LOZANO VS DE LOS SANTOS - BARRETTO

Doctrine: The SEC has no jurisdiction over a dispute between members

of separate and distinct associations.
FACTS:

1. In order for the SEC to take cognizance of a case, the controversy

must pertain to the following relationships:
a. between corporation, partnership or association and the public
b. between the corporation, partnership or association and its
stockholders, partners, members or officers

1. Petitioner Lozano, was the president of the Kapatirang MabalacatAngeles Jeepney Drivers Association (KAMAJDA) while respondent,
Anda was the president of Samahang Angeles-Mabalacat Jeepney
Operators and Drivers Association (SAMAJODA).

c. between the corporation, partnership or association and the State

insofar as its franchise, permit or license to operate is concerned and

2. Upon the request of the Sangguniang Bayan of Mabalacat, Pampanga,

petitioner and respondent agreed to consolidate their respective
associations to form one unified association called UMAJODA. They also
agreed to elect one set of officers who shall be given the sole authority
to collect the daily dues from the members.

2. There is no intracorporate nor partnership relation between

petitioner and respondent. The controversy between them arose out of
the plan to consolidate their respective associations into a single
association. This consolidated association is merely a proposal. It has
not been approved by the SEC, neither had its officers and members
submitted their articles of consolidation in accordance with Sec. 78 and
79 of the Corporation Code.

3. Elections were held and Petitioner won but respondent refused to

recognize the results and continued collecting the dues from the
members of SAMAJODA . Petitioner thus filed a complaint with the
MCTC to restrain Anda from collecting the dues and to order him to
pay damages and attorneys fees.
4. Anda moved to dismiss the complaint claiming that jurisdiction over
the case was lodged with the SEC and not with the regular courts. The
RTC found the dispute to be intracorporate and under the jurisdiction
of the SEC and ordered MCTC to dismiss the case.
ISSUE: WON the SEC has jurisdiction over this case
HELD: The regular courts have jurisdiction over the case, and not the
SEC.

d. among stockholders, partners or associates themselves.

3. Consolidation becomes effective not upon mere agreement of the

members but only upon issuance of the certificate of consolidation by
the SEC. When the SEC, upon processing and examining the articles of
consolidation, is satisfied that the consolidation of the corporations is
not inconsistent with the provisions of the Corporation Code and
existing laws, it issues a certificate of consolidation which makes the
reorganization official. The new consolidated corporation comes into
existence and the constituent corporations dissolve and cease to exist.
4 The KAMAJDA and SAMAJODA to which petitioner and private
respondent belong are duly registered with the SEC, but these
associations are two separate entities. The dispute between petitioner
and private respondent is not within the KAMAJDA nor the SAMAJODA.
It is between members of separate and distinct associations. Petitioner

and private respondent have no intracorporate relation much less do

they have an intracorporate dispute. The SEC therefore has no
jurisdiction over the complaint.
ISSUE: Whether the doctrine of corporation by estoppel applies in the
case of the unified association?
HELD: No, corporation by estoppel does not apply in this case.
The doctrine of corporation by estoppel advanced by private
respondent cannot override jurisdictional requirements. Jurisdiction is
fixed by law and is not subject to the agreement of the parties. It
cannot be acquired through or waived, enlarged or diminished by, any
act or omission of the parties, neither can it be conferred by the
acquiescence of the court.
Corporation by estoppel is founded on principles of equity and is
designed to prevent injustice and unfairness. It applies when persons
assume to form a corporation and exercise corporate functions and
enter into business relations with third person. Where there is no third
person involved and the conflict arises only among those assuming the
form of a corporation, who therefore know that it has not been
registered, there is no corporation by estoppel.
Dispositive: IN VIEW WHEREOF, the petition is granted and the
decision dated April 18, 1996 and the order dated May 31, 1996 of the
Regional Trial Court, Branch 58, Angeles City are set aside. The
Municipal Circuit Trial Court of Mabalacat and Magalang, Pampanga is
ordered to proceed with dispatch in resolving Civil Case No. 1214. No
costs.

promulgated by this Court on July 15, 2009 (the Decision), a Motion for
Partial Reconsideration (PNRC), and a Manifestation and Motion to
Admit Attached Position Paper were filed by movant-intervenor
Philippine National Red Cross
In his Motion for Clarification and/or for Reconsideration, respondent
alleged that the constitutionality of Republic Act (R.A.) No. 95 [PNRC
Charter] was not raised by the parties, hence the Court went beyond
the case in deciding such issue.
Respondent argues that the validity of R.A. No. 95 was a non-issue;
therefore, it was unnecessary for the Court to decide on that question.
PNRC prays that the Court sustain the constitutionality of its Charter.
ISSUE: Whether of not the PNRC Charter is violative of the
Constitutional proscription against the creation of private corporations
by special law.
RULING: NO.
After a thorough study of the arguments and points raised by the
respondent as well as those of movant-intervenor in their respective
motions, we have reconsidered our pronouncements in our Decision
dated July 15, 2009 with regard to the nature of the PNRC and the
constitutionality of some provisions of the PNRC Charter, R.A. No. 95, as
amended.

LIBAN VS GORDON - CHUA

National Societies such as the PNRC act as auxiliaries to the public

authorities of their own countries in the humanitarian field and provide
a range of services including disaster relief and health and social
programmes.

FACTS: A Motion for Clarification and/or for Reconsideration filed by

respondent Richard J. Gordon (respondent) of the Decision

A National Society partakes of a sui generis character. It is a protected

component of the Red Cross movement under Articles 24 and 26 of the

First Geneva Convention, especially in times of armed conflict. These

provisions require that the staff of a National Society shall be respected
and protected in all circumstances. Such protection is not ordinarily
afforded by an international treaty to ordinary private entities or even
non-governmental organisations (NGOs). This sui generis character is
also emphasized by the Fourth Geneva Convention which holds that an
Occupying Power cannot require any change in the personnel or
structure of a National Society. National societies are therefore
organizations that are directly regulated by international
humanitarian law, in contrast to other ordinary private entities,
including NGOs.
In addition, National Societies are not only officially recognized by their
public authorities as voluntary aid societies, auxiliary to the public
authorities in the humanitarian field, but also benefit from recognition
at the International level. This is considered to be an element
distinguishing National Societies from other organisations (mainly
NGOs) and other forms of humanitarian response.
The auxiliary status of [a] Red Cross Society means that it is at one
and the same time a private institution and a public service
organization because the very nature of its work implies
cooperation with the authorities, a link with the State. In carrying
out their major functions, Red Cross Societies give their humanitarian
support to official bodies, in general having larger resources than the
Societies, working towards comparable ends in a given sector.
This Court recognize too the countrys adherence to the Geneva
Convention and respect the unique status of the PNRC in
consonance with its treaty obligations. The Geneva Convention has
the force and effect of law. Under the Constitution, the Philippines
adopts the generally accepted principles of international law as part of
the law of the land. This constitutional provision must be reconciled

and harmonized with Article XII, Section 16 of the Constitution, instead

of using the latter to negate the former.
By requiring the PNRC to organize under the Corporation Code just like
any other private corporation, the Decision of July 15, 2009 lost sight of
the PNRCs special status under international humanitarian law and as
an auxiliary of the State, designated to assist it in discharging its
obligations under the Geneva Conventions.
In sum, the PNRC enjoys a special status as an important ally and
auxiliary of the government in the humanitarian field in accordance
with its commitments under international law. WHEREFORE, we
declare that the office of the Chairman of the Philippine National Red
Cross is not a government office or an office in a government-owned or
controlled corporation for purposes of the prohibition in Section 13,
Article VI of the 1987 Constitution.
GAMBOA VS TEVES (2011 ORIGINAL DECISION) -CONSTANTINO
FACTS:
PLDT was granted a franchise to engage in the telecommunications
business in 1928 through Act. No. 3436. During Martial Law 26 percent
of the outstanding common shares were sold by General Telephone and
Electronics Corporation (GTE) (an American company) to Philippine
Telecommunications Investment Corporation (PTIC), who in turn
assigned 111,415 shares of stock of PTIC (46 percent of outstanding
capital stock) to Prime Holdings Inc. (PHI). These shares of PTIC were
later sequestered by PCGG and adjudged by the court to belong to the
Republic.
54 percent of PTIC shares were sold to Hong Kong-based firm First
Pacific, and the remaining 46 percent was sold through public bidding
by the Inter-Agency Privatization Council, and eventually ended up
being bought by First Pacific subsidiary Metro Pacific Asset Holdings

Inc. (MPAH) after the corporation exercised its right of first refusal.
The transaction was an indirect sale of 12 million shares or 6.3 percent
of the outstanding common shares of PLDT, making First Pacifics
common shareholdings of PLDT to 37 percent and the total common
shareholdings of foreigners in PLDT to 81.47 percent. Japanese NTT
DoCoMo owns 51.56 percent of the other foreign shareholdings/equity.
Petitioner Gamboa, alleged that the sale of 111,415 shares to MPAH
violates Sec. 11 of Art. XII of the Constitution, which limits foreign
ownership of the capital of a public utility to not more than 40 percent.
ISSUE:
(1) Whether petitioners choice of remedy was proper?
(2) Whether the term capital under Sec. 11, Article XII of the
Constitution refers only to the total common shares or to the total
outstanding stock of PLDT (public utility)?
HELD:
(1) NO. However, since the threshold and purely legal issue on the
definition of the term capital in Section 11, Article XII of the
Constitution has far-reaching implications to the national economy, the
Court treats the petition for declaratory relief as one for mandamus. It
is well-settled that this Court may treat a petition for declaratory relief
as one for mandamus if the issue involved has far-reaching
implications.
(2) The term capital in Section 11, Article XII of the Constitution
refers only to shares of stock entitled to vote in the election of
directors, and thus in the present case only to common shares, and not
to the total outstanding capital stock comprising both common and
non-voting preferred shares. The SC directed the SEC to apply this

definition in determining what was the extent of allowable foreign

ownership in PLDT, and in case of violation, impose the
appropriate penalty under the law.
Consistent with the constitutional mandate that the State shall develop
a self-reliant and independent national economy effectively controlled
by Filipinos, the term "capital" means the outstanding capital stock
entitled to vote (voting stock), coupled with beneficial ownership, both
of which results to "effective control."

"Mere legal title is insufficient to meet the 60 percent Filipino owned

capital required in the Constitution for certain industries. Full
beneficial ownership of 60 percent of the outstanding capital stock,
coupled with 60 percent of the voting rights, is required." In this case,
such twin requirements must apply uniformly and across the board to
all classes of shares comprising the capital. Thus, "the 60-40 ownership
requirement in favor of Filipino citizens must apply separately to each
class of shares, whether common, preferred non-voting, preferred
voting or any other class of shares." This guarantees that the
controlling interest in public utilities always lies in the hands of
Filipino citizens.
A broader definition would unjustifiably disregards who owns the allimportant voting stock, which necessarily equates to control of the
public utility would be contrary to Sec. 11, Art. XII, a self-executing
provision of the Constitution.
A similar definition is found in Section 10, Article XII of the
Constitution, the Foreign Investments Act of 1991 and its IRR,
Regulation of Award of Government Contracts or R.A. No. 5183,
Philippine Inventors Incentives Act or R.A. No. 3850, Magna Carta for
Micro, Small and Medium Enterprises or R.A. No. 6977, Philippine
Overseas Shipping Development Act or R.A. No. 7471, Domestic
Shipping Development Act of 2004 or R.A. No. 9295, Philippine

Technology Transfer Act of 2009 or R.A. No. 10055, and Ship Mortgage
Decree or P.D. No. 1521.
VELASCO (Separate Dissenting Opinion)
The present petition partakes of a collateral attack on PLDTs franchise
as a public utility with petitioner pleading as ground PLDTs alleged
breach of the 40% limit on foreign equity. Such is not allowed. As
discussed in PLDT v. National Telecommunications Commission, a
franchise is a property right that can only be questioned in a direct
proceeding.
(1) The intent of the framers of the Constitution was not to limit the
application of the word capital to voting or common shares alone.
Constitutional Commission records show that by using the word
capital, the framers of the Constitution adopted the definition or
interpretation that includes all types of shares, whether voting or nonvoting.
(2) Cassus Omissus Pro Omisso Habendus Esta person, object or thing
omitted must have been omitted intentionally. In this case, the
intention of the framers of the Constitution is very clearto omit the
phrases voting stock and controlling interest.

members of the Board of Directors. Verily, where the law does not
distinguish, neither should We. Hence, the proper interpretation of the
phrase entitled to vote under the FIA should be that it applies to all
shares, whether classified as voting or non-voting shares.
(5) Additionally, control is another inherent right of ownership. The
circumstances enumerated in Sec. 6 of the Corporation Code clearly
evince this. It gives voting rights to the stocks deemed as non-voting as
to fundamental and major corporate changes. Thus, the issue should
not only dwell on the daily management affairs of the corporation but
also on the equally important fundamental changes that may need to be
voted on.
(6) The SEC rules, opinions and jurisprudence use the control test,
which requires that the nationality of a corporation is determined by
the total outstanding capital stock irrespective of the number of shares,
and capital denotes the total shares subscribed and paid irrespective
of their nomenclature.
(7) Lastly, the last sentence of Sec. 11, Art. XII limits the participation
of the foreign investors in the governing body to their proportionate
share in the capital of the corporation.

(3) The FIA should also be read in harmony with the Constitution. Since
the Constitution only provides for a single requirement for the
operation of a public utility under Sec. 11, i.e., 60% capital must be
Filipino-owned, a mere statute cannot add another requirement.
Otherwise, such statute may be considered unconstitutional.
Accordingly, the phrase entitled to vote should not be interpreted to
be limited to common shares alone or those shares entitled to vote in
the election of members of the Board of Directors.

ABAD (Dissenting Opinion)

(1) Authority to define and interpret the meaning of capital in Sec. 11,
Art. XII belongs to Congress as part of its policy making powers, as
the power to authorize and control a public utility is a prerogative of
Congress. Sec. 11, Art. XII is no self-executing and requires
Congressional action to clarify its meaning. FIA is restricted to
certain areas of investment and should not be construed to clarify
the meaning of capital under the constitutional provision as they
are rules which apply to future investors.

(4) Further, the FIA did not say entitled to vote in the management
affairs of the corporation or entitled to vote in the election of the

(2) Capital refers to the entirety of the corporations outstanding

voting stock as, first, the 40 percent limit (if held only to preferred

shareholders) would render meaningless the fourth sentence which

limits foreign participation in the governing body of public utilities,
and, second, amicus curiae Dr. Villegas, Chairman of the Committee
of National Economy, said that the term capital did not distinguish
among the classes of shares. In both economic and business terms,
capital always meant the entire shares of stock. Further, Philippine
policy on foreign ownership already discourages foreign
investments and to impose additional restrictions would aggravate
economic growth.

(3) Sec. 11, Article XII already provides 3 limitations on foreign

participation in public utilities and the Court need not add more by
restricting the definition of capital.
(digest taken from
https://www.scribd.com/doc/154296979/Gamboa-v-TevesDigest)
GAMBOA VS TEVES (2012 RULING ON THE MR OF THE 2011
DECISION) - CONSTANTINO
Issue: Whether or not the Court made an erroneous interpretation of
the term capital in its 2011 decision?
Held/Reason: The Court said that the Constitution is clear in
expressing its State policy of developing an economyeffectively
controlled by Filipinos. Asserting the ideals that our Constitutions
Preamble want to achieve, that is - to conserve and develop our
patrimony , hence, the State should fortify a Filipino-controlled
economy. In the 2011 decision, the Court finds no wrong in the
construction of the term capital which refers to the shares with voting
rights, as well as with full beneficial ownership (Art. 12, sec. 10) which
implies that the right to vote in the election of directors, coupled with
benefits, is tantamount to an effective control. Therefore, the Courts
interpretation of the term capital was not erroneous. Thus, the motion

for
reconsideration
is
denied.
(digest
taken
from
http://dennieidea.wordpress.com/2014/08/10/gamboa-v-teves-casedigest/)
LPU vs CA - ESPIRITU
FACTS:
1. Petitioner had sometime before commenced in the SEC a proceeding
(SEC-Case No. 1241) against the Lyceum of Baguio, Inc. to require it to
change its corporate name and to adopt another name not "similar [to]
or identical" with that of petitioner. In an Order dated 20 April 1977,
Associate Commissioner Julio Sulit held that the corporate name of
petitioner and that of the Lyceum of Baguio, Inc. were substantially
identical because of the presence of a "dominant" word, i.e., "Lyceum,"
the name of the geographical location of the campus being the only
word which distinguished one from the other corporate name. The SEC
also noted that petitioner had registered as a corporation ahead of the
Lyceum of Baguio, Inc. in point of time, 1 and ordered the latter to
change its name to another name "not similar or identical [with]" the
names of previously registered entities.
2. Armed with the resolution of the Court, petitioner instituted before
the SEC to compel private respondents, which are also educational
institutions, to delete word Lyceum from their corporate names and
permanently to enjoin them from using such as part of their respective
names.
3. Hearing officer sustained the claim of petitioner and held that the
word Lyceum was capable of appropriation and that petitioner had
acquired an enforceable right to the use of that word.
4. On appeal, however, by private respondents to the SEC En Banc, the
decision of the hearing officer was reversed and set aside. The SEC En
Banc did not consider the word "Lyceum" to have become so identified

with petitioner as to render use thereof by other institutions as

productive of confusion about the identity of the schools concerned in
the mind of the general public. Unlike its hearing officer, the SEC En
Banc held that the attaching of geographical names to the word
"Lyceum" served sufficiently to distinguish the schools from one
another, especially in view of the fact that the campuses of petitioner
and those of the private respondents were physically quite remote from
each other.
5. Petitioner went to appeal with the CA but the latter just affirmed the
decision of the SEC En Banc.
HELD:
Under the corporation code, no corporate name may be allowed by the
SEC if the proposed name is identical or deceptively or confusingly
similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to
existing laws. The policy behind this provision is to avoid fraud upon
the public, which would have the occasion to deal with the entity
concerned, the evasion of legal obligations and duties, and the
reduction of difficulties of administration and supervision over
corporations.
The corporate names of private respondents are not identical or
deceptively or confusingly similar to that of petitioners. Confusion and
deception has been precluded by the appending of geographic names to
the word Lyceum. Furthermore, the word Lyceum has become
associated in time with schools and other institutions providing public
lectures, concerts, and public discussions. Thus, it generally refers to a
school or an institution of learning.
Petitioner claims that the word has acquired a secondary meaning in
relation to petitioner with the result that the word, although originally

generic, has become appropriable by petitioner to the exclusion of

other institutions.
The doctrine of secondary meaning is a principle used in trademark law
but has been extended to corporate names since the right to use a
corporate name to the exclusion of others is based upon the same
principle, which underlies the right to use a particular trademark or
tradename. Under this doctrine, a word or phrase originally incapable
of exclusive appropriation with reference to an article in the market,
because geographical or otherwise descriptive might nevertheless have
been used for so long and so exclusively by one producer with
reference to this article that, in that trade and to that group of
purchasing public, the word or phrase has come to mean that the article
was his produce. The doctrine cannot be made to apply where the
evidence didn't prove that the business has continued for so long a time
that it has become of consequence and acquired good will of
considerable value such that its articles and produce have acquired a
well known reputation, and confusion will result by the use of the
disputed name.
Petitioner didn't present evidence, which provided that the word
Lyceum acquired secondary meaning. The petitioner failed to adduce
evidence that it had exclusive use of the word. Even if petitioner used
the word for a long period of time, it hadnt acquired any secondary
meaning in its favor because the appellant failed to prove that it had
been using the same word all by itself to the exclusion of others.
INDUSTRIAL REFACTORIES VS CA - GALAPATE
DOCTRINE: Section 18 of the Corporation Code expressly prohibits the
use of a corporate name which is identical or deceptively or
confusingly similar to that of any existing corporation or to any other
name already protected by law or is patently deceptive, confusing or
contrary to existing laws. To fall within the prohibition of the law, two
requisites must be proven, to wit: (1) that the complainant corporation

acquired a prior right over the use of such corporate name; and (2) the
proposed name is either: (a) identical, or (b) deceptively or confusingly
similar to that of any existing corporation or to any other name already
protected by law; or (c) patently deceptive, confusing or contrary to
existing law.
FACTS: Refractories Corp. of the Philippines (RCP), organized on
October 13, 1976 for the purpose of engaging in the business of
manufacturing, producing, selling, exporting, and otherwise dealing in
any and all refractory bricks, its by-products and derivatives. On June
22, 1977, it registered its corporate and business name with the Bureau
of Domestic Trade.
Petitioner Industrial Refractories Corporation of the Philippines
(IRCP), on the other hand, was incorporated on August 23, 1979
originally under the name Synclaire Manufacturing Corporation. It
amended its Article of Incorporation in 1985 to change its corporate
name to Industrial Refractories Corp. of the Philippines. It is engaged
in the business of manufacturing all kinds of ceramics and other
products, except paints and zines.
Both companies are the only local suppliers of monolithic gunning
mix.
Discovering that IRCP was using such corporate name, RCP filed on
April 14, 1988 with the Securities and Exchange Commission (SEC) a
petition to compel IRCP to change its corporate name on the ground
that its corporate name is confusingly similar with that of RCPs such
that the public may be confused or deceived into believing that they are
one and the same corporation. The SEC decided in favor of RCP.
On appeal, the SEC En banc modified the appealed decision in that
petitioner was ordered to delete or drop from its corporate name only
the word Refractories. They ruled in favor of respondent.

ISSUE: 1. Whether or not the petitioners argument that there is no

confusing or deceptive similarity between the parties corporate names
is correct.
2. Whether the generic word rule would apply to support
IRCPs cause.

RULING: 1. NO. the Supreme Court held that Section 18 of the

Corporation Code expressly prohibits the use of a corporate name
which is identical or deceptively or confusingly similar to that of
any existing corporation or to any other name already protected
by law or is patently deceptive, confusing or contrary to existing
laws. The policy behind the foregoing prohibition is to avoid fraud
upon the public that will have occasion to deal with the entity
concerned, the evasion of legal obligations and duties, and the
reduction of difficulties of administration and supervision over
corporation.
Pursuant thereto, the Revised Guidelines in the Approval of
Corporate and Partnership Names specifically requires that: (1) a
corporate name shall not be identical, misleading or confusingly similar
to one already registered by another corporation with the Commission;
and (2) if the proposed name is similar to the name of a registered firm,
the proposed name must contain at least one distinctive word different
from the name of the company already registered.
As held in Philips Export B.V. vs. Court of Appeals, to fall within the
prohibition of the law, two requisites must be proven, to wit: (1) that
the complainant corporation acquired a prior right over the use of
such corporate name; and (2) the proposed name is either: (a)
identical, or (b) deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by
law; or (c) patently deceptive, confusing or contrary to existing
law.

As regards the first requisite, it has been held that the right to the
exclusive use of a corporate name with freedom from infringement by
similarity is determined by priority of adoption. In this case,
respondent RCP was incorporated on October 13, 1976 and since then
has been using the corporate name Refractories Corp. of the
Philippines. Meanwhile, petitioner was incorporated on August 23,
1979 originally under the name Synclaire Manufacturing Corporation.
It only started using the name Industrial Refractories Corp. of the
Philippines when it amended its Articles of Incorporation on August
23, 1985, or nine (9) years after respondent RCP started using its name.
Thus, being the prior registrant, respondent RCP has acquired the right
to use the word Refractories as part of its corporate name.

actual confusion between the two corporate names, it suffices that

confusion is probable or likely to occur.

Anent the second requisite, in determining the existence of

confusing similarity in corporate names, the test is whether the
similarity is such as to mislead a person using ordinary care and
discrimination and the Court must look to the record as well as the
names themselves. Petitioners corporate name is Industrial
Refractories Corp. of the Phils., while respondents is Refractories
Corp. of the Phils. Obviously, both names contain the identical words
Refractories, Corporation and Philippines. The only word that
distinguishes petitioner from respondent RCP is the word Industrial
which merely identifies a corporations general field of activities or
operations. We need not linger on these two corporate names to
conclude that they are patently similar that even with reasonable care
and observation, confusion might arise. It must be noted that both cater
to the same clientele, i.e. the steel industry. In fact, the SEC found that
there were instances when different steel companies were actually
confused between the two, especially since they also have similar
product packaging. Such findings are accorded not only great respect
but even finality, and are binding upon this Court, unless it is shown
that it had arbitrarily disregarded or misapprehended evidence before
it to such an extent as to compel a contrary conclusion had such
evidence been properly appreciated. And even without such proof of

REPUBLIC PLANTERS VS AGANA -JHOCSON

2. Refractories are structural materials used at high temparatures to

industrial furnaces. They are supplied mainly in the form of brick of
standard sizes and of special shapes. While the word refractories is a
generic term, its usage is not widespread and is limited merely to the
industry/trade in which it is used, and its continuous use by RCP for a
considerable period has made the term so closely identified with it.
Moreover, IRCPs appropriation of RCPs corporate name cannot find
justification under the generic word rule.

FACTS: On September 18, 1961, private respondent Corporation

secured a loan from petitioner in the amount of P120,000.00. As part of
the proceeds of the loan, preferred shares of stocks were issued to
private respondent Corporation, through its officers then, private
respondent Adalia F. Robes and one Carlos F. Robes. In other words,
instead of giving the legal tender totaling to the full amount of the loan,
which is P120,000.00, petitioner lent such amount partially in the form
of money and partially in the form of stock certificates numbered 3204
and 3205, each for 400 shares with a par value of P10.00 per share, or
for P4,000.00 each, for a total of P8,000.00. Said stock certificates were
in the name of private respondent Adalia F. Robes and Carlos F. Robes,
who subsequently, however, endorsed his shares in favor of Adalia F.
Robes.
Said certificates of stock bear the following terms and conditions:
"The Preferred Stock shall have the following rights, preferences,
qualifications and limitations, to wit:
1. Of the right to receive a quarterly dividend of One Per Centum (1%),
cumulative and participating.

2. That such preferred shares may be redeemed, by the system of

drawing lots, at any time after two (2) years from the date of issue at
the option of the Corporation."
On January 31, 1979, private respondents proceeded against petitioner
and filed a Complaint anchored on private respondents' alleged rights
to collect dividends under the preferred shares in question and to have
petitioner redeem the same under the terms and conditions of the stock
certificates.
On September 7, 1979, the trial court rendered a decision in favor of
private respondents ordering petitioner to pay private respondents the
face value of the stock certificates as redemption price, plus 1%
quarterly interest thereon until full payment.
ISSUE: W/N petitioner may not be compelled to redeem the preferred
shares issued to the private respondent
HELD: YES. The respondent judge, in compelling the petitioner to
redeem the shares in question and to pay the corresponding dividends,
committed grave abuse of discretion amounting to lack or excess of
jurisdiction in ignoring both the terms and conditions specified in the
stock certificate, as well as the clear mandate of the law.
A preferred share of stock is one which entitles the holder thereof to
certain preferences over the holders of common stock. The preferences
are designed to induce persons to subscribe for shares of a corporation.
Its most common forms may be classified into two: (1) preferred shares
as to assets; and (2) preferred shares as to dividends. The former is a
share which gives the holder thereof preference in the distribution of
the assets of the corporation in case of liquidation; the latter is a share
the holder of which is entitled to receive dividends on said share to the
extent agreed upon before any dividends at all are paid to the holders

of common stock. The present Corporation Code provides that the

board of directors of a stock corporation may declare dividends only
out of unrestricted retained earnings. Thus, the declaration of
dividends is dependent upon the availability of surplus profit or
unrestricted retained earnings, as the case may be.
Redeemable shares, on the other hand, are shares usually preferred,
which by their terms are redeemable at a fixed date, or at the option of
either issuing corporation, or the stockholder, or both at a certain
redemption price. A redemption by the corporation of its stock is, in a
sense, a repurchase of it for cancellation. The present Code allows
redemption of shares even if there are no unrestricted retained
earnings on the books of the corporation. This is a new provision which
in effect qualifies the general rule that the corporation cannot purchase
its own shares except out of current retained earnings. However, while
redeemable shares may be redeemed regardless of the existence of
unrestricted retained earnings, this is subject to the condition that the
corporation has, after such redemption, assets in its books to cover
debts and liabilities inclusive of capital stock. Redemption, therefore,
may not be made where the corporation is insolvent or if such
redemption will cause insolvency or inability of the corporation to meet
its debts as they mature.
What respondent Judge failed to recognize was that while the stock
certificate does allow redemption, the option to do so was clearly
vested in the petitioner bank. The redemption therefore is clearly the
type known as "optional". Thus, except as otherwise provided in the
stock certificate, the redemption rests entirely with the corporation and
the stockholder is without right to either compel or refuse the
redemption of its stock.
The redemption of said shares cannot be allowed. As pointed out by the
petitioner, the Central Bank made a finding that said petitioner has
been suffering from chronic reserve deficiency, and that such finding
resulted in a directive, issued on January 31, 1973 by then Gov. G. S.

Licaros of the Central Bank, to the President and Acting Chairman of the
Board of the petitioner bank prohibiting the latter from redeeming any
preferred share, on the ground that said redemption would reduce the
assets of the Bank to the prejudice of its depositors and creditors.
Redemption of preferred shares was prohibited for a just and valid
reason. The directive issued by the Central Bank Governor was
obviously meant to preserve the status quo, and to prevent the financial
ruin of a banking institution that would have resulted in adverse
repercussions, not only to its depositors and creditors, but also to the
banking industry as a whole. The directive, in limiting the exercise of a
right granted by law to a corporate entity, may thus be considered as an
exercise of police power. The respondent judge insists that the directive
constitutes an impairment of the obligation of contracts. It has,
however, been settled that the Constitutional guaranty of nonimpairment of obligations of contract is limited by the exercise of the
police power of the state, the reason being that public welfare is
superior to private rights.
WHEREFORE, the instant petition, being impressed with merit, is
hereby GRANTED. The challenged decision of respondent judge is set
aside and the complaint against the petitioner is dismissed.
CASTILLO VS BALINGHASAY -KARIM
FACTS: MCPI is a domestic corporation. At the time of its incorporation,
Act No. 1459, the old Corporation Law was still in force and effect. In its
original Articles of Incorporation, as approved provide for authorized
capital stock amounting to P2,000,000.00, divided into 2,000 SHARES
at a par value of P1,000 each share, 1,000 subscribed by the
incorporating stockholders shall be classified as Class A shares while
the other 1,000 unissued shares shall be considered as Class B shares.
Only holders of Class A shares can have the right to vote and the right to
be elected as directors or as corporate officers.

The AOI was subsequently amended, to increase the authorized capital

stock to P5,000,000.00 increasing the Class B shares by 3,000 and
changing par to P 1,000.00. Class "B" stocks were granted the same
rights and privileges as holders of Class "A" stocks with respect to the
payment of dividends. Another amendment was made to increase the
authorized capital stock to P 32,000,000.00, increasing the Class B
shares by 27,000 and maintaining the par at P 1,000.00. Amendments
were approved by SEC.
On February 9, 2001, the shareholders of MCPI held their annual
stockholders meeting and election for directors. During the course of
the proceedings, respondent Rustico Jimenez, citing Article VII, as
amended, and notwithstanding MCPIs history, declared over the
objections of herein petitioners, that no Class "B" shareholder was
qualified to run or be voted upon as a director. In the past, MCPI had
seen holders of Class "B" shares voted for and serve as members of the
corporate board and some Class "B" share owners were in fact
nominated for election as board members. Nonetheless, Jimenez went
on to announce that the candidates holding Class "A" shares were the
winners of all seats in the corporate board. The petitioners protested,
claiming that Article VII was null and void for depriving them, as Class
"B" shareholders, of their right to vote and to be voted upon, in
violation of the Corporation Code.
In the case that ensued, the RTC rendered the election held on February
9, 2001 is VALID as the holders of CLASS "B" shares are not entitled to
vote and be voted for, saying that that corporations had the power to
classify their shares of stocks, such as "voting and non-voting" shares,
conformably with Section 67 of the Corporation Code of the Philippines.
The AOI is thus the law between the parties and should be strictly
enforced as to them.
ISSUE: whether or not holders of Class "B" shares of the MCPI may be
deprived of the right to vote and be voted for as directors in MCPI.

HELD: No. When Article VII of the Articles of Incorporation of MCPI

was amended in 1992, the phrase "except when otherwise provided by
law" was inserted in the provision governing the grant of voting
powers to Class "A" shareholders. This particular amendment is
relevant for it speaks of a law providing for exceptions to the exclusive
grant of voting rights to Class "A" stockholders. In this instance, the law
in force at the time of the 1992 amendment was the Corporation Code
(B.P. Blg. 68), not the Corporation Law (Act No. 1459), which had been
repealed by then.
However, we find and so hold that the law referred to in the
amendment to Article VII refers to the Corporation Code and no other
law. At the time of the incorporation of MCPI in 1977, the right of a
corporation to classify its shares of stock was sanctioned by Section 5
of Act No. 1459. The law repealing Act No. 1459, B.P. Blg. 68, retained
the same grant of right of classification of stock shares to corporations,
but with a significant change. Under Section 6 of B.P. Blg. 68, the
requirements and restrictions on voting rights were explicitly provided
for, such that "no share may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable" shares, unless
otherwise provided in this Code" and that "there shall always be a class
or series of shares which have complete voting rights." Section 6 of the
Corporation Code being deemed written into Article VII of the Articles
of Incorporation of MCPI, it necessarily follows that unless Class "B"
shares of MCPI stocks are clearly categorized to be "preferred" or
"redeemable" shares, the holders of said Class "B" shares may not be
deprived of their voting rights. Note that there is nothing in the Articles
of Incorporation nor an iota of evidence on record to show that Class
"B" shares were categorized as either "preferred" or "redeemable"
shares. The only possible conclusion is that Class "B" shares fall under
neither category and thus, under the law, are allowed to exercise voting
rights.
One of the rights of a stockholder is the right to participate in the
control and management of the corporation that is exercised through

his vote. The right to vote is a right inherent in and incidental to the
ownership of corporate stock, and as such is a property right. The
stockholder cannot be deprived of the right to vote his stock nor may
the right be essentially impaired, either by the legislature or by the
corporation, without his consent, through amending the charter, or the
by-laws.
JG SUMMIT VS CA LABANTA
PC JAVIER AND SONS VS CA LEONARDO
Facts:
In February, 1981, Plaintiff P.C. Javier and Sons Services, Inc., Plaintiff
Corporation, for short, applied with First Summa Savings and Mortgage
Bank, later on renamed as PAIC Savings and Mortgage Bank,
Defendant Bank through Plaintiff Javier for a loan accommodation
under the Industrial Guarantee Loan Fund (IGLF) for P1.5 Million.
Plaintiff Corporation defaulted in the payment of its IGLF loan with
Defendant Bank hence Defendant Bank sent a demand letter dated
November 22, 1983, reminding Plaintiff Javier to make payments
because their accounts have been long overdue; that on May 2, 1984,
Defendant Bank sent another demand letter to Plaintiff spouses
informing them that since they have defaulted in paying their
obligation, their mortgage will now be foreclosed; that when Plaintiffs
still failed to pay, Defendant Bank initiated extrajudicial foreclosure of
the real estate mortgage executed by Plaintiff spouses and accordingly
the auction sale of the property covered by TCT No. 473216 was
scheduled by the ExOfficio Sheriff on May 9, 1984.
Petitioners argue that they are legally justified to withhold their
amortized payments to the respondent bank until such time they would
have been properly notified of the change in the corporate name of

First Summa Savings and Mortgage Bank. They claim that they have
never received any formal notice of the alleged change of corporate
name of First Summa Savings and Mortgage Bank to PAIC Savings &
Mortgage Bank, Inc. They further claim that the only and first time they
received formal evidence of a change in the corporate name of First
Summa Savings and Mortgage Bank surfaced when respondent bank
presented its witness, Michael Caguioa, on 03 April 1990, where he
presented the Securities and Exchange Commission (SEC) Certificate of
Filing of the Amended Articles of Incorporation of First Summa Savings
and Mortgage Bank,[14] the Central Bank (CB) Certificate of
Authority[15] to change the name of First Summa Savings and Mortgage
Bank to PAIC Savings and Mortgage Bank, Inc., and the CB Circular
Letter[16] dated 27 June 1983
The instant complaint was filed to forestall the extrajudicial foreclosure
sale of a piece of land covered by Transfer Certificate of Title (TCT) No.
473216[6] mortgaged by petitioner corporation in favor of First Summa
Savings and Mortgage Bank which bank was later renamed as PAIC
Savings and Mortgage Bank, Inc. It likewise asked for the nullification of
the Real Estate Mortgages it entered into with First Summa Savings and
Mortgage Bank. The supplemental complaint added several defendants
who scheduled for public auction other real estate properties contained
in the same real estate mortgages and covered by TCTs No. N-5510, No.
426872, No. 506346 and Original Certificate of Title No. 10146.
Issue: Whether or not First Summa Savings and Mortgage Bank and
PAIC Savings and Mortgage Bank, Inc. are one and the same entity.

Held:
First Summa Savings and Mortgage Bank and PAIC Savings and
Mortgage Bank, Inc. are one and the same entity.

Plaintiffs defense that they should first be formally notified of the

change of corporate name of First Summa Savings and Mortgage Bank
to PAIC Savings and Mortgage Bank, Inc., before they will continue
paying their loan obligations to respondent bank presupposes that
there exists a requirement under a law or regulation ordering a bank
that changes its corporate name to formally notify all its debtors. After
going over the Corporation Code and Banking Laws, as well as the
regulations and circulars of both the SEC and the Bangko Sentral ng
Pilipinas (BSP), we find that there is no such requirement. This being
the case, this Court cannot impose on a bank that changes its corporate
name to notify a debtor of such change absent any law, circular or
regulation requiring it. Such act would be judicial legislation. The
formal notification is, therefore, discretionary on the bank. Unless
there is a law, regulation or circular from the SEC or BSP requiring the
formal notification of all debtors of banks of any change in corporate
name, such notification remains to be a mere internal policy that banks
may or may not adopt.
In the case at bar, though there was no evidence showing that
petitioners were furnished copies of official documents showing the
First Summa Savings and Mortgage Banks change of corporate name to
PAIC Savings and Mortgage Bank, Inc., evidence abound that they had
notice or knowledge thereof. Several documents establish this fact.
First, letter[17] dated 16 July 1983 signed by Raymundo V. Blanco,
Accountant of petitioner corporation, addressed to PAIC Savings and
Mortgage Bank, Inc. Part of said letter reads: In connection with your
inquiry as to the utilization of funds we obtained from the former First
Summa Savings and Mortgage Bank, . . . Second, Board Resolution[18] of
petitioner corporation signed by Pablo C. Javier, Sr. on 24 August 1983
authorizing him to execute a Chattel Mortgage over certain machinery
in favor of PAIC Savings and Mortgage Bank, Inc. Third, Secretarys
Certificate[19] signed by Fortunato E. Gabriel, Corporate Secretary of
petitioner corporation, on 01 September 1983, certifying that a board
resolution was passed authorizing Mr. Pablo C. Javier, Sr. to execute a
chattel mortgage on the corporations equipment that will serve as

collateral to cover the IGLF loan with PAIC Savings and Mortgage Bank,
Inc. Fourth, undated letter[20] signed by Pablo C. Javier, Sr. and
addressed to PAIC Savings and Mortgage Bank, Inc., authorizing Mr.
Victor F. Javier, General Manager of petitioner corporation, to secure
from PAIC Savings and Mortgage Bank, Inc. certain documents for his
signature.
From the foregoing documents, it cannot be denied that petitioner
corporation was aware of First Summa Savings and Mortgage Banks
change of corporate name to PAIC Savings and Mortgage Bank, Inc.
Knowing fully well of such change, petitioner corporation has no valid
reason not to pay because the IGLF loans were applied with and
obtained from First Summa Savings and Mortgage Bank. First Summa
Savings and Mortgage Bank and PAIC Savings and Mortgage Bank, Inc.,
are one and the same bank to which petitioner corporation is indebted.
A change in the corporate name does not make a new corporation,
whether effected by a special act or under a general law. It has no effect
on the identity of the corporation, or on its property, rights, or
liabilities.[21] The corporation, upon such change in its name, is in no
sense a new corporation, nor the successor of the original corporation.
It is the same corporation with a different name, and its character is in
no respect changed.[22]
HYATT VS GOLDSTAR - SORRO
DOCTRINE: It now becomes apparent that the residence or domicile of a
juridical person is fixed by "the law creating or recognizing" it. Under
Section 14(3) of the Corporation Code, the place where the principal
office of the corporation is to be located is one of the required contents
of the articles of incorporation, which shall be filed with the Securities
and Exchange Commission (SEC).
FACTS:

1.

Petitioner [herein Respondent] (GOLDSTAR for brevity) is a

domestic corporation, with address at 6th Floor, Jacinta II
Building, 64 EDSA, Guadalupe, Makati City. On the other
hand, private respondent [herein petitioner] Hyatt Elevators
and Escalators Company (HYATT for brevity) is a domestic
corporation similarly engaged in the business of selling,
installing and maintaining/servicing elevators, escalators and
parking equipment, with address at the 6th Floor, Dao I
Condominium, Salcedo St., Legaspi Village, Makati, as stated
in its Articles of Incorporation.

2.

HYATT filed a Complaint for unfair trade practices and

damages under Articles 19, 20 and 21 of the Civil Code of the
Philippines against LG Industrial Systems Co. Ltd. (LGISC) and
LG International Corporation (LGIC) plus damages.

3.

LGISC and LGIC then filed a Motion to Dismiss on the grounds

among others: (2) improper venue., which the trial court
denied. Thus they filed an Answer with Compulsory
Counterclaim ex abundante cautela. Thereafter, they filed a
Motion for Reconsideration and to Expunge Complaint which
was denied.

4.

HYATT filed a motion for leave of court to amend the

complaint, alleging that: (a) Subsequent to the filing of the
complaint, it learned that LGISC transferred all its organization,
assets and goodwill, as a consequence of a joint venture
agreement with Otis Elevator Company of the USA, to LG Otis
Elevator Company (LG OTIS, for brevity). Thus, LGISC was to be
substituted or changed to LG OTIS, its successor-in-interest; (b.)
GOLDSTAR was being utilized by LG OTIS and LGIC in
perpetrating their unlawful and unjustified acts against HYATT.
Consequently, in order to afford complete relief, GOLDSTAR was
to be additionally impleaded as a party-defendant.

5.

Hence, in the Amended Complaint, HYATT impleaded

GOLDSTAR as a party-defendant, and all references to LGISC
were correspondingly replaced with LG OTIS.

6.

LG OTIS (LGISC) and LGIC filed their opposition to HYATTs

motion to amend the complaint. The trial court admitted the
Amended Complaint. When LG OTIS (LGISC) and LGIC filed a
motion for reconsideration thereto but was similarly rebuffed.

7.

GOLDSTAR also filed a Motion to Dismiss the amended

complaint, raising the same grounds: (1) the venue was
improperly laid, as neither HYATT nor defendants reside in
Mandaluyong City, where the original case was filed; and (2)
failure to state a cause of action against [respondent], since the
amended complaint fails to allege with certainty what specific
ultimate acts Goldstar performed in violation of Hyatts rights.
The trial court denied the motion to dismiss.

8.

GOLDSTAR filed a motion for reconsideration, without waiving

the grounds it raised in its motion to dismiss, it also filed an
Answer Ad Cautelam. These however proved futile.

9.

Claiming error was apparent in the denial of its motion,

GOLDSTAR filed the a petition for certiorari before the CA,
where it ruled in favor of GOLDSTAR. The appellate court held
that the venue was clearly improper, because none of the
litigants "resided" in Mandaluyong City, where the case was
filed.

10. According to the appellate court, since Makati was the

principal place of business of both respondent and petitioner,
as stated in the latters Articles of Incorporation, that place was
controlling for purposes of determining the proper venue. The
fact that petitioner had abandoned its principal office in Makati
years prior to the filing of the original case did not affect the

venue where personal actions could be commenced and tried.

Hence, this Petition.
ISSUE: Whether or not the Court of Appeals, erred in holding that in the
light of the peculiar facts of this case, venue was improper.
RULING: NO. Residence is the permanent home -- the place to which,
whenever absent for business or pleasure, one intends to
return. Residence is vital when dealing with venue. A corporation,
however, has no residence in the same sense in which this term is
applied to a natural person. This is precisely the reason why the Court
in Young Auto Supply Company v. Court of Appeals ruled that "for
practical purposes, a corporation is in a metaphysical sense a resident of
the place where its principal office is located as stated in the articles of
incorporation." Even before this ruling, it has already been established
that the residence of a corporation is the place where its principal office
is established.
This Court has also definitively ruled that for purposes of venue, the
term "residence" is synonymous with "domicile." Correspondingly, the
Civil Code provides: "Art. 51. When the law creating or recognizing them,
or any other provision does not fix the domicile of juridical persons, the
same shall be understood to be the place where their legal representation
is established or where they exercise their principal functions."
It now becomes apparent that the residence or domicile of a juridical
person is fixed by "the law creating or recognizing" it. Under Section
14(3) of the Corporation Code, the place where the principal office of
the corporation is to be located is one of the required contents of the
articles of incorporation, which shall be filed with the Securities and
Exchange Commission (SEC).
In the present case, there is no question as to the residence of
respondent. What needs to be examined is that of petitioner.

Admittedly, the latters principal place of business is Makati, as

indicated in its Articles of Incorporation. Since the principal place of
business of a corporation determines its residence or domicile, then the
place indicated in petitioners articles of incorporation becomes
controlling in determining the venue for this case.
Petitioner argues that the Rules of Court do not provide that when the
plaintiff is a corporation, the complaint should be filed in the location of
its
principal
office
as
indicated
in
its
articles
of
incorporation. Jurisprudence has, however, settled that the place where
the principal office of a corporation is located, as stated in the articles,
indeed establishes its residence. This ruling is important in determining
the venue of an action by or against a corporation, as in the present case.
Inconclusive are the bare allegations of petitioner that it had closed its
Makati office and relocated to Mandaluyong City, and that respondent
was well aware of those circumstances. Assuming arguendo that they
transacted business with each other in the Mandaluyong office of
petitioner, the fact remains that, in law, the latters residence was still
the place indicated in its Articles of Incorporation. Further
unacceptable is its faulty reasoning that the ground for the CAs
dismissal of its Complaint was its failure to amend its Articles of
Incorporation so as to reflect its actual and present principal office. The
appellate court was clear enough in its ruling that the Complaint was
dismissed because the venue had been improperly laid, not because of
the failure of petitioner to amend the latters Articles of Incorporation.
Indeed, it is a legal truism that the rules on the venue of personal
actions are fixed for the convenience of the plaintiffs and their
witnesses. Equally settled, however, is the principle that choosing the
venue of an action is not left to a plaintiffs caprice; the matter is
regulated by the Rules of Court. Allowing petitioners arguments may
lead precisely to what this Court was trying to avoid in Young Auto

Supply Company v. CA: the creation of confusion and untold

inconveniences to party litigants. Thus enunciated the CA:
"x x x. To insist that the proper venue is the actual principal office and not
that stated in its Articles of Incorporation would indeed create confusion
and work untold inconvenience. Enterprising litigants may, out of some
ulterior motives, easily circumvent the rules on venue by the simple
expedient of closing old offices and opening new ones in another place
that they may find well to suit their needs."
DISPOSITIVE
PORTION:
WHEREFORE,
the
Petition
is
hereby DENIED, and the assailed Decision and Resolution AFFIRMED.
Costs against petitioner.
SO ORDERED.
LOYOLA GRAND VILLAS VS CA
Facts: LGVHAI was organized as the association of homeowners and
residents of the Loyola Grand Villas. 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. The officers of the LGVHAI tried to
register its by-laws. They failed to do so. To the officers consternation,
they discovered that there were two other organizations within the
subdivision the North Association and the South Association. When
one of the officers inquired about the status of LGVHAI, the head of the
legal department of the HIGC, informed him that LGVHAI had been
automatically dissolved for two reasons. First, it did not submit its bylaws 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.

Issue: WON 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?

Held: No. There can be no automatic corporate dissolution simply

because the incorporators failed to abide by the required filing of bylaws 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. Nonfiling of the by-laws will not result in automatic dissolution of the
corporation. 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.
(digest
taken
from
http://philippinecasedigests.wordpress.com/2013/02/14/loyolagrand-villas-homeowners-south-association-vs-court-of-appeals1997/)
SAWADJAAN VS CA VERGARA
Doctrine: Failure to submit the by-laws within 60 days from
incorporation does not automatically dissolve the corporation. It is
merely a ground for suspension or revocation of its charter after proper
notice and hearing. The corporation is, at the very least, a de facto
corporation whose existence may not be collaterally attacked.
Facts:
1.

2.

Petitioner Sappari K. Sawadjaan, who rose from the ranks, was

among the first employees of the Philippine Amanah Bank
(PAB) when it was created by virtue of Presidential Decree No.
264.
While still designated as appraiser/investigator, Sawadjaan
was assigned to inspect the properties offered as collaterals by

Compressed Air Machineries and Equipment Corporation

(CAMEC) for a credit line of Five Million Pesos
(P5,000,000.00). The properties consisted of two parcels of
land covered by Transfer Certificates of Title (TCTs) No. N130671 and No. C-52576.
3. On the basis of his Inspection and Appraisal Report, the PAB
granted the loan application.
4. In the meantime, Sawadjaan was promoted to Loans Analyst I
on 01 July 1989.
5. In January 1990, Congress passed Republic Act 6848 creating
the AIIBP and repealing P.D. No. 264 (which created the PAB).
All assets, liabilities and capital accounts of the PAB were
transferred to the AIIBP, and the existing personnel of the PAB
were to continue to discharge their functions unless
discharged. In the ensuing reorganization, Sawadjaan was
among the personnel retained by the AIIBP.
6. When CAMEC failed to pay, the bank, now referred to as the
AIIBP, discovered that TCT No. N-130671 was spurious, the
property described therein non-existent, and that the property
covered by TCT No. C-52576 had a prior existing mortgage in
favor of one Divina Pablico.
7. The Board of Directors of the AIIBP created an Investigating
Committee to look into the CAMEC transaction, which had cost
the bank Six Million Pesos (P6,000,000.00) in losses.
8. Consequently, petitioner received a memorandum from Islamic
Bank [AIIBP] Chairman Roberto F. De Ocampo charging him
with Dishonesty in the Performance of Official Duties and/or
Conduct Prejudicial to the Best Interest of the Service and
preventively suspending him.
9. The Investigating Committee recommended that petitioner
SAPPARI SAWADJAAN be meted the penalty of SIX (6)
MONTHS and ONE (1) DAY SUSPENSION from office in
accordance with the Civil Service Commissions Memorandum
Circular No. 30, Series of 1989.
10. The Board of Directors of the Islamic Bank [AIIBP] adopted
Resolution No. 2309 finding petitioner guilty of Dishonesty in
the Performance of Official Duties and/or Conduct Prejudicial
to the Best Interest of the Service and imposing the penalty of
Dismissal from the Service.

11. On reconsideration, the Board of Directors of the Islamic Bank

[AIIBP] adopted the Resolution No. 2332 reducing the penalty
imposed on petitioner from dismissal to suspension for a
period of six (6) months and one (1) day.
12. Petitioner filed a notice of appeal to the Merit System
Protection Board (MSPB).
13. On 11 August 1994, the CSC adopted Resolution No. 94-4483
dismissing the appeal for lack of merit and affirming
Resolution No. 2309 dated 13 December 1993 of the Board of
Directors of Islamic Bank.
14. On 11 April 1995, the CSC adopted Resolution No. 95-2574
denying petitioners Motion for Reconsideration.
15. On 16 June 1995, the instant petition was filed with the
Honorable Supreme Court who in turn dismissed the case.
16. Sawadjaan filed a Motion for New Trial in the Court of Appeals
based on the following grounds: fraud, accident, mistake or
excusable negligence and newly discovered evidence. He
claimed that he had recently discovered that at the time his
employment was terminated, the AIIBP had not yet adopted its
corporate by-laws. He attached a Certification by the
Securities and Exchange Commission (SEC) that it was only on
27 May 1992 that the AIIBP submitted its draft by-laws to the
SEC, and that its registration was being held in abeyance
pending certain corrections being made thereon. Sawadjaan
argued that since the AIIBP failed to file its by-laws within 60
days from the passage of Rep. Act No. 6848, as required by Sec.
51 of the said law, the bank and its stockholders had already
forfeited its franchise or charter, including its license to exist
and operate as a corporation,[and thus no longer have the
legal standing and personality to initiate an administrative
case.
17. This motion was denied by the court a quo in its Resolution of
15 December 1999.
18. Hence this petition for certiorari under Rule 65 of the Rules of
Court challenging the Decision and Resolution of the Court of
Appeals.
Issue: Whether or not the bank and its stockholders had already
forfeited its franchise or charter, including its license to exist and

operate as a corporation,[and thus no longer have the legal standing

and personality to initiate an administrative case since the AIIBP failed
to file its by-laws within 60 days from the passage of Rep. Act No. 6848,
as required by Sec. 51 of the said law?
HELD: No, the petitioner erred in stating that all proceedings initiated
by AIIBP and all actions resulting therefrom are a patent nullity
because of its failure to file its by-laws within 60 days from the passage
of Rep. Act No. 6848, as required by Sec. 51 of the said law,
The AIIBP was created by Rep. Act No. 6848. It has a main office where
it conducts business, has shareholders, corporate officers, a board of
directors, assets, and personnel. It is, in fact, represented by the Office
of the Government Corporate Counsel, the principal law office of
government-owned corporations, one of which is respondent bank, At
the very least, by its failure to submit its by-laws on time, the AIIBP
may be considered a de facto corporation, whose right to exercise
corporate powers may not be inquired into collaterally in any private
suit to which such corporations may be a party.
Moreover, a corporation which has failed to file its by-laws within the
prescribed period does not ipso facto lose its powers as such. The SEC
Rules on Suspension/Revocation of the Certificate of Registration of
Corporations, details the procedures and remedies that may be availed
of before an order of revocation can be issued. There is no showing
that such a procedure has been initiated in this case.
In any case, petitioners argument is irrelevant because this case is not
a corporate controversy, but a labor dispute; and it is an employers
basic right to freely select or discharge its employees, if only as a
measure of self-protection against acts inimical to its interest.
Regardless of whether AIIBP is a corporation, a partnership, a sole
proprietorship, or a sari-sari store, it is an undisputed fact that AIIBP is
the petitioners employer. AIIBP chose to retain his services during its
reorganization, controlled the means and methods by which his work
was to be performed, paid his wages, and, eventually, terminated his
services.

The Court did not find error in the decision of the AIIBP. As
appraiser/investigator, the petitioner was expected to conduct an
ocular inspection of the properties offered by CAMEC as collaterals and
check the copies of the certificates of title against those on file with the
Registry of Deeds. Not only did he fail to conduct these routine checks,
but he also deliberately misrepresented in his appraisal report that
after reviewing the documents and conducting a site inspection, he
found the CAMEC loan application to be in order. Despite the number
of pleadings he has filed, he has failed to offer an alternative
explanation for his actions.
WHEREFORE, the petition is DISMISSED. The Decision of the Court of
Appeals of 30 March 1999 affirming Resolutions No. 94-4483 and No.
95-2754 of the Civil Service Commission, and its Resolution of 15
December 1999 are hereby AFFIRMED. Costs against the petitioner.
SO ORDERED.