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To obtain a license for the corporation from the Bureau of Customs, Antonio

Punsalan Jr., the corporation president, solicited a proposal from private respondent
[G.R. No. 117847. October 7, 1998] for the preparation of a feasibility study. Private respondent submitted a letter-
proposal dated October 17, 1986 (“First Contract” hereafter) to Punsalan, which is
reproduced hereunder:
APPEALS and STEFANI SAÑO, respondents.
“Dear Mr. Punsalan:
With reference to your request for professional engineering consultancy services
for your proposed MIA Warehousing Project may we offer the following outputs and
Contracts entered into by a corporate president without express prior board the corresponding rate and terms of agreement:
approval bind the corporation, when such officer’s apparent authority is
=========================== =========
established and when these contracts are ratified by the corporation.
Project Feasibility Study consisting of
The Case
Market Study
This principle is stressed by the Court in rejecting the Petition for Review of the
February 28, 1994 Decision and the October 28, 1994 Resolution of the Court of Technical Study
Appeals in CA-GR CV No. 30670.
Financial Feasibility Study
In a collection case filed by Stefani Saño against People’s Aircargo and
Preparation of pertinent documentation requirements for the application
Warehousing Co., Inc., the Regional Trial Court (RTC) of Pasay City, Branch 110,
rendered a Decision dated October 26, 1990, the dispositive portion of which ==================================================
reads: ===
“WHEREFORE, in light of all the foregoing, judgment is hereby rendered, ordering The above services will be provided for a fee of [p]esos 350,000.00 payable
[petitioner] to pay [private respondent] the amount of sixty thousand (P60,000.00) according to the following schedule:
pesos representing payment of [private respondent’s] services in preparing the
manual of operations and in the conduct of a seminar for [petitioner]. The
Counterclaim is hereby dismissed.”
Fifty percent (50%) ………….upon confirmation of the agreement
Aggrieved by what he considered a minuscule award of P60,000, private
respondent appealed to the Court of Appeals (CA) which, in its Decision Twenty-five percent (25%)…..15 days after the confirmation of the agreement
promulgated February 28, 1994, granted his prayer for P400,000, as follows: Twenty-five percent (25%)…..upon submission of the specified outputs
“WHEREFORE, PREMISES CONSIDERED, the appealed judgment is hereby The outputs will be completed and submitted within 30 days upon confirmation of
MODIFIED in that [petitioner] is ordered to pay [private respondent] the amount of the agreement and receipt by us of the first fifty percent payment.
four hundred thousand pesos (P400,000.00) representing payment of [private
respondent’s] services in preparing the manual of operations and in the conduct of ---------------------------------------------------------------------------------------------
a seminar for [petitioner].” Thank you.
As no new ground was raised by petitioner, reconsideration of the above- Yours truly, CONFORME:
mentioned Decision was denied in the Resolution promulgated on October 28,
Petitioner is a domestic corporation, which was organized in the middle of 1986 to Consultant for President, PAIRCARGO
operate a customs bonded warehouse at the old Manila International Airport in Industrial Engineering”
Pasay City.
Initially, Cheng Yong, the majority stockholder of petitioner, objected to private Old MIA Compound, Metro Manila
respondent’s offer, as another company priced a similar proposal at only P15,000.
Attention: Mr. ANTONIO PUN[S]ALAN, JR.
However, Punsalan preferred private respondent’s services because of the latter’s
membership in the task force, which was supervising the transition of the Bureau President
of Customs from the Marcos government to the Aquino administration. Dear Mr. Pun[s]alan:
On October 17, 1986, petitioner, through Punsalan, sent private respondent a This is to formalize our proposal for consultancy services to your company the
letter, confirming their agreement as follows: scope of which is defined in the attached service description.
“Dear Mr. Saño: The total service you have decided to avail xxx would be available upon signing of
With regard to the services offered by your company in your letter dated 13 the conforme below and would come [in] the amount of FOUR HUNDRED
October 1986, for the preparation of the necessary study and documentations to THOUSAND PESOS (P400,000.00) payable at the schedule defined as follows (with
support our Application for Authority to Operate a public Customs Bonded the balance covered by post-dated cheques):
Warehouse located at the old MIA Compound in Pasay City, please be informed that Downpayment upon signing conforme . . . P80,000.00
our company is willing to hire your services and will pay the amount of THREE
HUNDRED FIFTY THOUSAND PESOS (P350,000.00) as follows: 15 January 1987 ............. 53,333.00
P100,000.00 - upon signing of the agreement; 30 January 1987 ............. 53,333.00
150,000.00 - on or before October 31, 1986, with the favorable 15 February 1987 . . . . . . . . . . . . . 53,333.00
Recommendation of the CBW on our application. 28 February 1987 . . . . . . . . . . . . . 53,333.00
100,000.00 - upon receipt of the study in final form. 15 March1987 ............. 53,333.00
Very truly yours, 30 March 1987 ............. 53,333.00
(S)ANTONIO C. PUNSALAN With this package, you are assured of the highest service quality as our
(T)ANTONIO C. PUNSALAN performance record shows we always deliver no less.
President Thank you very much.
CONFORME & RECEIVED from PAIRCARGO, the Yours truly,
(P100,000.00), this 17th day of October, (T)STEFANI C. SAÑO
1986 as 1st installment payment of the Industrial Engineering Consultant
service agreement dated October 13, 1986. CONFORME:
Accordingly, private respondent prepared a feasibility study for petitioner which During the trial, the lower court observed that the Second Contract bore, at the
eventually paid him the balance of the contract price, although not according to lower right portion of the letter, the following notations in pencil:
the schedule agreed upon. “1. Operations Manual
On December 4, 1986, upon Punsalan’s request, private respondent sent petitioner 2. Seminar/workshop for your employees
another letter-proposal (“Second Contract” hereafter), which reads:
P400,000 - package deal
“People’s Air Cargo & Warehousing Co., Inc.
50% upon completion of seminar/workshop The Ruling of the Court of Appeals
50% upon approval by the Commissioner To Respondent Court, the pivotal issue of private respondent’s appeal was the
enforceability of the Second Contract. It noted that petitioner did not appeal the
The Manual has already been approved by the Commissioner but payment has not
Decision of the trial court, implying that it had agreed to pay the P60,000 award. If
yet been made."
the contract was valid and enforceable, then petitioner should be held liable for the
The lower left corner of the letter also contained the following notations: full amount stated therein, not P60,000 as held by the lower court.
“1st letter - 4 Dec. 1986 Rejecting the finding of the trial court that the December 4, 1986 contract was
nd simulated or unenforceable, the CA ruled in favor of its validity and enforceability.
2 letter - 15 June 1987 with
According to the Court of Appeals, the evidence on record shows that the president
Hinanakit’.” of petitioner-corporation had entered into the First Contract, which was similar to
On January 10, 1987, Andy Villaceren, vice president of petitioner, received the the Second Contract. Thus, petitioner had clothed its president with apparent
operations manual prepared by private respondent. Petitioner submitted said authority to enter into the disputed agreement. As it had also become the practice
operations manual to the Bureau of Customs in connection with the former’s of the petitioner-corporation to allow its president to negotiate and execute
application to operate a bonded warehouse; thereafter, in May 1987, the Bureau contracts necessary to secure its license as a customs bonded warehouse without
issued to it a license to operate, enabling it to become one of the three public prior board approval, the board itself, by its acts and through acquiescence,
customs bonded warehouses at the international airport. Private respondent also practically laid aside the normal requirement of prior express approval. The
conducted, in the third week of January 1987 in the warehouse of petitioner, a Second Contract was declared valid and binding on the petitioner, which was held
three-day training seminar for the latter’s employees. liable to private respondent in the full amount of P400,000.

On March 25, 1987, private respondent joined the Bureau of Customs as special Disagreeing with the CA, petitioner lodged this petition before us.
assistant to then Commissioner Alex Padilla, a position he held until he became The Issues
technical assistant to then Commissioner Miriam Defensor-Santiago on March 7,
Instead of alleging reversible errors, petitioner imputes “grave abuse of discretion”
1988. Meanwhile, Punsalan sold his shares in petitioner-corporation and resigned
to the Court of Appeals, viz.:
as its president in 1987.
“I. xxx [I]n ruling that the subject letter-agreement for services was binding on
On February 9, 1988, private respondent filed a collection suit against petitioner.
the corporation simply because it was entered into by its president[;]
He alleged that he had prepared an operations manual for petitioner, conducted a
seminar-workshop for its employees and delivered to it a computer program; but “II. xxx [I]n ruling that the subject letter-agreement for services was binding on
that, despite demand, petitioner refused to pay him for his services. the corporation notwithstanding the lack of any board authority since it was the
purported ‘practice’ to allow the president to enter into contracts of said nature
Petitioner, in its answer, denied that private respondent had prepared an
(citing one previous instance of a similar contract)[;] and
operations manual and a computer program or conducted a seminar-workshop for
its employees. It further alleged that the letter-agreement was signed by Punsalan “III. xxx [I]n ruling that the subject letter-agreement for services was a valid
without authority, “in collusion with [private respondent] in order to unlawfully get contract and not merely simulated."
some money from [petitioner],” and despite his knowledge that a group of
The Court will overlook the lapse of petitioner in alleging grave abuse of
employees of the company had been commissioned by the board of directors to
discretion as its ground for seeking a reversal of the assailed Decision. Although
prepare an operations manual.
the Rules of Court specify “reversible errors” as grounds for a petition for review
The trial court declared the Second Contract unenforceable or simulated. under Rule 45, the Court will lay aside for the nonce this procedural lapse and
However, since private respondent had actually prepared the operations manual consider the allegations of “grave abuse” as statements of reversible errors of law.
and conducted a training seminar for petitioner and its employees, the trial court
Petitioner does not contest its liability; it merely disputes the amount of such
awarded P60,000 to the former, on the ground that no one should be unjustly
accountability. Hence, the resolution of this petition rests on the sole issue of the
enriched at the expense of another (Article 2142, Civil Code). The trial court
enforceability and validity of the Second Contract, more specifically: (1) whether
determined the amount “in light of the evidence presented by defendant on the
the president of the petitioner-corporation had apparent authority to bind
usual charges made by a leading consultancy firm on similar services.”
petitioner to the Second Contract; and (2) whether the said contract was valid and Accordingly, the appellate court ruled in this case that the authority to act for and
not merely simulated. to bind a corporation may be presumed from acts of recognition in other instances,
wherein the power was in fact exercised without any objection from its board or
The Court’s Ruling
shareholders. Petitioner had previously allowed its president to enter into the First
The petition is not meritorious. Contract with private respondent without a board resolution expressly authorizing
him; thus, it had clothed its president with apparent authority to execute the
First Issue: Apparent Authority of a Corporate President
subject contract.
Petitioner argues that the disputed contract is unenforceable, because Punsalan,
Petitioner rebuts, arguing that a single isolated agreement prior to the subject
its president, was not authorized by its board of directors to enter into said
contract does not constitute corporate practice, which Webster defines as
“frequent or customary action.” It cites Board of Liquidators v. Kalaw, in which the
The general rule is that, in the absence of authority from the board of directors, no practice of NACOCO allowing its general manager to negotiate and execute
person, not even its officers, can validly bind a corporation. A corporation is a contract in its copra trading activities for and on its behalf, without prior board
juridical person, separate and distinct from its stockholders and members, “having approval, was inferred from sixty contracts – not one, as in the present case --
xxx powers, attributes and properties expressly authorized by law or incident to its previously entered into by the corporation without such board resolution.
Petitioner’s argument is not persuasive. Apparent authority is derived not merely
Being a juridical entity, a corporation may act through its board of directors, which from practice. Its existence may be ascertained through (1) the general manner in
exercises almost all corporate powers, lays down all corporate business policies which the corporation holds out an officer or agent as having the power to act or,
and is responsible for the efficiency of management, as provided in Section 23 of in other words, the apparent authority to act in general, with which it clothes him;
the Corporation Code of the Philippines: or (2) the acquiescence in his acts of a particular nature, with actual or
“SEC. 23. The Board of Directors or Trustees. -- Unless otherwise provided in this constructive knowledge thereof, whether within or beyond the scope of his
Code, the corporate powers of all corporations formed under this Code shall be ordinary powers. It requires presentation of evidence of similar act(s) executed
exercised, all business conducted and all property of such corporations controlled either in its favor or in favor of other parties. It is not the quantity of similar acts
and held by the board of directors or trustees x x x.” which establishes apparent authority, but the vesting of a corporate officer with
the power to bind the corporation.
Under this provision, the power and the responsibility to decide whether the
corporation should enter into a contract that will bind the corporation is lodged in In the case at bar, petitioner, through its president Antonio Punsalan Jr., entered
the board, subject to the articles of incorporation, bylaws, or relevant provisions of into the First Contract without first securing board approval. Despite such lack of
law. However, just as a natural person may authorize another to do certain acts for board approval, petitioner did not object to or repudiate said contract, thus
and on his behalf, the board of directors may validly delegate some of its functions “clothing” its president with the power to bind the corporation. The grant of
and powers to officers, committees or agents. The authority of such individuals to apparent authority to Punsalan is evident in the testimony of Yong -- senior vice
bind the corporation is generally derived from law, corporate bylaws or president, treasurer and major stockholder of petitioner. Testifying on the First
authorization from the board, either expressly or impliedly by habit, custom or Contract, he said:
acquiescence in the general course of business, viz.: “A: Mr. [Punsalan] told me that he prefer[s] Mr. Saño because Mr. Saño is very
“A corporate officer or agent may represent and bind the corporation in influential with the Collector of Customs[s]. Because the Collector of Custom[s]
transactions with third persons to the extent that [the] authority to do so has been will be the one to approve our project study and I objected to that, sir. And I said it
conferred upon him, and this includes powers which have been intentionally [was an exorbitant] price. And Mr. Punsalan he is the [p]resident, so he [gets] his
conferred, and also such powers as, in the usual course of the particular business, way.
are incidental to, or may be implied from, the powers intentionally conferred, Q: And so did the company eventually pay this P350,000.00 to Mr. Saño?
powers added by custom and usage, as usually pertaining to the particular officer
A: Yes, sir.”
or agent, and such apparent powers as the corporation has caused persons dealing
with the officer or agent to believe that it has conferred.” The First Contract was consummated, implemented and paid without a hitch.
Hence, private respondent should not be faulted for believing that Punsalan’s latter for, indeed, he was clothed with authority to enter into the contract after the
conformity to the contract in dispute was also binding on petitioner. It is familiar same was brought to the attention and consideration of [petitioner]. Not only that,
doctrine that if a corporation knowingly permits one of its officers, or any other a [down payment] was made. In the alleged agreement of December 4, 1986
agent, to act within the scope of an apparent authority, it holds him out to the subject of the present case, the amount is even bigger-P400,000.00. Yet, the
public as possessing the power to do those acts; and thus, the corporation will, as alleged letter-agreement drew no letter of confirmation. And no [down payment]
against anyone who has in good faith dealt with it through such agent, be and postdated checks were given. Until the filing of the present case in February
estopped from denying the agent’s authority. 1988, no written demand for payment was sent to [petitioner]. [Private
respondent’s] claim that he sent one in writing, and one was sent by his counsel
Furthermore, private respondent prepared an operations manual and conducted a
who manifested that ‘[h]e was looking for a copy in [his] files’ fails in light of his
seminar for the employees of petitioner in accordance with their contract.
failure to present any such copy. These and the following considerations, to wit:
Petitioner accepted the operations manual, submitted it to the Bureau of Customs
and allowed the seminar for its employees. As a result of its aforementioned 1) Despite the fact that no [down payment] and/or postdated checks [partial
actions, petitioner was given by the Bureau of Customs a license to operate a payments] (as purportedly stipulated in the alleged contract) [was given, private
bonded warehouse. Granting arguendo then that the Second Contract was outside respondent] went ahead with the services[;]
the usual powers of the president, petitioner’s ratification of said contract and
2) [There was a delay in the filing of the present suit, more than a year after
acceptance of benefits have made it binding, nonetheless. The enforceability of
[private respondent] allegedly completed his services or eight months after the
contracts under Article 1403(2) is ratified “by the acceptance of benefits under
alleged last verbal demand for payment made on Punsalan in June 1987;
them” under Article 1405.
3) Does not Punsalan’s writing allegedly in June 1987 on the alleged letter-
Inasmuch as a corporate president is often given general supervision and control
agreement of ‘your employees[,]’ when it should have been ‘our employees’, as he
over corporate operations, the strict rule that said officer has no inherent power to
was then still connected with [petitioner], indicate that the letter-agreement was
act for the corporation is slowly giving way to the realization that such officer has
signed by Punsalan when he was no longer connected with [petitioner] or, as
certain limited powers in the transaction of the usual and ordinary business of the
claimed by [petitioner], that Punsalan signed it without [petitioner’s] authority and
corporation. In the absence of a charter or bylaw provision to the contrary, the
must have been done ‘in collusion with plaintiff in order to unlawfully get some
president is presumed to have the authority to act within the domain of the
money from [petitioner]?
general objectives of its business and within the scope of his or her usual duties.
4) If, as [private respondent] claims, the letter was returned by Punsalan
Hence, it has been held in other jurisdictions that the president of a corporation
after affixing thereon his conformity, how come xxx when Punsalan allegedly
possesses the power to enter into a contract for the corporation, when the
visited [private respondent] in his office at the Bureau of Customs, in June 1987,
“conduct on the part of both the president and the corporation [shows] that he had
Punsalan ‘brought’ (again?) the letter (with the pencil [notation] at the left bottom
been in the habit of acting in similar matters on behalf of the company and that
portion allegedly already written)?
the company had authorized him so to act and had recognized, approved and
ratified his former and similar actions.” Furthermore, a party dealing with the 5) How come xxx [private respondent] did not even keep a copy of the
president of a corporation is entitled to assume that he has the authority to enter, alleged service contract allegedly attached to the letter-agreement?
on behalf of the corporation, into contracts that are within the scope of the powers 6) Was not the letter-agreement a mere draft, it bearing the corrections
of said corporation and that do not violate any statute or rule on public policy. made by Punsalan of his name (the letter ‘n’ is inserted before the last letter ‘o’ in
Second Issue: Alleged Simulation of the First Contract Antonio) and of the spelling of his family name (Punsalan, not Punzalan)?
As an alternative position, petitioner seeks to pare down its liabilities by limiting its 7) Why was not Punsalan impleaded in the case?”
exposure from P400,000 to only P60,000, the amount awarded by the RTC. The issue of whether the contract is simulated or real is factual in nature, and the
Petitioner capitalizes on the “badges of fraud” cited by the trial court in declaring Court eschews factual examination in a petition for review under Rule 45 of the
said contract either simulated or unenforceable, viz.: Rules of Court. This rule, however, admits of exceptions, one of which is a conflict
“xxx The October 1986 transaction with [private respondent] involved P350,000. between the factual findings of the lower and of the appellate courts as in the case
The same was embodied in a letter which bore therein not only the conformity of at bar.
[petitioner’s] then President Punsalan but also drew a letter-confirmation from the
After judicious deliberation, the Court agrees with the appellate court that the
alleged “badges of fraud” mentioned earlier have not affected in any manner the
perfection of the Second Contract or proved the alleged simulation thereof. First,
the lack of payment (whether down, partial or full payment), even after completion
of private respondent’s obligations, imports only a defect in the performance of the
contract on the part of petitioner. Second, the delay in the filing of action was not
fatal to private respondent’s cause. Despite the lapse of one year after private
respondent completed his services or eight months after the alleged last demand
for payment in June 1987, the action was still filed within the allowable
period, considering that an action based on a written contract prescribes only after
ten years from the time the right of action accrues. Third, a misspelling in the
contract does not establish vitiation of consent, cause or object of the contract.
Fourth, a confirmation letter is not an essential element of a contract; neither is it
necessary to perfect one. Fifth, private respondent’s failure to implead the
corporate president does not establish collusion between them. Petitioner could
have easily filed a third-party claim against Punsalan if it believed that it had
recourse against the latter. Lastly, the mere fact that the contract price was six
times the alleged going rate does not invalidate it. In short, these “badges” do not
establish simulation of said contract.
A fictitious and simulated agreement lacks consent which is essential to a valid and
enforceable contract. A contract is simulated if the parties do not intend to be
bound at all (absolutely simulated), or if the parties conceal their true agreement
(relatively simulated). In the case at bar, petitioner received from private
respondent a letter-offer containing the terms of the former, including a stipulation
of the consideration for the latter’s services. Punsalan’s conformity, as well as the
receipt and use of the operations manual, shows petitioner’s consent to or, at the
very least, ratification of the contract. To repeat, petitioner even submitted the
manual to the Bureau of Customs and allowed private respondent to conduct the
seminar for its employees. Private respondent heard no objection from the
petitioner, until he claimed payment for the services he had rendered.
Contemporaneous and subsequent acts are also principal factors in the
determination of the will of the contracting parties. The circumstances outlined
above do not establish any intention to simulate the contract in dispute. On the
contrary, the legal presumption is always on the validity of contracts. A
corporation, by accepting benefits of a transaction entered into without authority,
has ratified the agreement and is, therefore, bound by it.
WHEREFORE, the petition is hereby DENIED and the assailed Decision AFFIRMED.
Costs against petitioner.
Lyceum of Aparri � 28 March 1972
Lyceum of Tuao, Inc. � 28 March 1972
Lyceum of Camalaniugan � 28 March 1972
The following private respondents were declared in default for failure to file an
answer despite service of summons:
Republic of the Philippines
Manila Central Lyceum of Catanduanes;
Lyceum of Eastern Mindanao, Inc.; and
Lyceum of Southern Philippines
Petitioner's original complaint before the SEC had included three (3) other entities:
G.R. No. 101897 March 5, 1993
1. The Lyceum of Malacanay;
LYCEUM OF THE PHILIPPINES, INC. petitioner, 2. The Lyceum of Marbel; and
vs. 3. The Lyceum of Araullo.
The complaint was later withdrawn insofar as concerned the Lyceum of Malacanay
and the Lyceum of Marbel, for failure to serve summons upon these two (2)
entities. The case against the Lyceum of Araullo was dismissed when that school
motu proprio change its corporate name to "Pamantasan ng Araullo."
The background of the case at bar needs some recounting. Petitioner had
Quisumbing, Torres & Evaangelista Law Offices and Ambrosio Padilla for petitioner.
sometime before commenced in the SEC a proceeding (SEC-Case No. 1241)
Antonio M. Nuyles and Purungan, Chato, Chato, Tarriela & Tan Law Offices for against the Lyceum of Baguio, Inc. to require it to change its corporate name and
respondents. 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
Froilan Siobal for Western Pangasinan Lyceum.
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
Petitioner is an educational institution duly registered with the Securities and that petitioner had registered as a corporation ahead of the Lyceum of Baguio, Inc.
Exchange Commission ("SEC"). When it first registered with the SEC on 21 in point of time, 1 and ordered the latter to change its name to another name "not
September 1950, it used the corporate name Lyceum of the Philippines, Inc. and similar or identical [with]" the names of previously registered entities.
has used that name ever since.
The Lyceum of Baguio, Inc. assailed the Order of the SEC before the Supreme Court
On 24 February 1984, petitioner instituted proceedings before the SEC to compel in a case docketed as G.R. No. L-46595. In a Minute Resolution dated 14
the private respondents, which are also educational institutions, to delete the word September 1977, the Court denied the Petition for Review for lack of merit. Entry of
"Lyceum" from their corporate names and permanently to enjoin them from using judgment in that case was made on 21 October 1977. 2
"Lyceum" as part of their respective names.
Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote
Some of the private respondents actively participated in the proceedings before all the educational institutions it could find using the word "Lyceum" as part of their
the SEC. These are the following, the dates of their original SEC registration being corporate name, and advised them to discontinue such use of "Lyceum." When,
set out below opposite their respective names: with the passage of time, it became clear that this recourse had failed, petitioner
Western Pangasinan Lyceum � 27 October 1950 instituted before the SEC SEC-Case No. 2579 to enforce what petitioner claims as
Lyceum of Cabagan � 31 October 1962 its proprietary right to the word "Lyceum." The SEC hearing officer rendered a
Lyceum of Lallo, Inc. � 26 March 1972 decision sustaining petitioner's claim to an exclusive right to use the word
"Lyceum." The hearing officer relied upon the SEC ruling in the Lyceum of Baguio, Sec. 18. Corporate name. � No corporate name may be allowed by the Securities
Inc. case (SEC-Case No. 1241) and held that the word "Lyceum" was capable of and Exchange Commission if the proposed name is identical or deceptively or
appropriation and that petitioner had acquired an enforceable exclusive right to confusingly similar to that of any existing corporation or to any other name already
the use of that word. protected by law or is patently deceptive, confusing or contrary to existing laws.
When a change in the corporate name is approved, the Commission shall issue an
On appeal, however, by private respondents to the SEC En Banc, the decision of
amended certificate of incorporation under the amended name. (Emphasis
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 The policy underlying the prohibition in Section 18 against the registration of a
schools concerned in the mind of the general public. Unlike its hearing officer, the corporate name which is "identical or deceptively or confusingly similar" to that of
SEC En Banc held that the attaching of geographical names to the word "Lyceum" any existing corporation or which is "patently deceptive" or "patently confusing" or
served sufficiently to distinguish the schools from one another, especially in view "contrary to existing laws," is the avoidance of fraud upon the public which would
of the fact that the campuses of petitioner and those of the private respondents have occasion to deal with the entity concerned, the evasion of legal obligations
were physically quite remote from each other. 3 and duties, and the reduction of difficulties of administration and supervision over
corporations. 7
Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28
June 1991, however, the Court of Appeals affirmed the questioned Orders of the We do not consider that the corporate names of private respondent institutions are
SEC En Banc. 4 Petitioner filed a motion for reconsideration, without success. "identical with, or deceptively or confusingly similar" to that of the petitioner
institution. True enough, the corporate names of private respondent entities all
Before this Court, petitioner asserts that the Court of Appeals committed the
carry the word "Lyceum" but confusion and deception are effectively precluded by
following errors:
the appending of geographic names to the word "Lyceum." Thus, we do not believe
1. The Court of Appeals erred in holding that the Resolution of the Supreme Court that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum
in G.R. No. L-46595 did not constitute stare decisis as to apply to this case and in of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with
not holding that said Resolution bound subsequent determinations on the right to the Lyceum of the Philippines.
exclusive use of the word Lyceum.
Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in
2. The Court of Appeals erred in holding that respondent Western Pangasinan turn referred to a locality on the river Ilissius in ancient Athens "comprising an
Lyceum, Inc. was incorporated earlier than petitioner. enclosure dedicated to Apollo and adorned with fountains and buildings erected by
Pisistratus, Pericles and Lycurgus frequented by the youth for exercise and by the
3. The Court of Appeals erred in holding that the word Lyceum has not acquired a
philosopher Aristotle and his followers for teaching." 8 In time, the word "Lyceum"
secondary meaning in favor of petitioner.
became associated with schools and other institutions providing public lectures
4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be and concerts and public discussions. Thus today, the word "Lyceum" generally
appropriated by the petitioner to the exclusion of others. 5 refers to a school or an institution of learning. While the Latin word "lyceum" has
We will consider all the foregoing ascribed errors, though not necessarily seriatim. been incorporated into the English language, the word is also found in Spanish
We begin by noting that the Resolution of the Court in G.R. No. (liceo ) and in French (lycee ). As the Court of Appeals noted in its Decision, Roman
L-46595 does not, of course, constitute res adjudicata in respect of the case at bar, Catholic schools frequently use the term; e.g., "Liceo de Manila," "Liceo de Baleno"
since there is no identity of parties. Neither is stare decisis pertinent, if only (in Baleno, Masbate), "Liceo de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as
because the SEC En Banc itself has re-examined Associate Commissioner Sulit's generic in character as the word "university." In the name of the petitioner,
ruling in the Lyceum of Baguio case. The Minute Resolution of the Court in G.R. No. "Lyceum" appears to be a substitute for "university;" in other places, however,
L-46595 was not a reasoned adoption of the Sulit ruling. "Lyceum," or "Liceo" or "Lycee" frequently denotes a secondary school or a college.
It may be (though this is a question of fact which we need not resolve) that the use
The Articles of Incorporation of a corporation must, among other things, set out the of the word "Lyceum" may not yet be as widespread as the use of "university," but
name of the corporation. 6 Section 18 of the Corporation Code establishes a it is clear that a not inconsiderable number of educational institutions have
restrictive rule insofar as corporate names are concerned: adopted "Lyceum" or "Liceo" as part of their corporate names. Since "Lyceum" or
"Liceo" denotes a school or institution of learning, it is not unnatural to use this
word to designate an entity which is organized and operating as an educational acquired secondary meaning in favor of the appellant. If there was any of this kind,
institution. the same tend to prove only that the appellant had been using the disputed word
for a long period of time. Nevertheless, its (appellant) exclusive use of the word
It is claimed, however, by petitioner that the word "Lyceum" has acquired a
(Lyceum) was never established or proven as in fact the evidence tend to convey
secondary meaning in relation to petitioner with the result that that word, although
that the cross-claimant was already using the word "Lyceum" seventeen (17) years
originally a generic, has become appropriable by petitioner to the exclusion of
prior to the date the appellant started using the same word in its corporate name.
other institutions like private respondents herein.
Furthermore, educational institutions of the Roman Catholic Church had been
The doctrine of secondary meaning originated in the field of trademark law. Its using the same or similar word like "Liceo de Manila," "Liceo de Baleno" (in Baleno,
application has, however, been extended to corporate names since the right to use Masbate), "Liceo de Masbate," "Liceo de Albay" long before appellant started using
a corporate name to the exclusion of others is based upon the same principle the word "Lyceum". The appellant also failed to prove that the word "Lyceum" has
which underlies the right to use a particular trademark or tradename. 10 In become so identified with its educational institution that confusion will surely arise
Philippine Nut Industry, Inc. v. Standard Brands, Inc., 11 the doctrine of secondary in the minds of the public if the same word were to be used by other educational
meaning was elaborated in the following terms: institutions.
. . . a word or phrase originally incapable of exclusive appropriation with reference In other words, while the appellant may have proved that it had been using the
to an article on the market, because geographically or otherwise descriptive, might word "Lyceum" for a long period of time, this fact alone did not amount to mean
nevertheless have been used so long and so exclusively by one producer with that the said word had acquired secondary meaning in its favor because the
reference to his article that, in that trade and to that branch of the purchasing appellant failed to prove that it had been using the same word all by itself to the
public, the word or phrase has come to mean that the article was his product. 12 exclusion of others. More so, there was no evidence presented to prove that
confusion will surely arise if the same word were to be used by other educational
The question which arises, therefore, is whether or not the use by petitioner of
institutions. Consequently, the allegations of the appellant in its first two assigned
"Lyceum" in its corporate name has been for such length of time and with such
errors must necessarily fail. 13 (Emphasis partly in the original and partly supplied)
exclusivity as to have become associated or identified with the petitioner
institution in the mind of the general public (or at least that portion of the general We agree with the Court of Appeals. The number alone of the private respondents
public which has to do with schools). The Court of Appeals recognized this issue in the case at bar suggests strongly that petitioner's use of the word "Lyceum" has
and answered it in the negative: not been attended with the exclusivity essential for applicability of the doctrine of
secondary meaning. It may be noted also that at least one of the private
Under the doctrine of secondary meaning, a word or phrase originally incapable of
respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term "Lyceum"
exclusive appropriation with reference to an article in the market, because
seventeen (17) years before the petitioner registered its own corporate name with
geographical or otherwise descriptive might nevertheless have been used so long
the SEC and began using the word "Lyceum." It follows that if any institution had
and so exclusively by one producer with reference to this article that, in that trade
acquired an exclusive right to the word "Lyceum," that institution would have been
and to that group of the purchasing public, the word or phrase has come to mean
the Western Pangasinan Lyceum, Inc. rather than the petitioner institution.
that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This
circumstance has been referred to as the distinctiveness into which the name or In this connection, petitioner argues that because the Western Pangasinan Lyceum,
phrase has evolved through the substantial and exclusive use of the same for a Inc. failed to reconstruct its records before the SEC in accordance with the
considerable period of time. Consequently, the same doctrine or principle cannot provisions of R.A. No. 62, which records had been destroyed during World War II,
be made to apply where the evidence did not prove that the business (of the Western Pangasinan Lyceum should be deemed to have lost all rights it may have
plaintiff) has continued for so long a time that it has become of consequence and acquired by virtue of its past registration. It might be noted that the Western
acquired a good will of considerable value such that its articles and produce have Pangasinan Lyceum, Inc. registered with the SEC soon after petitioner had filed its
acquired a well-known reputation, and confusion will result by the use of the own registration on 21 September 1950. Whether or not Western Pangasinan
disputed name (by the defendant) (Ang Si Heng vs. Wellington Department Store, Lyceum, Inc. must be deemed to have lost its rights under its original 1933
Inc., 92 Phil. 448). registration, appears to us to be quite secondary in importance; we refer to this
earlier registration simply to underscore the fact that petitioner's use of the word
With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the
"Lyceum" was neither the first use of that term in the Philippines nor an exclusive
aforementioned requisites. No evidence was ever presented in the hearing before
use thereof. Petitioner's use of the word "Lyceum" was not exclusive but was in
the Commission which sufficiently proved that the word "Lyceum" has indeed
truth shared with the Western Pangasinan Lyceum and a little later with other
private respondent institutions which registered with the SEC using "Lyceum" as
part of their corporation names. There may well be other schools using Lyceum or
Liceo in their names, but not registered with the SEC because they have not
adopted the corporate form of organization.
We conclude and so hold that petitioner institution is not entitled to a legally
enforceable exclusive right to use the word "Lyceum" in its corporate name and
that other institutions may use "Lyceum" as part of their own corporate names. To
determine whether a given corporate name is "identical" or "confusingly or
deceptively similar" with another entity's corporate name, it is not enough to
ascertain the presence of "Lyceum" or "Liceo" in both names. One must evaluate
corporate names in their entirety and when the name of petitioner is juxtaposed
with the names of private respondents, they are not reasonably regarded as
"identical" or "confusingly or deceptively similar" with each other.
WHEREFORE, the petitioner having failed to show any reversible error on the part
of the public respondent Court of Appeals, the Petition for Review is DENIED for
lack of merit, and the Decision of the Court of Appeals dated 28 June 1991 is
hereby AFFIRMED. No pronouncement as to costs.
The Court of Appeals 1 sustained the denial of the petitioners' motion for
intervention, holding that "the compromise agreement between Freeman, Inc.,
through its President, and Equitable Banking Corp. will not necessarily prejudice
petitioners whose rights to corporate assets are at most inchoate, prior to the
dissolution of Freeman, Inc. . . . And intervention under Sec. 2, Rule 12 of the
Republic of the Philippines Revised Rules of Court is proper only when one's right is actual, material, direct
SUPREME COURT and immediate and not simply contingent or expectant."
It also ruled against the petitioners' argument that because they had already filed
FIRST DIVISION a notice of appeal, the trial judge had lost jurisdiction over the case and could no
longer issue the writ of execution.

G.R. No. 90580 April 8, 1991 The petitioners are now before this Court, contending that:

RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S. RUSTE AND EVELYN 1. The Honorable Court of Appeals erred in holding that the petitioners cannot
SAW, petitioners, intervene in Civil Case No. 88-44404 because their rights as stockholders of
vs. Freeman are merely inchoate and not actual, material, direct and immediate prior
HON. COURT OF APPEALS, HON. BERNARDO P. PARDO, Presiding Judge of to the dissolution of the corporation;
Branch 43, (Regional Trial Court of Manila), FREEMAN MANAGEMENT AND 2. The Honorable Court of Appeals erred in holding that the appeal of the
DEVELOPMENT CORPORATION, EQUITABLE BANKING CORPORATION, petitioners in said Civil Case No. 88-44404 was confined only to the order denying
FREEMAN INCORPORATED, SAW CHIAO LIAN, THE REGISTER OF DEEDS OF their motion to intervene and did not divest the trial court of its jurisdiction over
CALOOCAN CITY, and DEPUTY SHERIFF ROSALIO G. SIGUA, respondents. the whole case.
Benito O. Ching, Jr. for petitioners. The petitioners base their right to intervene for the protection of their interests as
William R. Vetor for Equitable Banking Corp. stockholders on Everett v. Asia Banking Corp. 2 where it was held:

Pineda, Uy & Janolo for Freeman, Inc. and Saw Chiao. The well-known rule that shareholders cannot ordinarily sue in equity to redress
wrongs done to the corporation, but that the action must be brought by the Board
of Directors, . . . has its exceptions. (If the corporation [were] under the complete
CRUZ, J.:p control of the principal defendants, . . . it is obvious that a demand upon the Board
of Directors to institute action and prosecute the same effectively would have been
A collection suit with preliminary attachment was filed by Equitable Banking useless, and the law does not require litigants to perform useless acts.
Corporation against Freeman, Inc. and Saw Chiao Lian, its President and General
Manager. The petitioners moved to intervene, alleging that (1) the loan Equitable demurs, contending that the collection suit against Freeman, Inc, and
transactions between Saw Chiao Lian and Equitable Banking Corp. were not Saw Chiao Lian is essentially in personam and, as an action against defendants in
approved by the stockholders representing at least 2/3 of corporate capital; (2) their personal capacities, will not prejudice the petitioners as stockholders of the
Saw Chiao Lian had no authority to contract such loans; and (3) there was collusion corporation. The Everett case is not applicable because it involved an action filed
between the officials of Freeman, Inc. and Equitable Banking Corp. in securing the by the minority stockholders where the board of directors refused to bring an
loans. The motion to intervene was denied, and the petitioners appealed to the action in behalf of the corporation. In the case at bar, it was Freeman, Inc. that was
Court of Appeals. being sued by the creditor bank.

Meanwhile, Equitable and Saw Chiao Lian entered into a compromise agreement Equitable also argues that the subject matter of the intervention falls properly
which they submitted to and was approved by the lower court. But because it was within the original and exclusive jurisdiction of the Securities and Exchange
not complied with, Equitable secured a writ of execution, and two lots owned by Commission under P.D. No. 902-A. In fact, at the time the motion for intervention
Freeman, Inc. were levied upon and sold at public auction to Freeman Management was filed, there was pending between Freeman, Inc. and the petitioners SEC Case
and Development Corp. No. 03577 entitled "Dissolution, Accounting, Cancellation of Certificate of
Registration with Restraining Order or Preliminary Injunction and Appointment of
Receiver." It also avers in its Comment that the intervention of the petitioners corporation and to share in the profits thereof and in the properties and assets
could have only caused delay and prejudice to the principal parties. thereof on dissolution, after payment of the corporate debts and obligations.
On the second assignment of error, Equitable maintains that the petitioners' While a share of stock represents a proportionate or aliquot interest in the property
appeal could only apply to the denial of their motion for intervention and not to the of the corporation, it does not vest the owner thereof with any legal right or title to
main case because their personality as party litigants had not been recognized by any of the property, his interest in the corporate property being equitable or
the trial court. 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.
After examining the issues and arguments of the parties, the Court finds that the
respondent court committed no reversible error in sustaining the denial by the trial On the second assignment of error, the respondent court correctly noted that the
court of the petitioners' motion for intervention. notice of appeal was filed by the petitioners on October 24, 1988, upon the denial
3 of their motion to intervene, and the writ of execution was issued by the lower
In the case of Magsaysay-Labrador v. Court of Appeals, we ruled as follows:
court on January 30, 1989. The petitioners' appeal could not have concerned the
Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court "whole" case (referring to the decision) because the petitioners "did not appeal the
affirms the respondent court's holding that petitioners herein have no legal interest decision as indeed they cannot because they are not parties to the case despite
in the subject matter in litigation so as to entitle them to intervene in the their being stockholders of respondent Freeman, Inc." They could only appeal the
proceedings below. In the case of Batama Farmers' Cooperative Marketing denial of their motion for intervention as they were never recognized by the trial
Association, Inc. v. Rosal, we held: "As clearly stated in Section 2 of Rule 12 of the court as party litigants in the main case.
Rules of Court, to be permitted to intervene in a pending action, the party must
Intervention is "an act or proceeding by which a third person is permitted to
have a legal interest in the matter in litigation, or in the success of either of the
become a party to an action or proceeding between other persons, and which
parties or an interest against both, or he must be so situated as to be adversely
results merely in the addition of a new party or parties to an original action, for the
affected by a distribution or other disposition of the property in the custody of the
purpose of hearing and determining at the same time all conflicting claims which
court or an officer thereof."
may be made to the subject matter in litigation. 4 It is not an independent
To allow intervention, [a] it must be shown that the movant has legal interest in the proceeding, but an ancillary and supplemental one which, in the nature of things,
matter in litigation, or otherwise qualified; and [b] consideration must be given as unless otherwise provided for by the statute or Rules of Court, must be in
to whether the adjudication of the rights of the original parties may be delayed or subordination to the main proceeding. 5 It may be laid down as a general rule that
prejudiced, or whether the intervenor's rights may be protected in a separate an intervenor is limited to the field of litigation open to the original parties. 6
proceeding or not. Both requirements must concur as the first is not more
In the case at bar, there is no more principal action to be resolved as a writ of
important than the second.
execution had already been issued by the lower court and the claim of Equitable
The interest which entitles a person to intervene in a suit between other parties had already been satisfied. The decision of the lower court had already become
must be in the matter in litigation and of such direct and immediate character that final and in fact had already been enforced. There is therefore no more principal
the intervenor will either gain or lose by the direct legal operation and effect of the proceeding in which the petitioners may intervene.
judgment. Otherwise, if persons not parties of the action could be allowed to 7
As we held in the case of Barangay Matictic v. Elbinias:
intervene, proceedings will become unnecessarily complicated, expensive and
interminable. And this is not the policy of the law. An intervention has been regarded, as merely "collateral or accessory or ancillary
to the principal action and not an independent proceedings; and interlocutory
The words "an interest in the subject" mean a direct interest in the cause of action
proceeding dependent on and subsidiary to, the case between the original parties."
as pleaded, and which would put the intervenor in a legal position to litigate a fact
(Fransisco, Rules of Court, Vol. 1, p. 721). With the final dismissal of the original
alleged in the complaint, without the establishment of which plaintiff could not
action, the complaint in intervention can no longer be acted upon. In the case of
Clareza v. Resales, 2 SCRA 455, 457-458, it was stated that:
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent,
That right of the intervenor should merely be in aid of the right of the original
remote, conjectural, consequential and collateral. At the very least, their interest is
party, like the plaintiffs in this case. As this right of the plaintiffs had ceased to
purely inchoate, or in sheer expectancy of a right in the management of the
exist, there is nothing to aid or fight for. So the right of intervention has ceased to
Consequently, it will be illogical and of no useful purpose to grant or even consider
further herein petitioner's prayer for the issuance of a writ of mandamus to compel
the lower court to allow and admit the petitioner's complaint in intervention. The
dismissal of the expropriation case has no less the inherent effect of also
dismissing the motion for intervention which is but the unavoidable consequence.
The Court observes that even with the denial of the petitioners' motion to
intervene, nothing is really lost to them. The denial did not necessarily prejudice
them as their rights are being litigated in the case now before the Securities and
Exchange Commission and may be fully asserted and protected in that separate
WHEREFORE, the petition is DENIED, with costs against the petitioners. It is so
Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.
sons of Yu Tiong Yee, one of Yutivo’s founders. The latter two are respectively sons
of Yu Tiong Sin and Albino Sycip, who are among the founders of Yutivo.
SUPREME COURT After the incorporation of SM and until the withdrawal of GM from the Philippines in
EN BANC the middle of 1947, the cars and trucks purchased by Yutivo from GM were sold by
YUTIVO SONS HARDWARE COMPANY, Yutivo to SM which, in turn, sold them to the public in the Visayas and Mindanao.
Petitioner, When GM decided to withdraw from the Philippines in the middle of 1947, the U.S.
-versus- G.R. No. L-13203 manufacturer of GM cars and trucks appointed Yutivo as importer for the Visayas
and Mindanao, and Yutivo continued its previous arrangement of selling exclusively
January 28, 1961 to SM. In the same way that GM used to pay sales taxes based on its sales to
COURT OF TAX APPEALS and COLLECTOR OF INTERNAL REVENUE, Yutivo, the latter, as importer, paid sales tax prescribed on the basis of its selling
Respondents. price
x---------------------------------------------------x to SM, and since such sales tax, as already stated, is collected only once on
original sales, SM paid no sales tax on its sales to the public.
On November 7, 1950, after several months of investigation by revenue officers
started in July, 1948, the Collector of Internal Revenue made an assessment upon
This is a Petition for Review of a Decision of the Court of Tax Appeals ordering Yutivo and demanded from the latter P1,804,769.85 as deficiency sales tax plus
petitioner to pay to respondent Collector of Internal Revenue the sum of surcharge covering the period from the third quarter of 1947 to the fourth quarter
P1,266,176.73 as sales tax deficiency for the third quarter of 1947 to the fourth of 1949; or from July 1, 1947 to December 31, 1949, claiming that the taxable
quarter of 1950; inclusive, plus 75% surcharge thereon, equivalent to P349,632.54, sales were the retail sales by SM to the public and not the sales at wholesale made
or a sum total of P2,215,809.27, plus costs of the suit. by Yutivo to the latter inasmuch as SM and Yutivo were one and the same
chanroblespublishingcompany corporation, the former being the subsidiary of the latter.
From the stipulation of facts and the evidence adduced by both parties, it appears chanroblespublishingcompany
that petitioner Yutivo Sons Hardware Co. (hereafter referred to as Yutivo) is a The assessment was disputed by the petitioner, and a reinvestigation of the case
domestic corporation, organized under the laws of the Philippines, with principal having been made by the agents of the Bureau of Internal Revenue, the
office at 404 Dasmariñas St., Manila. Incorporated in 1916, it was engaged, prior to respondent Collector in his letter dated November 15, 1952 countermanded his
the last world war, in the importation and sale of hardware supplies and demand for sales tax deficiency on the ground that “after several investigations
equipment. After the liberation, it resumed its business and until June of 1946 conducted into the matter no sufficient evidence could be gathered to sustain the
bought a number of cars and trucks from General Motors Overseas Corporation assessment of this Office based on the theory that Southern Motors is a mere
(hereafter referred to as GM for short), an American corporation licensed to do instrumentality or subsidiary of Yutivo.” The withdrawal was subject, however, to
business in the Philippines. As importer, GM paid sales tax prescribed by sections the general power of review by the now defunct Board of Tax Appeals. The
184, 185 and 186 of the Tax Code on the basis of its selling price to Yutivo. Said tax Secretary of Finance to whom the papers relative to the case were endorsed,
being collected only once on original sales, Yutivo paid no further sales tax on its apparently not agreeing with the withdrawal of the assessment, returned them to
sales to the public. chanroblespublishingcompany the respondent Collector for reinvestigation. chanroblespublishingcompany
On June 13, 1946, the Southern Motors, Inc. (hereafter referred to as SM) was After another investigation, the respondent Collector, in a letter to petitioner dated
organized to engaged in the business of selling cars, trucks and spare parts. Its December 18, 1954, redetermined that the aforementioned tax assessment was
original authorized capital stock was P1,000,000 divided into 10,000 shares with a lawfully due the government and in addition assessed deficiency sales tax due
par value of P100 each. chanroblespublishingcompany from petitioner for the four quarters of 1950; the respondents’ last demand was in
At the time of its incorporation 2,500 shares worth P250,000 appear to have been the total sum of P2,215,809.27 detailed as follows:
subscribed in 5 equal proportions by Yu Khe Thai, Yu Khe Siong, Hu Kho Jin, Yu Eng Deficiency 75% Total
Poh, and Washington Sycip. The first three named subscribers are brothers, being
Sales Tax Surcharge Amount Due
Assessment (First) of November 7, 1950 for deficiency sales Tax for the period from corporation is the “mere alter ego or business conduit of a person, it may be
3rd Qrtr. 1947 to disregarded.” (Koppel [Phil.], Inc. vs. Yatco, supra.) chanroblespublishingcompany
4th Qrtr. 1949 inclusive 1,031,296.60 P773,473.45 P1,804,769.05 After going over the voluminous record of the present case, we are inclined to rule
that the Court of Tax Appeals was not justified in finding that SM was organized for
Additional Assessment for period from 1st to 4th Qrtr.
no other purpose than to defraud the Government of its lawful revenues. In the
1950, inclusive P234,880.13 P176,160.09 P411,040.22 first place, this corporation was organized in June, 1946 when it could not have
caused Yutivo any tax savings. From that date up to June 30, 1947, or a period of
Total amount demanded per
more than one year, GM was the importer of the cars and trucks sold to Yutivo,
letter of December 16, 1954 P1,266,176.73 P949,632.54 P2,215,809.27 which, in turn resold them to SM. During that period, it is not disputed that GM, as
=========== =========== =========== importer, was the one solely liable for sales taxes. Neither Yutivo nor SM was
subject to the sales taxes on their sales of cars and trucks. The sales tax liability of
This second assessment was contested by the petitioner Yutivo before the Court of Yutivo did not arise until July 1, 1947 when it became the importer and simply
Tax Appeals, alleging that there is no valid ground to disregard the corporate continued its practice of selling to SM. The decision, therefore, of the Tax Court that
personality of SM and to hold that it is an adjunct of petitioner Yutivo; (2) that SM was organized purposely as a tax evasion device runs counter to the fact that
assuming the separate personality of SM may be disregarded, the sales tax already there was no tax to evade. chanroblespublishingcompany
paid by Yutivo should first he deducted from the selling price of SM in computing
the sales tax due on each vehicle; and (3) that the surcharge has been erroneously Making the observation from a newspaper clipping (Exh. “T”) that “as early as
imposed by respondent. Finding against Yutivo and sustaining the respondent 1945 it was known that GM was preparing to leave the Philippines and terminate
Collector’s theory that there was no legitimate or bona fide purpose in the its business of importing vehicles,” the court below speculated that Yutivo
organization of SM — the apparent objective of its organization being to evade the anticipated the withdrawal of GM from business in the Philippines in June, 1947.
payment of taxes — and that it was owned (or the majority of the stocks thereof This observation, which was made only in the resolution on the motion for
are owned) and controlled by Yutivo and is a mere subsidiary, branch, adjunct reconsideration, however, finds no basis in the record. On the other hand, GM had
conduit, instrumentality or alter ego of the latter, the Court of Tax Appeals — with been an importer of cars in the Philippines even before the war and had but
Judge Roman Umali not taking part — disregarded its separate corporate existence recently resumed its operation in the Philippines in 1946 under an ambitious plan
and on April 27, 1957, rendered the decision now complained of. Of the two Judges to expand its operation by establishing an assembly plant here, so that it could not
who signed the decision, one voted for the modification of the computation of the have been expected to make so drastic a turnabout of not merely abandoning the
sales tax as determined by the respondent Collector in his decision so as to give assembly plant project but also totally ceasing to do business as an importer.
allowance for the reduction of the tax already paid (resulting in the reduction of the Moreover the newspaper clipping Exh. “T”, was published on March 24, 1947, and
assessment to P820,509.91 exclusive of surcharges), while the other voted for merely reported a rumored plan that GM
affirmance. The dispositive part of the decision, however, affirmed the assessment would abandon the assembly plant project in the Philippines. There was no
made by the Collector. Reconsideration of this decision having been denied, Yutivo mention of the cessation of business by GM which must not be confused with the
brought the case to this Court thru the present petition for review. abandonment of the assembly plant project. Even as respect the assembly plant,
chanroblespublishingcompany the newspaper clipping was quite explicit in saying that the Acting Manager
It is an elementary and fundamental principle of corporation law that a corporation refused to confirm the rumor as late as March 24, 1947, almost a year after SM
is an entity separate and distinct from its stockholders and from other corporations was organized. chanroblespublishingcompany
to which it may be connected. However, “when the notion of legal entity is used to At this juncture, it should be stated that the intention to minimize taxes, when
defeat public convenience, used in the context of fraud, must be proved to exist by clear and convincing
justify wrong, protect fraud, or defend crime,” the law will regard the corporation evidence amounting to more than mere preponderance, and cannot be justified by
as an association of persons, or in the case of two corporations merge them into a mere speculation. This is because fraud is never lightly to be presumed. (Vitelli &
one. (Koppel [Phil.], Inc. vs. Yatco, 77 Phil., 496, citing I Fletcher Cyclopedia of Sons vs. U.S., 250 U.S. 355; Duffin vs. Lucas, 55 F [2d] 786; Budd vs. Commr., 43 F
Corporation, Perm. Ed., pp. 135-136; United States vs. Milwaukee Refrigeration [2d] 509; Maryland Casualty Co. vs. Palmette Coal Co., 40 F [2d] 374; Schoonfield
Transit Co., 142 Fed., 247; 255 per Sanborn, J.) Another rule is that, when the Bros., Inc. vs. Commr., 38 BTA 943; Charles Heiss vs. Commr., 36 BTA 833;
Kerbaugh vs. Commr., 74 F [2d] 749; Maddas vs. Commr., 114 F [2d] 548; Moore
vs. Commr., 37 BTA 378; National City Bank of New York vs. Commr., 98 F [2d] 93; The evidence for the Collector, in our opinion, falls short of the standard of clear
Richard vs. Commr., l5 BTA 316; Rea Gano vs. Commr., 19 BTA 518.) (See also and convincing proof of fraud. As a matter of fact, the respondent Collector himself
Balter, Fraud Under Federal Law, pp. 301-302, citing numerous authorities; Arroyo showed a great deal of doubt or hesitancy as to the existence of fraud. He even
vs. Granada, et al., 18 Phil., 484.) Fraud is never imputed and the courts never doubted the validity of his first assessment dated November 7, 1950. It must be
sustain findings of fraud upon circumstances which, at the most, create only remembered that the fraud which respondent Collector imputed to Yutivo must be
suspicion. (Haygood Lumber & Mining Co. vs. Commr., 178 F [2d] 769; Dalone vs. related to its filing of sales tax returns for less taxes than were legally due. The
Commr., 100 F [2d] 507). chanroblespublishingcompany allegation of fraud, however, cannot be sustained without the showing that Yutivo,
in filing said returns, did so fully knowing
In the second place, SM was organized and it operated, under circumstance that
belied any intention to evade sales taxes. “Tax evasion” is a term that connotes that the taxes called for therein were less than what were legally due. Considering
fraud thru the use of pretenses and forbidden devices to lessen or defeat taxes. that respondent Collector himself with the aid of his legal staff, and after some two
The transactions between Yutivo and SM, however, have always been in the open, years of investigation and study concluded in 1952 that Yutivo’s sales tax returns
embodied in private and public documents, constantly subject to inspection by the were correct — only to reverse himself after another two years — it would seem
tax authorities. As a matter of fact, after Yutivo became the importer of GM cars harsh and unfair for him to say in 1954 that Yutivo fully knew in October 1947 that
and trucks for Visayas and Mindanao, it merely continued the method of its sales tax returns were inaccurate. chanroblespublishingcompany
distribution that it had initiated long before GM withdrew from the Philippines.
On this point, one other consideration would show that the intent to save taxes
On the other hand, if tax saving was the only justification for the organization of could not have existed in the minds of the organizers of SM. The sales tax
SM, such justification certainly ceased with the imposed, in theory and in practice, is passed on to the vendee, and is usually billed
separately as such in the sales invoice. As pointed out by petitioner Yutivo, had not
passage of Republic Act No. 594 on February 16, 1951, governing payment of
SM handled the retail, the additional tax that would have been payable by it, could
advance sales tax by the importer based on the landed cost of the imported
have been easily passed off to the consumer, especially since the period covered
article, increased by mark-ups of 25%, 50% and 100%, depending on whether the
by the assessment was a “seller’s market” due to the post-war scarcity up to late
imported article is taxed under sections 186, 185 and 184, respectively, of the Tax
1948, and the imposition of controls in late 1949. chanroblespublishingcompany
Code. Under Republic Act No. 594, the amount at which the article is sold is
immaterial to the amount of the sales tax. And yet after the passage of that Act, It is true that the arrastre charges constitute expenses of Yutivo and its non-
SM continued to exist up to the present and operates as it did many years past in inclusion in the selling price by Yutivo cost the Government P4.00 per vehicle, but
the promotion and pursuit of the business purposes for which it was organized. said non-inclusion was explained to have been due to an inadvertent accounting
omission, and could hardly be considered as proof of willful channelling and
In the third place, sections 184 to 186 of the said Code provide that the sales tax
fraudulent evasion of sales tax. Mere understatement of tax in itself does not prove
shall be collected “once only on every original sale, barter, exchange . . ., to be
fraud. (James Nicholson, 32 BTA 377, affirmed 90 F [2] 978, cited in Merten’s Sec.
paid by the manufacturer, producer or importer.” The use of the word “original”
55.11 p. 21.) The amount involved, moreover is extremely small inducement for
and the express provision that the tax was collectible “once only” evidently has
Yutivo to go thru all the trouble of organizing SM. Besides, the non-inclusion of
made the provisions susceptible of different interpretations. In this connection, it
these small arrastre charge in the sales tax returns of Yutivo is clearly shown in the
should be stated that a taxpayer has the legal right to decrease the amount of
records of Yutivo, which is uncharacteristic of fraud (See Insular Lumber Co. vs.
what otherwise would be his taxes or altogether avoid them by means which the
Collector, G.R. No. L-719, April 28, 1956.) chanroblespublishingcompany
law permits. (U.S. vs. Isham. 17 Wall. 496, 596; Gregory vs. Helvering, 293 U.S.
465, 469; Commr. vs. Tower, 327 U.S. 280; Lawton vs. Commr. 194 F [2d] 380). We are, however, inclined to agree with the court below that SM was actually
Any legal means used by the tax payer to reduce taxes are all right (Benny vs. owned and controlled by petitioner as to make it a mere subsidiary or branch of
Commr. 25 T. Cl. 78). A man may, therefore, perform an act that he honestly the latter created for the purpose of selling the vehicles at retail and maintaining
believes to be sufficient to exempt him from taxes. He does not incur fraud thereby stores for spare parts as well as service repair shops. It is not disputed that the
even if the act is thereafter found to be insufficient. Thus in the case of Court petitioner, which is engaged principally in hardware supplies and equipment, is
Holding Co. vs. Commr., 2 T. Cl. 531, it was held that though an incorrect position completely controlled by the Yutivo, Young or Yu family. The
in law had been taken by the corporation there was no suppression of the facts,
founders of the corporation are closely related to each other either by blood or
and a fraud penalty was not justified. chanroblespublishingcompany
affinity, and most of its stockholders are members of the Yu (Yutivo or Young)
family. It is, likewise, admitted that SM was organized by the leading stockholders
of Yutivo headed by Yu Khe Thai. At the time of its incorporation, 2,500 shares spouses and children or sometimes brothers or sisters. Yutivo’s shares in SM were
worth P250,000.00 appear to have been subscribed in five equal proportions by Yu transferred to immediate relatives of persons who constituted its controlling
Khe Thai, Yu Khe Siong, Yu Khe Jin, Yu Eng Poh and Washington Sycip. The first stockholders, directors and officers. Despite these purported changes in stock
three named subscribers are brothers, being the sons of Yu Tien Yee, one of ownership in both corporations, the Board of Directors and officers of both
Yutivo’s founders. Yu Eng Poh and Washington Sycip are respectively sons of Yu corporations remained unchanged and Messrs. Yu Khe Thai, Yu Khe Siong, Yu Khe
Tiong Sing and Albino Sycip who are co-founders of Yutivo. According to the Articles Jin and Yu Eng Poh (all of the Yu or Young family) continued to constitute the
of Incorporation of the said subscriptions, the amount of P62,500 was paid by the majority in both boards. All these, as observed by the Court of Tax Appeals, merely
aforenamed subscribers, but actually the said sum was advanced by Yutivo. The serve to corroborate the fact that there was a common ownership and interest in
additional subscriptions to the capital stock of SM and subsequent transfers the two corporations. chanroblespublishingcompany
thereof were paid by Yutivo itself. The payments were made, however, without any
SM is under the management and control of Yutivo by virtue of a management
transfer of funds from Yutivo to SM. Yutivo simply charged the accounts of the
contract entered into between the two parties. In fact, the controlling majority of
subscribers for the amount allegedly advanced by Yutivo in payment of the shares.
the Board of Directors of Yutivo is also the controlling majority of the Board of
Whether a charge was to be made against the accounts of the subscribers or said
Directors of SM. At the same time the principal officers of both corporations are
subscribers were to subscribe shares appears to constitute a unilateral act on the
identical. In addition both corporations have a common comptroller in the person
part of Yutivo, there being no showing that the former initiated the subscription.
of Simeon Sy, who is a brother-in-law of Yutivo’s president, Yu Khe Thai. There is
therefore no doubt that by virtue of such control, the business, financial and
The transactions were made solely by and between SM and Yutivo. In effect, it was management policies of both corporations could be directed towards common
Yutivo who undertook the subscription of shares, employing the persons named or ends. chanroblespublishingcompany
“charged” with corresponding account as nominal stockholders. Of course, Yu Khe
Another aspect relative to Yutivo’s control over SM operations relates to its cash
Thai, Yu Khe Jin, Yu Khe Siong and Yu Eng Poh were manifestly aware of these
transactions. All cash assets of SM were handled by Yutivo
subscriptions, but considering that they were the principal officers and constituted
the majority of the board of Directors of both Yutivo and SM, their subscriptions and all cash transactions of SM were actually maintained thru Yutivo. Any and all
could readily or easily be that of Yutivo’s. Moreover, these persons were related to receipts of cash by SM including its branches were transmitted or transferred
each other as brothers or first cousins. There was every reason for them to agree immediately and directly to Yutivo in Manila upon receipt thereof. Likewise, all
in order to protect their common interest in Yutivo and SM. expenses, purchases or other obligations incurred by SM are referred to Yutivo
chanroblespublishingcompany which in turn prepares the corresponding disbursement vouchers and payments in
relation thereto, the payment being made out of the cash deposits of SM with
The issued capital stock of SM was increased by additional subscriptions made by
Yutivo, if any, or in the absence thereof which occurs generally, a corresponding
various persons, but except Ng Sam Bak and David Sycip, “payments” thereof
charge is made against the account of SM in Yutivo’s books. The payments for and
were effected by merely debiting or charging the accounts of said stockholders and
charges against SM are made by Yutivo as a matter of course and without need of
crediting the corresponding amounts in favor of SM, without actually transferring
any further request, the latter would advanced all such cash requirements for the
cash from Yutivo. Again, in this instance, the “payments” were effected by the benefit of SM. Any and all payments and cash vouchers are made on Yutivo
mere unilateral act of Yutivo. Yutivo, by virtue of its control over the individual stationery and made under authority of Yutivo’s corporate officers, without any
accounts of the persons charged, would necessarily exercise preferential rights and copy thereof being furnished to SM. All detailed records such as cash
control, directly or indirectly, over the shares, it being the party which really disbursements, such as expenses, purchases, etc. for the account of SM, are kept
undertook to pay or underwrite payment thereof. chanroblespublishingcompany by Yutivo and SM merely keeps a summary record thereof on the basis of
information received from Yutivo. chanroblespublishingcompany
The shareholders in SM are mere nominal stockholders holding the shares for and
in behalf of Yutivo, so even conceding that the original subscribers were All the above plainly show that cash or funds of SM, including those of its branches
stockholders bona fide, Yutivo was at all times in control of the majority of the which are directly remitted to Yutivo, are placed in the custody and control of
stock of SM and that the latter was a mere subsidiary of the former. Yutivo, and subject to withdrawal only by Yutivo. SM’s resources being under
chanroblespublishingcompany Yutivo’s control, the former’s operations and existence became dependent upon
the latter. chanroblespublishingcompany
True, petitioner and other recorded stockholders transferred their shareholdings,
but the transfers were made to their immediate relatives, either to their respective
Consideration of various other circumstances, especially when taken together, funds of SM were all merged in the cash fund of Yutivo. At all times Yutivo thru
indicates that Yutivo treated SM merely as its department or adjunct. For one thing, officers and directors common to it and SM,
the accounting system maintained by Yutivo shows that it maintained a high
exercised full control over the cash funds, politics, expenditures and obligations of
degree of control over SM accounts. All transactions between Yutivo and SM are
the latter. chanroblespublishingcompany
recorded and effected by mere debit or credit entries against the reciprocal
account maintained in their respective books of accounts and indicate the Southern Motors being but a mere instrumentality or adjunct of Yutivo, the Court of
dependency of SM as branch upon Yutivo. chanroblespublishingcompany Tax Appeals correctly disregarded the technical defense of separate corporate
entity in order to arrive at the true tax liability of Yutivo.
Apart from the accounting system, other facts corroborate or independently show
that SM is a branch or department of Yutivo. Even the branches of SM in Bacolod,
Iloilo, Cebu, and Davao treat Yutivo- Manila as their “Head-Office” or “Home Office” Petitioner contends that the respondent Collector had lost his right or authority to
as shown by their letter of remittances or other correspondences. These issue the disputed assessment by reason of prescription. The contention, in our
opinion, cannot be sustained. It will be noted that the first assessment was made
correspondences were actually received by Yutivo and the reference to Yutivo as
on November 7, 1950 for deficiency sales tax from 1947 to 1949. The
the head or home office is obvious from the fact that all cash collections of the
corresponding returns filed by petitioner covering the said period was made at the
SM’s branches are remitted directly to Yutivo. Added to this fact, is that SM may
earliest on October 1 as regards the third quarter of 1947, so that it cannot be
freely use forms or stationery of Yutivo. chanroblespublishingcompany
claimed that the assessment was not made within the five-year period prescribed
The fact that SM is a mere department or adjunct of Yutivo is made more patent by in section 331 of the Tax Code invoked by petitioner. The assessment, it is
the fact that arrastre charges paid for the “operation of receiving, conveying, and admitted, was withdrawn by the Collector on November 15, 1952 due to
loading or unloading” of imported cars and trucks on piers and wharves, were insufficiency of evidence, but the withdrawal was made subject to the approval of
charged against SM. Overtime charges for the unloading of cars and trucks as the Secretary of Finance and the Board of Tax Appeals, pursuant to the provisions
requested by Yutivo and incurred as part of its acquisition cost thereof, were of section 9 of Executive Order No. 401-A, series of 1951. The decision of the
likewise charged against and treated as expenses of SM. If Yutivo were the previous Collector counter-manding the assessment of November 7, 1950 was
importer, these arrastre and overtime charges were Yutivo’s expenses in importing forwarded to the Board of Tax Appeals through the Secretary of Finance but that
goods and not SM’s. But since those charges were made against SM, it plainly official, apparently disagreeing with the decision, sent it back for re-investigation.
appears that Yutivo has sole authority to allocate its expenses even as against SM Consequently, the assessment of November 7, 1950 cannot be considered to have
in the sense that the latter is a mere adjunct, branch or department of the former. been finally withdrawn. That the assessment was subsequently reiterated in the
chanroblespublishingcompany decision of respondent Collector on December 16, 1954 did not alter the fact that it
was made seasonably. In this connection, it would appear that a warrant of
Proceeding to another aspect of the relation of the parties, the management fees
distraint and levy has been issued on March 28, 1951 in relation with this case and
due from SM to Yutivo were taken up as expenses of SM and credited to the
by virtue thereof the properties of Yutivo were placed under constructive distraint.
account of Yutivo. If it were to be assumed that the two organizations are separate
Said warrant and constructive distraint have not been lifted up to the present,
juridical entities, the corresponding receipts or receivables should have been
which shows that the assessment of November 7, 1950 has always been valid and
treated as income on the part of Yutivo. But such management fees were recorded
subsisting. chanroblespublishingcompany
as “Reserve for Bonus” and were therefore a liability reserve and not an income
account. This reserve for bonus were subsequently distributed directly to and Anent the deficiency sales tax for 1950, considering that the assessment thereof
credited in favor of the employees and directors of Yutivo, thereby clearly showing was made on December 16, 1954, the same was assessed well within the
that the management fees were paid directly to Yutivo officers and employees. prescribed five-year period. chanroblespublishingcompany
Petitioner argues that the original assessment of November 7, 1950 did not extend
Briefly stated, Yutivo financed principally, if not wholly, the business of SM and the prescriptive period on assessment. The argument is untenable, for, as already
actually extended all the credit to the latter not only in the form of starting capital seen, the assessment was never finally withdrawn, since it was not approved by
but also in the form of credits extended for the cars and vehicles allegedly sold by the Secretary of Finance or of the Board of Tax Appeals. The authority of the
Yutivo to SM as well as advances or loans for the expenses of the latter when the Secretary to act upon the assessment cannot be questioned, for he is expressly
capital had been exhausted. Thus the increases in the capital stock were made in granted such authority under section 9 of Executive Order No. 401-A and under
advances or “Guarantee” payments by Yutivo and credited in favor of SM. The section 79(c) of the Revised Administrative Code, he has “direct control, direction
and supervision over all bureaus and offices under his jurisdiction and may, any Pursuant to Section 183 of the National Internal Revenue Code the 50% surcharge
provision of existing law to the contrary notwithstanding, repeal or modify the should be added to the deficiency sales tax “in case a false or fraudulent return is
decision of the chief of said Bureaus or offices when advisable in the public willfully made.” Although the sales made by SM are in substance by Yutivo this
interest.” chanroblespublishingcompany does not necessarily establish fraud nor the willful filing of a false or fraudulent
return. chanroblespublishingcompany
It should here also be stated that the assessment in question was consistently
protested by petitioner, making several requests for reinvestigation thereof. Under The case of Court Holding Co. vs. Commissioner of Internal Revenue (August 9,
the circumstances, petitioner may be considered to have waived the defense of 1943, 2 T.C. 531, 541-549) is in point. The petitioner Court Holding Co. was a
prescription. corporation consisting of only two stockholders, to wit: Minnie Miller and her
husband Louis Miller. The only assets of this husband and wife corporation
“Estoppel has been employed to prevent the application of the statute of
consisted of an apartment building which had been acquired for a very low price at
limitations against the government in certain instances in which the taxpayer has
a judicial sale. Louis Miller, the husband who directed the company’s business,
taken some affirmative action to prevent the collection of the tax within the
verbally agreed to sell this property to Abe C. Fine and Margaret Fine, husband and
statutory period. It is generally held that a taxpayer is estopped to repudiate
wife, for the sum of $54,000.00, payable in various installments. He received
waivers of the statute of limitations upon which the government relied. The cases
$1,000.00 as down payment. The sale of this property for the price mentioned
frequently involve dissolved corporations. If no waiver has been given, the cases
would have netted the
usually show some conduct directed to a postponement of collection, such, for
example, as some variety of request to apply an over assessment. The taxpayer corporation a handsome profit on which a large corporate income tax would have
has ‘benefited’ and ‘is not in a position to contest’ his tax liability. A definite to be paid. On the afternoon of February 23, 1940, when the Millers and the Fines
representation of implied authority may be involved, and in many cases the got together for the execution of the document of sale, the Millers announced that
taxpayer has received the ‘benefit’ of being saved from the inconvenience, if not their attorney had called their attention to the large corporate tax which would
hardship of immediate collection. chanroblespublishingcompany have to be paid if the sale was made by the corporation itself. So instead of
proceeding with the sale as planned, the Millers approved a resolution to declare a
“Conceivably even in these cases a fully informed Commissioner may err to the
dividend to themselves “payable in the assets of the corporation, in complete
sorrow of the revenues, but generally speaking, the cases present a strong
liquidation and surrender of all the outstanding corporate stock.” The building,
combination of equities against the taxpayer, and few will seriously quarrel with
which as above stated was the only property of the corporation, was then
their application of
transferred to Mr. and Mrs. Miller who in turn sold it to Mr. and Mrs. Fine for exactly
the doctrine of estoppel.” (Mertens Law of Federal Income Taxation, Vol. 10-A, pp. the same price and under the same terms as had been previously agreed upon
159-160.) chanroblespublishingcompany between the corporation and the Fines. chanroblespublishingcompany
It is also claimed that section 9 of Executive Order No. 401-A, series of 1951 — The return filed by the Court Holding Co. with the respondent Commissioner of
requiring the approval of the Secretary of Finance and the Board of Tax Appeals in Internal Revenue reported no taxable gain as having been received from the sale
cases involving an original assessment of more than P5,000 - refers only to of its assets. The Millers, of course, reported a long term capital gain on the
compromises and refunds of taxes, but not to total withdrawal of the assessment. exchange of their corporate stock with the corporate property. The commissioner
The contention is without merit. A careful examination of the provisions of both of Internal Revenue contended that the liquidating dividend to stockholders had no
sections 8 and 9 of Executive Order No. 401-A, series of 1951, reveals the purpose other than that of tax avoidance and that, therefore, the sale by the
procedure prescribed therein is intended as a check or control upon the powers of Millers to the Fines of the corporation’s property was in substance a sale by the
the Collector of Internal Revenue in respect to assessment and refunds of taxes. If corporation itself, for which the corporation is subject to the taxable profit thereon.
it be conceded that a decision of the Collector of Internal Revenue on partial In requiring the corporation to pay the taxable profit on account of the sale, the
remission of taxes is subject to review by the Secretary of Finance and the Board of Commissioner of Internal Revenue, imposed a surcharged of 25% for delinquency,
Tax Appeals, then with more reason should the power of the Collector to withdraw plus an additional surcharge as fraud penalties. chanroblespublishingcompany
totally an assessment be subject to such review. chanroblespublishingcompany
The U.S. Court of Tax Appeals held that the sale by the Millers was for no other
We find merit, however, in petitioner’s contention that the Court of Tax Appeals purpose than to avoid the tax and was, in substance, a sale by the Court Holding
erred in the imposition of the 50% fraud surcharge. As already shown in the early Co., and that, therefore, the said corporation should be liable for the assessed
part of this decision, no element of fraud is present. chanroblespublishingcompany taxable profit thereon. The Court of Tax Appeals also sustained the Commissioner
of Internal Revenue on the delinquency penalty of 25%. However, the Court of Tax 186, Tax Code) impose a tax on original sales measured by “gross selling price” or
Appeals disapproved the fraud penalties, holding that an attempt to void a tax “gross value in money.” These terms, as interpreted by the respondent Collector,
does not necessarily establish fraud; that it is a settled principles that a taxpayer do not include the amount of the sales tax, if invoiced separately. Thus General
may diminish his tax liability by means which the law permits; that if the petitioner, Circular No. 431 of the Bureau of Internal Revenue dated July 29, 1939, which
the Court Holding Co., was of the opinion that the method by which it attempted to implements sections 184-186 of the Tax Code provides:
effect the sale in chanroblespublishingcompany
question was legally sufficient to avoid the imposition of a tax upon it, its adoption “‘Gross selling price’ or ‘gross value in money’ of the articles sold, bartered,
of that method is not subject to censure; and that in taking a position with respect exchanged, or transferred as the term is used in the aforecited sections (sections
to a question of law, the substance of which was disclosed by the statement 184, 185 and 186) of the National Internal Revenue Code, is the total amount of
indorsed on its return, it may not be said that position was taken fraudulently. We money or its equivalent which the purchaser pays to the vendor to receive or get
quote in full the pertinent portion of the decision of the Court of Tax Appeals: the goods. However, if a manufacturer producer, or importer, in fixing the gross
chanroblespublishingcompany selling price of an article sold by him has included an amount intended to cover the
sales tax in the gross selling price of the articles, the sales tax shall be based on
“The respondent’s answer alleges that the petitioner’s failure to report as income
the gross selling price less the amount intended to cover the tax, if the same is
the taxable profit on the real estate sale was fraudulent and with intent to evade
billed to the purchaser as a separate item.”
the tax. The petitioner filed a reply denying fraud and averring that the loss
reported on its return was correct to the best of its knowledge and belief. We think General Circular No. 440 of the same Bureau reads:
the respondent has not sustained the burden of proving a fraudulent intent. We
“Amount intended to cover the tax must be billed as a separate item so as not to
have concluded that the sale of the petitioner’s property was in substance a sale
pay a tax on the tax. — On sales made after the third quarter of 1939, the amount
by the petitioner, and that the liquidating dividend to stockholders had no purpose
intended to cover the sales tax must be billed to the purchaser as separate items
other than that of tax avoidance. But the attempt to avoid tax does not necessarily
in the invoices in order that the reduction thereof from the gross selling price may
establish fraud. It is a settled principle that a tax payer may diminish his liability by
be allowed in the computation of the merchants’ percentage tax on the sales.
any means which the law permits. United States vs. Isham, 17 Wall. 496; Gregory
Unless billed to the purchaser as a separate item in the invoice, the amount
vs. Helvering, supra; Chisholm vs. Commissioner, 79 Fed. (2d) 14. If the petitioner
intended to cover the sales tax shall be considered as part of the gross selling
here was of the opinion that the method by which it attempted to effect the sale in
price of the articles sold, and deductions thereof will not be allowed.” (Cited in
question was legally sufficient to avoid the imposition of tax upon it, its adoption of
Dalupan, Nat. Int. Rev. Code, Annoted, Vol. II, pp. 52-53.)
that method is not subject to censure. Petitioner took a position with respect to a
question of law, the substance of which was disclosed by the statement endorsed
on its return. We can not say, under the record before us, that position was taken Yutivo complied with the above circulars on its sales to SM, and as separately
fraudulently. The determination of the fraud penalties is reversed.” billed, the sales taxes did not form part of the “gross selling price” as the measure
chanroblespublishingcompany of the tax. Since Yutivo has previously billed the sales tax separately in its sales
invoices to SM. General Circulars Nos. 431 and 440 should be deemed to have
When GM was the importer and Yutivo, the wholesaler, of the cars and trucks, the
been complied with. Respondent Collector’s method of computation, as opined by
sales tax was paid only once and on the original sales by the former and neither
Judge Nable in the decision complained of — chanroblespublishingcompany
the latter nor SM paid taxes on their subsequent sales. Yutivo might have,
therefore, honestly believed that the payment by it, as importer, of the sales tax “Is unfair, because (it is) practically imposing a tax on a tax already paid. Besides,
was enough as in the case of GM. Consequently, in filing its return on the basis of the adoption of the procedure would in certain cases elevate the bracket under
its sales to SM and not on those by the latter to the public, it cannot be said that which the tax is based. The late payment is already penalized, thru the imposition
Yutivo deliberately made a false return for the purpose of of surcharges; by adopting the theory of the Collector, we will be creating an
additional penalty not contemplated by law.” chanroblespublishingcompany
defrauding the government of its revenues which will justify the imposition of the
surcharge penalty. chanroblespublishingcompany If the taxes based on the sales of SM are computed in accordance with Gen.
Circulars Nos. 431 and 440, the total deficiency sales taxes, exclusive of the 25%
We likewise find meritorious the contention that the Tax Court erred in computing
and 50% surcharges for the late payment and for fraud, would amount only to
the alleged deficiency sales tax on the selling price of SM without previously
P820,549.91 as shown in the following computation:
deducting therefrom the sales tax due thereon. The sales tax provisions (secs. 184-
Gross Sales Sales Taxes Due Total Gross Court, and if no decision has as yet been rendered by the Court, the aggrieved
party may file directly with the Supreme Court an appeal from said ruling, order or
Rates of Vehicles and Computed Selling Price
decision, notwithstanding the foregoing provisions of this section.” The case having
of Sales Exclusive of under Gen. Cir. Charged to been brought before us on appeal, the question raised by petitioner has become
purely academic. chanroblespublishingcompany
Tax Sales Tax Nos. 431 & 400 the Public
IN VIEW OF THE FOREGOING, the Decision of the Court of Tax Appeals under review
5% P11,912,219.57 P595,610.98 P12,507,830.55
is hereby modified in that petitioner shall be ordered to pay to respondent the sum
7% 909,559.50 63,669.16 973,228.66 of P820,549.91, plus 25% surcharge thereon for late payment. So ordered without
10% 2,618,695.28 261,896.53 2,880,564.81 costs. chanroblespublishingcompany

15% 3,602,397.65 540,359.65 4,142,757.30 Bengzon, Labrador, Concepcion, Reyes, Barrera and Paredes, JJ., concur.
20% 267,150.50 53,430.10 320,580.60
Padilla, J., took no part.
30% 837,146.97 251,144.09 1,088,291.06
50% 74,244.30 37,122.16 111,366.46
75% 8,000.00 6,000.00 14,000.00
TOTAL P20,220,413.77 P1,809,205.67 P22,038,619.44
Less Taxes Paid by Yutivo: 988,655.76
Deficiency tax still due: P820,549.91
This is the exact amount which, according to Presiding Judge Nable of the Court of
Tax Appeals, Yutivo would pay, exclusive of the surcharges.
Petitioner finally contends that the Court of Tax Appeals erred or acted in excess of
its jurisdiction in promulgating judgment for the affirmance of the decision of
respondent Collector by less than the statutory requirement of at least two votes of
its judges. Anent this contention, section 2 of Republic Act No. 1125, creating the
Court of Tax Appeals, provides that “Any two judges of the Court of Tax Appeals
shall constitute a quorum, and the concurrence of two judges shall be necessary to
promulgate any decision thereof.” It is on record that the present case was heard
by two judges of the lower court. And while Judge Nable expressed his opinion on
the issue of whether or not the amount of the sales tax should be excluded from
the gross selling price in computing the deficiency sales tax due from the
petitioner, the opinion, apparently, is merely an expression of his general or
“private sentiment” on the particular issue, for he concurred in the dispositive part
of the decision. At any rate, assuming that there is no valid decision for lack or
concurrence of two judges, the case was submitted for decision to the court below
on March 28, 1957 and under section 13 of Republic Act 1125, cases brought
before said court shall be decided within 30 days after submission thereof. “If no
decision is rendered by the Court within thirty days from the date a case is
submitted for decision, the party adversely affected by said ruling, order or
decision may file with said Court a notice of his intention to appeal to the Supreme
2. The AGENCY shall adopt a guarding system and post guards in accordance
thereof, in the premises of the client throughout the whole 24 hours daily, using
SECOND DIVISION variable shifts of the guards at such hours as may be designated by the CLIENT or
AGENCY. As required by the CLIENT, the security guards to be assigned by the
[G.R. No. 126554. May 31, 2000] AGENCY shall consist initially of the following x x x subject to be increased or
ARB CONSTRUCTION CO., INC., and MARK MOLINA, petitioners, vs. COURT decreased by the CLIENT at its sole discretion depending on the security situation
OF APPEALS, TBS SECURITY AND INVESTIGATION AGENCY represented by or the exigency of the service, by giving the AGENCY at least SEVEN (7) days prior
CECILIA R. BACLAY, respondents. notice.
DECISION Thus on 28 March 1994 TBSS filed a Complaint for Preliminary Injunction against
ARBC and GSIA praying -
A. Forthwith and Ex-parte, that a Temporary Restraining Order be issued declaring
ARB CONSTRUCTION CO., INC. (ARBC) and MARK MOLINA, Vice President for the status quo and directing the Defendants or any person(s) acting in their behalf
Operations of ARBC, in this consolidated petition, assail the Decision of the Court of from performing acts of replacing the Plaintiff’s security guards from other
Appeals in CA-G.R. SP Nos. 36330 and 36489 as well as the orders of the trial court agencies;
dated 9 September 1994 and 9 December 1994 granting private respondent TBS
Security and Investigation Agency’s Motion for Leave to File Amended and B. After due hearing that a Writ of Preliminary Injunction, in like tenor, be issued
Supplemental Complaint and denying petitioner Mark Molina's Motion to Dismiss, upon posting of such bond as the Honorable Court may require;
respectively. C. After due hearing, that judgment be rendered -
On 15 August 1993 TBS Security and Investigation Agency (TBSS) entered into two 1. Declaring the two (2) contracts for Security Services between Plaintiff and ARBC
(2) Service Contracts with ARBC wherein TBSS agreed to provide and post security to be subsisting until August 15, 1994;
guards in the five (5) establishments being maintained by ARBC. Clause 10 of the
Service Contracts provides - 2. Ordering Defendant GLOBAL to refrain from taking over the security services of
ARBC and to withdraw its guards from the premises of ARBC, if they have been
10. This contract shall be effective for a period of one (1) year commencing from posted earlier;
15th August 1993 and shall be considered automatically renewed for the same
period unless otherwise a written notice of termination shall have been given by 3. Ordering ARBC to pay Plaintiff attorney’s fees in the amount of P50,000.00 x x x
one party to the other party thirty (30) days in advance. In Answer, ARBC claimed that it decreased the number of security guards being
In a letter dated 23 February 1994 ARBC informed TBSS of its desire to terminate posted at its establishments to only one (1) as the security guards assigned by
the Service Contracts effective thirty (30) days after receipt of the letter. Also, in a TBSS were found to be grossly negligent and inefficient, citing the following
letter dated 22 March 1994, ARBC through its Vice President for Operations, Mark incidents -
Molina, informed TBSS that it was replacing its security guards with those of Global 8. On February 6, 1994, a Mitsubishi roadgrader of herein defendant was stripped
Security Investigation Agency (GSIA). of parts amounting to P58,642.00;
In response to both letters, TBSS informed ARBC that the latter could not 9. On February 25, 1994, a concrete vibrator and mercury light assembly were
preterminate the Service Contracts nor could it post security guards from GSIA as it stolen from the construction site of the Multipurpose Hall beside the swimming
would run counter to the provisions of their Service Contracts. pool of herein defendant which is worth P2,800.00 x x x x
On 23 March 1994 Molina wrote TBSS conceding that indeed the "security contract In conclusion, it prayed that the complaint against it be dismissed for lack of merit.
dated 15 August 1993 stipulates that the duration of the service shall be for a
period of one year, ending on 15 August 1994 x x x and could not be On 16 May 1994 TBSS filed a Motion for Leave to File Attached Amended and
preterminated until then." Nevertheless, Molina decreased the security guards to Supplemental Complaint. TBSS submitted that it now desired to pursue a case for
only one (1) allegedly pursuant to Clause 2 of the Service Contracts which provides Sum of Money and Damages instead of the one previously filed for Preliminary
- Injunction. It maintained that the Amended and Supplemental Complaint would not
substantially alter its cause of action as both the original and amended complaint On 16 August 1996 the Court of Appeals rendered a Decision denying both
were based on the same set of facts. petitions of ARBC and Molina. On 3 October 1996 petitioners’ Motion for
Reconsideration was denied. Hence, this petition.
In addition to the allegations in its original complaint, TBSS alleged in its Amended
and Supplemental Complaint that ARBC illegally deducted from the payroll the In their consolidated Petition before this Court, petitioners first submit that THE
amounts of P15,500.00 and P2,800.00 representing the value of one (1) unit COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT HAD THE
concrete vibrator and cassette recorder, respectively. It further argued that ARBC RIGHT TO CHANGE ITS CAUSE OF ACTION IN VIEW OF A CHANGE IN THE SITUATION
withheld additional amounts from its payroll as payment for the parts of the grader OF THE PARTIES AFTER THE FILING OF THE ORIGINAL COMPLAINT. In support of this
that were stolen. TBSS maintained that ARBC had an outstanding obligation of assigned error petitioners insist that -
P472,080.46. Corollarily, TBSS prayed for moral damages of P500,000.00,
x x x (T)here was not only a substantial change in private respondent’s cause of
exemplary damages of P200.000.00 and attorney's fees of P50,000.00.
action but there was even an alteration in the theory of the case x x x (W)hile in
On 2 May 1994 the trial court issued a temporary restraining order but due to the the original complaint the only thing alleged and is being prayed for is for
exigency of the situation TBSS decided to withdraw its security contingent from petitioner ARB (ARBC) to be enjoined from replacing the security guards of private
ARBC's premises on 13 May 1994. respondent x x x and for the two contracts x x x to be enforced until August 15,
1994 and for petitioner ARB (ARBC) to be ordered to pay x x x attorney’s fees,
ARBC opposed the Motion for Leave to File Amended and Supplemental Complaint
what is alleged and is being prayed for in the amended and supplemental
contending that the cause of action had been substantially altered.
complaint is for both petitioners to be ordered to pay P171,853.80 (for unpaid
On 9 September 1994 the RTC of Makati, Br. 59, granted the motion of TBSS to file services) x x x and P300,226.66 (for lost income) x x x plus moral and exemplary
the Amended and Supplemental Complaint rationalizing thus - damages and attorney’s fees.
Should the court find the allegations in the pleadings to be inadequate, the Court Obviously, petitioner ARB (ARBC) is being required to answer for a liability or legal
should allow the party to file proper amendments in accordance with the mandate obligation under the amended and supplemental complaint wholly different from
of the Rules of Court that amendments to pleadings are favored and should be that stated in the original complaint such as but not limited to the amount of
liberally allowed, particularly in the early stages of the law suit, so that the actual P171,852.80 which was never mentioned in the original contract. Under these
merit of the controversy may be speedily determined without regard to circumstances, a different cause of action was introduced by the amendment.
technicalities and in the most expeditious and inexpensive manner x x x x
Also, there was a change in the theory of the case. Whereas in the original contract
ARBC filed a Motion for Reconsideration but on 3 November 1994 the motion was what is sought for by private respondent is the enforcement of the two (2)
denied. contracts which is what is known in legal parlance as specific performance, in the
amended and supplemental complaint what is sought for is x x x a rescission of the
Meanwhile, Mark Molina filed a Motion to Dismiss the Amended and Supplemental
contracts with damages x x x x
Complaint on the ground that it did not state a cause of action insofar as he was
concerned. But on 9 December 1994 the trial court denied the motion to dismiss We cannot subscribe to the contention of petitioners that the Amended and
and directed Molina instead to file his answer within ten (10) days from receipt of Supplemental Complaint substantially changed TBSS' cause of action nor was there
the order. any alteration in the theory of the case. As correctly observed by the Court of
Appeals, "the amendatory allegations are mere amplifications of the cause of
On 30 January 1995 ARBC filed a Petition with the Court of Appeals alleging that
action for damages x x x x An amendment will not be considered as stating a new
the trial court committed grave abuse of discretion in issuing the Orders of 9
cause of action if the facts alleged in the amended complaint show substantially
September 1994 and 3 November 1994. On 15 February 1995 Molina likewise filed
the same wrong with respect to the same transaction, or if what are alleged refer
a Petition before the Court of Appeals similarly attributing grave abuse of
to the same matter but are more fully and differently stated, or where averments
discretion to the trial court in issuing the order of 9 December 1994.
which were implied are made in expressed terms, and the subject of the
Parenthetically, upon motion of TBSS, the petition of Mark Molina in CA-G.R. SP No. controversy or the liability sought to be enforced remains the same."
36484 was consolidated with the petition of ARBC in CA-G.R. SP No. 36330.
The original as well as amended and supplemental complaints readily disclose that
the averments contained therein are almost identical. In the original complaint,
TBSS prays, among others, that the two (2) Service Contracts be declared as
subsisting until 15 August 1994 and that petitioners be made to pay P50,000.00 as In affirming the order of the trial court denying petitioner Molina’s Motion to
attorney’s fees. Significantly, in its penultimate paragraph, TBSS prays "for such Dismiss, the appellate court ruled -
other reliefs that are considered just and equitable under the premises." This is a
Similarly, We find no error committed by respondent Judge in denying the motion
"catch-all" phrase which definitely covers the amplifications and additional
to dismiss.
averments contained in the Amended and Supplemental Complaint. Due to events
supervening after the filing of the original complaint, it became incumbent upon In paragraphs 5, 17, 18 of the amended and supplemental complaint, it is alleged:
TBSS to amend its original complaint. One of the supervening events was the 5. But fate would have it that defendant ARBC would subsequently breach the
withholding by petitioner ARBC of some amounts intended for the payroll of TBSS aforesaid contracts by surreptitiously preterminating the same and as precursor
due to pilferage or losses which allegedly occurred due to the negligence and thereto, defendant ARBC, through defendant Mark Molina, would impute against
inefficiency of TBSS' security guards. Plainly, this withholding of the payroll was plaintiff pretended and fabricated violations and baselessly blame plaintiff for
only an offshoot of the pretermination of the two (2) Service Contracts on the part alleged losses of company properties by just deducting the values thereof from
of ARBC. plaintiff’s billings without even complying with the procedure agreed upon in the
Significantly, the pretermination of the Service Contracts was already alleged in contracts x x x x
the original complaint. In fact it was one, if not the most basic, issue discussed It may be pertinent to state that all these accusations and imputations, albeit false
therein. Since the withholding of the payroll was only an offshoot of the issue on and concocted, were made by defendant Mark P. Molina x x x x
the pretermination of the contract, we can safely conclude that the allegation on
the withholding of the payroll in the Amended and Supplemental Complaint was 17. Such unsalutary breach of contract by defendant ARBC through defendant
only an amplification of an issue that was already included and discussed in the Mark Molina has resulted to plaintiff’s damage and prejudice by way of lost income
original complaint. It was therefore error on the part of petitioners to conclude that consisting of the unexpired portion of the contract, i.e., up to August 15, 1994,
private respondent changed its cause of action in the Amended and Supplemental entailing a total amount of P300, 266.66 x x x x
Complaint. Neither could they say that they were being made to answer for a The above allegations, particularly the subparagraph, "It may be pertinent to state
liability or legal obligation that was wholly different from that stated in the original that all these accusations and imputations, albeit false and concocted, were made
complaint. by defendant Mark P. Molina," are sufficient statement of a cause of action against
Grave abuse of discretion therefore could not be imputed to the trial court for petitioner Mark Molina in his personal capacity.
admitting the Amended and Supplemental Complaint of private respondent TBSS. In this regard, we agree with petitioners. It is basic that a corporation is invested
It also follows that the appellate court could not be faulted for putting its stamp of by law with a personality separate and distinct from those of the persons
approval on the order of the trial court admitting the same. composing it as well as from that of any other legal entity to which it may be
Petitioners also argue, as their second assigned error, that THE COURT OF APPEALS related. As a general rule, a corporation may not be made to answer for acts or
ERRED IN HOLDING THAT THE ALLEGATIONS IN THE AMENDED AND SUPPLEMENTAL liabilities of its stockholders or those of the legal entities to which it may be
COMPLAINT WERE SUFFICIENT TO HOLD PETITIONER MOLINA LIABLE TO PRIVATE connected and vice versa. However, the veil of corporate fiction may be pierced
RESPONDENT IN HIS PERSONAL CAPACITY. In support of their contention petitioners when it is used as a shield to further an end subversive of justice; or for purposes
submit - that could not have been intended by the law that created it; or to defeat public
convenience, justify wrong, protect fraud, or defend crime; or to perpetuate
x x x (W)hen x x x Molina allegedly applied P171,853.80 payable to private deception; or as an alter ego, adjunct or business conduit for the sole benefit of the
respondent to the losses suffered by petitioner ARB (ARBC) due to the negligence stockholders.
and indifference of the private respondent’s security guards and when petitioner
Molina replaced the said security guards x x x Molina was not acting in his personal Prescinding from the foregoing, the general rule is that officers of a corporation are
capacity but x x x as officer of petitioner ARB (ARBC). not personally liable for their official acts unless it is shown that they have
exceeded their authority. Article 31 of the Corporation Code is in point -
Since petitioner Molina did not so act in his personal capacity but only in his official
capacity as officer of petitioner ARB (ARBC) then petitioner Molina cannot be held Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who
personally liable for the alleged liability of petitioner ARB (ARBC) x x x x willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or pecuniary interest in conflict
with their duty as such directors, or trustees shall be liable jointly and severally for
all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons x x x x
On the basis hereof, petitioner Molina could not be held jointly and severally liable
for any obligation which petitioner ARBC may be held accountable for, absent any
proof of bad faith or malice on his part. Corollarily, it is also incorrect on the part of
the Court of Appeals to conclude that there was a sufficient cause of action against
Molina as to make him personally liable for his actuations as Vice President for
Operations of ARBC. A cursory reading of the records of the instant case would
reveal that Molina did not summarily withhold certain amounts from the payroll of
TBSS. Instead, he enumerated instances which in his view were enough bases to
do so.
Finally, petitioners contend that THE COURT OF APPEALS ERRED IN HOLDING THAT
support hereof, petitioners submit that -
x x x (T)he trial court admitted the amended and supplemental complaint which
substantially changed the cause of action and theory of the case of the private
respondent. Therefore, there is (sic) abuse of discretion on the part of the trial
court contrary to the ruling of the Court of Appeals that there is none.
As already discussed, the Amended and Supplemental Complaint did not
substantially alter the cause of action and theory of the case. Consequently, the
trial court and the appellate court could not be charged with grave abuse of
discretion in admitting the same.
WHEREFORE, the PETITION is PARTIALLY GRANTED. The assailed Decision of the
Court of Appeals in CA-G.R. SP No. 36489 affirming the 9 December 1994 Order of
the Regional Trial Court-Br. 59, Makati City, which denied the Motion to Dismiss of
petitioner Mark Molina is REVERSED and SET ASIDE.
However, the assailed Decision of the appellate court in CA-G.R. SP No. 36330
affirming the 9 September 1994 Order of the Regional Trial Court-Br. 59, Makati
City, granting TBS Security and Investigation Agency's Motion for Leave to File
Amended and Supplemental Complaint is likewise AFFIRMED. The case is
remanded to the trial court for further proceedings. No costs.