FORMATION OF CORPORATIONS
A second mortgage in favor of the
1. Organizing the Corporation
(r) "Promoter" includes (1) any person who, acting
alone or in conjunction with one or more other
persons, directly or indirectly, takes initiative in
founding and organizing the business or enterprise
of an issuer; or (2) any person who, in connection
with the founding and organizing of the business of
an issuer, directly or indirectly, receives in
consideration of services or property or both services
or property ten (10%) per centum or more of any class
of securities of the issuer or ten (10%) per centum or
more of the proceeds from the sale of any class of
such securities. However, a person who receives
such securities or proceeds either solely as
underwriting commissions or solely as consideration
of property shall not be deemed a promoter within the
meaning of this paragraph if such person does not
otherwise take part in founding and organizing the
enterprise.
TITLE VII - STOCKS AND STOCKHOLDERS
Section 60. Subscription contract. - 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. (n)
Section 61. Pre-incorporation subscription. - A
subscription for shares of stock of a corporation still
to be formed shall be irrevocable for a period of at
least six (6) months from the date of subscription,
unless all of the other subscribers consent to the
revocation, or unless the incorporation of said
corporation fails to materialize within said period or
within a longer period as may be stipulated in the
contract of subscription: Provided, That no pre-
incorporation subscription may be revoked after the
submission of the articles of incorporation to the
Securities and Exchange Commission. (n)
CAGAYAN FISHING DEVELOPMENT CO., INC.,
plaintiff-appellant, vs.TEODORO SANDIKO, defendant-
appellee..
LAUREL, J.:
This is an appeal from a judgment of the Court of First
Instance of Manila absolving the defendant from the
plaintiff's complaint.
Manuel Tabora is the registered owner of four parcels of
land situated in the barrio of Linao, town of Aparri,
Province of Cagayan, as evidenced by transfer certificate
of title No. 217 of the land records of Cagayan, a copy of
which is in evidence as Exhibit 1. To guarantee the
payment of a loan in the sum of P8,000, Manuel Tabora,
on August 14, 1929, executed in favor of the Philippine
National Bank a first mortgage on the four parcels of land
above-mentioned.
same bank was in April of 1930 executed by Tabora over
the same lands to guarantee the payment of another loan
amounting to P7,000. A third mortgage on the same lands
was executed on April 16, 1930 in favor of Severina
Buzon to whom Tabora was indebted in the sum of
P2,9000. These mortgages were registered and
annotations thereof appear at the back of transfer
certificate of title No. 217.
On May 31, 1930, Tabora executed a public document
entitled "Escritura de Transpaso de Propiedad Inmueble"
(Exhibit A) by virtue of which the four parcels of land
owned by him was sold to the plaintiff company, said to
under process of incorporation, in consideration of one
peso (P1) subject to the mortgages in favor of the
Philippine National Bank and Severina Buzon and, to the
condition that the certificate of title to said lands shall not
be transferred to the name of the plaintiff company until
the latter has fully and completely paid Tabora's
indebtedness to the Philippine National Bank.
The plaintiff company filed its article incorporation with the
Bureau of Commerce and Industry on October 22, 1930
(Exhibit 2). A year later, on October 28, 1931, the board
of directors of said company adopted a resolution (Exhibit
G) authorizing its president, Jose Ventura, to sell the four
parcels of lands in question to Teodoro Sandiko for
P42,000. Exhibits B, C and D were thereafter made and
executed. Exhibit B is a deed of sale executed before a
notary public by the terms of which the plaintiff sold ceded
and transferred to the defendant all its right, titles, and
interest in and to the four parcels of land described in
transfer certificate in turn obligated himself to shoulder the
three mortgages hereinbefore referred to. Exhibit C is a
promisory note for P25,300. drawn by the defendant in
favor of the plaintiff, payable after one year from the date
thereof. Exhibit D is a deed of mortgage executed before
a notary public in accordance with which the four parcels
of land were given a security for the payment of the
promissory note, Exhibit C. All these three instrument
were dated February 15, 1932.
The defendant having failed to pay the sum stated in the
promissory note, plaintiff, on January 25, 1934, brought
this action in the Court of First Instance of Manila praying
that judgment be rendered against the defendant for the
sum of P25,300, with interest at legal rate from the date
of the filing of the complaint, and the costs of the suits.
After trial, the court below, on December 18, 1934,
rendered judgment absolving the defendant, with costs
against the plaintiff. Plaintiff presented a motion for new
trial on January 14, 1935, which motion was denied by the
trial court on January 19 of the same year. After due
exception and notice, plaintiff has appealed to this court
and makes an assignment of various errors.
In dismissing the complaint against the defendant, the
court below, reached the conclusion that Exhibit B is
invalid because of vice in consent and repugnancy to law.
While we do not agree with this conclusion, we have
however voted to affirm the judgment appealed from the
reasons which we shall presently state.
The transfer made by Tabora to the Cagayan fishing
Development Co., Inc., plaintiff herein, was affected on
May 31, 1930 (Exhibit A) and the actual incorporation of
said company was affected later on October 22, 1930
(Exhibit 2). In other words, the transfer was made almost
five months before the incorporation of the company.
Unquestionably, a duly organized corporation has the
power to purchase and hold such real property as the
purposes for which such corporation was formed may
permit and for this purpose may enter into such contracts
as may be necessary (sec. 13, pars. 5 and 9, and sec. 14,
Act No. 1459). But before a corporation may be said to be
lawfully organized, many things have to be done. Among
other things, the law requires the filing of articles of
incorporation (secs. 6 et seq., Act. No. 1459). Although
there is a presumption that all the requirements of law
have been complied with (sec. 334, par. 31 Code of Civil
Procedure), in the case before us it can not be denied that
the plaintiff was not yet incorporated when it entered into
a contract of sale, Exhibit A. The contract itself referred to
the plaintiff as "una sociedad en vias de incorporacion." It
was not even a de facto corporation at the time. Not being
in legal existence then, it did not possess juridical capacity
to enter into the contract.
Corporations are creatures of the law, and can only come
into existence in the manner prescribed by law. As has
already been stated, general law authorizing the
formation of corporations are general offers to any
persons who may bring themselves within their
provisions; and if conditions precedent are prescribed in
the statute, or certain acts are required to be done, they
are terms of the offer, and must be complied with
substantially before legal corporate existence can be
acquired. (14 C. J., sec. 111, p. 118.)
That a corporation should have a full and complete
organization and existence as an entity before it can enter
into any kind of a contract or transact any business, would
seem to be self evident. . . . A corporation, until organized,
has no being, franchises or faculties. Nor do those
engaged in bringing it into being have any power to bind
it by contract, unless so authorized by the charter there is
not a corporation nor does it possess franchise or
faculties for it or others to exercise, until it acquires a
complete existence. (Gent vs. Manufacturers and
Merchant's Mutual Insurance Company, 107 Ill., 652,
658.)
Boiled down to its naked reality, the contract here (Exhibit
A) was entered into not between Manuel Tabora and a
non-existent corporation but between the Manuel Tabora
as owner of the four parcels of lands on the one hand and
the same Manuel Tabora, his wife and others, as mere
promoters of a corporations on the other hand. For
reasons that are self-evident, these promoters could not
have acted as agent for a projected corporation since that
which no legal existence could have no agent. A
corporation, until organized, has no life and therefore no
faculties. It is, as it were, a child in ventre sa mere. This is
not saying that under no circumstances may the acts of
promoters of a corporation be ratified by the corporation if
and when subsequently organized. There are, of course,
exceptions (Fletcher Cyc. of Corps., permanent edition,
1931, vol. I, secs. 207 et seq.), but under the peculiar facts
and circumstances of the present case we decline to
extend the doctrine of ratification which would result in the
commission of injustice or fraud to the candid and
unwary.(Massachusetts rule, Abbott vs. Hapgood, 150
Mass., 248; 22 N. E. 907, 908; 5 L. R. A., 586; 15 Am. St.
Rep., 193; citing English cases; Koppel vs.
Massachusetts Brick Co., 192 Mass., 223; 78 N. E., 128;
Holyoke Envelope Co., vs. U. S. Envelope Co., 182
Mass., 171; 65 N. E., 54.) It should be observed that
Manuel Tabora was the registered owner of the four
parcels of land, which he succeeded in mortgaging to the
Philippine National Bank so that he might have the
necessary funds with which to convert and develop them
into fishery. He appeared to have met with financial
reverses. He formed a corporation composed of himself,
his wife, and a few others. From the articles of
incorporation, Exhibit 2, it appears that out of the P48,700,
amount of capital stock subscribed, P45,000 was
subscribed by Manuel Tabora himself and P500 by his
wife, Rufina Q. de Tabora; and out of the P43,300,
amount paid on subscription, P42,100 is made to appear
as paid by Tabora and P200 by his wife. Both Tabora and
His wife were directors and the latter was treasurer as
well. In fact, to this day, the lands remain inscribed in
Tabora's name. The defendant always regarded Tabora
as the owner of the lands. He dealt with Tabora directly.
Jose Ventura, president of the plaintiff corporation,
intervened only to sign the contract, Exhibit B, in behalf of
the plaintiff. Even the Philippine National Bank,
mortgagee of the four parcels of land, always treated
Tabora as the owner of the same. (See Exhibits E and F.)
Two civil suits (Nos. 1931 and 38641) were brought
against Tabora in the Court of First Instance of Manila and
in both cases a writ of attachment against the four parcels
of land was issued. The Philippine National Bank
threatened to foreclose its mortgages. Tabora
approached the defendant Sandiko and succeeded in the
making him sign Exhibits B, C, and D and in making him,
among other things, assume the payment of Tabora's
indebtedness to the Philippine National Bank. The
promisory note, Exhibit C, was made payable to the
plaintiff company so that it may not attached by Tabora's
creditors, two of whom had obtained writs of attachment
against the four parcels of land.
If the plaintiff corporation could not and did not acquire the
four parcels of land here involved, it follows that it did not
possess any resultant right to dispose of them by sale to
the defendant, Teodoro Sandiko.
Some of the members of this court are also of the opinion
that the transfer from Manuel Tabora to the Cagayan
Fishing Development Company, Inc., which transfer is
evidenced by Exhibit A, was subject to a condition
precedent (condicion suspensiva), namely, the payment
of the mortgage debt of said Tabora to the Philippine
National Bank, and that this condition not having been
complied with by the Cagayan Fishing Development
Company, Inc., the transfer was ineffective. (Art. 1114,
Civil Code; Wise & Co. vs. Kelly and Lim, 37 Phil., 696;
Manresa, vol. 8, p. 141.) However, having arrived at the
conclusion that the transfer by Manuel Tabora to the
Cagayan Fishing Development Company, Inc. was null
because at the time it was affected the corporation was
non-existent, we deem it unnecessary to discuss this
point.lawphil.net
The decision of the lower court is accordingly affirmed,
with costs against the appellant. So Ordered.
RIZAL LIGHT & ICE CO., INC., petitioner,
vs.
THE MUNICIPALITY OF MORONG, RIZAL and THE
PUBLIC SERVICE COMMISSION, respondents.
G.R. No. L-21221 September 28, 1968
RIZAL LIGHT & ICE CO., INC., petitioner,
vs.
THE PUBLIC SERVICE COMMISSION and MORONG
ELECTRIC CO., INC., respondents.
ZALDIVAR, J.:
These two cases, being interrelated, are decided
together.
Case G.R. No. L-20993 is a petition of the Rizal Light &
Ice Co., Inc. to review and set aside the orders of
respondent Public Service Commission, 1 dated August
20, 1962, and February 15, 1963, in PSC Case No.
39716, cancelling and revoking the certificate of public
convenience and necessity and forfeiting the franchise of
said petitioner. In the same petition, the petitioner prayed
for the issuance of a writ of preliminary injunction ex parte
suspending the effectivity of said orders and/or enjoining
respondents Commission and/or Municipality of Morong,
Rizal, from enforcing in any way the cancellation and
revocation of petitioner's franchise and certificate of public
convenience during the pendency of this appeal. By
resolution of March 12, 1963, this Court denied the
petition for injunction, for lack of merit.
Case G. R. L-21221 is likewise a petition of the Rizal Light
& Ice Co., Inc. to review and set aside the decision of the
Commission dated March 13, 1963 in PSC Case No. 62-
5143 granting a certificate of public convenience and
necessity to respondent Morong Electric Co., Inc. 2 to
operate an electric light, heat and power service in the
municipality of Morong, Rizal. In the petition Rizal Light &
Ice Co., Inc. also prayed for the issuance of a writ of
preliminary injunction ex parte suspending the effectivity
of said decision. Per resolution of this Court, dated May
6, 1963, said petition for injunction was denied.
The facts, as they appear in the records of both cases,
are as follows:
Petitioner Rizal Light & Ice Co., Inc. is a domestic
corporation with business address at Morong, Rizal. On
August 15, 1949, it was granted by the Commission a
certificate of public convenience and necessity for the
installation, operation and maintenance of an electric
light, heat and power service in the municipality of
Morong, Rizal.
In an order dated December 19, 1956, the Commission
required the petitioner to appear before it on February 18,
1957 to show cause why it should not be penalized for
violation of the conditions of its certificate of public
convenience and the regulations of the Commission, and
for failure to comply with the directives to raise its service
voltage and maintain them within the limits prescribed in
the Revised Order No. 1 of the Commission, and to
acquire and install a kilowattmeter to indcate the load in
kilowatts at any particular time of the generating unit. 3
For failure of the petitioner to appear at the hearing on
February 18, 1957, the Commission ordered the
cancellation and revocation of petitioner's certificate of
public convenience and necessity and the forfeiture of its
franchise. Petitioner moved for reconsideration of said
order on the ground that its manager, Juan D. Francisco,
was not aware of said hearing. Respondent municipality
opposed the motion alleging that petitioner has not
rendered efficient and satisfactory service and has not
complied with the requirements of the Commission for the
improvement of its service. The motion was set for
hearing and Mr. Pedro S. Talavera, Chief, Industrial
Division of the Commission, was authorized to conduct
the hearing for the reception of the evidence of the
parties. 4
Finding that the failure of the petitioner to appear at the
hearing set for February 18, 1957 — the sole basis of the
revocation of petitioner's certificate — was really due to
the illness of its manager, Juan D. Francisco, the
Commission set aside its order of revocation. Respondent
municipality moved for reconsideration of this order of
reinstatement of the certificate, but the motion was
denied.
In a petition dated June 25, 1958, filed in the same case,
respondent municipality formally asked the Commission
to revoke petitioner's certificate of public convenience and
to forfeit its franchise on the ground, among other things,
that it failed to comply with the conditions of said
certificate and franchise. Said petition was set for hearing
jointly with the order to show cause. The hearings had
been postponed several times.
Meanwhile, inspections had been made of petitioner's
electric plant and installations by the engineers of the
Commission, as follows: April 15, 1958 by Engineer
Antonio M. Alli; September 18, 1959, July 12-13, 1960,
and June 21-24, 1961, by Engineer Meliton S. Martinez.
The inspection on June 21-24, 1961 was made upon the
request of the petitioner who manifested during the
hearing on December 15, 1960 that improvements have
been made on its service since the inspection on July 12-
13, 1960, and that, on the basis of the inspection report to
be submitted, it would agree to the submission of the case
for decision without further hearing.
When the case was called for hearing on July 5, 1961,
petitioner failed to appear. Respondent municipality was
then allowed to present its documentary evidence, and
thereafter the case was submitted for decision.
On July 7, 1961, petitioner filed a motion to reopen the
case upon the ground that it had not been furnished with
a copy of the report of the June 21-24, 1961 inspection for
it to reply as previously agreed. In an order dated August
25, 1961, petitioner was granted a period of ten (10) days
within which to submit its written reply to said inspection
report, on condition that should it fail to do so within the
said period the case would be considered submitted for
decision. Petitioner failed to file the reply. In consonance
with the order of August 25, 1961, therefore, the
Commission proceeded to decide the case. On July 29,
1962 petitioner's electric plant was burned.
In its decision, dated August 20, 1962, the Commission,
on the basis of the inspection reports of its aforenamed
engineers, found that the petitioner had failed to comply
with the directives contained in its letters dated May 21,
1954 and September 4, 1954, and had violated the
conditions of its certificate of public convenience as well
as the rules and regulations of the Commission. The
Commission concluded that the petitioner "cannot render
the efficient, adequate and satisfactory electric service
required by its certificate and that it is against public
interest to allow it to continue its operation." Accordingly,
it ordered the cancellation and revocation of petitioner's
certificate of public convenience and the forfeiture of its
franchise.
On September 18, 1962, petitioner moved for
reconsideration of the decision, alleging that before its
electric plant was burned on July 29, 1962, its service was
greatly improved and that it had still existing investment
which the Commission should protect. But eight days
before said motion for reconsideration was filed, or on
September 10, 1962, Morong Electric, having been
granted a municipal franchise on May 6, 1962 by
respondent municipality to install, operate and maintain
an electric heat, light and power service in said
municipality — approved by the Provincial Board of Rizal
on August 31, 1962 — filed with the Commission an
application for a certificate of public convenience and
necessity for said service. Said application was entitled
"Morong Electric Co., Inc., Applicant", and docketed as
Case No. 62-5143.
Petitioner opposed in writing the application of Morong
Electric, alleging among other things, that it is a holder of
a certificate of public convenience to operate an electric
light, heat and power service in the same municipality of
Morong, Rizal, and that the approval of said application
would not promote public convenience, but would only
cause ruinous and wasteful competition. Although the
opposition is dated October 6, 1962, it was actually
received by the Commission on November 8, 1962, or
twenty four days after the order of general default was
issued in open court when the application was first called
for hearing on October 15, 1962. On November 12, 1962,
however, the petitioner filed a motion to lift said order of
default. But before said motion could be resolved,
petitioner filed another motion, dated January 4, 1963,
this time asking for the dismissal of the application upon
the ground that applicant Morong Electric had no legal
personality when it filed its application on September 10,
1962, because its certificate of incorporation was issued
by the Securities and Exchange Commission only on
October 17, 1962. This motion to dismiss was denied by
the Commission in a formal order issued on January 17,
1963 on the premise that applicant Morong Electric was a
de facto corporation. Consequently, the case was heard
on the merits and both parties presented their respective
evidence. On the basis of the evidence adduced, the
Commission, in its decision dated March 13, 1963, found
that there was an absence of electric service in the
municipality of Morong and that applicant Morong Electric,
a Filipino-owned corporation duly organized and existing
under the laws of the Philippines, has the financial
capacity to maintain said service. These circumstances,
considered together with the denial of the motion for
reconsideration filed by petitioner in Case No. 39715 on
February, 15, 1963, such that as far as the Commission
was concerned the certificate of the petitioner was already
declared revoked and cancelled, the Commission
approved the application of Morong Electric and ordered
the issuance in its favor of the corresponding certificate of
public convenience and necessity.1awphîl.nèt
On March 8, 1963, petitioner filed with this Court a petition
to review the decision in Case No. 39715 (now G. R. No.
L-20993). Then on April 26, 1963, petitioner also filed a
petition to review the decision in Case No. 62-5143 (now
G. R. No. L-21221).
In questioning the decision of the Commission in Case
No. 39715, petitioner contends: (1) that the Commission
acted without or in excess of its jurisdiction when it
delegated the hearing of the case and the reception of
evidence to Mr. Pedro S. Talavera who is not allowed by
law to hear the same; (2) that the cancellation of
petitioner's certificate of public convenience was
unwarranted because no sufficient evidence was
adduced against the petitioner and that petitioner was not
able to present evidence in its defense; (3) that the
Commission failed to give protection to petitioner's
investment; and (4) that the Commission erred in
imposing the extreme penalty of revocation of the
certificate.
In questioning the decision in Case No. 62-5143,
petitioner contends: (1) that the Commission erred in
denying petitioner's motion to dismiss and proceeding
with the hearing of the application of the Morong Electric;
(2) that the Commission erred in granting Morong Electric
a certificate of public convenience and necessity since it
is not financially capable to render the service; (3) that the
Commission erred when it made findings of facts that are
not supported by the evidence adduced by the parties at
the trial; and (4) that the Commission erred when it did not
give to petitioner protection to its investment — a
reiteration of the third assignment of error in the other
case.1awphîl.nèt
We shall now discuss the appeals in these two cases
separately.
G.R. No. L-20993
1. Under the first assignment of error, petitioner contends
that while Mr. Pedro S. Talavera, who conducted the
hearings of the case below, is a division chief, he is not a
lawyer. As such, under Section 32 of Commonwealth Act
No. 146, as amended, the Commission should not have
delegated to him the authority to conduct the hearings for
the reception of evidence of the parties.
We find that, really, Mr. Talavera is not a lawyer. 5 Under
the second paragraph of Section 32 of Commonwealth
Act No. 146, as amended, 6 the Commission can only
authorize a division chief to hear and investigate a case
filed before it if he is a lawyer. However, the petitioner is
raising this question for the first time in this appeal. The
record discloses that petitioner never made any objection
to the authority of Mr. Talavera to hear the case and to
receive the evidence of the parties. On the contrary, we
find that petitioner had appeared and submitted evidence
at the hearings conducted by Mr. Talavera, particularly
the hearings relative to the motion for reconsideration of
the order of February 18, 1957 cancelling and revoking its
certificate. We also find that, through counsel, petitioner
had entered into agreements with Mr. Talavera, as
hearing officer, and the counsel for respondent
municipality, regarding procedure in order to abbreviate
the proceedings. 7 It is only after the decision in the case
turned out to be adverse to it that petitioner questioned
the proceedings held before Mr. Talavera.
This Court in several cases has ruled that objection to the
delegation of authority to hear a case filed before the
Commission and to receive the evidence in connection
therewith is a procedural, not a jurisdictional point, and is
waived by failure to interpose timely the objection and the
case had been decided by the Commission. 8 Since
petitioner has never raised any objection to the authority
of Mr. Talavera before the Commission, it should be
deemed to have waived such procedural defect, and
consonant with the precedents on the matter, petitioner's
claim that the Commission acted without or in excess of
jurisdiction in so authorizing Mr. Talavera should be
dismissed. 9
2. Anent the second assigned error, the gist of petitioner's
contention is that the evidence — consisting of inspection
reports — upon which the Commission based its decision
is insufficient and untrustworthy in that (1) the authors of
said reports had not been put to test by way of cross-
examination; (2) the reports constitute only one side of the
picture as petitioner was not able to present evidence in
its defense; (3) judicial notice was not taken of the
testimony of Mr. Harry B. Bernardino, former mayor of
respondent municipality, in PSC Case No. 625143 (the
other case, G. R. No. L-21221) to the effect that the
petitioner had improved its service before its electric
power plant was burned on July 29, 1962 — which
testimony contradicts the inspection reports; and (4) the
Commission acted both as prosecutor and judge —
passing judgment over the very same evidence presented
by it as prosecutor — a situation "not conducive to the
arrival at just and equitable decisions."
Settled is the rule that in reviewing the decision of the
Public Service Commission this Court is not required to
examine the proof de novo and determine for itself
whether or not the preponderance of evidence really
justifies the decision. The only function of this Court is to
determine whether or not there is evidence before the
Commission upon which its decision might reasonably be
based. This Court will not substitute its discretion for that
of the Commission on questions of fact and will not
interfere in the latter's decision unless it clearly appears
that there is no evidence to support it. 10 Inasmuch as the
only function of this Court in reviewing the decision of the
Commission is to determine whether there is sufficient
evidence before the Commission upon which its decision
can reasonably be based, as it is not required to examine
the proof de novo, the evidence that should be made the
basis of this Court's determination should be only those
presented in this case before the Commission. What then
was the evidence presented before the Commission and
made the basis of its decision subject of the present
appeal? As stated earlier, the Commission based its
decision on the inspection reports submitted by its
engineers who conducted the inspection of petitioner's
electric service upon orders of the Commission. 11 Said
inspection reports specify in detail the deficiencies
incurred, and violations committed, by the petitioner
resulting in the inadequacy of its service. We consider that
said reports are sufficient to serve reasonably as bases of
the decision in question. It should be emphasized, in this
connection that said reports, are not mere documentary
proofs presented for the consideration of the Commission,
but are the results of the Commission's own observations
and investigations which it can rightfully take into
consideration, 12 particularly in this case where the
petitioner had not presented any evidence in its defense,
and speaking of petitioner's failure to present evidence,
as well as its failure to cross-examine the authors of the
inspection reports, petitioner should not complain
because it had waived not only its right to cross-examine
but also its right to present evidence. Quoted hereunder
are the pertinent portions of the transcripts of the
proceedings where the petitioner, through counsel,
manifested in clear language said waiver and its decision
to abide by the last inspection report of Engineer
Martinez:
Proceedings of December 15, 1960
COMMISSION:
It appears at the last hearing of this case on September
23, 1960, that an engineer of this Commission has been
ordered to make an inspection of all electric services in
the province of Rizal and on that date the engineer of this
Commission is still undertaking that inspection and it
appears that the said engineer had actually made that
inspection on July 12 and 13, 1960. The engineer has
submitted his report on November 18, 1960 which is
attached to the records of this case.
ATTY. LUQUE (Councel for Petitioner):
... (W)e respectfully state that while the report is, as I see
it attached to the records, clear and very thorough, it was
made sometime July of this year and I understand from
the respondent that there is some improvement since this
report was made ... we respectfully request that an up-to-
date inspection be made ... . An inspector of this
Commission can be sent to the plant and considering that
the engineer of this Commission, Engineer Meliton
Martinez, is very acquainted to the points involved we
pray that his report will be used by us for the reason that
he is a technical man and he knows well as he has done
a good job and I think our proposition would expedite the
matter. We sincerely believe that the inspection report will
be the best evidence to decide this matter.
xxx xxx xxx
ATTY. LUQUE:
... This is a very important matter and to show the good
faith of respondent in this case we will not even cross-
examine the engineer when he makes a new report. We
will agree to the findings and, your honor please,
considering as we have manifested before that Engineer
Martinez is an experienced engineer of this Commission
and the points reported by Engineer Martinez on the
situation of the plant now will prevent the necessity of
having a hearing, of us bringing new evidence and
complainant bringing new evidence. ... .
COMMISSION (to Atty. Luque):
Q Does the Commission understand from the
counsel for applicant that if the motion is granted he will
submit this order to show cause for decision without any
further hearing and the decision will be based on the
report of the engineer of this Commission?
A We respectfully reply in this manner that we be
allowed or be given an opportunity just to read the report
and 99%, we will agree that the report will be the basis of
that decision. We just want to find out the contents of the
report, however, we request that we be furnished with a
copy of the report before the hearing so that we will just
make a manifestation that we will agree.
COMMISSION (to Atty. Luque):
Q In order to prevent the delay of the disposition of
this case the Commission will allow counsel for the
applicant to submit his written reply to the report that the
engineer of this Commission. Will he submit this case
without further hearing upon the receipt of that written
reply?
A Yes, your honor.
Proceedings of August 25, 1961
ATTY. LUQUE (Counsel for petitioner):
In order to avoid any delay in the consideration of this
case we are respectfully move (sic) that instead of our
witnesses testifying under oath that we will submit a
written reply under oath together with the memorandum
within fifteen (15) days and we will furnish a copy and
upon our submission of said written reply under oath and
memorandum we consider this case submitted. This
suggestion is to abbreviate the necessity of presenting
witnesses here which may prolong the resolution of this
case.
ATTY. OLIVAS (Counsel for respondent municipality):
I object on the ground that there is no resolution by this
Commission on the action to reopen the case and second
this case has been closed.
ATTY. LUQUE:
With regard to the testimony on the ground for opposition
we respectfully submit to this Commission our motion to
submit a written reply together with a memorandum. Also
as stated to expedite the case and to avoid further hearing
we will just submit our written reply. According to our
records we are furnished with a copy of the report of July
17, 1961. We submit your honor.
xxx xxx xxx
COMMISSION:
To give applicant a chance to have a day in court the
Commission grants the request of applicant that it be
given 10 days within which to submit a written reply on the
report of the engineer of the Commission who inspected
the electric service, in the municipality of Morong, Rizal,
and after the submission of the said written reply within 10
days from today this case will be considered submitted for
decision.
The above-quoted manifestation of counsel for the
petitioner, specifically the statement referring to the
inspection report of Engineer Martinez as the "best
evidence to decide this matter," can serve as an argument
against petitioner's claim that the Commision should have
taken into consideration the testimony of Mr. Bernardino.
But the primary reasons why the Commission could not
have taken judicial cognizance of said testimony are: first,
it is not a proper subject of judicial notice, as it is not a
"known" fact — that is, well established and authoritatively
settled, without qualification and contention; 13 second, it
was given in a subsequent and distinct case after the
petitioner's motion for reconsideration was heard by the
Commission en banc and submitted for decision, 14 and
third, it was not brought to the attention of the Commission
in this case through an appropriate pleading. 15
Regarding the contention of petitioner that the
Commission had acted both as prosecutor and judge, it
should be considered that there are two matters that had
to be decided in this case, namely, the order to show
cause dated December 19, 1956, and the petition or
complaint by respondent municipality dated June 25,
1958. Both matters were heard jointly, and the record
shows that respondent municipality had been allowed to
present its evidence to substantiate its complaint. It can
not be said, therefore, that in this case the Commission
had acted as prosecutor and judge. But even assuming,
for the sake of argument, that there was a commingling of
the prosecuting and investigating functions, this exercise
of dual function is authorized by Section 17(a) of
Commonwealth Act No. 146, as amended, under which
the Commission has power "to investigate, upon its own
initiative or upon complaint in writing, any matter
concerning any public service as regards matters under
its jurisdiction; to, require any public service to furnish
safe, adequate, and proper service as the public interest
may require and warrant; to enforce compliance with any
standard, rule, regulation, order or other requirement of
this Act or of the Commission ... ." Thus, in the case of
Collector of Internal Revenue vs. Estate of F. P. Buan, L-
11438, July 31, 1958, this Court held that the power of the
Commission to cancel and revoke a certificate of public
convenience and necessity may be exercised by it even
without a formal charge filed by any interested party, with
the only limitation that the holder of the certificate should
be given his day in court.
It may not be amiss to add that when prosecuting and
investigating duties are delegated by statute to an
administrative body, as in the case of the Public Service
Commission, said body may take steps it believes
appropriate for the proper exercise of said duties,
particularly in the manner of informing itself whether there
is probable violation of the law and/or its rules and
regulations. It may initiate an investigation, file a
complaint, and then try the charge as preferred. So long
as the respondent is given a day in court, there can be no
denial of due process, and objections to said procedure
cannot be sustained.
3. In its third assignment of error, petitioner invokes the
"protection-of-investment rule" enunciated by this Court in
Batangas Transportation Co. vs. Orlanes 16 in this wise:
The Government having taken over the control and
supervision of all public utilities, so long as an operator
under a prior license complies with the terms and
conditions of his license and reasonable rules and
regulations for its operation and meets the reasonable
demands of the public, it is the duty of the Commission to
protect rather than to destroy his investment by the
granting of the second license to another person for the
same thing over the same route of travel. The granting of
such a license does not serve its convenience or promote
the interests of the public.
The above-quoted rule, however, is not absolute, for
nobody has exclusive right to secure a franchise or a
certificate of public convenience. 17 Where, as in the
present case, it has been shown by ample evidence that
the petitioner, despite ample time and opportunity given
to it by the Commission, had failed to render adequate,
sufficient and satisfactory service and had violated the
important conditions of its certificate as well as the
directives and the rules and regulations of the
Commission, the rule cannot apply. To apply that rule
unqualifiedly is to encourage violation or disregard of the
terms and conditions of the certificate and the
Commission's directives and regulations, and would close
the door to other applicants who could establish, operate
and provide adequate, efficient and satisfactory service
for the benefit and convenience of the inhabitants. It
should be emphasized that the paramount consideration
should always be the public interest and public
convenience. The duty of the Commission to protect
investment of a public utility operator refers only to
operators of good standing — those who comply with the
laws, rules and regulations — and not to operators who
are unconcerned with the public interest and whose
investments have failed or deteriorated because of their
own fault. 18
4. The last assignment of error assails the propriety of the
penalty imposed by the Commission on the petitioner —
that is, the revocation of the certificate and the forfeiture
of the franchise. Petitioner contends that the imposition of
a fine would have been sufficient, as had been done by
the Commission in cases of a similar nature.
It should be observed that Section 16(n) of
Commonwealth Act No. 146, as amended, confers upon
the Commission ample power and discretion to order the
cancellation and revocation of any certificate of public
convenience issued to an operator who has violated, or
has willfully and contumaciously refused to comply with,
any order, rule or regulation of the Commission or any
provision of law. What matters is that there is evidence to
support the action of the Commission. In the instant case,
as shown by the evidence, the contumacious refusal of
the petitioner since 1954 to comply with the directives,
rules and regulations of the Commission, its violation of
the conditions of its certificate and its incapability to
comply with its commitment as shown by its inadequate
service, were the circumstances that warranted the action
of the Commission in not merely imposing a fine but in
revoking altogether petitioner's certificate. To allow
petitioner to continue its operation would be to sacrifice
public interest and convenience in favor of private
interest.
A grant of a certificate of public convenience confers no
property rights but is a mere license or privilege, and such
privilege is forfeited when the grantee fails to comply with
his commitments behind which lies the paramount interest
of the public, for public necessity cannot be made to wait,
nor sacrificed for private convenience. (Collector of
Internal Revenue v. Estate of F. P. Buan, et al., L-11438
and Santiago Sambrano, et al. v. PSC, et al., L-11439 &
L-11542-46, July 31, 1958)
(T)he Public Service Commission, ... has the power to
specify and define the terms and conditions upon which
the public utility shall be operated, and to make
reasonable rules and regulations for its operation and the
compensation which the utility shall receive for its
services to the public, and for any failure to comply with
such rules and regulations or the violation of any of the
terms and conditions for which the license was granted,
the Commission has ample power to enforce the
provisions of the license or even to revoke it, for any
failure or neglect to comply with any of its terms and
provisions. (Batangas Trans. Co. v. Orlanes, 52 Phil. 455,
460; emphasis supplied)
Presumably, the petitioner has in mind Section 21 of
Commonwealth Act No. 146, as amended, which provides
that a public utility operator violating or failing to comply
with the terms and conditions of any certificate, or any
orders, decisions or regulations of the Commission, shall
be subject to a fine and that the Commission is authorized
and empowered to impose such fine, after due notice and
hearing. It should be noted, however, that the last
sentence of said section states that the remedy provided
therein "shall not be a bar to, or affect any other remedy
provided in this Act but shall be cumulative and additional
to such remedy or remedies." In other words, the
imposition of a fine may only be one of the remedies which
the Commission may resort to, in its discretion. But that
remedy is not exclusive of, or has preference over, the
other remedies. And this Court will not substitute its
discretion for that of the Commission, as long as there is
evidence to support the exercise of that discretion by the
Commission.
G. R. No. L-21221
Coming now to the other case, let it be stated at the outset
that before any certificate may be granted, authorizing the
operation of a public service, three requisites must be
complied with, namely: (1) the applicant must be a citizen
of the Philippines or of the United States, or a corporation
or co-partnership, association or joint-stock company
constituted and organized under the laws of the
Philippines, sixty per centum at least of the stock or paid-
up capital of which belongs entirely to citizens of the
Philippines or of the United States; 19 (2) the applicant
must be financially capable of undertaking the proposed
service and meeting the responsibilities incident to its
operation; 20 and (3) the applicant must prove that the
operation of the public service proposed and the
authorization to do business will promote the public
interest in a proper and suitable manner. 21
As stated earlier, in the decision appealed from, the
Commission found that Morong Electric is a corporation
duly organized and existing under the laws of the
Philippines, the stockholders of which are Filipino citizens,
that it is financially capable of operating an electric light,
heat and power service, and that at the time the decision
was rendered there was absence of electric service in
Morong, Rizal. While the petitioner does not dispute the
need of an electric service in Morong, Rizal, 22 it claims,
in effect, that Morong Electric should not have been
granted the certificate of public convenience and
necessity because (1) it did not have a corporate
personality at the time it was granted a franchise and
when it applied for said certificate; (2) it is not financially
capable of undertaking an electric service, and (3)
petitioner was rendering efficient service before its electric
plant was burned, and therefore, being a prior operator its
investment should be protected and no new party should
be granted a franchise and certificate of public
convenience and necessity to operate an electric service
in the same locality.
1. The bulk of petitioner's arguments assailing the
personality of Morong Electric dwells on the proposition
that since a franchise is a contract, 23 at least two
competent parties are necessary to the execution thereof,
and parties are not competent except when they are in
being. Hence, it is contended that until a corporation has
come into being, in this jurisdiction, by the issuance of a
certificate of incorporation by the Securities and
Exchange Commission (SEC) it cannot enter into any
contract as a corporation. The certificate of incorporation
of the Morong Electric was issued by the SEC on October
17, 1962, so only from that date, not before, did it acquire
juridical personality and legal existence. Petitioner
concludes that the franchise granted to Morong Electric
on May 6, 1962 when it was not yet in esse is null and
void and cannot be the subject of the Commission's
consideration. On the other hand, Morong Electric argues,
and to which argument the Commission agrees, that it
was a de facto corporation at the time the franchise was
granted and, as such, it was not incapacitated to enter into
any contract or to apply for and accept a franchise. Not
having been incapacitated, Morong Electric maintains
that the franchise granted to it is valid and the approval or
disapproval thereof can be properly determined by the
Commission.
Petitioner's contention that Morong Electric did not yet
have a legal personality on May 6, 1962 when a municipal
franchise was granted to it is correct. The juridical
personality and legal existence of Morong Electric began
only on October 17, 1962 when its certificate of
incorporation was issued by the SEC. 24 Before that date,
or pending the issuance of said certificate of
incorporation, the incorporators cannot be considered as
de facto corporation. 25 But the fact that Morong Electric
had no corporate existence on the day the franchise was
granted in its name does not render the franchise invalid,
because later Morong Electric obtained its certificate of
incorporation and then accepted the franchise in
accordance with the terms and conditions thereof. This
view is sustained by eminent American authorities. Thus,
McQuiuin says:
The fact that a company is not completely incorporated at
the time the grant is made to it by a municipality to use
the streets does not, in most jurisdictions, affect the
validity of the grant. But such grant cannot take effect until
the corporation is organized. And in Illinois it has been
decided that the ordinance granting the franchise may be
presented before the corporation grantee is fully
organized, where the organization is completed before
the passage and acceptance. (McQuillin, Municipal
Corporations, 3rd Ed., Vol. 12, Chap. 34, Sec. 34.21)
Fletcher says:
While a franchise cannot take effect until the grantee
corporation is organized, the franchise may,
nevertheless, be applied for before the company is fully
organized.
A grant of a street franchise is valid although the
corporation is not created until afterwards. (Fletcher,
Cyclopedia Corp. Permanent Edition, Rev. Vol. 6-A, Sec.
2881)
And Thompson gives the reason for the rule:
(I)n the matter of the secondary franchise the authorities
are numerous in support of the proposition that an
ordinance granting a privilege to a corporation is not void
because the beneficiary of the ordinance is not fully
organized at the time of the introduction of the ordinance.
It is enough that organization is complete prior to the
passage and acceptance of the ordinance. The reason is
that a privilege of this character is a mere license to the
corporation until it accepts the grant and complies with its
terms and conditions. (Thompson on Corporations, Vol.
4, 3rd Ed., Sec. 2929) 26
The incorporation of Morong Electric on October 17, 1962
and its acceptance of the franchise as shown by its action
in prosecuting the application filed with the Commission
for the approval of said franchise, not only perfected a
contract between the respondent municipality and
Morong Electric but also cured the deficiency pointed out
by the petitioner in the application of Morong EIectric.
Thus, the Commission did not err in denying petitioner's
motion to dismiss said application and in proceeding to
hear the same. The efficacy of the franchise, however,
arose only upon its approval by the Commission on March
13, 1963. The reason is that —
Under Act No. 667, as amended by Act No. 1022, a
municipal council has the power to grant electric
franchises, subject to the approval of the provincial board
and the President. However, under Section 16(b) of
Commonwealth Act No. 146, as amended, the Public
Service Commission is empowered "to approve, subject
to constitutional limitations any franchise or privilege
granted under the provisions of Act No. 667, as amended
by Act No. 1022, by any political subdivision of the
Philippines when, in the judgment of the Commission,
such franchise or privilege will properly conserve the
public interests and the Commission shall in so approving
impose such conditions as to construction, equipment,
maintenance, service, or operation as the public interests
and convenience may reasonably require, and to issue
certificates of public convenience and necessity when
such is required or provided by any law or franchise."
Thus, the efficacy of a municipal electric franchise arises,
therefore, only after the approval of the Public Service
Commission. (Almendras vs. Ramos, 90 Phil. 231) .
The conclusion herein reached regarding the validity of
the franchise granted to Morong Electric is not
incompatible with the holding of this Court in Cagayan
Fishing Development Co., Inc. vs. Teodoro Sandiko 27
upon which the petitioner leans heavily in support of its
position. In said case this Court held that a corporation
should have a full and complete organization and
existence as an entity before it can enter into any kind of
a contract or transact any business. It should be pointed
out, however, that this Court did not say in that case that
the rule is absolute or that under no circumstances may
the acts of promoters of a corporation be ratified or
accepted by the corporation if and when subsequently
organized. Of course, there are exceptions. It will be
noted that American courts generally hold that a contract
made by the promoters of a corporation on its behalf may
be adopted, accepted or ratified by the corporation when
organized. 28
2. The validity of the franchise and the corporate
personality of Morong Electric to accept the same having
been shown, the next question to be resolved is whether
said company has the financial qualification to operate an
electric light, heat and power service. Petitioner
challenges the financial capability of Morong Electric, by
pointing out the inconsistencies in the testimony of Mr.
Jose P. Ingal, president of said company, regarding its
assets and the amount of its initial investment for the
electric plant. In this connection it should be stated that on
the basis of the evidence presented on the matter, the
Commission has found the Morong Electric to be
"financially qualified to install, maintain and operate the
proposed electric light, heat and power service." This is
essentially a factual determination which, in a number of
cases, this Court has said it will not disturb unless patently
unsupported by evidence. An examination of the record
of this case readily shows that the testimony of Mr. Ingal
and the documents he presented to establish the financial
capability of Morong Electric provide reasonable grounds
for the above finding of the Commission.
It is now a very well-settled rule in this jurisdiction that the
findings and conclusions of fact made by the Public
Service Commission, after weighing the evidence
adduced by the parties in a public service case, will not
be disturbed by the Supreme Court unless those findings
and conclusions appear not to be reasonably supported
by evidence. (La Mallorca and Pampanga Bus Co. vs.
Mercado, L-19120, November 29, 1965)
For purposes of appeal, what is decisive is that said
testimonial evidence provides reasonable support for the
Public Service Commission's findings of financial capacity
on the part of applicants, rendering such findings beyond
our power to disturb. (Del Pilar Transit vs. Silva, L-21547,
July 15, 1966)
It may be worthwhile to mention in this connection that per
inspection report dated January 20, 1964 29 of Mr.
Meliton Martinez of the Commission, who inspected the
electric service of Morong on January 15-16, 1964,
Morong Electric "is serving electric service to the entire
area covered by its approved plan and has constructed its
line in accordance with the plans and specifications
approved by the Commission." By reason thereof, it was
recommended that the requests of Morong Electric (1) for
the withdrawal of its deposit in the amount of P1,000.00
with the Treasurer of the Philippines, and (2) for the
approval of Resolution No. 160 of the Municipal Council
of Morong, Rizal, exempting the operator from making the
additional P9,000.00 deposit mentioned in its petition,
dated September 16, 1963, be granted. This report
removes any doubt as to the financial capability of Morong
Electric to operate and maintain an electric light, heat and
power service.
3. With the financial qualification of Morong Electric
beyond doubt, the remaining question to be resolved is
whether, or not, the findings of fact of the Commission
regarding petitioner's service are supported by evidence.
It is the contention of the petitioner that the Commission
made some findings of fact prejudicial to its position but
which do not find support from the evidence presented in
this case. Specifically, petitioner refers to the statements
or findings that its service had "turned from bad to worse,"
that it miserably failed to comply with the oft-repeated
promises to bring about the needed improvement, that its
equipment is unserviceable, and that it has no longer any
plant site and, therefore, has discredited itself. Petitioner
further states that such statements are not only devoid of
evidentiary support but contrary to the testimony of its
witness, Mr. Harry Bernardino, who testified that petitioner
was rendering efficient and satisfactory service before its
electric plant was burned on July 29, 1962.
On the face of the decision appealed from, it is obvious
that the Commission in describing the kind of service
petitioner was rendering before its certificate was ordered
revoked and cancelled, took judicial notice of the records
of the previous case (PSC Case No. 39715) where the
quality of petitioner's service had been squarely put in
issue. It will be noted that the findings of the Commission
were made notwithstanding the fact that the
aforementioned testimony of Mr. Bernardino had been
emphasized and pointed out in petitioner's Memorandum
to the Commission. 30 The implication is simple: that as
between the testimony of Mr. Bernardino and the
inspection reports of the engineers of the Commission,
which served as the basis of the revocation order, the
Commission gave credence to the latter. Naturally,
whatever conclusion or finding of fact that the
Commission arrived at regarding the quality of petitioner's
service are not borne out by the evidence presented in
this case but by evidence in the previous case. 31 In this
connection, we repeat, the conclusion, arrived at by the
Commission after weighing the conflicting evidence in the
two related cases, is a conclusion of fact which this Court
will not disturb.
And it has been held time and again that where the
Commission has reached a conclusion of fact after
weighing the conflicting evidence, that conclusion must be
respected, and the Supreme Court will not interfere
unless it clearly appears that there is no evidence to
support the decision of the Commission. (La Mallorca and
Pampanga Bus Co., Inc. vs. Mercado, L-19120,
November 29, 1965 citing Pangasinan Trans. Co., Inc. vs.
Dela Cruz, 96 Phil. 278)
For that matter, petitioner's pretension that it has a prior
right to the operation of an electric service in Morong,
Rizal, is not tenable; and its plea for protection of its
investment, as in the previous case, cannot be
entertained.
WHEREFORE, the two decisions of the Public Service
Commission, appealed from, should be, as they are
hereby affirmed, with costs in the two cases against
petitioner Rizal Light & Ice Co., Inc. It is so ordered.
FERMIN Z. CARAM, JR. and ROSA O. DE CARAM,
petitioners
vs.
THE HONORABLE COURT OF APPEALS and
ALBERTO V. ARELLANO, respondents.
CRUZ, J.:
We gave limited due course to this petition on the
question of the solidary liability of the petitioners with their
co-defendants in the lower court 1 because of the
challenge to the following paragraph in the dispositive
portion of the decision of the respondent court: *
1. Defendants are hereby ordered to jointly and
severally pay the plaintiff the amount of P50,000.00 for
the preparation of the project study and his technical
services that led to the organization of the defendant
corporation, plus P10,000.00 attorney's fees; 2
The petitioners claim that this order has no support in fact
and law because they had no contract whatsoever with
the private respondent regarding the above-mentioned
services. Their position is that as mere subsequent
investors in the corporation that was later created, they
should not be held solidarily liable with the Filipinas Orient
Airways, a separate juridical entity, and with Barretto and
Garcia, their co-defendants in the lower court, ** who
were the ones who requested the said services from the
private respondent. 3
We are not concerned here with the petitioners' co-
defendants, who have not appealed the decision of the
respondent court and may, for this reason, be presumed
to have accepted the same. For purposes of resolving this
case before us, it is not necessary to determine whether
it is the promoters of the proposed corporation, or the
corporation itself after its organization, that shall be
responsible for the expenses incurred in connection with
such organization.
The only question we have to decide now is whether or
not the petitioners themselves are also and personally
liable for such expenses and, if so, to what extent.
The reasons for the said order are given by the
respondent court in its decision in this wise:
As to the 4th assigned error we hold that as to the
remuneration due the plaintiff for the preparation of the
project study and the pre-organizational services in the
amount of P50,000.00, not only the defendant corporation
but the other defendants including defendants Caram
should be jointly and severally liable for this amount. As
we above related it was upon the request of defendants
Barretto and Garcia that plaintiff handled the preparation
of the project study which project study was presented to
defendant Caram so the latter was convinced to invest in
the proposed airlines. The project study was revised for
purposes of presentation to financiers and the banks. It
was on the basis of this study that defendant corporation
was actually organized and rendered operational.
Defendants Garcia and Caram, and Barretto became
members of the Board and/or officers of defendant
corporation. Thus, not only the defendant corporation but
all the other defendants who were involved in the
preparatory stages of the incorporation, who caused the
preparation and/or benefited from the project study and
the technical services of plaintiff must be liable. 4
It would appear from the above justification that the
petitioners were not really involved in the initial steps that
finally led to the incorporation of the Filipinas Orient
Airways. Elsewhere in the decision, Barretto was
described as "the moving spirit." The finding of the
respondent court is that the project study was undertaken
by the private respondent at the request of Barretto and
Garcia who, upon its completion, presented it to the
petitioners to induce them to invest in the proposed
airline. The study could have been presented to other
prospective investors. At any rate, the airline was
eventually organized on the basis of the project study with
the petitioners as major stockholders and, together with
Barretto and Garcia, as principal officers.
The following portion of the decision in question is also
worth considering:
... Since defendant Barretto was the moving spirit in the
pre-organization work of defendant corporation based on
his experience and expertise, hence he was logically
compensated in the amount of P200,000.00 shares of
stock not as industrial partner but more for his technical
services that brought to fruition the defendant corporation.
By the same token, We find no reason why the plaintiff
should not be similarly compensated not only for having
actively participated in the preparation of the project study
for several months and its subsequent revision but also in
his having been involved in the pre-organization of the
defendant corporation, in the preparation of the franchise,
in inviting the interest of the financiers and in the training
and screening of personnel. We agree that for these
special services of the plaintiff the amount of P50,000.00
as compensation is reasonable. 5
The above finding bolsters the conclusion that the
petitioners were not involved in the initial stages of the
organization of the airline, which were being directed by
Barretto as the main promoter. It was he who was putting
all the pieces together, so to speak. The petitioners were
merely among the financiers whose interest was to be
invited and who were in fact persuaded, on the strength
of the project study, to invest in the proposed airline.
Significantly, there was no showing that the Filipinas
Orient Airways was a fictitious corporation and did not
have a separate juridical personality, to justify making the
petitioners, as principal stockholders thereof, responsible
for its obligations. As a bona fide corporation, the Filipinas
Orient Airways should alone be liable for its corporate acts
as duly authorized by its officers and directors.
In the light of these circumstances, we hold that the
petitioners cannot be held personally liable for the
compensation claimed by the private respondent for the
services performed by him in the organization of the
corporation. To repeat, the petitioners did not contract
such services. It was only the results of such services that
Barretto and Garcia presented to them and which
persuaded them to invest in the proposed airline. The
most that can be said is that they benefited from such
services, but that surely is no justification to hold them
personally liable therefor. Otherwise, all the other
stockholders of the corporation, including those who
came in later, and regardless of the amount of their share
holdings, would be equally and personally liable also with
the petitioners for the claims of the private respondent.
The petition is rather hazy and seems to be flawed by an
ambiguous ambivalence. Our impression is that it is
opposed to the imposition of solidary responsibility upon
the Carams but seems to be willing, in a vague,
unexpressed offer of compromise, to accept joint liability.
While it is true that it does here and there disclaim total
liability, the thrust of the petition seems to be against the
imposition of solidary liability only rather than against any
liability at all, which is what it should have categorically
argued.
Categorically, the Court holds that the petitioners are not
liable at all, jointly or jointly and severally, under the first
paragraph of the dispositive portion of the challenged
decision. So holding, we find it unnecessary to examine
at this time the rules on solidary obligations, which the
parties-needlessly, as it turns out have belabored unto
death.
WHEREFORE, the petition is granted. The petitioners are
declared not liable under the challenged decision, which
is hereby modified accordingly. It is so ordered.
b. Subscription Contracts
Section 60. Subscription contract. - 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. (n)
Section 72. Rights of unpaid shares. - Holders of
subscribed shares not fully paid which are not
delinquent shall have all the rights of a stockholder.
(n)
NAZARIO TRILLANA, administrator-appellee,
vs.
QUEZON COLLEGE, INC., claimant-appellant.
Singson, Barnes, Yap and Blanco for appellant.
Delgado, Flores & Macapagal for appellee.
PARAS, J.:
Damasa Crisostomo sent the following letter to the Board
of Trustees of the Quezon College:
June 1, 1948
The BOARD OF TRUSTEES
Quezon College
Manila
Gentlemen:
Please enter my subscription to dalawang daan (200)
shares of your capital stock with a par value of P100 each.
Enclosed you will find (Babayaran kong lahat pagkatapos
na ako ay makapag-pahuli ng isda) pesos as my initial
payment and the balance payable in accordance with law
and the rules and regulations of the Quezon College. I
hereby agree to shoulder the expenses connected with
said shares of stock. I further submit myself to all lawful
demands, decisions or directives of the Board of Trustees
of the Quezon College and all its duly constituted officers
or authorities (ang nasa itaas ay binasa at ipinaliwanag
sa akin sa wikang tagalog na aking nalalaman).
Very respectfully,
(Sgd.) DAMASA CRISOSTOMO
Signature of subscriber
Nilagdaan sa aming harapan:
JOSE CRISOSTOMO
EDUARDO CRISOSTOMO
Damasa Crisostomo died on October 26, 1948. As no
payment appears to have been made on the subscription
mentioned in the foregoing letter, the Quezon College,
Inc. presented a claim before the Court of First Instance
of Bulacan in her testate proceeding, for the collection of
the sum of P20,000, representing the value of the
subscription to the capital stock of the Quezon College,
Inc. This claim was opposed by the administrator of the
estate, and the Court of First Instance of Bulacan, after
hearing issued an order dismissing the claim of the
Quezon College, Inc. on the ground that the subscription
in question was neither registered in nor authorized by the
Securities and Exchange Commission. From this order
the Quezon College, Inc. has appealed.
It is not necessary for us to discuss at length appellant's
various assignments of error relating to the propriety of
the ground relief upon by the trial court, since, as pointed
out in the brief for the administrator and appellee, there
are other decisive considerations which, though not
touched by the lower court, amply sustained the appealed
order.
It appears that the application sent by Damasa
Crisostomo to the Quezon College, Inc. was written on a
general form indicating that an applicant will enclose an
amount as initial payment and will pay the balance in
accordance with law and the regulations of the College.
On the other hand, in the letter actually sent by Damasa
Crisostomo, the latter (who requested that her
subscription for 200 shares be entered) not only did not
enclose any initial payment but stated that "babayaran
kong lahat pagkatapos na ako ay makapagpahuli ng
isda." There is nothing in the record to show that the
Quezon College, Inc. accepted the term of payment
suggested by Damasa Crisostomo, or that if there was
any acceptance the same came to her knowledge during
her lifetime. As the application of Damasa Crisostomo is
obviously at variance with the terms evidenced in the form
letter issued by the Quezon College, Inc., there was
absolute necessity on the part of the College to express
its agreement to Damasa's offer in order to bind the latter.
Conversely, said acceptance was essential, because it
would be unfair to immediately obligate the Quezon
College, Inc. under Damasa's promise to pay the price of
the subscription after she had caused fish to be caught.
In other words, the relation between Damasa Crisostomo
and the Quezon College, Inc. had only thus reached the
preliminary stage whereby the latter offered its stock for
subscription on the terms stated in the form letter, and
Damasa applied for subscription fixing her own plan of
payment, — a relation, in the absence as in the present
case of acceptance by the Quezon College, Inc. of the
counter offer of Damasa Crisostomo, that had not ripened
into an enforceable contract.
Indeed, the need for express acceptance on the part of
the Quezon College, Inc. becomes the more imperative,
in view of the proposal of Damasa Crisostomo to pay the
value of the subscription after she has harvested fish, a
condition obviously dependent upon her sole will and,
therefore, facultative in nature, rendering the obligation
void, under article 1115 of the old Civil Code which
provides as follows: "If the fulfillment of the condition
should depend upon the exclusive will of the debtor, the
conditional obligation shall be void. If it should depend
upon chance, or upon the will of a third person, the
obligation shall produce all its effects in accordance with
the provisions of this code." It cannot be argued that the
condition solely is void, because it would have served to
create the obligation to pay, unlike a case, exemplified by
Osmeña vs. Rama (14 Phil., 99), wherein only the
potestative condition was held void because it referred
merely to the fulfillment of an already existing
indebtedness.
In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil.,
873, 879), this Court already held that "a condition,
facultative as to the debtor, is obnoxious to the first
sentence contained in article 1115 and renders the whole
obligation void."
Wherefore, the appealed order is affirmed, and it is so
ordered with costs against appellant.
1. Purchase Agreement
SOFRONIO T. BAYLA, ET AL., petitioners,
vs.
SILANG TRAFFIC CO., INC., respondent.
SILANG TRAFFIC CO., petitioner, vs. SOFRONIO
BAYLA, ET AL., respondents.
E. A. Beltran for petitioners.
Conrado V. Sanchez, Melchor C. Benitez, and Enrique
M. Fernando for respondent.
OZAETA, J.:
Petitioners in G.R. No. 48195 instituted this action in
the Court of First Instance of Cavite against the
respondent Silang Traffic Co., Inc. (cross-petitioner in
G.R. No. 48196), to recover certain sums of money
which they had paid severally to the corporation on
account of shares of stock they individually agreed to
take and pay for under certain specified terms and
conditions, of which the following referring to the
petitioner Josefa Naval, is typical:
AGREEMENT FOR INSTALLMENT SALE OF
SHARES IN THE "SILANG TRAFFIC
COMPANY, INC.,"
Silang, Cavite, P. I.
THIS AGREEMENT, made and entered into (Sgd.) JOSEFA NAVAL
between Mrs. Josefa Naval, of legal age, SILANG TRAFFIC COMPANY, INC.
married and resident of the Municipality of
Subscriber
Silang, Province of Cavite, Philippine Islands,
party of the First Part, hereinafter called the
subscriber, and the "Silang Traffic Company, By (Sgd.) LINO GOMEZ
Inc.," a corporation duly organized and existing President.
by virtue of and under the laws of the Philippine
Islands, with its principal office in the (Exhibit 1. Notarial acknowledgment omitted.)
Municipality of Silang, Province of Cavite,
Philippine Islands, party of the Second Part, The agreements signed by the other petitioners were
hereinafter called the seller, of the same date (March 30, 1935) and in identical
terms as the foregoing except as to the number of
WITNESSETH: shares and the corresponding purchase price. The
petitioners agreed to purchase the following number of
That the subscriber promises to pay personally shares and, up to April 30, 1937, had paid the following
or by his duly authorized agent to the seller at sums on account thereof:
the Municipality of Silang, Province of Cavite,
Philippine Islands, the sum of one thousand
five hundred pesos (P1,500), Philippine Sofronio T. 8 shares P360
currency, as purchase price of FIFTEEN (15) Bayla.......
shares of capital stock, said purchase price to
Venancio 8 shares 375
be paid as follows, to wit: five (5%) per cent
Toledo........
upon the execution of the contract, the receipt
whereof is hereby acknowledged and Josefa 15 shares 675
confessed, and the remainder in installments of Naval..............
five per cent, payable within the first month of
each and every quarter thereafter, Paz 15 shares 675
commencing on the 1st day of July, 1935, with Toledo................
interest on deferred payments at the rate of SIX
(6%) per cent per annum until paid.
Petitioners' action for the recovery of the sums above
That the said subscriber further agrees that if mentioned is based on a resolution by the board of
he fails to pay any of said installment when directors of the respondent corporation on August 1,
due, or to perform any of the aforesaid 1937, of the following tenor:
conditions, or if said shares shall be attached
or levied upon by creditors of the said A mocion sel Sr. Marcos Caparas y secundado
subscriber, then the said shares are to revert to por el Sr. Alejandro Bayla, que para el bien de
the seller and the payments already made are la corporacion y la pronta terminacion del
to be forfeited in favor of said seller, and the asunto civil No. 3125 titulado "Vicente F.
latter may then take possession, without Villanueva et al. vs. Lino Gomez et al.," en el
resorting to court proceedings. Juzgado de Primera Instancia de Cavite,
donde se gasto y se gastara no poca cantidad
The said seller upon receiving full payment, at de la Corporacion, se resolvio y se aprobo por
the time and manner hereinbefore specified, la Junta Directiva los siguientes:
agrees to execute and deliver to said
subscriber, or to his heirs and assigns, the (a) Que se dejara sin efecto lo aprobado por la
certificate of title of said shares, free and clear Junta Directiva el 3 de marzo, 1935, art. 11,
of all encumbrances. sec. 162, sobre las cobranzas que se haran por
el Secretario Tesorero de la Corporacion a los
In testimony whereof, the parties have accionistas que habian tomado o suscrito
hereunto set their hands in the Municipality of nuevas acciones y que se permitia a estos
Silang, Province of Cavite, Philippine Islands, pagar 20% del valor de las acciones suscritas
this 30th day of March, 1935. en un año, con interes de 6% y el pago o jornal
que se hara por trimestre.

(b) Se dejara sin efecto, en vista de que aun no

esta pagado todo el valor de las 123 acciones,
tomadas de las acciones no expedidas
 (unissued stock) de la Corporacion y que
fueron suscritas por los siguienes:
Lino 10 Acciones
Gomez.....................
installments paid by them had already been forfeited";
and (2) that said resolution of August 1, 1937, was
revoked and cancelled by a subsequent resolution of
the board of directors of the defendant corporation
dated August 22, 1937.

Venancio 8 Acciones The trial court absolved the defendant from the
Toledo............. complaint and declared canceled (forfeited) in favor of
the defendant the shares of stock in question. It held
Melchor P. 17 Acciones that the resolution of August 1, 1937, was null and void,
Benitez........ citing Velasco vs. Poizat (37 Phil., 802), wherein this
Court held that "a corporation has no legal capacity to
Isaias 14 Acciones release an original subscriber to its capital stock from
Videña................. the obligation to pay for shares; and any agreement to
this effect is invalid" Plaintiffs below appealed to the
Esteban 10 Acciones Court of Appeals, which modified of the trial court as
Velasco............ follows:

Numeriano S. 15 Acciones That part of the judgment dismissing plaintiff's

Aldaba.... complaint is affirmed, but that part thereof
declaring their subscription canceled is
Inocencio 8 Acciones
reversed. Defendant is directed to grant
Cruz.................
plaintiffs 30 days after final judgment within
Josefa Naval 15 Acciones which to pay the arrears on their subscription.
.................. Without pronouncement as to costs.

Sofronio 8 Acciones Both parties appealed to this Court by petition and

Bayla.................
Dionisio 3 Acciones
Dungca.............
y devolver a las personas arriba descritas toda la
cantidad que estas habian pagado por las 123
acciones.
(c) Que se dejara sin efecto lo aprobado por la
Junta Directiva el 3 marzo, 1935, art. V. sec.
165, sobre el cambio o trueque de las 31
acciones del Treasury Stock, contra las 32
acciones del Sr. Numeriano Aldaba, en la
corporacion Northern Luzon Transportation
Co. y que se devuelva al Sr. Numeriano Aldaba
las 32 acciones mencionadas despues que el
haya devuelto el certificado de las 31 acciones
de la Silang Traffic Co., Inc.
(d) Permitir al Tesorero de la Corporacion para
que devuelva a las personas arriba indicadas,
las cantidades pagadas por las 123 acciones.
(Exhibit A-1.)
The respondent corporation set up the following
defenses: (1) That the above-quoted resolution is not
applicable to the petitioners Sofronio T. Bayla, Josefa
Naval, and Paz Toledo because on the date thereof
"their subscribed shares of stock had already
automatically reverted to the defendant, and the
cross-petition for certiorari. Petitioners insist that they
have the right to recover the amounts involved under
the resolution of August 1, 1937, while the respondent
and cross-petitioner on its part contends that said
amounts have been automatically forfeited and the
shares of stock have reverted to the corporation under
the agreement hereinabove quoted.
The parties litigant, the trial court, and the Court of
Appeals have interpreted or considered the said
agreement as a contract of subscription to the capital
stock of the respondent corporation. It should be noted,
however, that said agreement is entitled "Agreement
for Installment Sale of Shares in the Silang Traffic
Company, Inc.,"; that while the purchaser is designated
as "subscriber," the corporation is described as
"seller"; that the agreement was entered into on March
30, 1935, long after the incorporation and organization
of the corporation, which took place in 1927; and that
the price of the stock was payable in quarterly
installments spread over a period of five years. It also
appears that in civil case No. 3125 of the Court of First
Instance of Cavite mentioned in the resolution of
August 1, 1937, the right of the corporation to sell the
shares of stock to the person named in said resolution
(including herein petitioners) was impugned by the
plaintiffs in said case, who claimed a preferred right to
buy said shares.
Whether a particular contract is a subscription or a sale
of stock is a matter of construction and depends upon
its terms and the intention of the parties (4 Fletcher,
Cyclopedia of Corporation [permanent edition], 29,
cited in Salmon, Dexter & Co. vs. Unson (47 Phil. 649,
652). In the Unson case just cited, this Court held that
a subscription to stock in an existing corporation is, as
between the subscriber and the corporation, simply a
contract of purchase and sale.
It seems clear from the terms of the contracts in
question that they are contracts of sale and not of
subscription. The lower courts erred in overlooking the
distinction between subscription and purchase "A
subscription, properly speaking, is the mutual
agreement of the subscribers to take and pay for the
stock of a corporation, while a purchase is an
independent agreement between the individual and the
corporation to buy shares of stock from it at stipulated
price." (18 C. J. S., 760.) In some particulars the rules
governing subscriptions and sales of shares are
different. For instance, the provisions of our
Corporation Law regarding calls for unpaid
subscription and assessment of stock (sections 37-50)
do not apply to a purchase of stock. Likewise the rule
that corporation has no legal capacity to release an
original subscriber to its capital stock from the
obligation to pay for his shares, is inapplicable to a
contract of purchase of shares.
The next question to determine is whether under the
contract between the parties the failure of the
purchaser to pay any of the quarterly installments on
the purchase price automatically gave rise to the
forfeiture of the amounts already paid and the
reversion of the shares to the corporation. The contract
provides for interest of the rate of six per centum per
annum on deferred payments. It is also provides that if
the purchaser fails to pay any of said installments when
due, the said shares are to revert to the seller and the
payments already made are to be forfeited in favor of
said seller. The respondent corporation contends that
when the petitioners failed to pay the installment which
fell due on or before July 31, 1937, forfeiture
automatically took place, that is to say, without the
necessity of any demand from the corporation, and that
therefore the resolution of August 1, 1937, authorizing
the refund of the installments already paid was
inapplicable to the petitioners, who had already lost
any and all rights under said contract. The contention
is, we think, untenable. The provision regarding
interest on deferred payments would not have been
inserted if it had been the intention of the parties to
provide for automatic forfeiture and cancelation of the
contract. Moreover, the contract did not expressly
provide that the failure of the purchaser to pay any
installment would give rise to forfeiture and cancelation
without the necessity of any demand from the seller;
and under article 1100 of the Civil Code persons
obliged to deliver or do something are not in default
until the moment the creditor demands of them
judicially or extrajudicially the fulfillment of their
obligation, unless (1) the obligation or the law
expressly provides that demand shall not be necessary
in order that default may arise, (2) by reason of the
nature and circumstances of the obligation it shall
appear that the designation of the time at which that
thing was to be delivered or the service rendered was
the principal inducement to the creation of the
obligation.
Is the resolution of August 1, 1937, valid? The contract
in question being one of purchase and not subscription
as we have heretofore pointed out, we see no legal
impediment to its rescission by agreement of the
parties. According to the resolution of August 1, 1937,
the recission was made for the good of the corporation
and in order to terminate the then pending civil case
involving the validity of the sale of the shares in
question among others. To that rescission the herein
petitioners apparently agreed, as shown by their
demand for the refund of the amounts they had paid as
provided in said resolution. It appears from the record
that said civil case was subsequently dismissed, and
that the purchasers of shares of stock, other than the
herein petitioners, who were mentioned in said
resolution were able to benefit by said resolution. It
would be an unjust discrimination to deny the same
benefit to the herein petitioners.
We may add that there is no intimation in this case that
the corporation was insolvent, or that the right of any
creditor of the same was in any way prejudiced by the
rescission.
The attempted revocation of said rescission by the
resolution of August 22, 1937, was invalid, it not having
been agreed to by the petitioners.
Wherefore, the judgment of the court of appeals is
hereby reversed and another judgment will be entered
against the defendant Silang Traffic Co., Inc., ordering
it to pay to the plaintiffs Sofronio T. Bayla, Venancio
Toledo, Josefa Naval, and Paz Toledo, the sums of
P360, P375, P675, and P675, respectively, with legal
interest on each of said sums from May 28, 1938, the
date of the filing of the complaint, until the date of
payment, and with costs in the three instances. So
ordered.

2. Pre-Incorporation Subscription
Section 61. Pre-incorporation subscription. - A
subscription for shares of stock of a corporation still to be
formed shall be irrevocable for a period of at least six (6)
months from the date of subscription, unless all of the
other subscribers consent to the revocation, or unless the
incorporation of said corporation fails to materialize within
said period or within a longer period as may be stipulated
in the contract of subscription: Provided, That no pre-
incorporation subscription may be revoked after the
submission of the articles of incorporation to the
Securities and Exchange Commission. (n)
G.R. No. L-11528 March 15, 1918
MIGUEL VELASCO, assignee of The Philippine Chemical
Product Co. (Ltd.), plaintiff-appellant,
vs.
JEAN M. POIZAT, defendant-appellee.
Vicente Rodriguez for appellant.
A. J. Burke for appellee.
STREET, J.:
From the amended complaint filed in this cause upon
February 5, 1915, it appears that the plaintiff, as assignee
in insolvency of "The Philippine Chemical Product
Company" (Ltd.) is seeking to recover of the defendant,
Jean M. Poizat, the sum of P1,500, upon a subscription
made by him to the corporate stock of said company. It
appears that the corporation in question was originally
organized by several residents of the city of Manila, where
the company had its principal place of business, with a
capital of P50,000, divided into 500 shares. The
defendant subscribed for 20 shares of the stock of the
company, an paid in upon his subscription the sum of
P500, the par value of 5 shares . The action was brought
to recover the amount subscribed upon the remaining
shares.
It appears that the defendant was a stock holder in the
company from the inception of the enterprise, and for
sometime acted as its treasurer and manager. While
serving in this capacity he called in and collected all
subscriptions to the capital stock of the company, except
the aforesaid 15 shares subscribed by himself and
another 15 shares owned by Jose R. Infante.
Upon July 13, 1914, a meeting of the board of directors of
the company was held at which a majority of the stock
was presented. Up[on this occasion two resolutions,
important to be here noted, were adopted. The first was a
proposal that the directors, or shareholders, of the
company should make good by new subscriptions, in
proportion to their respective holdings, 15 shares which
had been surrendered by Infante. It seems that this
shareholder had already paid 25 per cent of his
subscription upon 20 shares, leaving 15 shares unpaid
for, and an understanding had been reached by him and
the management by which he was to be released from the
obligation of his subscription, it being understood that
what he had already paid should not be refunded.
Accordingly the directors present at this meeting
subscribed P1,200 toward taking up his shares, leaving a
deficiency of P300 to be recovered by voluntary
subscriptions from stockholders not present at the
meeting.
The other proposition was o the effect that Juan [Jean] M.
Poizat, who was absent, should be required to pay the
amount of his subscription upon the 15 shares for which
he was still indebted to the company. The resolution
further provided that, in case he should refuse to make
such payment, the management of the corporation should
be authorized to undertake judicial proceedings against
him. When notification of this resolution reached Poizat
through the mail it evoked from him a manifestation of
surprise and pain, which found expression in a letter
written by him in reply, dated July 27, 1914, and
addressed to Velasco, as treasurer and administrator. In
this letter Poizat states that he had been given to
understand by some member of the board of directors that
he was to be relieved from his subscription upon the terms
conceded to Infante; and he added:
My desire to be relieved from the payment of the
remaining 75 per cent arises from the poor opinion which
I entertain of the business and the faint hope of ever
recovering any money invested. In consequence, I prefer
to lose the whole of the 25 per cent I have already paid
rather than to continue investing more money in what I
consider to be ruinous proposition.
Within a short while the unfavorable opinion entertained
by Poizat as to the prospect of the company was found to
be fully justified, as the company soon went into voluntary
insolvency, Velasco being named as the assignee. He
qualified at once by giving bond, and was duly inducted
into the office of assignee upon November 25, 1914, by
virtue of a formal transfer executed by the clerk in
pursuance of section 32 of Act No. 1956.
The answer of the defendant consisted of a general denial
and a so-called special defense, consisting of a
concatenation of statements more appropriate for a
demurrer than as material for a special defense. The
principal contention is that the call made by the board of
directors of the company on July 13, 1914 , was not made
pursuant to the requirements of sections 37 and 38 of the
Corporation Law (Act No. 1459), and in particular that the
action was instituted before the expiration of the 30 days
specified in section 38.
At the hearing of the Court of First Instance, judgment was
rendered in favor of the defendant, and the complaint was
dismissed. From this action the plaintiff has appealed.
We think that Poizat is liable upon this subscription. A
stock subscription is a contract between the corporation
on one side, and the subscriber on the other, and courts
will enforce it for or against either. It is a rule, accepted by
the Supreme Court of the United States, that a
subscription for shares of stock does not require an
express promise to pay the amount subscribed, as the law
implies a promise to pay on the part of the subscriber. (7
Ruling Case Law, sec. 191.) Section 36 of the Corporation
Law clearly recognizes that a stock subscription is
subsisting liability from the time the subscription is made,
since it requires the subscriber to pay interest quarterly
from that date unless he is relieved from such liability by
the by-laws of the corporation. The subscriber is as much
bound to pay the amount of the share subscribed by him
as he would be to pay any other debt, and the right of the
company to demand payment is no less incontestable.
The provisions of the Corporation Law (Act No. 1459)
given recognition of two remedies for the enforcement of
stock subscriptions. The first and most special remedy
given by the statute consists in permitting the corporation
to put up the unpaid stock for sale and dispose of it for the
account of the delinquent subscriber. In this case the
provisions of section 38 to 48, inclusive , of the
Corporation Law are applicable and must be followed.
The other remedy is by action in court, concerning which
we find in section 49 the following provision:
Nothing in this Act shall prevent the directors from
collecting, by action in any court of proper jurisdiction, the
amount due on any unpaid subscription, together with
accrued interest and costs and expenses incurred.
It is generally accepted doctrine that the statutory right to
sell the subscriber's stock is merely a remedy in addition
to that which proceeds by action in court; and it has been
held that the ordinary legal remedy by action exists even
though no express mention thereof is made in the statute.
(Instone vs. Frankfort Bridge Co., 2 Bibb [Ky.], 576; 5 Am.
Dec., 638.)
No attempt is made in the Corporation Law to define the
precise conditions under which an action may be
maintained upon a stock subscription, as such conditions
should be determined with reference to the rules
governing contract liability in general; and where it
appears as in this case that a matured stock subscription
is unpaid, none of the provisions contained in section 38
to 48, inclusive, of Act No. 1459 can be permitted to
obstruct or impede the action to recover thereon. By virtue
of the first subsection of section 36 of the Insolvency Law
(Act No. 1956) the assignee of the insolvent corporation
succeeds to all the corporate rights of action vested in the
corporation prior to its insolvency; and the assignee
therefore has the same freedom with respect to suing
upon the stock subscription as the directors themselves
would have had under section 49 above cited.
But there is another reason why the present plaintiff must
prevail in this case, even supposing that the failure of the
directors to comply with the requirements of the
provisions of sections 38 to 48, inclusive, of Act No. 1459
might have been an obstacle to a recovery by the
corporation itself. That reason is this: When insolvency
supervenes upon a corporation and the court assumes
jurisdiction to wind up, all unpaid stock subscriptions
become payable on demand, and are at once recoverable
in an action instituted by the assignee or receiver
appointed by the court. This rule apparently had origin in
a recognition of the principle that a court of equity, having
jurisdiction of the insolvency proceedings, could, if
necessary, make the call itself, in its capacity as
successor to the powers exercised by the board of
directors of the defunct company. Later a further rule
gained recognition to the effect that the receiver or
assignee, in an action instituted by proper authority, could
himself proceed to collect the subscription without the
necessity of any prior call whatever. This conclusion is
well supported by reference to the following authorities:
. . . a court of equity may enforce payment of the stock
subscriptions, although there have been no calls for them
by the company. (Hatch vs. Dana, 101 U. S., 205.)
It is again insisted that the plaintiffs cannot recover
because the suit was not preceded by a call or
assessment against no right of action accrues. In a suit
by a solvent going corporation to collect a subscription,
and in certain suits provided by the statute this would be
true; but it is now quite well settled that when the
corporation becomes insolvent, with proceedings
instituted by creditors to wind up and distribute its assets,
no call or assessment is necessary before the institution
of suits to collect unpaid balances on subscription. (Ross-
Meehan Shoe F. Co. vs. Southern Malleable Iron Co., 72
Fed., 957, 960; see also Henry vs. Vermillion etc. R. R.
Co., 17 Ohio, 187, and Thompson on Corporations 2d ed.,
vol. 3, sec. 2697.)
It evidently cannot be permitted that a subscriber should
escape from his lawful obligation by reason of the failure
of the officers of the corporation to perform their duty in
making a call; and when the original model of making the
call becomes impracticable, the obligation must be
treated as due upon demand. If the corporation must be
treated still an active entity, and this action should be
dismissed for irregularity in the making of the call, other
steps could be taken by the board to cure the defect and
another action could be brought; but where the company
is being wound up, no such procedure would be
practicable. The better doctrine is that when insolvency
supervenes all unpaid subscriptions become at once due
and enforceable.
The printed bill of exceptions in this cause does not
contain the original complaint, nor does it state who was
plaintiff therein or the date when the action was instituted.
It may, however, be gathered from the papers transmitted
to this court that the action was originally instituted in the
name of the Philippine Chemical Product Co. (Ltd.), prior
to its insolvency, and that later the assignee was
substituted as plaintiff and then filed the amended
complaint, with the permission of the court. Now, if we
concede that no right of action existed when the original
complaint was filed, a right of action certainly existed
when the assignee filed his amended complaint; and as
the bill of exceptions fails to show that any exception was
taken to the action of the court in allowing the amended
complaint to be filed, no objection would be here
entertained on the ground that the action was prematurely
brought.
The circumstance that the board of directors in their
meeting of July 13, 1914, resolved to release Infante from
his obligation upon a subscription for 15 shares is no wise
prejudicial to the right of the corporation or its assignee to
recover from Poizat upon a subscription made by him. In
releasing Infante the board transcended its powers, and
he no doubt still remained liable on such of his shares as
were not taken up and paid for by other persons.
The general doctrine is that the corporation has no legal
capacity to release an original subscriber to its capital
stock from the obligation of paying for his shares, in whole
or in part, . . . (10 Cyc., 450.)
The suggestion contained in Poizat's letter of July 27,
1914, to the effect that he understood that he was to be
relieved upon the same terms as Infante is, for the same
reason, of no merit as matter of defense, even if an
agreement to that effect had been duly proved.
From what has been said it is manifest that the defendant
is liable for P1,500, the amount of his subscription upon
the unpaid shares. Under section 36 of the Corporation
Law he is also liable for interest at the lawful rate from the
date of his subscription, unless relieved from this liability
by the by-laws of the company. These by-laws have not
been introduced in evidence and there is no proof
showing the exact date upon which the subscription was
made, though it is alleged in the original complaint that the
company was organized upon March 23, 1914. This
allegation is not admitted in the agreed statement of facts.
The defendant, however, inferentially admits in his letter
of July 27, 1914, that his subscription had been made
prior to July 13, 1914. It resulted that in our opinion he
should be held liable for interest from that date.
The judgment of the lower court is therefore reversed, and
judgment will be rendered in favor of the plaintiff and
against the defendant for the sum of one thousand five
hundred pesos (P1,500), with interest from July 13, 1014,
and costs of both instances. So ordered.
PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
BITULOK SAWMILL, INC., DINGALAN LUMBER CO.,
INC., SIERRA MADRE LUMBER CO., INC., NASIPIT
LUMBER CO., INC., WOODWORKS, INC., GONZALO
PUYAT, TOMAS B. MORATO, FINDLAY MILLAR
LUMBER CO., INC., ET AL., INSULAR LUMBER CO.,
ANAKAN LUMBER CO., AND CANTILAN LUMBER CO.,
INC., defendants-appellees.
Tomas Besa, Simplicio N. Angeles and Jose B. Galang
for plaintiff-appellee.
Bausa, Ampil and Suarez for defendant-appellant
Woodworks, Inc.
Pacifico de Ocampo for defendant-appellant Anakan
Lumber Co.
Ross, Selph, Salcedo, Del Rosario, Bito and Misa for
defendant-appellant Insular Lumber Co.
Garin, Boquiren and Tamesis for defendant-appellant
Nasipit Lumber Co., Inc.
Feria, Manglapus and Associates for defendant-appellant
Gonzalo Puyat.
Sycip, Salazar and Associates for defendant-appellant
Cantilan Lumber Co., Inc.
Ozaeta, Gibbs and Ozaeta for defendant-appellant
Findlay Millar Lumber Co., Inc.
Dominador Alafriz for defendant-appellant Bitulok
Sawmill, Inc.
De la Costa and De la Costa for defendant-appellant
Tomas B. Morato.
FERNANDO, J.:
In the face of a statutory norm, which, as interpreted in a
uniform line of decisions by this Court, speaks
unequivocally and is free from doubt, the lower court with
full recognition that the case for the plaintiff creditor,
Philippine National Bank, "is meritorious strictly from the
legal standpoint" 1 but apparently unable to "close its
eyes to the equity of the case" 2 dismissed nine (9) cases
filed by it, seeking "to recover from the defendant lumber
producers [Bitulok Sawmill, Inc.; Dingalan Lumber Co.,
Inc., Sierra Madre Lumber Co., Inc.; Nasipit Lumber Co.,
Inc.; Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato;
Findlay Millar Lumber Co., Inc.; Insular Lumber Co., Inc.;
Anakan Lumber Co., Inc.; and Cantilan Lumber Co., Inc.]
the balance of their stock subscriptions to the Philippine
Lumber Distributing Agency, Inc." 3 In essence then, the
crucial question posed by this appeal from such a
decision of the lower court is adherence to the rule of law.
Otherwise stated, would non-compliance with a plain
statutory command, considering the persuasiveness of
the plea that defendants-appellees would "not have
subscribed to [the] capital stock" of the Philippine Lumber
Distributing Agency "were it not for the assurance of the
[then] President of the Republic of the Philippines that the
Government would back [it] up by investing P9.00 for
every peso" 4 subscribed, a condition which was not
fulfilled, such commitment not having been complied with,
be justified? The answer must be in the negative.
It cannot be otherwise even if an element of unfairness
and injustice could be predicated, as the lower court, in a
rather sympathetic mood, did find in the plaintiff bank, as
creditor, compelling defendant lumber producers under
the above circumstances to pay the balance of their
subscriptions. For a plain and statutory command, if
applicable, must be respected. The rule of law cannot be
satisfied with anything less. The appeal must be
sustained.
In these various suits decided jointly, the Philippine
National Bank, as creditor, and therefore the real party in
interest, was allowed by the lower court to substitute the
receiver of the Philippine Lumber Distributing Agency in
these respective actions for the recovery from defendant
lumber producers the balance of their stock subscriptions.
The amount sought to be collected from defendants-
appellees Bitulok Sawmill, Inc., Dingalan Lumber Co.,
Inc., and Sierra Madre Lumber Co., Inc., is P5,000.00,
defendants-appellees having made a partial payment of
P15,000.00 of their total subscription worth P20,000.00;
from defendant-appellee Nasipit Lumber Co., Inc., the
sum of P10,000.00, defendant-appellee having made a
partial payment of P10,000.00 of its total subscription
worth P20,000.00; from defendant-appellee Woodworks,
Inc., the sum of P10,886.00, defendant-appellee having
made a partial payment of P9,114.00 of its total
subscription worth P20,000.00; from defendant-appellee
Gonzalo Puyat the sum of P10,000.00, defendant-
appellee having made a partial payment of P10,000.00 of
his total subscription worth P20,000.00; from defendant-
appellee Tomas Morato the sum of P10,000.00,
defendant-appellee having made a partial payment of
P10,000.00 of his total subscription worth P20,000.00;
from defendant-appellee Findlay Millar Lumber Co., Inc.,
the sum of P10,000.00, defendant-appellee having made
a partial payment of P10,000.00 of its total subscription
worth P20,000.00; from defendant-appellee Insular
Lumber Co., Inc., the sum of P5,000.00, defendant-
appellee having made a partial payment of P15,000.00 of
its total subscription worth P20,000.00; from defendant-
appellee Anakan Lumber Co., Inc., the sum of
P15,000.00, defendant-appellee having made a partial
payment of P5,000.00 of its total subscription worth
P20,000.00; and from defendant-appellee Cantilan
Lumber Co., Inc., the sum of P7,500.00, defendant-
appellee having made a partial payment of P2,500.00 of
its total subscription worth P10,000.00, plus interest at the
legal rate from the filing of the suits and the costs of the
suits in all the nine (9) cases.
The Philippine Lumber Distributing Agency, Inc.,
according to the lower court, "was organized sometime in
the early part of 1947 upon the initiative and insistence of
the late President Manuel Roxas of the Republic of the
Philippines who for the purpose, had called several
conferences between him and the subscribers and
organizers of the Philippine Lumber Distributing Agency,
Inc." 5 The purpose was praiseworthy, to insure a steady
supply of lumber, which could be sold at reasonable
prices to enable the war sufferers to rehabilitate their
devastated homes. The decision continues: "He
convinced the lumber producers to form a lumber
cooperative and to pool their sources together in order to
wrest, particularly, the retail trade from aliens who were
acting as middlemen in the distribution of lumber. At the
beginning, the lumber producers were reluctant to
organize the cooperative agency as they believed that it
would not be easy to eliminate from the retail trade the
alien middlemen who had been in this business from time
immemorial, but because the late President Roxas made
it clear that such a cooperative agency would not be
successful without a substantial working capital which the
lumber producers could not entirely shoulder, and as an
inducement he promised and agreed to finance the
agency by making the Government invest P9.00 by way
of counterpart for every peso that the members would
invest therein,...." 6
This was the assurance relied upon according to the
decision, which stated that the amount thus contributed
by such lumber producers was not enough for the
operation of its business especially having in mind the
primary purpose of putting an end to alien domination in
the retail trade of lumber products. Nor was there any
appropriation by the legislature of the counterpart fund to
be put up by the Government, namely, P9.00 for every
peso invested by defendant lumber producers.
Accordingly, "the late President Roxas instructed the Hon.
Emilio Abello, then Executive Secretary and Chairman of
the Board of Directors of the Philippine National Bank, for
the latter to grant said agency an overdraft in the original
sum of P250,000.00 which was later increased to
P350,000.00, which was approved by said Board of
Directors of the Philippine National Bank on July 28, 1947,
payable on or before April 30, 1958, with interest at the
rate of 6% per annum, and secured by the chattel
mortgages on the stock of lumber of said agency." 7 The
Philippine Government did not invest the P9.00 for every
peso coming from defendant lumber producers. The loan
extended to the Philippine Lumber Distributing Agency by
the Philippine National Bank was not paid. Hence, these
suits.
For the lower court, the above facts sufficed for their
dismissal. To its mind "it is grossly unfair and unjust for
the plaintiff bank now to compel the lumber producers to
pay the balance of their subscriptions .... Indeed, when
the late President Roxas made representations to the
plaintiff bank, thru the Hon. Emilio Abello, who was then
the Executive Secretary and Chairman of its Board of
Directors, to grant said overdraft to the agency, it was the
only way by which President Roxas could make good his
commitment that the Government would invest in said
agency to the extent already mentioned because,
according to said late President Roxas, the legislature
had not appropriated any amount for such counterpart.
Consequently, viewing from all considerations of equity in
the case, the Court finds that plaintiff bank should not
collect any more from the defendants the balance of their
subscriptions to the capital stock of the Philippine Lumber
Distributing Agency, Inc." 8
Even with the case for defendant lumber producers being
put forth in its strongest possible light in the appealed
decision, the plaintiff creditor, the Philippine National
Bank, should have been the prevailing party. On the law
as it stands, the judgment reached by the lower court
cannot be sustained. The appeal, as earlier made clear,
possesses merit.
In Philippine Trust Co. v. Rivera, 9 citing the leading case
of Velasco v. Poizat, 10 this Court held: "It is established
doctrine that subscriptions to the capital of a corporation
constitute a fund to which creditors have a right to look for
satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of
its debt.... A corporation has no power to release an
original subscriber to its capital stock from the obligation
of paying for his shares, without a valuable consideration
for such release; and as against creditors a reduction of
the capital stock can take place only in the manner and
under the conditions prescribed by the statute or the
charter or the articles of incorporation. Moreover, strict
compliance with the statutory regulations is necessary...."
The Poizat doctrine found acceptance in later cases. 11
One of the latest cases, Lingayen Gulf Electric Power v.
Baltazar, 12 Speaks to this effect: "In the case of Velasco
v. Poizat, 13 the corporation involved was insolvent, in
which case all unpaid stock subscriptions become
payable on demand and are immediately recoverable in
an action instituted by the assignee."
It would be unwarranted to ascribe to the late President
Roxas the view that the payment of the stock
subscriptions, as thus required by law, could be condoned
in the event that the counterpart fund to be invested by
the Government would not be available. Even if such were
the case, however, and such a promise were in fact made,
to further the laudable purpose to which the proposed
corporation would be devoted and the possibility that the
lumber producers would lose money in the process, still
the plain and specific wording of the applicable legal
provision as interpreted by this Court must be controlling.
It is a well-settled principle that with all the vast powers
lodged in the Executive, he is still devoid of the
prerogative of suspending the operation of any statute or
any of its terms.
The emphatic and categorical language of an American
decision cited by the late Justice Laurel, in People v. Vera,
14 comes to mind: "By the twentieth article of the
declaration of rights in the constitution of this
commonwealth, it is declared that the power of
suspending the laws, or the execution of the laws, ought
never to be exercised but by the legislature, or by
authority derived from it, to be exercised in such particular
cases only as the legislature shall expressly provide
for...." Nor could it be otherwise considering that the
Constitution specifically enjoins the President to see to it
that all laws be faithfully executed. 15 There may be a
discretion as to what a particular legal provision requires;
there can be none whatsoever as to the enforcement and
application thereof once its meaning has been
ascertained. What it decrees must be followed; what it
commands must be obeyed. It must be respected, the
wishes of the President, to the contrary notwithstanding,
even if impelled by the most worthy of motives and the
most persuasive equitable considerations. To repeat,
such is not the case here. For at no time did President
Roxas ever give defendant lumber producers to
understand that the failure of the Government for any
reason to put up the counterpart fund could terminate their
statutory liability.
Such is not the law. Unfortunately, the lower court was of
a different mind. That is not to pay homage to the rule of
law. Its decision then, one it is to be repeated influenced
by what it considered to be the "equity of the case", is not
legally impeccable.
WHEREFORE, the decision of the lower court is reversed
and the cases remanded to the lower court for judgment
according to law, with full consideration of the legal
defenses raised by defendants-appellees, Bitulok
Sawmill, Inc.; Dingalan Lumber Co., Inc.; Sierra Madre
Lumber Co., Inc.; Nasipit Lumber Co., Inc.; Woodworks,
Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay Millar
Lumber Co., Inc.; Anakan Lumber Co., Inc.; and Cantilan
Lumber Co., Inc. No pronouncement as to costs.
THE GOVERNMENT OF THE PHILIPPINE ISLANDS,
petitioner,
vs.
THE MANILA RAILROAD COMPANY and JOSE PAEZ
as Manager of said Company, respondents.
Attorney-General Jaranilla for petitioner.
Jose Abreu for respondents.
JOHNSON, J.:
This is a petition in the Supreme Court of the
extraordinary legal writ of mandamus presented by the
Government of the Philippine Islands, praying that the writ
be issued to compel the Manila Railroad Company and
Jose Paez, as its manager, to provide and equip the
telegraph poles of said company between the municipality
of Paniqui, Province of Tarlac, and the Municipality of San
Fernando, Province of La Union, with crosspieces for six
telegraph wires belonging to the Government, which, it is
alleged, are necessary for public service between said
municipalities.
The only question raised by the petition is whether the
dependant company is required to provide and equip its
telegraph poles with crosspieces to carry six telegraph
wires of the Government, or whether it is only required to
furnish poles with crosspieces sufficient to carry four wires
only.
It is admitted that the present poles and crosspieces
between said municipalities are sufficient to carry four
telegraph wires and that they do now carry four telegraph
wires, by virtue of an agreement between the respondents
and the Bureau of the Posts of the Philippine
Government. It is admitted that the poles and not
sufficient to carry six telegraph wires.
The petitioner relies upon the provisions of section 84 of
act No. 1459. Act No. 1459 is the General Corporation
Law and was adopted by the United States Philippine
Commission on March 1, 1906. (Vol. 5, Pub. Laws, pp.
224-268.) Section 84 of the said Act provides:
The railroad corporation shall establish along the whole
length of the road a telegraph line for the use of the
railroad. The posts of this line may be used for
Government wires and shall be of sufficient length and
strength and equipped with sufficient crosspiece to carry
the number of wires which the Government may consider
necessary for the public service. The establishment,
protection, and maintenance of the wires and stations
necessary for the public service shall be at the cost of the
Government. (Vol. 5, P. L., p. 247.)
The plaintiff contends that under said section 84 the
defendant company is required to erect and maintain
posts for its telegraph wires, of sufficient length and
strength, and equipped with sufficient crosspieces to carry
the number of wires which the Government may consider
necessary for the public service, and that six wires are
now necessary for the public service.
The respondents answered by a general and special
defense. In their special defense they contend that
section 84 of Act No. 1459 has been repealed by section
1, paragraph 8 of Act No. 1510 of the United States
Philippine Commission (vol. 5, P. L., pp. 350-358), and
that under the provisions of said Act No. 1510 the
Government is entitled to place on the poles of the
company four wires only. Act No. 1510 is the charter of
the Manila Railroad Company. It was adopted by the
United States Philippine Commission on July 7, 1906.
Section 1, paragraph 8, of said Act No. 1510 provides:
8. The grantee (the Manila Railroad Company) shall have
the right to construct and operate telegraph, telephone,
and electrical transmission lines over said railways for the
use of the railways and their business, and also, with the
approval of the Secretary of War, for public service and
commercial purposes but these latter privileges shall be
subject to the following provisions:
In the construction of telegraph or telephone lines along
the right of way the grantee (the Manila Railroad
Company) shall erect and maintain poles with sufficient
space thereon to permit the Philippine Government, at the
expense of said Government, to place, operate, and
maintain four wires for telegraph, telephone, and electrical
transmission for any Government purposes between the
termini of the lines of railways main or branch; and the
Philippine Government reserves to itself the right to
construct, maintain, and operate telegraph, telephone, or
electrical transmission lines over the right of way of said
railways for commercial military, or government purposes,
without unreasonably interfering with the construction,
maintenance, and operation by the grantee of its railways,
telegraph, telephone, and electrical transmission lines.
To answer the question above stated, it becomes
necessary to determine whether section 84 of Act No.
1459 is applicable to the Manila Railroad Company, or
whether the manila Railroad Company is governed by
section 1, paragraph 8, of Act No. 1510. As has been said,
Act No. 1459 is a general law applicable to corporations
generally, while Act No. 1510 is the charter of the Manila
Railroad Company and constitute a contract between it
and the Government.
Inasmuch as Act No. 1510 is the charter of Manila
Railroad Company and constitute a contract between it
and the Governmemnt, it would seem that the company
is governd by its contract and not by the provisions of any
general law upon questions covered by said contract.
From a reading of the said charter or contract it would be
seen that there is no indication that the Government
intended to impose upon said company any other
conditions as obligations not expressly found in said
charter or contract. If that is true, then certainly the
Government cannot impose upon said company any
conditions or obligations found in any general law, which
does not expressly modify said contract.
Section 84 of the Corporation Law (Act No. 1459) was
intended to apply to all railways in the Philippine Islands
which did not have a special charter contract. Act No.
1510 applies only to the Manila Railroad Company, one
of the respondents, and being a special charter of said
company, its adoption had the effect of superseding the
provisions of the general Corporation Law which are
applicable to railraods in general. The special charter (Act
No. 1510) had the effect of superseding the general
Corporation Law upon all matters covered by said special
charter. Said Act, inasmuch as it contained a special
provision relating to the erection of telegraph and
telephone poles, and the number of wires which the
Government might place thereon, superseded the
general law upon that question.
Act No. 1510 is a special charter of the respondent
company. It constitutes a contract between the
respondent company and the state; and the state and the
grantee of a charter are equally bound by its provisions.
For the state to impose an obligation or a duty upon the
respondent company, which is not expressly provided for
in the charter (Act No. 1510), would amount to a violation
of said contract between the state and the respondent
company. The provisions of Act No. 1459 relating to the
number of wires which the Government may place upon
the poles of the company are different and more enerous
than the provisions of the charter upon the same question.
Therefore, to allow the plaintiff to require of the
respondent company a compliance with said section 84
of Act No. 1459, would be to require of the respondent
company and the performance of an obligation which is
not imposed upon it by its charter. The charter of a
corporation is a contract between three parties: (a) it is a
contract between the state and the corporation to which
the charter is granted; (b) it is a contact between the
stockholders and the state and (c) it is also a contract
between the corporation and its stockholders. (Cook on
Corporations, vol. 2, sec. 494 and cases cited.)
The question is not whether Act No. 1510 repealed Act
No. 1459; but whether, after the adoption of Act No. 1510,
the respondents are obliged to comply with the special
provision above mentioned, contained in Act No. 1459.
We must answer that question in the native. Both laws are
still in force, unless otherwise repealed. Act No. 1510 is
applicable to respondents upon the question before us,
while Act No. 1459 is not applicable.
The petitioner, in view of all the foregoing facts and the
law applicable thereto, has not shown itself entitled to the
remedy prayed for. The prayer of the petition must,
therefore, be denied. And without any finding as to costs,
it is so ordered
G.R. No. 96674 June 26, 1992
RURAL BANK OF SALINAS, INC., MANUEL SALUD,
LUZVIMINDA TRIAS and FRANCISCO TRIAS,
petitioners,
vs.
COURT OF APPEALS*, SECURITIES AND EXCHANGE
COMMISSION, MELANIA A. GUERRERO, LUZ
ANDICO, WILHEMINA G. ROSALES, FRANCISCO M.
GUERRERO, JR., and FRANCISCO GUERRERO , SR.,
respondents.
PARAS, J.:
The basic controversy in this case is whether or not the
respondent court erred in sustaining the Securities and
Exchange Commission when it compelled by Mandamus
the Rural Bank of Salinas to register in its stock and
transfer book the transfer of 473 shares of stock to private
respondents. Petitioners maintain that the Petition for
Mandamus should have been denied upon the following
grounds.
(1) Mandamus cannot be a remedy cognizable by
the Securities and Exchange Commission when the
purpose is to register certificates of stock in the names of
claimants who are not yet stockholders of a corporation:
(2) There exist valid reasons for refusing to register
the transfer of the subject of stock, namely:
(a) a pending controversy over the ownership of the
certificates of stock with the Regional Trial Court;
(b) claims that the Deeds of Assignment covering the
subject certificates of stock were fictitious and antedated;
and
(c) claims on a resultant possible deprivation of
inheritance share in relation with a conflicting claim over
the subject certificates of stock.
The facts are not disputed.
On June 10, 1979, Clemente G. Guerrero, President of
the Rural Bank of Salinas, Inc., executed a Special Power
of Attorney in favor of his wife, private respondent Melania
Guerrero, giving and granting the latter full power and
authority to sell or otherwise dispose of and/or mortgage
473 shares of stock of the Bank registered in his name
(represented by the Bank's stock certificates nos. 26, 49
and 65), to execute the proper documents therefor, and
to receive and sign receipts for the dispositions.
On February 27, 1980, and pursuant to said Special
Power of Attorney, private respondent Melania Guerrero,
as Attorney-in-Fact, executed a Deed of Assignment for
472 shares out of the 473 shares, in favor of private
respondents Luz Andico (457 shares), Wilhelmina
Rosales (10 shares) and Francisco Guerrero, Jr. (5
shares).
Almost four months later, or two (2) days before the death
of Clemente Guerrero on June 24, 1980, private
respondent Melania Guerrero, pursuant to the same
Special Power of Attorney, executed a Deed of
Assignment for the remaining one (1) share of stock in
favor of private respondent Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero
presented to petitioner Rural Bank of Salinas the two (2)
Deeds of Assignment for registration with a request for the
transfer in the Bank's stock and transfer book of the 473
shares of stock so assigned, the cancellation of stock
certificates in the name of Clemente G. Guerrero, and the
issuance of new stock certificates covering the transferred
shares of stocks in the name of the new owners thereof.
However, petitioner Bank denied the request of
respondent Melania Guerrero.
On December 5, 1980, private respondent Melania
Guerrero filed with the Securities and Exchange
Commission" (SEC) an action for mandamus against
petitioners Rural Bank of Salinas, its President and
Corporate Secretary. The case was docketed as SEC
Case No. 1979.
Petitioners filed their Answer with counterclaim on
December 19, 1980 alleging the upon the death of
Clemente G. Guerrero, his 473 shares of stock became
the property of his estate, and his property and that of his
widow should first be settled and liquidated in accordance
with law before any distribution can be effected so that
petitioners may not be a party to any scheme to evade
payment of estate or inheritance tax and in order to avoid
liability to any third persons or creditors of the late
Clemente G. Guerrero.
On January 29, 1981, a motion for intervention was filed
by Maripol Guerrero, a legally adopted daughter of the
late Clemente G. Guerrero and private respondent
Melania Guerrero, who stated therein that on November
26, 1980 (almost two weeks before the filing of the petition
for Mandamus) a Petition for the administration of the
estate of the late Clemente G. Guerrero had been filed
with the Regional Trial Court, Pasig, Branch XI, docketed
as Special Proceedings No. 9400. Maripol Guerrero
further claimed that the Deeds of Assignment for the
subject shares of stock are fictitious and antedated; that
said conveyances are donations since the considerations
therefor are below the book value of the shares, the
assignees/private respondents being close relatives of
private respondent Melania Guerrero; and that the
transfer of the shares in question to assignees/private
respondents, other than private respondent Melania
Guerrero, would deprive her (Maripol Guerrero) of her
rightful share in the inheritance. The SEC hearing officer
denied the Motion for Intervention for lack of merit. On
appeal, the SEC En Banc affirmed the decision of the
hearing officer.
Intervenor Guerrero filed a complaint before the then
Court of First Instance of Rizal, Quezon City Branch,
against private respondents for the annulment of the
Deeds of Assignment, docketed as Civil Case No. Q-
32050. Petitioners, on the other hand, filed a Motion to
Dismiss and/or to Suspend Hearing of SEC Case No.
1979 until after the question of whether the subject Deeds
of Assignment are fictitious, void or simulated is resolved
in Civil Case No. Q-32050. The SEC Hearing Officer
denied said motion.
On December 10, 1984, the SEC Hearing Officer
rendered a Decision granting the writ of Mandamus
prayed for by the private respondents and directing
petitioners to cancel stock certificates nos. 26, 49 and 65
of the Bank, all in the name of Clemente G. Guerrero, and
to issue new certificates in the names of private
respondents, except Melania Guerrero. The dispositive,
portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of
the petitioners and against the respondents, directing the
latter, particularly the corporate secretary of respondent
Rural Bank of Salinas, Inc., to register in the latter's Stock
and Transfer Book the transfer of 473 shares of stock of
respondent Bank and to cancel Stock Certificates Nos.
26, 45 and 65 and issue new Stock Certificates covering
the transferred shares in favor of petitioners, as follows:
1. Luz Andico 457 shares
2. Wilhelmina Rosales 10 shares
3. Francisco Guerrero, Jr. 5 shares
4. Francisco Guerrero, Sr. 1 share
and to pay to the above-named petitioners, the dividends
for said shares corresponding to the years 1981, 1982,
1983 and 1984 without interest.
No pronouncement as to costs.

SO ORDERED. (p. 88, Rollo)
On appeal, the SEC En Banc affirmed the decision of the
Hearing Officer. Petitioner filed a petition for review with
the Court of Appeals but said Court likewise affirmed the
decision of the SEC.
We rule in favor of the respondents.
Section 5 (b) of P.D. No. 902-A grants to the SEC the
original and exclusive jurisdiction to hear and decide
cases involving intracorporate controversies. An
intracorporate controversy has been defined as one which
arises between a stockholder and the corporation. There
is no distinction, qualification, nor any exception
whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]).
The case at bar involves shares of stock, their
registration, cancellation and issuances thereof by
petitioner Rural Bank of Salinas. It is therefore within the
power of respondent SEC to adjudicate.
Respondent SEC correctly ruled in favor of the registering
of the shares of stock in question in private respondent's
names. Such ruling finds support under Section 63 of the
Corporation Code, to wit:
Sec. 63. . . . Shares of stock so issued are
personal property and may be transferred by delivery of
the certificate or certificates indorsed by the owner or his
attorney-in-fact or other person legally authorized to make
the transfer. No transfer, however, shall be valid, except
as between the parties, until the transfer is recorded in the
books of the corporation . . .
In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583,
the Court interpreted Sec. 63 in his wise:
Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the
Corporation Code]) contemplates no restriction as to
whom the stocks may be transferred. It does not suggest
that any discrimination may be created by the corporation
in favor of, or against a certain purchaser. The owner of
shares, as owner of personal property, is at liberty, under
said section to dispose them in favor of whomever he
pleases, without limitation in this respect, than the general
provisions of law. . . .
The only limitation imposed by Section 63 of the
Corporation Code is when the corporation holds any
unpaid claim against the shares intended to be
transferred, which is absent here.
A corporation, either by its board, its by-laws, or the act of
its officers, cannot create restrictions in stock transfers,
because:
. . . Restrictions in the traffic of stock must have their
source in legislative enactment, as the corporation itself
cannot create such impediment. By-laws are intended
merely for the protection of the corporation, and prescribe
regulation, not restriction; they are always subject to the
charter of the corporation. The corporation, in the
absence of such power, cannot ordinarily inquire into or
pass upon the legality of the transactions by which its
stock passes from one person to another, nor can it
question the consideration upon which a sale is based. . .
. (Tomson on Corporation Sec. 4137, cited in Fleisher vs.
Nolasco, Supra).
The right of a transferee/assignee to have stocks
transferred to his name is an inherent right flowing from
his ownership of the stocks. Thus:
Whenever a corporation refuses to transfer and register
stock in cases like the present, mandamus will lie to
compel the officers of the corporation to transfer said
stock in the books of the corporation" (26, Cyc. 347, Hyer
vs. Bryan, 19 Phil. 138; Fleisher vs. Botica Nolasco, 47
Phil. 583, 594).
The corporation's obligation to register is ministerial.
In transferring stock, the secretary of a corporation acts in
purely ministerial capacity, and does not try to decide the
question of ownership. (Fletcher, Sec. 5528, page 434).
The duty of the corporation to transfer is a ministerial one
and if it refuses to make such transaction without good
cause, it may be compelled to do so by mandamus. (See.
5518, 12 Fletcher 394)
For the petitioner Rural Bank of Salinas to refuse
registration of the transferred shares in its stock and
transfer book, which duty is ministerial on its part, is to
render nugatory and ineffectual the spirit and intent of
Section 63 of the Corporation Code. Thus, respondent
Court of Appeals did not err in upholding the Decision of
respondent SEC affirming the Decision of its Hearing
Officer directing the registration of the 473 shares in the
stock and transfer book in the names of private
respondents. At all events, the registration is without
prejudice to the proceedings in court to determine the
validity of the Deeds of Assignment of the shares of stock
in question.
WHEREFORE, the petition is DISMISSED for lack of
merit.

b. Articles of Incorporation
1. Procedure and Documentary Requirements
Section 14. Contents of the articles of
incorporation. - All corporations organized
under this code shall file with the Securities
and Exchange Commission articles of
incorporation in any of the official languages
duly signed and acknowledged by all of the
incorporators, containing substantially the
following matters, except as otherwise
prescribed by this Code or by special law:
1. The name of the corporation;
2. The specific purpose or
purposes for which the
corporation is being incorporated.
Where a corporation has more
than one stated purpose, the
articles of incorporation shall
state which is the primary
purpose and which is/are the
secondary purpose or purposes:
Provided, That a non-stock
corporation may not include a
purpose which would change or
contradict its nature as such;
3. The place where the principal
office of the corporation is to be
located, which must be within the
Philippines;
4. The term for which the
corporation is to exist;
5. The names, nationalities and
residences of the incorporators;
6. The number of directors or
trustees, which shall not be less
than five (5) nor more than fifteen
(15);
7. The names, nationalities and
residences of persons who shall
act as directors or trustees until
the first regular directors or
trustees are duly elected and
qualified in accordance with this
Code;
8. If it be a stock corporation, the
amount of its authorized capital
stock in lawful money of the
Philippines, the number of shares
into which it is divided, and in
case the share are par value
shares, the par value of each, the
names, nationalities and
residences of the original
subscribers, and the amount
subscribed and paid by each on
his subscription, and if some or
all of the shares are without par
value, such fact must be stated;
9. If it be a non-stock corporation,
the amount of its capital, the
names, nationalities and
residences of the contributors
and the amount contributed by
each; and
10. Such other matters as are not
inconsistent with law and which
the incorporators may deem
necessary and convenient.
The Securities and Exchange Commission
shall not accept the articles of incorporation of
any stock corporation unless accompanied by
a sworn statement of the Treasurer elected by
the subscribers showing that at least twenty-
five (25%) percent of the authorized capital
stock of the corporation has been subscribed,
and at least twenty-five (25%) of the total
subscription has been fully paid to him in actual
cash and/or in property the fair valuation of
which is equal to at least twenty-five (25%)
percent of the said subscription, such paid-up
capital being not less than five thousand
(P5,000.00) pesos.
Section 15. Forms of Articles of Incorporation. -
Unless otherwise prescribed by special law,
articles of incorporation of all domestic
corporations shall comply substantially with the
following form:
ARTICLES OF INCORPORATION OF
__________________________
(Name of Corporation)
KNOW ALL MEN BY THESE PRESENTS:
The undersigned incorporators, all of legal age
and a majority of whom are residents of the
Philippines, have this day voluntarily agreed to
form a (stock) (non-stock) corporation under
the laws of the Republic of the Philippines;
AND WE HEREBY CERTIFY:
FIRST: That the name of said corporation shall ___________________
be "_____________________, INC. or ___________________
CORPORATION"; ___________________
SECOND: That the purpose or purposes for SEVENTH: That the authorized capital stock of
which such corporation is incorporated are: (If the corporation is ______________________
there is more than one purpose, indicate (P___________) PESOS in lawful money of
primary and secondary purposes); the Philippines, divided into __________
THIRD: That the principal office of the shares with the par value of
corporation is located in the City/Municipality of ____________________ (P_____________)
________________________, Province of Pesos per share.
_______________________, Philippines; (In case all the share are without par value):
FOURTH: That the term for which said That the capital stock of the corporation is
corporation is to exist is _____________ years ______________ shares without par value. (In
from and after the date of issuance of the case some shares have par value and some
certificate of incorporation; are without par value): That the capital stock of
FIFTH: That the names, nationalities and said corporation consists of _____________
residences of the incorporators of the shares of which ______________ shares are
corporation are as follows: of the par value of _________________
NAME NATIONALITY RESIDENCE (P____________) PESOS each, and of which
___________________ _________________ shares are without par
___________________ value.
___________________ EIGHTH: That at least twenty five (25%) per
___________________ cent of the authorized capital stock above
___________________ stated has been subscribed as follows:
___________________ Name of Subscriber Nationality No of Shares
___________________ Amount
___________________ Subscribed Subscribed
___________________ _________________ __________
___________________ ____________ ____________
___________________ _________________ __________
___________________ ____________ ____________
___________________ _________________ __________
___________________ ____________ ____________
___________________ _________________ __________
SIXTH: That the number of directors or ____________ ____________
trustees of the corporation shall be _______; _________________ __________
and the names, nationalities and residences of ____________ ____________
the first directors or trustees of the corporation NINTH: That the above-named subscribers
are as follows: have paid at least twenty-five (25%) percent of
NAME NATIONALITY RESIDENCE the total subscription as follows:
___________________ Name of Subscriber Amount Subscribed Total
___________________ Paid-In
___________________ _________________ ___________________
___________________ _______________
___________________ _________________ ___________________
___________________ _______________
___________________ _________________ ___________________
___________________ _______________
___________________ _________________ ___________________
___________________ _______________
___________________ _________________ ___________________
___________________ _______________
(Modify Nos. 8 and 9 if shares are with no par
value. In case the corporation is non-stock,
Nos. 7, 8 and 9 of the above articles may be
modified accordingly, and it is sufficient if the
articles state the amount of capital or money
contributed or donated by specified persons,
stating the names, nationalities and residences
of the contributors or donors and the respective
amount given by each.)
TENTH: That _____________________ has
been elected by the subscribers as Treasurer
of the Corporation to act as such until his
successor is duly elected and qualified in
accordance with the by-laws, and that as such
Treasurer, he has been authorized to receive
for and in the name and for the benefit of the
corporation, all subscription (or fees) or
contributions or donations paid or given by the
subscribers or members.
ELEVENTH: (Corporations which will engage
in any business or activity reserved for Filipino
citizens shall provide the following):
"No transfer of stock or interest which shall
reduce the ownership of Filipino citizens to less
than the required percentage of the capital
stock as provided by existing laws shall be
allowed or permitted to be recorded in the
proper books of the corporation and this
restriction shall be indicated in all stock
certificates issued by the corporation."
IN WITNESS WHEREOF, we have hereunto
signed these Articles of Incorporation, this
__________ day of ________________, 19
______ in the City/Municipality of
____________________, Province of
________________________, Republic of the
Philippines.
_______________________
_______________________
_______________________
_______________________
________________________________
(Names and signatures of the incorporators)
SIGNED IN THE PRESENCE OF:
_______________________
_______________________
(Notarial Acknowledgment)
TREASURER'S AFFIDAVIT
REPUBLIC OF THE PHILIPPINES )
CITY/MUNICIPALITY OF ) S.S.
PROVINCE OF )
I, ____________________, being duly sworn,
depose and say:
That I have been elected by the subscribers of
the corporation as Treasurer thereof, to act as
such until my successor has been duly elected
and qualified in accordance with the by-laws of
the corporation, and that as such Treasurer, I
hereby certify under oath that at least 25% of
the authorized capital stock of the corporation
has been subscribed and at least 25% of the
total subscription has been paid, and received
by me, in cash or property, in the amount of not
less than P5,000.00, in accordance with the
Corporation Code.
____________________
(Signature of Treasurer)
SUBSCRIBED AND SWORN to before me, a
Notary Public, for and in the City/Municipality of
___________________ Province of
_____________________, this _______ day of
___________, 19 _____; by
__________________ with Res. Cert. No.
___________ issued at
_______________________ on
____________, 19 ______
NOTARY PUBLIC
My commission expires on
_________, 19 _____
Doc. No. _________;
Page No. _________;
Book No. ________;
Series of 19____ (7a)
RED LINE TRANSPORTATION CO., petitioner-
appellant,
vs.
RURAL TRANSIT CO., LTD., respondent-appellee.
L. D. Lockwood for appellant.
Ohnick and Opisso for appellee.
BUTTE, J.:
This case is before us on a petition for review of an order
of the Public Service Commission entered December 21,
1932, granting to the Rural Transit Company, Ltd., a
certificate of public convenience to operate a
transportation service between Ilagan in the Province of
Isabela and Tuguegarao in the Province of Cagayan, and
additional trips in its existing express service between
Manila Tuguegarao.
On June 4, 1932, the Rural Transit Company, Ltd., a
Philippine corporation, filed with the Public Company
Service Commission an application in which it is stated in
substance that it is the holder of a certificate or public
convenience to operate a passenger bus service between
Manila and Tuguegarao; that it is the only operator of
direct service between said points and the present
authorized schedule of only one trip daily is not sufficient;
that it will be also to the public convenience to grant the
applicant a certificate for a new service between
Tuguegarao and Ilagan.
On July 22, 1932, the appellant, Red Line Transportation
Company, filed an opposition to the said application
alleging in substance that as to the service between
Tuguegarao and Ilagan, the oppositor already holds a
certificate of public convenience and is rendering
adequate and satisfactory service; that the granting of the
application of the Rural Transit Company, Ltd., would not
serve public convenience but would constitute a ruinous
competition for the oppositor over said route.
After testimony was taken, the commission, on December
21, 1932, approved the application of the Rural Transit
Company, Ltd., and ordered that the certificate of public
convenience applied for be "issued to the applicant Rural
Transit Company, Ltd.," with the condition, among others,
that "all the other terms and conditions of the various
certificates of public convenience of the herein applicant
and herein incorporated are made a part hereof."
On January 14, 1933, the oppositor Red Line
Transportation Company filed a motion for rehearing and
reconsideration in which it called the commission's
attention to the fact that there was pending in the Court of
First Instance of Manila case N. 42343, an application for
the voluntary dissolution of the corporation, Rural Transit
Company, Ltd. Said motion for reconsideration was set
down for hearing on March 24, 1933. On March 23, 1933,
the Rural Transit Company, Ltd., the applicant, filed a
motion for postponement. This motion was verified by M.
Olsen who swears "that he was the secretary of the Rural
Transit Company, Ltd., in the above entitled case." Upon
the hearing of the motion for reconsideration, the
commission admitted without objection the following
documents filed in said case No. 42343 in the Court of
First Instance of Manila for the dissolution of the Rural
Transit Company, Ltd. the petition for dissolution dated
July 6, 1932, the decision of the said Court of First
Instance of Manila, dated February 28, 1933, decreeing
the dissolution of the Rural Transit Company, Ltd.
At the trial of this case before the Public Service
Commission an issue was raised as to who was the real
party in interest making the application, whether the Rural
Transit Company, Ltd., as appeared on the face of the
application, or the Bachrach Motor Company, Inc., using
name of the Rural Transit Company, Ltd., as a trade
name. The evidence given by the applicant's secretary,
Olsen, is certainly very dubious and confusing, as may be
seen from the following:
Q. Will you please answer the question whether it
is the Bachrach Motor Company operating under the
trade name of the Rural Transit Company, Limited, or
whether it is the Rural Transit Company, Limited in its own
name this application was filed?
A. The Bachrach Motor Company is the principal
stockholder.
Q. Please answer the question.
ESPELETA. Objecion porque la pregunta ya ha sido
contestada.
JUEZ. Puede contestar.
A. I do not know what the legal construction or
relationship existing between the two.
JUDGE. I do not know what is in your mind by not telling
the real applicant in this case?
A. It is the Rural Transit Company, Ltd.
JUDGE. As an entity by itself and not by the Bachrach
Motor Company?
A. I do not know. I have not given that phase of the
matter much thought, as in previous occassion had not
necessitated.
JUDGE. In filing this application, you filed it for the
operator on that line? Is it not!
A. Yes, sir.
JUDGE. Who is that operator?
A. The Rural Transit Company, Ltd.
JUDGE. By itself, or as a commercial name of the
Bachrach Motor Company?
A. I cannot say.
ESPELETA. The Rural Transit Company, Ltd., is a
corporation duly established in accordance with the laws
of the Philippine Islands.
JUDGE. According to the records of this commission the
Bachrach Motor Company is the owner of the certificates
and the Rural Transit Company, Ltd., is operating without
any certificate.
JUDGE. If you filed this application for the Rural Transit
Company, Ltd., and afterwards it is found out that the
Rural Transit Company, Ltd., is not an operator,
everything will be turned down.
JUDGE. My question was, when you filed this application
you evidently made it for the operator?
A. Yes, sir.
JUDGE. Who was that operator you had in mind?
A. According to the status of the ownership of the
certificates of the former Rural Transit Company, the
operator was the operator authorized in case No. 23217
to whom all of the assets of the former Rural Transit
Company were sold.
JUDGE. Bachrach Motor Company?
A. All actions have been prosecuted in the name
of the Rural Transit Company, Ltd.
JUDGE. You mean the Bachrach Motor Company, Inc.,
doing business under the name of the Rural Transit
Company, Ltd.?
A. Yes, sir.
LOCKWOOD. I move that this case be dismissed, your
Honor, on the ground that this application was made in
the name of one party but the real owner is another party.
ESPELETA. We object to that petition.
JUDGE. I will have that in mind when I decide the case.
If I agree with you everything would be finished.
The Bachrach Motor Company, Inc., entered no
appearance and ostensibly took no part in the hearing of
the application of the Rural Transit Company, Ltd. It may
be a matter of some surprise that the commission did not
on its own motion order the amendment of the application
by substituting the Bachrach Motor Company, Inc., as the
applicant. However, the hearing proceeded on the
application as filed and the decision of December 2, 1932,
was rendered in favor of the Rural Transit Company, Ltd.,
and the certificate ordered to be issued in its name, in the
face of the evidence that the said corporation was not the
real party in interest. In its said decision, the commission
undertook to meet the objection by referring to its
resolution of November 26, 1932, entered in another
case. This resolution in case No. 23217 concludes as
follows:
Premises considered we hereby authorize the Bachrach
Motor Co., Inc., to continue using the name of "Rural
Transit Co., Ltd.," as its trade name in all the applications,
motions or other petitions to be filed in this commission in
connection with said business and that this authority is
given retroactive effect as of the date, of filing of the
application in this case, to wit, April 29, 1930.
We know of no law that empowers the Public Service
Commission or any court in this jurisdiction to authorize
one corporation to assume the name of another
corporation as a trade name. Both the Rural Transit
Company, Ltd., and the Bachrach Motor Co., Inc., are
Philippine corporations and the very law of their creation
and continued existence requires each to adopt and
certify a distinctive name. The incorporators "constitute a
body politic and corporate under the name stated in the
certificate." (Section 11, Act No. 1459, as amended.) A
corporation has the power "of succession by its corporate
name." (Section 13, ibid.) The name of a corporation is
therefore essential to its existence. It cannot change its
name except in the manner provided by the statute. By
that name alone is it authorized to transact business. The
law gives a corporation no express or implied authority to
assume another name that is unappropriated: still less
that of another corporation, which is expressly set apart
for it and protected by the law. If any corporation could
assume at pleasure as an unregistered trade name the
name of another corporation, this practice would result in
confusion and open the door to frauds and evasions and
difficulties of administration and supervision. The policy of
the law expressed in our corporation statute and the Code
of Commerce is clearly against such a practice. (Cf.
Scarsdale Pub. Co. Colonial Press vs. Carter, 116 New
York Supplement, 731; Svenska Nat. F. i. C. vs. Swedish
Nat. Assn., 205 Illinois [Appellate Courts], 428, 434.)
The order of the commission of November 26, 1932,
authorizing the Bachrach Motor Co., Incorporated, to
assume the name of the Rural Transit Co., Ltd. likewise
in corporated, as its trade name being void, and accepting
the order of December 21, 1932, at its face as granting a
certificate of public convenience to the applicant Rural
Transit Co., Ltd., the said order last mentioned is set aside
and vacated on the ground that the Rural Transit
Company, Ltd., is not the real party in interest and its
application was fictitious.
In view of the dissolution of the Rural Transit Company,
Ltd. by judicial decree of February 28, 1933, we do not
see how we can assess costs against said respondent,
Rural Transit Company, Ltd.
Malcolm, Villa-Real, Imperial and Goddard, JJ., concur.
PHILIPPINE FIRST INSURANCE COMPANY, INC.,
plaintiff-appellant,
vs.
MARIA CARMEN HARTIGAN, CGH, and O. ENGKEE,
defendants-appellees.
Bausa, Ampil & Suarez for plaintiff-appellant.
Nicasio E. Martin for defendants-appellees.
BARREDO, J.:
Appeal from the decision dated 6 October 1962 of the
Court of First Instance of Manila — dismissing the action
in its Civil Case No. 48925 — brought by the herein
plaintiff-appellant Philippine First Insurance Co., Inc. to
the Court of Appeals which could, upon finding that the
said appeal raises purely questions of law, declared itself
without jurisdiction to entertain the same and, in its
resolution dated 15 July 1966, certified the records
thereof to this Court for proper determination.
The antecedent facts are set forth in the pertinent portions
of the resolution of the Court of Appeals referred to as
follows:
According to the complaint, plaintiff was originally
organized as an insurance corporation under the name of
'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.'
The articles of incorporation originally presented before
the Security and Exchange Commissioner and
acknowledged before Notary Public Mr. E. D. Ignacio on
June 1, 1953 state that the name of the corporation was
'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.'
On May 26, 1961 the articles of incorporation were
amended pursuant to a certificate of the Board of
Directors dated March 8, 1961 changing the name of the
corporation to 'Philippine First Insurance Co., Inc.'.
The complaint alleges that the plaintiff Philippine First
Insurance Co., Inc., doing business under the name of
'The Yek Tong Lin Fire and Marine Insurance Co., Lt.'
signed as co-maker together with defendant Maria
Carmen Hartigan, CGH, a promissory note for P5,000.00
in favor of the China Banking Corporation payable within
30 days after the date of the promissory note with the
usual banking interest; that the plaintiff agreed to act as
such co-maker of the promissory note upon the
application of the defendant Maria Carmen Hartigan,
CGH, who together with Antonio F. Chua and Chang Ka
Fu, signed an indemnity agreement in favor of the plaintiff,
undertaking jointly and severally, to pay the plaintiff
damages, losses or expenses of whatever kind or nature,
including attorney's fees and legal costs, which the
plaintiff may sustain as a result of the execution by the
plaintiff and co-maker of Maria Carmen Hartigan, CGH, of
the promissory note above-referred to; that as a result of
the execution of the promissory note by the plaintiff and
Maria Carmen Hartigan, CGH, the China Banking
Corporation delivered to the defendant Maria Carmen
Hartigan, CGH, the sum of P5,000.00 which said
defendant failed to pay in full, such that on August 31,
1961 the same was. renewed and as of November 27,
1961 there was due on account of the promissory note the
sum of P4,559.50 including interest. The complaint ends
with a prayer for judgment against the defendants, jointly
and severally, for the sum of P4,559.50 with interest at the
rate of 12% per annum from November 23, 1961 plus
P911.90 by way of attorney's fees and costs.
Although O. Engkee was made as party defendant in the
caption of the complaint, his name is not mentioned in the
body of said complaint. However, his name Appears in the
Annex A attached to the complaint which is the counter
indemnity agreement supposed to have been signed
according to the complaint by Maria Carmen Hartigan,
CGH, Antonio F. Chua and Chang Ka Fu.
In their answer the defendants deny the allegation that the
plaintiff formerly conducted business under the name and
style of 'The Yek Tong Lin Fire and Marine Insurance Co.,
Ltd.' They admit the execution of the indemnity agreement
but they claim that they signed said agreement in favor of
the Yek Tong Lin Fire and Marine Insurance Co., Ltd.' and
not in favor of the plaintiff. They likewise admit that they
failed to pay the promissory note when it fell due but they
allege that since their obligation with the China Banking
Corporation based on the promissory note still subsists,
the surety who co-signed the promissory note is not
entitled to collect the value thereof from the defendants
otherwise they will be liable for double amount of their
obligation, there being no allegation that the surety has
paid the obligation to the creditor.
By way of special defense, defendants claim that there is
no privity of contract between the plaintiff and the
defendants and consequently, the plaintiff has no cause
of action against them, considering that the complaint
does not allege that the plaintiff and the 'Yek Tong Lin Fire
and Marine Insurance Co., Ltd.' are one and the same or
that the plaintiff has acquired the rights of the latter. The
parties after the admission of Exhibit A which is the
amended articles of incorporation and Exhibit 1 which is
a demand letter dated August 16, 1962 signed by the
manager of the loans and discount department of the
China Banking Corporation showing that the promissory
note up to said date in the sum of P4,500.00 was still
unpaid, submitted the case for decision based on the
pleadings.
Under date of 6 October 1962, the Court of First Instance
of Manila rendered the decision appealed. It dismissed
the action with costs against the plaintiff Philippine First
Insurance Co., Inc., reasoning as follows:
... With these undisputed facts in mind, the parties
correctly concluded that the issues for resolution by this
Court are as follows:
(a) Whether or not the plaintiff is the real party in interest
that may validly sue on the indemnity agreement signed
by the defendants and the Yek Tong Lin Fire & Marine
Insurance Co., Ltd. (Annex A to plaintiff's complaint ); and
(b) Whether or not a suit for indemnity or reimbursement
may under said indemnity agreement prosper without
plaintiff having yet paid the amount due under said
promissory note.
In the first place, the change of name of the Yek Tong Lin
Fire & Marine Insurance Co., Ltd. to the Philippines First
Insurance Co., Inc. is of dubious validity. Such change of
name in effect dissolved the original corporation by a
process of dissolution not authorized by our corporation
law (see Secs. 62 and 67, inclusive, of our Corporation
Law). Moreover, said change of name, amounting to a
dissolution of the Yek Tong Lin Fire & Marine Insurance
Co., Ltd., does not appear to have been effected with the
written note or assent of stockholders representing at
least two-thirds of the subscribed capital stock of the
corporation, a voting proportion required not only for the
dissolution of a corporation but also for any amendment
of its articles of incorporation (Secs. 18 and 62,
Corporation Law). Furthermore, such change of corporate
name appears to be against public policy and may be
effected only by express authority of law (Red Line
Transportation Co. v. Rural Transit Co., Ltd., 60 Phil. 549,
555; Cincinnati Cooperage Co., Ltd. vs. Vate, 26 SW 538,
539; Pilsen Brewing Co. vs. Wallace, 125 NE 714), but
there is nothing in our corporation law authorizing the
change of corporate name in this jurisdiction.
In the second place, assuming that the change of name
of the Yek Tong Lin Fire & Marine Insurance Co. Ltd., to
Philippines pine First Insurance Co., Inc., as
accomplished on March 8, 1961, is valid, that would mean
that the original corporation, the Yek Tong Lin Fire &
Marine Insurance Co., Ltd., became dissolved and of no
further existence since March 8, 1961, so that on May 15,
1961, the date the indemnity agreement, Annex A, was
executed, said original corporation bad no more power to
enter into any agreement with the defendants, and the
agreement entered into by it was ineffective for lack of
capacity of said dissolved corporation to enter into said
agreement. At any rate, even if we hold that said change
of name is valid, the fact remains that there is no evidence
showing that the new entity, the Philippine First Insurance
Co., Inc. has with the consent of the original parties,
assumed the obligations or was assigned the rights of
action in the original corporation, the Yek Tong Lin Fire &
Marine Insurance Co., Ltd. In other words, there is no
evidence of conventional subrogation of the Plaintiffs in
the rights of the Yek Tong Lin Fire & Marine Insurance
Co., Ltd. under said indemnity agreement (Arts. 1300,
1301, New Civil Code). without such subrogation
assignment of rights, the herein plaintiff has no cause of
action against the defendants, and is, therefore, not the
right party in interest as plaintiff.
Last, but not least, assuming that the said change of
name was legal and operated to dissolve the original
corporation, the dissolved corporation, must pursuant to
Sec. 77 of our corporation law, be deemed as continuing
as a body corporate for three (3) years from March 8,
1961 for the purpose of prosecuting and defending suits.
It is, therefore, the Yek Tong Lin Fire & Marine Insurance
Co., Ltd. that is the proper party to sue the defendants
under said indemnity agreement up to March 8, 1964.
Having arrived at the foregoing conclusions, this Court
need not squarely pass upon issue (b) formulated above.
WHEREFORE, plaintiff's action is hereby dismissed, with
costs against the plaintiff.
In due time, the Philippine First Insurance Company, Inc.
moved for reconsideration of the decision aforesaid, but
said motion was denied on December 3, 1962 in an order
worded thus:
The motion for reconsideration, dated November 8, 1962,
raises no new issue that we failed to consider in rendering
our decision of October 6, 1962. However, it gives us an
opportunity to amplify our decision as regards the
question of change of name of a corporation in this
jurisdiction.
We find nothing in our Corporation Law authorizing a
change of name of a corporation organized pursuant to its
provisions. Sec. 18 of the Corporation Law authorizes, in
our opinion, amendment to the Articles of Incorporation of
a corporation only as to matters other than its corporate
name. Once a corporation is organized in this jurisdiction
by the execution and registration of its Articles of
Incorporation, it shall continue to exist under its corporate
name for the lifetime of its corporate existence fixed in its
Articles of Incorporation, unless sooner legally dissolved
(Sec. 11, Corp. Law). Significantly, change of name is not
one of the methods of dissolution of corporations
expressly authorized by our Corporation Law. Also
significant is the fact that the power to change its
corporate name is not one of the general powers
conferred on corporations in this jurisdiction (Sec. 13,
Corp. Law). The enumeration of corporate powers made
in our Corporation Law implies the exclusion of all others
(Thomas v. West Jersey R. Co., 101 U.S. 71, 25 L. ed.
950). It is obvious, in this connection, that change of name
is not one of the powers necessary to the exercise of the
powers conferred on corporations by said Sec. 13 (see
Sec. 14, Corp. Law).
To rule that Sec. 18 of our Corporation Law authorizes the
change of name of a corporation by amendment of its
Articles of Incorporation is to indulge in judicial legislation.
We have examined the cases cited in Volume 13 of
American Jurisprudence in support of the proposition that
the general power to alter or amend the charter of a
corporation necessarily includes the power to alter the
name of a corporation, and find no justification for said
conclusion arrived at by the editors of American
Jurisprudence. On the contrary, the annotations in favor
of plaintiff's view appear to have been based on decisions
in cases where the statute itself expressly authorizes
change of corporate name by amendment of its Articles
of Incorporation. The correct rule in harmony with the
provisions of our Corporation Law is well expressed in an
English case as follows:
After a company has been completely register without
defect or omission, so as to be incorporated by the name
set forth in the deed of settlement, such incorporated
company has not the power to change its name ...
Although the King by his prerogative might incorporate by
a new name, and the newly named corporation might
retain former rights, and sometimes its former name also,
... it never appears to be such an act as the corporation
could do by itself, but required the same power as created
the corporation. (Reg. v. Registrar of Joint Stock Cos 10
Q.B. 839, 59 E.C.L. 839).
The contrary view appears to represent the minority
doctrine, judging from the annotations on decided cases
on the matter.
The movant invokes as persuasive precedent the action
of the Securities Commissioner in tacitly approving the
Amended, Articles of Incorporation on May 26, 1961. We
regret that we cannot in good conscience lend approval
to this action of the Securities and Exchange
Commissioner. We find no justification, legal, moral, or
practical, for adhering to the view taken by the Securities
and Exchange Commissioner that the name of a
corporation in the Philippines may be changed by mere
amendment of its Articles of Incorporation as to its
corporate name. A change of corporate name would
serve no useful purpose, but on the contrary would most
probably cause confusion. Only a dubious purpose could
inspire a change of a corporate. name which, unlike a
natural person's name, was chosen by the incorporators
themselves; and our Courts should not lend their
assistance to the accomplishment of dubious purposes.
WHEREFORE, we hereby deny plaintiff's motion for
reconsideration, dated November 8, 1962, for lack of
merit.
In this appeal appellant contends that —
I
THE TRIAL COURT ERRED IN HOLDING THAT IN THIS
JURISDICTION, THERE IS NOTHING IN OUR
CORPORATION LAW AUTHORIZING THE CHANGE
OF CORPORATE NAME;
II
THE TRIAL COURT ERRED IN DECLARING THAT A
CHANGE OF CORPORATE NAME APPEARS TO BE
AGAINST PUBLIC POLICY;
III
THE TRIAL COURT ERRED IN HOLDING THAT A
CHANGE OF CORPORATE NAME HAS THE LEGAL
EFFECT OF DISSOLVING THE ORIGINAL
CORPORATION:
IV
THE TRIAL COURT ERRED IN HOLDING THAT THE
CHANGE OF NAME OF THE YEK TONG LIN FIRE &
MARINE INSURANCE CO., LTD. IS OF DUBIOUS
VALIDITY;
V
THE TRIAL COURT ERRED IN HOLDING THAT THE
APPELLANT HEREIN IS NOT THE RIGHT PARTY
INTEREST TO SUE DEFENDANTS-APPELLEES;
IV
THE TRIAL COURT FINALLY ERRED IN DISMISSING
THE COMPLAINT.
Appellant's Position is correct; all the above assignments
of error are well taken. The whole case, however,
revolves around only one question. May a Philippine
corporation change its name and still retain its original
personality and individuality as such?
The answer is not difficult to find. True, under Section 6 of
the Corporation Law, the first thing required to be stated
in the Articles of Incorporation of any corn corporation is
its name, but it is only one among many matters equally if
not more important, that must be stated therein. Thus, it
is also required, for example, to state the number and
names of and residences of the incorporators and the
residence or location of the principal office of the
corporation, its term of existence, the amount of its capital
stock and the number of shares into which it is divided,
etc., etc.
On the other hand, Section 18 explicitly permits the
articles of incorporation to be amended thus:
Sec. 18. — Any corporation may for legitimate corporate
purpose or purposes, amend its articles of incorporation
by a majority vote of its board of directors or trustees and
the vote or written assent of two-thirds of its members, if
it be a nonstock corporation or, if it be a stock corporation,
by the vote or written assent of the stockholders
representing at least two-thirds of the subscribed capital
stock of the corporation Provided, however, That if such
amendment to the articles of incorporation should consist
in extending the corporate existence or in any change in
the rights of holders of shares of any class, or would
authorize shares with preferences in any respect superior
to those of outstanding shares of any class, or would
restrict the rights of any stockholder, then any stockholder
who did not vote for such corporate action may, within
forty days after the date upon which such action was
authorized, object thereto in writing and demand Payment
for his shares. If, after such a demand by a stockholder,
the corporation and the stockholder cannot agree upon
the value of his share or shares at the time such corporate
action was authorized, such values all be ascertained by
three disinterested persons, one of whom shall be named
by the stockholder, another by the corporation, and the
third by the two thus chosen. The findings of the
appraisers shall be final, and if their award is not paid by
the corporation within thirty days after it is made, it may
be recovered in an action by the stockholder against the
corporation. Upon payment by the corporation to the
stockholder of the agreed or awarded price of his share
or shares, the stockholder shall forthwith transfer and
assign the share or shares held by him as directed by the
corporation: Provided, however, That their own shares of
stock purchased or otherwise acquired by banks, trust
companies, and insurance companies, should be
disposed of within six months after acquiring title thereto.
Unless and until such amendment to the articles of
incorporation shall have been abandoned or the action
rescinded, the stockholder making such demand in writing
shall cease to be a stockholder and shall have no rights
with respect to such shares, except the right to receive
payment therefor as aforesaid.
A stockholder shall not be entitled to payment for his
shares under the provisions of this section unless the
value of the corporate assets which would remain after
such payment would be at least equal to the aggregate
amount of its debts and liabilities and the aggregate par
value and/or issued value of the remaining subscribed
capital stock.
A copy of the articles of incorporation as amended, duly
certified to be correct by the president and the secretary
of the corporation and a majority of the board of directors
or trustees, shall be filed with the Securities and
Exchange Commissioner, who shall attach the same to
the original articles of incorporation, on file in his office.
From the time of filing such copy of the amended articles
of incorporation, the corporation shall have the same
powers and it and the members and stockholders thereof
shall thereafter be subject to the same liabilities as if such
amendment had been embraced in the original articles of
incorporation: Provided, however, That should the
amendment consist in extending the corporate life, the
extension shall not exceed 50 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: And
provided, further, That nothing in this section shall be
construed to authorize any corporation to increase or
diminish its capital stock or so as to effect any rights or
actions which accrued to others between the time of filing
the original articles of incorporation and the filing of the
amended articles.
The Securities and, Exchange Commissioner shall be
entitled to collect and receive the sum of ten pesos for
filing said copy of the amended articles of incorporation.
Provided, however, That when the amendment consists
in extending the term of corporate existence, the
Securities and Exchange Commissioner shall be entitled
to collect and receive for the filing of its amended articles
of incorporation the same fees collectible under existing
law for the filing of articles of incorporation. The Securities
& Exchange Commissioner shall not hereafter file any
amendment to the articles of incorporation of any bank,
banking institution, or building and loan association
unless accompanied by a certificate of the Monetary
Board (of the Central Bank) to the effect that such
amendment is in accordance with law. (As further
amended by Act No. 3610, Sec. 2 and Sec. 9. R.A. No.
337 and R.A. No. 3531.)
It can be gleaned at once that this section does not only
authorize corporations to amend their charter; it also lays
down the procedure for such amendment; and, what is
more relevant to the present discussion, it contains
provisos restricting the power to amend when it comes to
the term of their existence and the increase or decrease
of the capital stock. There is no prohibition therein against
the change of name. The inference is clear that such a
change is allowed, for if the legislature had intended to
enjoin corporations from changing names, it would have
expressly stated so in this section or in any other provision
of the law.
No doubt, "(the) name (of a corporation) is peculiarly
important as necessary to the very existence of a
corporation. The general rule as to corporations is that
each corporation shall have a name by which it is to sue
and be sued and do all legal acts. The name of a
corporation in this respect designates the corporation in
the same manner as the name of an individual designates
the person."1 Since an individual has the right to change
his name under certain conditions, there is no compelling
reason why a corporation may not enjoy the same right.
There is nothing sacrosanct in a name when it comes to
artificial beings. The sentimental considerations which
individuals attach to their names are not present in
corporations and partnerships. Of course, as in the case
of an individual, such change may not be made
exclusively. by the corporation's own act. It has to follow
the procedure prescribed by law for the purpose; and this
is what is important and indispensably prescribed — strict
adherence to such procedure.
Local well known corporation law commentators are
unanimous in the view that a corporation may change its
name by merely amending its charter in the manner
prescribed by law.2 American authorities which have
persuasive force here in this regard because our
corporation law is of American origin, the same being a
sort of codification of American corporate law,3 are of the
same opinion.
A general power to alter or amend the charter of a
corporation necessarily includes the power to alter the
name of the corporation. Ft. Pitt Bldg., etc., Assoc. v.
Model Plan Bldg., etc., Assoc., 159 Pa. St. 308, 28 Atl.
215; In re Fidelity Mut. Aid Assoc., 12 W.N.C. (Pa.) 271;
Excelsior Oil Co., 3 Pa. Co. Ct. 184; Wetherill Steel
Casting Co., 5 Pa. Co. Ct. 337.
xxx xxx xxx
Under the General Laws of Rhode Island, c 176, sec. 7,
relating to an increase of the capital stock of a
corporation, it is provided that 'such agreement may be
amended in any other particular, excepting as provided in
the following section', which relates to a decrease of the
capital stock This section has been held to authorize a
change in the name of a corporation. Armington v.
Palmer, 21 R.I. 109, 42 Atl. 308, 43, L.R.A. 95, 79 Am. St.
Rep. 786. (Vol. 19, American and English Annotated
Cases, p. 1239.)
Fletcher, a standard authority on American an corporation
law also says:
Statutes are to be found in the various jurisdictions
dealing with the matter of change in corporate names.
Such statutes have been subjected to judicial construction
and have, in the main, been upheld as constitutional. In
direct terms or by necessary implication, they authorize
corporations new names and prescribe the mode of
procedure for that purpose. The same steps must be
taken under some statutes to effect a change in a
corporate name, as when any other amendment of the
corporate charter is sought .... When the general law thus
deals with the subject, a corporation can change its name
only in the manner provided. (6 Fletcher, Cyclopedia of
the Law of Private Corporations, 1968 Revised Volume,
pp. 212-213.) (Emphasis supplied)
The learned trial judge held that the above-quoted
proposition are not supported by the weight of authority
because they are based on decisions in cases where the
statutes expressly authorize change of corporate name by
amendment of the articles of incorporation. We have
carefully examined these authorities and We are satisfied
of their relevance. Even Lord Denman who has been
quoted by His Honor from In Reg. v. Registrar of Joint
Stock Cos. 10, Q.B., 59 E.C.L. maintains merely that the
change of its name never appears to be such an act as
the corporation could do for itself, but required ;the same
Power as created a corporation." What seems to have
been overlooked, therefore, is that the procedure
prescribes by Section 18 of our Corporation Law for the
amendment of corporate charters is practically identical
with that for the incorporation itself of a corporation.
In the appealed order of dismissal, the trial court, made
the observation that, according to this Court in Red Line
Transportation Co. v. Rural Transit Co., Ltd., 60 Phil, 549,
555, change of name of a corporation is against public
policy. We must clarify that such is not the import of Our
said decision. What this Court held in that case is simply
that:
We know of no law that empowers the Public Service
Commission or any court in this jurisdiction to authorize
one corporation to assume the name of another
corporation as a trade name. Both the Rural Transit
Company, Ltd., and the Bachrach Motor Co., Inc., are
Philippine corporations and the very law of their creation
and continued existence requires each to adopt and
certify a distinctive name. The incorporators 'constitute a
body politic and corporate under the name stated in the
certificate.' (Section 11, Act No. 1459, as amended.) A
corporation has the power 'of succession by its corporate
name.' (Section 13, ibid.) The name of a corporation is
therefore essential to its existence. It cannot change its
name except in the manner provided by the statute. By
that name alone is it authorized to transact business. The
law gives a corporation no express or implied authority to
assume another name that is unappropriated; still less
that of another corporation, which is expressly set apart
for it and protected by the law. If any corporation could
assume at pleasure as an unregistered trade name the
name of another corporation, this practice would result in
confusion and open the door to frauds and evasions and
difficulties of administration and supervision. The policy of
the law as expressed our corporation statute and the
Code of Commerce is clearly against such a practice. (Cf.
Scarsdale Pub. Co. — Colonial Press vs. Carter, 116 New
York Supplement, 731; Svenska Nat. F. i. C. vs. Swedish
Nat. Assn., 205 Illinois [Appellate Courts], 428, 434.)
In other words, what We have held to be contrary to public
policy is the use by one corporation of the name of
another corporation as its trade name. We are certain no
one will disagree that such an act can only "result in
confusion and open the door to frauds and evasions and
difficulties of administration and supervision." Surely, the
Red Line case was not one of change of name.
Neither can We share the posture of His Honor that the
change of name of a corporation results in its dissolution.
There is unanimity of authorities to the contrary.
An authorized change in the name of a corporation has
no more effect upon its identity as a corporation than a
change of name of a natural person has upon his identity.
It does not affect the rights of the corporation or lessen or
add to its obligations. After a corporation has effected a
change in its name it should sue and be sued in its new
name .... (13 Am. Jur. 276-277, citing cases.)
A mere change in the name of a corporation, either by the
legislature or by the corporators or stockholders under
legislative authority, does not, generally speaking, affect
the identity of the corporation, nor in any way affect the
rights, privileges, or obligations previously acquired or
incurred by it. Indeed, it has been said that a change of
name by a corporation has no more effect upon the
identity of the corporation than a change of name by a
natural person has upon the identity of such person. The
corporation, upon such change in its name, is in no sense
a new corporation, nor the successor of the original one,
but remains and continues to be the original corporation.
It is the same corporation with a different name, and its
character is in no respect changed. ... (6 Fletcher,
Cyclopedia of the Law of Private Corporations, 224-225,
citing cases.)
The change in the name of a corporation has no more
effect upon its identity as a corporation than a change of
name of a natural person has upon his identity. It does not
affect the rights of the corporation, or lessen or add to its
obligations.
England. — Doe v. Norton, 11 M. & W. 913, 7 Jur. 751,
12 L. J. Exch. 418.
United States. — Metropolitan Nat. Bank v. Claggett, 141
U.S. 520, 12 S. Ct. 60, 35 U.S. (L. ed.) 841.
Alabama. — Lomb v. Pioneer Sav., etc., Co., 106 Ala.
591, 17 So. 670; North Birmingham Lumber Co. v. Sims,
157 Ala. 595, 48 So. 84.
Connecticut. — Trinity Church v. Hall, 22 Com. 125.
Illinois. — Mt. Palatine Academy v. Kleinschnitz 28 III,
133; St. Louis etc. R. Co. v. Miller, 43 Ill. 199; Reading v.
Wedder, 66 III. 80.
Indiana. — Rosenthal v. Madison etc., Plank Road Co.,
10 Ind. 358.
Kentucky. — Cahill v. Bigger, 8 B. Mon. 211; Wilhite v.
Convent of Good Shepherd, 177 Ky. 251, 78 S. W. 138.
Maryland. — Phinney v. Sheppard & Enoch Pratt
Hospital, 88 Md. 633, 42 Atl. 58, writ of error dismissed,
177 U.S. 170, 20 S. Ct. 573, 44 U.S. (L. ed.) 720.
Missouri. — Dean v. La Motte Lead Co., 59 Mo. 523.
Nebraska. — Carlon v. City Sav. Bank, 82 Neb. 582, 188
N. W. 334. New York First Soc of M.E. Church v. Brownell,
5 Hun 464.
Pennsylvania. — Com. v. Pittsburgh, 41 Pa. St. 278.
South Carolina. — South Carolina Mut Ins. Co. v. Price
67 S.C. 207, 45 S.E. 173.
Virginia. — Wilson v. Chesapeake etc., R. Co., 21 Gratt
654; Wright-Caesar Tobacco Co. v. Hoen, 105 Va. 327,
54 S.E. 309.
Washington. — King v. Ilwaco R. etc., Co., 1 Wash. 127.
23 Pac. 924.
Wisconsin. — Racine Country Bank v. Ayers, 12 Wis.
512.
The fact that the corporation by its old name makes a
format transfer of its property to the corporation by its new
name does not of itself show that the change in name has
affected a change in the identity of the corporation.
Palfrey v. Association for Relief, etc., 110 La. 452, 34 So.
600. The fact that a corporation organized as a state bank
afterwards becomes a national bank by complying with
the provisions of the National Banking Act, and changes
its name accordingly, has no effect on its right to sue upon
obligations or liabilities incurred to it by its former name.
Michigan Ins. Bank v. Eldred 143 U.S. 293, 12 S. Ct. 450,
36 U.S. (L. ed.) 162.
A deed of land to a church by a particular name has been
held not to be affected by the fact that the church
afterwards took a different name. Cahill v. Bigger, 8 B.
Mon (ky) 211.
A change in the name of a corporation is not a divestiture
of title or such a change as requires a regular transfer of
title to property, whether real or personal, from the
corporation under one name to the same corporation
under another name. McCloskey v. Doherty, 97 Ky. 300,
30 S. W. 649. (19 American and English Annotated Cases
1242-1243.)
As was very aptly said in Pacific Bank v. De Ro 37 Cal.
538, "The changing of the name of a corporation is no
more the creation of a corporation than the changing of
the name of a natural person is the begetting of a natural
person. The act, in both cases, would seem to be what
the language which we use to designate it imports — a
change of name, and not a change of being.
Having arrived at the above conclusion, We have agree
with appellant's pose that the lower court also erred in
holding that it is not the right party in interest to sue
defendants-appellees.4 As correctly pointed out by
appellant, the approval by the stockholders of the
amendment of its articles of incorporation changing the
name "The Yek Tong Lin Fire & Marine Insurance Co.,
Ltd." to "Philippine First Insurance Co., Inc." on March 8,
1961, did not automatically change the name of said
corporation on that date. To be effective, Section 18 of the
Corporation Law, earlier quoted, requires that "a copy of
the articles of incorporation as amended, duly certified to
be correct by the president and the secretary of the
corporation and a majority of the board of directors or
trustees, shall be filed with the Securities & Exchange
Commissioner", and it is only from the time of such filing,
that "the corporation shall have the same powers and it
and the members and stockholders thereof shall
thereafter be subject to the same liabilities as if such
amendment had been embraced in the original articles of
incorporation." It goes without saying then that appellant
rightly acted in its old name when on May 15, 1961, it
entered into the indemnity agreement, Annex A, with the
defendant-appellees; for only after the filing of the
amended articles of incorporation with the Securities &
Exchange Commission on May 26, 1961, did appellant
legally acquire its new name; and it was perfectly right for
it to file the present case In that new name on December
6, 1961. Such is, but the logical effect of the change of
name of the corporation upon its actions.
Actions brought by a corporation after it has changed its
name should be brought under the new name although
for the enforcement of rights existing at the time the
change was made. Lomb v. Pioneer Sav., etc., Co., 106
Ala. 591, 17 So. 670: Newlan v. Lombard University, 62
III. 195; Thomas v. Visitor of Frederick County School, 7
Gill & J (Md.) 388; Delaware, etc., R. Co. v. Trick, 23 N. J.
L. 321; Northumberland Country Bank v. Eyer, 60 Pa. St.
436; Wilson v. Chesapeake etc., R. Co., 21 Gratt (Va.)
654.
The change in the name of the corporation does not affect
its right to bring an action on a note given to the
corporation under its former name. Cumberland College
v. Ish, 22. Cal. 641; Northwestern College v. Schwagler,
37 Ia. 577. (19 American and English Annotated Cases
1243.)
In consequence, We hold that the lower court erred in
dismissing appellant's complaint. We take this
opportunity, however, to express the Court's feeling that it
is apparent that appellee's position is more technical than
otherwise. Nowhere in the record is it seriously pretended
that the indebtedness sued upon has already been paid.
If appellees entertained any fear that they might again be
made liable to Yek Tong Lin Fire & Marine Insurance Co.
Ltd., or to someone else in its behalf, a cursory
examination of the records of the Securities & Exchange
Commission would have sufficed to clear up the fact that
Yek Tong Lin had just changed its name but it had not
ceased to be their creditor. Everyone should realize that
when the time of the courts is utilized for cases which do
not involve substantial questions and the claim of one of
the parties, therein is based on pure technicality that can
at most delay only the ultimate outcome necessarily
adverse to such party because it has no real cause on the
merits, grave injustice is committed to numberless
litigants whose meritorious cases cannot be given all the
needed time by the courts. We address this appeal once
more to all members of the bar, in particular, since it is
their bounden duty to the profession and to our country
and people at large to help ease as fast as possible the
clogged dockets of the courts. Let us not wait until the
people resort to other means to secure speedy, just and
inexpensive determination of their cases.
WHEREFORE, judgment of the lower court is reversed,
and this case is remanded to the trial court for further
proceedings consistent herewith With costs against
appellees.
UNIVERSAL MILLS CORPORATION, petitioner,
vs.
UNIVERSAL TEXTILE MILLS, INC., respondent.
Emigdio G. Tanjuatco for petitioner.
Picazo, Santayana, Reyes, Tayao & Alfonso for
respondent.
BARREDO, J.:
Appeal from the order of the Securities and Exchange
Commission in S.E.C. Case No. 1079, entitled In the
Matter of the Universal Textile Mills, Inc. vs. Universal
Mills Corporation, a petition to have appellant change its
corporate name on the ground that such name is
"confusingly and deceptively similar" to that of appellee,
which petition the Commission granted.
According to the order, "the Universal Textile Mills, Inc.
was organ on December 29, 1953, as a textile
manufacturing firm for which it was issued a certificate of
registration on January 8, 1954. The Universal Mills
Corporation, on the other hand, was registered in this
Commission on October 27, 1954, under its original
name, Universal Hosiery Mills Corporation, having as its
primary purpose the "manufacture and production of
hosieries and wearing apparel of all kinds." On May 24,
1963, it filed an amendment to its articles of incorporation
changing its name to Universal Mills Corporation, its
present name, for which this Commission issued the
certificate of approval on June 10, 1963.
The immediate cause of this present complaint, however,
was the occurrence of a fire which gutted respondent's
spinning mills in Pasig, Rizal. Petitioner alleged that as a
result of this fire and because of the similarity of
respondent's name to that of herein complainant, the
news items appearing in the various metropolitan
newspapers carrying reports on the fire created
uncertainty and confusion among its bankers, friends,
stockholders and customers prompting petitioner to make
announcements, clarifying the real Identity of the
corporation whose property was burned. Petitioner
presented documentary and testimonial evidence in
support of this allegation.
On the other hand, respondent's position is that the
names of the two corporations are not similar and even if
there be some similarity, it is not confusing or deceptive;
that the only reason that respondent changed its name
was because it expanded its business to include the
manufacture of fabrics of all kinds; and that the word
'textile' in petitioner's name is dominant and prominent
enough to distinguish the two. It further argues that
petitioner failed to present evidence of confusion or
deception in the ordinary course of business; that the only
supposed confusion proved by complainant arose out of
an extraordinary occurrence — a disastrous fire. (pp. 16-
&17, Record.)
Upon these premises, the Commission held:
From the facts proved and the jurisprudence on the
matter, it appears necessary under the circumstances to
enjoin the respondent Universal Mills Corporation from
further using its present corporate name. Judging from
what has already happened, confusion is not only
apparent, but possible. It does not matter that the instance
of confusion between the two corporate names was
occasioned only by a fire or an extraordinary occurrence.
It is precisely the duty of this Commission to prevent such
confusion at all times and under all circumstances not
only for the purpose of protecting the corporations
involved but more so for the protection of the public.
In today's modern business life where people go by
tradenames and corporate images, the corporate name
becomes the more important. This Commission cannot
close its eyes to the fact that usually it is the sound of all
the other words composing the names of business
corporations that sticks to the mind of those who deal with
them. The word "textile" in Universal Textile Mills, Inc.' can
not possibly assure the exclusion of all other entities with
similar names from the mind of the public especially so, if
the business they are engaged in are the same, like in the
instant case.
This Commission further takes cognizance of the fact that
when respondent filed the amendment changing its name
to Universal Mills Corporation, it correspondingly filed a
written undertaking dated June 5, 1963 and signed by its
President, Mr. Mariano Cokiat, promising to change its
name in the event that there is another person, firm or
entity who has obtained a prior right to the use of such
name or one similar to it. That promise is still binding upon
the corporation and its responsible officers. (pp. 17-18,
Record.)
It is obvious that the matter at issue is within the
competence of the Securities and Exchange Commission
to resolve in the first instance in the exercise of the
jurisdiction it used to possess under Commonwealth Act
287 as amended by Republic Act 1055 to administer the
application and enforcement of all laws affecting domestic
corporations and associations, reserving to the courts
only conflicts of judicial nature, and, of course, the
Supreme Court's authority to review the Commissions
actuations in appropriate instances involving possible
denial of due process and grave abuse of discretion.
Thus, in the case at bar, there being no claim of denial of
any constitutional right, all that We are called upon to
determine is whether or not the order of the Commission
enjoining petitioner to its corporate name constitutes, in
the light of the circumstances found by the Commission,
a grave abuse of discretion.
We believe it is not. Indeed, it cannot be said that the
impugned order is arbitrary and capricious. Clearly, it has
rational basis. The corporate names in question are not
Identical, but they are indisputably so similar that even
under the test of "reasonable care and observation as the
public generally are capable of using and may be
expected to exercise" invoked by appellant, We are
apprehensive confusion will usually arise, considering
that under the second amendment of its articles of
incorporation on August 14, 1964, appellant included
among its primary purposes the "manufacturing, dyeing,
finishing and selling of fabrics of all kinds" in which
respondent had been engaged for more than a decade
ahead of petitioner. Factually, the Commission found
existence of such confusion, and there is evidence to
support its conclusion. Since respondent is not claiming
damages in this proceeding, it is, of course, immaterial
whether or not appellant has acted in good faith, but We
cannot perceive why of all names, it had to choose a
name already being used by another firm engaged in
practically the same business for more than a decade
enjoying well earned patronage and goodwill, when there
are so many other appropriate names it could possibly
adopt without arousing any suspicion as to its motive and,
more importantly, any degree of confusion in the mind of
the public which could mislead even its own customers,
existing or prospective. Premises considered, there is no
warrant for our interference.
As this is purely a case of injunction, and considering the
time that has elapsed since the facts complained of took
place, this decision should not be deemed as foreclosing
any further remedy which appellee may have for the
protection of its interests.
WHEREFORE, with the reservation already mentioned,
the appealed decision is affirmed. Costs against
petitioners.
ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO
HESUS, H.S.K. SA BANSANG PILIPINAS, INC.
petitioner, vs. IGLESIA NG DIOS KAY CRISTO JESUS,
HALIGI AT SUHAY NG KATOTOHANAN, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review assailing the Decision dated
October 7, 1997[1] and the Resolution dated February 16,
1999[2] of the Court of Appeals in CA-G.R. SP No. 40933,
which affirmed the Decision of the Securities and
Exchange and Commission (SEC) in SEC-AC No. 539.[3]
Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at
Suhay ng Katotohanan (Church of God in Christ Jesus,
the Pillar and Ground of Truth),[4] is a non-stock religious
society or corporation registered in 1936. Sometime in
1976, one Eliseo Soriano and several other members of
respondent corporation disassociated themselves from
the latter and succeeded in registering on March 30, 1977
a new non-stock religious society or corporation, named
Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng
Katotohanan.
On July 16, 1979, respondent corporation filed with the
SEC a petition to compel the Iglesia ng Dios Kay Kristo
Hesus, Haligi at Saligan ng Katotohanan to change its
corporate name, which petition was docketed as SEC
Case No. 1774. On May 4, 1988, the SEC rendered
judgment in favor of respondent, ordering the Iglesia ng
Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan
to change its corporate name to another name that is not
similar or identical to any name already used by a
corporation, partnership or association registered with the
Commission.[5] No appeal was taken from said decision.
It appears that during the pendency of SEC Case No.
1774, Soriano, et al., caused the registration on April 25,
1980 of petitioner corporation, Ang Mga Kaanib sa Iglesia
ng Dios Kay Kristo Hesus, H.S.K., sa Bansang Pilipinas.
The acronym H.S.K. stands for Haligi at Saligan ng
Katotohanan.[6]
On March 2, 1994, respondent corporation filed before the
SEC a petition, docketed as SEC Case No. 03-94-4704,
praying that petitioner be compelled to change its
corporate name and be barred from using the same or
similar name on the ground that the same causes
confusion among their members as well as the public.
Petitioner filed a motion to dismiss on the ground of lack
of cause of action. The motion to dismiss was denied.
Thereafter, for failure to file an answer, petitioner was
declared in default and respondent was allowed to
present its evidence ex parte.
On November 20, 1995, the SEC rendered a decision
ordering petitioner to change its corporate name. The
dispositive portion thereof reads:
PREMISES CONSIDERED, judgment is hereby rendered
in favor of the petitioner (respondent herein).
Respondent Mga Kaanib sa Iglesia ng Dios Kay Kristo
Jesus (sic), H.S.K. sa Bansang Pilipinas (petitioner
herein) is hereby MANDATED to change its corporate
name to another not deceptively similar or identical to the
same already used by the Petitioner, any corporation,
association, and/or partnership presently registered with
the Commission.
Let a copy of this Decision be furnished the Records
Division and the Corporate and Legal Department [CLD]
of this Commission for their records, reference and/or for
whatever requisite action, if any, to be undertaken at their
end.
SO ORDERED.[7]
Petitioner appealed to the SEC En Banc, where its appeal
was docketed as SEC-AC No. 539. In a decision dated
March 4, 1996, the SEC En Banc affirmed the above
decision, upon a finding that petitioner's corporate name
was identical or confusingly or deceptively similar to that
of respondents corporate name.[8]
Petitioner filed a petition for review with the Court of
Appeals. On October 7, 1997, the Court of Appeals
rendered the assailed decision affirming the decision of
the SEC En Banc. Petitioners motion for reconsideration
was denied by the Court of Appeals on February 16,
1992.
Hence, the instant petition for review, raising the following
assignment of errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN
CONCLUDING THAT PETITIONER HAS NOT BEEN
DEPRIVED OF ITS RIGHT TO PROCEDURAL DUE
PROCESS, THE HONORABLE COURT OF APPEALS
DISREGARDED THE JURISPRUDENCE APPLICABLE
TO THE CASE AT BAR AND INSTEAD RELIED ON
TOTALLY INAPPLICABLE JURISPRUDENCE.
II
THE HONORABLE COURT OF APPEALS ERRED IN
ITS INTEPRETATION OF THE CIVIL CODE
PROVISIONS ON EXTINCTIVE PRESCRIPTION,
THEREBY RESULTING IN ITS FAILURE TO FIND THAT
THE RESPONDENT'S RIGHT OF ACTION TO
INSTITUTE THE SEC CASE HAS SINCE PRESCRIBED
PRIOR TO ITS INSTITUTION.
III
THE HONORABLE COURT OF APPEALS FAILED TO
CONSIDER AND PROPERLY APPLY THE
EXCEPTIONS ESTABLISHED BY JURISPRUDENCE IN
THE APPLICATION OF SECTION 18 OF THE
CORPORATION CODE TO THE INSTANT CASE.
IV
THE HONORABLE COURT OF APPEALS FAILED TO
PROPERLY APPRECIATE THE SCOPE OF THE
CONSTITUTIONAL GUARANTEE ON RELIGIOUS
FREEDOM, THEREBY FAILING TO APPLY THE SAME
TO PROTECT PETITIONERS RIGHTS.[9]
Invoking the case of Legarda v. Court of Appeals,[10]
petitioner insists that the decision of the Court of Appeals
and the SEC should be set aside because the negligence
of its former counsel of record, Atty. Joaquin Garaygay, in
failing to file an answer after its motion to dismiss was
denied by the SEC, deprived them of their day in court.
The contention is without merit. As a general rule, the
negligence of counsel binds the client. This is based on
the rule that any act performed by a lawyer within the
scope of his general or implied authority is regarded as an
act of his client.[11] An exception to the foregoing is where
the reckless or gross negligence of the counsel deprives
the client of due process of law.[12] Said exception,
however, does not obtain in the present case.
In Legarda v. Court of Appeals, the effort of the counsel
in defending his clients cause consisted in filing a motion
for extension of time to file answer before the trial court.
When his client was declared in default, the counsel did
nothing and allowed the judgment by default to become
final and executory. Upon the insistence of his client, the
counsel filed a petition to annul the judgment with the
Court of Appeals, which denied the petition, and again the
counsel allowed the denial to become final and executory.
This Court found the counsel grossly negligent and
consequently declared as null and void the decision
adverse to his client.
The factual antecedents of the case at bar are different.
Atty. Garaygay filed before the SEC a motion to dismiss
on the ground of lack of cause of action. When his client
was declared in default for failure to file an answer, Atty.
Garaygay moved for reconsideration and lifting of the
order of default.[13] After judgment by default was
rendered against petitioner corporation, Atty. Garaygay
filed a motion for extension of time to appeal/motion for
reconsideration, and thereafter a motion to set aside the
decision.[14]
Evidently, Atty. Garaygay was only guilty of simple
negligence. Although he failed to file an answer that led
to the rendition of a judgment by default against petitioner,
his efforts were palpably real, albeit bereft of zeal.[15]
Likewise, the issue of prescription, which petitioner raised
for the first time on appeal to the Court of Appeals, is
untenable. Its failure to raise prescription before the SEC
can only be construed as a waiver of that defense.[16] At
any rate, the SEC has the authority to de-register at all
times and under all circumstances corporate names
which in its estimation are likely to spawn confusion. It is
the duty of the SEC to prevent confusion in the use of
corporate names not only for the protection of the
corporations involved but more so for the protection of the
public.[17]
Section 18 of the Corporation Code provides:
Corporate Name. --- No corporate name may be allowed
by the Securities and Exchange Commission if the
proposed name is identical or deceptively or confusingly
similar to that of any existing corporation or to any other
name already protected by law or is patently deceptive,
confusing or is contrary to existing laws. When a change
in the corporate name is approved, the Commission shall
issue an amended certificate of incorporation under the
amended name.
Corollary thereto, the pertinent portion of the SEC
Guidelines on Corporate Names states:
(d) If the proposed name contains a word similar to a word
already used as part of the firm name or style of a
registered company, the proposed name must contain
two other words different from the name of the company
already registered;
Parties organizing a corporation must choose a name at
their peril; and the use of a name similar to one adopted
by another corporation, whether a business or a nonprofit
organization, if misleading or likely to injure in the exercise
of its corporate functions, regardless of intent, may be
prevented by the corporation having a prior right, by a suit
for injunction against the new corporation to prevent the
use of the name.[18]
Petitioner claims that it complied with the aforecited SEC
guideline by adding not only two but eight words to their
registered name, to wit: Ang Mga Kaanib" and "Sa
Bansang Pilipinas, Inc., which, petitioner argues,
effectively distinguished it from respondent corporation.
The additional words Ang Mga Kaanib and Sa Bansang
Pilipinas, Inc. in petitioners name are, as correctly
observed by the SEC, merely descriptive of and also
referring to the members, or kaanib, of respondent who
are likewise residing in the Philippines. These words can
hardly serve as an effective differentiating medium
necessary to avoid confusion or difficulty in distinguishing
petitioner from respondent. This is especially so, since
both petitioner and respondent corporations are using the
same acronym --- H.S.K.;[19] not to mention the fact that
both are espousing religious beliefs and operating in the
same place. Parenthetically, it is well to mention that the
acronym H.S.K. used by petitioner stands for Haligi at
Saligan ng Katotohanan.[20]
Then, too, the records reveal that in holding out their
corporate name to the public, petitioner highlights the
dominant words IGLESIA NG DIOS KAY KRISTO
HESUS, HALIGI AT SALIGAN NG KATOTOHANAN,
which is strikingly similar to respondent's corporate name,
thus making it even more evident that the additional words
Ang Mga Kaanib and Sa Bansang Pilipinas, Inc., are
merely descriptive of and pertaining to the members of
respondent corporation.[21]
Significantly, the only difference between the corporate
names of petitioner and respondent are the words
SALIGAN and SUHAY. These words are synonymous ---
both mean ground, foundation or support. Hence, this
case is on all fours with Universal Mills Corporation v.
Universal Textile Mills, Inc.,[22] where the Court ruled that
the corporate names Universal Mills Corporation and
Universal Textile Mills, Inc., are undisputably so similar
that even under the test of reasonable care and
observation confusion may arise.
Furthermore, the wholesale appropriation by petitioner of
respondent's corporate name cannot find justification
under the generic word rule. We agree with the Court of
Appeals conclusion that a contrary ruling would
encourage other corporations to adopt verbatim and
register an existing and protected corporate name, to the
detriment of the public.
The fact that there are other non-stock religious societies
or corporations using the names Church of the Living
God, Inc., Church of God Jesus Christ the Son of God the
Head, Church of God in Christ & By the Holy Spirit, and
other similar names, is of no consequence. It does not
authorize the use by petitioner of the essential and
distinguishing feature of respondent's registered and
protected corporate name.[23]
We need not belabor the fourth issue raised by petitioner.
Certainly, ordering petitioner to change its corporate
name is not a violation of its constitutionally guaranteed
right to religious freedom. In so doing, the SEC merely
compelled petitioner to abide by one of the SEC
guidelines in the approval of partnership and corporate
names, namely its undertaking to manifest its willingness
to change its corporate name in the event another person,
firm, or entity has acquired a prior right to the use of the
said firm name or one deceptively or confusingly similar
to it.
WHEREFORE, in view of all the foregoing, the instant
petition for review is DENIED. The appealed decision of
the Court of Appeals is AFFIRMED in toto.
SO ORDERED.
. As to purpose (Section 14 [2])
Uy Siuliong vs. Director, 40 PHIL 514 (1919)
UY SIULIONG, MARIANO LIMJAP, GACU UNG
JIENG, EDILBERTO CALIXTO and UY CHO YEE,
petitioners,
vs.
THE DIRECTOR OF COMMERCE AND INDUSTRY,
respondent.
Kincaid and Perkins for petitioners.
Attorney-General Paredes for respondent.
JOHNSON, J.:
The purpose of this action is to obtain the writ of
mandamus to require the respondent to file and
register, upon the payment of the lawful fee, articles of
incorporation, and to issue to the petitioners as the
incorporators of a certain corporation to be known as
"Siuliong y Compañia, Inc.," a certificate under the seal
of the office of said respondent, certifying that the
articles of incorporation have been duly filed and
registered in his office in accordance with the law.
To the petition the respondent demurred and the cause
was finally submitted upon the petition and demurrer.
The important facts necessary for the solution of the
question presented, which are found in the petition,
may be stated as follows:

1. That prior to the presentation of the petition the
petitioners had been associated together as partners,
which partnership was known as "mercantil regular
colectiva, under the style and firm name of "Siuliong y
Cia.;"
2. That the petitioners herein, who had
theretofore been members of said partnership of
"Siuliong y Cia.," desired to dissolve said partnership
and to form a corporation composed of the same
persons as incorporators, to be known as "Siulong y
Compañia, Incorporada;"
3. That the purpose of said corporation, "Siuliong
y Cia., Inc.," is (a) to acquire the business of the
partnership theretofore known as Siuliong & Co., and
(b) to continue said business with some of its objects
or purposes;
4. That an examination of the articles of
incorporation of the said "Siuliong y Compañia,
Incorporada" (Exhibit A) shows that it is to be organized
for the following purposes:
(a) The purchase and sale, importation and
exportation, of the products of the country as well as of
foreign countries;
(b) To discount promissory notes, bills of
exchange, and other negotiable instruments;
(c) The purchase and sale of bills of exchange,
bonds, stocks, or "participaciones de sociedades
mercantiles e industriales [joint account of mercantile
and industrial associations]," and of all classes of
mercantile documents; "comisiones [commissions];"
"consignaciones [consignments];"
(d) To act as agents for life, marine and fire
insurance companies; lawphi1.net
(e) To purchase and sell boats of all classes "y
fletamento de los mismos [and charterage of same];"
and
(f) To purchase and sell industrial and mercantile
establishments.
While the articles of incorporation of "Siuliong y Cia.,
Inc." states that its purpose is to acquire and continue
the business, with some of its objects or purposes, of
Siuliong & Co., it will be found upon an examination of
the purposes enumerated in the proposed articles of
incorporation of "Siuliong y Cia., Inc.," that some of the
purposes of the original partnership of "Siuliong y Cia."
have been omitted. For example, the articles of
partnership of "Siuliong y Cia." gave said company the
authority to purchase and sell all classes "de fincas
rusticas y urbanas [of rural and city real estate]" as well
as the right to act as agents for the establishment of
any other business which it might esteem convenient
for the interests of "la compañia [the company]."
(Exhibit C).
The respondent in his argument in support of the
demurrer contends (a) that the proposed articles of
incorporation presented for file and registry permitted
the petitioners to engage in a business which had for
its end more than one purpose; (b) that it permitted the
petitioners to engage in the banking business, and (c)
to deal in real estate, in violation of the Act of Congress
of July 1, 1902.
The petitioners, in reply to said argument of the
respondent, while insisting that said proposed articles
of incorporation do not permit it to enter into the
banking business nor to engage in the purchase and
sale of real estate in violation of said Act of Congress,
expressly renounced in open court their right to engage
in such business under their articles of incorporation,
even though said articles might be interpreted in a way
to authorize them to so to do. That renouncement on
the part of the petitioners eliminates from the purposes
of said proposed corporation (of "Siuliong y Cia., Inc.")
any right to engage in the banking business as such,
or in the purchase and sale of real estate.
We come now to the consideration of the principal
question raised by the respondent, to wit: that the
proposed articles of incorporation of "Siuliong y Cia.,
Inc.," permits it to engage in a business with more than
one purpose.
If upon an examination of the articles of incorporation
we find that its purpose is to engage in a business with
but one principal purpose, then that contention of the
respondent will have been answered and it will be
unnecessary to discuss at length the question whether
or not a corporation organized for commercial
purposes in the Philippine Islands can be organized for
more than one purpose.
The attorney for the respondent, at the time of the
argument, admitted in open court that corporations in
the Philippine Islands might be organized for both the
"importation and exportation" of merchandise and that
there might be no relation between the kind of
merchandise imported with the class of merchandise
exported.
Referring again to be proposed articles of
incorporation, a copy of which is united with the original
petition and marked Exhibit A, it will be seen that the
only purpose of said corporation are those enumerated
in subparagraphs (a), (b), (c), (d), (e) and ( f ) of
paragraph 4 above. While said articles of incorporation
are somewhat loosely drawn, it is clear from a reading
of the same that the principal purpose of said
corporation is to engage in a mercantile business, with
the power to do and perform the particular acts
enumerated in said subparagraphs above referred to.
Without discussing or deciding at this time whether a
corporation organized under the laws of the Philippine
Islands may be organized for more than one purpose,
we are of the opinion and so decide that a corporation
may be organized under the laws of the Philippine
Islands for mercantile purposes, and to engage in such
incidental business as may be necessary and
advisable to give effect to, and aid in, the successful
operation and conduct of the principal
business.1awphi1.net
In the present case we are fully persuaded that all of
the power and authority included in the articles of
incorporation of "Siuliong y Cia., Inc.," enumerated
above in paragraph 4 (Exhibit A) are only incidental to
the principal purpose of said proposed incorporation, to
wit: "mercantile business." The purchase and sale,
importation and exportation of the products of the
country, as well as of foreign countries, might make it
necessary to purchase and discount promissory notes,
bills of exchange, bonds, negotiable instruments,
stock, and interest in other mercantile and industrial
associations. It might also become important and
advisable for the successful operation of the
corporation to act as agent for insurance companies as
well as to buy, sell and equip boats and to buy and sell
other establishments, and industrial and mercantile
businesses.
While we have arrived at the conclusion that the
proposed articles of incorporation do not authorize the
petitioners to engage in a business with more than one
purpose, we do not mean to be understood as having
decided that corporations under the laws of the
Philippine Islands may not engage in a business with
more than one purpose. Such an interpretation might
work a great injustice to corporations organized under
the Philippine laws. Such an interpretation would give
foreign corporations, which are permitted to be
registered under the laws here and which may be
organized for more than one purpose, a great
advantage over domestic corporations. We do not
believe that it was the intention of the legislature to give
foreign corporations such an advantage over domestic
corporations.
Considering the particular purposes and objects of the
proposed articles of incorporation which are specially
enumerated above, we are of the opinion that it
contains nothing which violates in the slightest degree
any of the provisions of the laws of the Philippine
Islands, and the petitioners are, therefore, entitled to
have such articles of incorporation filed and registered
as prayed for by them and to have issued to them a
certificate under the seal of the office of the
respondent, setting forth that such articles of
incorporation have been duly filed in his office. (Sec.
11, Act No. 1459.)
Therefore, the petition prayed for is hereby granted,
and without any finding as to costs, it is so ordered.
Arellano, C.J., Torres and Avanceña, JJ., concur.
Separate Opinions
STREET, J., concurring:
The petitioners in this case are desirous of forming a
corporation to take over and continue a business which
for a number of years has been conducted in the city
of Manila as an ordinary collective mercantile
partnership under the name of "Siuliong y Compañia."
To this end it is necessary that the articles of
incorporation should be filed in the office of the Director
of Commerce and Industry, who, it appears, has
withheld approval of the articles submitted to him and
has refused to file the same in his office.
The position taken by the Director of Commerce and
Industry is that the articles of the proposed corporation
state more than one corporate purpose, contrary to the
provisions of Act No. 1459 (the Corporation Law). In
order to ascertain whether this contention is sound it
becomes necessary to examine the provisions
contained in the proposed articles in relation with the
requirements of the Act mentioned.
The purposes for which the corporation is to be formed
are stated in the second clause of the proposed articles
in the following language:
Second. That the object for which said corporation is
organized are: to acquire the business of the regular
partnership "Siuliong y Compañia," and to continue
operating said business in all its parts, and incidental
to the principal object, the corporation shall have
powers to transact the following: the buying and selling,
importation and exportation, of native as well as foreign
merchandise; the discount of promissory notes, bills of
exchange and other negotiable instruments; the buying
and selling of bills of exchange, bonds, shares, and
interests in mercantile and industrial partnerships;
commissions; consignments; life, maritime, and fire
insurance: the buying and selling of vessels of all kinds
and charterage of same; and the buying and selling of
industrial or mercantile plants.
This language is substantially a reproduction of the
fourth clause of the partnership articles under which
the business of Siuliong & Company is being now
conducted, as may be seen by a comparison with the
wording of said fourth clause, which is as follows:
Fourth. The object of the partnership shall be the
continuation of all the business of the partnership
"Siuliong y Compañia" which is dissolved on this date,
June 30, 1916, or rather the buying and selling, the
importation and exportation, of native as well as foreign
products; the buying and selling is bills of exchange
and of all kinds of commercial documents;
commissions; consignments; maritime and fire
insurance; the buying and selling of all kinds of rural
and city real estate, as well as vessels of all kinds and
their charterage; and the manager is hereby authorized
to organize any other kind of business which he may
deem convenient for the company's interest.
It must be admitted that the second clause of the
proposed articles of incorporation is expressed in a
way which invites criticism; and if I my be permitted so
to suggest the provision would have been better
conceived if it had started off something like this:
The general object of this corporation is to engage in
commercial activities, such as the buying and selling of
merchandise and commodities of every kind; the
importation and exportation thereof; the conduct of the
business of commission merchants, consignees, and
insurance agencies; the buying and selling of boats
and the chartering thereof, as well as the buying and
selling of industrial and mercantile plants; etc., etc.
In setting out the corporate purpose with a view to
defining the legitimate range of the faculties of the
corporation, it is undesirable to state that its primary
purpose is to take over the business of some existing
concern. Undoubtedly a corporation may obtain its
capital and draw its resources from a prior enterprise,
but it acquires such business by transfer; and the
nature of the activities of the older business has no
bearing on the faculties of the new corporation. All the
powers that a corporation can lawfully exercise are
derived from the state by virtue of the laws governing
the creation and conduct of corporations.
Now, what are limits upon the activities for which a
corporation may be created? The answer is to be
found, if anywhere, in the Corporation Law. The first
chapter of that law deals with corporations in general
and contains the provisions common to all
corporations. In the second chapter are found various
special provisions applicable to particular forms of
corporate activities. Of these there are several
varieties, to wit, railroad corporations, savings and
mortgage banks, banking corporations, trust
corporations, domestic insurance corporations,
religious corporations, colleges and institutions of
learning, and building and loan corporations.
It is obvious that no single corporation can be permitted
to exercise the mixed functions of more than one of
these classes; and the Director of Commerce and
Industry would be clearly acting within his power in
rejecting any proposed articles of a corporation which
confers or appears to confer powers particularly
appropriate to more than one of these forms of
corporate enterprise.
Aside from the lines that are laid down in the
fundamental classification contained in the Corporation
Law, there seems to be no limit upon the legitimate
activities of corporate enterprise. For instance, a
corporation organized for commercial purposes can
lawfully engage in any one of the thousand or more
activities which may be imagined under the head of
commercial; but it must abstain from activities peculiar
to the forms of corporate enterprise for which special
provisions are made.
This implies that the word "purpose" as used in the
expression "the purpose for which the corporation is
formed," in subsection 2 of section 6 of the Corporation
Law, may properly be conceived as including the plural
as well as the singular. But the purposes, when there
are more than one, must be capable of being lawfully
combined, that is not obnoxious to the classification
created by the law.
It is not necessary, and indeed will rarely be found
desirable, to attempt to set out in the articles of
incorporation the multitude of activities in which the
corporation can engage incidentally, as reasonably
necessary to accomplish the purpose or purposes for
which the corporation was primarily formed. There is
general authority for the exercise of all such implied
powers in section 13 of the Corporation Law, and they
need not be expressed.
Returning now to the second clause of the proposed
articles of incorporation for "Siuliong y Compañia,
Incorporated," I entertain a doubt as to the propriety of
admitting into that document the words "discounts of
notes, bills, and other negotiable documents" and "the
buying and selling of bills, bonds, stocks, and shares
of mercantile and industrial partnership, as well as
mercantile documents of every sort." The reason
simply is that in so far as it is necessary to engage in
these activities for the accomplishment of the general
purposes of the corporation, it may all be done in the
exercise of the implied power expressed in section 13;
and the insertion into the articles of the words quoted
may give rise to the inference that the incorporators
may desire to engage in a line of business appropriate
only to corporations created for banking purposes.
(See sec. 116 of Act No. 1459.) On the other hand, it
may be said that the activities expressed in the words
quoted are those peculiar to the business of stock-
brokers; and one reason is apparent why the business
of stock-broking might not be lawfully combined under
one corporate chapter with the other mercantile
activities mentioned in the second clause of the
articles.

On the whole, as I understand the opinion written by

Justice Johnson, this court intends to hold that the
second clause of the proposed articles, when property
interpreted, means that the company to be formed
intends primarily to dedicate itself to industrial and
mercantile activities, as its principal object and that the
other activities mentioned are purely subordinate. I
have no special criticism to make of this view; and
inasmuch as the interpretation which the court thus
places upon the proposed charter removes the
possibility that the corporation may, under the
protection thereof, engage in illegitimate lines of
enterprise, I am content to express my concurrence in
the result reached by the court. But I really think the
proposed articles ought to be amended.

MALCOLM, J., concurs in the result, reserving his

opinion concerning the suggestion in the third
paragraph from the last of the principal decision.