CORPO CASES SALVATIERRA-LAUREANO

G.R. No. L-11442 May 23, 1958 MANUELA T. VDA. DE SALVATIERRA, petitioner, vs. HON. LORENZO C. GARLITOS, ! " # $a%a$ &y a# '()*+ o, &"+ Co(-& o, . -#& I!#&a!$+ o, L+y&+, /-a!$" II, a!) SEGUNDINO RE.UERZO, respondents. Jimenez, Tantuico, Jr. and Tolete for petitioner. Francisco Astilla for respondent Segundino Refuerzo. .ELI0, J.1 This is a petition for certiorari filed by Manuela T. Vda. de Salvatierra seeking to nullify the order of the Court of First Instance of Leyte in Civil Case o. !"!#, dated March #!, !"$%, relieving Segundino &efuer'o of liability for the contract entered into bet(een the for)er and the *hilippine Fibers *roducers Co., Inc., of (hich &efuer'o is the president. The facts of the case are as follo(s+ Manuela T. Vda. de Salvatierra appeared to be the o(ner of a parcel of land located at Maghobas, *oblacion, ,urauen, Teyte. -n March ., !"$/, said landholder entered into a contract of lease (ith the *hilippine Fibers *roducers Co., Inc., allegedly a corporation 0duly organi'ed and e1isting under the la(s of the *hilippines, do)iciled at ,urauen, Leyte, *hilippines, and (ith business address therein, represented in this instance by Mr. Segundino 2. &efuer'o, the *resident0. It (as provided in said contract, a)ong other things, that the lifeti)e of the lease (ould be for a period of !3 years4 that the land (ould be planted to kenaf, ra)ie or other crops suitable to the soil4 that the lessor (ould be entitled to 53 per cent of the net inco)e accruing fro) the harvest of any, crop (ithout being responsible for the cost of production thereof4 and that after every harvest, the lessee (as bound to declare at the earliest possible ti)e the inco)e derived therefro) and to deliver the corresponding share due the lessor. 6pparently, the afore)entioned obligations i)posed on the alleged corporation (ere not co)plied (ith because on 6pril $, !"$$, 6lanuela T. Vda, de Salvatierra filed (ith the Court of First Instance of Leyte a co)plaint against the *hilippine Fibers *roducers Co., Inc., and Segundino 2. &efuer'o, for accounting, rescission and da)ages 7Civil Case o. !"!#8. She averred that so)eti)e in 6pril, !"$/, defendants planted kenaf on 5 hectares of the leased property (hich crop (as, at the ti)e of the co))ence)ent of the action, already harvested, processed and sold by defendants4 that not(ithstanding that fact, defendants refused to render an accounting of the inco)e derived therefro) and to deliver the lessor9s share4 that the esti)ated gross inco)e (as */,$33, and thedeductible e1penses a)ounted to *!,3334 that as defendants9 refusal to undertake such task (as in violation of the ter)s of the covenant entered into bet(een the plaintiff and defendant corporation, a rescission (as but proper. 6s defendants apparently failed to file their ans(er to the co)plaint, of (hich they (ere allegedly notified, the Court declared the) in default and proceeded to receive plaintiff9s evidence. -n June 8, 1955, the lo(er Court rendered :udg)ent granting plaintiff9s prayer, and re;uired defendants to render a co)plete

accounting of the harvest of the land sub:ect of the proceeding (ithin !$ days fro) receipt of the decision and to deliver 53 per cent of the net inco)e reali'ed fro) the last harvest to plaintiff, (ith legal interest fro) the date defendants received pay)ent for said crop. It (as further provide that upon defendants9 failure to abide by the said re;uire)ent, the gross inco)e (ould be fi1ed at */,#33 or a net inco)e of *5,#33 after deducting the e1penses for production, 53 per cent of (hich or *"%3 (as held to be due the plaintiff pursuant to the afore)entioned contract of lease, (hich (as declared rescinded. o appeal therefro) having been perfected (ithin the regle)entary period, the Court, upon )otion of plaintiff, issued a (rit of e1ecution, in virtue of (hich the *rovincial Sheriff of Leyte caused the attach)ent of 5 parcels of land registered in the na)e of Segundino &efuer'o. o property of the *hilippine Fibers *roducers Co., Inc., (as found available for attach)ent. -n <anuary 5!, !"$%, defendant Segundino &efuer'o filed a )otion clai)ing that the decision rendered in said Civil Case o. !"!# (as null and void (ith respect to hi), there being no allegation in the co)plaint pointing to his personal liability and thus prayed that an order be issued li)iting such liability to defendant corporation. -ver plaintiff9s opposition, the Court a quo granted the sa)e and ordered the *rovincial Sheriff of Leyte to release all properties belonging to the )ovant that )ight have already been attached, after finding that the evidence on record )ade no )ention or referred to any fact (hich )ight hold )ovant personally liable therein. 6s plaintiff9s petition for relief fro) said order (as denied, Manuela T. Vda. de Salvatierra instituted the instant action asserting that the trial <udge in issuing the order co)plained of, acted (ith grave abuse of discretion and prayed that sa)e be declared a nullity. Fro) the foregoing narration of facts, it is clear that the order sought to be nullified (as issued by tile respondent <udge upon )otion of defendant &efuer'o, obviously pursuant to &ule 5= of the &ules of Court. Section 5 of said &ule, ho(ever, in providing for the period (ithin (hich such a )otion )ay be filed, prescribes that+ S>C. 5. ?@> *>TITI- FIL>A4 C- T> TS 6 A V>&IFIC6TI- . B 6 petition provided for in either of the preceding sections of this rule )ust be verified, filed it!in si"t# da#s after t!e petitioner learns of t!e $udgment, order, or ot!er proceeding to %e set aside, and not more t!an si" mont!s after suc! $udgment or order as entered , or such proceeding (as taken4 and )ust be )ust be acco)panied (ith affidavit sho(ing the fraud, accident, )istake, or e1cusable negligence relied upon, and the facts constituting the petitioner is good and substantial cause of action or defense, as the case )ay be, (hich he )ay prove if his petition be granted0. 7&ule 5=8 The afore;uoted provision treats of # periods, i.e., %3 days after petitioner learns of the :udg)ent, and not )ore than % )onths after the :udg)ent or order (as rendered, both of (hich )ust be satisfied. 6s the decision in the case at bar (as under date of <une =, !"$$, (hereas the )otion filed by respondent &efuer'o (as

CORPO CASES SALVATIERRA-LAUREANO

dated <anuary 5!, !"$%, or after the lapse of . )onths and #5 days, the filing of the afore)entioned )otion (as clearly )ade beyond the prescriptive period provided for by the rules. The re)edy allo(ed by &ule 5= to a party adversely affected by a decision or order is certainly an alert of grace or benevolence intended to afford said litigant a penulti)ate opportunity to protect his interest. Considering the nature of such relief and the purpose behind it, the periods fi1ed by said rule are nonCe1tendible and never interrupted4 nor could it be sub:ected to any condition or contingency because it is of itself devised to )eet a condition or contingency 7*alo)ares vs. <i)ene',D E.&. o. LC/$!5, <anuary 5!, !"$#8. -n this score alone, therefore, the petition for a (rit of certiorari filed herein )ay be granted. @o(ever, taking note of the ;uestion presented by the )otion for relief involved herein, ?e dee) it (ise to delve in and pass upon the )erit of the sa)e. &efuer'o, in praying for his e1oneration fro) any liability resulting fro) the nonC fulfill)ent of the obligation i)posed on defendant *hilippine Fibers *roducers Co., Inc., interposed the defense that the co)plaint filed (ith the lo(er court contained no allegation (hich (ould hold hi) liable personally, for (hile it (as stated therein that he (as a signatory to the lease contract, he did so in his capacity as president of the corporation. 6nd this allegation (as found by the Court a ;uo to be supported by the records. *laintiff on the other hand tried to refute this aver)ent by contending that her failure to specify defendant9s personal liability (as due to the fact that all the ti)e she (as under the i)pression that the *hilippine Fibers *roducers Co., Inc., represented by &efuer'o (as a duly registered corporation as appearing in the contract, but a subse;uent in;uiry fro) the Securities and >1change Co))ission yielded other(ise. ?hile as a general rule a person (ho has contracted or dealt (ith an association in such a (ay as to recogni'e its e1istence as a corporate body is estopped fro) denying the sa)e in an action arising out of such transaction or dealing, 76sia ,anking Corporation vs. Standard *roducts Co., /% *hil., !!/4 Co)pania 6gricola de Fltra)ar vs. &eyes, / *hil., !4 -hta Aevelop)ent Co.4 vs. Stea)ship *o)pey, /" *hil., !!.8, yet this doctrine )ay not be held to be applicable (here fraud takes a part in the said transaction. In the instant case, on plaintiff9s charge that she (as una(are of the fact that the *hilippine Fibers *roducers Co., Inc., had no :uridical personality, defendant &efuer'o gave no confir)ation or denial and the circu)stances surrounding the e1ecution of the contract lead to the inescapable conclusion that plaintiff Manuela T. Vda. de Salvatierra (as really )ade to believe that such corporation (as duly organi'ed in accordance (ith la(. There can be no ;uestion that a corporation (ith registered has a :uridical personality separate and distinct fro) its co)ponent )e)bers or stockholders and officers such that a corporation cannot be held liable for the personal indebtedness of a stockholder even if he should be its president 7?alter 6. S)ith Co. vs. Ford, SCCE.&. o. /#/#38 and conversely, a stockholder or )e)ber cannot be held personally liable for any financial obligation be, the corporation in e1cess of his unpaid subscription. ,ut this rule is understood to refer )erely to registered

corporations and cannot be )ade applicable to the liability of )e)bers of an unincorporated association. The reason behind this doctrine is obviousCsince an organi'ation (hich before the la( is nonCe1istent has no personality and (ould be inco)petent to act and appropriate for itself the po(ers and attribute of a corporation as provided by la(4 it cannot create agents or confer authority on another to act in its behalf4 thus, those (ho act or purport to act as its representatives or agents do so (ithout authority and at their o(n risk. 6nd as it is an ele)entary principle of la( that a person (ho acts as an agent (ithout authority or (ithout a principal is hi)self regarded as the principal, possessed of all the rights and sub:ect to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation (hich has no valid e1istence assu)es such privileges and obligations and co)es personally liable for contracts entered into or for other acts perfor)ed as such, agent 7Fay vs. oble, . Cushing GMass.H !==. Cited in II Tolentino9s Co))ercial La(s of the *hilippines, Fifth >d., *. %="C%"38. Considering that defendant &efuer'o, as president of the unregistered corporation *hilippine Fibers *roducers Co., Inc., (as the )oving spirit behind the consu))ation of the lease agree)ent by acting as its representative, his liability cannot be li)ited or restricted that i)posed upon corporate shareholders. In acting on behalf of a corporation (hich he kne( to be unregistered, he assu)ed the risk of reaping the conse;uential da)ages or resultant rights, if any, arising out of such transaction. ?herefore, the order of the lo(er Court of March #!, !"$%, a)ending its previous decision on this )atter and ordering the *rovincial Sheriff of Leyte to release any and all properties of )ovant therein (hich )ight have been attached in the e1ecution of such :udg)ent, is hereby set aside and nullified as if it had never been issued. ?ith costs against respondent Segundino &efuer'o. It is so ordered.

G.R. No. 125221 '(!+ 19, 1992

CORPO CASES SALVATIERRA-LAUREANO

RE3NALDO M. LOZANO, petitioner, vs. HON. ELIEZER R. DE LOS SANTOS, 4-+# ) !* '()*+, RTC, /-. 58, A!*+5+# C &y6 a!) ANTONIO ANDA,respondents. 4UNO, J.: This petition for certiorari seeks to annul and set aside the decision of the &egional Trial Court, ,ranch $=,6ngeles City (hich ordered the Municipal Circuit Trial Court, Mabalacat and Magalang, *a)panga to dis)iss Civil Case o. !#!/ for lack of :urisdiction. The facts are undisputed. -n Aece)ber !", !""$, petitioner &eynaldo M. Lo'ano filed Civil Case o. !#!/ for da)ages against respondent 6ntonio 6nda before the Municipal Circuit Trial Court 7MCTC8, Mabalacat and Magalang, *a)panga. *etitioner alleged that he (as the president of the Iapatirang MabalacatC6ngeles <eepney Arivers9 6ssociation, Inc. 7I6M6<A68 (hile respondent 6nda (as the president of the Sa)ahang 6ngelesCMabalacat <eepney -perators9 and Arivers9 6ssociation, Inc. 7S6M6<-A684 in 6ugust !""$, upon the re;uest of the Sangguniang ,ayan of Mabalacat, *a)panga, petitioner and private respondent agreed to consolidate their respective associations and for) the Fnified MabalacatC6ngeles <eepney -perators9 and Arivers 6ssociation, Inc. 7FM6<-A684 petitioner and private respondent also agreed to elect one set of officers (ho shall be given the sole authority to collect the daily dues fro) the )e)bers of the consolidated association4 elections (ere held on -ctober #", !""$ and both petitioner and private respondent ran for president4 petitioner (on4 private respondent protested and, alleging fraud, refused to recogni'e the results of the election4 private respondent also refused to abide by their agree)ent and continued collecting the dues fro) the )e)bers of his association despite several de)ands to desist. *etitioner (as thus constrained to file the co)plaint to restrain private respondent fro) collecting the dues and to order hi) to pay da)ages in the a)ount of *#$,333.33 and attorney9s fees of *$33.33. 1 *rivate respondent )oved to dis)iss the co)plaint for lack of :urisdiction, clai)ing that :urisdiction (as lodged (ith the Securities and >1change Co))ission 7S>C8. The MCTC denied the )otion on February ", !""%. 2 It denied reconsideration on March =, !""%. 3 *rivate respondent filed a petition for certiorari before the &egional Trial Court, ,ranch $=, 6ngeles City. 4 The trial court found the dispute to be intracorporate, hence, sub:ect to the :urisdiction of the S>C, and ordered the MCTC to dis)iss Civil Case o. !#!/ accordingly. 5 It denied reconsideration on May 5!, !""%. 7 @ence this petition. *etitioner clai)s that+ T@> &>S*- A> T <FAE> 6CT>A ?IT@ E&6V> 6,FS> -F AISC&>TI6M-F TI E T- L6CI -& >JC>SS -F <F&ISAICTI6 A S>&I-FS >&&-& -F L6? I C- CLFAI E T@6T T@> S>CF&ITI>S 6 A >JC@6 E>

C-MMISSI@6S <F&ISAICTI-V>& 6 C6S> -F A6M6E>S ,>T?>> @>6ASK*&>SIA> TS -F T?- 7#8 6SS-CI6TI- S ?@- I T> A>A T- C- S-LIA6T>KM>&E> T@>I& 6SS-CI6TI- S ,FT -T L>T G S&'H 6**&-V>A 6 A &>EIST>&>A ?IT@ T@> S>CF&ITI>S 6 A >JC@6 E> C-MMISSI- . 2 The :urisdiction of the Securities and >1change Co))ission 7S>C8 is set forth in Section $ of *residential Aecree o. "3#C6. Section $ reads as follo(s+ Sec. $. . . . GTHhe Securities and >1change Co))ission GhasH original and e1clusive :urisdiction to hear and decide cases involving+ 7a8 Aevices or sche)es e)ployed by or any acts of the board of directors, business associates, its officers or partners, a)ounting to fraud and )isrepresentation (hich )ay be detri)ental to the interest of the public andKor of the stockholders, partners, )e)bers of associations or organi'ations registered (ith the Co))ission. 7b8 Controversies arising out of intracorporate or partnership relations, bet(een and a)ong stockholders, )e)bers or associates4 bet(een any or all of the) and the corporation, partnership or association of (hich they are stockholders, )e)bers, or associates, respectively4 and bet(een such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to e1ist as such entity. 7c8 Controversies in the election or appoint)ent of directors, trustees, officers or )anagers of such corporations, partnerships or associations. 7d8 *etitions of corporations, partnerships or associations to be declared in the state of suspension of pay)ents in cases (here the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the i)possibility of )eeting the) (hen they respectively fall due or in cases (here the corporation, partnership or association has no sufficient assets to over its liabilities, but is under the )anage)ent of a &ehabilitation &eceiver or Manage)ent Co))ittee created pursuant to this Aecree. The grant of :urisdiction to the S>C )ust be vie(ed in the light of its nature and function under the la(. 8This :urisdiction is deter)ined by a concurrence of t(o ele)ents+ 7!8 the status or relationship of the parties4 and 7#8 the nature of the ;uestion that is the sub:ect of their controversy. 9 The first ele)ent re;uires that the controversy )ust arise out of intracorporate or partnership relations bet(een and a)ong stockholders, )e)bers, or associates4 bet(een any or all of the) and the corporation, partnership or association of (hich

CORPO CASES SALVATIERRA-LAUREANO

they are stockholders, )e)bers or associates, respectively4 and bet(een such corporation, partnership or association and the State in so far as it concerns their individual franchises. 18 The second ele)ent re;uires that the dispute a)ong the parties be intrinsically connected (ith the regulation of the corporation, partnership or association or deal (ith the internal affairs of the corporation, partnership or association. 11 6fter all, the principal function of the S>C is the supervision and control of corporations, partnership and associations (ith the end in vie( that invest)ents in these entities )ay be encouraged and protected, and their entities )ay be encouraged and protected, and their activities pursued for the pro)otion of econo)ic develop)ent. 12 There is no intracorporate nor partnership relation bet(een petitioner and private respondent. The controversy bet(een the) arose out of their plan to consolidate their respective :eepney drivers9 and operators9 associations into a single co))on association. This unified association (as, ho(ever, still a proposal. It had not been approved by the S>C, neither had its officers and )e)bers sub)itted their articles of consolidation is accordance (ith Sections .= and ." of the Corporation Code. Consolidation beco)es effective not upon )ere agree)ent of the )e)bers but only upon issuance of the certificate of consolidation by the S>C. 13 ?hen the S>C, upon processing and e1a)ining the articles of consolidation, is satisfied that the consolidation of the corporations is not inconsistent (ith the provisions of the Corporation Code and e1isting la(s, it issues a certificate of consolidation (hich )akes the reorgani'ation official. 14 The ne( consolidated corporation co)es into e1istence and the constituent corporations dissolve and cease to e1ist. 15 The I6M6<A6 and S6M6<-A6 to (hich petitioner and private respondent belong are duly registered (ith the S>C, but these associations are t(o separate entities. The dispute bet(een petitioner and private respondent is not (ithin the I6M6<A6 nor the S6M6<-A6. It is bet(een )e)bers of separate and distinct associations. *etitioner and private respondent have no intracorporate relation )uch less do they have an intracorporate dispute. The S>C therefore has no :urisdiction over the co)plaint. The doctrine of corporation by estoppel 17 advanced by private respondent cannot override :urisdictional re;uire)ents. <urisdiction is fi1ed by la( and is not sub:ect to the agree)ent of the parties. 12 It cannot be ac;uired through or (aived, enlarged or di)inished by, any act or o)ission of the parties, neither can it be conferred by the ac;uiescence of the court. 18 Corporation by estoppel is founded on principles of e;uity and is designed to prevent in:ustice and unfairness. 19It applies (hen persons assu)e to for) a corporation and e1ercise corporate functions and enter into business relations (ith third person. ?here there is no third person involved and the conflict arises only a)ong those assu)ing the for) of a corporation, (ho therefore kno( that it has not been registered, there is no corporation by estoppel. 28 I VI>? ?@>&>-F, the petition is granted and the decision dated 6pril !=, !""% and the order dated May 5!, !""% of the &egional Trial Court, ,ranch $=, 6ngeles

City are set aside. The Municipal Circuit Trial Court of Mabalacat and Magalang, *a)panga is ordered to proceed (ith dispatch in resolving Civil Case o. !#!/. o costs. S- -&A>&>A.

G.R. No. 112818 A%- 5 18, 1992 4EO4LE O. THE 4HILI44INES, plaintiffCappellee, vs. ENGR. CARLOS GARCIA y 4INEDA, 4ATRICIO /OTERO y VALES, LUISA MIRA4LES 9a& 5a-*+:, a$$(#+), 4ATRICIO /OTERO y VALES, accusedCappellant.

CORPO CASES SALVATIERRA-LAUREANO

4UNO, J.: ,efore us is an appeal fro) the decision of the &egional Trial Court in Cri)inal Case o. "5=.! convicting accusedCappellant *atricio ,otero of illegal recruit)ent in large scale and sentencing hi) to suffer the penalty of life i)prison)ent. 1 In an Infor)ation dated <uly #!, !""#, accusedCappellant *atricio ,otero together (ith Carlos *. Earcia and Luisa Miraples (ere charged (ith the cri)e of illegal recruit)ent in large scale defined by 6rticle 5= 7b8 and penali'ed under 6rticle 5" 7a8 of the Labor Code, as a)ended by *residential Aecree os. !"#3 and #3!=, co))itted as follo(s+ That on or before March #, !""#, and subse;uently thereafter, in the Municipality of Mandaluyong, Metro Manila, *hilippines, a place (ithin the :urisdiction of this @onorable Court, the aboveCna)ed accused, conspiring and confederating together and )utually helping and aiding each other, representing the)selves to have authority, license andKor per)it to contract, enlist and recruit (orkers for overseas e)ploy)ent, did then and there (illfully, unla(fully and feloniously for a fee, recruit and pro)ise :ob place)entKe)ploy)ent abroad to the follo(ing individuals, to (it+ !. Eloria Silaras y ,arbero #. &olando Consigna y -gana 5. Ma. Car)en Aaluaidao /. Mosi)o La *uebla, <r. $. Mario >spada y Melodia %. 6rnel Santilla y Villalos .. >lsa Aelubio =. 6bener Siriban y 6batuan ". Franklin Cabingan y Casalla !3. <ose >r(in >stinoso !!. >dgardo ,elen y <uanillo !#. 6riel &ivada y *ascual !5. Sunny *inco y *ascua !/. &olando Santiago y Magno !$. 6lfredo >stinoso y >strada !%. Luisito Vargas y 2ui'on (ithout first securing the re;uired license or authority fro) the Aepart)ent of Labor and >)ploy)ent. Contrary to la(. 2 7>)phasis supplied.8 6ccused Earcia and ,otero pleaded not guilty upon arraign)ent on <anuary !", !""5 and March 5!, !""5, respectively. Miraples re)ained at large as the (arrant of arrest against her (as returned unserved. 6 :oint trial (as conducted against the t(o 7#8 accused considering that their cases involve the sa)e parties and issues. 3 Si1 7%8 out of the si1teen 7!%8 co)plainants testified as prosecution (itnesses. 4 These co)plainants (ere >dgardo ,elen, Eloria Silaras, 6lfredo >stinoso, <ose >r(in >sclada, >lsa Aelubio and 6riel &ivada. They testified that on various dates in March !""#, they (ent to &icorn *hilippine International Shipping Lines, Inc. 7hereinafter &icorn8, an entity (hich recruits (orkers for overseas e)ploy)ent, (ith office at &). /!3, <ovan ,uilding, %33 Sha( ,lvd., Mandaluyong, Metro Manila. They applied as sea)en, cook, (aiter, cha)ber)aid or laundry(o)an overseas. 5 >sclada applied to accused ,otero. 6ll the other co)plainants coursed their application to accused Earcia (ho represented hi)self as president of &icorn. 7 Co)plainants (ere re;uired to sub)it their ,I and police clearance, birth certificate, passport, sea)an9s book and Survival of Life at Sea 7S-L6S8. 2 6s they did not have the last three 758 docu)ents, they (ere asked to pay five thousand pesos 7*$,333.338 as processing fee. They paid to &icorn9s treasurer, Luisa Miraples. 8 They (ere issued receipts signed by Miraples. The receipts (ere under &icorn9s heading. 9

Earcia and ,otero assured co)plainants of e)ploy)ent after the May !!, !""# election. 6ccused ,otero, as the viceCpresident of &icorn, follo(edCup their passports, sea)an9s book and S-L6S. @e told so)e applicants to (ait for their papers and infor)ed the others that their papers (ere in order. 6fter the election, co)plainants (ent back to &icorn to check on their applications. They discovered that &icorn had abandoned its office at <ovan ,uilding for nonCpay)ent of rentals. 18 @oping against hope, they (ent back to the building several ti)es to recover their )oney. Their persistence (as to no avail for Earcia and ,otero (ere no(here to be found. They then (ent to the Mandaluyong *olice Station and filed their co)plaints. 11 They also checked (ith the Securities and >1change Co))ission 7S>C8 and discovered that &icorn (as not yet incorporated. They also found that &icorn (as not licensed by the Aepart)ent of Labor and >)ploy)ent 7A-L>8 to engage in recruit)ent activities. 12 6ccused Earcia testified that he is an electrical engineer by profession. 6ccording to hi), the group of Teresita Celso, *atricio ,otero, 6lice Mayonte, Luisa Miraples and >dna @e)olaga approached hi) at a baptis)al party to :oin &icorn. @e (as asked to contribute one hundred thousand pesos 7*!33,333.338. @e told the) he (ould borro( the )oney fro) his brother in the Fnited States. In February !""#, accused Earcia sa( the group again in a s)all apart)ent in San <uan (hich they utili'ed as their office. @e )et the) once )ore at &icorn9s office at <ovan ,ldg. (here there (ere )any applicants for overseas :obs. This ti)e, they asked hi) to beco)e &icorn9s president and to contribute only t(enty thousand pesos 7*#3,333.338. @e declined the offer. 6llegedly, he already kne( that &icorn (as not licensed by the *hilippine -verseas >)ploy)ent 6gency 7*->68 or registered as a corporation (ith the Securities and >1change Co))ission 7S>C8. @e denied he issued receipts to co)plainants in this case. 13 6ccusedCappellant ,otero is a )arine engineer by profession but (as (orking as a barber (hen the trial took place. @e testified that he beca)e ac;uainted (ith &icorn (hen he applied for overseas e)ploy)ent as a )achinist. @e dealt (ith accused Earcia (ho clai)ed to be the *resident of &icorn. >ventually, he gained the trust of Earcia and beca)e an e)ployee of &icorn. Three 758 ti)es a (eek, he reported for (ork at <ovan ,uilding. 146s a for)er sea)an, he (as fa)iliar (ith the processing of passport, sea)an9s book and S-L6S. @is :ob consisted in follo(ingCup these docu)ents. @e left &icorn (hen he discovered it (as not licensed by the *->6 nor (as it registered (ith the S>C. 15 @e denied he recruited the co)plainants and received any )oney fro) the). 17@o(ever, on crossC e1a)ination, he ad)itted that in February !""#, he )et Earcia in T6A> recruit)ent agency. Earcia convinced hi) to beco)e one of the incorporators of &icorn. @e gave )oney to Earcia for &icorn9s registration (ith the S>C. They held office at <ovan ,uilding fro) March #, !""# to 6pril #3, !""#. 12 6fter trial, accused Earcia and ,otero (ere convicted in a decision dated 6pril !", !""$, to (it+ ?@>&>F-&>, in vie( of the foregoing, accused C6&L-S *. E6&CI6 and *6T&ICI- ,-T>&- are found guilty beyond reasonable doubt of the offense of illegal recruit)ent on 7sic8 a large scale constituting econo)ic sabotage under 6rticle 5= 7b8 and punishable under 6rticle 5" 7a8 of the Labor Code as a)ended and are sentenced to suffer the penalty of life i)prison)ent and to pay a fine of *!33,333.33 each. They are also ordered to inde)nify and pay :ointly and severally each of the si1 7%8 co)plainants the a)ount of *$,333.33. ,oth accused are also ordered to pay the cost of suit. S- -&A>&>A. 18 The case against accused (iraples (as archived by the court. 19 She has re)ained at large. -nly accused ,otero, thru counsel, filed a otice of 6ppeal. In his ,rief, he raises the follo(ing assign)ents of error, to (it+ 28 I T@> L-?>& C-F&T >&&>A I @-LAI E T@6T T@> >VIA> C> *&>S> T>A ,L T@> *&-S>CFTI- 6E6I ST 6CCFS>AC6**>LL6 T *6T&ICI- ,-T>&IS SFFFICI> T F-& C- VICTI- . II T@> L-?>& C-F&T >&&>A I -T @-LAI E T@6T I T&FT@ 6 A I F6CT T@> 6CCFS>AC6**>LL6 T *6T&ICI- ,-T>&- AIA -T C- S*I&> ?IT@ C-C6CCFS>A C6&L-S *. E6&CI6. III

CORPO CASES SALVATIERRA-LAUREANO

T@> L-?>& C-F&T >&&>A I -T @-LAI E T@6T 6CCFS>AC6**>LL6 T *6T&ICI- ,-T>&- IS -T &>S*- SI,L> F-& ILL>E6L &>C&FITM> T 6CTIVITI>S -F C-C6CCFS>A C6&L-S *. E6&CI6. IV T@> L-?>& C-F&T >&&>A I EIVI E C&>A> C> T- T@> T>STIM- L -F <-S> >&?I >SCL6A6 ?@IC@ IS -T 6AMISSI,L> F-& ,>I E I C- SIST> T , @IE@LL IM*&-,6,L> 6 A >J6EE>&6T>A 6 A I -T EIVI E ?>IE@T T- T@> 6CCFS>AC6**>LL6 T *6T&ICI- ,-T>&-9S >VIA> C>. ?e sustain appellant9s conviction. 6ppellant ,otero predicates his appeal on the alleged insufficiency of evidence to support his conviction. More particularly, he assails the credibility of (itness >sclada. >sclada initially testified that he dealt (ith accused Earcia (hen he filed his application (ith &icorn as a sea)an. -n crossCe1a)ination, ho(ever, he ad)itted it (as really accused ,otero (ith (ho) he transacted, )iz+ 2+ ,ut I thought you stated earlier on the third ti)e, you talked to a certain >dna because Carlos Earcia is not around 7sic8 on the sa)e ti)e, it (as Carlos Earcia (ho instructed you to give *$,333.33. 6 I have told a lie, sir. My conscience could not take it. C-F&T T- T@> ?IT >SS 2. So, (hat is the truth no( because I (ill put you in :ailN 6. ?hen I applied at &icorn 7*hil.8 (ith Mr. ,otero, Mr. Earcia (as not around but it (as ,otero (ho said that )y papers (ere alright. 21 In effect, accusedCappellant ,otero (ants this court to apply the doctrine of falsus in uno, falsus in omni%us 7false in one part, false in everything8 and to disregard the entire testi)ony of >sclada. Fnder present :urisprudence, this )a1i) of la( is rarely adhered to by the courts. 22 It is possible to ad)it and lend credence to the testi)ony of a (itness (ho) the Court has earlier found to have (illfully per:ured hi)self. 0. . . 7T8he testi)ony of a (itness )ay be believed in part and disbelieved in part, depending upon the corroborative evidence and the probabilities and i)probabilities of the case.0 23 In the case at bar, (e hold that the trial court did not err in giving credence to the testi)ony of >sclada against appellant ,otero since it (as corroborated on its )aterial points by the testi)ony of other (itnesses. In fact, >sclada9s testi)ony against ,otero is trust(orthy as he gave it after his conscience bothered hi) for not telling the truth. ?e re:ect appellant ,otero9s pretense that he is also a victi) rather than a culprit in this case. @e insist he (as a )ere applicant of &icorn and not a conspirator of the other accused (ho defrauded the co)plainants. @e clai)s that even as a &icorn e)ployee, he )erely perfor)ed 0)ini)al activities0 like follo(ingCup applicants9 passports, sea)an9s book and S-L6S, and conducting si)ple intervie(s. @e denies he had a hand in the selection of (orkers to be e)ployed abroad. 24 These sub)issions are at (ar (ith the evidence on record. @is coCaccused Earcia introduced hi) to the co)plainants as the viceCpresident of &icorn. @e used a table (ith a na)eplate confir)ing he (as the viceCpresident of &icorn. 25 @e procured the passports, sea)an9s books and S-L6S for the applicants. It (as fro) hi) that the co)plainants in;uired about the status of their applications. 27 @e also ad)itted he gave )oney to accused Earcia for &icorn9s incorporation. ,eyond any reasonable doubt, appellant ,otero engaged in recruit)ent and place)ent activities in that he, through &icorn, pro)ised the co)plainants e)ploy)ent abroad. Fnder the Labor Code, recruit)ent and place)ent refers to 0any act of canvassing, enlisting, contracting, transporting, utili'ing, hiring or procuring (orkers, and includes referrals, contract services, pro)ising or advertising for e)ploy)ent, locally or abroad (hether for profit or not+ *rovided, That any person or entity (hich in any )anner, offers or pro)ises for a fee e)ploy)ent to t(o or )ore persons shall be dee)ed engaged in recruit)ent, and place)ent.0 22 6ll the essential ele)ents of the cri)e of illegal recruit)ent in large scale are present in this case, to (it+

7!8 the accused engages in the recruit)ent and place)ent of (orkers, as defined under 6rticle !5 7b8 or in any prohibited activities under 6rticle 5/ of the Labor Code4 7#8 accused has not co)plied (ith the guidelines issued by the Secretary of Labor and >)ploy)ent, particularly (ith respect to the securing of a license or an authority to recruit and deploy (orkers, either locally or overseas4 and 758 accused co))its the sa)e against three 758 or )ore persons, individually or as a group. 28 It is a fact that &icorn had no license to recruit fro) A-L>. In the office of &icorn, a notice (as posted infor)ing :ob applicants that its recruit)ent license is still being processed. Let, &icorn already entertained applicants and collected fees for processing their travel docu)ents. 29 For engaging in recruit)ent of (orkers (ithout obtaining the necessary license fro) the *->6, ,oteros should suffer the conse;uences of &icorn9s illegal act for 07i8f the offender is a corporation, partnership, association or entity, the penalty shall be i)posed upon the officer or officers of the corporation, partnership, association or entity responsible for violation4 . . . 0 38 The evidence sho(s that appellant ,otero (as one of the incorporators of &icorn. For reasons that cannot be discerned fro) the records, &icorn9s incorporation (as not consu))ated. >ven then, appellant cannot avoid his liabilities to the public as an incorporator of &icorn. @e and his coCaccused Earcia held the)selves out to the public as officers of &icorn. They received )oney fro) applicants (ho availed of their services. They are thus estopped fro) clai)ing that they are not liable as corporate officials of &icorn. 31Section #$ of the Corporation Code provides that 07a8ll persons (ho assu)e to act as a corporation kno(ing it to be (ithout authority to do so shall be liable as general partners for all the debts, liabilities and da)ages incurred or arising as a result thereof+ *rovided, ho(ever, That (hen any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort co))itted by it as such, it shall not be allo(ed to use as a defense its lack of corporate personality.0 6ppellant ,otero is guilty of the cri)e of illegal recruit)ent in a large scale considering it (as proven that he, together (ith his cohorts, (ere able to defraud the si1 co)plainantC(itnesses in this case. Fnder 6rticle 5= 7b8 of the Labor Code, illegal recruit)ent in large scale is perpetrated if co))itted against three 758 or )ore persons individually or as a group. 6nd under 6rticle 5" 7a8 of the sa)e Code, accusedCappellant9s cri)e is punishable by life i)prison)ent and a fine of one hundred thousand pesos 7*!33,333.338. Finally, it is fruitless for appellant to deny he conspired (ith his coCaccused to co))it the cri)e at bar. The fact that all the accused (ere coCconspirators in defrauding the co)plainants could be inferred fro) their acts. They played different roles in defrauding co)plainants+ accused Earcia (as the president, appellant ,otero (as the viceCpresident and accusedCatClarge Miraples (as the treasurer of &icorn. 32 >ach one played a part in the recruit)ent of co)plainants. They (ere indispensable to each other. I VI>? ?@>&>-F, the decision of the &egional Trial Court convicting accusedCappellant *atricio ,otero of the cri)e of illegal recruit)ent in large scale is affir)ed in all respects. Costs against accusedCappellant. S- -&A>&>A.

G.R. No. 188527 'a!(a-y 28, 1999 COMMISSIONER O. INTERNAL REVENUE, petitioner, vs. THE COURT O. A44EALS, COURT O. TA0 A44EALS a!) A. SORIANO COR4., respondents. MARTINEZ, J.: *etitioner Co))issioner of Internal &evenue 7CI&8 seeks the reversal of the decision of the Court of 6ppeals 7C681 (hich affir)ed the ruling of the Court of Ta1 6ppeals 7CT68 2 that private respondent 6. Soriano Corporation9s 7hereinafter 6 SC-&8 rede)ption and e1change of the stocks of its foreign

CORPO CASES SALVATIERRA-LAUREANO

stockholders cannot be considered as 0essentially e;uivalent to a distribution of ta1able dividends0 under, Section =57b8 of the !"5" Internal &evenue 6ct. 3 The undisputed facts are as follo(s+ So)eti)e in the !"53s, Aon 6ndres Soriano, a citi'en and resident of the Fnited States, for)ed the corporation 06. Soriano L Cia0, predecessor of 6 SC-&, (ith a *!,333,333.33 capitali'ation divided into !3,333 co))on shares at a par value of *!33Kshare. 6 SC-& is (holly o(ned and controlled by the fa)ily of Aon 6ndres, (ho are all nonCresident aliens. 4 In !"5., Aon 6ndres subscribed to /,"%5 shares of the $,333 shares originally issued. 5 -n Septe)ber !#, !"/$, 6 SC-&9s authori'ed capital stock (as increased to *#,$33,333.33 divided into #$,333 co))on shares (ith the sa)e par value of the additional !$,333 shares, only !3,333 (as issued (hich (ere all subscribed by Aon 6ndres, after the other stockholders (aived in favor of the for)er their preCe)ptive rights to subscribe to the ne( issues. 7 This increased his subscription to !/,"%5 co))on shares. 2 6 )onth later, 8 Aon 6ndres transferred !,#$3 shares each to his t(o sons, <ose and 6ndres, <r., as their initial invest)ents in 6 SC-&. 9 ,oth sons are foreigners. 18 ,y !"/., 6 SC-& declared stock dividends. -ther stock dividend declarations (ere )ade bet(een !"/" and Aece)ber #3, !"%5. 11 -n Aece)ber 53, !"%/ Aon 6ndres died. 6s of that date, the records revealed that he has a total shareholdings of !=$,!$/ shares 12 B $3,/"$ of (hich are original issues and the balance of !5/.%$" shares as stock dividend declarations. 13 Correspondingly, oneChalf of that shareholdings or "#,$.. 14 shares (ere transferred to his (ife, AoOa Car)en Soriano, as her con:ugal share. The other half for)ed part of his estate. 15 6 day after Aon 6ndres died, 6 SC-& increased its capital stock to *#3M 17 and in !"%% further increased it to *53M. 12 In the sa)e year 7Aece)ber !"%%8, stock dividends (orth /%,#"3 and /%,#=. shares (ere respectively received by the Aon 6ndres estate 18 and AoOa Car)en fro) 6 SC-&. @ence, increasing their accu)ulated shareholdings to !5=,=%. and !5=,=%/ 19 co))on shares each. 28 -n Aece)ber #=, !"%., AoOa Car)en re;uested a ruling fro) the Fnited States Internal &evenue Service 7I&S8, in;uiring if an e1change of co))on (ith preferred shares )ay be considered as a ta1 avoidance sche)e 21under Section 5%. of the !"$/ F.S. &evenue 6ct. 22 ,y <anuary #, !"%=, 6 SC-& reclassified its e1isting 533,333 co))on shares into !$3,333 co))on and !$3,333 preferred shares. 23 In a letterCreply dated February !"%=, the I&S opined that the e1change is only a recapitali'ation sche)e and not ta1 avoidance. 24 Conse;uently, 25 on March 5!, !"%= AoOa Car)en e1changed her (hole !5=,=%/ co))on shares for !5=,=%3 of the ne(ly reclassified preferred shares. The estate of Aon 6ndres in turn, e1changed !!,!/3 of its co))on shares, for the re)aining !!,!/3 preferred shares, thus reducing its 7the estate8 co))on shares to !#.,.#.. 27 -n <une 53, !"%=, pursuant to a ,oard &esolution, 6 SC-& redee)ed #=,333 co))on shares fro) the Aon 6ndres9 estate. ,y ove)ber !"%=, the ,oard further increased 6 SC-&9s capital stock to *.$M divided into !$3,333 preferred shares and %33,333 co))on shares. 22 6bout a year later, 6 SC-& again redee)ed =3,333 co))on shares fro) the Aon 6ndres9 estate, 28 further reducing the latter9s co))on shareholdings to !",.#.. 6s stated in the ,oard &esolutions, 6 SC-&9s business purpose for both rede)ptions of stocks is to partially retire said stocks as treasury shares in order to reduce the co)pany9s foreign e1change re)ittances in case cash dividends are declared. 29 In !".5, after e1a)ining 6 SC-&9s books of account and records, &evenue e1a)iners issued a report proposing that 6 SC-& be assessed for deficiency (ithholding ta1CatCsource, pursuant to Sections $5 and $/ of the !"5" &evenue Code, 38 for the year !"%= and the second ;uarter of !"%" based on the transactions of e1change 5! and rede)ption of stocks. 31 The ,ureau of Internal &evenue 7,I&8 )ade the corresponding assess)ents despite the clai) of 6 SC-& that it availed of the ta1 a)nesty under *residential Aecree 7*.A.8 #5 32 (hich (ere a)ended by *.A.9s %. and !$.. 33 @o(ever, petitioner ruled that the invoked decrees do not cover Sections $5 and $/ in relation to 6rticle =57b8 of the !"5" &evenue 6ct under (hich 6 SC-& (as assessed. 34 6 SC-&9s subse;uent protest on the assess)ents (as denied in !"=5 by petitioner. 35 Subse;uently, 6 SC-& filed a petition for revie( (ith the CT6 assailing the ta1 assess)ents on the rede)ptions and e1change of stocks. In its decision, the Ta1 Court reversed petitioner9s ruling, after finding sufficient evidence to overco)e the prima facie correctness of the ;uestioned

assess)ents. 37 In a petition for revie( the C6 as )entioned, affir)ed the ruling of the CT6. 32 @ence, this petition. The bone of contention is the interpretation and application of Section =57b8 of the !"5" &evenue 6ct 38 (hich provides+ Sec. =5. Aistribution of dividends or assets by corporations. B 7b8 Stoc* di)idends + 6 stock dividend representing the transfer of surplus to capital account shall not be sub:ect to ta1. @o(ever, if a corporation cancels or redeems stoc* issued as a di)idend at suc! time and in suc! manner as to )ake the distribution and cancellation or rede)ption, in (hole or in part, essentially e;uivalent to the distribution of a ta"a%le di)idend, the a)ount so distributed in rede)ption or cancellation of the stock shall be considered as ta"a%le income to the e1tent it represents a distribution of earnings or profits accu)ulated after March first, nineteen hundred and thirteen. 7>)phasis supplied8 Specifically, the issue is (hether 6 SC-&9s rede)ption of stocks fro) its stockholder as (ell as the e1change of co))on (ith preferred shares can be considered as 0essentially e;uivalent to the distribution of ta1able dividend0 )aking the proceeds thereof ta1able under the provisions of the aboveC;uoted la(. *etitioner contends that the e1change transaction a tanta)ount to 0cancellation0 under Section =57b8 )aking the proceeds thereof ta1able. It also argues that the Section applies to stock dividends (hich is the bulk of stocks that 6 SC-& redee)ed. Further, petitioner clai)s that under the 0net effect test,0 the estate of Aon 6ndres gained fro) the rede)ption. 6ccordingly, it (as the duty of 6 SC-& to (ithhold the ta1CatCsource arising fro) the t(o transactions, pursuant to Section $5 and $/ of the !"5" &evenue 6ct. 39 6 SC-&, ho(ever, avers that it has no duty to (ithhold any ta1 either fro) the Aon 6ndres estate or fro) AoOa Car)en based on the t(o transactions, because the sa)e (ere done for legiti)ate business purposes (hich are 7a8 to reduce its foreign e1change re)ittances in the event the co)pany (ould declare cash dividends, 48 and to 7b8 subse;uently 0filipini'ed0 o(nership of 6 SC-&, as allegedly, envisioned by Aon 6ndres. 41 It like(ise invoked the a)nesty provisions of *.A. %.. ?e )ust e)phasi'e that the application of Sec. =57b8 depends on the special factual circu)stances of each case.42 The findings of facts of a special court 7CT68 e1ercising particular e1pertise on the sub:ect of ta1, generally binds this Court, 43 considering that it is substantially si)ilar to the findings of the C6 (hich is the final arbiter of ;uestions of facts. 44 The issue in this case does not only deal (ith facts but (hether the la( applies to a particular set of facts. Moreover, this Court is not necessarily bound by the lo(er courts9 conclusions of la( dra(n fro) such facts. 45 6M >STL+ ?e (ill deal first (ith the issue of ta1 a)nesty. Section ! of *.A. %. 47 provides+ !. In all cases of )oluntar# disclosures of pre)iousl# unta"ed income and,or ealt! such as earnings, receipts, gifts, be;uests or any other ac;uisitions fro) any source (hatsoever (hich are ta1able under the ational Internal &evenue Code, as a)ended, reali'ed here or abroad by any ta1payer, natural or :udicial4 the collection of all internal revenue ta1es including the incre)ents or penalties or account of nonCpay)ent as (ell as all civil, cri)inal or ad)inistrative liabilities arising fro) or incident to such disclosures under the ational Internal &evenue Code, the &evised *enal Code, the 6ntiCEraft and Corrupt *ractices 6ct, the &evised 6d)inistrative Code, the Civil Service la(s and regulations, la(s and regulations on I))igration and Aeportation, or any other applicable la( or procla)ation, are hereby condoned and, in lieu thereof, a ta1 of ten 7!3P8 per centu) on such previously unta1ed inco)e or (ealth, is hereby i)posed, sub:ect to the follo(ing conditions+ 7conditions o)itted8 G>)phasis suppliedH. The decree condones 0the collection of all internal revenue ta1es including the incre)ents or penalties or account of nonCpay)ent as (ell as all civil, cri)inal or ad)inistrative liable arising fro) or incident to0 7voluntary8 disclosures under the I&C of previously unta1ed inco)e andKor (ealth 0reali'ed here or abroad by any ta1payer, natural or :uridical.0

CORPO CASES SALVATIERRA-LAUREANO

May the (ithholding agent, in such capacity, be dee)ed a ta1payer for it to avail of the a)nestyN 6n inco)e ta1payer covers all persons (ho derive ta1able inco)e. 42 6 SC-& (as assessed by petitioner for deficiency (ithholding ta1 under Section $5 and $/ of the !"5" Code. 6s such, it is being held liable in its capacity as a (ithholding agent and not its personality as a ta1payer. In the operation of the (ithholding ta1 syste), the (ithholding agent is the payor, a separate entity acting no )ore than an agent of the govern)ent for the collection of the ta1 48 in order to ensure its pay)ents4 49 the payer is the ta1payer B he is the person sub:ect to ta1 i)pose by la(4 58 and the payee is the ta1ing authority. 51 In other (ords, the (ithholding agent is )erely a ta1 collector, not a ta1payer. Fnder the (ithholding syste), ho(ever, the agentCpayor beco)es a payee by fiction of la(. @is 7agent8 liability is direct and independent fro) the ta1payer, 52 because the inco)e ta1 is still i)pose on and due fro) the latter. The agent is not liable for the ta1 as no (ealth flo(ed into hi) B he earned no inco)e. The Ta1 Code only )akes the agent personally liable for the ta1 53 arising fro) the breach of its legal duty to (ithhold as distinguish fro) its duty to pay ta1 since+ the govern)ent9s cause of action against the (ithholding is not for the collection of inco)e ta1, but for the enforce)ent of the (ithholding provision of Section $5 of the Ta1 Code, co)pliance (ith (hich is i)posed on the (ithholding agent and not upon the ta1payer. 54 ot being a ta1payer, a (ithholding agent, like 6 SC-& in this transaction is not protected by the a)nesty under the decree. Codal provisions on (ithholding ta1 are )andatory and )ust be co)plied (ith by the (ithholding agent. 55 The ta1payer should not ans(er for the nonCperfor)ance by the (ithholding agent of its legal duty to (ithhold unless there is collusion or bad faith. The for)er could not be dee)ed to have evaded the ta1 had the (ithholding agent perfor)ed its duty. This could be the situation for (hich the a)nesty decree (as intended. Thus, to curtail ta1 evasion and give ta1 evaders a chance to refor), 57 it (as dee)ed ad)inistratively feasible to grant ta1 a)nesty in certain instances. In addition, a 0ta1 a)nesty, )uch like a ta1 e1e)ption, is never favored nor presu)ed in la( and if granted by a statute, the ter) of the a)nesty like that of a ta1 e1e)ption )ust be construed strictly against the ta1payer and liberally in favor of the ta1ing authority. 52 The rule on strictissimi $uris e;ually applies. 58 So that, any doubt in the application of an a)nesty la(Kdecree should be resolved in favor of the ta1ing authority. Further)ore, 6 SC-&9s clai) of a)nesty cannot prosper. The i)ple)enting rules of *.A. 5.3 (hich e1panded a)nesty on previously unta1ed inco)e under *.A. #5 is very e1plicit, to (it+ Sec. /. Cases not covered by a)nesty. B The follo(ing cases are not covered by the a)nesty sub:ect of these regulations+ 111 111 111 7#8 Ta1 liabilities (ith or (ithout assess)ents, on (ithholding ta1 at source provided under Section $5 and $/ of the ational Internal &evenue Code, as a)ended4 59 6 SC-& (as assessed under Sections $5 and $/ of the !"5" Ta1 Code. Thus, by specific provision of la(, it is not covered by the a)nesty. T6J - ST-CI AIVIA> AS Eeneral &ule Sec. =57b8 of the !"5" I&C (as taken fro) the Section !!$7g87!8 of the F.S. &evenue Code of !"#=. 78 It laid do(n the general rule kno(n as the proportionate test 71 (herein stock dividends once issued for) part of the capital and, thus, sub:ect to inco)e ta1. 72 Specifically, the general rule states that+ 6 stock dividend representing the transfer of surplus to capital account shall not be sub:ect to ta1. @aving been derived fro) a foreign la(, resort to the :urisprudence of its origin )ay shed light. Fnder the FS &evenue Code, this provision originally referred to 0stock dividends0 only, (ithout any e1ception. Stock dividends, strictly speaking, represent capital and do not constitute inco)e to its recipient. 73 So that the )ere issuance thereof is not yet sub:ect to inco)e ta1 74 as they are nothing but an 0enrich)ent through increase in value of capital invest)ent.0 75 6s capital, the stock dividends postpone the reali'ation of profits because the 0fund

represented by the ne( stock has been transferred fro) surplus to capital and no longer available for actual distribution.0 77Inco)e in ta1 la( is 0an a)ount of )oney co)ing to a person (ithin a specified ti)e, (hether as pay)ent for services, interest, or profit fro) invest)ent.0 72 It )eans cash or its e;uivalent. 78 It is gain derived and severed fro) capital, 79 fro) labor or fro) both co)bined 28 B so that to ta1 a stock dividend (ould be to ta1 a capital increase rather than the inco)e. 21 In a loose sense, stock dividends issued by the corporation, are considered unreali'ed gain, and cannot be sub:ected to inco)e ta1 until that gain has been reali'ed. ,efore the reali'ation, stock dividends are nothing but a representation of an interest in the corporate properties. 22 6s capital, it is not yet sub:ect to inco)e ta1. It should be noted that capital and inco)e are different. Capital is (ealth or fund4 (hereas inco)e is profit or gain or the flo( of (ealth. 23 The deter)ining factor for the i)position of inco)e ta1 is (hether any gain or profit (as derived fro) a transaction. 24 The >1ception @o(ever, if a corporation cancels or redeems stoc* issued as a di)idend at such ti)e and in such )anner as to )ake the distri%ution and cancellation or redemption, in (hole or in part, essentially e;uivalent to the distribution of a ta"a%le di)idend, the a)ount so distributed in rede)ption or cancellation of the stock shall be considered as ta"a%le income to the e1tent it represents a distribution of earnings or profits accu)ulated after March first, nineteen hundred and thirteen. 7>)phasis supplied8. In a response to the ruling of the 6)erican Supre)e Court in the case of -isner ). (acom%er 25 7that pro ratastock dividends are not ta1able inco)e8, the e1e)pting clause above ;uoted (as added because provision corporation found a loophole in the original provision. They resorted to devious )eans to circu)vent the la( and evade the ta1. Corporate earnings (ould be distributed under the guise of its initial capitali'ation by declaring the stock dividends previously issued and later redee) said dividends by paying cash to the stockholder. This process of issuanceCrede)ption a)ounts to a distribution of ta1able cash dividends (hich (as lust delayed so as to escape the ta1. It beco)es a convenient technical strategy to avoid the effects of ta1ation. Thus, to plug the loophole B the e1e)pting clause (as added. It provides that the rede)ption or cancellation of stock dividends, depending on the 0ti)e0 and 0)anner0 it (as )ade, is essentially e;uivalent to a distribution of ta1able dividends,0 )aking the proceeds thereof 0ta1able inco)e0 0to the e1tent it represents profits0. The e1ception (as designed to prevent the issuance and cancellation or rede)ption of stock dividends, (hich is funda)entally not ta1able, fro) being )ade use of as a device for the actual distribution of cash dividends, (hich is ta1able. 27 Thus, the provision had the obvious purpose of preventing a corporation fro) avoiding dividend ta1 treat)ent by distributing earnings to its shareholders in t(o transactions B a pro rata stock dividend follo(ed by a pro ratarede)ption B that (ould have the sa)e econo)ic conse;uences as a si)ple dividend. 22 6lthough rede)ption and cancellation are generally considered capital transactions, as such. they are not sub:ect to ta1. @o(ever, it does not necessarily )ean that a shareholder )ay not reali'e a ta1able gain fro) such transactions. 28 Si)ply put, depending on the circu)stances, the proceeds of rede)ption of stock dividends are essentially distribution of cash dividends, (hich (hen paid beco)es the absolute property of the stockholder. Thereafter, the latter beco)es the e1clusive o(ner thereof and can e1ercise the freedo) of choice. 29 @aving reali'ed gain fro) that rede)ption, the inco)e earner cannot escape inco)e ta1. 88 6s ;ualified by the phrase 0such ti)e and in such )anner,0 the e1ception (as not intended to characteri'e as ta1able dividend every distribution of earnings arising fro) the rede)ption of stock dividend. 81 So that, (hether the a)ount distributed in the rede)ption should be treated as the e;uivalent of a 0ta1able dividend0 is a ;uestion of fact, 82 (hich is deter)inable on 0the basis of the particular facts of the transaction in ;uestion. 83 o decisive test can be used to deter)ine the application of the e1e)ption under Section =57b8. The use of the (ords 0such )anner0 and 0essentially e;uivalent0 negative any idea that a (eighted for)ula can resolve a crucial issue B Should the distribution be treated as ta1able dividend. 84 -n this aspect, 6)erican courts developed certain recogni'ed criteria, (hich includes the follo(ing+ 85 !8 the presence or absence of real business purpose,

CORPO CASES SALVATIERRA-LAUREANO

#8 the a)ount of earnings and profits available for the declaration of a regular dividends and the corporation9s past record (ith respect to the declaration of dividends, 58 the effect of the distribution, as co)pared (ith the declaration of regular dividend, /8 the lapse of ti)e bet(een issuance and rede)ption, 87 $8 the presence of a substantial surplus 82 and a generous supply of cash (hich invites suspicion as does a )eager policy in relation both to current earnings and accu)ulated surplus,88 &>A>M*TI- 6 A C6 C>LL6TIFor the e1e)pting clause of Section, =57b8 to apply, it is indispensable that+ 7a8 there is rede)ption or cancellation4 7b8 the transaction involves stock dividends and 7c8 the 0ti)e and )anner0 of the transaction )akes it 0essentially e;uivalent to a distribution of ta1able dividends.0 -f these, the )ost i)portant is the third. &ede)ption is repurchase, a reac;uisition of stock by a corporation (hich issued the stock 89 in e1change for property, (hether or not the ac;uired stock is cancelled, retired or held in the treasury. 98 >ssentially, the corporation gets back so)e of its stock, distributes cash or property to the shareholder in pay)ent for the stock, and continues in business as before. The rede)ption of stock dividends previously issued is used as a veil for the constructive distribution of cash dividends. In the instant case, there is no dispute that 6 SC-& redee)ed shares of stocks fro) a stockholder 7Aon 6ndres8 t(ice 7#=,333 and =3,333 co))on shares8. ,ut (here did the shares redee)ed co)e fro)N If its source is the original capital subscriptions upon establish)ent of the corporation or fro) initial capital invest)ent in an e1isting enterprise, its rede)ption to the concurrent value of ac;uisition )ay not invite the application of Sec. =57b8 under the !"5" Ta1 Code, as it is not inco)e but a )ere return of capital. -n the contrary, if the redee)ed shares are fro) stock dividend declarations other than as initial capital invest)ent, the proceeds of the rede)ption is additional (ealth, for it is not )erely a return of capital but a gain thereon. It is not the stock dividends but the proceeds of its rede)ption that )ay be dee)ed as ta1able dividends. @ere, it is undisputed that at the ti)e of the last rede)ption, the original co))on shares o(ned by the estate (ere only #$,#/..$ 91 This )eans that fro) the total of !3=,333 shares redee)ed fro) the estate, the balance of =#,.$#.$ 7!3=,333 less #$,#/..$8 )ust have co)e fro) stock dividends. ,esides, in the absence of evidence to the contrary, the Ta1 Code presu)es that every distribution of corporate property, in (hole or in part, is )ade out of corporate profits 92 such as stock dividends. The capital cannot be distributed in the for) of rede)ption of stock dividends (ithout violating the trust fund doctrine B (herein the capital stock, property and other assets of the corporation are regarded as e;uity in trust for the pay)ent of the corporate creditors. 93 -nce capital, it is al(ays capital. 94 That doctrine (as intended for the protection of corporate creditors. 95 ?ith respect to the third re;uisite, 6 SC-& redee)ed stock dividends issued :ust # to 5 years earlier. The ti)e alone that lapsed fro) the issuance to the rede)ption is not a sufficient indicator to deter)ine ta1ability. It is a )ust to consider the factual circu)stances as to the )anner of both the issuance and the rede)ption. The 0ti)e0 ele)ent is a factor to sho( a device to evade ta1 and the sche)e of cancelling or redee)ing the sa)e shares is a )ethod usually adopted to acco)plish the end sought. 97 ?as this transaction used as a 0continuing plan,0 0device0 or 0artifice0 to evade pay)ent of ta1N It is necessary to deter)ine the 0net effect0 of the transaction bet(een the shareholderCinco)e ta1payer and the ac;uiring 7redee)ing8 corporation. 92 The 0net effect0 test is not evidence or testi)ony to be considered4 it is rather an inference to be dra(n or a conclusion to be reached. 98 It is also i)portant to kno( (hether the issuance of stock dividends (as dictated by legiti)ate business reasons, the presence of (hich )ight negate a ta1 evasion plan. 99 The issuance of stock dividends and its subse;uent rede)ption )ust be separate, distinct, and not related, for the rede)ption to be considered a legiti)ate ta1 sche)e. 188 &ede)ption cannot be used as a cloak to distribute corporate earnings. 181 -ther(ise, the apparent intention to avoid ta1 beco)es doubtful as the intention to evade beco)es )anifest. It has been ruled that+

G6Hn operation (ith no business or corporate purpose B is a )ere devise (hich put on the for) of a corporate reorgani'ation as a disguise for concealing its real character, and the sole ob:ect and acco)plish)ent of (hich (as the consu))ation of a preconceived plan, not to reorgani'e a business or any part of a business, but to transfer a parcel of corporate shares to a stockholder. 182 Aepending on each case, the e1e)pting provision of Sec. =57b8 of the !"5" Code )ay not be applicable if the redee)ed shares (ere issued (ith %ona fide business purpose, 183 (hich is :udged after each and every step of the transaction have been considered and the (hole transaction does not a)ount to a ta1 evasion sche)e. 6 SC-& invoked t(o reasons to :ustify the rede)ptions B 7!8 the alleged 0filipini'ation0 progra) and 7#8 the reduction of foreign e1change re)ittances in case cash dividends are declared. The Court is not concerned (ith the (isdo) of these purposes but on their relevance to the (hole transaction (hich can be inferred fro) the outco)e thereof. 6gain, it is the 0net effect rather than the )otives and plans of the ta1payer or his corporation0184 that is the funda)ental guide in ad)inistering Sec. =57b8. This ta1 provision is ai)ed at the result. 185 It also applies even if at the ti)e of the issuance of the stock dividend, there (as no intention to redee) it as a )eans of distributing profit or avoiding ta1 on dividends. 187 The e1istence of legiti)ate business purposes in support of the rede)ption of stock dividends is i))aterial in inco)e ta1ation. It has no relevance in deter)ining 0dividend e;uivalence0. 182 Such purposes )ay be )aterial only upon the issuance of the stock dividends. The test of ta1ability under the e1e)pting clause, (hen it provides 0such ti)e and )anner0 as (ould )ake the rede)ption 0essentially e;uivalent to the distribution of a ta1able dividend0, is (hether the rede)ption resulted into a flo( of (ealth. If no (ealth is reali'ed fro) the rede)ption, there )ay not be a dividend e;uivalence treat)ent. In the )etaphor of -isner ). (acom%er, inco)e is not dee)ed 0reali'e0 until the fruit has fallen or been plucked fro) the tree. The three ele)ents in the i)position of inco)e ta1 are+ 7!8 there )ust be gain or and profit, 7#8 that the gain or profit is reali'ed or received, actually or constructively, 188 and 758 it is not e1e)pted by la( or treaty fro) inco)e ta1. 6ny business purpose as to (hy or ho( the inco)e (as earned by the ta1payer is not a re;uire)ent. Inco)e ta1 is assessed on inco)e received fro) any property, activity or service that produces the inco)e because the Ta1 Code stands as an indifferent neutral party on the )atter of (here inco)e co)es fro). 189 6s stated above, the test of ta1ability under the e1e)pting clause of Section =57b8 is, (hether inco)e (as reali'ed through the rede)ption of stock dividends. The rede)ption converts into )oney the stock dividends (hich beco)e a reali'ed profit or gain and conse;uently, the stockholder9s separate property. 118 *rofits derived fro) the capital invested cannot escape inco)e ta1. 6s reali'ed inco)e, the proceeds of the redee)ed stock dividends can be reached by inco)e ta1ation regardless of the e1istence of any business purpose for the rede)ption. -ther(ise, to rule that the said proceeds are e1e)pt fro) inco)e ta1 (hen the rede)ption is supported by legiti)ate business reasons (ould defeat the very purpose of i)posing ta1 on inco)e. Such argu)ent (ould open the door for inco)e earners not to pay ta1 so long as the person fro) (ho) the inco)e (as derived has legiti)ate business reasons. In other (ords, the pay)ent of ta1 under the e1e)pting clause of Section =57b8 (ould be )ade to depend not on the inco)e of the ta1payer, but on the business purposes of a third party 7the corporation herein8 fro) (ho) the inco)e (as earned. This is absurd, illogical and i)practical considering that the ,ureau of Internal &evenue 7,I&8 (ould be pestered (ith instances in deter)ining the legiti)acy of business reasons that every inco)e earner )ay interposed. It is not ad)inistratively feasible and cannot therefore be allo(ed. The ruling in the 6)erican cases cited and relied upon by 6 SC-& that 0the redee)ed shares are the e;uivalent of dividend only if the shares (ere not issued for genuine business purposes0, 111 or the 0redee)ed shares have been issued by a corporation bona fide0 112 bears no relevance in deter)ining the nonCta1ability of the proceeds of rede)ption 6 SC-&, relying heavily and applying said cases, argued that so long as the rede)ption is supported by valid corporate purposes the proceeds are not sub:ect to ta1. 113 The adoption by the courts belo( 114 of such argu)ent is )isleading if not )isplaced. 6 revie( of the cited 6)erican cases sho(s that the presence or absence of 0genuine business purposes0 )ay be )aterial (ith respect to the issuance or declaration of stock dividends but not on its

CORPO CASES SALVATIERRA-LAUREANO

subse;uent rede)ption. The issuance and the rede)ption of stocks are t(o different transactions. 6lthough the e1istence of legiti)ate corporate purposes )ay :ustify a corporation9s ac;uisition of its o(n shares under Section /! of the Corporation Code, 115 such purposes cannot e1cuse the stockholder fro) the effects of ta1ation arising fro) the rede)ption. If the issuance of stock dividends is part of a ta1 evasion plan and thus, (ithout legiti)ate business reasons, the rede)ption beco)es suspicious (hich e1e)pting clause. The substance of the (hole transaction, not its for), usually controls the ta1 conse;uences.117 The t(o purposes invoked by 6 SC-&, under the facts of this case are no e1cuse for its ta1 liability. First, the alleged 0filipini'ation0 plan cannot be considered legiti)ate as it (as not i)ple)ented until the ,I& started )aking assess)ents on the proceeds of the rede)ption. Such corporate plan (as not stated in nor supported by any ,oard &esolution but a )ere afterthought interposed by the counsel of 6 SC-&. ,eing a separate entity, the corporation can act only through its ,oard of Airectors. 112 The ,oard &esolutions authori'ing the rede)ptions state only one purpose B reduction of foreign e1change re)ittances in case cash dividends are declared. ot even this purpose can be given credence. &ecords sho( that despite the e1istence of enor)ous corporate profits no cash dividend (as ever declared by 6 SC-& fro) !"/$ until the ,I& started )aking assess)ents in the early !".39s. 6lthough a corporation under certain e1ceptions, has the prerogative (hen to issue dividends, yet (hen no cash dividends (as issued for about three decades, this circu)stance negates the legiti)acy of 6 SC-&9s alleged purposes. Moreover, to issue stock dividends is to increase the shareholdings of 6 SC-&9s foreign stockholders contrary to its 0filipini'ation0 plan. This (ould also increase rather than reduce their need for foreign e1change re)ittances in case of cash dividend declaration, considering that 6 SC-& is a fa)ily corporation (here the )a:ority shares at the ti)e of rede)ptions (ere held by Aon 6ndres9 foreign heirs. Secondly, assu)ing arguendo, that those business purposes are legiti)ate, the sa)e cannot be a valid e1cuse for the i)position of ta1. -ther(ise, the ta1payer9s liability to pay inco)e ta1 (ould be )ade to depend upon a third person (ho did not earn the inco)e being ta1ed. Further)ore, even if the said purposes support the rede)ption and :ustify the issuance of stock dividends, the sa)e has no bearing (hatsoever on the i)position of the ta1 herein assessed because the proceeds of the rede)ption are dee)ed ta1able dividends since it (as sho(n that inco)e (as generated therefro). Thirdly, 6 SC-& argued that to treat as 0ta1able dividend0 the proceeds of the redee)ed stock dividends (ould be to i)pose on such stock an undisclosed lien and (ould be e1tre)ely unfair to intervening purchase, i.e. those (ho buys the stock dividends after their issuance. 118 Such argu)ent, ho(ever, bears no relevance in this case as no intervening buyer is involved. 6nd even if there is an intervening buyer, it is necessary to look into the factual )ilieu of the case if inco)e (as reali'ed fro) the transaction. 6gain, (e reiterate that the dividend e;uivalence test depends on such 0ti)e and )anner0 of the transaction and its net effect. The undisclosed lien 119 )ay be unfair to a subse;uent stock buyer (ho has no capital interest in the co)pany. ,ut the unfairness )ay not be true to an original subscriber like Aon 6ndres, (ho holds stock dividends as gains fro) his invest)ents. The subse;uent buyer (ho buys stock dividends is investing capital. It :ust so happen that (hat he bought is stock dividends. The effect of its 7stock dividends8 rede)ption fro) that subse;uent buyer is )erely to return his capital subscription, (hich is inco)e if redee)ed fro) the original subscriber. 6fter considering the )anner and the circu)stances by (hich the issuance and rede)ption of stock dividends (ere )ade, there is no other conclusion but that the proceeds thereof are essentially considered e;uivalent to a distribution of ta1able dividends. 6s 0ta1able dividend0 under Section =57b8, it is part of the 0entire inco)e0 sub:ect to ta1 under Section ## in relation to Section #! 128 of the !"5" Code. Moreover, under Section #"7a8 of said Code, dividends are included in 0gross inco)e0. 6s inco)e, it is sub:ect to inco)e ta1 (hich is re;uired to be (ithheld at source. The !"". Ta1 Code )ay have altered the situation but it does not change this disposition. >JC@6 E> -F C-MM- ?IT@ *&>F>&&>A S@6&>S 121 >1change is an act of taking or giving one thing for another involving 122 reciprocal transfer 123 and is generally considered as a ta1able transaction. The e1change of co))on stocks (ith preferred stocks, or preferred for co))on or a co)bination of either for both, )ay not produce a recogni'ed gain or loss, so long as the provisions of Section =57b8 is not applicable. This is true in a trade bet(een t(o 7#8 persons as (ell as a trade bet(een a stockholder and a corporation. In general, this trade )ust be

10

parts of )erger, transfer to controlled corporation, corporate ac;uisitions or corporate reorgani'ations. o ta1able gain or loss )ay be recogni'ed on e1change of property, stock or securities related to reorgani'ations. 124 ,oth the Ta1 Court and the Court of 6ppeals found that 6 SC-& reclassified its shares into co))on and preferred, and that parts of the co))on shares of the Aon 6ndres estate and all of AoOa Car)en9s shares (ere e1changed for the (hole !$3.333 preferred shares. Thereafter, both the Aon 6ndres estate and AoOa Car)en re)ained as corporate subscribers e1cept that their subscriptions no( include preferred shares. There (as no change in their proportional interest after the e1change. There (as no cash flo(. ,oth stocks had the sa)e par value. Fnder the facts herein, any difference in their )arket value (ould be i))aterial at the ti)e of e1change because no inco)e is yet reali'ed B it (as a )ere corporate paper transaction. It (ould have been different, if the e1change transaction resulted into a flo( of (ealth, in (hich case inco)e ta1 )ay be i)posed. 125 &eclassification of shares does not al(ays bring any substantial alteration in the subscriber9s proportional interest. ,ut the e1change is different B there (ould be a shifting of the balance of stock features, like priority in dividend declarations or absence of voting rights. Let neither the reclassification nor e1change per se, yields reali'e inco)e for ta1 purposes. 6 co))on stock represents the residual o(nership interest in the corporation. It is a basic class of stock ordinarily and usually issued (ithout e1traordinary rights or privileges and entitles the shareholder to a pro rata division of profits. 127 *referred stocks are those (hich entitle the shareholder to so)e priority on dividends and asset distribution. 122 ,oth shares are part of the corporation9s capital stock. ,oth stockholders are no different fro) ordinary investors (ho take on the sa)e invest)ent risks. *referred and co))on shareholders participate in the sa)e venture, (illing to share in the profits and losses of the enterprise. 128 Moreover, under the doctrine of e;uality of shares B all stocks issued by the corporation are presu)ed e;ual (ith the sa)e privileges and liabilities, provided that the 6rticles of Incorporation is silent on such differences. 129 In this case, the e1change of shares, (ithout )ore, produces no reali'ed inco)e to the subscriber. There is only a )odification of the subscriber9s rights and privileges B (hich is not a flo( of (ealth for ta1 purposes. The issue of ta1able dividend )ay arise only once a subscriber disposes of his entire interest and not (hen there is still )aintenance of proprietary interest. 138 ?@>&>F-&>, pre)ises considered, the decision of the Court of 6ppeals is M-AIFI>A in that 6 SC-&9s rede)ption of =#,.$#.$ stock dividends is herein considered as essentially e;uivalent to a distribution of ta1able dividends for (hich it is LI6,L> for the (ithholding ta1CatCsource. The decision is 6FFI&M>A in all other respects. S- -&A>&>A.

G.R. No. 22878 No;+<=+- 22, 1988 /OMAN ENVIRONMENTAL DEVELO4MENT vs. HON. COURT O. A44EALS a!) NILCAR 3. .A'ILAN, respondents. .im, /uran 0 Associates for petitioner. Renato J. /ilag for pri)ate respondent.

COR4ORATION, petitioners,

GRI>O-A?UINO, J.: The only issue in this case is (hether or not a suit brought by a (ithdra(ing stockholder against the corporation to enforce pay)ent of the balance due on the consideration 7evidenced by a corporate pro)issory note8 for the surrender of his shares of stock and interests in the corporation, involves an intraCcorporate dispute. The resolution of that issue (ill deter)ine (hether the Securities and >1change Co))ission 7S>C8 or a regular court has :urisdiction over the action. -n May ., !"=/, respondent ilcar L. Fa:ilan offered in (riting to resign as *resident and Me)ber of the ,oard of Airectors of petitioner, ,o)an >nviron)ental Aevelop)ent Corporation 7,>A>C-8, and to sell to the co)pany all his shares, rights, and interests therein for * 533,333 plus the transfer to hi) of

CORPO CASES SALVATIERRA-LAUREANO

11

the co)pany9s Isu'u pickCup truck (hich he had been using. The letterCoffer 7>1h. 6C!8 reads as 533,333.33. follo(s+ 3. May !"=/ To assure you of pay)ent of the above a)ount on respective due dates, the T@> ,-6&A -F AI&>CT-&S, co)pany (ill e1ecute the necessary pro)issory note. ,-M6 > VI&- M> T6L A>V>L-*M> T In addition to the above, the Ford Courier *ickCup (ill belong to you sub:ect to your C-&*-&6TIassu)ption of the outstanding obligation thereof (ith FilCInvest. It is understood #nd Floor, 6ES ,uilding, that upon your full pay)ent of the pickCup, arrange)ent (ill be )ade and /%% >AS6, Makati, negotiated (ith FilCInvest regarding the transfer of the o(nership of the vehicle to Metro Manila your na)e. Eentle)en+ If the above )eets your re;uire)ents, kindly signify your confor)ityKapproval by signing belo(.Very ?ith deepest regrets, I a) tendering )y resignation as )e)ber of the ,oard of truly yours, Airectors and *resident of the Co)pany effective as soon as )y shares and 7SEA8 <6M>S C. *>&6LT6 interests thereto are sold and fully paid. Corporate Secretary It is really painful to leave the Co)pany (hich (e painstakingly labored and C- F-&M>+ nortured for years to attain its success today, ho(ever, fa)ily interests and other 7SEA8 ILC6& L. F6<IL6 considerations dictate )e other(ise. oted+ Thank you for your interest of buying )y shares and other interests on the 7SEA8 6LF&>A- S. *6 EILI 6 7SEA8 M6JIM- &. &>,6LA- 7SEA8 Co)pany. It is really )y intention to divest )yself of these invest)ents and sell ,> >AICT- M. >M*6L 6Athe) all for *>S-S+ T@&>> @F A&>A T@-FS6 A 7* 533,3338 payable in cash SF,SC&I,>A 6 A S?-& T- before )e, this 5rd day of <uly, !"=/, 6lfredo S. in addition to the Isu'u pick up I a) presently using for and in behalf of the *angilinan e1hibiting to )e his &esidence Certificate o. !%"%##/ issued at Co)pany. Makati, Metro Manila on <anuary #/, !"=/, in his capacity as *resident of ,o)an Thank you. >nviron)ental Aevelop)ent Corporation (ith Corporate &esidence Certificate o. ILC6& L. F6<IL6 #3."!! issued at Makati, Metro Manila on March #%, !"=/.7SEA8 >& >ST- ,. AirectorK*resident 7p. #5", &ollo.8 AF&6 6t a )eeting of the ,oard of Airectors of ,>A>C- on <une !/, !"=/, Fa:ilan9s resignation as president -T6&L *F,LIC (as accepted and ne( officers (ere elected. Fa:ilan9s offer to sell his shares back to the corporation Fntil Aece)ber 5!, !"=/ (as approved, the ,oard pro)ising to pay for the) on a staggered basis fro) <uly !$, !"=/ to *T& o. =$=#=%! Issued Aece)ber !$, !"=/ 76nne1 ,8. 12re33an4516 7The resolution of the ,oard (as co))unicated to Fa:ilan on <anuary #/, !"=/ at in the follo(ing letterCagree)ent dated <une #$, !"=/ to (hich he affi1ed his confor)ity 76nne1 C8+ Makati, Metro Manila <une #$, !"=/ Aoc. o. 5"# Mr. ilcar L. Fa:ilan *age o. =3 o. !$" 6ra)is)is Street ,ook o. J *ro:ect ., 2ue'on City Series of !"=/. 7p. #/$, &ollo.8 Aear Mr. Fa:ilan+ 6 pro)issory note dated <uly 5, !"=/, (as signed by ,>A>C-9S ne( president, 6lfredo *angilinan, in *lease be infor)ed that after due deliberation the ,oard of Airectors !as accepted the presence of t(o directors, co))itting ,>A>C- to pay hi) *533,333 over a si1C)onth period fro) #our offer to sellyour share and interest in the co)pany at the price of <uly !$, !"=/ to Aece)ber !$, !"=/. The pro)issory note 7>1h. A8 provided as follo(s+ *533,333.33, inclusive of your unpaid salary fro) February !"=/ to May 5!, !"=/, *&-MISS-&L -T>Makati, Metro loan principal, interest on loan, profit sharing and share on book value of the Manila corporation as at May 5!, !"=/. *ay)ent of the *533,333.33 shall be as follo(s+ <uly 5, !"=/ F-& V6LF> &>C>IV>A, ,-M6 > VI&- M> T6L A>V>L-*M> T <uly !$, !"=/ * C-&*-&6TI- , a do)estic corporation duly registered (ith the Securities and !33,333.33 >1change Co))ission, (ith office at &). %3=, Metro ,ank ,ldg., 6yala ,lvd., Makati, Metro Manila, pro)ise to pay ILC6& L. F6<IL6 of !. 6ra)is)is St., Septe)ber !$, !"=/ * *ro:ect ., 2ue'on City, the su) of *>S-S+ T@&>> @F A&>A T@-FS6 A .$,333.33 7*533,333.338, *hilippine Currency payable as follo(s+ -ctober !$, !"=/ Aece)ber !$, !"=/ * %#,$33.33 * %#,$33.33 * *!33,333.33 .$,333.33 B B <uly !$, !"=/ Sept. !$, !"=/

CORPO CASES SALVATIERRA-LAUREANO

%#,$33.33 B -ctober !$, !"=/ Aec. !$, !"=/

12

%#,$33.33

*533,333.33 Signed in the presence of+ ,-?M6 7SEA8 M6JIM- &. &>,6LA7SEA8 ,> >AICTM. >M*6L 6A76nne1 A, p. #/., &ollo.8 @o(ever, ,>A>C- paid only *$3,333 on <uly !$, !"=/ and another *$3,333 on 6ugust 5!, !"=/ and defaulted in paying the balance of *#33,333. -n 6pril 53, !"=$, Fa:ilan filed a co)plaint in the &egional Trial Court of Makati for collection of that balance fro) ,>A>C-. In an order dated Septe)ber ", !"=$, the trial court, through <udge 6nsberto *aredes, dis)issed the co)plaint for lack of :urisdiction. It ruled that the controversy arose out of intracorporate relations, hence, the Securities and >1change Co))ission has original and e1clusive :urisdiction to hear and decide it. @is )otion for reconsideration of that order having been denied, Fa:ilan filed a 0*etition for Certiorari, and )anda)us (ith *reli)inary 6ttach)ent0 in the Inter)ediate 6ppellate Court. In a decision dated March #, !"=., the Court of 6ppeals set aside <udge *aredes9 order of dis)issal and directed hi) to take cogni'ance of the case. ,>A>C-9s )otion for reconsideration (as denied in a resolution dated March #/, !"=. of the Court of 6ppeals. In its decision, the 6ppellate Court characteri'ed the case as a suit for collection of a su) of )oney as Fa:ilan 0(as )erely suing on the balance of the pro)issory note0 7p. /, Aecision4 p. !"%, &ollo8 (hich ,>A>C- failed and refused to pay in full. More particularly, the Court of 6ppeals held+ ?hile it is true that the circu)stances (hich led to the e1ecution of the pro)issory note by the ,oard of Airectors of respondent corporation (as an intraC corporate )atter, there arose no controversy as to the sale of petitioner9s interests and rights as (ell as his shares as Me)ber of the ,oard of Airectors and *resident of respondent corporation. The intraCcorporate )atter of the resignation of petitioner as Me)ber of the ,oard of Airectors and *resident of respondent corporation has long been settled (ithout issue. The ,oard of Airectors of respondent corporation has like(ise long settled the sale by petitioner of all his shares, rights and interests in favor of the corporation. o controversy arose out of this transaction. The :urisdiction of the Securities and >1change Co))ission therefore need not be invoked on this )atter. 7p. !"%, &ollo.8 The petition is i)pressed (ith )erit. Section $7b8 of *.A. o. "3#C6, as a)ended, grants the S>C original and e1clusive :urisdiction to hear and decide cases involvingB b8 'ontro)ersies arising out of intra8corporate or partners!ip relations , bet(een and a)ong stockholders )e)bers, or associates4 %et een an# or all of t!em and t!e corporation, partnership or association of (hich they are stockholders, )e)bers or associates, respectively4 ... 7>)phasis supplied.8 This case involves an intraCcorporate controversy because the parties are a stockholder and the corporation. 6s correctly observed by the trial court, the perfection of the agree)ent to sell Fa:ilan9s participation and interests in ,>A>C- and the e1ecution of the pro)issory note for pay)ent of the price of the sale did not re)ove the dispute fro) the coverage of Section $7b8 of *.A. o. "3#, as

a)ended, for both the said agree)ent 76nne1 C8 and the pro)issory note 76nne1 A8 arose fro) intraC corporate relations. Indeed, all the signatories of both docu)ents (ere stockholders of the corporation at the ti)e of signing the sa)e. It (as an intraCcorporate transaction, hence, this suit is an intraC corporate controversy. Fa:ilan9s offer to resign as president and director 0effective as soon as )y shares and interests thereto 7sic8 are sold and fully paid0 76nne1 6C!, p. #5", &ollo8 i)plied that he (ould re)ain a stockholder until his shares and interests (ere fully paid for, for one cannot be a director or president of a corporation unless he is also a stockholder thereof. The fact that he (as replaced as president of the corporation did not necessaryily )ean that he ceased to be a stockholder considering ho( the corporation failed to co)plete pay)ent of the consideration for the purchase of his shares of stock and interests in the good(ill of the business. There has been no actual transfer of his shares to the corporation. In the books of the corporation he is still a stockholder. Fa:ilan9s suit against the corporation to enforce the latter9s pro)issory note or co)pel the corporation to pay for his shareholdings is cogni'able by the S>C alone (hich shall deter)ine (hether such pay)ent (ill not constitute a distribution of corporate assets to a stockholder in preference over creditors of the corporation. The S>C has e1clusive supervision, control and regulatory :urisdiction to investigate (hether the corporation has unrestricted retained earnings to cover the pay)ent for the shares, and (hether the purchase is for a legiti)ate corporate purpose as provided in Sections /! and !## of the Corporation Code, (hich reads as follo(s+ S>C. /!. 9o er to acquire o n s!ares.B6 stock corporation shall have the po(er to purchase or ac;uire its o(n shares for a legiti)ate corporate purpose or purposes, including but not li)ited to the follo(ing cases+ 9ro)ided, That the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or ac;uired4 !. To eli)inate fractional shares arising out of stock dividends4 #. To collect or co)pro)ise an indebtedness to the corporation, arising out of unpaid subscription, in a delin;uency sale, and to purchase delin;uent shares sold during said sale4 and 5. To pay dissenting or (ithdra(ing stockholders entitled to pay)ent for their shares under the provisions of this Code, Sec. !#. 'orporate liquidation. ... 111 111 111 >1cept by decrease of capital stock and as other(ise allo(ed by this Code, no corporation shall distribute any of its assets or property e1cept upon la(ful dissolution and after pay)ent of all its debts and liabilities, 7..a, ="a, !%a8. These provisions of the Corporation Code should be dee)ed (ritten into the agree)ent bet(een the corporation and the stockholders even if there is no e1press reference to the) in the pro)issory note. The principle is (ell settled that an e1isting la( enters into and for)s part of a valid contract (ithout need for the parties9 e1pressly )aking reference to it 7Lakas ng Manggaga(ang Makabayan vs. 6biera, 5% SC&6 /5.8. The re;uire)ent of unrestricted retained earnings to cover the shares is based on the trust fund doctrine (hich )eans that the capital stock, property and other assets of a corporation are regarded as e;uity in trust for the pay)ent of corporate creditors. The reason is that creditors of a corporation are preferred over the stockholders in the distribution of corporate assets. There can be no distribution of assets a)ong the stockholders (ithout first paying corporate creditors. @ence, any disposition of corporate funds to the pre:udice of creditors is null and void. 0Creditors of a corporation have the right to assu)e that so long as there are outstanding debts and liabilities, the board of directors (ill not use the assets of the corporation to purchase its o(n stock ...07Steinberg vs. Velasco, $# *hil. "$5.8 ?@>&>F-&>, the petition for certiorari is granted. The decision of the Court of 6ppeals is reversed and set aside. The order of the trial court dis)issing the co)plaint for lack of :urisdiction is hereby reinstated. o costs. S- -&A>&>A.

CORPO CASES SALVATIERRA-LAUREANO

13

G.R. No. 93823 D+$+<=+- 21, 1992 RE4U/LIC 4LANTERS vs. COURT O. A44EALS a!) .ERMIN CANLAS, respondents.

/AN@, petitioner,

CAM4OS, 'R., J.: This is an appeal by (ay of a *etition for &evie( on 'ertiorari fro) the decision A of the Court of 6ppeals in C6 E.&. CV o. 3.53#, entitled 0&epublic *lanters ,ank.*laintiffC6ppellee vs. *inch Manufacturing Corporation, et al., Aefendants, and Fer)in Canlas, AefendantC6ppellant0, (hich affir)ed the decision AA in Civil Case o. =#C$//= e1cept that it co)pletely absolved Fer)in Canlas fro) liability under the pro)issory notes and reduced the a(ard for da)ages and attorney9s fees. The &TC decision, rendered on <une #3, !"=$, is ;uoted hereunder+ ?@>&>F-&>, pre)ises considered, :udg)ent is hereby rendered in favor of the plaintiff &epublic*lanters ,ank, ordering defendant *inch Manufacturing Corporation 7for)erly ?orld(ide Ear)ent Manufacturing, Inc.8 and defendants Sho'o La)aguchi and Fer)in Canlas to pay, :ointly and severally, the plaintiff bank the follo(ing su)s (ith interest thereon at !%P per annu) fro) the dates indicated, to (it+ Fnder the pro)issory note 7>1hibit 0608, the su) of *533,333.33 (ith interest fro) <anuary #", !"=! until fully paid4 under pro)issory note 7>1hibit 0,08, the su) of */3,333.33 (ith interest fro) ove)ber #., !"=34 under the pro)issory note 7>1hibit 0C08, the su) of *!%%,/%%.33 (hich interest fro) <anuary #", !"=!4 under the pro)issory note 7>1hibit 0>08, the su) of *=%,!53.5! (ith interest

CORPO CASES SALVATIERRA-LAUREANO

fro) <anuary #", !"=!4 under the pro)issory note 7>1hibit 0E08, the su) of *!#,.35..3 (ith interest fro) ove)ber #., !"=34 under the pro)issory note 7>1hibit 0@08, the su) of *#=!,=.$."! (ith interest fro) <anuary #", !"=!4 and under the pro)issory note 7>1hibit 0I08, the su) of *#33,333.33 (ith interest fro) <anuary #", !"=!. Fnder the pro)issory note 7>1hibit 0A08 defendants *inch Manufacturing Corporation 7for)erly na)ed ?orld(ide Ear)ent Manufacturing, Inc.8, and Sho'o La)aguchi are ordered to pay :ointly and severally, the plaintiff bank the su) of *5%.,333.33 (ith interest of !%P per annu) fro) <anuary #", !"=3 until fully paid Fnder the pro)issory note 7>1hibit 0F08 defendant corporation *inch 7for)erly ?orld(ide8 is ordered to pay the plaintiff bank the su) of *!/3,333.33 (ith interest at !%P per annu) fro) ove)ber #., !"=3 until fully paid. Aefendant *inch 7for)ely ?orld(ide8 is hereby ordered to pay the plaintiff the su) of *#5!,!#3.=! (ith interest at !#P per annu) fro) <uly !, !"=!, until fully paid and the su) of *55!,=.3.". (ith interest fro) March #=, !"=!, until fully paid. 6ll the defendants are also ordered to pay, :ointly and severally, the plaintiff the su) of *!33,333.33 as and for reasonable attorney9s fee and the further su) e;uivalent to 5P per annu) of the respective principal su)s fro) the dates above stated as penalty charge until fully paid, plus one percent 7!P8 of the principal su)s as service charge. ?ith costs against the defendants. S- -&A>&>A. 1 Fro) the above decision only defendant Fer)in Canlas appealed to the then Inter)ediate Court 7no( the Court 6ppeals8. @is contention (as that inas)uch as he signed the pro)issory notes in his capacity as officer of the defunct ?orld(ide Ear)ent Manufacturing, Inc, he should not be held personally liable for such authori'ed corporate acts that he perfor)ed. It is no( the contention of the petitioner &epublic *lanters ,ank that having unconditionally signed the nine 7"8 pro)issory notes (ith Sho'o La)aguchi, :ointly and severally, defendant Fer)in Canlas is solidarity liable (ith Sho'o La)aguchi on each of the nine notes. ?e find )erit in this appeal. Fro) the records, these facts are established+ Aefendant Sho'o La)aguchi and private respondent Fer)in Canlas (ere *residentKChief -perating -fficer and Treasurer respectively, of ?orld(ide Ear)ent Manufacturing,Inc.. ,y virtue of ,oard &esolution o.! dated 6ugust !, !".", defendant Sho'o La)aguchi and private respondent Fer)in Canlas (ere authori'ed to apply for credit facilities (ith the petitioner &epublic *lanters ,ank in the for)s of e1port advances and letters of creditKtrust receipts acco))odations. *etitioner bank issued nine pro)issory notes, )arked as >1hibits 6 to I inclusive, each of (hich (ere unifor)ly (orded in the follo(ing )anner+

14

QQQQQQQQQQQ, after date, for value received, IK(e, :ointly and severaIly pro)ise to pay to the -&A>& of the &>*F,LIC *L6 T>&S ,6 I, at its office in Manila, *hilippines, the su) of QQQQQQQQQQQ *>S-S7....8 *hilippine Currency... -n the right botto) )argin of the pro)issory notes appeared the signatures of Sho'o La)aguchi and Fer)in Canlas above their printed na)es (ith the phrase 0and 7in8 his personal capacity0 type(ritten belo(. 6t the botto) of the pro)issory notes appeared+ 0*lease credit proceeds of this note to+ QQQQQQQQ Savings 6ccount QQQQQQJJ Current 6ccount o. !5.#C33#$.C% of ?-&LA?IA> E6&M> T MFE. C-&*. These entries (ere separated fro) the te1t of the notes (ith a bold line (hich ran hori'ontally across the pages. In the pro)issory notes )arked as >1hibits C, A and F, the na)e ?orld(ide Ear)ent Manufacturing, Inc. (as apparently rubber sta)ped above the signatures of defendant and private respondent. -n Aece)ber #3, !"=#, ?orld(ide Ear)ent Manufacturing, Inc. noted to change its corporate na)e to *inch Manufacturing Corporation. -n February $, !"=#, petitioner bank filed a co)plaint for the recovery of su)s of )oney covered a)ong others, by the nine pro)issory notes (ith interest thereon, plus attorney9s fees and penalty charges. The co)plainant (as originally brought against ?orld(ide Ear)ent Manufacturing, Inc. inter alia, but it (as later a)ended to drop ?orld(ide Manufacturing, Inc. as defendant and substitute *inch Manufacturing Corporation it its place. Aefendants *inch Manufacturing Corporation and Sho'o La)aguchi did not file an 6)ended 6ns(er and failed to appear at the scheduled preC trial conference despite due notice. -nly private respondent Fer)in Canlas filed an 6)ended 6ns(er (herein he, denied having issued the pro)issory notes in ;uestion since according to hi), he (as not an officer of *inch Manufacturing Corporation, but instead of ?orld(ide Ear)ent Manufacturing, Inc., and that (hen he issued said pro)issory notes in behalf of ?orld(ide Ear)ent Manufacturing, Inc., the sa)e (ere in blank, the type(ritten entries not appearing therein prior to the ti)e he affi1ed his signature. In the )ind of this Court, the only issue )aterial to the resolution of this appeal is (hether private respondent Fer)in Canlas is solidarily liable (ith the other defendants, na)ely *inch Manufacturing Corporation and Sho'o La)aguchi, on the nine pro)issory notes. ?e hold that private respondent Fer)in Canlas is solidarily liable on each of the pro)issory notes bearing his signature for the follo(ing reasons+ The pro)issory )otes are negotiable instru)ents and )ust be governed by the egotiable Instru)ents La(. 2 Fnder the egotiable lnstru)ents La(, persons (ho (rite their na)es on the face of pro)issory notes are )akers and are liable as such. 3 ,y signing the notes, the )aker pro)ises to pay to the order of the payee or any holder 4according to the tenor thereof. 5 ,ased on the above provisions of la(, there is no denying that private

CORPO CASES SALVATIERRA-LAUREANO

respondent Fer)in Canlas is one of the coC)akers of the pro)issory notes. 6s such, he cannot escape liability arising therefro). ?here an instru)ent containing the (ords 0I pro)ise to pay0 is signed by t(o or )ore persons, they are dee)ed to be :ointly and severally liable thereon. 7 6n instru)ent (hich begins0 (ith 0I0 ,?e0 , or 0>ither of us0 pro)ise to, pay, (hen signed by t(o or )ore persons, )akes the) solidarily liable. 2 The fact that the singular pronoun is used indicates that the pro)ise is individual as to each other4 )eaning that each of the coC signers is dee)ed to have )ade an independent singular pro)ise to pay the notes in full. In the case at bar, the solidary liability of private respondent Fer)in Canlas is )ade clearer and certain, (ithout reason for a)biguity, by the presence of the phrase 0:oint and several0 as describing the unconditional pro)ise to pay to the order of &epublic *lanters ,ank. 6 :oint and several note is one in (hich the )akers bind the)selves both :ointly and individually to the payee so that all )ay be sued together for its enforce)ent, or the creditor )ay select one or )ore as the ob:ect of the suit. 8 6 :oint and several obligation in co))on la( corresponds to a civil la( solidary obligation4 that is, one of several debtors bound in such (ise that each is liable for the entire a)ount, and not )erely for his proportionate share. 9 ,y )aking a :oint and several pro)ise to pay to the order of &epublic *lanters ,ank, private respondent Fer)in Canlas assu)ed the solidary liability of a debtor and the payee )ay choose to enforce the notes against hi) alone or :ointly (ith La)aguchi and *inch Manufacturing Corporation as solidary debtors. 6s to (hether the interpolation of the phrase 0and 7in8 his personal capacity0 belo( the signatures of the )akers in the notes (ill affect the liability of the )akers, ?e do not find it necessary to resolve and decide, because it is i))aterial and (ill not affect to the liability of private respondent Fer)in Canlas as a :oint and several debtor of the notes. ?ith or (ithout the presence of said phrase, private respondent Fer)in Canlas is pri)arily liable as a coC)aker of each of the notes and his liability is that of a solidary debtor. Finally, the respondent Court )ade a grave error in holding that an a)end)ent in a corporation9s 6rticles of Incorporation effecting a change of corporate na)e, in this case fro) ?orld(ide Ear)ent )anufacturing Inc to *inch Manufacturing Corporation e1tinguished the personality of the original corporation. The corporation, upon such change in its na)e, is in no sense a ne( corporation, nor the successor of the original corporation. It is the sa)e corporation (ith a different na)e, and its character is in no respect changed. 18 6 change in the corporate na)e does not )ake a ne( corporation, and (hether effected by special act or under a general la(, has no affect on the identity of the corporation, or on its property, rights, or lia%ilities. 11 The corporation continues, as before, responsible in its ne( na)e for all debts or other liabilities (hich it had previously contracted or incurred. 12 6s a general rule, officers or directors under the old corporate na)e bear no personal liability for acts done or contracts entered into by officers of the corporation, if duly authori'ed. Inas)uch as such officers acted in their capacity as agent of the old corporation and the change of na)e )eant only the continuation of the old :uridical

15

entity, the corporation bearing the sa)e na)e is still bound by the acts of its agents if authori'ed by the ,oard. Fnder the egotiable Instru)ents La(, the liability of a person signing as an agent is specifically provided for as follo(s+ Sec. #3. .ia%ilit# of a person signing as agent and so fort! . ?here the instru)ent contains or a person adds to his signature (ords indicating that he signs for or on behalf of a principal , or in a representative capacity, he is not liable on the instru)ent if he (as duly authori'ed4 but the )ere addition of (ords describing hi) as an agent, or as filling a representative character, (ithout disclosing his principal, does not e1e)pt hi) fro) personal liability. ?here the agent signs his na)e but no(here in the instru)ent has he disclosed the fact that he is acting in a representative capacity or the na)e of the third party for (ho) he )ight have acted as agent, the agent is personally liable to take holder of the instru)ent and cannot be per)itted to prove that he (as )erely acting as agent of another and parol or e1trinsic evidence is not ad)issible to avoid the agent9s personal liability. 13 -n the private respondent9s contention that the pro)issory notes (ere delivered to hi) in blank for his signature, (e rule other(ise. 6 careful e1a)ination of the notes in ;uestion sho(s that they are the stereotype printed for) of pro)issory notes generally used by co))ercial banking institutions to be signed by their clients in obtaining loans. Such printed notes are inco)plete because there are blank spaces to be filled up on )aterial particulars such as payee9s na)e, a)ount of the loan, rate of interest, date of issue and the )aturity date. The ter)s and conditions of the loan are printed on the note for the borro(erCdebtor 9s perusal. 6n inco)plete instru)ent (hich has been delivered to the borro(er for his signature is governed by Section !/ of the egotiable Instru)ents La( (hich provides, in so far as relevant to this case, thus+ Sec. !/. :lan*s; !en ma# %e filled. B ?here the instru)ent is (anting in any )aterial particular, the person in possesion thereof has a prima facie authority to co)plete it by filling up the blanks therein. ... In order, ho(ever, that any such instru)ent (hen co)pleted )ay be enforced against any person (ho beca)e a party thereto prior to its co)pletion, it )ust be filled up strictly in accordance (ith the authority given and (ithin a reasonable ti)e... *roof that the notes (ere signed in blank (as only the selfCserving testi)ony of private respondent Fer)in Canlas, as deter)ined by the trial court, so that the trial court 99doubts the defendant 7Canlas8 signed in blank the pro)issory notes0. ?e chose to believe the bank9s testi)ony that the notes (ere filled up before they (ere given to private respondent Fer)in Canlas and defendant Sho'o La)aguchi for their signatures as :oint and several pro)issors. For signing the notes above their type(ritten na)es, they bound the)selves as unconditional )akers. ?e take :udicial notice of the custo)ary procedure of co))ercial banks of re;uiring their clientele to sign pro)issory notes prepared by the banks in printed for) (ith blank spaces already filled up as per agreed ter)s of the loan, leaving the borro(ersCdebtors to do nothing but read the ter)s and conditions therein printed and to sign as )akers or coC)akers. ?hen the notes (ere given to private respondent Fer)in Canlas for his signature, the

CORPO CASES SALVATIERRA-LAUREANO

notes (ere co)plete in the sense that the spaces for the )aterial particular had been filled up by the bank as per agree)ent. The notes (ere not inco)plete instru)ents4 neither (ere they given to private respondent Fer)in Canlas in blank as he clai)s. Thus, Section !/ of the egotiabIe Instru)ents La( is not applicable. The ruling in case of Reformina )s. Tomol relied upon by the appellate court in reducing the interest rate on the pro)issory notes fro) !%P to !#P per annu) does not s;uarely apply to the instant petition. In the abovecited case, the rate of !#P (as applied to forebearances of )oney, goods or credit and court :udge)ets thereon, only in the absence of any stipulation bet(een the parties. In the case at bar ho(ever , it (as found by the trial court that the rate of interest is "P per annu), (hich interest rate the plaintiff )ay at any ti)e (ithout notice, raise (ithin the li)its allo(ed la(. 6nd so, as of February !%, !"=/ , the plaintiff had fi1ed the interest at !%P per annu). This Court has held that the rates under the Fsury La(, as a)ended by *residential Aecree o. !!%, are applicable only to interests by (ay of co)pensation for the use or forebearance of )oney. 6rticle ##3" of the Civil Code, on the other hand, governs interests by (ay of da)ages. 15 This fine distinction (as not taken into consideration by the appellate court, (hich instead )ade a general state)ent that the interest rate be at !#P per annu). Inas)uch as this Court had declared that increases in interest rates are not sub:ect to any ceiling prescribed by the Fsury La(, the appellate court erred in li)iting the interest rates at !#P per annu). Central ,ank Circular o. "3$, Series of !"=# re)oved the Fsury La( ceiling on interest rates. 17 In the !ight of the foregoing analysis and under the plain language of the statute and :urisprudence on the )atter, the decision of the respondent+ Court of 6ppeals absolving private respondent Fer)in Canlas is &>V>&S>A and S>T 6SIA>. <udge)ent is hereby rendered declaring private respondent Fer)in Canlas :ointly and severally liable on all the nine pro)issory notes (ith the follo(ing su)s and at !%P interest per annu) fro) the dates indicated, to (it+ Fnder the pro)issory note )arked as e1hibit 6, the su) of *533,333.33 (ith interest fro) <anuary #", !"=! until fully paid4 under pro)issory note )arked as >1hibit ,, the su) of */3,333.33 (ith interest fro) ove)ber #., !"=3+ under the pro)issory note deno)inated as >1hibit C, the a)ount of *!%%,/%%.33 (ith interest fro) <anuary #", !"=!4 under the pro)issory note deno)inated as >1hibit A, the a)ount of *5%.,333.33 (ith interest fro) <anuary #", !"=! until fully paid4 under the pro)issory note )arked as >1hibit >, the a)ount of *=%,!53.5! (ith interest fro) <anuary #", !"=!4 under the pro)issory note )arked as >1hibit F, the su) of *!/3,333.33 (ith interest fro) ove)ber #., !"=3 until fully paid4 under the pro)issory note )arked as >1hibit E, the a)ount of *!#,.35..3 (ith interest fro) ove)ber #., !"=34 the pro)issory note )arked as >1hibit @, the su) of *#=!,=.$."! (ith interest fro) <anuary #", !"=!4 and the pro)issory note )arked as >1hibit I, the su) of *#33,333.33 (ith interest on <anuary #", !"=!. The liabilities of defendants *inch Manufacturing Corporation 7for)erly ?orld(ide Ear)ent Manufacturing, Inc.8 and Sho'o La)aguchi, for not having appealed fro) the

16

decision of the trial court, shall be ad:udged in accordance (ith the :udg)ent rendered by the Court a quo. ?ith respect to attorney9s fees, and penalty and service charges, the private respondent Fer)in Canlas is hereby held :ointly and solidarity liable (ith defendants for the a)ounts found, by the Court a quo. ?ith costs against private respondent. S- -&A>&>A.

G.R. No. L-28351 '(5y 28, 1922 UNIVERSAL MILLS vs. UNIVERSAL TE0TILE MILLS, INC., respondent. -migdio <. Tan$uatco for petitioner. 9icazo, Santa#ana, Re#es, Ta#ao 0 Alfonso for respondent.

COR4ORATION, petitioner,

/ARREDO, J.: 6ppeal fro) the order of the Securities and >1change Co))ission in S.>.C. Case o. !3.", entitled In the Matter of the =ni)ersal Te"tile (ills, &nc. )s. =ni)ersal (ills 'orporation , a petition to have appellant change its corporate na)e on the ground that such na)e is 0confusingly and deceptively si)ilar0 to that of appellee, (hich petition the Co))ission granted. 6ccording to the order, 0the Fniversal Te1tile Mills, Inc. (as organ on Aece)ber #", !"$5, as a te1tile )anufacturing fir) for (hich it (as issued a certificate of registration on <anuary =, !"$/. The Fniversal Mills Corporation, on the other hand, (as registered in this Co))ission on -ctober #., !"$/, under its original na)e, Fniversal @osiery Mills Corporation, having as its pri)ary purpose the 0)anufacture and production of hosieries and (earing apparel of all kinds.0 -n May #/, !"%5, it filed an a)end)ent to its articles of incorporation changing its na)e to Fniversal Mills Corporation, its present na)e, for (hich this Co))ission issued the certificate of approval on <une !3, !"%5. The i))ediate cause of this present co)plaint, ho(ever, (as the occurrence of a fire (hich gutted respondent9s spinning )ills in *asig, &i'al. *etitioner alleged that as a result of this fire and because of the si)ilarity of respondent9s na)e to that of herein co)plainant, the ne(s ite)s appearing in the various )etropolitan ne(spapers carrying reports on the fire created uncertainty and confusion a)ong its bankers, friends, stockholders and custo)ers pro)pting petitioner to )ake announce)ents, clarifying the real Identity of the corporation (hose property (as burned. *etitioner presented docu)entary and testi)onial evidence in support of this allegation. -n the other hand, respondent9s position is that the na)es of the t(o corporations are not si)ilar and even if there be so)e si)ilarity, it is not confusing or deceptive4 that the only reason that respondent changed its na)e (as because it e1panded

CORPO CASES SALVATIERRA-LAUREANO

its business to include the )anufacture of fabrics of all kinds4 and that the (ord 9te1tile9 in petitioner9s na)e is do)inant and pro)inent enough to distinguish the t(o. It further argues that petitioner failed to present evidence of confusion or deception in the ordinary course of business4 that the only supposed confusion proved by co)plainant arose out of an e1traordinary occurrence B a disastrous fire. 7pp. !%CR!., &ecord.8 Fpon these pre)ises, the Co))ission held+ Fro) the facts proved and the :urisprudence on the )atter, it appears necessary under the circu)stances to en:oin the respondent Fniversal Mills Corporation fro) further using its present corporate na)e. <udging fro) (hat has already happened, confusion is not only apparent, but possible. It does not )atter that the instance of confusion bet(een the t(o corporate na)es (as occasioned only by a fire or an e1traordinary occurrence. It is precisely the duty of this Co))ission to prevent such confusion at all ti)es and under all circu)stances not only for the purpose of protecting the corporations involved but )ore so for the protection of the public. In today9s )odern business life (here people go by tradena)es and corporate i)ages, the corporate na)e beco)es the )ore i)portant. This Co))ission cannot close its eyes to the fact that usually it is the sound of all the other (ords co)posing the na)es of business corporations that sticks to the )ind of those (ho deal (ith the). The (ord 0te1tile0 in Fniversal Te1tile Mills, Inc.9 can not possibly assure the e1clusion of all other entities (ith si)ilar na)es fro) the )ind of the public especially so, if the business they are engaged in are the sa)e, like in the instant case. This Co))ission further takes cogni'ance of the fact that (hen respondent filed the a)end)ent changing its na)e to Fniversal Mills Corporation, it correspondingly filed a (ritten undertaking dated <une $, !"%5 and signed by its *resident, Mr. Mariano Cokiat, pro)ising to change its na)e in the event that there is another person, fir) or entity (ho has obtained a prior right to the use of such na)e or one si)ilar to it. That pro)ise is still binding upon the corporation and its responsible officers. 7pp. !.C!=, &ecord.8 It is obvious that the )atter at issue is (ithin the co)petence of the Securities and >1change Co))ission to resolve in the first instance in the e1ercise of the :urisdiction it used to possess under Co))on(ealth 6ct #=. as a)ended by &epublic 6ct !3$$ to ad)inister the application and enforce)ent of all la(s affecting do)estic corporations and associations, reserving to the courts only conflicts of :udicial nature, and, of course, the Supre)e Court9s authority to revie( the Co))issions actuations in appropriate instances involving possible denial of due process and grave abuse of discretion. Thus, in the case at bar, there being no clai) of denial of any constitutional right, all that ?e are called upon to deter)ine is (hether or not the order of the Co))ission en:oining petitioner to its corporate na)e constitutes, in the light of the circu)stances found by the Co))ission, a grave abuse of discretion. ?e believe it is not. Indeed, it cannot be said that the i)pugned order is arbitrary and capricious. Clearly, it has rational basis. The corporate na)es in ;uestion are not Identical, but they are indisputably so si)ilar that even under the test of 0reasonable care and observation as the public generally are capable of using and )ay be e1pected to e1ercise0 invoked by appellant, ?e are apprehensive confusion (ill usually arise, considering that under the second a)end)ent of its articles of incorporation on 6ugust !/, !"%/, appellant included a)ong its pri)ary purposes the 0)anufacturing, dyeing, finishing and selling of fabrics of all kinds0 in (hich respondent had been engaged for )ore than a decade ahead of petitioner. Factually, the Co))ission found e1istence of such confusion, and there is evidence to support its conclusion. Since respondent is not clai)ing da)ages in this proceeding, it is, of course, i))aterial (hether or not appellant has acted in good faith, but ?e cannot perceive (hy of all na)es, it had to choose a na)e already being used by another fir) engaged in practically the sa)e business for )ore than a decade en:oying (ell earned patronage and good(ill, (hen there are so )any other appropriate na)es it could possibly adopt (ithout arousing any

17

suspicion as to its )otive and, )ore i)portantly, any degree of confusion in the )ind of the public (hich could )islead even its o(n custo)ers, e1isting or prospective. *re)ises considered, there is no (arrant for our interference. 6s this is purely a case of in:unction, and considering the ti)e that has elapsed since the facts co)plained of took place, this decision should not be dee)ed as foreclosing any further re)edy (hich appellee )ay have for the protection of its interests. ?@>&>F-&>, (ith the reservation already )entioned, the appealed decision is affir)ed. Costs against petitioners. Fernando >'!airman?, Antonio, Aquino, 'oncepcion Jr. and Santos, JJ., concur.

G.R. No. 188478 May 7, 1992 LAUREANO INVESTMENT B DEVELO4MENT COR4ORATION, petitioner, vs. THE HONORA/LE COURT O. A44EALS a!) /ORMAHECO, INC., respondents. 4ANGANI/AN, J.: May a plaintiffKpetitioner (hich purports to be a corporation validly bring suit under a na)e other than that registered (ith the Securities and >1change Co))issionN In this petition for revie( on certiorari under &ule /$ of the &ules of Court, petitioner seeks the reversal of the Aecision 1 of the Court of 6ppeals 2 in C6CE.&. S* o. ##.%5, pro)ulgated on February #=, !""!, (hich resolved the above ;uestion in the negative4 and its &esolution 3 pro)ulgated on <une !3, !""!, denying petitioner9s )otion for reconsideration. The assailed Aecision upheld the follo(ing ;uestioned orders of the &egional Trial Court of Makati, ,ranch !/!+ 4 7!8 the -rder dated Septe)ber =, !"=", ruling that 0Lideco Corporation0 7the na)e under (hich herein petitioner represented itself before the trial court8 lacked personality to intervene4 5 7#8 the -rder dated May ., !""3, denying the )otion of petitioner to take the place of 0Lideco Corporation0 as partyCintervenor and adopt the latter9s co)plaint in intervention and other pleadings4 7 and 758 the -rder dated 6ugust =, !""3, (hich denied the )otion for reconsideration of petitioner. 2 T!e Facts The antecedents of this petition are su))ari'ed by the &espondent Court as follo(s+ The records sho( that spouses &eynaldo Laureano and Florence Laureano are )a:ority stockholders of petitioner Corporation (ho entered into a series of loan and credit transactions (ith *hilippine ational Cooperative ,ank 7* C, for short8. To secure pay)ent of the loans, they e1ecuted Aeeds of &eal >state Mortgage dated Aece)ber !!, !"%#, <anuary ", !"%5, <uly #, !"%5 and Septe)ber $, !"%/, for the follo(ing a)ounts+ *!33,333.33, *#3,333.33, *.3,333.33 and *!5,/#/.3/, respectively. In vie( of their failure to pay their indebtedness, * C, applied for e1tra:udicial foreclosure of the real estate )ortgages. The bank (as the purchaser of the properties in ;uestion in the foreclosure sale and titles thereof (ere consolidated in * C,9s na)e on February #3, !"=/. * C, did not secure a (rit of possession nor did it file e:ect)ent proceedings against the Laureano spouses,

CORPO CASES SALVATIERRA-LAUREANO

because there (ere then pending cases, such as . . . involving the titles of o(nership of sub:ect t(o lots, (hich are situated at ,elC6ir SubdivisionG,H Makati, Metro Manila. *rivate respondent ,or)aheco, Inc. beca)e the successor of the obligations and liabilities of * C, over sub:ect lots by virtue of a Aeed of SaleK6ssign)ent on Septe)ber #%, !"== (herein ,or)aheco bought fro) * C, under a bulk sale !!/ titled and untitled properties including the t(o parcels of land in ;uestion, for)erly registered in the na)e of the Laureano spouses. Transfer Certificate of Title os. !$..#/ and !$..#$ over the lots in ;uestion (ere issued on -ctober !#, !"== in the na)e of ,or)aheco. Five 7$8 days after securing titles over the said properties, ,or)aheco filed an 0 -"8 9arte *etition for the Issuance of ?rit of *ossession of Lots / and $, ,lock / situated at ,elC6ir Village, Makati, Metro Manila and e)braced in TCT os. !$..#/ and !$..#$ of the &egistry of Aeeds of Makati, Metro Manila,0 docketed as L&C Case o. MC!$53 before respondent Court. *etitioner Corporation filed on <anuary !=, !"=" its Motion for Intervention and to 6d)it 6ttached Co)plaint in Intervention in said case. 6fter an e1change of pleadings, respondent Court issued its order dated February ", !"==, (hich reads+ There being a prima facie sho(ing in the attached co)plaint in intervention that herein intervenor LIA>C- C-&*-&6TIhas an interest (hich )ay eventually and adversely be affected in (hatever decision the Court )ay render in the instant case4 to enable the parties concerned to properly ventilate and litigate all the issues involving the sub:ect property thereby avoid )ultiplicity of suits, and in the interest of :ustice, the Motion for Intervention, filed by LIA>CC-&*-&6TI- is hereby E&6 T>A4 and the attached co)plaint in intervention 6AMITT>A. -n <uly #%, !"=", respondent ,or)aheco filed its Motion to Strike out the Co)plaint in Intervention and all related pleadings filed by LIA>C- Corporation. The )otion (as granted in the first ;uestioned order dated Septe)ber =, !"=", (hich reads+ 111 111 111 -n the instant )otion, the records sho( that LIA>CCorporation appeared thru counsel and filed its co)plaint in intervention, representing therein that it is a corporation duly organi'ed and registered in accordance (ith la(. The Corporation Code e1plicitly provides that the use of the (ord corporation presupposes that an entity is duly registered 7(ith the S>C8 in accordance (ith la(. Intervening in the instant petition, (ith the use of the na)e LIA>C- Corporation, the latter, in effect, represents to this court that it is a corporation (hose personality is distinct and separate fro) its stockholders andKor any other corporation bearing different na)es. @ence, herein intervenor LIA>CCorporation and L6F&>6 I V>STM> T 6 A A>V>L-*M> T C-&*-&6TI- , to the )ind of this Court, are t(o 7#8 separate and distinct entities. Inas)uch as the docu)ents in support of its co)plaint in intervention B ta1 declarations B are in the na)es of Laureano Invest)ent and Aevelop)ent Corporation, and it appearing that LIA>CCorporation is not a corporation or partnership duly organi'ed and registered (ith the S>C, there is, therefore, no (ay

18

(hatsoever that LIA>C- Corporation9s interests (ill be adversely affected by the outco)e of the instant case. ?@>&>F-&>, for intervenor9s lack of personality to intervene in the instant proceedings, petitioner9s )otion to strike out co)plaint in intervention is hereby E&6 T>A. 6ccordingly, all pleadings filed relative thereto are ordered e1punged fro) the records. 111 111 111 6fter the issuance of the aboveCcited order, petitioner Corporation filed on -ctober /, !"=", its Frgent Motion to Substitute *arty Intervenor and to 6dopt Co)plaint in Intervention and 6ll *leadings. 6n opposition thereto (as filed by ,-&M6@>C-, after (hich the lo(er court issued its second ;uestioned order ;uoted belo(+ 111 111 111 The court has painstakingly e1a)ined the t(o 7#8 ta1 declarations and has found out that the said ta1 declarations refer to t(o houses erected on Lot 5, ,lock / and Lot 5, ,lock / of the ,elC6ir Village, Makati, Metro Manila. -n the other hand, the sub:ect )atter of the instant petition are Lot /, ,lock / and Lot $, ,lock / of ,elC6ir Village, Makati, Metro Manila. Clearly, therefore, the properties upon (hich the herein )ovantCcorporation has interests refer to properties different fro) those sub:ect of the instant petition. ot only that. 6s correctly pointed out by the petitioner, the aforeC)entioned ta1 declarations according to the records of the Makati 6ssessor9s -ffice (ere canceled on <uly ##, !"=# or five 7$8 years, t(o 7#8 )onths and four 7/8 days before the petitioner 7,-&M6@>C-8 purchased fro) the *hilippine ational Cooperative ,ank the t(o 7#8 lots and the i)prove)ents found thereon evidenced by the copies of Ta1 Aeclaration os. 6C33#C33$!# and %!35 attached as 6nne1es 6 and , respectively to the petitioner9s re:oinder dated -ctober #%, !"=". The )ovantCcorporation not having sho(n docu)entary evidence sho(ing that it has interest on the t(o lots sub:ect of the co)plaint and the i)prove)ents found therein, it has, therefore, no personality to file the instant )otion. . . . There is yet another reason (hy the )otion should not be granted. The )ovant corporation9s re;uest to be substituted as party intervenor is not one of the instances provided for in Sec. #3, &ule 5 of the &ules of Court. Substitution of party litigant )ay be re;uested in the follo(ing+ 7a8 ?hen a party dies and the clai) is not e1tinguished, upon proper )otion, the @onorable Court )ay order the legal representative of the deceased to appear and to be substituted for the deceased (ithin the period of thirty 7538 days or (ithin such ti)e as )ay be granted. 7Sec. !., &ule 5, &ules of Court8 7b8 In case of any transfer of interest, upon )otion, the @onorable Court )ay direct the person to (ho) the interest is transferred to be substituted in the action or :oined (ith the original party. 7Sec. #3, &ule 53 Gshould be &ule 5H, supra.8 (hich is not so in the case. 111 111 111 ?@>&>F-&>, in vie( of the foregoing considerations, the )otions under consideration are hereby A> I>A. 6 Motion for &econsideration of the aboveCcited order (as denied by respondent Court in its third ;uestioned order dated 6ugust =, !""3, . . . 8 In like(ise denying the petition of Laureano Invest)ent and Aevelop)ent Corporation 7petitioner corporation8, &espondent Court ratiocinated+ *etitioner Corporation contends that respondent ,or)aheco9s )otion to strike out the co)plaint in intervention and all related pleadings filed by LIA>C- Corporation (as based on )isleading and confusing assertions that LIA>C- Corporation is not a registered corporation despite its ad)ission andKor use of the (ord LIA>C- as

CORPO CASES SALVATIERRA-LAUREANO

acrony) for Laureano Invest)ent and Aevelop)ent Corporation. The contention is untenable. ,-&M6@>C- has sho(n that LIA>C- Corporation is not organi'ed and e1isting under *hilippine la(s. either has it been registered (ith the Securities and >1change Co))ission. In support of said clai), ,-&M6@>Cpresented a certification to the effect that the records of the Co))ission do not sho( the registration of LIA>C-, I C. either as a corporation or as partnership. *etitioner also contends that the )otion . . . should have been denied outright because it (as filed in bad faith and (ithout legal and factual basis. -n the contrary, fro) the very first )otion and pleading filed by petitioner in L&C o. MC !$53 pending before respondent Court, it is very clear that the intervenor therein is LIA>C- Corporation. o(here in its co)plaint does it appear that LIA>CCorporation is the brevity or acrony) for Laureano Invest)ent and Aevelop)ent Corporation. The clai) that Lideco Corporation is the na)e of a corporation (hich is duly registered and organi'ed in accordance (ith la( has been belied by the absence of S>C record sho(ing the registration of Lideco, Inc. either as corporation or as a partnership. It (as only (hen intervenor 7petitioner herein8 filed its opposition to the )otion to strike out that it clarified that Lideco Corporation is the acrony) for Laureano Invest)ent and Aevelop)ent Corporation. 111 111 111 Moreover, even assu)ing that Lideco Corporation and Laureano Invest)ent and Aevelop)ent Corporation are one and the sa)e, it (as found by respondent Court that the properties being clai)ed by petitioner are different fro) those for (hich private respondent is seeking the issuance of a (rit of possession4 hence, the co)plaint in intervention (as correctly dis)issed. 9 In conclusion, the appellate court said+ ?e, therefore, fail to see the alleged grave abuse of discretion on the part of respondent Court in issuing the ;uestioned orders, as they (ere issued after the Court had considered the argu)ents of the parties and the evidence on record. Clearly, the lo(er court acted (ithin its authority and sound discretion in issuing the said orders. 18 *etitioner9s )otion for reconsideration of the above ruling (as, as earlier stated, denied by &espondent Court in its &esolution 11 pro)ulgated on <une !3, !""!. @ence, this petition. &ssues *etitioner raises for resolution the follo(ing ;uestions+ !. ?hether &espondent ,or)aheco, Inc. is estopped fro) contesting the legal personality to sue of 0Lideco Corporation04 #. ?hether bad faith attended the filing of private respondent9s )otion to strike out the co)plaint in intervention and related pleadings. 12 *etitioner contends that private respondent is estopped fro), and is in bad faith for, denying its kno(ledge that 0Lideco Corporation0 and Laureano Invest)ent and Aevelop)ent Corporation are one and the sa)e entity since it has previously used LIA>C- as an acrony) for the latter corporation. *rivate respondent sub)itted a lengthy 7si1tyCpage8 a)ended co))ent 13 to the petition, giving a detailed background to the instant case including various actions allegedly co))enced by the Spouses Laureano ;uestioning the foreclosure of the sub:ect properties. In su), ,or)aheco, Inc. )aintains that &espondent Court did not co))it reversible error in disallo(ing 0Lideco Corporation0 to intervene for the reason that said entity did not satisfy the essential re;uisites for being a party to an action, to (it+ 7!8 natural or :uridical personality4 7#8 legal capacity to sue or be sued, i.e., having all the ;ualifications and none of the dis;ualifications provided for by la(4 and 758 real interest in the sub:ect )atter of the action. 14 *rivate respondent adds that petitioner corporation is )erely an alter ego of the Laureano spouses (ho have lost their rights over the sub:ect properties in favor of ,or)aheco9s predecessorCinCinterest, the *hilippine ational Cooperative ,ank 7* C,8, by virtue of e1tra:udicial foreclosures. *etitioner9s )otion to intervene in the case belo( is :ust another ploy of the spouses to prevent subse;uent o(ners fro) effectively e1ercising their rights of o(nership over the properties.

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*rivate respondent also filed before us a )otion 15 to declare petitioner as engaged in foru) shopping and to resolve the instant petition. In support of its )otion, private respondent enu)erates a string of civil actions allegedly co))enced by the Laureano spouses before the trial court as (ell as petitions before the appellate court concerning the properties in ;uestion. 6s a result, ,or)aheco clai)s, an 0issue (hich could have been laid to rest in !"%. is still being litigated.0 Further)ore, in an o)nibus )otion 17 filed on February !!, !""., private respondent clai)s that it is being unduly deprived of rental inco)e by as )uch as */3,333.33 a )onth for each property, or a total of eight )illion pesos since !"==. -n the other hand, it clai)s to have been assessed for and to have actually paid real estate ta1es and ,elC6ir Village 6ssociation dues since such date T!e 'ourt@s Ruling The petition is not )eritorious. 9etitioner@s &ssues+ -stoppel *etitioner contends that it (as private respondent (hich first )ade use of LIA>C- as a shorter ter) for Laureano Invest)ent and Aevelop)ent Corporation (hen it filed its first )otion to strike dated <anuary ", !"=", 12 prior to the filing by 0Lideco Corporation0 of its )otion for intervention and co)plaint in intervention 18 on <anuary !=, !"=". @ence, private respondent should be considered estopped fro) denying that petitioner and 0Lideco Corporation0 are one and the sa)e corporation. The e;uitable doctrine of estoppel (as e1plained by this Court in 'alte" >9!ilippines?, &nc. )s. 'ourt of Appeals 19+ Fnder the doctrine of estoppel, an ad)ission or representation is rendered conclusive upon the person )aking it, and cannot be denied or disproved as against the person relying thereon. 6 party )ay not go back on his o(n acts and representations to the pre:udice of the other party (ho relied upon the). In the la( of evidence, (henever a party has, by his o(n declaration, act, or o)ission, intentionally and deliberately led another to believe a particular thing true, to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or o)ission, be per)itted to falsify it. 7footnotes o)itted8 ?e elaborated in (aneclang )s. :aun 28 + In estoppel by pais, as related to the party sought to be estopped, it is necessary that there be a concurrence of the follo(ing re;uisites+ 7a8 conduct a)ounting to false representation or conceal)ent of )aterial facts or at least calculated to convey the i)pression that the facts are other(ise than, and inconsistent (ith, those (hich the party subse;uently atte)pts to assert4 7b8 intent, or at least e1pectation that this conduct shall be acted upon, or at least influenced by the other party4 and 7c8 kno(ledge, actual or constructive of the actual facts.0 7citing Ialalo vs. Lu', 5/ SC&6 55., !"./8 >1a)ining the records of the case, (e observe that the )otion 21 adverted to indeed )ade use of LIA>C- as an acrony) for Laureano Invest)ent and Aevelop)ent Corporation. ,ut said )otion distinctly specified that LIA>C- (as the shorter ter) for Laureano Invest)ent and Aevelop)ent Corporation. It is obvious that no false representation or conceal)ent can be attributed to private respondent. either can it be charged (ith conveying the i)pression that the facts are other than, or inconsistent (ith, those (hich it no( asserts since LIA>C-, as an acrony), is clearly different fro) 0Lideco Corporation0 (hich represented itself as a corporation duly registered and organi'ed in accordance (ith la(. 22 or can it be logically inferred that petitioner relied or acted upon such representation of private respondent in thereafter referring to itself as 0Lideco Corporation40 for petitioner is presu)ed to kno( by (hich na)e it is registered, and the legal provisions on the use of its corporate na)e. Section !, &ule 5 of the &ules of Court provides that only natural or :uridical persons or entities authori'ed by la( )ay be parties to a civil action. Fnder the Civil Code, a corporation has a legal personality of its o(n 76rticle //8, and )ay sue or be sued in its na)e, in confor)ity (ith the la(s and regulations of its organi'ation 76rticle /%8. 236dditionally, 6rticle 5% of the Corporation Code si)ilarly provides+

CORPO CASES SALVATIERRA-LAUREANO

6rt. 5%. 'orporate po ers and capacit#. B >very corporation incorporated under this Code has the po(er and capacity+ !. To sue and be sued in its corporate name4 . . . 7e)phasis supplied8 6s the trial and appellate courts have held, 0Lideco Corporation0 had no personality to intervene since it had not been duly registered as a corporation. If petitioner legally and truly (anted to intervene, it should have used its corporate na)e as the la( re;uires and not another na)e (hich it had not registered. Indeed, as the &espondent Court found, no(here in the )otion for intervention and co)plaint in intervention does it appear that 0Lideco Corporation0 stands for Laureano Invest)ent and Aevelop)ent Corporation. ,or)aheco, Inc., thus, (as not estopped fro) ;uestioning the :uridical personality of 0Lideco Corporation,0 even after the trial court had allo(ed it to intervene in the case. Eranting arguendo that the na)e 0Lideco Corporation0 could be used by petitioner corporation in its )otion, there is an even )ore cogent reason for denying the petition. The trial court concluded, and (e have no reason to disagree, that the intervention of Lideco or petitioner corporation (as not proper because neither had any legal interest in the sub:ect of litigation. The evidence 7ta1 declarations8 attached to the petition for intervention and the co)plaint for intervention pertained to properties not being litigated in the instant case. Lideco and petitioner corporation both clai)ed to have an interest in t(o houses constructed in Lot 5, ,lock / in ,el 6ir Village, Makati. 24 The sub:ect )atter of the instant petition, on the other hand, are Lots / and $, ,lock /, of ,el 6ir Village. This factual finding (as affir)ed by the Court of 6ppeals. Since the conclusion of the trial and appellate courts is based on facts, and since the Supre)e Court is not a trier of facts B our function not being to e1a)ine and evaluate the evidence presented to the concerned tribunal (hich for)ed the basis of its ;uestioned decision, resolution or order 25 B it is clear that (e cannot revie( such holding. ?e note further that petitioner has failed to sho( that the factual findings of the trial and appellate courts (ere arbitrary andKor constituted one of the e1ceptions allo(ing revie( by this Court. 27 :ad Fait! 7,8ad faith i)plies a conscious and intentional design to do a (rongful act for a dishonest purpose or )oral obli;uity4 . . . bad faith conte)plates a state of )ind affir)atively operating (ith furtive design or ill (ill. 22 -ther than its bare allegations that private respondent acted in bad faith, petitioner failed to sho( that the for)er acted consciously and deliberately to achieve a dishonest purpose or )oral obli;uity, or (as )otivated by ill (ill. &ather, as discussed above, no false representation (as contrived nor conceal)ent )ade by private respondent. either did it deliberately convey facts other than, or inconsistent (ith, (hat it no( asserts and upon (hich petitioner had relied or acted upon due to the representations of private respondent. @ence, (e hold that petitioner failed to de)onstrate that private respondent acted in bad faith in filing its assailed second )otion. 9ri)ate Respondent@s &ssue+ Forum S!opping *rivate respondent, in turn, accuses petitioner andKor its chair)an of the board and )a:ority stockholder, &eynaldo Laureano, of foru) shopping, alleging that both have i)properly instituted a string of cases through deliberate splitting of causes of action thereby trifling (ith the courts and abusing their processes. There is foru) shopping (henever, as a result of an adverse opinion in one foru), a party seeks a favorable opinion 7other than appeal or certiorari8 in another, 28 raising identical causes of action, sub:ect )atter, and issues. 29 @o(ever, private respondent, other than the enu)eration in its )otion 38 of the case nu)ber and titles, nature of the actions and decisions therein, failed to substantiate its allegations. It did not sho( convincingly that the cases enu)erated had identical causes of action, sub:ect )atter and issues. Fro) its bare assertions, the Court cannot intelligently )ake a valid finding of (hether petitioner, indeed, engaged in foru) shopping. In any event, a ruling on this issue is not necessary to the final resolution of the entire case. ?@>&>F-&>, pre)ises considered, the petition is hereby A> I>A for its failure to sho( any reversible error on the part of &espondent Court. The ;uestioned Aecision of the Court of 6ppeals is 6FFI&M>A. Costs against petitioner. S- -&A>&>A.

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