1
G.R. No. L-23606 July 29, 1968
ALHAMBRA CIGAR & CIGARETTE MANUFACTURING
COMPANY, INC., petitioner,
vs.
SECURITIES & EXCHANGE COMMISSION,
respondent.
SANCHEZ, J.:
To the question — May a corporation extend its life by
amendment of its articles of incorporation effected during
the three-year statutory period for liquidation when its
original term of existence had already expired? — the
answer of the Securities and Exchange Commissioner
was in the negative. Offshoot is this appeal.
That problem emerged out of the following controlling
facts:
Petitioner Alhambra Cigar and Cigarette Manufacturing
Company, Inc. (hereinafter referred to simply as
Alhambra) was duly incorporated under Philippine laws
on January 15, 1912. By its corporate articles it was to
exist for fifty (50) years from incorporation. Its term of
existence expired on January 15, 1962. On that date, it
ceased transacting business, entered into a state of
liquidation.
Thereafter, a new corporation. — Alhambra Industries,
Inc. — was formed to carry on the business of Alhambra.
On May 1, 1962, Alhambra's stockholders, by resolution
named Angel S. Gamboa trustee to take charge of its
liquidation.
On June 20, 1963 — within Alhambra's three-year
statutory period for liquidation - Republic Act 3531 was
enacted into law. It amended Section 18 of the
Corporation Law; it empowered domestic private
corporations to extend their corporate life beyond the
period fixed by the articles of incorporation for a term not
to exceed fifty years in any one instance. Previous to
Republic Act 3531, the maximum non-extendible term of
such corporations was fifty years.
On July 15, 1963, at a special meeting, Alhambra's board
of directors resolved to amend paragraph "Fourth" of its
articles of incorporation to extend its corporate life for an
additional fifty years, or a total of 100 years from its
incorporation.
On August 26, 1963, Alhambra's stockholders,
representing more than two-thirds of its subscribed capital
stock, voted to approve the foregoing resolution. The
"Fourth" paragraph of Alhambra's articles of incorporation
was thus altered to read:
FOURTH. That the term for which said corporation is to
exist is fifty (50) years from and after the date of
incorporation, and for an additional period of fifty (50)
years thereafter.
On October 28, 1963, Alhambra's articles of incorporation
as so amended certified correct by its president and
secretary and a majority of its board of directors, were
filed with respondent Securities and Exchange
Commission (SEC).
On November 18, 1963, SEC, however, returned said
amended articles of incorporation to Alhambra's counsel
with the ruling that Republic Act 3531 "which took effect
only on June 20, 1963, cannot be availed of by the said
corporation, for the reason that its term of existence had
already expired when the said law took effect in short,
said law has no retroactive effect."
On December 3, 1963, Alhambra's counsel sought
reconsideration of SEC's ruling aforesaid, refiled the
amended articles of incorporation.
On September 8, 1964, SEC, after a conference hearing,
issued an order denying the reconsideration sought.
Alhambra now invokes the jurisdiction of this Court to
overturn the conclusion below.1
1. Alhambra relies on Republic Act 3531, which amended
Section 18 of the Corporation Law. Well it is to take note
of the old and the new statutes as they are framed.
Section 18, prior to and after its modification by Republic
Act 3531, covers the subject of amendment of the articles
of incorporation of private corporations. A provision
thereof which remains unaltered is that a corporation may
amend its articles of incorporation "by a majority vote of
its board of directors or trustees and ... by the vote or
written assent of the stockholders representing at least
two-thirds of the subscribed capital stock ... "
But prior to amendment by Republic Act 3531, an explicit
prohibition existed in Section 18, thus:
... Provided, however, That the life of said corporation
shall not be extended by said amendment beyond the
time fixed in the original articles: ...
This was displaced by Republic Act 3531 which
enfranchises all private corporations to extend their
corporate existence. Thus incorporated into the structure
of Section 18 are the following:
... Provided, however, That should the amendment
consist in extending the corporate life, the extension shall
not exceed fifty years in any one instance: Provided,
further, That the original articles, and amended articles
together shall contain all provisions required by law to be
set out in the articles of incorporation: ...
As we look in retrospect at the facts, we find these: From
July 15 to October 28, 1963, when Alhambra made its

attempt to extend its corporate existence, its original term
of fifty years had already expired (January 15, 1962); it
was in the midst of the three-year grace period statutorily
fixed in Section 77 of the Corporation Law, thus: .
SEC. 77. Every corporation whose charter expires by its
own limitation or is annulled by forfeiture or otherwise, or
whose corporate existence for other purposes is
terminated in any other manner, shall nevertheless be
continued as a body corporate for three years after the
time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or against
it and of enabling it gradually to settle and close its affairs,
to dispose of and convey its property and to divide its
capital stock, but not for the purpose of continuing the
business for which it was established.2
Plain from the language of the provision is its meaning:
continuance of a "dissolved" corporation as a body
corporate for three years has for its purpose the final
closure of its affairs, and no other; the corporation is
specifically enjoined from "continuing the business for
which it was established". The liquidation of the
corporation's affairs set forth in Section 77 became
necessary precisely because its life had ended. For this
reason alone, the corporate existence and juridical
personality of that corporation to do business may no
longer be extended.
Worth bearing in mind, at this juncture, is the basic
development of corporation law.
The common law rule, at the beginning, was rigid and
inflexible in that upon its dissolution, a corporation
became legally dead for all purposes. Statutory
authorizations had to be provided for its continuance after
dissolution "for limited and specified purposes incident to
complete liquidation of its affairs".3 Thus, the moment a
corporation's right to exist as an "artificial person" ceases,
its corporate powers are terminated "just as the powers of
a natural person to take part in mundane affairs cease to
exist upon his death".4 There is nothing left but to
conduct, as it were, the settlement of the estate of a
deceased juridical person.
2. Republic Act 3531, amending Section 18 of the
Corporation Law, is silent, it is true, as to when such act
of extension may be made. But even with a superficial
knowledge of corporate principles, it does not take much
effort to reach a correct conclusion. For, implicit in Section
77 heretofore quoted is that the privilege given to prolong
corporate life under the amendment must be exercised
before the expiry of the term fixed in the articles of
incorporation.
Silence of the law on the matter is not hard to understand.
Specificity is not really necessary. The authority to
prolong corporate life was inserted by Republic Act 3531
into a section of the law that deals with the power of a
corporation to amend its articles of incorporation. (For, the
2
manner of prolongation is through an amendment of the
articles.) And it should be clearly evident that under
Section 77 no corporation in a state of liquidation can act
in any way, much less amend its articles, "for the purpose
of continuing the business for which it was established".
All these dilute Alhambra's position that it could revivify its
corporate life simply because when it attempted to do so,
Alhambra was still in the process of liquidation. It is surely
impermissible for us to stretch the law — that merely
empowers a corporation to act in liquidation — to inject
therein the power to extend its corporate existence.
3. Not that we are alone in this view. Fletcher has written:
"Since the privilege of extension is purely statutory, all of
the statutory conditions precedent must be complied with
in order that the extension may be effectuated. And,
generally these conditions must be complied with, and the
steps necessary to effect the extension must be taken,
during the life of the corporation, and before the expiration
of the term of existence as original fixed by its charter or
the general law, since, as a rule, the corporation is ipso
facto dissolved as soon as that time expires. So where the
extension is by amendment of the articles of
incorporation, the amendment must be adopted before
that time. And, similarly, the filing and recording of a
certificate of extension after that time cannot relate back
to the date of the passage of a resolution by the
stockholders in favor of the extension so as to save the
life of the corporation. The contrary is true, however, and
the doctrine of relation will apply, where the delay is due
to the neglect of the officer with whom the certificate is
required to be filed, or to a wrongful refusal on his part to
receive it. And statutes in some states specifically provide
that a renewal may be had within a specified time before
or after the time fixed for the termination of the corporate
existence".5
The logic of this position is well expressed in a foursquare
case decided by the Court of Appeals of Kentucky.6
There, pronouncement was made as follows:
... But section 561 (section 2147) provides that, when any
corporation expires by the terms of its articles of
incorporation, it may be thereafter continued to act for the
purpose of closing up its business, but for no other
purpose. The corporate life of the Home Building
Association expired on May 3, 1905. After that date, by
the mandate of the statute, it could continue to act for the
purpose of closing up its business, but for no other
purpose. The proposed amendment was not made until
January 16, 1908, or nearly three years after the
corporation expired by the terms of the articles of
incorporation. When the corporate life of the corporation
was ended, there was nothing to extend. Here it was
proposed nearly three years after the corporate life of the
association had expired to revivify the dead body, and to
make that relate back some two years and eight months.
In other words, the association for two years and eight
months had only existed for the purpose of winding up its

business, and, after this length of time, it was proposed to
revivify it and make it a live corporation for the two years
and eight months daring which it had not been such.
The law gives a certain length of time for the filing of
records in this court, and provides that the time may be
extended by the court, but under this provision it has
uniformly been held that when the time was expired, there
is nothing to extend, and that the appeal must be
dismissed... So, when the articles of a corporation have
expired, it is too late to adopt an amendment extending
the life of a corporation; for, the corporation having
expired, this is in effect to create a new corporation ..."7
True it is, that the Alabama Supreme Court has stated in
one case.8 that a corporation empowered by statute to
renew its corporate existence may do so even after the
expiration of its corporate life, provided renewal is taken
advantage of within the extended statutory period for
purposes of liquidation. That ruling, however, is inherently
weak as persuasive authority for the situation at bar for at
least two reasons: First. That case was a suit for
mandamus to compel a former corporate officer to turn
over books and records that came into his possession and
control by virtue of his office. It was there held that such
officer was obliged to surrender his books and records
even if the corporation had already expired. The holding
on the continued existence of the corporation was a mere
dictum. Second. Alabama's law is different. Corporations
in that state were authorized not only to extend but also
to renew their corporate existence.That very case defined
the word "renew" as follows; "To make new again; to
restore to freshness; to make new spiritually; to
regenerate; to begin again; to recommence; to resume; to
restore to existence, to revive; to re-establish; to recreate;
to replace; to grant or obtain an extension of Webster's
New International Dict.; 34 Cyc. 1330; Carter v. Brooklyn
Life Ins. Co., 110 N.Y. 15, 21, 22, 17 N.E. 396; 54 C.J.
379. Sec".9
On this point, we again draw from Fletcher: "There is a
broad distinction between the extension of a charter and
the grant of a new one. To renew a charter is to revive a
charter which has expired, or, in other words, "to give a
new existence to one which has been forfeited, or which
has lost its vitality by lapse of time". To "extend" a charter
is "to increase the time for the existence of one which
would otherwise reach its limit at an earlier period".10
Nowhere in our statute — Section 18, Corporation Law,
as amended by Republic Act 3531 — do we find the word
"renew" in reference to the authority given to corporations
to protract their lives. Our law limits itself to extension of
corporate existence. And, as so understood, extension
may be made only before the term provided in the
corporate charter expires.
Alhambra draws attention to another case11 which
declares that until the end of the extended period for
liquidation, a dissolved corporation "does not become an
extinguished entity". But this statement was obviously
3
lifted out of context. That case dissected the question
whether or not suits can be commenced by or against a
corporation within its liquidation period. Which was
answered in the affirmative. For, the corporation still
exists for the settlement of its affairs.
People, ex rel. vs. Green,12 also invoked by Alhambra, is
as unavailing. There, although the corporation amended
its articles to extend its existence at a time when it had no
legal authority yet, it adopted the amended articles later
on when it had the power to extend its life and during its
original term when it could amend its articles.
The foregoing notwithstanding, Alhambra falls back on
the contention that its case is arguably within the purview
of the law. It says that before cessation of its corporate
life, it could not have extended the same, for the simple
reason that Republic Act 3531 had not then become law.
It must be remembered that Republic Act 3531 took effect
on June 20, 1963, while the original term of Alhambra's
existence expired before that date — on January 15,
1962. The mischief that flows from this theory is at once
apparent. It would certainly open the gates for all defunct
corporations — whose charters have expired even long
before Republic Act 3531 came into being — to
resuscitate their corporate existence.
4. Alhambra brings into argument Republic Act 1932,
which amends Section 196 of the Insurance Act, now
reading as follows: 1äwphï1.ñët
SEC. 196. Any provision of law to the contrary
notwithstanding, every domestic life insurance
corporation, formed for a limited period under the
provisions of its articles of incorporation, may extend its
corporate existence for a period not exceeding fifty years
in any one instance by amendment to its articles of
incorporation on or before the expiration of the term so
fixed in said articles ...
To be observed is that the foregoing statute — unlike
Republic Act 3531 — expressly authorizes domestic
insurance corporations to extend their corporate
existence "on or before the expiration of the term" fixed in
their articles of incorporation. Republic Act 1932 was
approved on June 22, 1957, long before the passage of
Republic Act 3531 in 1963. Congress, Alhambra points
out, must have been aware of Republic Act 1932 when it
passed Republic Act 3531. Since the phrase "on or
before", etc., was omitted in Republic Act 3531, which
contains no similar limitation, it follows, according to
Alhambra, that it is not necessary to extend corporate
existence on or before the expiration of its original term.
That Republic Act 3531 stands mute as to when extention
of corporate existence may be made, assumes no
relevance. We have already said, in the face of a familiar
precept, that a defunct corporation is bereft of any legal
faculty not otherwise expressly sanctioned by law.

Illuminating here is the explanatory note of H.B. 1774,
later Republic Act 3531 — now in dispute. Its first
paragraph states that "Republic Act No. 1932 allows the
automatic extension of the corporate existence of
domestic life insurance corporations upon amendment of
their articles of incorporation on or before the expiration
of the terms fixed by said articles". The succeeding lines
are decisive: "This is a good law, a sane and sound one.
There appears to be no valid reason why it should not be
made to apply to other private corporations.13
The situation here presented is not one where the law
under consideration is ambiguous, where courts have to
put in harness extrinsic aids such as a look at another
statute to disentangle doubts. It is an elementary rule in
legal hermeneutics that where the terms of the law are
clear, no statutory construction may be permitted. Upon
the basic conceptual scheme under which corporations
operate, and with Section 77 of the Corporation Law
particularly in mind, we find no vagueness in Section 18,
as amended by Republic Act 3531. As we view it, by
directing attention to Republic Act 1932, Alhambra would
seek to create obscurity in the law; and, with that, ask of
us a ruling that such obscurity be explained. This, we dare
say, cannot be done.
The pari materia rule of statutory construction, in fact,
commands that statutes must be harmonized with each
other.14 So harmonizing, the conclusion is clear that
Section 18 of the Corporation Law, as amended by
Republic Act 3531 in reference to extensions of corporate
existence, is to be read in the same light as Republic Act
1932. Which means that domestic corporations in
general, as with domestic insurance companies, can
extend corporate existence only on or before the
expiration of the term fixed in their charters.
5. Alhambra pleads for munificence in interpretation, one
which brushes technicalities aside. Bases for this posture
are that Republic Act 3531 is a remedial statute, and that
extension of corporate life is beneficial to the economy.
Alhambra's stance does not induce assent. Expansive
construction is possible only when there is something to
expand. At the time of the passage of Republic Act 3531,
Alhambra's corporate life had already expired. It had
overstepped the limits of its limited existence. No life there
is to prolong.
Besides, a new corporation — Alhambra Industries, Inc.,
with but slight change in stockholdings15 — has already
been established. Its purpose is to carry on, and it actually
does carry on,16 the business of the dissolved entity. The
beneficial-effects argument is off the mark.
The way the whole case shapes up then, the only possible
drawbacks of Alhambra might be that, instead of the new
corporation (Alhambra Industries, Inc.) being written off,
the old one (Alhambra Cigar & Cigarette Manufacturing
Company, Inc.) has to be wound up; and that the old
4
corporate name cannot be retained fully in its exact
form.17 What is important though is that the word
Alhambra, the name that counts [it has goodwill], remains.
FOR THE REASONS GIVEN, the ruling of the Securities
and Exchange Commission of November 18, 1963, and
its order of September 8, 1964, both here under review,
are hereby affirmed.
Costs against petitioner Alhambra Cigar & Cigarette
Manufacturing Company, Inc. So ordered.
BENGUET CONSOLIDATED MINING CO. v. PINEDA +
DECISION
98 Phil. 711
REYES, J.B.L., J.:
Appeal under Rule 43 from a decision of the Securities
and Exchange Commissioner, denying the right of, a
sociedad anonima, to extend its corporate existence by
amendment of its original articles of association, or
alternatively, to reform and continue existing under the
Corporation Law (Act 1459) beyond the original period.
The petitioner, the Benguet Consolidated Mining Co.
(hereafter termed "Benguet" for short), was organized on
June 24, 1903, as a sociedad anonima regulated by
Articles 151 et seq, of the Spanish Code of Commerce
of 1886, then in force in the Philippines. The articles of
association expressly provided that it was organized for
a term of fifty (50) years. In 1906, the governing
Philippine Commission enacted Act 1469, commonly
known as the Corporation Law, establishing in the islands
the American type of juridical entities known as
corporation, to take effect on April 1, 1906. of its
enactment, this Court said in its decision in Harden vs.
Benguet Consolidated Mining Co., 58 Phil., 141, at pp.
145-146, and 147:
"When the Philippine Islands passed to the sovereignty of
the United States, the attention of the Philippine
Commission was early .drawn to the fact there is no entity
in Spanish law exactly corresponding to the motion of the
corporation in English' and American law; and in the
Philippine Bill, approved July 1, 1906, the Congress of
the United States inserted certain provisions, under the
head of Franchises, which "were intended to control the
Lawmaking power in the Philippine Islands in the matter
of granting of franchises, privileges and concessions.
These provisions are found in sections 74 and 75 of
the Act, The provisions of section 74 have been
superseded' by section 28 of the Act of Congress of
August 29, 1916, but in section 75 others is a provision
referring to mining corporations, which still remains the
law, as amended. This provision, in its original form,
reads as follows: * * * it shall be unlawful, for any member
of a corporation engaged in agriculture or mining; and
for any corporation organized for any purpose except
irrigation to be in any wise interested in any other
corporation engaged in agriculture or in mining.

Under the guidance of this and certain other provisions
thus enacted by Congress, the Philippine Commission
entered upon the enactment of a general law authorizing
the creation of corporations ' in the Philippine Islands.
This rather elaborate piece of legislation is embodied
in what is called-our Corporation Law (Act No. 1459 of the
Philippine Commission). The evident purpose of the
commission was to introduce the American
corporation into the Philippine Islands as the standard
commercial entity and to hasten the day when the
sociedad anonima of the Spanish law would be obsolete.
That statute is a sort of codification of American corporate
law."
"As it was the intention of our lawmakers to stimulate
the introduction of the American corporation into the
Philippine law in the place . of the sociedad anonima, it
was necessary to make certain adjustment resulting
from the continued co-existence, for a time, of the two
forms of commercial entities. Accordingly, in section
75 of the Corporation Law, a provision is found
making the sociedad anonima subject to the provisions of
the Corporation Law 'so far as such provisions may be
applicable and giving to the sociedades anonimas
previously created in the Islands the option to continue
business as such or to reform and organize under the
provisions of the Corporation Law. Again, in section 191
of the Corporation Law, the Code of Commerce is
repealed in so far as it relates to sociedades anonimas.
The purpose of the commission in repealing this part of
the Code of Commerce was :to compel commercial
entities thereafter organized to incorporate under the
Corporation Law, unless they should prefer to adopt
some form or other of the partnership. To this provision
was added" another to . the effect that existing
sociedades anonimas, which elected to continue their
business as such, instead of reforming and reorganizing
under the Corporation Law, should continue to be
governed by the laws that were in force prior to the
passage of this Act 'in relation to their organization and
method of transacting business and to the rights of
members thereof as between themselves, but their
relations to the public and public officials shall be
governed by the provisions of this Act.'"
Specifically, the two sections of Act No. 1459 referring to
sociedades anonimas then already existing, provide as
follows:
"Sec, 75, Any corporation or a sociedad anonima
formed, organized, and existing under the laws of the
Philippines on the date of the passage of this Act, shall
be subject to" the provisions. hereof so far as such
'provisions may be applicable and shall be entitled at its
.option either to continue business as such corporation or
to reform and organize under and by virtue of the
provisions of this Act, transferring all corporate interests
to the new corporation "which, if a stock corporation, is
authorized to issue its shares of stock at par to the
stockholders or members of the old corporation
according to. their interests."
5
"Sec. 191. The Code of Commerce, in so far as it
relates to corporation or sociedades anonimas, and all
other Acts or parts of Acts in conflict or inconsistent with
this Act, are hereby repealed. with the exception of Act
Numbered fifty-two, entitled An Act providing" for
examinations of banking institutions, in the Philippines,
and for reports by their officers as amended, and Act
Numbered 'Six hundred sixty-seven, entitled An Act
prescribing the method of applying to governments of
municipalities, except the city of Manila and of provinces
for franchises to contract and operate street railway,
electric light and power and telephone lines, the
conditions upon which the same maybe granted, certain
powers of the grantee of said franchises, and of
grantees of similar franchises under special Act of the
Commission, and for other purposes.' Provided,
however, That nothing in this Act contained shall be
deemed to repeal the existing law relating to those
classes of associations which are termed sociedades
colectivas, and sociedades de cuentas en participation,
as to which association the existing law shall be deemed
to be still in force; And provided further, That existing
corporations or sociedades anonimas, lawfully organized
as such, which elect to continue their business as such
sociedades anonimas instead of reforming and
reorganizing under and by' virtue of the provisions of
this Act, shall continue to be governed by the laws that
were in force prior to the passage of this Act in relation
to their organization and method of transacting business
and to the rights of members thereof as between
themselves, but their relations to the public and public
officials.' shall be governed by the provisions of this Act."
As the expiration of its original- 50 year term of existence
approached, the Board of Directors of Benguet adopted
in 1946 a resolution to extend its life for another 50 years
from July 3, 1946 and submitted it for registration.to the
respondent Securities and Exchange Commissioner.
Upon advice of the Secretary of Justice (Op. No, 45, Ser.
1947) that such, extension was contrary to law, the
registration was denied. The matter was dropped,
allegedly because the stockholders of Benguet did not
approve of the Directors' action.
Some six years later in 1953, the shareholders of Benguet
adopted a resolution empowering the Director to
"effectuate the. extension of the Company's business life
for not less than 20 and not more than 50 years, and this
by either (1) an amendment to the Articles of
Association or Charter of this Company or (2) by
reforming and reorganizing the Company as a Philippine
Corporation, or (3) by both or (4) -by any other means."
Accordingly, the , Board of Directors .on May 27, 1953,
adopted a resolution to the following effect
"Be It
Resolved, that the Company be reformed, reorganized
and organized under the provisions of section 75 and
other provisions of the Philippine Corporation Law as a
Philippine corporation with a corporate life and corporate

powers as set forth in the Articles of Incorporation
attached hereto as Schedule 'I' and made a part hereof
by this reference; and
"Be It
'FURTHER RESOLVED, that any five, or more of the
following share-holders of the Company be and they
hereby are authorized as instructed to act for and in
behalf of the share holders of the Company and of the
Company as Incorporators in the reformation,
reorganization and organization of the Company under
and in accordance with the provisions aforesaid of said
Philippine Corporation Law, and in such capacity, they
are hereby authorized and instructed to execute the
aforesaid . Articles of Incorporation attached to these
Minutes as Schedule T. hereof, with such amendments,
deletion and additions thereto as any five or more of
those so acting shall deem necessary, proper, advisable
or convenient to effect prompt registration of said
Articles under Philippine Law; and five or more of said
Incorporators are hereby further authorized and directed
to do all things necessary, proper, advisable or
convenient to effect such registration."
In pursuance of such resolution, Benguet submitted in
June, 1953, to the Securities and Exchange
Commissioner, for alternative registration, two
documents: (1) Certification as to the Modification of (the
articles of association of) the Benguet Consolidated
Mining Company, extending the term of its existence to
another fifty years from June 15, 1953; and (2) articles
of incorporation, covering its reformation or
reorganization as a corporation in accordance with
section 75 of the Philippine Corporation Law.
Relying mainly upon the adverse opinion of the
Secretary.of Justice (Op. No. 180, s. 1953), the Securities
and Exchange Commissioner denied the registration and
ruled:
(1) That the Benguet, as sociedad anonima, had no right
to extend the original term of corporate existence stated
in its Articles of Association, by subsequent amendment
thereof adopted after enactment of the Corporation Law
(Act No. 1459); and
(2) That Benguet, by its conduct, had chosen to
continue as sociedad anomina, under section 75 of Act
No. 1459, and could no longer exercise the option to
reform into a corporation, specially since it would,
indirectly produce the effect of extending its life.
This ruling is the subject of the present appeal.
Petitioner Benguet contends:
(1) That the proviso of section 18 of the Corporation Law
to the effect
6
"that the life of said corporation shall not be extended
by amendment beyond the lime fixed in the original
articles."
does not apply to sociedades anomimas already in
existence at the passage of the law, like petitioner herein;
(2) That to apply the said Restriction imposed by section
18 of the Corporation Law to sociedades anonimas
already functioning when the said law was enacted would
be in violation of constitutional inhibitions;
(3) That even assuming that said restriction was
applicable to it, Benguet could still exercise the option
of reforming and reorganizing under section 75 of the
Corporation Law, thereby prolonging its corporate
existence, since the law is silent as to the time when
such option may be exercised or availed of.
The first issue arises because the Code of Commerce of
1886 under which Benguet was organized, contains no
prohibition (to extend the period of corporate existence),
equivalent to that set forth in section 18 of the
Corporation Law. Neither does it expressly authorize the
extension. But the text of Article 223, reading:
"ART. 223. After the termination of the period for which
commercial associations are constituted, it shall not be
understood as extended by the implied or presumed will
of the members; and if the members desire to continue
in association, they shall draw up new articles, subject to
all the formalities prescribed for their creation as
provided in Article 119." (Code of Commerce.)
would seem to imply that the period of existence of the
sociedad anonimas (or of any other commercial
association for that matter) may be extended if the
partners or members so agree before the expiration of
the original period.,
While the Code of Commerce, in so far as sociedades
anonimas are concerned, was repealed by Act No.
1459, Benguet claims that article 223 is still operative in
its favor under the last proviso of section 191 of the
Corporation law (ante, p. 4 to the effect that existing
sociedades anonimas would continue to be governed
by the law in force before Act 1459,
"in relation to their organization and method of
transacting business and to the rights of members
among themselves, but their relations to the' public and
public officials shall be governed by the provisions of this
Act."
Benguet contends that the period of corporate life relates
to its organization and the rights of its members inter se,'
and not to its relations to the, public or public officials.
We find this contention untenable.
The term of existence of association (partnership or
sociedad anomima) is coterminous with their possession
of an independent legal personality, distinct from that of
their component members. When the period expires,
the sociedad anomima loses the power to deal and enter

into further legal relations with other persons; it is no
longer possible for it to acquire new rights or incur new
obligations, have only as may be required by the
process of liquidating and winding up its affairs. By the
same token, its officers and agents can no longer
represent it after the expiration of the life term prescribed,
save for settling its business. Necessarily, therefore,
third persons or strangers have an interest in knowing the
duration of the juridical personality of the sociedad
anonima,, .since the latter can not be dealt with after that
period; wherefore its prolongation or cessation is a
matter directly involving the company's relations to the
public at large.
On the importance of the term of existence set in the
articles of association of commercial companies under
the Spanish Code of Commerce, D. Lorenzo Benito y
Endar, professor of mercantile law in the Universidad
Central de Madrid, has this to say:
"La duration de la Sociedad. La necesidad de'
consignar este requisito en el cotitrato social tiene mi
valor analogo al qua dijinios tenia el mismo al tratar de
las compafiias colectivas, aun cuando respecto de las
anonimas no haya de tenerse en cuenta para nada lo
que dijimos entonces acerca da" la trascendencia quo
ello tiene para Ios socios; porque no existiendo en las
mimimas la serie de responsibilidades de caracter
personal ;que afectan a Ios socios coleetivos, es claro
que la duraci6n de la soeiedad iraporta conocerla a Ios
socios y los terceros, porque ella marca el limite natural
del desenvolvimiento de la empresa constituida y el
comienzo de la Iiquidacion de la sociedad." (3 Benito,
Dereclio Mercantil, 292-293.)
"Interesa, pues, la fijacion de la vida de la compañia,
desenvol-viendose con normalidad y regularidad, tanto a
los asociados eomo a los terceros. A aquellos, porque
su libertad economica, en cierto J modo limitada por la
existencia del contrato de compafiia, se recobra despues
de realisada, mas 6 menos cumplidamente, la finalidad
comun perseguida; y a los terceros, porque les advierte
el momento en que, extinguida la compania, no cabe y a
la creation con ella de nuevas rel'aciones juridicas, de que
hazcan reciprocamente derechos y obligaciones, sino
solo la liquidacion de los negocios hasta;: entonces
convenidos, sin otra eseepci6n que la que luego mas
adelante habremos de sefialar". (3 Benito, Derecho
Mercantil, p. 245.)
The State and its officers also have an obvious interest
in the term of life of associations, since the conferment
of juridical capacity upon them during such period is a
privilege that is derived from statute. It is obvious that
no agreement between associates can result in giving
rise to a new and distinct personality, possessing
independent rights and obligations, unless the .law itself
shall decree such result. And; the State is naturally
interested that this privilege be enjoyed only under the
conditions and not beyond the period that it sees fit to
grant; and, particularly, that it be not abused in fraud and
to the detriment of other parties; and for this reason it
7
has been ruled that "the limitation (of corporate
existence) to a definite period is an exercise of control in
the interest of the public" (Smith vs. Eastwood Wire
Manufacturing Co., 43 Atl. 568).
We can not assent to the thesis of Benguet that its
period of corporate existence has relation to its
"organization". The latter term is defined in Webster's
International Dictionary as:
"The executive structure of a business; the personnel of
management, with its several duties and places in
administration; the various persons who conduct a
business, considered as a unit."
The legal definitions of ,the term "organization" are
concordant with that given above:
"Organize or 'organization, as used in Reference to
corporations, lias, a well-understood meaning, which is
the election of officers, providing for the subscription and
payment of the capital stock, the adoption of by-laws,
and such other steps as are necessary to endow the
legal entity with the capacity to transact the legitimate
business for which it was created- Waltson vs. Oliver,
SO P. 172, 173, 49 Kan. 107, 33 Am. St. Sep. 355;
Topeka Bridge Co. vs. Cummings, 3 Kan. 55, 77; limit
vs. Kansas & M. Bridge Co., 11 Kan. 412, 439; Aspen
Water & Light Co., to. City of Aspen, 37 P. 728, 730, 5
Colo. App. 12; Nemaha Coal & Mining Co., vs. Settle 38
P. 4S3, 484, 54 Kan. 424.
Under a statute providing that, until articles of
incorporation should be recorded, the corporation should
transact no business except its own organization, it is
held that the term "organization" means simply the
process of forming and arranging into suitable disposition
the parties who are to act together in, and denning the
objects of, the compound body, and that this process,
even when complete in all its parts, does not confer a
franchise either valid or defective, but, on the contrary,
it is only the act of the individuals, and something else
must be done to secure the corporate franchise. Abbott
vs. Omaha Smelting & Refining Co. 4 Neb. 416,. 421."
(30 Words and Phrases, p. 282.)
It is apparent from the foregoing definitions that the term
"organization" relates merely to the systematization and
orderly arrangement of the internal and managerial
affairs and organs of the petitioner Benguet, and has
nothing to do with the prorogation of its corporate life.
From the double fact that the duration of its corporate life
(and juridical personality) has evident connection with
the petitioner's relations to the public, and that it bears
none to the petitioner's organization and method of
transacting business, we derive the conclusion that the
prohibition contained in section 18 of the Corporation Law
(Act No. 1459) against extension of corporate life by
amendment of the original articles was designed and
intended to apply to "companios anonimas" that, like
petitioner Benguet, were already existing at the passage
of said law. This conclusion is reinforced by the avowed
policy of the law to hasten the day when companias

anonimas would, be extinct, and replace them with the
American type of corporation (Harden vs. Behguet
Consolidated Mining Co., supra), for the indefinite
prorogation of the corporation life of sodedades
anonimas would maintain the unnecessary duality of
organizational types, instead of reducing them to a
"single one; and what is more, it would confer upon these
sodedades anonimas, whose obsolescence was sought,
the advantageous privilege of perpetual existence that
the new corporation could not possess.
Of course, the retroactive application of the limitations on
the terms of corporate existence could not be made in
violation of constitutional inhibitions specially those
securing equal protection of the laws and prohibiting
impairment of the obligation of contracts. It needs no
argument to show that if Act No. 1459 allowed existing
compañias anonimas to be governed by the old law in
respect to their organization, methods.of transacting
business and the rights . of the members among
themselves, it was precisely in deference to the vested
rights already acquired by the entity and its members at
the time the Corporation Law was enacted. But we do
not agree with petitioner Benguet (and here lies the
second issue in this appeal) that the possibility to extend
its corporate life under the Code of Commerce
constituted a right already vested when Act No. 1459
was adopted. At that time, Benguet's existence was well
within the 50 years period set in its articles of association;
and its members had not entered into any agreement
that such period should be extended. It is safe to say that
none of the members of Benguet anticipated in 1906 any
need to reach an agreement to increase the term of its
corporate life, barely three years after it had started. The
prorogation was purely speculative; a mere possibility that
could not be taken for granted. It was as yet conditional,
depending upon the ultimate decision of the members
and directors. They might agree to extend Benguet's
existence beyond the original 50 years; or again they
might not. It must be remembered that in 1906, the
success, of Benguet in its mining ventures was by no
means so certain as to warrant continuation of its
operations beyond the 50 years set in its articles. The
records of this Court show that Benguet ran into financial
difficulties in the early part of its existence, to the extent
that, as late as 1913, ten years after it was found,
301,100 shares of its capital stock (with a par value of
$1 per share) were being offered for sale at 25 centavos
per share in order to raise the sum of P75,000 that was
heeded to rehabilitate the company (Hanlon vs.
Hausermann and Beam, 40 Phil., 790). Certainly the
prolongation of the corporate existence of Benguet in
1906 was merely a possibility in futuro, a contingency
that did not fulfill the requirements of a vested right
entitled to constitutional protection, defined by this Court
in Balboa vs. Farrales, 51 Phil., 498, 502, as follows:
"Vested right is 'some right or interest in the property
which has become fixed and established, and is no
longer open to doubt or controversy,"
8
"A 'vested' right is defined to be an immediate fixed right
of present or future enjoyment, and rights are 'vested'
in .contradistinction to being expectant or contingent"
(Pearsall vs. Great Northern R. Co., 161 IT. S. 646, 40
L. Ed. 838).
In Corpus Juris Secundum we find:
"Rights are vested when the right to enjoyment, present
or prospective, has become the property of some
particular person or persons as a present interest. The
right must be absolute, .complete, and unconditional,
independent of a contingency, and a mere expectancy of
future benefit, or a contingent interest in property
founded on anticipated continuance of existing laws, does
not constitute a vested right. So, inchoate rights which
have not been acted on. are not vested." (16 C. J, S.
214-215.)
Since there was no agreement as yet to extend the period
of Benguet's corporate existence (beyond the original 50
years) when the Corporation Law was adopted in 1906,
neither Benguet nor its members had any actual or
vested right to such extension at that time. Therefore,
when the Corporation Law, by section 18, forbade
extensions of corporate life, neither Benguet nor its
members were deprived of any actual or fixed right
constitutionally protected.
To hold, as petitioner Benguet asks, that the legislative
power could not deprive Benguet or its members of the
imssibilitij to enter at some indefinite future time into an
agreement to extend Benguet's corporate life, solely
because such 'agreements were authorized by the Code
of Commerce, would be tantamount to saying that the
said Code was irrepealable on that point. It is a well
settled rule that no person .has a vested interest in any
rule of law entitling him to insist that it shall, remain
unchanged for his benefit. (New York C. R. Co. vs. White,
61 L. Ed (U.S.) 667; Mondou vs. New York N: H. & H. E.
Co., 56 L. Ed. 327; Rainey vs. V. S., 58 L. Ed. 617; Lilly
Co. vs. Saunders, 125 ALR. 1308; Shea vs. Olson, 111
ALR. 998).
"There can be no vested right in the continued existence
of a statute or rule of the common law which precludes
its change or repeal, nor in any. omission to legislate
on a particular matter or subject. Any right conferred by
statute may be taken away by statute before it has
become vested, but after a right has vested, repeal of the
statute or ordinance which created the right does not and
cannot affect much right." (16 0. J. S. 222-228.) It is a
general rule of constitutional law that a person has no
vested right in statutory privileges and exemptions"
(Brearly School vs. Ward, 201 NY. S58, 40 LRA NS.
1215; also, Cooloy, Constitutional Limitations, 7th ed., p.
546).
It is not amiss to recall here that after Act No. 1459 the
Legislature found it advisable to impress further
restrictions upon the power of corporations to 'deal in
public lands, or to hold real estate beyond a maximum
area; and to prohibit any corporation from endeavouring
to control or hold more than 15 per cent of the voting
stock of an. agricultural or mining corporation (Act No.

3518). These prohibitions are so closely integrated with
our public policy that Commonwealth Act No^ 219 sought
to extend such restrictions to associations of all kinds. It
would be subversive of that policy to enable Benguet to
prolong its peculiar status of sociedad ammimas, and
enable it to cast doubt and uncertainty on whether it is, or
not, subject to those restrictions on corporate power, as it
once endeavoured to do in the previous case of Harden
vs. Benguet Mining Corp. 58 Phil., 149.
Stress has been laid upon the fact that the Compania
Maritima (like Benguet, a sociedad anonima
established before the enactment of the Corporation
Law) has been twice permitted to extend its corporate
existence by, amendment of its articles of association,
without objection from the officers of the defunct Bureau
of Commerce and Industry, then in charge of the
enforcement of the Corporation Laws, although the
exact question was never raised then. Be that as it may,
it is a well established rule in this jurisdiction that the
government is never estopped by mistake or error on the
part of its agents" (Pineda vs. Court of First Instance of
Tayabas, 52 Phil., 803, 807), and that estopped can not
give validity to an act that is prohibited by law or is against
public policy (Eugenio vs. Perdido, (97 Phil., 41, May 19,
1955; 19 Am. Jur. 802); so that the respondent,
Securities and Exchange Commissioner, was not bound
by the rulings of his predecessor if they be inconsistent
with law. Much less could erroneous decisions of
executive officers bind this Court and induce it to sanction
an unwarranted interpretation or application of legal
principles.
We now turn to the third and last issue of this appeal,
concerning the exercise of the option granted by section
75 of the Corporation Law to every sociedad anonima.
"formed, organized and existing under the laws of the
Philippines on the date of the passage of this Act" to either
continue business as such sociedad anonima or. to
reform and organize under the provisions of the
Corporation Law. Petitioner-appellant Benguet contends
that as the law does not determine the period within which
such option may be exercised, Benguet may exercise it at
any time during its corporate existence; and that in fact
on June 22, 1953, it chose to reform itself into a
corporation for a period of 50 years from that date, filing
the corresponding papers
The petitioner's argument proceeds from the
unexpressed assumption that Benguet, as sociedad
ammima, had not exercised the option given by section
75 of the Corporation Law until 1953. This we find to
be incorrect. Under that section, by continuing to do
business as sociedad anonima, Benguet in fact rejected
the alternative to reform as a corporation under Act No.
1459. It will be noted from the text of section 75 (quoted
earlier in this opinion) that no special act or manifestation
is required by the law from the existing sociedades
anonimas that prefer to remain and continue as such. It
is when they choose to reform and organize under the
9
Corporation Law that they must in the words of the
section, ''transfer all corporate interests to the new
corporation". Hence if they do not so transfer, the
sociedades amdnimas affected are to be understood to
have elected the alternative" "to continue business as
such corporation" (sociedad amnima) [2].
The election of Benguet to remain a sociedad anonima
after the enactment of the Corporation Law is evidence,
not only by its failure, from 1906 to 1953, to adopt the
alternative to transfer its corporate interests to a new
corporation, as required by section 75; it also appears
from positive acts. Thus around 1933, Benguet claimed
and defended in court its acquisition of shares of the
capital stock of the Balatoc Mining Company, on the
ground that as a sociedad anonima it (Benguet) was not
a corporation. within the purview of the laws prohibiting
a mining corporation from becoming interested in another
mining corporation (Harden vs. Benguet Mining Corp., 58
Phi)., p. 1.49); Even in the present proceedings,
Benguet hag urged its right to amend its original articles
of association as " sociedad anonima" and extend its life
as such under the provisions of the Spanish Code of
Commerce. Such appeals to privileges as " sociedad
anonima" under the Code of 1886 necessarily imply that
Benguet has rejected the alternative of reforming under
the Corporation Law. As respondent Commissioner's
order, now under appeal, has stated
"A sociedad anonima could not claim the benefit of both,
but must have to choose one and discard the other. If it
elected to become a corporation it could not continue as
a sociedad anonima; and if it choose to remain as a
sociedad anonima it could not become a corporation."
Having thus made its choice, Benguet.may not now go
back and seek to change its position and adppt the
reformation that it had formerly repudiated. The election
of one of several alternatives, is irrevocable once made
(as now expressly recognized in article 940 of the new
Civil Code of the Philippines) : such rule is inherent in
the nature of the choice, its purpose being to clarify and
render definite the rights of the one exercising the option,
so that other persons may act in consequence. While
successive choices may be provided there' is nothing in
section 75 of the Corporation Law to show or hint that a
sociedad anonima may make more than one choice
thereunder, since only one option is provided for.
While no express period of time is fixed by the law within
which sociedad.es wnonimas may elect under section 75
of Act No, 1459 either to reform or to retain their status
quo, there are powerful reasons to conclude that the
legislature, intended such choice to be made within a
reasonable time from the effectivity of the Act. To enable
a sociedad amonitna to choose reformation when its
stipulated period of existence is nearly ended, would be
to allow it to enjoy a term of existence far longer than that
granted to corporations organized under the Corporation
Law; in Ben- guet's case, 50 years as sociedad ammdma,
and another 50 years as an American type of corporation
under Act 1459; a result incompatible with .the avowed

purpose of the Act to hasten the disappearance of the
sociedades anonimas. Moreover, such belated election,
if permitted, would enable sociedades anonimas to reap
the full advantage of both' types of organization. Finally,
it would permit sociedades awonimas to prolong their
corporate existence indirectly by belated reformation into
corporations under Act No. 1459, when they could not
do so directly by amending their articles of association.
Much stress is laid upon allegedly improper motives on
the part of the intervenor, Consolidated Mines, Inc., in
supporting the orders appealed from, on the ground that
intervenor,seeks to terminate Benguet's operating
contract and appropriate the profits that are the result of
Benguet's efforts in developing the mines of the
intervenor. Suffice it to say that whatever such motives
should be, they are wholly irrelevant to the issues in this
appeal, that exclusively concern the legal soundness of
the order of the respondent Securities and Exchange
Commissioner rejecting the claims of the Benguet
Consolidated Mining Company to extend its corporate
life.
Neither are we impressed by the prophesies of economic
chaos that would allegedly ensure with the cessation of
Benguet's activities. If its mining properties are really
susceptible of profitable operation, inexorable
economic. laws will ensure their exploitation; if, on the
other hand, they can no longerj be worked at a profit, then
catastrophe becomes inevitable, whether or not petitioner
Benguet retains corporate existence. Sustaining the
opinions of the respondent Securities and Exchange
Commissioner and of the Secretary of Justice, we rule
that:
(1) The prohibition contained in section 18 of Act No.
1459, against extending the period of corporate existence
by amendment of the original articles, was intended to
apply, and does apply, to sociedades andnimas already
formed, organized and existing at the time of the eff
ectivity of the Corporation Law (Act No. 1459) in 1906;
(2) The statutory prohibition is valid and impairs no
vested rights or constitutional inhibition where no
agreement to extend the original period of corporate life
was perfected before the enactment of the Corporation
Law;
(3) A soeiedad (minima, existing before the Corporation
Law, that continues to do business as such for a
reasonable time after its enactments, is deemed to have
made its election and may not subsequently claim to
reform into a corporation under section 75 of Act No.
1459.
In view of the foregoing, the order appealed from is
affirmed. Costs against petitioner-appellant Benguet
Consolidated Mining Company.
10
Padilla, Montemayor, Reyes, A. Labrador, Concepcion
and Endencia, JJ., concur.
[2] It must be remembered that sections 75 and 191 of the
Corporation Saw use the phrase "corporation or
socicdad tmoninm" thus employing "corporation" as the
equivalent legal designation in English of the Spanish
term "sociedad anonima", in designating the same entity;
See Harden vs. Benguet Cons. Mining Go., 58 Phil., p.
146.
DISSENTING:
PARAS, C. J.,
The petitioner, Benguet Consolidated Mining Company,
was organized as a sociedad anonima on June 24,
1903, under the provisions of the Code of Commerce,
and its term as fixed in the articles of association was fifty
years. It has been a leading enterprise, Jong and widely
reputed to have pioneered in and boosted the mining
industry, distributed profits among its shareholders, and
given employment to thousands. To be more
approximately exact, the petitioner ha£ kept on its
payrolls over four thousand Filipino employees, who have
about twenty thousand dependents. The taxes and other
dues paid by it to the Government have been in
enormous amounts. It has always been subject to such
supervision and control of Government officials aa are
prescribed by law.
When, therefore, the petitioner on June 3,1953,
presented all necessary documents to the respondent,
the Securities and Exchange Commissioner, with a view
to the extension of its term as a sodedad anonima for a
period of fifty years from June. 15, 1953; when on June
22, 1953, it filed with said respondent the necessary
articles of incorporation and other documents, with a
view to reforming itself as , a corporation under the
Corporation Law for a period of fifty years from June 22,
1953, followed by the filing on July 22, 1953, of the
corresponding by-laws; and when on October 27, 1S53,
the respondent issued an order denying the registration
of the instruments as well for exten- . sion as for
reformation^ petitioner's corporate life was being
snapped out with such lightning abruptness as
undoubtedly to spell damage and prejudice not so much
to its shareholders as to its beneficiaries thousands of
employees and their dependents and even to the
Government which stands to lose a good source of
revenue.
The petitioner contends (1) that the respondent had the
ministerial duty of registering the documents presented
either for extension of petitioner's term as a sodedad
anonima or for its reformation under the Corporation Law,
in the absence (as in this case) of any pretense that
said documents are formally defective or that petitioner's

purposes are unlawful; and (2). that as the petitioner
had organized as a sodedad anonima under the Code of
Commerce> it has acquired a vested right which cannot
subsequently be affected or taken away by the
Corporation Law enacted on April 1, 1906. I would not
dwell upon these contentions, because I hold that, even
under the provisions of the Corporation Law, the
petitioner may either extend its life as a sodedad anonima
or reform as a corporation.
Section 75 of the Corporation Law provides:
"Any corporation or sociedad anonima formed, organized
and existing under the laws of the Philippine Islands and
lawfully transacting business in the Philippine .Islands on
the date of the passage of this Act, shall be subject to the
provisions hereof so far as such provisions. may he
applicable and shall be entitled at its option either to
continue business as such corporation or to reform and
organize under, and by virtue of the. provisions of this
Act, trans ferring all corporate interests to the new
corporation which, if a stock corporation, is authorized
to issue its shares of stock at par to the stockholders or
members of the old corporation according to their
interests."
Upon the other hand, section 191 reads as follows
"The Code of Commerce, in so far as it relates to
corporations or sociedades anonimas, and all other or
parts of Acts in conflict or inconsistent with this Act, are
hereby repealed * * * And provided, further, That existing
corporations or sodedade anonima lawfully organized as
such, which elect to continue their business as such
sociedades aiypnimas instead of reforming and
reorganizing under and by virtue of the provisions of this
Act, shall continue to be governed by the laws that were
in force prior to the passage of this Act in relation to their
organization and method of transacting business' and, to
the rights of members thereof as between themselves,
but their relations to the public and public officials'shall
be governed by the provisions of this Act."
It is noteworthy that section 75 has not limited the
optional continuance of a sociedad anonima to its
unexpired term, and section 191 expressly allots a
sociedad andnimd which hag elected to continue its
business as such to be governed by the laws in force
prior to the enactment of the Corporation Law in relation
to its organization and method of transactingybusine&s
and to the rights of members as between themselves. It
is admitted that the Code of Commerce, while containing
no express provision allowing it, does not prohibit a
sociedad anfmima from extending its term; and
commentators Gay de Monteila (Tratado Practico de
Sociedad Marcantiles Companias Andnimas, Tomo II,
p. 285) and Cesar Vivante (Tratado de Derecho
Mercantil, pp. 254, 258) have observed that a sociedad
andnima may prolong its corporate duration by
amendment of its articles of association before the
expiration of the term.
When a business or commercial association is organized,
the members are naturally interested in knowing not only
their rights and obligations but also the duration of their
11
legal relations. While "organization" in a strict sense
may refer to formalities like election of officers, adoption
of by-laws, and subscription and payment of capital
stock, it cannot be spoken of or conceived in a wider
sense without necessarily involving the specification of
the term of the entity formed. Extension of corporation
life is thus essentially an incident of "organization" and, in
any event, a matter directly affecting or in relation to the
rights of the shareholders as; between themselves, within
the contemplation of section 191, and should accordingly
be governed by the Code of Commerce. As pointed out
by'the Supreme Court of Wyoming in the case of Drew
vs. Beckwith, (114 P. 2d. 98), extension "merely involves
an additional privilege to carry out the business of
enterprise undertaken by the corporation," and is "but an
enlargement of the enterprise undertaken by the
corporation." It is true that the duration of a soeiedad
anonima is of some concern to the public and public
officials who ought to know the time when it will cease to
exist and its business will be wound up. Notice to the
world is however served by the registration of petitioner's
articles, of association as a soeiedad andnima or articles
of incorporation as a reformed corporation with the
Securities and Exchange Commission.
When section 191 .mentions "relations to the public and
public officials" as 'being governed by the provisions of
the Corporation Law, the idea is obviously more to enable
the Government to enforce its powers of supervision,
inspection and investigation, than to restrict the. freedom
of the corporate entity as to organizational or
substantive rights of members as between themselves. In
one of the public hearings conducted by the Philippine
Commission before the enactinent of the Corporation
Law, Commissioner We pertinently expressed, "Of
course, whether they (sociedades) come under the new
law or not they would be subject to inspection,
regulations, and examination for the purpose of protecting
the community.." The Attorney General in turn held that
sodedades anonirnas, although governed by the Code
of Commerce, are subject to the examination provided
in section 54 of the Corporation Law (5 Op. Atty. Gen.
442). In this' connection, the petitioner has admittedly
subjected itself to the provisions of the Corporation Law.
In Harden vs. Benguet Consolidated Mining Co., 58
Phil., 141, it was remarked: "The purpose of the
commission in repealing this part of the Code of
Commerce was to compel commercial entities thereafter
organized to incorporate under the Corporation Law,
unless they should prefer to adopt some form or other of
the partnership." This Court already indicated that the
commercial entities compelled to incorporate under the
Corporation Law were those organized after its
enactment.
Section 6, subsection 4, of the Corporation Law provides
that the term for which corporations shall exist shall not
exceed fifty years; section 18 provides that the life of a
corporation shall not be extended by amendment

beyond the time fixed in the original articles; and section
11 provides that upon the issuance by the Securities and
Exchange Commissioner of the certificate of
incorporation, the persons organizing .the corporation
shall constitute a body" politic and corporate for the term
specified in the articles of incorporation, not exceeding
fifty years. The corporations contemplated are those
defined in section 22 corporations organized under the
Corporation Law. They cannot be sodedades an&trimas
formed under the Code of Commerce and licensed to
continue as such in virtue of sections 75 and 191.
Otherwise the words "or socieded anonima" would have
been added to the term "corporation" in section 18, as was
done in sections 75 and 191. A similar observation was
made in Harden vs. Benguet Consolidated Mining Co.,
supra: "But when the word corporation is used in the
sense of sodedad anonima and close discrimination is
necessary, it should be associated with the Spanish
expression sodedad andnima either in parenthesis or
connected by the word 'or'. This latter device was
adopted. in sections 75 and 191 of the Corporation
Law."
The citation from 3 Benito, Derecho Mercantil, p. 245,
invoked in the majority decision, to the effect that the
duration of a sodedad anonima is of interest both to its
members and to third persons, is clearly an authority for
our conclusions that the extension of petitioner's term
is in relation "to the rights of members thereof as between
themselves." Section 191 does not say that a sociedad
anonima shall be governed by the provisions of the
Corporation Law when the matter involved affects not
only "the rights of members thereof as between
themselves" but also "the public and public officials."
We are also of the opinion.that alternatively, under
section 75, the petitioner may elect to reform and organize
under the Corporation Law, transferring all its corporate
, interests to the new corporation. Contrary to the ruling
of the respondent, we are convinced that, as no period
was fixed within which it should exercise the option
either of continuing as a sodedad anonima or reforming
and organizing under the Corporation Law, the petitioner
was entitled to have its articles of incorporation and by-
laws presented respectively on June 22 and July 22,
1953, registered by.the respondent. Section 75 did not
take away petitioner's right to exhaust its term as a
sodedad cmdnimu, already vested before the enactment
of the Corporation Law, but merely granted it the choice
to organize as a regular corppration, instead of extending
its life as a sodedad anonima. The only limitation
imposed is that prescribed in section 191, namely, that if
a sodedad anonima elects to continue its business as
such, it shall be governed by the prior law in relation to
its organization and method of transacting business and
to the rights of its members as between themselves, and
by the provisions of the Corporation Law as to its
relations to the public and public officials. If the intention
were to fix a period for reformation, the law would have
expressly so provided, in the same way that section 19
12
fixes two years during which a corporation should
formally organize and commence the transaction of its
business, otherwise its corporate powers would cease;
section 77 fixes three years from the dissolution of a
corporation within which it ,may clear and settle its affairs;
and section 78 fixes the same period of three years within
which a corporation may convey its properties to a trustee
for the benefit of its stockholders and other interested
persons.
It is not correct to argue that the petitioner is not entitled
to elect to continue as a, sociedad anonima and at the
same time reform and organize as a regular corporation,
because when it continued as a sociedad anonima after
the passage of the Corporation Law and during its full
term of fifty years, it merely exercised a iright it
theretofore had; and the petitioner can. be said properly
to have availed itself of the other option only when in June
1953 it filed the necessary papers of incorporation under
the Corporation Law. It is likewise not accurate to
contend that, as the respondent ruled, the petitioner
could reform as and be a regular corporation at most
only for the remainder of its term as a sociedad anonima.
Section 75, in allowing a sociedad anonima to reform
and organize under the Corporation Law. also authorizes
the transfer of its corporate interests to the new
corporation. This "new" corporation should have the
advantage of the prescribed maximum duration,
regardless of the original term of the old or substituted
entity. There is no basis for the criticism that, if the
petitioner were allowed to exhaust its full term as a
sociedad anonima, and afterwards to reform as a regular
corporation for another fifty years, it would have a span of
life twice as long as that granted to corporations
organized under the Corporation Law. The simple
reason is that the petitioner was already a corporate entity
before the enactment of the. Corporation Law, with a fixed
duration under its original articles of association. It was
clearly not in parity with any corporation organized under
and coming into existence after the eff ectivity of the
Corporation Law which has no choice1 on the matter and
can therefore have only the prerogative granted by said
law, no more no less.
The respondent has suggested that the petitioner, if
desirous of continuing its business, may organize a new
corporation a suggestion which need not be made
because no one would probably think of denying it that
right. But we cannot see any cogent reason or practical
purpose for the suggestion. In the first place, the filing of
petitioner's articles of incorporation and by-laws in July,
1953, in effect amounted to the formation of a new
corporation. To require more is to give greater
importance to form than to substance. In the second
place, the public and public officials may not as a matter
of fact be adversely affected by allowing the petitioner
to reform, instead of requiring it technically to form a new
corporation. It will acquire no greater rights or obligations
by simple reformation than by newly organizing another
corporation. Conversely, the public and public officials

will acquire no greater benefit or control by requiring the
petitioner to form, a new corporation, than by allowing it
to reform. And as already stated, whatever interest the
public and public officials may have in determining the
duration of a sociedad anonima or any corporation for
that matter, is amply protected by registration in the
Securities and Exchange Commission.
The respondent and the intervenor, Consolidated Mines,
Inc., have tried to show that the petitioner holds or owns
interests in eight mining companies, in violation of section
13, subsection 5 of the Corporation Law, in that it has
operating contracts with the interyenor and seven other
mining companies, besides owning the majority shares
in Balatoc Mining Co. This matter has not merited any
attention or favorable comment in the majority decision,
and rightly of course. Even so, we may observe that the
alleged violation was not the subject of any finding by the
respondent, nor relied upon in his order of denial; that
the petitioner has denied the charge; that the holding by
the petitioner of shares of stock in Balatoc Mining Co.,
if really illegal, may look into only in a quo warranto
proceeding instituted by the Government; that at any rate
the petitioner has always been ready and willing to
dispose of said shares and, in a proper proceeding, it
should be given reasonable time to do so, as this Court
gave the Philippine Sugar Estates a period of six months
after final decision within which to "liquidate, dissolve and
separate absolutely in every respect and in all of its
relations, complained of in the petition, with the Tayabas
Land Company" (Government vs. Philippine Sugar
Estates Co., 38 Phil., 15).
With special reference to the intervenor, it may be of
some moment to know the antecedents and nature of
business relations existing between it and the petitioner,
at least to demonstrate the righteousness of the position
of one or the other ,even from a factual point of view.
The following excerpts from "Petitioner's Reply to a
portion of Intervenor's Brief" are in point:
"What has happened in our case is that prior to the
execution of the Operating Agreement of July 9, 1934,
the stockholders, directors, and officers of the intervenor,
Consolidated Mines, Inc., did not want to risk one
centavo of their own funds for the development of their
chrome ore mining claims in Zambales province, and
proposed to the petitioner herein, Benguet Consolidated
Mining Company, to explore, develop and operate their
mining claims, Benguet to furnish all the funds that might
be necessary, and to explore, develop, mine and
concentrate and market 'all the pay. ore fourid on or
ivitthin paid claims or properties', the infcervonar,
Consolidated Mines, Inc., and the petitioner, Benguet
Consolidated Mining Company, after the latter had
reimbursed itself fo:q all its advances, to divide half and
half the excess of receipts cter disbursements. Benguet
agreed to it, and advanced approximately fihree million
pesos, one-half thereof before the war, and the other half
after the war (the Intervenor's properties having been
destroyed during the war). Paragraph XII of the
13
interyenor's complaint in the civil action 'instituted by it
against Benguet in the Court of First .Instance of Manila,
.No. 18938, and to which counsel for the intervenor,
refer in page 5 of their brief, makes mention of the large
sums of money that Benguet advanced, as follows:
'Initial advances amounting to approximately
P1,500,000) made by defendant during the first phases
of said Operating Agreement which had been fully
reimbursed to it before the war, and of the, amounts
likewise . advanced by it (Benguet) for rehabilitation
amounting to close P1,500,000,00.
"While Benguet risked and poured approximately three
million pesos (P3,000,000) into the venture, and while
Benguet was looking for,. and establishing, a market for
intervenor's chrome ore, the intervenor, Consolidated
Mines, Inc., considered the said Operating Agreement of
July 9, 1934, as valid. Now that Benguet's efforts have
been crowned with success, and Benguet has
established a market for intervenor's chrome ore, the
intervenor. claims that its said Operating Agreement of
July 9, 1934, with the petitioner, Benguet, is contrary,
to. law because Benguet has become interested in
intervenor's chrome ore mining claims (although the
agreement esspressly states that Benguet has no
interest therein), and .objects to the registration of the
documents which Benguct filed with the respondent
Securities and Exchange Commissioner, extending its
life as a sociedad anonima, and reforming itself as a
corporation, in accordance with, the provisions of section
75 of the Corporation Law.
"Under the foregoing facts, the intervenor, Consolidated
Mines, . Inc., can not be heard to complain against
Benguet. No court can give now a helping hand to the
intervenorf which claims that Benguet no longer lives,
and wants to keep for itself all the products of Benguet's
'efforts after the latter risked into the venture
approximately three million pesos (P3,000,000)."
The foregoing considerations may not constitute a legal
justification fdr ruling that the petitioner should be allowed
either to extend its life as a sociedad anonima or to
reform and organize under the provisions of the
Corporation Law, but they may aid in resolving in
petitioner's favor,and doubt as to the clarity or
definiteness of sections 75 and 191 of the Corporation
Law regarding its right to exercise either option in the
manner claimed by. it.
The same result may be arrived at H, in addition, we
bear in mind the possible economic harm that may biv
brought about by the affirmance of the order complained
of. This aspect is adequately, touched in petitioner's brief,
as follows:
"1.
A loss of employment in the Baguio district by about 4,000
Filipino awd a loss of direct living from the Benguet
operation Supplied to 20,000, that is the 1,000 employed
and their dependents.

"(a)
This "would bo calamity to the district of the highest
depression which could react ail fiver the Philippine
Islands.
"2.
Losses of direct and indirect taxes to the Philippine
Government in an extremely large yearly amount.
"3.
No one would be able to .continue the Benguet and
Balatoc mines in operation should a liquidation of
Benguet take place because the net profits after labor
and material ccsts and taxes jr. the last two years or
more from the gold mining operations have not warranted
their continued operation as independent units. The
profits in 1953 certainly do not warrant it. It is merely a
case of taking gold out of the ground in order to pay for
labor, materials and taxes with very little return to the
stockholders and on the huge investment made in the
reconstruction since 1946.
"(a)
The relief provided by the elimination of the 17 per cent
Excise Tax, the 7 per cent Compensation Tax and the
lowering of the Extraction Tax, when counter-balanced
against consistently increasing costs from month to month
up to this very month, is now nothing but an offsetting
item against constantly increasing costs."
For whatever persuasive effect it may have, we cannot
help calling attention to the fact that there are only about
nine sociedades anonimas in the country, foremost
among them being Compañia Maritima, which have
existed for years and along with the petitioner figured
prominently in uur economic development. Compania
Maritima, in particular, has been twice allowed to
extend its life by amendment of its articles of
incorporation. It may be argued that if there was. an
official mistake in acceding to the extension of the term of
Compania Maritima, the same should not warrant the
commission of another mistake. But it will go to show
that sections 75 and 191 of the Corporation Law are, on
the points herein imohed, of doubtful construction; and it
is for this reason that we had to advert heieinabove to
the somewhat unequitable position of the intervenor and
to the possible adverse effect on Philippine economy of
the abrupt termination of petitioner's corporate existence.
By and large, it is my considered opinion that the
respondent's order of denial dated October 27, 1953,
should be reversed and the respondent ordered to
register at least the documents presented by the
petitioner, reforming and organizing itself as a
corporation under the provisions of the Corporation Law.
This would be in line with the policy of doing away with
sociedad anonimas, at the same time saving "the goose
that lays the golden egg."
Jugo and Bautista Angelo, JJ., concur.
14
Section 10. Number and qualifications of incorporators.
- Any number of natural persons not less than five (5)
but not more than fifteen (15), all of legal age and a
majority of whom are residents of the Philippines, may
form a private corporation for any lawful purpose or
purposes. Each of the incorporators of s stock
corporation must own or be a subscriber to at least one
(1) share of the capital stock of the corporation. (6a)
Section 12. Minimum capital stock required of stock
corporations. - Stock corporations incorporated under
this Code shall not be required to have
any minimum authorized capital stock except as
otherwise specifically provided for by special law, and
subject to the provisions of the following
section.
Section 13. Amount of capital stock to be subscribed
and paid for the purposes of incorporation. - At least
twenty-five percent (25%) of the
authorized capital stock as stated in the articles of
incorporation must be subscribed at the time of
incorporation, and at least twenty-five (25%) per
cent of the total subscription must be paid upon
subscription, the balance to be payable on a date or
dates fixed in the contract of subscription
without need of call, or in the absence of a fixed date
or dates, upon call for payment by the board of
directors: Provided, however, That in no case
shall the paid-up capital be less than five Thousand
(P5,000.00) pesos. (n)
Section 17. Grounds when articles of incorporation or
amendment may be rejected or disapproved. - The
Securities and Exchange Commission
may reject the articles of incorporation or disapprove
any amendment thereto if the same is not in
compliance with the requirements of this Code:
Provided, That the Commission shall give the
incorporators a reasonable time within which to
correct or modify the objectionable portions of the
articles or amendment. The following are grounds for
such rejection or disapproval:
1. That the articles of incorporation or any
amendment thereto is not substantially in
accordance with the form
prescribed herein;
2. That the purpose or purposes of the corporation
are patently unconstitutional, illegal, immoral, or
contrary to
government rules and regulations;
3. That the Treasurer's Affidavit concerning the
amount of capital stock subscribed and/or paid is
false;

4. That the percentage of ownership of the capital
stock to be owned by citizens of the Philippines has
not been
complied with as required by existing laws or the
Constitution.
No articles of incorporation or amendment to articles
of incorporation of banks, banking and quasi-banking
institutions, building and loan
associations, trust companies and other financial
intermediaries, insurance companies, public utilities,
educational institutions, and other
corporations governed by special laws shall be
accepted or approved by the Commission unless
accompanied by a favorable recommendation of
the appropriate government agency to the effect that
such articles or amendment is in accordance with
law. (n)
NORBERTO ASUNCION, ET AL., petitioners-appellants,
vs.
MANUEL DE YRIARTE, respondent-appellee.
Modesto Reyes for appellants.
Attorney-General Villamor for appellee.
MORELAND, J.:
This is an action to obtain a writ of mandamus to compel
the chief of the division of achieves of the Executive
Bureau to file a certain articles of incorporation.
The chief of the division of archives, the respondent,
refused to file the articles of incorporation, hereinafter
referred to, upon the ground that the object of the
corporation, as stated in the articles, was not lawful and
that, in pursuance of section 6 of Act No. 1459, they were
not registerable.
The proposed incorporators began an action in the Court
of First Instance of the city of Manila to compel the chief
of the division of archives to receive and register said
articles of incorporation and to do any and all acts
necessary for the complete incorporation of the persons
named in the articles. The court below found in favor of
the defendant and refused to order the registration of the
articles mentioned, maintaining ad holding that the
defendant, under the Corporation Law, had authority to
determine both the sufficiency of the form of the articles
and the legality of the object of the proposed corporation.
This appeal is taken from that judgment.
The first question that arises is whether or not the chief of
the division of archives has authority, under the
Corporation for registration, to decide not only as to the
sufficiency of the form of the articles, but also as to the
lawfulness of the purpose of the proposed corporation.
It is strongly urged on the part of the appellants that the
duties of the defendant are purely ministerial and that he
15
has no authority to pass upon the lawfulness of the object
for which the incorporators propose to organize. No
authorities are cited to support this proposition and we are
of the opinion that it is not sound.
Section 6 of the Corporation Law reads in part as follows:
Five or more persons, not exceeding fifteen, a majority of
whom are residents of the Philippine Islands, may form a
private corporation for any lawful purpose by filing with the
division of archives, patents, copyrights, and trademarks
if the Executive Bureau articles of incorporation duly
executed and acknowledged before a notary public, . . . .
Simply because the duties of an official happens to be
ministerial, it does not necessarily follow that he may not,
in the administration of his office, determine questions of
law. We are of the opinion that it is the duty of the division
of archives, when articles of incorporation are presented
for registration, to determine whether the objects of the
corporation as expressed in the articles are lawful. We do
not believe that, simply because articles of incorporation
presented foe registration are perfect in form, the division
of archives must accept and register them and issue the
corresponding certificate of incorporation no matter what
the purpose of the corporation may be as expressed in
the articles. We do not believe it was intended that the
division of archives should issue a certificate of
incorporation to, and thereby put the seal of approval of
the Government upon, a corporation which was organized
for base of immoral purposes. That such corporation
might later, if it sought to carry out such purposes, be
dissolved, or its officials imprisoned or itself heavily fined
furnished no reason why it should have been created in
the first instance. It seems to us to be not only the right
but the duty of the divisions of archives to determine the
lawfulness of the objects and purposes of the corporation
before it issues a certificate of incorporation.
It having determined that the division of archives, through
its officials, has authority to determine not only the
sufficiency as to form of the articles of incorporation
offered for registration, but also the lawfulness of the
purposes of leads us to the determination of the question
whether or not the chief of the division of archives, who is
the representative thereof and clothed by it with authority
to deal subject to mandamus in the performance of his
duties.
We are of the opinion that he may be mandamused if he
act in violation of law or if he refuses, unduly, to comply
with the law. While we have held that defendant has
power to pass upon the lawfulness of the purposes of the
proposed corporation and that he may, in the fulfillment of
his duties, determine the question of law whether or not
those purposes are lawful and embraced within that class
concerning which the law permits corporations to be
formed, that does not necessarily mean, as we have
already intimated, that his duties are not ministerial. On
the contrary, there is no incompatibility in holding, as we

do hold, that his duties are ministerial and that he has no
authority to exercise discretion in receiving and
registering articles of incorporation. He may exercise
judgment — that is, the judicial function — in the
determination of the question of law referred to, but he
may not use discretion. The question whether or not the
objects of a proposed corporation are lawful is one that
can be decided one way only. If he err in the determination
of that question and refuse to file articles which should be
filed under the law, the decision is subject to review and
correction and, upon proper showing, he will be ordered
to file the articles. This is the same kind of determination
which a court makes when it decides a case upon the
merits, the court makes when it decides a case upon the
merits. When a case is presented to a court upon the
merits, the court can decide only one way and be right. As
a matter of law, there is only one way and be right. As a
matter of law, there is only one course to pursue. In a case
where the court or other official has discretion in the
resolution of a question, then, within certain limitations, he
may decide the question either way and still be right.
Discretion, it may be said generally, is a faculty conferred
upon a court or other official by which he may decide a
question either way and still be right. The power conferred
upon the division of archives with respect to the
registration of articles of incorporation is not of that
character. It is of the same character as the determination
of a lawsuit by a court upon the merits. It can be decided
only one way correctly.
If, therefore, the defendant erred in determining the
question presented when the articles were offered for
registration, then that error will be corrected by this court
in this action and he will be compelled to register the
articles as offered. If, however, he did not commit an error,
but decided that question correctly, then, of course, his
action will be affirmed to the extent that we will deny the
relief prayed for.
The next question leads us to the determination of
whether or not the purposes of the corporation as stated
in the articles of incorporation are lawful within the
meaning of the Corporation Law.
The purpose of the incorporation as stated in the articles
is: "That the object of the corporation is (a) to organize
and regulate the management, disposition, administration
and control which the barrio of Pulo or San Miguel or its
inhabitants or residents have over the common property
of said residents or inhabitants or property belonging to
the whole barrio as such; and (b) to use the natural
products of the said property for institutions, foundations,
and charitable works of common utility and advantage to
the barrio or its inhabitants."
The municipality of Pasig as recognized by law contains
within its limits several barrios or small settlements, like
Pulo or San Miguel, which have no local government of
their own but are governed by the municipality of Pasig
through its municipal president and council. The president
and members of the municipal council are elected by a
16
general vote of the municipality, the qualified electors of
all the barrios having the right to participate.
The municipality of Pasig is a municipal corporation
organized by law. It has the control of all property of the
municipality. The various barrios of the municipality have
no right to own or hold property, they not being recognized
as legal entities by any law. The residents of the barrios
participate in the advantages which accrue to the
municipality from public property and receive all the
benefits incident to residence in a municipality organized
by law. If there is any public property situated in the barrio
of Pulo or San Miguel not belonging to the general
government or the province, it belongs to the municipality
of Pasig and the sole authority to manage and administer
the same resides in that municipality. Until the present
laws upon the subject are charged no other entity can be
the owner of such property or control or administer it.
The object of the proposed corporation, as appears from
the articles offered for registration, is to make of the barrio
of Pulo or San Miguel a corporation which will become the
owner of and have the right to control and administer any
property belonging to the municipality of Pasig found
within the limits of that barrio. This clearly cannot be
permitted. Otherwise municipalities as now established
by law could be deprived of the property which they now
own and administer. Each barrio of the municipality would
become under the scheme proposed, a separate
corporation, would take over the ownership,
administration, and control of that portion of the municipal
territory within its limits. This would disrupt, in a sense, the
municipalities of the Islands by dividing them into a series
of smaller municipalities entirely independent of the
original municipality.
What the law does not permit cannot be obtained by
indirection. The object of the proposed corporation is
clearly repugnant to the provisions of the Municipal Code
and the governments of municipalities as they have been
organized thereunder. (Act No. 82, Philippine
Commission.)
The judgment appealed from is affirmed, with costs
against appellants.
Section 19. Commencement of corporate existence. -
A private corporation formed or organized under this
Code commences to have corporate
existence and juridical personality and is deemed
incorporated from the date the Securities and
Exchange Commission issues a certificate of
incorporation under its official seal; and thereupon
the incorporators, stockholders/members and their
successors shall constitute a body politic
and corporate under the name stated in the articles of
incorporation for the period of time mentioned
therein, unless said period is extended or the
corporation is sooner dissolved in accordance with
law. (n)

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH)
ASSOCIATION, INC., petitioner, vs. HON. COURT OF
APPEALS, HOME INSURANCE AND GUARANTY
CORPORATION, EMDEN ENCARNACION and
HORATIO AYCARDO, respondents.
DECISION
ROMERO, J.:
May the failure of a corporation to file its by-laws within
one month from the date of its incorporation, as mandated
by Section 46 of the Corporation Code, result in its
automatic dissolution?
This is the issue raised in this petition for review on
certiorari of the Decision[1] of the Court of Appeals
affirming the decision of the Home Insurance and
Guaranty Corporation (HIGC). This quasi-judicial body
recognized Loyola Grand Villas Homeowners Association
(LGVHA) as the sole homeowners association in Loyola
Grand Villas, a duly registered subdivision in Quezon City
and Marikina City that was owned and developed by Solid
Homes, Inc. It revoked the certificates of registration
issued to Loyola Grand Villas Homeowners (North)
Association Incorporated (the North Association for
brevity) and Loyola Grand Villas Homeowners (South)
Association Incorporated (the South Association).
LGVHAI was organized on February 8, 1983 as the
association of homeowners and residents of the Loyola
Grand Villas. It was registered with the Home Financing
Corporation, the predecessor of herein respondent HIGC,
as the sole homeowners organization in the said
subdivision under Certificate of Registration No. 04-197.
It was organized by the developer of the subdivision and
its first president was Victorio V. Soliven, himself the
owner of the developer. For unknown reasons, however,
LGVHAI did not file its corporate by-laws.
Sometime in 1988, the officers of the LGVHAI tried to
register its by-laws. They failed to do so.[2] To the officers
consternation, they discovered that there were two other
organizations within the subdivision the North Association
and the South Association. According to private
respondents, a non-resident and Soliven himself,
respectively headed these associations. They also
discovered that these associations had five (5) registered
homeowners each who were also the incorporators,
directors and officers thereof. None of the members of the
LGVHAI was listed as member of the North Association
while three (3) members of LGVHAI were listed as
members of the South Association.[3] The North
Association was registered with the HIGC on February 13,
1989 under Certificate of Registration No. 04-1160
covering Phases West II, East III, West III and East IV. It
submitted its by-laws on December 20, 1988.
In July, 1989, when Soliven inquired about the status of
LGVHAI, Atty. Joaquin A. Bautista, the head of the legal
17
department of the HIGC, informed him that LGVHAI had
been automatically dissolved for two reasons. First, it did
not submit its by-laws within the period required by the
Corporation Code and, second, there was non-user of
corporate charter because HIGC had not received any
report on the associations activities. Apparently, this
information resulted in the registration of the South
Association with the HIGC on July 27, 1989 covering
Phases West I, East I and East 11. It filed its by-laws on
July 26, 1989.
These developments prompted the officers of the LGVHAI
to lodge a complaint with the HIGC. They questioned the
revocation of LGVHAIs certificate of registration without
due notice and hearing and concomitantly prayed for the
cancellation of the certificates of registration of the North
and South Associations by reason of the earlier issuance
of a certificate of registration in favor of LGVHAI.
On January 26, 1993, after due notice and hearing,
private respondents obtained a favorable ruling from
HIGC Hearing Officer Danilo C. Javier who disposed of
HIGC Case No. RRM-5-89 as follows:
WHEREFORE, judgment is hereby rendered recognizing
the Loyola Grand Villas Homeowners Association, Inc.,
under Certificate of Registration No. 04-197 as the duly
registered and existing homeowners association for
Loyola Grand Villas homeowners, and declaring the
Certificates of Registration of Loyola Grand Villas
Homeowners (North) Association, Inc. and Loyola Grand
Villas Homeowners (South) Association, Inc. as hereby
revoked or cancelled; that the receivership be terminated
and the Receiver is hereby ordered to render an
accounting and turn-over to Loyola Grand Villas
Homeowners Association, Inc., all assets and records of
the Association now under his custody and possession.
The South Association appealed to the Appeals Board of
the HIGC. In its Resolution of September 8, 1993, the
Board[4] dismissed the appeal for lack of merit.
Rebuffed, the South Association in turn appealed to the
Court of Appeals, raising two issues. First, whether or not
LGVHAIs failure to file its by-laws within the period
prescribed by Section 46 of the Corporation Code
resulted in the automatic dissolution of LGVHAI. Second,
whether or not two homeowners associations may be
authorized by the HIGC in one sprawling subdivision.
However, in the Decision of August 23, 1994 being
assailed here, the Court of Appeals affirmed the
Resolution of the HIGC Appeals Board.
In resolving the first issue, the Court of Appeals held that
under the Corporation Code, a private corporation
commences to have corporate existence and juridical
personality from the date the Securities and Exchange
Commission (SEC) issues a certificate of incorporation
under its official seal. The requirement for the filing of by-
laws under Section 46 of the Corporation Code within one

month from official notice of the issuance of the certificate
of incorporation presupposes that it is already
incorporated, although it may file its by-laws with its
articles of incorporation. Elucidating on the effect of a
delayed filing of by-laws, the Court of Appeals said:
We also find nothing in the provisions cited by the
petitioner, i.e., Sections 46 and 22, Corporation Code, or
in any other provision of the Code and other laws which
provide or at least imply that failure to file the by-laws
results in an automatic dissolution of the corporation.
While Section 46, in prescribing that by-laws must be
adopted within the period prescribed therein, may be
interpreted as a mandatory provision, particularly
because of the use of the word must, its meaning cannot
be stretched to support the argument that automatic
dissolution results from non-compliance.
We realize that Section 46 or other provisions of the
Corporation Code are silent on the result of the failure to
adopt and file the by-laws within the required period.
Thus, Section 46 and other related provisions of the
Corporation Code are to be construed with Section 6 (1)
of P.D. 902-A. This section empowers the SEC to
suspend or revoke certificates of registration on the
grounds listed therein. Among the grounds stated is the
failure to file by-laws (see also II Campos: The
Corporation Code, 1990 ed., pp. 124-125). Such
suspension or revocation, the same section provides,
should be made upon proper notice and hearing.
Although P.D. 902-A refers to the SEC, the same
principles and procedures apply to the public respondent
HIGC as it exercises its power to revoke or suspend the
certificates of registration or homeowners associations.
(Section 2 [a], E.O. 535, series 1979, transferred the
powers and authorities of the SEC over homeowners
associations to the HIGC.)
We also do not agree with the petitioners interpretation
that Section 46, Corporation Code prevails over Section
6, P.D. 902-A and that the latter is invalid because it
contravenes the former. There is no basis for such
interpretation considering that these two provisions are
not inconsistent with each other. They are, in fact,
complementary to each other so that one cannot be
considered as invalidating the other.
The Court of Appeals added that, as there was no
showing that the registration of LGVHAI had been validly
revoked, it continued to be the duly registered
homeowners association in the Loyola Grand Villas. More
importantly, the South Association did not dispute the fact
that LGVHAI had been organized and that, thereafter, it
transacted business within the period prescribed by law.
On the second issue, the Court of Appeals reiterated its
previous ruling[5] that the HIGC has the authority to order
the holding of a referendum to determine which of two
contending associations should represent the entire
community, village or subdivision.
18
Undaunted, the South Association filed the instant petition
for review on certiorari. It elevates as sole issue for
resolution the first issue it had raised before the Court of
Appeals, i.e., whether or not the LGVHAIs failure to file its
by-laws within the period prescribed by Section 46 of the
Corporation Code had the effect of automatically
dissolving the said corporation.
Petitioner contends that, since Section 46 uses the word
must with respect to the filing of by-laws, noncompliance
therewith would result in self-extinction either due to non-
occurrence of a suspensive condition or the occurrence
of a resolutory condition under the hypothesis that (by) the
issuance of the certificate of registration alone the
corporate personality is deemed already formed. It
asserts that the Corporation Code provides for a
gradation of violations of requirements. Hence, Section 22
mandates that the corporation must be formally organized
and should commence transactions within two years from
date of incorporation. Otherwise, the corporation would be
deemed dissolved. On the other hand, if the corporation
commences operations but becomes continuously
inoperative for five years, then it may be suspended or its
corporate franchise revoked.
Petitioner concedes that Section 46 and the other
provisions of the Corporation Code do not provide for
sanctions for non-filing of the by-laws. However, it insists
that no sanction need be provided because the
mandatory nature of the provision is so clear that there
can be no doubt about its being an essential attribute of
corporate birth. To petitioner, its submission is buttressed
by the facts that the period for compliance is spelled out
distinctly; that the certification of the SEC/HIGC must
show that the by-laws are not inconsistent with the Code,
and that a copy of the by-laws has to be attached to the
articles of incorporation. Moreover, no sanction is
provided for because in the first place, no corporate
identity has been completed. Petitioner asserts that non-
provision for remedy or sanction is itself the tacit
proclamation that non-compliance is fatal and no
corporate existence had yet evolved, and therefore, there
was no need to proclaim its demise.[6] In a bid to convince
the Court of its arguments, petitioner stresses that:
x x x the word MUST is used in Sec. 46 in its universal
literal meaning and corollary human implication its
compulsion is integrated in its very essence MUST is
always enforceable by the inevitable consequence that is,
OR ELSE. The use of the word MUST in Sec. 46 is no
exception it means file the by-laws within one month after
notice of issuance of certificate of registration OR ELSE.
The OR ELSE, though not specified, is inextricably a part
of MUST. Do this or if you do not you are Kaput. The
importance of the by-laws to corporate existence compels
such meaning for as decreed the by-laws is `the
government of the corporation. Indeed, how can the
corporation do any lawful act as such without by-laws.
Surely, no law is intended to create chaos.[7]

Petitioner asserts that P.D. No. 902-A cannot exceed the
scope and power of the Corporation Code which itself
does not provide sanctions for non-filing of by-laws. For
the petitioner, it is not proper to assess the true meaning
of Sec. 46 x x x on an unauthorized provision on such
matter contained in the said decree.
In their comment on the petition, private respondents
counter that the requirement of adoption of by-laws is not
mandatory. They point to P.D. No. 902-A as having
resolved the issue of whether said requirement is
mandatory or merely directory. Citing Chung Ka Bio v.
Intermediate Appellate Court,[8] private respondents
contend that Section 6(I) of that decree provides that non-
filing of by-laws is only a ground for suspension or
revocation of the certificate of registration of corporations
and, therefore, it may not result in automatic dissolution
of the corporation. Moreover, the adoption and filing of by-
laws is a condition subsequent which does not affect the
corporate personality of a corporation like the LGVHAI.
This is so because Section 9 of the Corporation Code
provides that the corporate existence and juridical
personality of a corporation begins from the date the SEC
issues a certificate of incorporation under its official seal.
Consequently, even if the by-laws have not yet been filed,
a corporation may be considered a de facto corporation.
To emphasize the fact the LGVHAI was registered as the
sole homeowners association in the Loyola Grand Villas,
private respondents point out that membership in the
LGVHAI was an unconditional restriction in the deeds of
sale signed by lot buyers.
In its reply to private respondents comment on the
petition, petitioner reiterates its argument that the word
must in Section 46 of the Corporation Code is mandatory.
It adds that, before the ruling in Chung Ka Bio v.
Intermediate Appellate Court could be applied to this
case, this Court must first resolve the issue of whether or
not the provisions of P.D. No. 902-A prescribing the rules
and regulations to implement the Corporation Code can
rise above and change the substantive provisions of the
Code.
The pertinent provision of the Corporation Code that is the
focal point of controversy in this case states:
Sec. 46. Adoption of by-laws. Every corporation formed
under this Code, must within one (1) month after receipt
of official notice of the issuance of its certificate of
incorporation by the Securities and Exchange
Commission, adopt a code of by-laws for its government
not inconsistent with this Code. For the adoption of by-
laws by the corporation, the affirmative vote of the
stockholders representing at least a majority of the
outstanding capital stock, or of at least a majority of the
members, in the case of non-stock corporations, shall be
necessary. The by-laws shall be signed by the
stockholders or members voting for them and shall be
kept in the principal office of the corporation, subject to
19
the stockholders or members voting for them and shall be
kept in the principal office of the corporation, subject to
inspection of the stockholders or members during office
hours; and a copy thereof, shall be filed with the Securities
and Exchange Commission which shall be attached to the
original articles of incorporation.
Notwithstanding the provisions of the preceding
paragraph, by-laws may be adopted and filed prior to
incorporation; in such case, such by-laws shall be
approved and signed by all the incorporators and
submitted to the Securities and Exchange Commission,
together with the articles of incorporation.
In all cases, by-laws shall be effective only upon the
issuance by the Securities and Exchange Commission of
a certification that the by-laws are not inconsistent with
this Code.
The Securities and Exchange Commission shall not
accept for filing the by-laws or any amendment thereto of
any bank, banking institution, building and loan
association, trust company, insurance company, public
utility, educational institution or other special corporations
governed by special laws, unless accompanied by a
certificate of the appropriate government agency to the
effect that such by-laws or amendments are in
accordance with law.
As correctly postulated by the petitioner, interpretation of
this provision of law begins with the determination of the
meaning and import of the word must in this section.
Ordinarily, the word must connotes an imperative act or
operates to impose a duty which may be enforced.[9] It is
synonymous with ought which connotes compulsion or
mandatoriness.[10] However, the word must in a statute,
like shall, is not always imperative. It may be consistent
with an exercise of discretion. In this jurisdiction, the
tendency has been to interpret shall as the context or a
reasonable construction of the statute in which it is used
demands or requires.[11] This is equally true as regards
the word must. Thus, if the language of a statute
considered as a whole and with due regard to its nature
and object reveals that the legislature intended to use the
words shall and must to be directory, they should be given
that meaning.[12]
In this respect, the following portions of the deliberations
of the Batasang Pambansa No. 68 are illuminating:
MR. FUENTEBELLA. Thank you, Mr. Speaker.
On page 34, referring to the adoption of by-laws, are we
made to understand here, Mr. Speaker, that by-laws must
immediately be filed within one month after the issuance?
In other words, would this be mandatory or directory in
character?
MR. MENDOZA. This is mandatory.

MR. FUENTEBELLA. It being mandatory, Mr. Speaker,
what would be the effect of the failure of the corporation
to file these by-laws within one month?
MR. MENDOZA. There is a provision in the latter part of
the Code which identifies and describes the
consequences of violations of any provision of this Code.
One such consequence is the dissolution of the
corporation for its inability, or perhaps, incurring certain
penalties.
MR. FUENTEBELLA. But it will not automatically amount
to a dissolution of the corporation by merely failing to file
the by-laws within one month. Supposing the corporation
was late, say, five days, what would be the mandatory
penalty?
MR. MENDOZA. I do not think it will necessarily result in
the automatic or ipso facto dissolution of the corporation.
Perhaps, as in the case, as you suggested, in the case of
El Hogar Filipino where a quo warranto action is brought,
one takes into account the gravity of the violation
committed. If the by-laws were late the filing of the by-laws
were late by, perhaps, a day or two, I would suppose that
might be a tolerable delay, but if they are delayed over a
period of months as is happening now because of the
absence of a clear requirement that by-laws must be
completed within a specified period of time, the
corporation must suffer certain consequences.[13]
This exchange of views demonstrates clearly that
automatic corporate dissolution for failure to file the by-
laws on time was never the intention of the legislature.
Moreover, even without resorting to the records of
deliberations of the Batasang Pambansa, the law itself
provides the answer to the issue propounded by
petitioner.
Taken as a whole and under the principle that the best
interpreter of a statute is the statute itself (optima statuli
interpretatix est ipsum statutum),[14] Section 46
aforequoted reveals the legislative intent to attach a
directory, and not mandatory, meaning for the word must
in the first sentence thereof. Note should be taken of the
second paragraph of the law which allows the filing of the
by-laws even prior to incorporation. This provision in the
same section of the Code rules out mandatory
compliance with the requirement of filing the by-laws
within one (1) month after receipt of official notice of the
issuance of its certificate of incorporation by the Securities
and Exchange Commission. It necessarily follows that
failure to file the by-laws within that period does not imply
the demise of the corporation. By-laws may be necessary
for the government of the corporation but these are
subordinate to the articles of incorporation as well as to
the Corporation Code and related statutes.[15] There are
in fact cases where by-laws are unnecessary to corporate
existence or to the valid exercise of corporate powers,
thus:
20
In the absence of charter or statutory provisions to the
contrary, by-laws are not necessary either to the
existence of a corporation or to the valid exercise of the
powers conferred upon it, certainly in all cases where the
charter sufficiently provides for the government of the
body; and even where the governing statute in express
terms confers upon the corporation the power to adopt by-
laws, the failure to exercise the power will be ascribed to
mere nonaction which will not render void any acts of the
corporation which would otherwise be valid.[16] (Italics
supplied.)
As Fletcher aptly puts it:
It has been said that the by-laws of a corporation are the
rule of its life, and that until by-laws have been adopted
the corporation may not be able to act for the purposes of
its creation, and that the first and most important duty of
the members is to adopt them. This would seem to follow
as a matter of principle from the office and functions of by-
laws. Viewed in this light, the adoption of by-laws is a
matter of practical, if not one of legal, necessity.
Moreover, the peculiar circumstances attending the
formation of a corporation may impose the obligation to
adopt certain by-laws, as in the case of a close
corporation organized for specific purposes. And the
statute or general laws from which the corporation derives
its corporate existence may expressly require it to make
and adopt by-laws and specify to some extent what they
shall contain and the manner of their adoption. The mere
fact, however, of the existence of power in the corporation
to adopt by-laws does not ordinarily and of necessity
make the exercise of such power essential to its corporate
life, or to the validity of any of its acts.[17]
Although the Corporation Code requires the filing of by-
laws, it does not expressly provide for the consequences
of the non-filing of the same within the period provided for
in Section 46. However, such omission has been rectified
by Presidential Decree No. 902-A, the pertinent
provisions on the jurisdiction of the SEC of which state:
SEC. 6. In order to effectively exercise such jurisdiction,
the Commission shall possess the following powers:
xxx xxx xxx xxx
(l) To suspend, or revoke, after proper notice and hearing,
the franchise or certificate of registration of corporations,
partnerships or associations, upon any of the grounds
provided by law, including the following:
xxx xxx xxx xxx
5. Failure to file by-laws within the required period;
xxx xxx xxx xxx
In the exercise of the foregoing authority and jurisdiction
of the Commissions or by a Commissioner or by such
other bodies, boards, committees and/or any officer as
may be created or designated by the Commission for the
purpose. The decision, ruling or order of any such
Commissioner, bodies, boards, committees and/or officer
may be appealed to the Commission sitting en banc within
thirty (30) days after receipt by the appellant of notice of
such decision, ruling or order. The Commission shall

promulgate rules of procedures to govern the
proceedings, hearings and appeals of cases falling within
its jurisdiction.
The aggrieved party may appeal the order, decision or
ruling of the Commission sitting en banc to the Supreme
Court by petition for review in accordance with the
pertinent provisions of the Rules of Court.
Even under the foregoing express grant of power and
authority, there can be no automatic corporate dissolution
simply because the incorporators failed to abide by the
required filing of by-laws embodied in Section 46 of the
Corporation Code. There is no outright demise of
corporate existence. Proper notice and hearing are
cardinal components of due process in any democratic
institution, agency or society. In other words, the
incorporators must be given the chance to explain their
neglect or omission and remedy the same.
That the failure to file by-laws is not provided for by the
Corporation Code but in another law is of no moment.
P.D. No. 902-A, which took effect immediately after its
promulgation on March 11, 1976, is very much apposite
to the Code. Accordingly, the provisions abovequoted
supply the law governing the situation in the case at bar,
inasmuch as the Corporation Code and P.D. No. 902-A
are statutes in pari materia. Interpretare et concordare
legibus est optimus interpretandi. Every statute must be
so construed and harmonized with other statutes as to
form a uniform system of jurisprudence.[18]
As the rules and regulations or private laws enacted by
the corporation to regulate, govern and control its own
actions, affairs and concerns and its stockholders or
members and directors and officers with relation thereto
and among themselves in their relation to it,[19] by-laws
are indispensable to corporations in this jurisdiction.
These may not be essential to corporate birth but
certainly, these are required by law for an orderly
governance and management of corporations.
Nonetheless, failure to file them within the period required
by law by no means tolls the automatic dissolution of a
corporation.
In this regard, private respondents are correct in relying
on the pronouncements of this Court in Chung Ka Bio v.
Intermediate Appellate Court,[20] as follows:
x x x. Moreover, failure to file the by-laws does not
automatically operate to dissolve a corporation but is now
considered only a ground for such dissolution.
Section 19 of the Corporation Law, part of which is now
Section 22 of the Corporation Code, provided that the
powers of the corporation would cease if it did not formally
organize and commence the transaction of its business or
the continuation of its works within two years from date of
its incorporation. Section 20, which has been reproduced
with some modifications in Section 46 of the Corporation
21
Code, expressly declared that every corporation formed
under this Act, must within one month after the filing of the
articles of incorporation with the Securities and Exchange
Commission, adopt a code of by-laws. Whether this
provision should be given mandatory or only directory
effect remained a controversial question until it became
academic with the adoption of PD 902-A. Under this
decree, it is now clear that the failure to file by-laws within
the required period is only a ground for suspension or
revocation of the certificate of registration of corporations.
Non-filing of the by-laws will not result in automatic
dissolution of the corporation. Under Section 6(I) of PD
902-A, the SEC is empowered to suspend or revoke, after
proper notice and hearing, the franchise or certificate of
registration of a corporation on the ground inter alia of
failure to file by-laws within the required period. It is clear
from this provision that there must first of all be a hearing
to determine the existence of the ground, and secondly,
assuming such finding, the penalty is not necessarily
revocation but may be only suspension of the charter. In
fact, under the rules and regulations of the SEC, failure to
file the by-laws on time may be penalized merely with the
imposition of an administrative fine without affecting the
corporate existence of the erring firm.
It should be stressed in this connection that substantial
compliance with conditions subsequent will suffice to
perfect corporate personality. Organization and
commencement of transaction of corporate business are
but conditions subsequent and not prerequisites for
acquisition of corporate personality. The adoption and
filing of by-laws is also a condition subsequent. Under
Section 19 of the Corporation Code, a corporation
commences its corporate existence and juridical
personality and is deemed incorporated from the date the
Securities and Exchange Commission issues certificate
of incorporation under its official seal. This may be done
even before the filing of the by-laws, which under Section
46 of the Corporation Code, must be adopted within one
month after receipt of official notice of the issuance of its
certificate of incorporation.[21]
That the corporation involved herein is under the
supervision of the HIGC does not alter the result of this
case. The HIGC has taken over the specialized functions
of the former Home Financing Corporation by virtue of
Executive Order No. 90 dated December 17, 1986.[22]
With respect to homeowners associations, the HIGC shall
exercise all the powers, authorities and responsibilities
that are vested on the Securities and Exchange
Commission x x x, the provision of Act 1459, as amended
by P.D. 902-A, to the contrary notwithstanding.[23]
WHEREFORE, the instant petition for review on certiorari
is hereby DENIED and the questioned Decision of the
Court of Appeals AFFIRMED. This Decision is
immediately executory. Costs against petitioner.

PMI COLLEGES, petitioner, vs. THE NATIONAL LABOR
RELATIONS COMMISSION and ALEJANDRO GALVAN,
respondents.
DECISION
ROMERO, J.:
Subject of the instant petition for certiorari under Rule 65
of the Rules of Court is the resolution[1] of public
respondent National Labor Relations Commission[2]
rendered on August 4, 1995, affirming in toto the
December 7, 1994 decision[3] of Labor Arbiter Pablo C.
Espiritu declaring petitioner PMI Colleges liable to pay
private respondent Alejandro Galvan P405,000.00 in
unpaid wages and P40,532.00 as attorneys fees.
A chronicle of the pertinent events on record leading to
the filing of the instant petition is as follows:
On July 7, 1991, petitioner, an educational institution
offering courses on basic seamans training and other
marine-related courses, hired private respondent as
contractual instructor with an agreement that the latter
shall be paid at an hourly rate of P30.00 to P50.00,
depending on the description of load subjects and on the
schedule for teaching the same. Pursuant to this
engagement, private respondent then organized classes
in marine engineering.
Initially, private respondent and other instructors were
compensated for services rendered during the first three
periods of the abovementioned contract. However, for
reasons unknown to private respondent, he stopped
receiving payment for the succeeding rendition of
services. This claim of non-payment was embodied in a
letter dated March 3, 1992, written by petitioners Acting
Director, Casimiro A. Aguinaldo, addressed to its
President, Atty. Santiago Pastor, calling attention to and
appealing for the early approval and release of the
salaries of its instructors including that of private
respondent. It appeared further in said letter that the
salary of private respondent corresponding to the
shipyard and plant visits and the ongoing on-the-job
training of Class 41 on board MV Sweet Glory of Sweet
Lines, Inc. was not yet included. This request of the Acting
Director apparently went unheeded. Repeated demands
having likewise failed, private respondent was soon
constrained to file a complaint[4] before the National
Capital Region Arbitration Branch on September 14, 1993
seeking payment for salaries earned from the following:
(1) basic seaman course Classes 41 and 42 for the period
covering October 1991 to September 1992; (2) shipyard
and plant visits and on-the-job training of Classes 41 and
42 for the period covering October 1991 to September
1992 on board M/V Sweet Glory vessel; and (3) as Acting
Director of Seaman Training Course for 3-1/2 months.
In support of the abovementioned claims, private
respondent submitted documentary evidence which were
22
annexed to his complaint, such as the detailed load and
schedule of classes with number of class hours and rate
per hour (Annex A); PMI Colleges Basic Seaman Training
Course (Annex B); the aforementioned letter-request for
payment of salaries by the Acting Director of PMI
Colleges (Annex C); unpaid load of private respondent
(Annex D); and vouchers prepared by the accounting
department of petitioner but whose amounts indicated
therein were actually never paid to private respondent
(Exhibit E).
Private respondents claims, as expected, were resisted
by petitioner. It alleged that classes in the courses offered
which complainant claimed to have remained unpaid were
not held or conducted in the school premises of PMI
Colleges. Only private respondent, it was argued, knew
whether classes were indeed conducted. In the same
vein, petitioner maintained that it exercised no appropriate
and proper supervision of the said classes which activities
allegedly violated certain rules and regulations of the
Department of Education, Culture and Sports (DECS).
Furthermore, the claims, according to petitioner, were all
exaggerated and that, at any rate, private respondent
abandoned his work at the time he should have
commenced the same.
In reply, private respondent belied petitioners allegations
contending, among others, that he conducted lectures
within the premises of petitioners rented space located at
5th Floor, Manufacturers Bldg., Sta. Cruz, Manila; that his
students duly enrolled with the Registrars Office of
petitioner; that shipyard and plant visits were conducted
at Fort San Felipe, Cavite Naval Base; that petitioner was
fully aware of said shipyard and plant visits because it
even wrote a letter for that purpose; and that basic
seaman courses 41 and 42 were sanctioned by the DECS
as shown by the records of the Registrars Office.
Later in the proceedings below, petitioner manifested that
Mr. Tomas G. Cloma, Jr., a member of the petitioners
Board of Trustees wrote a letter[5] to the Chairman of the
Board on May 23, 1994, clarifying the case of private
respondent and stating therein, inter alia, that under
petitioners by-laws only the Chairman is authorized to
sign any contract and that private respondent, in any
event, failed to submit documents on the alleged shipyard
and plant visits in Cavite Naval Base.
Attempts at amicable settlement having failed, the parties
were required to submit their respective position papers.
Thereafter, on June 16, 1994, the Labor Arbiter issued an
order declaring the case submitted for decision on the
basis of the position papers which the parties filed.
Petitioner, however, vigorously opposed this order
insisting that there should be a formal trial on the merits
in view of the important factual issues raised. In another
order dated July 22, 1994, the Labor Arbiter impliedly
denied petitioners opposition, reiterating that the case
was already submitted for decision. Hence, a decision
was subsequently rendered by the Labor Arbiter on

December 7, 1994 finding for the private respondent. On
appeal, the NLRC affirmed the same in toto in its decision
of August 4, 1995.
Aggrieved, petitioner now pleads for the Court to resolve
the following issues in its favor, to wit:
I. Whether the money claims of private respondent
representing salaries/wages as contractual instructor for
class instruction, on-the-job training and shipboard and
plant visits have valid legal and factual bases;
II. Whether claims for salaries/wages for services relative
to on-the-job training and shipboard and plant visits by
instructors, assuming the same were really conducted,
have valid bases;
III. Whether the petitioner was denied its right to
procedural due process; and
IV. Whether the NLRC findings in its questioned
resolution have sound legal and factual support.
We see no compelling reason to grant petitioners plea;
the same must, therefore, be dismissed.
At once, a mere perusal of the issues raised by petitioner
already invites dismissal for demonstrated ignorance and
disregard of settled rules on certiorari. Except perhaps for
the third issue, the rest glaringly call for a re-examination,
evaluation and appreciation of the weight and sufficiency
of factual evidence presented before the Labor Arbiter.
This, of course, the Court cannot do in the exercise of its
certiorari jurisdiction without transgressing the well-
defined limits thereof. The corrective power of the Court
in this regard is confined only to jurisdictional issues and
a determination of whether there is such grave abuse of
discretion amounting to lack or excess of jurisdiction on
the part of a tribunal or agency. So unyielding and
consistent are the decisional rules thereon that it is indeed
surprising why petitioners counsel failed to accord them
the observance they deserve.
Thus, in San Miguel Foods, Inc. Cebu B-Meg Feed Plant
v. Hon. Bienvenido Laguesma,[6] we were emphatic in
declaring that:
This Court is definitely not the proper venue to consider
this matter for it is not a trier of facts. x x x Certiorari is a
remedy narrow in its scope and inflexible in character. It
is not a general utility tool in the legal workshop. Factual
issues are not a proper subject for certiorari, as the power
of the Supreme Court to review labor cases is limited to
the issue of jurisdiction and grave abuse of discretion. x x
x (Emphasis supplied).
Of the same tenor was our disquisition in Ilocos Sur
Electric Cooperative, Inc. v. NLRC[7] where we made
plain that:
23
In certiorari proceedings under Rule 65 of the Rules of
Court, judicial review by this Court does not go so far as
to evaluate the sufficiency of evidence upon which the
Labor Arbiter and the NLRC based their determinations,
the inquiry being limited essentially to whether or not said
public respondents had acted without or in excess of its
jurisdiction or with grave abuse of discretion. (Emphasis
supplied).
To be sure, this does not mean that the Court would
disregard altogether the evidence presented. We merely
declare that the extent of review of evidence we ordinarily
provide in other cases is different when it is a special civil
action of certiorari. The latter commands us to merely
determine whether there is basis established on record to
support the findings of a tribunal and such findings meet
the required quantum of proof, which in this instance, is
substantial evidence. Our deference to the expertise
acquired by quasi-judicial agencies and the limited scope
granted to us in the exercise of certiorari jurisdiction
restrain us from going so far as to probe into the
correctness of a tribunals evaluation of evidence, unless
there is palpable mistake and complete disregard thereof
in which case certiorari would be proper. In plain terms, in
certiorari proceedings, we are concerned with mere errors
of jurisdiction and not errors of judgment. Thus:
The rule is settled that the original and exclusive
jurisdiction of this Court to review a decision of
respondent NLRC (or Executive Labor Arbiter as in this
case) in a petition for certiorari under Rule 65 does not
normally include an inquiry into the correctness of its
evaluation of the evidence. Errors of judgment, as
distinguished from errors of jurisdiction, are not within the
province of a special civil action for certiorari, which is
merely confined to issues of jurisdiction or grave abuse of
discretion. It is thus incumbent upon petitioner to
satisfactorily establish that respondent Commission or
executive labor arbiter acted capriciously and whimsically
in total disregard of evidence material to or even decisive
of the controversy, in order that the extraordinary writ of
certiorari will lie. By grave abuse of discretion is meant
such capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction, and it must be shown that
the discretion was exercised arbitrarily or despotically. For
certiorari to lie there must be capricious, arbitrary and
whimsical exercise of power, the very antithesis of the
judicial prerogative in accordance with centuries of both
civil law and common law traditions.[8]
The Court entertains no doubt that the foregoing doctrines
apply with equal force in the case at bar.
In any event, granting that we may have to delve into the
facts and evidence of the parties, we still find no puissant
justification for us to adjudge both the Labor Arbiters and
NLRCs appreciation of such evidence as indicative of any
grave abuse of discretion.

First. Petitioner places so much emphasis on its argument
that private respondent did not produce a copy of the
contract pursuant to which he rendered services. This
argument is, of course, puerile. The absence of such copy
does not in any manner negate the existence of a contract
of employment since (C)ontracts shall be obligatory, in
whatever form they have been entered into, provided all
the essential requisites for their validity are present.[9]
The only exception to this rule is when the law requires
that a contract be in some form in order that it may be
valid or enforceable, or that a contract be proved in a
certain way. However, there is no requirement under the
law that the contract of employment of the kind entered
into by petitioner with private respondent should be in any
particular form. While it may have been desirable for
private respondent to have produced a copy of his
contract if one really exists, but the absence thereof, in
any case, does not militate against his claims inasmuch
as:
No particular form of evidence is required to prove the
existence of an employer-employee relationship. Any
competent and relevant evidence to prove the relationship
may be admitted. For, if only documentary evidence
would be required to show that relationship, no scheming
employer would ever be brought before the bar of justice,
as no employer would wish to come out with any trace of
the illegality he has authored considering that it should
take much weightier proof to invalidate a written
instrument. x x x [10]
At any rate, the vouchers prepared by petitioners own
accounting department and the letter-request of its Acting
Director asking for payment of private respondents
services suffice to support a reasonable conclusion that
private respondent was employed with petitioner. How
else could one explain the fact that private respondent
was supposed to be paid the amounts mentioned in those
documents if he were not employed? Petitioners evidence
is wanting in this respect while private respondent
affirmatively stated that the same arose out of his
employment with petitioner. As between the two, the latter
is weightier inasmuch as we accord affirmative testimony
greater value than a negative one. For the foregoing
reasons, we find it difficult to agree with petitioners
assertion that the absence of a copy of the alleged
contract should nullify private respondents claims.
Neither can we concede that such contract would be
invalid just because the signatory thereon was not the
Chairman of the Board which allegedly violated
petitioners by-laws. Since by-laws operate merely as
internal rules among the stockholders, they cannot affect
or prejudice third persons who deal with the corporation,
unless they have knowledge of the same.[11] No proof
appears on record that private respondent ever knew
anything about the provisions of said by-laws. In fact,
petitioner itself merely asserts the same without even
bothering to attach a copy or excerpt thereof to show that
there is such a provision. How can it now expect the Labor
24
Arbiter and the NLRC to believe it? That this allegation
has never been denied by private respondent does not
necessarily signify admission of its existence because
technicalities of law and procedure and the rules obtaining
in the courts of law do not strictly apply to proceedings of
this nature.
Second. Petitioner bewails the fact that both the Labor
Arbiter and the NLRC accorded due weight to the
documents prepared by private respondent since they are
said to be self-serving. Self-serving evidence is not to be
literally taken as evidence that serves ones selfish
interest.[12] The fact alone that most of the documents
submitted in evidence by private respondent were
prepared by him does not make them self-serving since
they have been offered in the proceedings before the
Labor Arbiter and that ample opportunity was given to
petitioner to rebut their veracity and authenticity.
Petitioner, however, opted to merely deny them which
denial, ironically, is actually what is considered self-
serving evidence[13] and, therefore, deserves scant
consideration. In any event, any denial made by petitioner
cannot stand against the affirmative and fairly detailed
manner by which private respondent supported his
claims, such as the places where he conducted his
classes, on-the-job training and shipyard and plant visits;
the rate he applied and the duration of said rendition of
services; the fact that he was indeed engaged as a
contractual instructor by petitioner; and that part of his
services was not yet remunerated. These evidence, to
reiterate, have never been effectively refuted by
petitioner.
Third. As regards the amounts demanded by private
respondent, we can only rely upon the evidence
presented which, in this case, consists of the computation
of private respondent as well as the findings of both the
Labor Arbiter and the NLRC. Petitioner, it must be
stressed, presented no satisfactory proof to the contrary.
Absent such proof, we are constrained to rely upon
private respondents otherwise straightforward
explanation of his claims.
Fourth. The absence of a formal hearing or trial before the
Labor Arbiter is no cause for petitioner to impute grave
abuse of discretion. Whether to conduct one or not
depends on the sole discretion of the Labor Arbiter, taking
into account the position papers and supporting
documents submitted by the parties on every issue
presented. If the Labor Arbiter, in his judgment, is
confident that he can rely on the documents before him,
he cannot be faulted for not conducting a formal trial
anymore, unless it would appear that, in view of the
particular circumstances of a case, the documents,
without more, are really insufficient.
As applied to the instant case, we can understand why the
Labor Arbiter has opted not to proceed to trial, considering
that private respondent, through annexes to his position
paper, has adequately established that, first of all, he was

an employee of petitioner; second, the nature and
character of his services, and finally, the amounts due him
in consideration of his services. Petitioner, it should be
reiterated, failed to controvert them. Actually, it offered
only four documents later in the course of the
proceedings. It has only itself to blame if it did not attach
its supporting evidence with its position paper. It cannot
now insist that there be a trial to give it an opportunity to
ventilate what it should have done earlier. Section 3, Rule
V of the New Rules of Procedure of the NLRC is very clear
on the matter:
Section 3. x x x
These verified position papers x x x shall be accompanied
by all supporting documents including the affidavits of
their respective witnesses which shall take the place of
the latters direct testimony. The parties shall thereafter
not be allowed to allege facts, or present evidence to
prove facts, not referred to and any cause or causes of
action not included in the complaint or position papers,
affidavits and other documents. x x x (Emphasis
supplied).
Thus, given the mandate of said rule, petitioner should
have foreseen that the Labor Arbiter, in view of the non-
litigious nature of the proceedings before it, might not
proceed at all to trial. Petitioner cannot now be heard to
complain of lack of due process. The following is apropos:
The petitioners should not have assumed that after they
submitted their position papers, the Labor Arbiter would
call for a formal trial or hearing. The holding of a trial is
discretionary on the Labor Arbiter, it is not a matter of right
of the parties, especially in this case, where the private
respondents had already presented their documentary
evidence.
xxx
The petitioners did ask in their position paper for a hearing
to thresh out some factual matters pertinent to their case.
However, they had no right or reason to assume that their
request would be granted. The petitioners should have
attached to their position paper all the documents that
would prove their claim in case it was decided that no
hearing should be conducted or was necessary. In fact,
the rules require that position papers shall be
accompanied by all supporting documents, including
affidavits of witnesses in lieu of their direct testimony.[14]
It must be noted that adequate opportunity was given to
petitioner in the presentation of its evidence, such as
when the Labor Arbiter granted petitioners Manifestation
and Motion[15] dated July 22, 1994 allowing it to submit
four more documents. This opportunity notwithstanding,
petitioner still failed to fully proffer all its evidence which
might help the Labor Arbiter in resolving the issues. What
it desired instead, as stated in its petition,[16] was to
require presentation of witnesses buttressed by relevant
25
documents in support thereof. But this is precisely the
opportunity given to petitioner when the Labor Arbiter
granted its Motion and Manifestation. It should have
presented the documents it was proposing to submit. The
affidavits of its witnesses would have sufficed in lieu of
their direct testimony[17] to clarify what it perceives to be
complex factual issues. We rule that the Labor Arbiter and
the NLRC were not remiss in their duty to afford petitioner
due process. The essence of due process is merely that
a party be afforded a reasonable opportunity to be heard
and to submit any evidence he may have in support of his
defense.[18]
WHEREFORE, in view of the foregoing, the instant
petition is hereby DISMISSED for lack of merit while the
resolution of the National Labor Relations Commission
dated August 4, 1995 is hereby AFFIRMED.
ROSITA PEÑA petitioner,
vs.
THE COURT OF APPEALS, SPOUSES RISING T. YAP
and CATALINA YAP, PAMPANGA BUS CO., INC.,
JESUS DOMINGO, JOAQUIN BRIONES, SALVADOR
BERNARDEZ, MARCELINO ENRIQUEZ and EDGARDO
A. ZABAT, respondents.
Cesar L. Villanueva for petitioner.
Martin N. Roque for private respondents.
GANCAYCO, J.:
The validity of the redemption of a foreclosed real
property is the center of this controversy.
The facts as found by the respondent court are not
disputed.
A reading of the records shows that [Pampanga Bus Co.]
PAMBUSCO, original owners of the lots in question under
TCT Nos. 4314, 4315 and 4316, mortgaged the same to
the Development Bank of the Philippines (DBP) on
January 3, 1962 in consideration of the amount of
P935,000.00. This mortgage was foreclosed. In the
foreclosure sale under Act No. 3135 held on October 25,
1974, the said properties were awarded to Rosita Peña
as highest bidder. A certificate of sale was issued in her
favor by the Senior Deputy Sheriff of Pampanga, Edgardo
A. Zabat, upon payment of the sum of P128,000.00 to the
Office of the Provincial Sheriff (Exh. 23). The certificate of
sale was registered on October 29, 1974 (Exh. G).
On November 19, 1974, the board of directors of
PAMBUSCO, through three (3) out of its five (5) directors,
resolved to assign its right of redemption over the
aforesaid lots and authorized one of its members, Atty.
Joaquin Briones "to execute and sign a Deed of
Assignment for and in behalf of PAMBUSCO in favor of
any interested party . . ." (Exh. 24). Consequently, on

March 18, 1975, Briones executed a Deed of Assignment
of PAMBUSCO's redemption right over the subject lots in
favor of Marcelino Enriquez (Exh. 25). The latter then
redeemed the said properties and a certificate of
redemption dated August 15, 1975 was issued in his favor
by Sheriff Zabat upon payment of the sum of one hundred
forty thousand, four hundred seventy four pesos
P140,474.00) to the Office of the Provincial Sheriff of
Pampanga (Exh. 26).
A day after the aforesaid certificate was issued, Enriquez
executed a deed of absolute sale of the subject properties
in favor of plaintiffs-appellants, the spouses Rising T. Yap
and Catalina Lugue, for the sum of P140,000.00 (Exh. F).
On August 18, 1975, a levy on attachment in favor of
Capitol Allied Trading was entered as an additional
encumbrance on TCT Nos. 4314, 4315 and 4316 and a
Notice of a pending consulta was also annotated on the
same titles concerning the Allied Trading case entitled
Dante Gutierrez, et al. vs. PAMBUSCO (Civil Case No.
4310) in which the registrability of the aforesaid lots in the
name of the spouses Yap was sought to be resolved (Exh.
20-F). The certificate of sale issued by the Sheriff in favor
of defendant Peña, the resolution of the PAMBUSCO's
board of directors assigning its redemption rights to any
interested party, the deed of assignment PAMBUSCO
executed in favor of Marcelino B. Enriquez, the certificate
of redemption issued by the Sheriff in favor of Enriquez
as well as the deed of absolute sale of the subject lots
executed by Enriquez in favor of the plaintiffs-appellants
were all annotated on the same certificates of title likewise
on August 18, 1975. Also, on the same date, the Office of
the Provincial Sheriff of San Fernando, Pampanga
informed defendant-appellee by registered mail "that the
properties under TCT Nos. 4314, 4315 and 4316 . . . .
were all redeemed by Mr. Marcelino B. Enriquez on
August 15,1975 . . . ;" and that she may now get her
money at the Sheriffs Office (Exh. J and J-1).
On September 8, 1975, Peña wrote the Sheriff notifying
him that the redemption was not valid as it was made
under a void deed of assignment. She then requested the
recall of the said redemption and a restraint on any
registration or transaction regarding the lots in question
(Exh. 27).
On Sept. 10, 1975, the CFI Branch III, Pampanga in the
aforementioned Civil Case No. 4310, entitled Dante
Gutierrez, et al. vs. PAMBUSCO, et al., ordered the
Register of Deeds of Pampanga . . . to desist from
registering or noting in his registry of property . . . any of
the following documents under contract, until further
orders:
(a) Deed of Assignment dated March 18, 1975
executed by the defendant Pampanga Bus Company in
virtue of a resolution of its Board of Directors in favor of
defendant Marcelino Enriquez;
26
(b) A Certificate of Redemption issued by defendant
Deputy Sheriff Edgardo Zabat in favor of defendant
Marcelino Enriquez dated August 15, 1975;
(c) Deed of Sale dated August 16, 1975 executed by
defendant Marcelino Enriquez in favor of defendant
Rising Yap. (Original Record, p. 244)
On November 17, 1975, the Land Registration
Commission opined under LRC Resolution No. 1029 that
"the levy on attachment in favor of Capitol Allied Trading
(represented by Dante Gutierrez) should be carried over
on the new title that would be issued in the name of Rising
Yap in the event that he is able to present the owner's
duplicates of the certificates of title herein involved" (Exh.
G).
Meanwhile, defendant Peña, through counsel, wrote the
Sheriff asking for the execution of a deed of final sale in
her favor on the ground that "the one (1) year period of
redemption has long elapsed without any valid
redemption having been exercised;" hence she "will now
refuse to receive the redemption money . . . (Exh. 28).
On Dec. 30, 1977, plaintiff Yap wrote defendant Peña
asking payment of back rentals in the amount of
P42,750.00 "for the use and occupancy of the land and
house located at Sta. Lucia, San Fernando, Pampanga,"
and informing her of an increase in monthly rental to
P2,000; otherwise, to vacate the premises or face an
eviction cum collection suit (Exh. D).
In the meantime, the subject lots, formerly under TCT
Nos. 4314, 4315 and 4316 were registered on June 16,
1978 in the name of the spouses Yap under TCT Nos.
148983-R, 148984-R and 148985-R, with an annotation
of a levy on attachment in favor of Capitol Allied Trading.
The LRC Resolution No. 1029 allowing the conditioned
registration of the subject lots in the name of the spouses
Yap was also annotated on TCT No. 4315 on June 16,
1978 and the notice of a pending consulta noted thereon
on August 18, 1975 was cancelled on the same date.
No Trial on the merits was held concerning Civil Case No.
4310. In an order dated February 17, 1983, the case was
dismissed without prejudice.
Despite the foregoing, defendant-appellee Peña
remained in possession of the lots in question hence, the
spouses Yap were prompted to file the instant case.1
The antecedents of the present petition are as follows:
Plaintiffs-appellants, the spouses Rising T. Yap and
Catalina Lugue, are the registered owners of the lots in
question under Transfer Certificate of Title (TCT) Nos.
148983-R, 148984-R, 148985-R. In the complaint filed on
December 15, 1978, appellants sought to recover
possession over the subject lands from defendants Rosita
Peña and Washington Distillery on the ground that being

registered owners, they have to enforce their right to
possession against defendants who have been allegedly
in unlawful possession thereof since October 1974 "when
the previous owners assigned (their) right to collect
rentals . . . in favor of plaintiffs" (Record, p. 5). The amount
claimed as damages is pegged on the total amount of
unpaid rentals from October 1974 (as taken from the
allegations in the complaint) up to December 1978 at a
monthly rate of P1,500.00 'and the further sum of
P2,000.00 a month from January 1979 until the
defendants finally vacate the . . . premises in question with
interest at the legal rate (Record, p. 61).
In their answer, defendants Rosita Peña and Washington
Distillery denied the material allegations of the complaint
and by way of an affirmative and special defense asserted
that Peña is now the legitimate owner of the subject lands
for having purchased the same in a foreclosure
proceeding instituted by the DBP . . . against PAMBUSCO
. . . and no valid redemption having been effected within
the period provided by law. It was contended that plaintiffs
could not have acquired ownership over the subject
properties under a deed of absolute sale executed in their
favor by one Marcelino B. Enriquez who likewise could not
have become [the] owner of the properties in question by
redeeming the same on August 18, 1975 (Exh. 26) under
an alleged[ly] void deed of assignment executed in his
favor on March 18, 1975 by the original owners of the land
in question, the PAMBUSCO. The defense was that since
the deed of assignment executed by PAMBUSCO in favor
of Enriquez was void ab initio for being an ultra vires act
of its board of directors and, for being without any
valuable consideration, it could not have had any legal
effect; hence, all the acts which flowed from it and all the
rights and obligations which derived from the aforesaid
void deed are likewise void and without any legal effect.
Further, it was alleged in the same Answer that plaintiffs
are buyers in bad faith because they have caused the
titles of the subject properties with the Register of Deeds
to be issued in their names despite an order from the then
CFI, Br. III, Pampanga in Civil Case No. 4310, entitled
Dante Gutierrez, et al. vs. Pampanga Bus Company, Inc.,
et al., to desist from registering or noting in his registry of
property . . . any of the above-mentioned documents
under contest, until further orders. (Record, p. 11).
For its part, defendant Washington Distillery stated that it
has never occupied the subject lots hence they should not
have been impleaded in the complaint.
The defendants, therefore, prayed that the complaint be
dismissed; that the deed of assignment executed in favor
of Marcelino Enriquez, the certificate of redemption
issued by the Provincial Sheriff also in favor of Marcelino
Enriquez, and the deed of sale of these parcels of land
executed by Marcelino Enriquez in favor of the plaintiffs
herein be all declared null and void; and further, that TCT
Nos. 148983-R, 148984-R and 148985-R, covering these
parcels issued in the plaintiffs name be cancelled and, in
27
lieu thereof, corresponding certificates of title over these
same parcels be issued in the name of defendant Rosita
Peña.
Thereafter, the defendants with prior leave of court filed a
third-party complaint third-party defendants PAMBUSCO,
Jesus Domingo, Joaquin Briones, Salvador Bernardez
(as members of the Board of Directors of PAMBUSCO),
Marcelino Enriquez, and Deputy Sheriff Edgardo Zabat of
Pampanga. All these third-party defendants, how ever,
were declared as in default for failure to file their answer,
except Edgardo Zabat who did file his answer but failed
to appear at the pre-trial.
After trial, a decision was rendered by the court in favor of
the defendants-appellees, to wit:
WHEREFORE, and in view of all the foregoing, judgment
is hereby rendered dismissing the complaint filed by the
plaintiffs against the defendants and declaring as null and
void the following:
(a) The resolution of the Board of Directors of
PAMBUSCO approved on November 19, 1974 assigning
the PAMBUSCO's right of redemption concerning the
parcels involved herein
(b) The deed of assignment dated March 18, 1975
executed in favor of Marcelino Enriquez pursuant to the
resolution referred to in the preceding paragraph;
(c) The certificate of redemption dated August 15,
1975 issued by Deputy Sheriff Edgardo Zabat in favor of
Marcelino Enriquez concerning these parcels;
(d) The deed of absolute sale dated August 15, 1975
executed by Marcelino Enriquez in favor of the plaintiffs
concerning the same parcels and
(e) TCT Nos. 148983-R, 148984-R and 148985-R of
the Register of Deeds of Pampanga in the name of the
plaintiffs also covering these parcels.
Third-party defendant Edgardo Zabat, in his capacity as
Deputy Sheriff of Pampanga is directed to execute in
favor of defendant Rosita Peña the corresponding
certificate of final sale involving the parcels bought by her
in the auction sale of October 25, 1974 for which a
certificate of sale had been issued to her.
Finally, the third-party defendants herein except Deputy
Sheriff Edgardo Zabat are hereby ordered to pay the
defendants/third party plaintiffs, jointly and severally, the
amount of P10,000.00 as attorney's fees plus costs.2
Thus, an appeal from said judgment of the trial court was
interposed by private respondents to the Court of Appeals
wherein in due course a decision was rendered on June
20, 1989, the dispositive part of which reads as follows:

WHEREFORE, premises considered, the judgment of the
trial court on appeal is REVERSED. Defendant-appellee
Peña is hereby ordered to vacate the lands in question
and pay the plaintiffs-appellants the accrued rentals from
October, 1974 in the amount of P1,500.00 per month up
to December, 1978 and the amount of P2,000.00 per
month thereafter, until appellee finally vacate (sic) the
premises with interest at the legal rate.
SO ORDERED.3
A motion for reconsideration filed by the appellee was
denied in a resolution dated December 27, 1989.
Hence, this petition for review on certiorari of said
decision and resolution of the appellate court predicated
on the following assigned errors:
First Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT THE TRIAL COURT HAD NO
JURISDICTION TO RULE ON THE VALIDITY OF THE
QUESTIONED RESOLUTION AND TRANSFERS.
Second Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT PETITIONER HAS NO LEGAL
STANDING TO ASSAIL THE VALIDITY OF THE
QUESTIONED RESOLUTION AND THE SERIES OF
SUCCEEDING TRANSACTIONS LEADING TO THE
REGISTRATION OF THE SUBJECT PROPERTIES IN
FAVOR OF THE RESPONDENTS YAP.
Third Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT THE RESOLUTION OF RESPONDENT
PAMBUSCO, ADOPTED ON 19 NOVEMBER 1974,
ASSIGNING ITS RIGHT OF REDEMPTION IS NOT
VOID OR AT THE VERY LEAST LEGALLY DEFECTIVE.
Fourth Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT THE DEED OF ASSIGNMENT, DATED
8 MARCH 1975, IN FAVOR OF RESPONDENT
ENRIQUEZ IS NOT VOID OR AT THE VERY LEAST
VOIDABLE OR RESCISSIBLE.
Fifth Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN
NOT HOLDING THAT THE QUESTIONED DEED OF
ASSIGNMENT, DATED 8 MARCH 1975, WAS VOID AB
INITIO FOR FAILING TO COMPLY WITH THE
FORMALITIES MANDATORILY REQUIRED UNDER
THE LAW FOR DONATIONS.
28
Sixth Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT RESPONDENTS YAP ARE
PURCHASERS IN GOOD FAITH AND IN FURTHER
HOLDING THAT IT WAS TOO LATE FOR PETITIONER
TO INTERPOSE THE ISSUE THAT RESPONDENTS
YAP WERE PURCHASERS IN BAD FAITH.
Seventh Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN
REVERSING THE DECISION OF THE TRIAL COURT.4
The petition is impressed with merit.
First, the preliminary issues.
The respondent court ruled that the trial court has no
jurisdiction to annul the board resolution as the matter
falls within the jurisdiction of the Securities and Exchange
Commission (SEC) and that petitioner did not have the
proper standing to have the same declared null and void.
In Philex Mining Corporation vs. Reyes,5
this Court held that it is the fact of relationship between
the parties that determines the proper and exclusive
jurisdiction of the SEC to hear and decide intra-corporate
disputes; that unless the controversy has arisen between
and among stockholders of the corporation, or between
the stockholders and the officers of the corporation, then
the case is not within the jurisdiction of the SEC. Where
the issue involves a party who is neither a stockholder or
officer of the corporation, the same is not within the
jurisdiction of the SEC.
In Union Glass & Container Corporation vs. Securities
and Exchange Commission,6 this Court defined the
relationships which are covered within "intra-corporate
disputes" under Presidential Decree No. 902-A, as
amended, as follows:
Otherwise stated, in order that the SEC can take
cognizance of a case, the controversy must pertain to any
of the following relationships (a) between the corporation,
partnership or association and the public; (b) between the
corporation, partnership or association and its
stockholders, partners, members, or officers; (c) between
the corporation, partnership or association and the state
in so far as its franchise, permit or license to operate is
concerned; and (d) among the stockholders, partners or
associates themselves.
In this case, neither petitioner nor respondents Yap
spouses are stockholders or officers of PAMBUSCO.
Consequently, the issue of the validity of the series of
transactions resulting in the subject properties being
registered in the names of respondents Yap may be
resolved only by the regular courts.

Respondent court held that petitioner being a stranger to
the questioned resolution and series of succeeding
transactions has no legal standing to question their
validity.
In Teves vs. People's Homesite and Housing
Corporation,7 this Court held:
We note however, in reading the complaint that the
plaintiff is seeking the declaration of the nullity of the deed
of sale, not as a party in the deed, or because she is
obliged principally or subsidiarily under the deed, but
because she has an interest that is affected by the deed.
This Court has held that a person who is not a party
obliged principally or subsidiarily in a contract may
exercise an action for nullity of the contract if he is
prejudiced in his rights with respect to one of the
contracting parties, and can show the detriment which
would positively result to him from the contract in which
he had no intervention, Indeed, in the case now before
Us, the complaint alleges facts which show that plaintiff
suffered detriment as a result of the deed of sale entered
into by and between defendant PHHC and defendant
Melisenda L. Santos. We believe that the plaintiff should
be given a chance to present evidence to establish that
she suffered detriment and that she is entitled to relief.
(Emphasis supplied.)
There can be no question in this case that the questioned
resolution and series of transactions resulting in the
registration of the properties in the name of respondent
Yap spouses adversely affected the rights of petitioner to
the said properties. Consequently, petitioner has the legal
standing to question the validity of said resolution and
transactions.
As to the question of validity of the board resolution of
respondent PAMBUSCO adopted on November 19,
1974, Section 4, Article III of the amended by-laws of
respondent PAMBUSCO, provides as follows:
Sec. 4. Notices of regular and special meetings of the
Board of Directors shall be mailed to each Director not
less than five days before any such meeting, and notices
of special meeting shall state the purpose or purposes
thereof Notices of regular meetings shall be sent by the
Secretary and notices of special meetings by the
President or Directors issuing the call. No failure or
irregularity of notice of meeting shall invalidate any
regular meeting or proceeding thereat; Provided a
quorum of the Board is present, nor of any special
meeting; Provided at least four Directors are present.
(Emphasis supplied.)8
The trial court in finding the resolution void held as
follows:
On the other hand, this Court finds merit in the position
taken by the defendants that the questioned resolution
29
should be declared invalid it having been approved in a
meeting attended by only 3 of the 5 members of the Board
of Directors of PAMBUSCO which attendance is short of
the number required by the by-laws of the corporation.
xxx xxx xxx
In the meeting of November 19, 1974 when the
questioned resolution was approved, the three members
of the Board of Directors of PAMBUSCO who were
present were Jesus Domingo, Joaquin Briones, and
Salvador Bernardez The remaining 2 others, namely:
Judge Pio Marcos and Alfredo Mamuyac were both
absent therefrom.
As it becomes clear that the resolution approved on
November 19, 1974 is null and void it having been
approved by only 3 of the members of the Board of
Directors who were the only ones present at the said
meeting, the deed of assignment subsequently executed
in favor of Marcelino Enriquez pursuant to this resolution
also becomes null and void. . . .9
However, the respondent court overturning said legal
conclusions of the trial court made the following
disquisition:
It should be noted that the provision in Section 4, Article
III of PAMBUSCO's amended by-laws would apply only in
case of a failure to notify the members of the board of
directors on the holding of a special meeting, . . . .
In the instant case, however, there was no proof
whatsoever, either by way of documentary or testimonial
evidence, that there was such a failure or irregularity of
notice as to make the aforecited provision apply. There
was not even such an allegation in the Answer that should
have necessitated a proof thereof. The fact alone that only
three (3) out of five (5) members of the board of directors
attended the subject special meeting, was not enough to
declare the aforesaid proceeding void ab initio, much less
the board resolution borne out of it, when there was no
proof of irregularity nor failure of notice and when the
defense made in the Answer did not touch upon the said
failure of attendance. Therefore, the judgment declaring
the nullity of the subject board resolution must be set
aside for lack of proof.
Moreover, there is no categorical declaration in the by-
laws that a failure to comply with the attendance
requirement in a special meeting should make all the acts
of the board therein null and void ab initio. A cursory
reading of the subject provision, as aforequoted, would
show that its framers only intended to make voidable a
board meeting held without the necessary compliance
with the attendance requirement in the by-laws. Just the
use of the word "invalidate" already denotes a legal
imputation of validity to the questioned board meeting
absent its invalidation in the proceedings prescribed by
the corporation's by-laws and/or the general incorporation

law. More significantly, it should be noted that even if the
subject special meeting is itself declared void, it does not
follow that the acts of the board therein are ipso facto void
and without any legal effect. Without the declaration of
nullity of the subject board proceedings, its validity should
be maintained and the acts borne out of it should be
presumed valid. Considering that the subject special
board meeting has not been declared void in a proper
proceeding, nor even in the trial by the court below, there
is no reason why the acts of the board in the said special
meeting should be treated as void AB. initio. . . .10
The Court disagrees.
The by-laws of a corporation are its own private laws
which substantially have the same effect as the laws of
the corporation. They are in effect, written, into the
charter. In this sense they become part of the
fundamental law of the corporation with which the
corporation and its directors and officers must comply.11
Apparently, only three (3) out of five (5) members of the
board of directors of respondent PAMBUSCO convened
on November 19, 1974 by virtue of a prior notice of a
special meeting. There was no quorum to validly transact
business since, under Section 4 of the amended by-laws
hereinabove reproduced, at least four (4) members must
be present to constitute a quorum in a special meeting of
the board of directors of respondent PAMBUSCO.
Under Section 25 of the Corporation Code of the
Philippines, the articles of incorporation or by-laws of the
corporation may fix a greater number than the majority of
the number of board members to constitute the quorum
necessary for the valid transaction of business. Any
number less than the number provided in the articles or
by-laws therein cannot constitute a quorum and any act
therein would not bind the corporation; all that the
attending directors could do is to adjourn.12
Moreover, the records show that respondent
PAMBUSCO ceased to operate as of November 15, 1949
as evidenced by a letter of the SEC to said corporation
dated April 17, 1980.13 Being a dormant corporation for
several years, it was highly irregular, if not anomalous, for
a group of three (3) individuals representing themselves
to be the directors of respondent PAMBUSCO to pass a
resolution disposing of the only remaining asset of the
corporation in favor of a former corporate officer.
As a matter of fact, the three (3) alleged directors who
attended the special meeting on November 19, 1974 were
not listed as directors of respondent PAMBUSCO in the
latest general information sheet of respondent
PAMBUSCO filed with the SEC dated 18 March 1951.14
Similarly, the latest list of stockholders of respondent
PAMBUSCO on file with the SEC does not show that the
said alleged directors were among the stockholders of
respondent PAMBUSCO.15
30
Under Section 30 of the then applicable Corporation Law,
only persons who own at least one (1) share in their own
right may qualify to be directors of a corporation. Further,
under Section 28 1/2 of the said law, the sale or
disposition of an and/or substantially all properties of the
corporation requires, in addition to a proper board
resolution, the affirmative votes of the stockholders
holding at least two-thirds (2/3) of the voting power in the
corporation in a meeting duly called for that purpose. No
doubt, the questioned resolution was not confirmed at a
subsequent stockholders meeting duly called for the
purpose by the affirmative votes of the stockholders
holding at least two-thirds (2/3) of the voting power in the
corporation. The same requirement is found in Section 40
of the present Corporation Code.
It is also undisputed that at the time of the passage of the
questioned resolution, respondent PAMBUSCO was
insolvent and its only remaining asset was its right of
redemption over the subject properties. Since the
disposition of said redemption right of respondent
PAMBUSCO by virtue of the questioned resolution was
not approved by the required number of stockholders
under the law, the said resolution, as well as the
subsequent assignment executed on March 8, 1975
assigning to respondent Enriquez the said right of
redemption, should be struck down as null and void.
Respondent court, in upholding the questioned deed of
assignment, which appears to be without any
consideration at all, held that the consideration thereof is
the liberality of the respondent PAMBUSCO in favor of its
former corporate officer, respondent Enriquez, for
services rendered. Assuming this to be so, then as
correctly argued by petitioner, it is not just an ordinary
deed of assignment, but is in fact a donation. Under
Article 725 of the Civil Code, in order to be valid, such a
donation must be made in a public document and the
acceptance must be made in the same or in a separate
instrument. In the latter case, the donor shall be notified
of the acceptance in an authentic form and such step
must be noted in both instruments.16
Non-compliance with this requirement renders the
donation null and
void.17 Since undeniably the deed of assignment dated
March 8, 1975 in question,18 shows that there was no
acceptance of the donation in the same and in a separate
document, the said deed of assignment is thus void ab
initio and of no force and effect.
WHEREFORE, the petition is GRANTED. The questioned
decision of the respondent Court of Appeals dated June
20, 1989 and its resolution dated December 27, 1989 are
hereby REVERSED AND SET ASIDE and another
judgment is hereby rendered AFFIRMING in toto the
decision of the trial court.
 31

a. Adoption Procedure (Section 46) members and the manner of voting therein; 4. The form
for proxies of stockholders and members and the
Section 46. Adoption of by-laws. - Every corporation
manner of voting them; 5. The qualifications, duties and
formed under this Code must, within one (1) month
after receipt of official notice of the compensation of directors or trustees, officers and
issuance of its certificate of incorporation by the employees; 6. The time for holding the annual election
Securities and Exchange Commission, adopt a code of directors of trustees and the mode or manner of
of by-laws for its government not giving notice thereof; 7. The manner of election or
inconsistent with this Code. For the adoption of by- appointment and the term of office of all officers other
laws by the corporation the affirmative vote of the
than directors or trustees; 8. The penalties for violation
stockholders representing at least a majority
of the outstanding capital stock, or of at least a of the by-laws; 9. In the case of stock corporations, the
majority of the members in case of non-stock manner of issuing stock certificates; and 10. Such other
corporations, shall be necessary. The by-laws shall matters as may be necessary for the proper or
be signed by the stockholders or members voting for convenient transaction of its corporate business and
them and shall be kept in the principal office of the affairs. (21a)
corporation, subject to the inspection of
the stockholders or members during office hours. A
copy thereof, duly certified to by a majority of the
c. Amendments (Section 48)
directors or trustees countersigned by the
secretary of the corporation, shall be filed with the
Securities and Exchange Commission which shall be
Section 48. Amendments to by-laws. - The board of
attached to the original articles of
directors or trustees, by a majority vote thereof, and
incorporation.
the owners of at least a majority of the
Notwithstanding the provisions of the preceding
outstanding capital stock, or at least a majority of the
paragraph, by-laws may be adopted and filed prior to
members of a non-stock corporation, at a regular or
incorporation; in such case, such by-laws
special meeting duly called for the
shall be approved and signed by all the incorporators
purpose, may amend or repeal any by-laws or adopt
and submitted to the Securities and Exchange
new by-laws. The owners of two-thirds (2/3) of the
Commission, together with the articles of
outstanding capital stock or two-thirds (2/3)
incorporation.
of the members in a non-stock corporation may
In all cases, by-laws shall be effective only upon the
delegate to the board of directors or trustees the
issuance by the Securities and Exchange
power to amend or repeal any by-laws or adopt
Commission of a certification that the by-laws are
new by-laws: Provided, That any power delegated to
not inconsistent with this Code.
the board of directors or trustees to amend or repeal
The Securities and Exchange Commission shall not
any by-laws or adopt new by-laws shall
accept for filing the by-laws or any amendment
be considered as revoked whenever stockholders
thereto of any bank, banking institution,
owning or representing a majority of the outstanding
building and loan association, trust company,
capital stock or a majority of the members
insurance company, public utility, educational
in non-stock corporations, shall so vote at a regular
institution or other special corporations governed by
or special meeting.
special laws, unless accompanied by a certificate of
Whenever any amendment or new by-laws are
the appropriate government agency to the effect that
adopted, such amendment or new by-laws shall be
such by-laws or amendments are in
attached to the original by-laws in the office of
accordance with law. (20a)
the corporation, and a copy thereof, duly certified
under oath by the corporate secretary and a majority
of the directors or trustees, shall be filed
b. Contents (Section 47)
with the Securities and Exchange Commission the
same to be attached to the original articles of
Section 47. Contents of by-laws. - Subject to the incorporation and original by-laws.
provisions of the Constitution, this Code, other special The amended or new by-laws shall only be effective
laws, and the articles of incorporation, a private upon the issuance by the Securities and Exchange
corporation may provide in its by-laws for: 1. The time, Commission of a certification that the
place and manner of calling and conducting regular or same are not inconsistent with this Code. (22a and
special meetings of the directors or trustees; 2. The time 23a)
and manner of calling and conducting regular or special
meetings of the stockholders or members; 3. The
required quorum in meetings of stockholders or

1. Separate Juridical Personality
Santos vs. NLRC, GR No. 101699
In a petition for certiorari under Rule 65 of the Rules of
Court, petitioner Benjamin A. Santos, former President of
the Mana Mining and Development Corporation (MMDC),
questions the resolution of the National Labor Relations
Commission (NLRC) affirming the decision of the Labor
Arbiter Fructouso T. Aurellano who, having held illegal the
termination of employment of private respondent Melvin
D. Millena, has ordered petitioner MMDC, as well as its
president (herein petitioner) and the executive vice-
president in their personal capacities, to pay Millena his
monetary claims.
Private respondent, on 01 October 1985, was hired to be
the project accountant for MMDCs mining operations in
Gatbo, Bacon, Sorsogon. On 12 August 1986, private
respondent sent to Mr. Gil Abao, the MMDC corporate
treasurer, a memorandum calling the latters attention to
the failure of the company to comply with the withholding
tax requirements of, and to make the corresponding
monthly remittances to, the Bureau of Internal Revenue
(BIR) on account of delayed payments of accrued salaries
to the companys laborers and employees.[1]
In a letter, dated 08 September 1986, Abano advised
private respondent thusly:
Regarding Gatbo operations, as you also are aware, the
rainy season is now upon us and the peace and order
condition in Sorsogon has deteriorated. It is therefore, the
boards decision that it would be useless for us to continue
operations, especially if we will always be in the hole, so
to speak. Our first funds receipts will be used to pay all
our debts. We will stop production until the advent of the
dry season, and until the insurgency problem clears. We
will undertake only necessary maintenance and repair
work and will keep our overhead down to the minimum
manageable level. Until we resume full-scale operations,
we will not need a project accountant as there will be very
little paper work at the site, which can be easily handled
at Makati.
We appreciate the work you have done for Mana and we
will not hesitate to take you back when we resume work
at Gatbo. However it would be unfair to you if we kept you
in the payroll and deprive you of the opportunity to earn
more, during this period of Manas crisis.[2]
Private respondent expressed shock over the termination
of his employment. He complained that he would not have
resigned from the Sycip, Gorres & Velayo accounting firm,
where he was already a senior staff auditor, had it not
been for the assurance of a continuos job by MMDCs
Engr. Rodillano E. Velasquez. Private respondent
requested that he be reimbursed the advances he had
made for the company and be paid his accrued
salaries/claims.[3]
32
The claim was not heeded; on 20 October 1986, private
respondent filed with the NLRC Regional Arbitration,
Branch No. V, in Legazpi City, a complaint for illegal
dismissal, unpaid salaries, 13th month pay, overtime pay,
separation pay and incentive leave pay against MMDC
and its two top officials, namely, herein petitioner
Benjamin A. Santos (the President) and Rodillano A.
Velasquez (the executive vice-president). In his
complaint-affidavit (position paper), submitted on 27
October 1986, Millena alleged, among other things, that
his dismissal was merely an offshoot of his letter of 12
August 1986 to Abao about the companys inability to pay
its workers and to remit withholding taxes to the BIR.[4]
A copy of the notice and summons was served on therein
respondent (MMDC, Santos and Velasquez) on 29
October 1986.[5] At the initial hearing on 14 November
1986 before the Labor Arbiter, only the complaint, Millena,
appeared; however, Atty. Romeo Perez, in representation
of the respondents, requested by telegram that the
hearing be reset to 01 December 1986. Although the
request was granted by the Labor Arbiter, private
respondent was allowed, nevertheless, to present his
evidence ex-parte at that initial hearing.
The scheduled 01st December 1986 hearing was itself
later reset to 19 December 1986. On 05 December 1986,
the NLRC in Legazpi City again received a telegram from
Atty. Perez asking for fifteen (15) days within which to
submit the respondents position paper. On 19 December
1986, Atty. Perez sent yet another telegram seeking a
further postponement of the hearing and asking for a
period until 15 January 1987 within which to submit the
position paper.
On 15 January 1987, Atty. Perez advised the NLRC in
Legazpi City that the position paper had finally been
transmitted through the mail and that he was submitting
the case for resolution without further hearing. The
position paper was received by the Legazpi City NLRC
office on 19 January 1987. Complainant Millena filed, on
26 February 1987, his rejoinder to the position paper.
On 27 July 1988, Labor Arbiter Fructouso T. Aurellano,
finding no valid cause for terminating complainants
employment, ruled, citing this Courts pronouncement in
Construction & Development Corporation of the
Philippines vs. Leogardo, Jr.[6] that a partial closure of an
establishment due to losses was a retrenchment measure
that rendered the employer liable for unpaid salaries and
other monetary claims. The Labor Arbiter adjudged:
WHEREFORE, the respondents are hereby ordered to
pay the petitioner the amount of P37,132.25
corresponding to the latters unpaid salaries and
advances: P5,400.00 for petitioners 13th month pay;
P3,340.95 as service incentive leave pay; and P5,400.00
as separation pay. The respondents are further ordered
to pay the petitioner 10% of the monetary awards as
attorneys fees.

All other claims are dismissed for lack of sufficient
evidence.
SO ORDERED.[7]
Alleging abuse of discretion by the Labor Arbiter, the
company and its co-respondents filed a motion for
reconsideration and/or appeal.[8] The motion/ appeal was
forthwith indorsed to the Executive Director of the NLRC
in Manila.
In a resolution, dated 04 September 1989, the NLRC[9]
affirmed the decision of the Labor Arbiter. It held that the
reasons relied upon by MMDC and its co-respondents in
the dismissal of Millena, i.e., the rainy season,
deteriorating peace and order situation and little
paperwork, were not causes mentioned under Article 282
of the Labor Code of the Philippines and that Millena,
being a regular employee, was shielded by the tenurial
clause mandated under the law.[10]
A writ of execution correspondingly issued; however, it
was returned unsatisfied for the failure of the sheriff to
locate the offices of the corporation in the address
indicated. Another writ of execution and an order of
garnishment was thereupon served on petitioner at his
residence.
Contending that he had been denied due process,
petitioner filed a motion for reconsideration of the NLRC s
resolution along with a prayer for the quashal of the writ
of execution and order of garnishment. He averred that he
had never received any notice, summons or even a copy
of the complaint; hence, he said, the Labor Arbiter at no
time had acquired jurisdiction over him.
On 16 August 1991, the NLRC[11] dismissed the motion
for reconsideration. Citing Section 2, Rule 13,[12] and
Section 13, Rule 14,[13] of the Rules of Court, it ruled that
the Regional Arbitration office had not, in fact, been
remiss in the observance of the legal processes for
acquiring jurisdiction over the case and over the persons
of the respondents therein. The NLRC was also
convinced that Atty. Perez had been the authorized
counsel of MMDC and its two most ranking officers.
In holding petitioner personally liable for private
respondents claim, the NLRC cited Article 289[14] of the
Labor Code and the ruling in A.C. Ransom Labor Union-
CCLU vs. NLRC[15] to the effect that (t)he responsible
officer of an employer corporation (could) be held
personally, not to say even criminally, liable for non-
payment of backwages, and that of Gudez vs. NLRC[16]
which amplified that where the employer corporation
(was) no longer existing and unable to satisfy the
judgment in favor of the employee, the officer should be
liable for acting on behalf of the corporation.
33
In the instant petition for certiorari, petitioner Santos
reiterates that he should not have been adjudged
personally liable by public respondents, the latter not
having validly acquired jurisdiction over his person
whether by personal service of summons or by
substituted service under Rule 19 of the Rules of Court.
Petitioner s contention is unacceptable. The fact that Atty.
Romeo B. Perez has been able to timely ask for a
deferment of the initial hearing on 14 November 1986,
coupled with his subsequent active participation in the
proceedings, should disprove the supposed want of
service of legal process. Although as a rule, modes of
service of summons are strictly followed in order that the
court may acquire jurisdiction over the person of a
defendant,[17] such procedural modes, however, are
liberally construed in quasi-judicial proceedings,
substantial compliance with the same being considered
adequate.[18] Moreover, jurisdiction over the person of
the defendant in civil cases is acquired not only by service
of summons but also by voluntary appearance in court
and submission to its authority.[19] Appearance by a legal
advocate is such voluntary submission to a courts
jurisdiction.[20] It may be made not only by actual physical
appearance but likewise by the submission of pleadings
in compliance with the order of the court or tribunal.
To say that petitioner did not authorize Atty. Perez to
represent him in the case[21] is to unduly tax credulity.
Like the Solicitor General, the Court likewise considers it
unlikely that Atty. Perez would have been so irresponsible
as to represent petitioner if he were not, in fact,
authorized.[22] Atty. Perez is an officer of the court, and
he must be presumed to have acted with due propriety.
The employment of a counsel or the authority to employ
an attorney, it might be pointed out, need not be proved
in writing; such fact could inferred from circumstantial
evidence.[23] Petitioner was not just an ordinary official of
the MMDC; he was the President of the company.
Petitioner, in any event, argues that public respondents
have gravely abused their discretion in finding petitioner
solidarily liable with MMDC even (in) the absence of bad
faith and malice on his part.[24] There is merit in this plea.
A corporation is a juridical entity with legal personality
separate and distinct from those acting for and in its
behalf and, in general, from the people comprising it. The
rule is that obligations incurred by the corporation, acting
through its directors, officers and employees, are its sole
liabilities. Nevertheless, being a mere fiction of law,
peculiar situations or valid grounds can exist to warrant,
albeit done sparingly, the disregard of its independent
being and the lifting of the corporate veil.[25] As a rule,
this situation might arise when a corporation is used to
evade a just and due obligation or to justify a wrong,[26]
to shield or perpetrate fraud,[27] to carry out similar other
unjustifiable aims or intentions, or as a subterfuge to
commit injustice and so circumvent the law.[28] In Tramat
Mercantile, Inc., vs. Court of Appeals,[29] the Court has

collated the settled instances when, without necessarily
piercing the veil of corporate fiction, personal civil liability
can also be said to lawfully attach to a corporate director,
trustee or officer; to wit: When
(1) He assents (a) to a patently unlawful act of the
corporation, or (b) for bad faith or gross negligence in
directing its affairs, or (c) for conflict of interest, resulting
in damages to the corporation, its stockholders or other
persons;
(2) He consents to the issuance of watered stocks or who,
having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto;
(3) He agrees to hold himself personally and solidarily
liable with the corporation; or
(4) He is made, by a specific provision of law, to
personally answer for his corporate action.
The case of petitioner is way off these exceptional
instances. It is not even shown that petitioner has had a
direct hand in the dismissal of private respondent enough
to attribute to him (petitioner) a patently unlawful act while
acting for the corporation. Neither can Article 289[30] of
the Labor Code be applied since this law specifically
refers only to the imposition of penalties under the Code.
It is undisputed that the termination of petitioners
employment has, instead, been due, collectively, to the
need for a further mitigation of losses, the onset of the
rainy season, the insurgency problem in Sorsogon and
the lack of funds to further support the mining operation in
Gatbo.
It is true, there were various cases when corporate
officers were themselves held by the Court to be
personally accountable for the payment of wages and
money claims to its employees. In A.C. Ransom Labor
Union-CCLU vs. NLRC,[31] for instance, the Court ruled
that under the Minimum Wage Law, the responsible
officer of an employer corporation could be held
personally liable for nonpayment of backwages for (i)f the
policy of the law were otherwise, the corporation employer
(would) have devious ways for evading payment of
backwages. In the absence of a clear identification of the
officer directly responsible for failure to pay the
backwages, the Court considered the President of the
corporation as such officer. The case was cited in Chua
vs. NLRC[32] in holding personally liable the vice-
president of the company, being the highest and most
ranking official of the corporation next to the President
who was dismissed for the latters claim for unpaid wages.
A review of the above exceptional cases would readily
disclose the attendance of facts and circumstances that
could rightly sanction personal liability on the part of the
company officer. In A.C. Ransom, the corporate entity
was a family corporation and execution against it could
not be implemented because of the disposition posthaste
34
of its leviable assets evidently in order to evade its just
and due obligations. The doctrine of piercing the veil of
corporate fiction was thus clearly appropriate. Chua
likewise involved another family corporation, and this time
the conflict was between two brothers occupying the
highest ranking positions in the company. There were
incontrovertible facts which pointed to extreme personal
animosity that resulted, evidently in bad faith, in the
easing out from the company of one of the brothers by the
other.
The basic rule is still that which can be deduced from the
Courts pronouncement in Sunio vs. National Labor
Relations Commission;[33] thus:
We come now to the personal liability of petitioner, Sunio,
who was made jointly and severally responsible with
petitioner company and CIPI for the payment of the
backwages of private respondents. This is reversible
error. The Assistant Regional Directors Decision failed to
disclose the reason why he was made personally liable.
Respondents, however, alleged as grounds thereof, his
being the owner of one-half () interest of said corporation,
and his alleged arbitrary dismissal of private respondents.
Petitioner Sunio was impleaded in the Complaint in his
capacity as General Manager of petitioner corporation.
There appears to be no evidence on record that he acted
maliciously or in bad faith in terminating the services of
private respondents. His act, therefore, was within the
scope of his authority and was a corporate act.
It is basic that a corporation is invested by law with a
personality separate and distinct from those of the
persons composing it as well as from that of any other
legal entity to which it may be related. Mere ownership by
a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate
personality. Petitioner Sunio, therefore, should not have
been made personally answerable for the payment of
private respondents back salaries.
The Court, to be sure, did appear to have deviated
somewhat in Gudez vs. NLRC;[34] however, it should be
clear from our recent pronouncement in Mam Realty
Development Corporation and Manuel Centeno vs.
NLRC[35] that the Sunio doctrine still prevails.
WHEREFORE, the instant petition for certiorari is given
DUE COURSE and the decision of the Labor Arbiter,
affirmed by the NLRC, is hereby MODIFIED insofar as it
holds herein petitioner Benjamin Santos personally liable
with Mana Mining and Development Corporation, which
portion of the questioned judgment is now SET ASIDE. In
all other respects, the questioned decision remains
unaffected. No costs.

STOCKHOLDERS OF F. GUANZON AND SONS, INC.,
petitioners-appellants,
vs.
REGISTER OF DEEDS OF MANILA, respondent-
appellee.
Ramon C. Fernando for petitioners-appellants.
Office of the Solicitor General for respondent-appellee.
BAUTISTA ANGELO, J.:
On September 19, 1960, the five stockholders of the F.
Guanzon and Sons, Inc. executed a certificate of
liquidation of the assets of the corporation reciting, among
other things, that by virtue of a resolution of the
stockholders adopted on September 17, 1960, dissolving
the corporation, they have distributed among themselves
in proportion to their shareholdings, as liquidating
dividends, the assets of said corporation, including real
properties located in Manila.
The certificate of liquidation, when presented to the
Register of Deeds of Manila, was denied registration on
seven grounds, of which the following were disputed by
the stockholders:
3. The number of parcels not certified to in the
acknowledgment;
5. P430.50 Reg. fees need be paid;
6. P940.45 documentary stamps need be attached
to the document;
7. The judgment of the Court approving the
dissolution and directing the disposition of the assets of
the corporation need be presented (Rules of Court, Rule
104, Sec. 3).
Deciding the consulta elevated by the stockholders, the
Commissioner of Land Registration overruled ground No.
7 and sustained requirements Nos. 3, 5 and 6.
The stockholders interposed the present appeal.
As correctly stated by the Commissioner of Land
Registration, the propriety or impropriety of the three
grounds on which the denial of the registration of the
certificate of liquidation was predicated hinges on whether
or not that certificate merely involves a distribution of the
corporation's assets or should be considered a transfer or
conveyance.
Appellants contend that the certificate of liquidation is not
a conveyance or transfer but merely a distribution of the
assets of the corporation which has ceased to exist for
having been dissolved. This is apparent in the minutes for
dissolution attached to the document. Not being a
conveyance the certificate need not contain a statement
of the number of parcel of land involved in the distribution
35
in the acknowledgment appearing therein. Hence the
amount of documentary stamps to be affixed thereon
should only be P0.30 and not P940.45, as required by the
register of deeds. Neither is it correct to require appellants
to pay the amount of P430.50 as registration fee.
The Commissioner of Land Registration, however,
entertained a different opinion. He concurred in the view
expressed by the register of deed to the effect that the
certificate of liquidation in question, though it involves a
distribution of the corporation's assets, in the last analysis
represents a transfer of said assets from the corporation
to the stockholders. Hence, in substance it is a transfer or
conveyance.
We agree with the opinion of these two officials. A
corporation is a juridical person distinct from the members
composing it. Properties registered in the name of the
corporation are owned by it as an entity separate and
distinct from its members. While shares of stock constitute
personal property they do not represent property of the
corporation. The corporation has property of its own which
consists chiefly of real estate (Nelson v. Owen, 113 Ala.,
372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W.
743). A share of stock only typifies an aliquot part of the
corporation's property, or the right to share in its proceeds
to that extent when distributed according to law and equity
(Hall & Faley v. Alabama Terminal, 173 Ala 398, 56 So.,
235), but its holder is not the owner of any part of the
capital of the corporation (Bradley v. Bauder 36 Ohio St.,
28). Nor is he entitled to the possession of any definite
portion of its property or assets (Gottfried v. Miller, 104
U.S., 521; Jones v. Davis, 35 Ohio St., 474). The
stockholder is not a co-owner or tenant in common of the
corporate property (Halton v. Hohnston, 166 Ala 317, 51
So 992).
On the basis of the foregoing authorities, it is clear that
the act of liquidation made by the stockholders of the F.
Guanzon and Sons, Inc. of the latter's assets is not and
cannot be considered a partition of community property,
but rather a transfer or conveyance of the title of its assets
to the individual stockholders. Indeed, since the purpose
of the liquidation, as well as the distribution of the assets
of the corporation, is to transfer their title from the
corporation to the stockholders in proportion to their
shareholdings, — and this is in effect the purpose which
they seek to obtain from the Register of Deeds of Manila,
— that transfer cannot be effected without the
corresponding deed of conveyance from the corporation
to the stockholders. It is, therefore, fair and logical to
consider the certificate of liquidation as one in the nature
of a transfer or conveyance.
WHEREFORE, we affirm the resolution appealed from,
with costs against appellants.

MANILA GAS CORPORATION, plaintiff-appellant,
vs.
THE COLLECTOR OF INTERNAL REVENUE,
defendant-appellee.
DeWitt, Perkins and Ponce Enrile for appellant.
Office of the Solicitor-General Hilado for appellee.
MALCOLM, J.:
This is an action brought by the Manila Gas Corporation
against the Collector of Internal Revenue for the recovery
of P56,757.37, which the plaintiff was required by the
defendant to deduct and withhold from the various sums
paid it to foreign corporations as dividends and interest on
bonds and other indebtedness and which the plaintiff paid
under protest. On the trial court dismissing the complaint,
with costs, the plaintiff appealed assigning as the principal
errors alleged to have been committed the following:
1. The trial court erred in holding that the dividends paid
by the plaintiff corporation were subject to income tax in
the hands of its stockholders, because to impose the tax
thereon would be to impose a tax on the plaintiff, in
violation of the terms of its franchise, and would,
moreover, be oppressive and inequitable.
2. The trial court erred in not holding that the interest on
bonds and other indebtedness of the plaintiff corporation,
paid by it outside of the Philippine Islands to corporations
not residing therein, were not, on the part of the recipients
thereof, income from Philippine sources, and hence not
subject to Philippine income tax.
The facts, as stated by the appellant and as accepted by
the appellee, may be summarized as follows: The plaintiff
is a corporation organized under the laws of the Philippine
Islands. It operates a gas plant in the City of Manila and
furnishes gas service to the people of the metropolis and
surrounding municipalities by virtue of a franchise granted
to it by the Philippine Government. Associated with the
plaintiff are the Islands Gas and Electric Company
domiciled in New York, United States, and the General
Finance Company domiciled in Zurich, Switzerland.
Neither of these last mentioned corporations is resident in
the Philippines.
For the years 1930, 1931, and 1932, dividends in the sum
of P1,348,847.50 were paid by the plaintiff to the Islands
Gas and Electric Company in the capacity of stockholders
upon which withholding income taxes were paid to the
defendant totalling P40,460.03 For the same years
interest on bonds in the sum of P411,600 was paid by the
plaintiff to the Islands Gas and Electric Company upon
which withholding income taxes were paid to the
defendant totalling P12,348. Finally for the stated time
period, interest on other indebtedness in the sum of
P131,644,90 was paid by the plaintiff to the Islands Gas
and Electric Company and the General Finance Company
36
respectively upon which withholding income taxes were
paid to the defendant totalling P3,949.34.
Some uncertainty existing regarding the place of
payment, we will not go into this factor of the case at this
point, except to remark that the bonds and other tokens
of indebtedness are not to be found in the record.
However, Exhibits E, F, and G, certified correct by the
Treasurer of the Manila Gas Corporation, purport to prove
that the place of payment was the United States and
Switzerland.
The appeal naturally divides into two subjects, one
covered by the first assigned error, and the other by the
second assigned error. We shall discuss these subjects
and errors in order.
1. Appellant first contends that the dividends paid by it to
its stockholders, the Islands Gas and Electric Company ,
were not subject to tax because to impose a tax thereon
would be to do so on the plaintiff corporation, in violation
of the terms of its franchise and would, moreover, be
oppressive and inequitable. This argument is predicated
on the constitutional provision that no law impairing the
obligation of contracts shall be enacted. The particular
portion of the franchise which is invoked provides:
The grantee shall annually on the fifth day of January of
each year pay to the City of Manila and the municipalities
in the Province of Rizal in which gas is sold, two and one
half per centum of the gross receipts within said city and
municipalities, respectively, during the preceding year.
Said payment shall be in lieu of all taxes, Insular,
provincial and municipal, except taxes on the real estate,
buildings, plant, machinery, and other personal property
belonging to the grantee.
The trial judge was of the opinion that the instant case
was governed by our previous decision in the case of
Philippine Telephone and Telegraph Co., vs. Collector of
Internal Revenue ([1933], 58 Phil. 639). In this view we
concur. It is true that the tax exemption provision relating
to the Manila Gas Corporation hereinbefore quoted differs
in phraseology from the tax exemption provision to be
found in the franchise of the Telephone and Telegraph
Company, but the ratio decidendi of the two cases is
substantially the same. As there held and as now
confirmed, a corporation has a personality distinct from
that of its stockholders, enabling the taxing power to reach
the latter when they receive dividends from the
corporation. It must be considered as settled in this
jurisdiction that dividends of a domestic corporation,
which are paid and delivered in cash to foreign
corporations as stockholders, are subject to the payment
in the income tax, the exemption clause in the charter of
the corporation notwithstanding.
For the foreign reasons, we are led to sustain the decision
of the trial court and to overrule appellant's first assigned
error.

2. In support of its second assignment of error, appellant
contends that, as the Islands Gas and Electric Company
and the General Finance Company are domiciled in the
United States and Switzerland respectively, and as the
interest on the bonds and other indebtedness earned by
said corporations has been paid in their respective
domiciles, this is not income from Philippine sources
within the meaning of the Philippine Income Tax Law.
Citing sections 10 (a) and 13 (e) of Act No. 2833, the
Income Tax Law, appellant asserts that their applicability
has been squarely determined by decisions of this court
in the cases of Manila Railroad Co. vs. Collector of
Internal Revenue (No. 31196, promulgated December 2,
1929, nor reported), and Philippine Railway Co. vs.
Posadas (No. 38766, promulgated October 30, 1933 [58
Phil., 968]) wherein it was held that interest paid to non-
resident individuals or corporations is not income from
Philippine sources, and hence not subject to the
Philippine Income Tax. The Solicitor-General answers
with the observation that the cited decisions interpreted
the Income Tax Law before it was amended by Act No.
3761 to cover the interest on bonds and other obligations
or securities paid "within or without the Philippine Islands."
Appellant rebuts this argument by "assuming, for the sake
of the argument, that by the amendment introduced to
section 13 of Act No. 2833 by Act No. 3761 the Legislature
intended the interest from Philippine sources and so is
subject to tax," but with the necessary sequel that the
amendatory statute is invalid and unconstitutional as
being the power of the Legislature to enact.
Taking first under observation that last point, it is to be
observed that neither in the pleadings, the decision of the
trial court, nor the assignment of errors, was the question
of the validity of Act No. 3761 raised. Under such
circumstances, and no jurisdictional issue being involved,
we do not feel that it is the duty of the court to pass on the
constitutional question, and accordingly will refrain from
doing so. (Cadwaller-Gibson Lumber Co. vs. Del Rosario
[1913], 26 Phil., 192; Macondray and Co. vs. Benito and
Ocampo, P. 137, ante; State vs. Burke [1912], 175 Ala.,
561.)
As to the applicability of the local cases cited and of the
Porto Rican case of Domenech vs. United Porto Rican
Sugar co. ([1932], 62 F. [2d], 552), we need only observe
that these cases announced good law, but that each he
must be decided on its particular facts. In other words, in
the opinion of the majority of the court, the facts at bar and
the facts in those cases can be clearly differentiated. Also,
in the case at bar there is some uncertainty concerning
the place of payment, which under one view could be
considered the Philippines and under another view the
United States and Switzerland, but which cannot be
definitely determined without the necessary documentary
evidence before, us.
The approved doctrine is that no state may tax anything
not within its jurisdiction without violating the due process
37
clause of the constitution. The taxing power of a state
does not extend beyond its territorial limits, but within
such it may tax persons, property, income, or business. If
an interest in property is taxed, the situs of either the
property or interest must be found within the state. If an
income is taxed, the recipient thereof must have a
domicile within the state or the property or business out of
which the income issues must be situated within the state
so that the income may be said to have a situs therein.
Personal property may be separated from its owner, and
he may be taxed on its account at the place where the
property is although it is not the place of his own domicile
and even though he is not a citizen or resident of the state
which imposes the tax. But debts owing by corporations
are obligations of the debtors, and only possess value in
the hands of the creditors. (Farmers Loan Co. vs.
Minnesota [1930], 280 U.S., 204; Union Refrigerator
Transit Co. vs. Kentucky [1905], 199 U.S., 194 State Tax
on Foreign held Bonds [1873, 15 Wall., 300; Bick vs.
Beach [1907], 206 U. S., 392; State ex rel. Manitowoc
Gas Co. vs. Wig. Tax Comm. [1915], 161 Wis., 111;
United States Revenue Act of 1932, sec. 143.)
These views concerning situs for taxation purposes apply
as well to an organized, unincorporated territory or to a
Commonwealth having the status of the Philippines.
Pushing to one side that portion of Act No. 3761 which
permits taxation of interest on bonds and other
indebtedness paid without the Philippine Islands, the
question is if the income was derived from sources within
the Philippine Islands.
In the judgment of the majority of the court, the question
should be answered in the affirmative. The Manila Gas
Corporation operates its business entirely within the
Philippines. Its earnings, therefore come from local
sources. The place of material delivery of the interest to
the foreign corporations paid out of the revenue of the
domestic corporation is of no particular moment. The
place of payment even if conceded to be outside of tho
country cannot alter the fact that the income was derived
from the Philippines. The word "source" conveys only one
idea, that of origin, and the origin of the income was the
Philippines.
In synthesis, therefore, we hold that conditions have not
been provided which justify the court in passing on the
constitutional question suggested; that the facts while
somewhat obscure differ from the facts to be found in the
cases relied upon, and that the Collector of Internal
Revenue was justified in withholding income taxes on
interest on bonds and other indebtedness paid to non-
resident corporations because this income was received
from sources within the Philippine Islands as authorized
by the Income Tax Law. For the foregoing reasons, the
second assigned error will be overruled.
Before concluding, it is but fair to state that the writer's
opinion on the first subject and the first assigned error

herein discussed is accurately set forth, but that his
opinion on the second subject and the second assigned
error is not accurately reflected, because on this last
division his views coincide with those of the appellant.
However, in the interest of the prompt disposition of this
case, the decision has been written up in accordance with
instructions received from the court.
Judgment affirmed, with the cost of this instance
assessed against the appellant.
Hull, Vickers, Imperial, Butte, and Recto, JJ., concur.
Separate Opinions
VILLA-REAL, J., concurring and dissenting:
I concur with the majority decision regarding the
disposition of the second error, but dissent as to its
disposition of the first error. In my opinion, the exemption
clause to be found in the charter of the plaintiff is broader
in scope than that to be found in the charter of the
Philippine Telephone and Telegraph Company, thus
making inapplicable the decision of this court in the case
of Philippine Telephone and Telegraph Co. vs. Collector
of Internal Revenue (58 Phil., 639).
ABAD SANTOS, J., concurring in part and dissenting in
part:
I am of opinion that the first assignment of error should be
sustained and the judgment below reversed in that
respect.
The franchise held by the appellant corporation contains
a stipulation by the Government to the effect that the
payment by the corporation to the entities named in the
franchise of two and one-half per centum of its gross
receipts, shall be in lieu of all taxes, except taxes on the
real estate, buildings, plant, machinery and other personal
property belonging to the corporation. The dividends paid
by the appellant corporation to its stockholders were a
part of its earnings and as such not subject to tax under
the terms of the franchise. The franchise in this case is a
contract, the obligation of which can not be impaired.
I agree with the majority of the court that the second
assignment of error should be overruled, and the
judgment affirmed in that particular.
Section 13 (e) of Act No. 2833, as amended by Act No.
3761, expressly provides for the imposition of a tax "...
upon the income derived from interest upon bonds and
mortgages, or deeds of trust, notes, or other interest-
bearing obligations of a domestic or resident foreign
corporation, ..." The income derived from the interest on
bonds and other indebtedness of the appellant
corporation, is clearly within the purview of the statute.
The power of the legislature to impose such a tax must be
38
recognized. As stated by Justice Bradley in United States
vs. Erie R. Co. (106 U.S., 327; 27 Law. ed., 151, 153) : "...
The tax laid upon their bonds was intended to affect the
owners of the bonds, and whilst the companies were
directed to pay it, they were authorized to retain the
amount from the installments due to the bondholders,
whether citizens or aliens. The objection that Congress
had no power to tax non-resident aliens, is met by the fact
that the tax was not assessed against them personally,
but against the rem, the credit, the debt due to them.
Congress has the right to tax all property within the
jurisdiction of the United States, with certain exceptions
not necessary to be noted. The money due to non-
resident bondholders in this case was in the United States
in the hands of the company before it could be transmitted
to London, or other place where the bondholders resided.
Whilst here it was liable to taxation. Congress, by the
internal revenue law, by way of tax., stopped a part of the
money before its transmission, namely; 5 per cent of it.
Plausible grounds for levying such a tax might be
assigned. It might be said that the creditor is protected by
our laws in the enjoyment of the debt; that the whole
machinery of our courts and the physical power of the
government are placed at his disposal for its security and
collection."
AVANCEÑA, C.J., dissenting:
I do not agree with the majority opinion with respect to the
appellant's second assignment of error, which in my
opinion should be sustained. The question involved in this
error has been clearly decided by this court in the case of
Manila Railroad Co. vs. Collector of Internal Revenue
(G.R. No. 31196, promulgated December 2, 1929, not
reported). In said case it was held that interest on bonds
purchased outside the Philippine Islands by non-residents
of the Islands cannot be considered derived from sources
within the Islands. The amendment of the law introduced
by Act no. 3761 as to the place of payment of interest
does not affect the aspect of the question raised in this
error if the interest on which the tax in the present case
has been collected is not derived from sources within the
Islands, as it is not so in fact, in accordance with the
doctrine laid down in said case of Manila Railroad Co. vs.
Collector of Internal Revenue.
GODDARD, J., dissenting:
The tax exemption and commutation clause in the
plaintiffs franchise provides that:
The grantee shall annually on the 5th day of January of
each year pay to the City of Manila and to the
municipalities in the Province of Rizal in which gas is sold,
two and one half per centum of the gross receipts within
said city and municipalities, respectively, during the
preceding year. Said payment shall be in lieu of all tax,
Insular, provincial and municipal, except taxes on the real
estate, buildings, plant, machinery, and other personal
property belonging to the grantee.

This franchise is a contract between the Government and
the grantees thereof, whose rights have been acquired by
the plaintiff corporation. In Manila Railroad Co. vs.
Rafferty (40 Phil., 224, 230), this court held that "... Once
granted, a charter becomes a private contract ...." Article
1091 of the Civil Code provides that "Obligations arising
from contract shall have the force of law between the
contracting parties and must be performed in accordance
with their stipulations." It follows that as the plaintiff
corporation has paid to the City of Manila and to the
municipalities of Rizal, where gas is sold by it, the
franchise tax stipulated in the contract, the Government
has no legal right to impose another tax on its earnings.
The case of Farrington vs. Tennessee (95 U.S., 679; 24
Law. ed., 558), is almost in exact parallel with the case at
bar. The facts of that case were as follows: The Union and
Planters' Bank of Memphis was duly organized under the
charter granted by the Legislature of Tennessee, by two
Acts, respectively dated March 20, 1858, and February
12, 1869. Since its organization it continued doing a
regular banking business. Its capital subscribed and paid
in amounted to $675,000, divided into 6,750 shares of
$100 each. Farrington, the plaintiff in error, was the owner
of 150 shares, of the value of $15,000.
The tenth section of the charter of the bank declared:
That said Company shall pay to the State an annual tax
of one-half of one per cent on each share of the capital
stock subscribe, which shall be in lieu of all other taxes.
The State of Tennessee and the County of Shelby,
claiming the right under the Revenue Law of the State, to
tax the stock of the plaintiff in error, a stockholder of the
bank, assessed and taxed it for the year 1872. It was
assessed at its per value. The tax imposed by the State
was forty cents on the $100, making the state tax $60.
The county tax was $1.20 on the $100, making the county
tax $180.
The plaintiff in error denied the right of the State and
County to impose these taxes. He claimed;
(1) That the 10th section of the charter was a contract
between the State and the bank;
(2) That any other tax than that therein specified was
expressly forbidden, and.
(3) That the revenue laws imposing the taxes in question
impaired the obligation of the contract.
The Supreme Court of Tennessee adjudge the taxes to
be valid and the plaintiff in error thereupon removed the
case to the Federal Supreme Court for review.
In upholding all of the contentions of the plaintiff in error,
and pronouncing invalid the taxes involved as impairing
39
the obligation of the contract created by the franchise, the
United States Supreme court said:
This case turns upon the construction to be given to the
10th section of the charter of the bank. . . .
xxx xxx xxx
When this charter was granted, the State might have been
silent as to taxation. In that case, the power would have
been unfettered. (Bk. vs. Billings, 4 Pet., 514.) It might
have reserved the power as to some things, and yielded
it as to others. It had the power to make its own terms or
to refuse the charter. It chose to stipulate for a specified
tax on the and declared and bound itself that this tax
should be "in lieu of all other taxes."
There is no question before us as to the tax imposed on
the shares by the charter. But the State has by her
revenue imposed another and an additional tax on these
same shares. This is one of those "other taxes" which it
had stipulated to forego. The identity of the thing doubly
taxed is not affected by the fact that in one case the tax is
to be paid vicariously by the bank, and in the other by the
owner of the share himself. The thing thus taxed is to the
same, and the second tax is expressly forbidden by the
contract of the parties. After the most careful
consideration, we can come to no other conclusion. Such,
we think, must have been the understanding and intent of
the parties when the charter was granted and the bank
was organized. Any other view would ignore the covenant
that the tax specified should be "in lieu of all other taxes."
It would blot those terms from the context, and construe it
as if they were not a part of it. . . .
xxx xxx xxx
The decree of the Supreme Court of Tennessee is
reversed and the case will be remanded, with directions
to enter a decree in favor of the plaintiff in error.
(Farrington vs. Tennessee, 95 U.S., 679; 24 Law. ed.,
560, 561.)
That case, it will be observed, is almost in exact parallel
with the case at bar. Both cases deal with tax
commutation provided for in a franchise granted by the
State. In both cases the State covenanted that the tax
specified in the franchise should be in lieu of all other
taxes. In both cases the additional tax which the tax
authorities sought to impose was a revenue tax. In both
cases the tax provided for in the franchise was paid by the
corporation, and the tax which the authorities attempted
to collect were imposed on the stockholders. In the
Farrington case the provision in the Federal Constitution
that "No State shall ... pass any ... law impairing the
obligation of contracts" was applied; in this case the
provision of our Organic Law that "no law impairing the
obligation of contracts shall be enacted" is involved. It will
be observed further, that in the Farrington case the
franchise was granted to a corporation, yet the court held

that the court mutation provision of the franchise extended
to the individual stockholders. In the case at bar, while the
plaintiff the present owner of the franchise. is a
corporation, the original grantees were natural persons;
hence there is more reason for holding in the present case
that the mutation provision in the franchise granted by the
Philippine Government should extend to the stockholders
of plaintiff corporation.
The Farrington Case, decided in 1878, was by a divided
court. Eighteen years — later in 1896 — the State of
Tennessee sought to have the decision in that case
reviewed, on the ground that the court did not consider
the other portions of the charter which, according to the
State, were material. The Supreme Court — this time
unanimously — declined to reverse its view as expressed
in the Farrington decision, saying.
We do not think under the circumstances that we ought
now to come to a different conclusion upon the question
of exemption from that which was arrived at by this court
in the Farrington Case. As the whole charter was then
before the court, we are not prepared to say that its force
was misunderstood, or that there was an omission by the
court to consider all the language of the exemption clause
simply because a portion of its omitted in the quotation
from the record made in the opinion therein delivered. We
are not inclined, therefore, to overrule or distinguish the
Farrington Case, and we must now told that the charter
clause of exemption limits the amount of tax on each
share of stock in the hands of the shareholder, and that
any subsequent revenue law of the state which imposes
an additional tax on such shares in the hands or
shareholders, impairs the obligation of the contract, and
is void. This compels us to reverse the judgments herein
against the shareholders. (Bank of Commerce vs.
Tennessee, 16 U.S. 134; 40 Law. ed., 645, 648.)
The doctrine of the Farrington Case is now the settled rule
of the highest court of the United States. The first
assignment of error should therefore be sustained.
As to the second assignment of error I concur with the
dissenting opinion of the Chief Justice for the reasons set
forth therein. Consequently that assignment of error
should also be sustained.
The trial court erred in not holding that interest received
by a non-resident corporation, outside the Philippine
Islands, is not income from Philippine sources and so not
subject to income tax.
In view of the above I am of the opinion that the appealed
decision should be reversed and another entered by this
courts ordering the defendant to pay the plaintiff the sum
of P40,460.03, the amount of withholding taxes paid on
account of interest on bonds and other indebtedness, or
a total of P56,757.37.
40
CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD
MAGSAYSAY-CABRERA, LUISA MAGSAYSAY-
CORPUZ, assisted be her husband, Dr. Jose Corpuz,
FELICIDAD P. MAGSAYSAY, and MERCEDES
MAGSAYSAY-DIAZ, petitioners,
vs.
THE COURT OF APPEALS and ADELAIDA
RODRIGUEZ-MAGSAYSAY, Special Administratrix of
the Estate of the late Genaro F. Magsaysay respondents.
FERNAN, C.J.:
In this petition for review on certiorari, petitioners seek to
reverse and set aside [1] the decision of the Court of
Appeals dated July l3, 1981, 1 affirming that of the Court
of First Instance of Zambales and Olongapo City which
denied petitioners' motion to intervene in an annulment
suit filed by herein private respondent, and [2] its
resolution dated September 7, 1981, denying their motion
for reconsideration.
Petitioners are raising a purely legal question; whether or
not respondent Court of Appeals correctly denied their
motion for intervention.
The facts are not controverted.
On February 9, 1979, Adelaida Rodriguez-Magsaysay,
widow and special administratix of the estate of the late
Senator Genaro Magsaysay, brought before the then
Court of First Instance of Olongapo an action against
Artemio Panganiban, Subic Land Corporation (SUBIC),
Filipinas Manufacturer's Bank (FILMANBANK) and the
Register of Deeds of Zambales. In her complaint, she
alleged that in 1958, she and her husband acquired, thru
conjugal funds, a parcel of land with improvements,
known as "Pequena Island", covered by TCT No. 3258;
that after the death of her husband, she discovered [a] an
annotation at the back of TCT No. 3258 that "the land was
acquired by her husband from his separate capital;" [b]
the registration of a Deed of Assignment dated June 25,
1976 purportedly executed by the late Senator in favor of
SUBIC, as a result of which TCT No. 3258 was cancelled
and TCT No. 22431 issued in the name of SUBIC; and [c]
the registration of Deed of Mortgage dated April 28, 1977
in the amount of P 2,700,000.00 executed by SUBIC in
favor of FILMANBANK; that the foregoing acts were void
and done in an attempt to defraud the conjugal
partnership considering that the land is conjugal, her
marital consent to the annotation on TCT No. 3258 was
not obtained, the change made by the Register of Deeds
of the titleholders was effected without the approval of the
Commissioner of Land Registration and that the late
Senator did not execute the purported Deed of
Assignment or his consent thereto, if obtained, was
secured by mistake, violence and intimidation. She further
alleged that the assignment in favor of SUBIC was without
consideration and consequently null and void. She prayed
that the Deed of Assignment and the Deed of Mortgage

be annulled and that the Register of Deeds be ordered to
cancel TCT No. 22431 and to issue a new title in her favor.
On March 7, 1979, herein petitioners, sisters of the late
senator, filed a motion for intervention on the ground that
on June 20, 1978, their brother conveyed to them one-
half (1/2 ) of his shareholdings in SUBIC or a total of
416,566.6 shares and as assignees of around 41 % of the
total outstanding shares of such stocks of SUBIC, they
have a substantial and legal interest in the subject matter
of litigation and that they have a legal interest in the
success of the suit with respect to SUBIC.
On July 26, 1979, the court denied the motion for
intervention, and ruled that petitioners have no legal
interest whatsoever in the matter in litigation and their
being alleged assignees or transferees of certain shares
in SUBIC cannot legally entitle them to intervene because
SUBIC has a personality separate and distinct from its
stockholders.
On appeal, respondent Court of Appeals found no factual
or legal justification to disturb the findings of the lower
court. The appellate court further stated that whatever
claims the petitioners have against the late Senator or
against SUBIC for that matter can be ventilated in a
separate proceeding, such that with the denial of the
motion for intervention, they are not left without any
remedy or judicial relief under existing law.
Petitioners' motion for reconsideration was denied.
Hence, the instant recourse.
Petitioners anchor their right to intervene on the purported
assignment made by the late Senator of a certain portion
of his shareholdings to them as evidenced by a Deed of
Sale dated June 20, 1978. 2 Such transfer, petitioners
posit, clothes them with an interest, protected by law, in
the matter of litigation.
Invoking the principle enunciated in the case of PNB v.
Phil. Veg. Oil Co., 49 Phil. 857,862 & 853 (1927), 3
petitioners strongly argue that their ownership of 41.66%
of the entire outstanding capital stock of SUBIC entitles
them to a significant vote in the corporate affairs; that they
are affected by the action of the widow of their late brother
for it concerns the only tangible asset of the corporation
and that it appears that they are more vitally interested in
the outcome of the case than SUBIC.
Viewed in the light of Section 2, Rule 12 of the Revised
Rules of Court, this Court affirms the respondent court's
holding that petitioners herein have no legal interest in the
subject matter in litigation so as to entitle them to
intervene in the proceedings below. In the case of Batama
Farmers' Cooperative Marketing Association, Inc. v.
Rosal, 4 we held: "As clearly stated in Section 2 of Rule
12 of the Rules of Court, to be permitted to intervene in a
pending action, the party must have a legal interest in the
matter in litigation, or in the success of either of the parties
41
or an interest against both, or he must be so situated as
to be adversely affected by a distribution or other
disposition of the property in the custody of the court or
an officer thereof ."
To allow intervention, [a] it must be shown that the movant
has legal interest in the matter in litigation, or otherwise
qualified; and [b] consideration must be given as to
whether the adjudication of the rights of the original
parties may be delayed or prejudiced, or whether the
intervenor's rights may be protected in a separate
proceeding or not. Both requirements must concur as the
first is not more important than the second. 5
The interest which entitles a person to intervene in a suit
between other parties must be in the matter in litigation
and of such direct and immediate character that the
intervenor will either gain or lose by the direct legal
operation and effect of the judgment. Otherwise, if
persons not parties of the action could be allowed to
intervene, proceedings will become unnecessarily
complicated, expensive and interminable. And this is not
the policy of the law. 6
The words "an interest in the subject" mean a direct
interest in the cause of action as pleaded, and which
would put the intervenor in a legal position to litigate a fact
alleged in the complaint, without the establishment of
which plaintiff could not recover. 7
Here, the interest, if it exists at all, of petitioners-movants
is indirect, contingent, remote, conjectural, consequential
and collateral. At the very least, their interest is purely
inchoate, or in sheer expectancy of a right in the
management of the corporation and to share in the profits
thereof and in the properties and assets thereof on
dissolution, after payment of the corporate debts and
obligations.
While a share of stock represents a proportionate or
aliquot interest in the property of the corporation, it does
not vest the owner thereof with any legal right or title to
any of the property, his interest in the corporate property
being equitable or beneficial in nature. Shareholders are
in no legal sense the owners of corporate property, which
is owned by the corporation as a distinct legal person. 8
Petitioners further contend that the availability of other
remedies, as declared by the Court of appeals, is totally
immaterial to the availability of the remedy of intervention.
We cannot give credit to such averment. As earlier stated,
that the movant's interest may be protected in a separate
proceeding is a factor to be considered in allowing or
disallowing a motion for intervention. It is significant to
note at this juncture that as per records, there are four
pending cases involving the parties herein, enumerated
as follows: [1] Special Proceedings No. 122122 before the
CFI of Manila, Branch XXII, entitled "Concepcion
Magsaysay-Labrador, et al. v. Subic Land Corp., et al.",

involving the validity of the transfer by the late Genaro
Magsaysay of one-half of his shareholdings in Subic Land
Corporation; [2] Civil Case No. 2577-0 before the CFI of
Zambales, Branch III, "Adelaida Rodriguez-Magsaysay v.
Panganiban, etc.; Concepcion Labrador, et al.
Intervenors", seeking to annul the purported Deed of
Assignment in favor of SUBIC and its annotation at the
back of TCT No. 3258 in the name of respondent's
deceased husband; [3] SEC Case No. 001770, filed by
respondent praying, among other things that she be
declared in her capacity as the surviving spouse and
administratrix of the estate of Genaro Magsaysay as the
sole subscriber and stockholder of SUBIC. There,
petitioners, by motion, sought to intervene. Their motion
to reconsider the denial of their motion to intervene was
granted; [4] SP No. Q-26739 before the CFI of Rizal,
Branch IV, petitioners herein filing a contingent claim
pursuant to Section 5, Rule 86, Revised Rules of Court. 9
Petitioners' interests are no doubt amply protected in
these cases.
Neither do we lend credence to petitioners' argument that
they are more interested in the outcome of the case than
the corporation-assignee, owing to the fact that the latter
is willing to compromise with widow-respondent and since
a compromise involves the giving of reciprocal
concessions, the only conceivable concession the
corporation may give is a total or partial relinquishment of
the corporate assets. 10
Such claim all the more bolsters the contingent nature of
petitioners' interest in the subject of litigation.
The factual findings of the trial court are clear on this point.
The petitioners cannot claim the right to intervene on the
strength of the transfer of shares allegedly executed by
the late Senator. The corporation did not keep books and
records. 11 Perforce, no transfer was ever recorded,
much less effected as to prejudice third parties. The
transfer must be registered in the books of the corporation
to affect third persons. The law on corporations is explicit.
Section 63 of the Corporation Code provides, thus: "No
transfer, however, shall be valid, except as between the
parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares
transferred."
And even assuming arguendo that there was a valid
transfer, petitioners are nonetheless barred from
intervening inasmuch as their rights can be ventilated and
amply protected in another proceeding.
WHEREFORE, the instant petition is hereby DENIED.
Costs against petitioners.
42
GOOD EARTH EMPORIUM INC., and LIM KA PING,
petitioners,
vs.
HONORABLE COURT OF APPEALS and ROCES-
REYES REALTY INC., respondents.
A.E. Dacanay for petitioners.
Antonio Quintos Law Office for private respondent.
PARAS, J.:
This is a petition for review on certiorari of the December
29, 1987 decision * of the Court of Appeals in CA-G.R.
No. 11960 entitled "ROCES-REYES REALTY, INC. vs.
HONORABLE JUDGE REGIONAL TRIAL COURT OF
MANILA, BRANCH 44, GOOD EARTH EMPORIUM, INC.
and LIM KA PING" reversing the decision of respondent
Judge ** of the Regional Trial Court of Manila, Branch 44
in Civil Case No. 85-30484, which reversed the resolution
of the Metropolitan Trial Court Of Manila, Branch 28 in
Civil Case No. 09639, *** denying herein petitioners'
motion to quash the alias writ of execution issued against
them.
As gathered from the records, the antecedent facts of this
case, are as follows:
A Lease Contract, dated October 16, 1981, was entered
into by and between ROCES-REYES REALTY, INC., as
lessor, and GOOD EARTH EMPORIUM, INC., as lessee,
for a term of three years beginning November 1, 1981 and
ending October 31, 1984 at a monthly rental of
P65,000.00 (Rollo, p. 32; Annex "C" of Petition). The
building which was the subject of the contract of lease is
a five-storey building located at the corner of Rizal
Avenue and Bustos Street in Sta. Cruz, Manila.
From March 1983, up to the time the complaint was filed,
the lessee had defaulted in the payment of rentals, as a
consequence of which, private respondent ROCES-
REYES REALTY, INC., (hereinafter designated as
ROCES for brevity) filed on October 14, 1984, an
ejectment case (Unlawful Detainer) against herein
petitioners, GOOD EARTH EMPORIUM, INC. and LIM
KA PING, hereinafter designated as GEE, (Rollo, p. 21;
Annex "B" of the Petition). After the latter had tendered
their responsive pleading, the lower court (MTC, Manila)
on motion of Roces rendered judgment on the pleadings
dated April 17, 1984, the dispositive portion of which
states:
Judgment is hereby rendered ordering defendants (herein
petitioners) and all persons claiming title under him to
vacate the premises and surrender the same to the
plaintiffs (herein respondents); ordering the defendants to
pay the plaintiffs the rental of P65,000.00 a month
beginning March 1983 up to the time defendants actually
vacate the premises and deliver possession to the
plaintiff; to pay attorney's fees in the amount of P5,000.00

and to pay the costs of this suit. (Rollo, p. 111;
Memorandum of Respondents)
On May 16, 1984, Roces filed a motion for execution
which was opposed by GEE on May 28, 1984
simultaneous with the latter's filing of a Notice of Appeal
(Rollo, p. 112, Ibid.). On June 13, 1984, the trial court
resolved such motion ruling:
After considering the motion for the issuance of a writ of
execution filed by counsel for the plaintiff (herein
respondents) and the opposition filed in relation thereto
and finding that the defendant failed to file the necessary
supersedeas bond, this court resolved to grant the same
for being meritorious. (Rollo, p. 112)
On June 14, 1984, a writ of execution was issued by the
lower court. Meanwhile, the appeal was assigned to the
Regional Trial Court (Manila) Branch XLVI. However, on
August 15, 1984, GEE thru counsel filed with the Regional
Trial Court of Manila, a motion to withdraw appeal citing
as reason that they are satisfied with the decision of the
Metropolitan Trial Court of Manila, Branch XXVIII, which
said court granted in its Order of August 27, 1984 and the
records were remanded to the trial court (Rollo, p. 32; CA
Decision). Upon an ex-parte Motion of ROCES, the trial
court issued an Alias Writ of Execution dated February 25,
1985 (Rollo, p. 104; Annex "D" of Petitioner's
Memorandum), which was implemented on February 27,
1985. GEE thru counsel filed a motion to quash the writ of
execution and notice of levy and an urgent Ex-parte
Supplemental Motion for the issuance of a restraining
order, on March 7, and 20, 1985, respectively. On March
21, 1985, the lower court issued a restraining order to the
sheriff to hold the execution of the judgment pending
hearing on the motion to quash the writ of execution
(Rollo, p. 22; RTC Decision). While said motion was
pending resolution, GEE filed a Petition for Relief from
judgment before another court, Regional Trial Court of
Manila, Branch IX, which petition was docketed as Civil
Case No. 80-30019, but the petition was dismissed and
the injunctive writ issued in connection therewith set
aside. Both parties appealed to the Court of Appeals;
GEE on the order of dismissal and Roces on denial of his
motion for indemnity, both docketed as CA-G.R. No.
15873-CV. Going back to the original case, the
Metropolitan Trial Court after hearing and disposing some
other incidents, promulgated the questioned Resolution,
dated April 8, 1985, the dispositive portion of which reads
as follows:
Premises considered, the motion to quash the writ is
hereby denied for lack of merit.
The restraining orders issued on March 11 and 23, 1985
are hereby recalled, lifted and set aside. (Rollo, p. 20,
MTC Decision)
GEE appealed and by coincidence. was raffled to the
same Court, RTC Branch IX. Roces moved to dismiss the
43
appeal but the Court denied the motion. On certiorari, the
Court of Appeals dismissed Roces' petition and
remanded the case to the RTC. Meantime, Branch IX
became vacant and the case was re-raffled to Branch
XLIV.
On April 6, 1987, the Regional Trial Court of Manila,
finding that the amount of P1 million evidenced by Exhibit
"I" and another P1 million evidenced by the pacto de retro
sale instrument (Exhibit "2") were in full satisfaction of the
judgment obligation, reversed the decision of the
Municipal Trial Court, the dispositive portion of which
reads:
Premises considered, judgment is hereby rendered
reversing the Resolution appealed from quashing the writ
of execution and ordering the cancellation of the notice of
levy and declaring the judgment debt as having been fully
paid and/or Liquidated. (Rollo, p. 29).
On further appeal, the Court of Appeals reversed the
decision of the Regional Trial Court and reinstated the
Resolution of the Metropolitan Trial Court of Manila, the
dispositive portion of which is as follows:
WHEREFORE, the judgment appealed from is hereby
REVERSED and the Resolution dated April 8, 1985, of
the Metropolitan Trial Court of Manila Branch XXXIII is
hereby REINSTATED. No pronouncement as to costs.
(Rollo, p. 40).
GEE's Motion for Reconsideration of April 5, 1988 was
denied (Rollo, p. 43). Hence, this petition.
The main issue in this case is whether or not there was
full satisfaction of the judgment debt in favor of
respondent corporation which would justify the quashing
of the Writ of Execution.
A careful study of the common exhibits (Exhibits 1/A and
2/B) shows that nowhere in any of said exhibits was there
any writing alluding to or referring to any settlement
between the parties of petitioners' judgment obligation
(Rollo, pp. 45-48).
Moreover, there is no indication in the receipt, Exhibit "1",
that it was in payment, full or partial, of the judgment
obligation. Likewise, there is no indication in the pacto de
retro sale which was drawn in favor of Jesus Marcos
Roces and Marcos V. Roces and not the respondent
corporation, that the obligation embodied therein had
something to do with petitioners' judgment obligation with
respondent corporation.
Finding that the common exhibit, Exhibit 1/A had been
signed by persons other than judgment creditors (Roces-
Reyes Realty, Inc.) coupled with the fact that said exhibit
was not even alleged by GEE and Lim Ka Ping in their
original motion to quash the alias writ of execution (Rollo,
p. 37) but produced only during the hearing (Ibid.) which

production resulted in petitioners having to claim belatedly
that there was an "overpayment" of about half a million
pesos (Rollo, pp. 25-27) and remarking on the utter
absence of any writing in Exhibits "1/A" and "2/B" to
indicate payment of the judgment debt, respondent
Appellate Court correctly concluded that there was in fact
no payment of the judgment debt. As aptly observed by
the said court:
What immediately catches one's attention is the total
absence of any writing alluding to or referring to any
settlement between the parties of private respondents'
(petitioners') judgment obligation. In moving for the
dismissal of the appeal Lim Ka Ping who was then
assisted by counsel simply stated that defendants (herein
petitioners) are satisfied with the decision of the
Metropolitan Trial Court (Records of CA, p. 54).
Notably, in private respondents' (petitioners') Motion to
Quash the Writ of Execution and Notice of Levy dated
March 7, 1985, there is absolutely no reference to the
alleged payment of one million pesos as evidenced by
Exhibit 1 dated September 20, 1984. As pointed out by
petitioner (respondent corporation) this was brought out
by Linda Panutat, Manager of Good Earth only in the
course of the latter's testimony. (Rollo, p. 37)
Article 1240 of the Civil Code of the Philippines provides
that:
Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in
interest, or any person authorized to receive it.
In the case at bar, the supposed payments were not made
to Roces-Reyes Realty, Inc. or to its successor in interest
nor is there positive evidence that the payment was made
to a person authorized to receive it. No such proof was
submitted but merely inferred by the Regional Trial Court
(Rollo, p. 25) from Marcos Roces having signed the Lease
Contract as President which was witnessed by Jesus
Marcos Roces. The latter, however, was no longer
President or even an officer of Roces-Reyes Realty, Inc.
at the time he received the money (Exhibit "1") and signed
the sale with pacto de retro (Exhibit "2"). He, in fact,
denied being in possession of authority to receive
payment for the respondent corporation nor does the
receipt show that he signed in the same capacity as he
did in the Lease Contract at a time when he was President
for respondent corporation (Rollo, p. 20, MTC decision).
On the other hand, Jesus Marcos Roces testified that the
amount of P1 million evidenced by the receipt (Exhibit "1")
is the payment for a loan extended by him and Marcos
Roces in favor of Lim Ka Ping. The assertion is home by
the receipt itself whereby they acknowledged payment of
the loan in their names and in no other capacity.
A corporation has a personality distinct and separate from
its individual stockholders or members. Being an officer or
44
stockholder of a corporation does not make one's
property also of the corporation, and vice-versa, for they
are separate entities (Traders Royal Bank v. CA-G.R. No.
78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA
482). Shareowners are in no legal sense the owners of
corporate property (or credits) which is owned by the
corporation as a distinct legal person (Concepcion
Magsaysay-Labrador v. CA-G.R. No. 58168, December
19, 1989). As a consequence of the separate juridical
personality of a corporation, the corporate debt or credit
is not the debt or credit of the stockholder, nor is the
stockholder's debt or credit that of the corporation (Prof.
Jose Nolledo's "The Corporation Code of the Philippines,
p. 5, 1988 Edition, citing Professor Ballantine).
The absence of a note to evidence the loan is explained
by Jesus Marcos Roces who testified that the IOU was
subsequently delivered to private respondents (Rollo, pp.
97-98). Contrary to the Regional Trial Court's premise that
it was incumbent upon respondent corporation to prove
that the amount was delivered to the Roces brothers in
the payment of the loan in the latter's favor, the delivery
of the amount to and the receipt thereof by the Roces
brothers in their names raises the presumption that the
said amount was due to them.1âwphi1 There is a
disputable presumption that money paid by one to the
other was due to the latter (Sec. 5(f) Rule 131, Rules of
Court). It is for GEE and Lim Ka Ping to prove otherwise.
In other words, it is for the latter to prove that the
payments made were for the satisfaction of their judgment
debt and not vice versa.
The fact that at the time payment was made to the two
Roces brothers, GEE was also indebted to respondent
corporation for a larger amount, is not supportive of the
Regional Trial Court's conclusions that the payment was
in favor of the latter, especially in the case at bar where
the amount was not receipted for by respondent
corporation and there is absolutely no indication in the
receipt from which it can be reasonably inferred, that said
payment was in satisfaction of the judgment debt.
Likewise, no such inference can be made from the
execution of the pacto de retro sale which was not made
in favor of respondent corporation but in favor of the two
Roces brothers in their individual capacities without any
reference to the judgment obligation in favor of
respondent corporation.
In addition, the totality of the amount covered by the
receipt (Exhibit "1/A") and that of the sale with pacto de
retro (Exhibit "2/B") all in the sum of P2 million, far
exceeds petitioners' judgment obligation in favor of
respondent corporation in the sum of P1,560,000.00 by
P440,000.00, which militates against the claim of
petitioner that the aforesaid amount (P2M) was in full
payment of the judgment obligation.
Petitioners' explanation that the excess is interest and
advance rentals for an extension of the lease contract
(Rollo, pp. 25-28) is belied by the absence of any interest

awarded in the case and of any agreement as to the
extension of the lease nor was there any such pretense in
the Motion to Quash the Alias Writ of Execution.
Petitioners' averments that the respondent court had
gravely abused its discretion in arriving at the assailed
factual findings as contrary to the evidence and applicable
decisions of this Honorable Court are therefore, patently
unfounded. Respondent court was correct in stating that
it "cannot go beyond what appears in the documents
submitted by petitioners themselves (Exhibits "1" and "2")
in the absence of clear and convincing evidence" that
would support its claim that the judgment obligation has
indeed been fully satisfied which would warrant the
quashal of the Alias Writ of Execution.
It has been an established rule that when the existence of
a debt is fully established by the evidence (which has
been done in this case), the burden of proving that it has
been extinguished by payment devolves upon the debtor
who offers such a defense to the claim of the plaintiff
creditor (herein respondent corporation) (Chua Chienco
v. Vargas, 11 Phil. 219; Ramos v. Ledesma, 12 Phil. 656;
Pinon v. De Osorio, 30 Phil. 365). For indeed, it is well-
entrenched in Our jurisprudence that each party in a case
must prove his own affirmative allegations by the degree
of evidence required by law (Stronghold Insurance Co. v.
CA, G.R. No. 83376, May 29,1989; Tai Tong Chuache &
Co. v. Insurance Commission, 158 SCRA 366).
The appellate court cannot, therefore, be said to have
gravely abused its discretion in finding lack of convincing
and reliable evidence to establish payment of the
judgment obligation as claimed by petitioner. The burden
of evidence resting on the petitioners to establish the facts
upon which their action is premised has not been
satisfactorily discharged and therefore, they have to bear
the consequences.
PREMISES CONSIDERED, the petition is hereby
DENIED and the Decision of the Respondent court is
hereby AFFIRMED, reinstating the April 8, 1985
Resolution of the Metropolitan Trial Court of Manila.
SO ORDERED.
Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ.,
concur.
45
What is a ‘de facto’ corporation?
A ‘de facto’ corporation is a defectively organized
corporation, which has all the powers and liabilities of a
‘de jure’ corporation and, except as to the State, has a
juridical personality distinct and separate from its
shareholders, provided that the following requisites are
concurrently present:
(1) That there is an apparently valid statute under which
the corporation with its purposes may be formed;
(2) That there has been colorable compliance with the
legal requirements in good faith; and,
(3) That there has been use of corporate powers, i.e.,
the transaction of business in some way as if it were a
corporation.
Can a corporation transact business as a ‘de facto’
corporation while application is still pending with SEC?
No. In the case of Hall v. Piccio (86 Phil. 603; 1950),
where the supposed corporation transacted business as
a corporation pending action by the SEC on its articles of
incorporation, the Court held that there was no ‘de facto’
corporation on the ground that the corporation cannot
claim to be in ‘good faith’ to be a corporation when it has
not yet obtained its certificate of incorporation.
Formation under apparently valid statute.
MUNICIPALITY OF MALABANG V. BENITO (29 SCRA
533; 1969)
WON a corporation organized under a statute
subsequently declared void acquires status as ‘de facto’
corporation.
No. A corporation organized under a statute subsequently
declared invalid cannot acquire the status of a ‘de facto’
corporation unless there is some other statute under
which the supposed corporation may be validly organized.
Hence, in the case at bar, the mere fact that the
municipality was organized before the statute had been
invalidated cannot conceivably make it a ‘de facto’
corporation since there is no other valid statute to give
color of authority to its creation.
Colorable compliance with the legal requirements in good
faith.
BERGERON V. HOBBS (71 N.W. 1056, 65 Am. St. Rep.
85)
The constitutive documents of the proposed corporation
were deposited with the Register of Deeds but not on file
in said office. One of the requirements for valid
incorporation is the filing of constitutive documents in the
Register of Deeds.

Was there ‘colorable’ compliance enough to give the
supposed corporation at least the status of a ‘de facto’
corporation?
No. The filing of the constitutive documents in the
Register of Deeds is a condition precedent to the right to
act as a corporate body. As long as an act, required as a
condition precedent, remains undone, no immunity from
individual liability is secured.
HARRIL V. DAVIS (168 F. 187; 1909)
The constitutive documents were filed with the clerk of the
Court of Appeals but not with the clerk of court in the
judicial district where the business was located. Arkansas
law requires filing in both offices.
Was there ‘colorable’ compliance enough to give the
supposed corporation at least the status of a ‘de facto’
corporation?
No. Neither the hope, the belief, nor the statement by
parties that they are incorporated, nor the signing of the
articles of incorporation which are not filed, where filing is
requisite to create the corporation, nor the use of the
pretended franchise of the nonexistent corporation, will
constitute such a corporation de facto as will exempt
those who actively and knowingly use s name to incur
legal obligations from their individual liability to pay them.
There could be no incorporation or color of it under the
law until the articles were filed (requisites for valid
incorporation).
HALL v. PICCIO (29 SCRA 533; 1969)
In the case of Hall v. Piccio, where the supposed
corporation transacted business as a corporation pending
action by the SEC on its articles of incorporation, the
Court held that there was no ‘de facto’ corporation on the
ground that the corporation cannot claim to be in ‘good
faith’ to be a corporation when it has not yet obtained its
certificate of incorporation.
NOTE: The validity of incorporation cannot be inquired
into collaterally in any private suit to which such
corporation may be a party. Such inquiry must be through
a quo warranto proceeding made by the Solicitor General.
(Sec. 20)
CORPORATION BY ESTOPPEL
(Sec. 21)
Distinguish a de facto corporation from a corporation by
estoppel.
The ‘de facto’ doctrine differs from the estoppel doctrine
in that where all the requisites of a ‘de facto’ corporation
are present, then the defectively organized corporation
will have the status of a ‘de jure’ corporation in all cases
brought by and against it, except only as to the State in a
direct proceeding. On the other hand, if any of the
requisites are absent, then the estoppel doctrine can
46
apply only if under the circumstances of the particular
case then before the court, either the defendant
association is estopped from defending on the ground of
lack of capacity to be sued, or the defendant third party
had dealt with the plaintiff as a corporation and is deemed
to have admitted its existence.
(De facto – has status of ‘de jure’ corpo, except separate
personality against State, provided all requisites are
present)
What are the effects of a Corporation by Estoppel in suits
brought:
(1) against the Corporation? Considered a corporation
in suits brought against it if it held itself out as such and
denies capacity to be sued;
(2) against third party? Third party cannot deny
existence of corporation if it dealt with it as such.
EMPIRE vs. STUART (46 Mich. 482, 9 N.W. 527; 1881)
Company was sued on a promissory note. Its defense
was that at the time of its issuance, it was defectively
organized and therefore could not be sued as such.
The Corporation cannot repudiate the transaction or
evade responsibility when sued thereon by setting up its
own mistake affecting the original organization.
LOWELL-WOODWARD vs. WOODS (104 Kan. 729;
1919)
Corporation sued a partnership on a promissory note.
The latter as defense alleged that the plaintiff was not a
corporation.
One who enters into a contract with a party described
therein as a corporation is precluded, in an action brought
thereon by such party under the same designation, from
denying its corporate existence.
ASIA BANKING VS STANDARD PRODUCTS (46 Phil.
145; 1924)
The corporation sued another corporation a promissory
note. The defense was that the plaintiff was not able to
prove the corporate existence of both parties.
The defendant is estopped from denying its own
corporate existence. It is also estopped from denying the
other’s corporate existence. The general rule is that in the
absence of fraud, a person who has contracted or
otherwise dealt with an association is such a way as to
recognize and in effect admit its legal existence as a
corporate body is thereby estopped from denying its
corporate existence

CRANSON VS IBM (234 MD. 477, 200 A. 2D 33 ; 1964)
IBM sued Cranson in his personal capacity regarding a
typewriter bought by him as President of a defectively
organized company whose Articles were not yet filed
when the obligation was contracted.
IBM, having dealt with the defectively organized company
as if it were properly organized and having relied on its
credit instead of Cranson’s, is estopped from asserting
that it was not incorporated. It cannot sue Cranson
personally.
SALVATIERRA VS GARLITOS (103 Phil. 757; 1958)
Salvatierra leased his land to the corporation. He filed a
suit for accounting, rescission and damages against the
corporation and its president for his share of the produce.
Judgment against both was obtained. President
complains for being held personally liable.
He is liable. An agent who acts for a non-existent principal
is himself the principal. In acting on behalf of a
corporation which he knew to be unregistered, he
assumed the risk arising from the transaction.
ALBERT VS UNIVERSITY PUBLISHING CO., INC. (Jan.
30, 1965)
Mariano Albert entered into a contract with
University Publishing Co., Inc. through Jose M. Aruego,
its President, whereby University would pay plaintiff for
the exclusive right to publish his revised Commentaries
on the Revised Penal Code. The contract stipulated that
failure to pay one installment would render the rest of the
payments due. When University failed to pay the second
installment, Albert sued for collection and won. However,
upon execution, it was found that University was not
registered with the SEC. Albert petitioned for a writ of
execution against Jose M. Aruego as the real defendant.
University opposed, on the ground that Aruego was not a
party to the case.
The Supreme Court found that Aruego
represented a non-existent entity and induced not only
Albert but the court to believe in such representation.
Aruego, acting as representative of such non-existent
principal, was the real party to the contract sued upon,
and thus assumed such privileges and obligations and
became personally liable for the contract entered into or
for other acts performed as such agent.
The Supreme Court likewise held that the doctrine
of corporation by estoppel cannot be set up against Albert
since it was Aruego who had induced him to act upon his
(Aruego's) willful representation that University had been
duly organized and was existing under the law.
47
FELIPE TAYKO, EDUARDO BUENO, BAUTISTA
TAYKO, BERNARDO SOLDE and VICENTE ELUM,
petitioners,
vs.
NICOLAS CAPISTRANO, acting as Judge of First
Instance of Oriental Negros. ALFREDO B. CACNIO, as
Provincial Fiscal of Oriental Negros, and JUAN GADIANI,
respondents.
Abad Santos, Camus and Delgado and Teopisto
Guingona for petitioners.
Araneta and Zaragoza for respondents.
The respondent Judge in his own behalf.
OSTRAND, J.:
This is a petition for a writ of prohibition enjoining the
respondent judge from making cognizance of certain civil
and criminal election cases in which the petitioners are
parties.
The petitioners allege that the respondent judge, previous
to this date, was appointed judge of the Court of First
Instance of Oriental Negros, to hold office during good
behavior and until he should reach the age of 65 years;
that he now has reached that age and, therefore, under
the provisions of section 148 of the Administrative Code
as amended, is disqualified from acting as a judge of the
Court of First Instance. The petitioners further allege that
in view of the many election protests and criminal cases
for violation of the election law filed in the Court of First
Instance of Oriental Negros arising in the Court of First
Instance of Oriental Negros arising from the last election
of June 5, 1928, the Honorable Sixto de la Costa was duly
designated and acted as auxiliary judge of the Province
of Oriental Negros; that between the auxiliary judge and
the respondent judge herein there was an understanding,
and the assignment of the said auxiliary judge was made
with this understanding, that the said auxiliary judge so
designated would hear and take cognizance of all election
protests and criminal actions then pending or to filed
arising from the said last general election, and that the
respondent Honorable Nicolas Capistrano would try and
hear the ordinary cases pending in the said court, but,
notwithstanding this understanding or agreement, the
respondent judge tried and is still trying to take
cognizance of the election protests an criminal actions in
said court; that the respondent judge declared in open
court that he will try the criminal cases herein mentioned
for the reason that the auxiliary judge refused to try the
same on the ground that the preliminary investigations
were held before him, when, in truth and in fact, the said
auxiliary judge did not make the statement imputed to him
and was and is still willing to try the election protests and
criminal cases for violation of the election law pending in
the court of the Province of Oriental Negros; that the
respondent Honorable Nicolas Capistrano, in spite of the
fact that he was holding and is now pretending to hold the
office of judge of the Court of First Instance of Oriental

Negros, took great interest and active part in the filing of
criminal charges against the petitioners herein to the
unjustifiable extent of appointing a deputy fiscal, who then
filed the proper informations, when the provincial fiscal
refused to file criminal charges against the petitioners for
violation of the election law for lack of sufficient evidence
to sustain the same; that said respondent is neither a
judge de jure nor de facto, but that, notwithstanding this
fact, he continues to hold the office of judge of the Court
of First Instance of Oriental Negros and pretends to be
duly qualified and acting judge of the said province; and
that he has tried, and continues to try, to act as such judge
and that there is reasonable ground to believe that he will
take cognizance of the cases in question unless he be
restrained by order of this court; that in acting as a duly
qualified judge notwithstanding the facts alleged in the
fifth, sixth, and seventh paragraphs hereof, the
respondent judge acted and is about to act without and in
excess of jurisdiction and also after the loss of jurisdiction.
To this petition the respondents demur on the ground that
the facts stated in that (1) none of the facts alleged in the
petition divest the respondent judge of his jurisdiction to
take cognizance of the cases referred to in the complaint,
and (2) even admitting as true, for the sake of this
demurrer, the facts alleged in paragraph 7 of the petition,
the respondent judge is still a de facto judge and his title
to the office and his jurisdiction to hear the cases referred
to in the petition cannot be questioned by prohibition, as
this writ, even when directed against persons acting as
judges, cannot be treated as a substitute for quo
warranto, or be rightfully called upon to perform any of the
functions of that writ.
The ground upon which the petition rests may be reduced
to three propositions. (1) That the assignment of the
Auxiliary Judge, Sixto de la Costa, to Dumaguete was
made with the understanding that the he was to hear and
take cognizance of all election contests and criminal
causes for violation of the election law and that the
respondent judge was to take cognizance of the ordinary
cases and that there was an understanding between them
that this arrangement was to be followed.
(2) That the respondent judge took great interest and an
active part in the filing of the criminal charges against the
petitioners herein to the unjustifiable extent of appointing
a deputy fiscal who filed the proper informations when the
regular provincial fiscal refused to file them for lack of
sufficient evidence.
(3) That the respondent judge is already over 65 years of
age and has, therefore, automatically ceased as judge of
the Court of First Instance of Oriental Negros and that he
is neither a judge de jure nor de facto.
(a) But little need be said as to the first proposition. A writ
of prohibition to a judge of an interior court will only lie in
cases where he acts without or in excess of his jurisdiction
(section 226, Code of Civil Procedure), and it is obvious
48
that a mere "understanding" as to the distribution of cases
for trial did not deprive the respondent judge of the
jurisdiction conferred upon him by law. It may be noted
that it is not alleged that another judge had taken
cognizance of the cases in question or that they had been
definitely assigned to trial before such other judge.
(b) The second proposition is equally
untenable.1awph!l.net That the respondent judge took
great interest and an active part in the filing of the criminal
charges against the petitioners to the extent of appointing
a deputy fiscal when the regular provincial fiscal refused
to file the proper informations, did not disqualify him from
trying the case in question. Section 1679 of the
Administrative Code provides that "when a provincial
fiscal shall be disqualified by personal interest to act in a
particular case or when for any reason he shall be unable,
or shall fail, to discharge any of the duties of his position,
the judge of the Court of First Instance of the province
shall appoint an acting provincial fiscal, . . . ." (Emphasis
ours.)
The determination of the question as to whether the fiscal
has failed to discharge his duty in the prosecution of a
crime must necessarily, to a large extent, lie within the
sound discretion of the presiding judge, and there is no
allegation in the petition that such discretion was abused
in the present instance. It is true that it is stated that the
appointment of the acting fiscal was "unjustifiable," but
that is only a conclusion of law and not an allegation of
facts upon which such a conclusion can be formed and
may, therefore, be disregarded. It follows that in
appointing an acting fiscal, the respondent judge was well
within his jurisdiction.
(c) The third ground upon which the petition is based is
the most important and merits some consideration. It is
well settled that the title to the office of a judge, whether
de jure or de facto, can only be determined in a
proceeding in the nature of quo warranto and cannot be
tested by prohibition. But counsel for the petitioners
maintains that the respondent judge is neither a judge de
jure nor de facto and that, therefore, prohibition will lie. In
this, counsel is undoubtedly mistaken.
The respondent judge has been duly appointed to the
office of Judge of the Court of First Instance of Oriental
Negros, but section 148 of the Administrative Code, as
amended, provides that "Judges of the Court of First
Instance and auxiliary judges shall be appointed to serve
until they shall reach the age of sixty-five years." In view
of this provision and assuming, as we must, that the
allegations of the petition are true, it is evident that the
respondent is no longer a judge de jure, but we do not
think that it can be successfully disputed that he is still a
judge de facto.
Briefly defined, a de facto judge is one who exercises the
duties of a judicial office under color of an appointment or
election thereto (Brown vs. O'Connell, 36 Conn., 432). He
 49

differs, on the one hand, from a mere usurper who
undertakes to act officially without any color of right, and
on the other hand, from a judge de jure who is in all
respects legally appointed and qualified and whose term
of office has not expired (State vs. Carroll, 38 Conn., 449;
Denny vs. Matton, 2 Allen [Mass.], 361; Van Slyke vs.
Farmers' Mut. Fire Ins. Co., 39 Wis., 390).
Apart from any constitutional or statutory regulation on the
subject there seems to be a general rule of law that an
incumbent of an office will hold over after the conclusion
of his term until the elction and qualification of a successor
(22 R. C. L., pp. 554-5). When a judge in good faith
remains in office after his title has ended, he is a de facto
officer (Sheehan's Case, 122 Mass., 445).
Applying the principles stated to the facts set forth in the
petition before us, we cannot escape the conclusion that,
on the assumption that said facts are true, the respondent
judge must be considered a judge de facto. His term of
office may have expired, but his successor has not been
appointed, and as good faith is presumed, he must be
regarded as holding over in good faith. The contention of
counsel for the petitioners that the auxiliary judge present
in the district must be considered the regular judge seems
obviously erroneous.
generally recognized in the case of a special judge, and it
is held that a party to an action before a special judge may
question his title to the office of a judge on the
proceedings before him, and that the judgment will be
reversed on appeal, where proper exceptions are taken,
if the person assuming to act as special judge is not a
judge de jure. The title of a de facto officer cannot be
indirectly questioned in a proceeding to obtain a writ of
prohibition to prevent him from doing an official act nor in
a suit to enjoin the collection of a judgment rendered by
him. Having at least colorable right to the office his title
can be determined only in a quo warranto proceeding or
information in the nature of a quo warranto at suit of the
sovereign." (15 R. C. L., pp. 519-521.)
The demurrer to the petition is sustained, and inasmuch
as it is evident that the weakness of the petition cannot be
cured by amendment the present proceedings are hereby
dismissed with the costs against the petitioners jointly and
severally. The preliminary injunction hereinbefore issued
is dissolved. So ordered.

In these circumstances the remedy prayed for cannot be

granted. "The rightful authority of a judge, in the full
exercise of his public judicial function, cannot be
questioned by any merely private suitor, nor by any other,
excepting in the form especially provided by law. A judge
de facto assumes the exercise of a part of the prerogative
of sovereignty, and the legality of that assumption is open
to the attack of the sovereign power alone. Accordingly, it
is a well established principle, dating from the earliest
period and repeatedly confirmed by an unbroken current
of decisions, that the official acts of a de facto judge are
just as valid for all purposes as those of a de jure judge,
so far as the public or third persons who are interested
therein are concerned. The rule is the same in civil
criminal cases. The principle is one founded in policy and
convenience, for the right of no one claiming a title or
interest under or through the proceedings of an officer
having an apparent authority to act would be safe, if it
were necessary in every case to examine the legality of
the title of such officer up to its original source, and the
title or interest of such person were held to be invalidated
by some accidental defect or flaw in the appointment,
election or qualification of such officer, or in the rights of
those from whom his appointment or election emanated;
nor could the supremacy of the laws be maintained, or
their execution enforced, if the acts of the judge having a
colorable, but not a legal title, were to be deemed invalid.
As in the case of judges of courts of record, the acts of a
justice de facto cannot be called in question in any suit to
which he is not a party. The official acts of a de facto
justice cannot b attacked collaterally. An exception to the
general rule that the title of a person assuming to act as
judge cannot be questioned in a suit before him is