondent declaring the
petitioner [KIC] and the corporation Kukan, Inc. as one and the same, and, therefore,
the Veil of Corporate Fiction between them be pierced as the procedure undertaken
by public respondent which the [CA] upheld is not sanctioned by the Rules of Court
and/or established jurisprudence enunciated by this Honorable Supreme Court.[12]

In gist, the issues to be resolved boil down to the question of, first, whether the
trial court can, after the judgment against Kukan, Inc. has attained finality, execute it
against the property of KIC; second, whether the trial court acquired jurisdiction over
KIC; and third, whether the trial and appellate courts correctly applied, under the
premises, the principle of piercing the veil of corporate fiction.
The Ruling of the Court
The petition is meritorious.
First Issue: Against Whom Can a Final and
Executory Judgment Be Executed

The preliminary question that must be answered is whether or not the trial court can,
after adjudging Kukan, Inc. liable for a sum of money in a final and executory judgment,
execute such judgment debt against the property of KIC.
The poser must be answered in the negative.
In Carpio v. Doroja,[13] the Court ruled that the deciding court has supervisory control
over the execution of its judgment:
A case in which an execution has been issued is regarded as still pending so that
all proceedings on the execution are proceedings in the suit. There is no question that the
court which rendered the judgment has a general supervisory control over its process of
execution, and this power carries with it the right to determine every question of fact and
law which may be involved in the execution.

We reiterated the above holding in Javier v. Court of Appeals[14] in this wise: The said
branch has a general supervisory control over its processes in the execution of its
judgment with a right to determine every question of fact and law which may be
involved in the execution.
The courts supervisory control does not, however, extend as to authorize the alteration or
amendment of a final and executory decision, save for certain recognized exceptions,
among which is the correction of clerical errors. Else, the court violates the principle of
finality of judgment and its immutability, concepts which the Court, in Tan v. Timbal,
[15] defined:
As we held in Industrial Management International Development Corporation
vs. NLRC:
It is an elementary principle of procedure that the resolution of the court in a
given issue as embodied in the dispositive part of a decision or order is the
controlling factor as to settlement of rights of the parties. Once a decision or
order becomes final and executory, it is removed from the power or
jurisdiction of the court which rendered it to further alter or amend it. It

thereby becomes immutable and unalterable and any amendment or

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

Republic v. Tango[16] expounded on the same principle and its exceptions:

Deeply ingrained in our jurisprudence is the principle that a decision that has
acquired finality becomes immutable and unalterable. As such, it may no longer be
modified in any respect even if the modification is meant to correct erroneous
conclusions of fact or law and whether it will be made by the court that rendered it or by
the highest court of the land. x x x
The doctrine of finality of judgment is grounded on the fundamental principle of
public policy and sound practice that, at the risk of occasional error, the judgment of
courts and the award of quasi-judicial agencies must become final on some definite date
fixed by law.The only exceptions to the general rule are the correction of clerical errors,
the so-called nunc pro tunc entries which cause no prejudice to any party, void
judgments, and whenever circumstances transpire after the finality of the decision which
render its execution unjust and inequitable. None of the exceptions obtains here to merit
the review sought. (Emphasis added.)

So, did the RTC, in breach of the doctrine of immutability and inalterability of
judgment, order the execution of its final decision in a manner as would amount to its
prohibited alteration or modification?
We repair to the dispositive portion of the final and executory RTC decision. Pertinently,
it provides:
WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure,
and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff,
ordering Kukan, Inc.:

1.

to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND

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

2.

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

damages;

3.

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

reasonable attorneys fees; and

4.

to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY

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

As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay
the aforementioned awards to Morales.Thus, making KIC, thru the medium of a writ of
execution, answerable for the above judgment liability is a clear case of altering a
decision, an instance of granting relief not contemplated in the decision sought to be
executed. And the change does not fall under any of the recognized exceptions to the
doctrine of finality and immutability of judgment. It is a settled rule that a writ of
execution must conform to the fallo of the judgment; as an inevitable corollary, a writ
beyond the terms of the judgment is a nullity.[17]
Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an
examination of the other issues raised by KIC would be proper.
Second Issue: Propriety of the RTC
Assuming Jurisdiction over KIC

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

In the assailed decision, the appellate court deemed KIC to have voluntarily submitted
itself to the jurisdiction of the trial court owing to its filing of four (4) pleadings adverted
to earlier, namely: (a) the Affidavit of Third-Party Claim;[18] (b) the Comment and
Opposition to Plaintiffs Omnibus Motion;[19] (c) the Motion for Reconsideration of the
RTC Order dated March 12, 2007;[20] and (d) the Motion for Leave to Admit Reply.
[21] The CA, citing Section 20, Rule 14 of the Rules of Court, stated that the procedural
rule on service of summons can be waived by voluntary submission to the courts
jurisdiction through any form of appearance by the party or its counsel.[22]
We cannot give imprimatur to the appellate courts appreciation of the thrust of
Sec. 20, Rule 14 of the Rules in concluding that the trial court acquired jurisdiction over
KIC.
Orion Security Corporation v. Kalfam Enterprises, Inc.[23] explains how courts
acquire jurisdiction over the parties in a civil case:
Courts acquire jurisdiction over the plaintiffs upon the filing of the
complaint. On the other hand, jurisdiction over the defendants in a civil case is
acquired either through the service of summons upon them or through their
voluntary appearance in court and their submission to its authority. (Emphasis
supplied.)

In the fairly recent Palma v. Galvez,[24] the Court reiterated its holding in Orion
Security Corporation, stating: [I]n civil cases, the trial court acquires jurisdiction over
the person of the defendant either by the service of summons or by the latters voluntary
appearance and submission to the authority of the former.
The courts jurisdiction over a party-defendant resulting from his voluntary submission to
its authority is provided under Sec. 20, Rule 14 of the Rules, which states:
Section 20. Voluntary appearance. The defendants voluntary appearance in the
actions shall be equivalent to service of summons. The inclusion in a motion to dismiss

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

To be sure, the CAs ruling that any form of appearance by the party or its counsel
is deemed as voluntary appearance finds support in the kindred Republic v. Ker & Co.,
Ltd.[25] and De Midgely v. Ferandos.[26]
Republic and De Midgely, however, have already been modified if not altogether
superseded[27] by La Naval Drug Corporation v. Court of Appeals,[28] wherein the
Court essentially ruled and elucidated on the current view in our jurisdiction, to wit: [A]
special appearance before the courtchallenging its jurisdiction over the person through a
motion to dismiss even if the movant invokes other groundsis not tantamount to estoppel
or a waiver by the movant of his objection to jurisdiction over his person; and such is
not constitutive of a voluntary submission to the jurisdiction of the court.[29]
In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173.
Even if it is conceded that it raised affirmative defenses through its aforementioned
pleadings, KIC never abandoned its challenge, however implicit, to the RTCs
jurisdiction over its person. The challenge was subsumed in KICs primary assertion that
it was not the same entity as Kukan, Inc. Pertinently, in itsComment and Opposition to
Plaintiffs Omnibus Motion dated May 20, 2003, KIC entered its special but not
voluntary appearance alleging therein that it was a different entity and has a separate
legal personality from Kukan, Inc. And KIC would consistently reiterate this assertion in
all its pleadings, thus effectively resisting all along the RTCs jurisdiction of its person. It
cannot be overemphasized that KIC could not file before the RTC a motion to dismiss
and its attachments in Civil Case No. 99-93173, precisely because KIC was neither
impleaded nor served with summons. Consequently, KIC could only assert and claim
through its affidavits, comments, and motions filed by special appearance before the
RTC that it is separate and distinct from Kukan, Inc.
Following La Naval Drug Corporation,[30] KIC cannot be deemed to have waived its
objection to the courts lack of jurisdiction over its person. It would defy logic to say that

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

The third and main issue in this case is whether or not the trial and appellate courts
correctly applied the principle of piercing the veil of corporate entitycalled also as
disregarding the fiction of a separate juridical personality of a corporationto support a
conclusion that Kukan, Inc. and KIC are but one and the same corporation with respect
to the contract award referred to at the outset. This principle finds its context on the
postulate that a corporation is an artificial being invested with a personality separate and
distinct from those of the stockholders and from other corporations to which it may be
connected or related.[31]
In Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations
Commission,[32] the Court revisited the subject principle of piercing the veil of
corporate fiction and wrote:
Under the doctrine of piercing the veil of corporate fiction, the court looks at the
corporation as a mere collection of individuals or an aggregation of persons undertaking
business as a group, disregarding the separate juridical personality of the corporation
unifying the group. Another formulation of this doctrine is that when two business
enterprises are owned, conducted and controlled by the same parties, both law and
equity will, when necessary to protect the rights of third parties, disregard the legal
fiction that two corporations are distinct entities and treat them as identical or as
one and the same.

Whether the separate personality of the corporation should be pierced hinges

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

The same principle was the subject and discussed in Rivera v. United Laboratories, Inc.:
While a corporation may exist for any lawful purpose, the law will regard it as an
association of persons or, in case of two corporations, merge them into one, when its
corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine
of piercing the veil of corporate fiction. The doctrine applies only when such
corporate fiction is used to defeat public convenience, justify wrong, protect fraud,
or defend crime, or when it is made as a shield to confuse the legitimate issues, or
where a corporation is the mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation.
To disregard the separate juridical personality of a corporation, the
wrongdoing must be established clearly and convincingly. It cannot be presumed.
[33] (Emphasis supplied.)

Now, as before the appellate court, petitioner KIC maintains that the RTC violated its
right to due process when, in the execution of its November 28, 2002 Decision, the court
authorized the issuance of the writ against KIC for Kukan, Inc.s judgment debt, albeit
KIC has never been a party to the underlying suit. As a counterpoint, Morales argues
that KICs specific concern on due process and on the validity of the writ to execute the
RTCs November 28, 2002 Decision would be mooted if it were established that KIC and
Kukan, Inc. are indeed one and the same corporation.
Morales contention is untenable.
The principle of piercing the veil of corporate fiction, and the resulting treatment
of two related corporations as one and the same juridical person with respect to a given

transaction, is basically applied only to determine established liability;[34] it is not

available to confer on the court a jurisdiction it has not acquired, in the first place, over a
party not impleaded in a case. Elsewise put, a corporation not impleaded in a suit cannot
be subject to the courts process of piercing the veil of its corporate fiction. In that
situation, the court has not acquired jurisdiction over the corporation and, hence, any
proceedings taken against that corporation and its property would infringe on its right to
due process. Aguedo Agbayani, a recognized authority on Commercial Law, stated as
much:
23. Piercing the veil of corporate entity applies to determination of liability not of
jurisdiction. x x x
This is so because the doctrine of piercing the veil of corporate fiction comes
to play only during the trial of the case after the court has already acquired
jurisdiction over the corporation. Hence, before this doctrine can be applied, based on
the evidence presented, it is imperative that the court must first have jurisdiction over
the corporation.[35] x x x (Emphasis supplied.)

The implication of the above comment is twofold: (1) the court must first acquire
jurisdiction over the corporation or corporations involved before its or their separate
personalities are disregarded; and (2) the doctrine of piercing the veil of corporate entity
can only be raised during a full-blown trial over a cause of action duly commenced
involving parties duly brought under the authority of the court by way of service of
summons or what passes as such service.
The issue of jurisdiction or the lack of it over KIC has already been discussed. Anent the
matter of the time and manner of raising the principle in question, it is undisputed that
no full-blown trial involving KIC was had when the RTC disregarded the corporate veil
of KIC. The reason for this actuality is simple and undisputed: KIC was not impleaded
in Civil Case No. 99-93173 and that the RTC did not acquire jurisdiction over it. It was
dragged to the case after it reacted to the improper execution of its properties and
veritably hauled to court, not thru the usual process of service of summons, but by mere
motion of a party with whom it has no privity of contract and after the decision in the
main case had already become final and executory. As to the propriety of a plea for the
application of the principle by mere motion, the following excerpts are instructive:

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

regular pleadings, and is not available to settle important questions of law, or to
dispose of the merits of the case. A motion is usually a proceeding incidental to an
action, but it may be a wholly distinct or independent proceeding. A motion in this
sense is not within this discussion even though the relief demanded is denominated an
order.
A motion generally relates to procedure and is often resorted to in order to
correct errors which have crept in along the line of the principal actions
progress. Generally, where there is a procedural defect in a proceeding and no method
under statute or rule of court by which it may be called to the attention of the court, a
motion is an appropriate remedy. In many jurisdictions, the motion has replaced the
common-law pleas testing the sufficiency of the pleadings, and various common-law
writs, such as writ of error coram nobis and audita querela. In some cases, a motion may
be one of several remedies available. For example, in some jurisdictions, a motion to
vacate an order is a remedy alternative to an appeal therefrom.
Statutes governing motions are given a liberal construction.[36] (Emphasis
supplied.)

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

motion interposed after the principal action against Kukan, Inc. alone had peremptorily
been terminated. After all, a complaint is one where the plaintiff alleges causes of action.
In any event, the principle of piercing the veil of corporate fiction finds no application to
the instant case.
As a general rule, courts should be wary of lifting the corporate veil between
corporations, however related. Philippine National Bank v. Andrada Electric
Engineering Company[37] explains why:
A corporation is an artificial being created by operation of law. x x x It has a
personality separate and distinct from the persons composing it, as well as from any
other legal entity to which it may be related. This is basic.
Equally well-settled is the principle that the corporate mask may be removed or
the corporate veil pierced when the corporation is just an alter ego of a person or of
another corporation. For reasons of public policy and in the interest of justice, the
corporate veil will justifiably be impaled only when it becomes a shield for fraud,
illegality or inequity committed against third persons.
Hence, any application of the doctrine of piercing the corporate veil should
be done with caution. A court should be mindful of the milieu where it is to be
applied. It must be certain that the corporate fiction was misused to such an extent
that injustice, fraud, or crime was committed against another, in disregard of its
rights. The wrongdoing must be clearly and convincingly established; it cannot be
presumed. Otherwise, an injustice that was never unintended may result from an
erroneous application.
This Court has pierced the corporate veil to ward off a judgment credit, to avoid
inclusion of corporate assets as part of the estate of the decedent, to escape liability
arising from a debt, or to perpetuate fraud and/or confuse legitimate issues either to
promote or to shield unfair objectives or to cover up an otherwise blatant violation of the
prohibition against forum-shopping. Only in these and similar instances may the veil
be pierced and disregarded. (Emphasis supplied.)

In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear
and convincing proof that the separate and distinct personality of the corporation was
purposefully employed to evade a legitimate and binding commitment and perpetuate a
fraud or like wrongdoings. To be sure, the Court has, on numerous occasions,
[38] applied the principle where a corporation is dissolved and its assets are transferred
to another to avoid a financial liability of the first corporation with the result that the
second corporation should be considered a continuation and successor of the first entity.
In those instances when the Court pierced the veil of corporate fiction of two
corporations, there was a confluence of the following factors:
1.

A first corporation is dissolved;

2.

The assets of the first corporation is transferred to a second

corporation to avoid a financial liability of the first corporation; and

3.

Both corporations are owned and controlled by the same persons

such that the second corporation should be considered as a continuation
and successor of the first corporation.

In the instant case, however, the second and third factors are conspicuously
absent. There is, therefore, no compelling justification for disregarding the fiction of
corporate entity separating Kukan, Inc. from KIC. In applying the principle, both the
RTC and the CA miserably failed to identify the presence of the abovementioned factors.
Consider:
The RTC disregarded the separate corporate personalities of Kukan, Inc. and KIC based
on the following premises and arguments:
While it is true that a corporation has a separate and distinct personality from its
stockholder, director and officers, the law expressly provides for an exception. When
Michael Chan, the Managing Director of defendant Kukan, Inc. (majority stockholder of
the newly formed corporation [KIC]) confirmed the award to plaintiff to supply and

install interior signages in the Enterprise Center he (Michael Chan, Managing Director
of defendant Kukan, Inc.) knew that there was no sufficient corporate funds to pay its
obligation/account, thus implying bad faith on his part and fraud in contracting the
obligation. Michael Chan neither returned the interior signages nor tendered payment to
the plaintiff. This circumstance may warrant the piercing of the veil of corporation
fiction. Having been guilty of bad faith in the management of corporate matters the
corporate trustee, director or officer may be held personally liable. x x x
Since fraud is a state of mind, it need not be proved by direct evidence but may
be inferred from the circumstances of the case. x x x [A]nd the circumstances are: the
signature of Michael Chan, Managing Director of Kukan, Inc. appearing in the
confirmation of the award sent to the plaintiff; signature of Chan Kai Kit, a British
National appearing in the Articles of Incorporation and signature of Michael Chan also a
British National appearing in the Articles of Incorporation [of] Kukan International
Corp. give the impression that they are one and the same person, that Michael Chan and
Chan Kai Kit are both majority stockholders of Kukan International Corp. and Kukan,
Inc. holding 40% of the stocks; that Kukan International Corp. is practically doing the
same kind of business as that of Kukan, Inc.[39] (Emphasis supplied.)

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

In the present case, the facts disclose that Kukan, Inc. entered into a contractual
obligation x x x worth more than three million pesos although it had only Php5,000.00
paid-up capital; [KIC] was incorporated shortly before Kukan, Inc. suddenly ceased to
appear and participate in the trial; [KICs] purpose is related and somewhat akin to that
of Kukan, Inc.; and in [KIC] Michael Chan, a.k.a., Chan Kai Kit, holds forty percent of
the outstanding stocks, while he formerly held the same amount of stocks in Kukan
Inc. These would lead to the inescapable conclusion that Kukan, Inc. committed
fraudulent representation by awarding to the private respondent the contract with
full knowledge that it was not in a position to comply with the obligation it had
assumed because of inadequate paid-up capital. It bears stressing that shareholders
should in good faith put at the risk of the business, unencumbered capital reasonably
adequate for its prospective liabilities. The capital should not be illusory or trifling
compared with the business to be done and the risk of loss.
Further, it is clear that [KIC] is a continuation and successor of Kukan, Inc.
Michael Chan, a.k.a. Chan Kai Kit has the largest block of shares in both business
enterprises. The emergence of the former was cleverly timed with the hasty withdrawal
of the latter during the trial to avoid the financial liability that was eventually suffered
by the latter. The two companies have a related business purpose.Considering these
circumstances, the obvious conclusion is that the creation of Kukan International
Corporation served as a device to evade the obligation incurred by Kukan, Inc. and
yet profit from the goodwill attained by the name Kukan by continuing to engage
in the same line of business with the same list of clients.[42] (Emphasis supplied.)

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

Morales further contends that Kukan, Inc.s closure is evidenced by its failure to
file its 2001 General Information Sheet (GIS) with the Securities and Exchange
Commission. However, such fact does not necessarily mean that Kukan, Inc. had
altogether ceased operations, as Morales would have this Court believe, for it is stated
on the face of the GIS that it is only upon a failure to file the corporate GIS for five (5)
consecutive years that non-operation shall be presumed.
The fact that Kukan, Inc. entered into a PhP 3.3 million contract when it only had
a paid-up capital of PhP 5,000 is not an indication of the intent on the part of its
management to defraud creditors. Paid-up capital is merely seed money to start a
corporation or a business entity. As in this case, it merely represented the
capitalization upon incorporation in 1997 of Kukan, Inc.Paid-up capitalization of PhP
5,000 is not and should not be taken as a reflection of the firms capacity to meet its
recurrent and long-term obligations. It must be borne in mind that the equity portion
cannot be equated to the viability of a business concern, for the best test is the working
capital which consists of the liquid assets of a given business relating to the nature of the
business concern.
Neither should the level of paid-up capital of Kukan, Inc. upon its incorporation
be viewed as a badge of fraud, for it is in compliance with Sec. 13 of the Corporation
Code,[43] which only requires a minimum paid-up capital of PhP 5,000.
The suggestion that KIC is but a continuation and successor of Kukan, Inc.,
owned and controlled as they are by the same stockholders, stands without factual basis.
It is true that Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the outstanding capital
stock of both corporations. But such circumstance, standing alone, is insufficient to
establish identity. There must be at least a substantial identity of stockholders for both
corporations in order to consider this factor to be constitutive of corporate identity.
It would not avail Morales any to rely[44] on General Credit Corporation v.
Alsons Development and Investment Corporation.[45] General Credit Corporation is
factually not on all fours with the instant case. There, the common stockholders of the
corporations represented 90% of the outstanding capital stock of the companies, unlike

here where Michael Chan merely represents 40% of the outstanding capital stock of both
KIC and Kukan, Inc., not even a majority of it. In that case, moreover, evidence was
adduced to support the finding that the funds of the second corporation came from the
first. Finally, there was proof inGeneral Credit Corporation of complete control, such
that one corporation was a mere dummy or alter ego of the other, which is absent in the
instant case.
Evidently, the aforementioned case relied upon by Morales cannot justify the
application of the principle of piercing the veil of corporate fiction to the instant case. As
shown by the records, the name Michael Chan, the similarity of business activities
engaged in, and incidentally the word Kukan appearing in the corporate names provide
the nexus between Kukan, Inc. and KIC. As illustrated, these circumstances are
insufficient to establish the identity of KIC as the alter ego or successor of Kukan, Inc.
It bears reiterating that piercing the veil of corporate fiction is frowned upon.
Accordingly, those who seek to pierce the veil must clearly establish that the separate
and distinct personalities of the corporations are set up to justify a wrong, protect fraud,
or perpetrate a deception. In the concrete and on the assumption that the RTC has validly
acquired jurisdiction over the party concerned, Morales ought to have proved by
convincing evidence that Kukan, Inc. was collapsed and thereafter KIC purposely
formed and operated to defraud him. Morales has not to us discharged his burden.
WHEREFORE, the petition is hereby GRANTED. The CAs January 23, 2008
Decision and April 16, 2008 Resolution in CA-G.R. SP No. 100152 are
hereby REVERSED and SET ASIDE. The levy placed upon the personal properties of
Kukan International Corporation is hereby ordered lifted and the personal properties
ordered returned to Kukan International Corporation. The RTC of Manila, Branch 21 is
hereby directed to execute the RTC Decision dated November 28, 2002 against Kukan,
Inc. with reasonable dispatch.
No costs.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

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

Justice Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

C E R T I F I C AT I O N

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

RENATO C. CORONA
Chief Justice

Additional member per September 22, 2010 raffle.

[1] Rollo, pp. 62-76. Penned by Associate Justice Mariano C. Del Castillo (now a
member of this Court) and concurred in by Associate Justices Arcangelita RomillaLontok and Romeo F. Barza.
[2] Id. at 78-79.
[3] Id. at 171-173.
[4] Id. at 216-217.
[5] Id. at 89-91.
[6] Id. at 80-88.
[7] Id. at 90-91.
[8] Id. at 97, dated February 7, 2003.

[9] Id. at 127.

[10] Id. at 141.
[11] Id. at 75.
[12] Id. at 28-29. Original in upper case.
[13] G.R. No. 84516, December 5, 1989, 180 SCRA 1, 7.
[14] G.R. No. 97795, February 16, 2004, 423 SCRA 11, 33.
[15] G.R. No. 141926, July 14, 2004, 434 SCRA 381, 386.
[16] G.R. No. 161062, July 31, 2009, 594 SCRA 560, 568.
[17] B.E. San Diego, Inc. v. Alzul, G.R. No. 169501, June 8, 2007, 524 SCRA 402, 433;
citing Villoria v. Piccio, et al., 95 Phil. 802, 805-806 (1954).
[18] Rollo, pp. 98-101.
[19] Id. at 117-126.
[20] Id. at 174-187.
[21] Id. at 198-200.
[22] Id. at 69-70.
[23] G.R. No. 163287, April 27, 2007, 522 SCRA 617, 622.
[24] G.R. No. 165273, March 10, 2010.
[25] No. L-21609, September 29, 1966, 18 SCRA 207, 213-214. The Court ruled:
We observed that the motion to dismiss filed on April 14, 1962, aside from disputing the lower courts jurisdiction
over defendants person, prayed for dismissal of the complaint on the ground that plaintiffs cause of action had prescribed.
By interposing such second ground in its motion to dismiss, Ker & Co., Ltd. availed of an affirmative defense on the basis
of which it prayed the court to resolve controversy in its favor. For the court to validly decide the said plea of defendant Ker
& Co., Ltd., it necessarily had to acquire jurisdiction upon the latters person, who, being the proponent of the affirmative
defense, should be deemed to have abandoned its special appearance and voluntarily submitted itself to the jurisdiction of
the court.
Voluntary appearance cures defects of summons, if any x x x. A defendant can not be permitted to speculate upon
the judgment of the court by objecting to the courts jurisdiction over its person if the judgment is adverse to it, and acceding
to jurisdiction over its person if and when the judgment sustains its defenses.

[26] No. L-34313, May 13, 1975, 64 SCRA 23, 31. The Court also ruled:
When the appearance is by motion for the purpose of objecting to the jurisdiction of the court over the person, it
must be for the sole and separate purpose of objecting to the jurisdiction of the court. If his motion is for any other purpose
than to object to the jurisdiction of the court over his person, he thereby submits himself to the jurisdiction of the court. A
special appearance by motion made for the purpose of objecting to the jurisdiction of the court over the person will be held
to be a general appearance, if the party in said motion should, for example, ask for a dismissal of the action upon the further
ground that the court had no jurisdiction over the subject matter.

[27] Perkin Elmer Singapore Pte Ltd. v. Dakila Trading Corporation, G.R. No.
172242, August 14, 2007, 530 SCRA 170.
[28] G.R. No. 103200, August 31, 1994, 236 SCRA 78, 87-88. The Court held,
thus:

The doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice according
to natural law and right. It is a principle intended to avoid a clear case of injustice. The term is hardly distinguishable from a
waiver of right. Estoppel, like its said counterpart, must be unequivocal and intentional for, when misapplied, it can easily
become a most convenient and effective means of injustice. Estoppel is not understood to be a principle that, as a rule,
should prevalently apply but, such as it concededly is, as a mere exception from the standard legal norms of general
application that can be invoked only in highly exceptional and justifiable cases.
Tested by the above criteria, the Court sees it propitious to re-examine specifically the question of whether or not
the submission of other issues in a motion to dismiss, or of an affirmative defense (as distinguished from an
affirmative relief) in an answer, would necessarily foreclose, and have the effect of a waiver of, the right of a
defendant to set up the courts lack of jurisdiction over the person of the defendant.
Not inevitably.
Section 1, Rule 16, of the Rules of Court, provides that a motion to dismiss may be made on the following
grounds:
(a) That the court has no jurisdiction over the person of the defendant or over the subject of the action or suit;
(b) That the court has no jurisdiction over the nature of the action or suit;
(c) The venue is improperly laid;
(d) That the plaintiff has no legal capacity to sue;
(e) That there is another action pending between the same parties for the same cause;
(f) That the cause of action is barred by a prior judgment or by statute of limitations;
(g) That the complaint states no cause of action;
(h) That the claim or demand set forth in the plaintiff's pleading has been paid, waived, abandoned, or otherwise
extinguished;
(i) That the claim on which the action or suit is founded is unenforceable under the provisions of the statute of frauds;
(j) That the suit is between members of the same family and no earnest efforts towards a compromise have been made.
Any ground for dismissal in a motion to dismiss, except improper venue, may, as further set forth in Section 5 of
the same rule, be pleaded as an affirmative defense and a preliminary hearing may be had thereon as if a motion to dismiss
had been filed. An answer itself contains the negative, as well as affirmative, defenses upon which the defendant may rely
(Section 4, Rule 6, Rules of Court). A negative defense denies the material facts averred in the complaint essential to
establish the plaintiffs cause of action, while an affirmative defense in an allegation of a new matter which, while admitting
the material allegations of the complaint, would, nevertheless, prevent or bar recovery by the plaintiff. Inclusive of these
defenses are those mentioned in Rule 16 of the Rules of Court which would permit the filing of a motion to dismiss.
In the same manner that the plaintiff may assert two or more causes of action in a court suit, a defendant is likewise
expressly allowed, under Section 2, Rule 8, of the Rules of Court, to put up his own defenses alternatively or even
hypothetically. Indeed, under Section 2, Rule 9, of the Rules of Court, defenses and objections not pleaded either in a
motion to dismiss or in an answer, except for the failure to state a cause of action, are deemed waived. We take this to mean
that a defendant may, in fact, feel enjoined to set up, along with his objection to the courts jurisdiction over his person, all
other possible defenses. It thus appears that it is not the invocation of any of such defenses, but the failure to so raise them,
that can result in waiver or estoppel. By defenses, of course, we refer to the grounds provided for in Rule 16 of the Rules of
Court that must be asserted in a motion to dismiss or by way of affirmative defenses in an answer. (Emphasis supplied.)

[29] Garcia v. Sandiganbayan, G.R. Nos. 170122 & 171381, October 12, 2009,
603 SCRA 348, 367.
[30] Supra note 28.
[31] Jardine Davies, Inc. v. JRB Realty, Inc., G.R. No. 151438, July 15, 2005, 463
SCRA 555, 563.
[32] G.R. No. 170689, March 17, 2009, 581 SCRA 598, 613-614.
[33] G.R. No. 155639, April 22, 2009, 586 SCRA 269, 300.

[34] Heirs of the Late Panfilo V. Pajarillo v. Court of Appeals, G.R. Nos. 15505657, October 19, 2007, 537 SCRA 96, 112.
[35] 3 A. Agbayani, COMMENTARIES AND JURISPRUDENCE ON THE
COMMERCIAL LAWS OF THE PHILIPPINES 18 (1991).
[36] 56 AmJur 2d, Motions, Rules, and Orders, 4, p. 5 (citations omitted).
[37] G.R. No. 142936, April 17, 2002, 381 SCRA 244, 254-255.
[38] Concept Builders, Inc. v. National Labor Relations Commission, G.R. No.
108734, May 29, 1996, 257 SCRA 149; Avon Dale Garments, Inc. v. National Labor
Relations Commission, G.R. No. 117932, July 20, 1995, 246 SCRA 733; Pepsi-Cola
Bottling Co. v. National Labor Relations Commission, G.R. No. 101900, June 23, 1992,
210 SCRA 277; Philippine Bank of Communications v. Court of Appeals, G.R. No.
92067, March 22, 1991, 195 SCRA 567; Cagayan Valley Enterprises, Inc. v. Court of
Appeals, G.R. No. 78413, November 8, 1989, 179 SCRA 218; A.C. Ransom Labor
Union CCLU v. National Labor Relations Commission, G.R. No. 69494, May 29, 1987,
150 SCRA 498; National Federation of Labor Unions (NAFLU) v. Ople, G.R. No.
68661, July 22, 1986, 143 SCRA 128; Claparols v. Court of Industrial Relations, No. L30822, July 31, 1975, 65 SCRA 613.
[39] Rollo, p. 173.
[40] Francisco v. Mejia, G.R. No. 141617, August 14, 2001, 362 SCRA 738.
[41] Manila Hotel Corp. v. National Labor Relations Commission, G.R. No.
120077, October 13, 2000, 343 SCRA 1, 15.
[42] Rollo, p. 74.
[43] Sec. 13. Amount of capital stock to be subscribed and paid for the purposes
of incorporation.At least twenty-five percent (25%) of the authorized capital stock as
stated in the articles of incorporation must be subscribed at the time of incorporation,
and at least twenty-five (25%) per cent of the total subscription must be paid upon
subscription, the balance to be payable on a date or dates fixed in the contract of
subscription without need of call, or in the absence of a fixed date or dates, upon call for
payment by the board of directors: Provided, however, That in no case shall the paidup capital be less than five thousand (P5,000.00) pesos. (Emphasis supplied.)
[44] Rollo, p. 305.
[45] G.R. No. 154975, January 29, 2007, 513 SCRA 225.