1.

ROLE OF CORPORATION IN MODERN BUSINESS

1.1. Historical Background of the Corporation – In Brief
Adolf A. Berle, Jr., Historical Inheritance of American Corporations
1.2. Definition and Attributes of a Corporation
Sec. 2, Corporation Code

Sec. 2. Corporation defined. - A corporation is an artificial being created by operation of law, having
the right of succession and the powers, attributes and properties expressly authorized by law or incident to
its existence.

1.3. Laws Governing Philippine Corporations

The Corporation Code of the Philippines (Batas Pambansa Bilang 68), which was approved and became effective
on May 1, 1980, is the law that governs the rules and regulations in the establishment and operation of stock and
non-stock corporations in the Philippines. The code consists of 149 sections that are grouped into 16 titles.

The code gives the legal definition of a corporation. It also clarifies the basic classifications of corporations, which
can be a stock or a non-stock corporation. The code also discusses the classifications of shares in a stock
corporation, like common stocks and preferred stocks.

In title 2 of the code, labeled “Incorporation and Organization of private corporations”, we can read the requirements
for incorporation, such as the number and qualifications of incorporators, minimum capital stock required for stock
corporations, amount of capital stock to be subscribed and paid during incorporation, and the contents of the
articles of incorporation. The title also includes a sample standard form of articles of incorporation, which can be
used by any corporation unless required to use other format prescribed by a special law.

In title 3, the code discusses the regulation of the board of directors, trustees or officers of the corporation. It also
tackles the creation of an executive committee inside the corporation.

The Corporation Code of the Philippines also covers the basic powers and capacity of corporations. It also
discusses the powers of the corporation to extend or shorten corporate term, to increase or decrease capital stock,
to declare dividends, and other powers given by the code. This can be read in the Title 4 part of the code.

The code also discusses the regulation on the adoption of by-laws, its contents, and its amendment. It also tackles
the rules on meetings of directors, trustees, stockholders, or members in the corporation, which may be regular or
special. The code also covers the rules on voting and quorum.

Every person or entity that has interest in a corporation, whether they are corporate owners, members, investors,
officers or directors, have to look and learn the content of the Corporation Code of the Philippines so that they may
know their rights and privileges of being part of the corporation.

Remember that knowledge is power, and if you have more knowledge about the law, you will have more power to
grow or protect your interest in a corporation. And although you can hire a corporate lawyer or legal adviser to be
in charge of your legal actions, it is still wise to read and understand the basic laws pertaining to our business.
Besides, if we know the law, we can be more effective when listening and communicating with our lawyers.

The following is the basic outline of the Corporation Code of the Philippines:

Title I – General Provisions

Title II – Incorporation and Organization of Private Corporations
Title III – Board of Directors/Trustees/Officers
Title IV – Powers of Corporations
Title V – By-Laws
Title VI – Meetings
TITLE VII – Stocks and Stockholders
Title VIII – Corporate Books and Records
Title IX – Merger and Consolidation
Title X – Appraisal Right
Title XI – Non-Stock Corporations
Title XII – Close Corporations
Title XIII – Special Corporations
Title XIV – Dissolution
Title XV – Foreign Corporations
Title XVI – Miscellaneous Provisions

1.4. Choice of Business Organizations

The Sole Proprietorship
Proprietorship, concept:

The establishment, management and operations of this form of business organization is not
governed by a special law, unlike in the case of corporations.

However, resort to general laws governing civil obligations and contracts or business and
commercial transactions may be made.

As a general rule, foreigners may put up single proprietorship business in the Philippines in
industries where the constitution and the laws do not impose any restriction or limitation on
ownership equity.

In the event that non-Philippine nationals are not allowed to form single proprietorship business in
a particular industry, he may still proceed with his business venture through other forms of business
organizations such as corporation, partnership or joint venture.

Single proprietorship, how formed; registration requirement:

A single proprietorship is the simplest form of business organization in the Philippines. It is not
encumbered by the strict regulatory laws and rules imposed upon corporations and partnerships.

Government registration of a single proprietorship business is simple. It is made through the

Bureau of Trade Regulation and Consumer Protection of the Department of Trade and Industry
[DTI].

Single proprietorship, liability of proprietor:

The single proprietor has unlimited liability in the sense that creditors of his business may proceed
not only against the assets and property of his business but after his own personal assets and
property. Creditors with whom he had incurred personal debts may also run after the assets and
property of his single proprietorship business. Simply put, the law does not make any distinction
between his personal affairs and his business transactions. Before the eyes of the law, they are
one and the same, his business being a mere extension of his person.

The Partnership Sec. 1767, Civil Code

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession. (1665a)

The Close Corporation Sec. 96, Corp. Code

Sec. 96. Definition and applicability of Title. - A close corporation, within the meaning of this Code,
is one whose articles of incorporation provide that: (1) All the corporation's issued stock of all
classes, exclusive of treasury shares, shall be held of record by not more than a specified number
of persons, not exceeding twenty (20); (2) all the issued stock of all classes shall be subject to one
or more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not
list in any stock exchange or make any public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least
two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation
which is not a close corporation within the meaning of this Code.

Any corporation may be incorporated as a close corporation, except mining or oil companies, stock
exchanges, banks, insurance companies, public utilities, educational institutions and corporations
declared to be vested with public interest in accordance with the provisions of this Code.
 The provisions of this Title shall primarily govern close corporations: Provided, That the provisions
of other Titles of this Code shall apply suppletorily except insofar as this Title otherwise provides.

The Limited Partnership

The Business Trust
1.5. The Departure of Restrictions upon Corporate Activity
CASE: Liggett Co. v. Lee 88 U.S. 517, 53 S. Ct. 481, 77 L. Ed. 929 (1933)
Brief Fact Summary. Thirteen chain storeowners, (Appellants), filed a class action seeking an order enjoining
tax officials, (Appellees), from enforcing Chapter 15624 of the Laws of Florida, 1931 (Ex. Sess.). Defendant
successfully moved to dismiss and the Supreme Court of Florida affirmed. Plaintiffs appealed to the United
States Supreme Court.

Synopsis of Rule of Law. Chain stores employ distinguishable methods of conducting business and the Legislature
may make the difference in method and character of the business the basis of classification for taxation.

Facts. This statute requires businesses operating in Florida to obtain a license. The filing fees for the license are heavier
for chain stores as opposed to stores owned independently but operating in voluntary cooperation with each
other. The tax is increased if one or more store in the chain is located in a different county. A further tax of $3
is required for each $1,000 value of stock carried in each retail store. Filling stations engaged exclusively in
the sale of petroleum products are excluded.

Issue.
Whether a tax distinguishing between chain stores and voluntary chains is an arbitrary and unreasonable discrimination.
Whether those provisions of the act that increase the tax if the owner’s stores are located in more than one county are
unreasonable and arbitrary.

Whether the requirement deprives Appellants of equal protection of the law because wholesale merchants not taxed
by the act in question are assessed under section 926 of the Revised General Statutes of Florida.

Whether tax of $3 for each $1,000 value of stock carried in each retail store deprives Appellants of equal protection of
the law because merchants are not taxed similarly.

Whether excluding filling stations engaged exclusively in the sale of petroleum products deprives Appellants of equal
protection of the law.

Whether the act by bearing unevenly upon those who purchase directly from a wholesale manufacturer whose plant is
outside the state burdens interstate commerce.

Whether the tax is unconstitutionally discriminatory because state officials do not intend to collect it from the owners of
stores in certain lines of business and therefore Appellants should be exempt from paying the tax.

Held.
No. A single shop employs distinguishable methods of conducting business, and the Legislature may make the
difference in method and character of the business the basis of classification for taxation.

Yes. Those provisions that increase the tax if the owner’s stores are located in more than one county are unreasonable
and arbitrary and violate the Fourteenth Amendment

No. The diverse purposes of the storage and difference in the nature of business conducted are sufficient to justify a
different classification of the two sorts of warehouses for taxation.

No. The Fourteenth Amendment does not prevent a state from imposing differing taxes upon different trades and
professions or varying the rates of excise upon various products.

No. The tax is laid for the privilege of operating stores in Florida and attempts no discrimination between merchandise
imported from another state and that produced in Florida.

No. If discrimination does result, Appellants only remedy is a writ of mandamus compelling the taxing officials to do
their duty.

Dissent.
The main purpose of the legislation is to protect the individual storeowners from the competition of chain stores by
taxing chain stores at a higher rate. The validity of the entire act should be upheld. Appellants are all
corporations engaged in intrastate commerce in Florida. They can only succeed if the discrimination is
unconstitutional as applied to them as corporations. The Constitution does not give corporations the right to
engage in intrastate commerce in Florida. Whether the corporate privilege shall be granted or withheld is
always a matter of state policy. The states may carry out the policy by adjusting its revenue laws and taxing
the system in such a ways as to favor certain industries. The difference in power between corporations and
natural person sis ample basis for placing them in different classes. Since the proper purpose of the statute is
to financially handicap chain stores to create inequality that will discourage the establishment of chain store a
higher lice
nse fee is appropriate.

The gradation of a tax may be determined by the spread of a business from one county into another. Statistics indicate
that there is a difference between chains that serve consumers within a single territory than those framed for
larger ends. The Legislature had to draw the line somewhere and it chose the county line. Movement from the
locality to other fields of activity is a symptom of an inner change. The business conducted by Appellants is
subjected to tax because it is the business of operating chain stores and the spread over counties is a factor
in determining how much should have to be paid. Differences have been discovered between local chains and
others in organization and opportunity. These differences need not be great to justify the difference in tax.

Discussion.
In attempting to distinguish this case from precedent, Appellants stress mere details while ignoring the underlying
reason for sustaining the classification. The conduct of a chain of stores constitutes a form and method of
merchandizing apart from that adapted to the practice of the ordinary individually operated small or department
store. That difference is fundamental and the Legislature may distinguish between them for the purposes of
taxation.
A tax on stores in the same ownership within the same county that increases for all the stores if one happens to be in
another county has no reasonable basis. Appellees fail to show how the fact that the new place of business
lies in another county increases the advantage over that to accrue from a location within the same county.
This difference in treatment has no discernible relation to the sort of chain that establishes a store across a
county line.

When chain stores warehouse goods, it is for the purpose of retail sale at their shops. On the other hand, goods stored
by a wholesaler are stored for sale to retail establishments who will resell them. The difference in purpose of
the storage and nature of the business conducted justify a different classification for taxation.

All dealers in gasoline are required by statute to pay a license tax of 5$ per annum and 7 cents per gallon for every
gallon sold. This is not clear and hostile discrimination in view of the imposition of taxes on the operation of
filling stations by other acts.

The tax on the value of merchandise in a retail store for sale in that store even though incident on articles which have
moved in interstate commerce, is laid after interstate commerce has ceased. It does not burden the purchase
in interstate commerce of articles for sale in Florida.

Appellants’ argue that where the taxing officials fail to tax some persons required to pay, all others are exempt from
having to pay. Every unit of the taxpaying public has an interest in having all property subject to taxation legally
assessed and may require all property subject to taxation be placed on the tax books and bear its proportionate
part of the expense of the government.

The Delaware Corporation Act, and the Trend Toward “Liberal Acts”
Federal Impact on Corporate Activity
Public Issue and Closely Held Companies
(a) The Public Issue Corporation
(b) The Close Corporation

2. CLASSIFICATION OF PRIVATE CORPORATIONS

2.1. Stock and Non-Stock Corporations
Section 8, 87 and 88 Corp. Code
Section 8. Redeemable shares. - Redeemable shares may be issued by the corporation when
expressly so provided in the articles of incorporation. They may be purchased or taken up by the corporation
upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the
books of the corporation, and upon such other terms and conditions as may be stated in the articles of
incorporation, which terms and conditions must also be stated in the certificate of stock representing said
shares. (n)

TITLE XI - NON-STOCK CORPORATIONS

Section 87. Definition. - For the purposes of this Code, a non-stock corporation is one where no
part of its income is distributable as dividends to its members, trustees, or officers, subject to the provisions
of this Code on dissolution: Provided, That any profit which a non-stock corporation may obtain as an
incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose
or purposes for which the corporation was organized, subject to the provisions of this Title. The provisions
governing stock corporation, when pertinent, shall be applicable to non-stock corporations, except as may
be covered by specific provisions of this Title. (n)

Section 88. Purposes. - Non-stock corporations may be formed or organized for charitable,
religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar
purposes, like trade, industry, agricultural and like chambers, or any combination thereof, subject to the
special provisions of this Title governing particular classes of non-stock corporations. (n)
CASE: Collector of Internal Revenue vs. Club Filipino, Inc. de Cebu 5 SCRA 321 (1962)

CIR vs. THE CLUB FILIPINO, INC. DE CEBU

GR No. L-12719 | May 31, 1962 | Paredes, J.
FACTS: The Club Filipino, is a civic corporation organized under the laws of the Philippines with
an original authorized capital stock of P22,000, which was subsequently increased to
P200,000 to operate and maintain a golf course, tennis, gymnasiums, bowling alleys,
billiard tables and pools, and all sorts of games not prohibited by general laws and general
ordinances, and develop and nurture sports of any kind and any denomination for
recreation and healthy training of its members and shareholders" (sec. 2, Escritura de
Incorporacion (Deed of Incorporation) del Club Filipino, Inc.). There is no provision either
in the articles or in the by-laws relative to dividends and their distribution, although it is
covenanted that upon its dissolution, the Club's remaining assets, after paying debts,
shall be donated to a charitable Phil. Institution in Cebu (Art. 27, Estatutos del (Statutes
of the) Club).
The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the
government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and
short orders to its members and their guests. The bar-restaurant was a necessary incident
to the operation of the club and its golf-course. The club is operated mainly with funds
derived from membership fees and dues. Whatever profits it had, were used to defray its
overhead expenses and to improve its golf-course. In 1951, as a result of a capital
surplus, arising from the re-valuation of its real properties, the value or price of which
increased, the Club declared stock dividends; but no actual cash dividends were
distributed to the stockholders.
In 1952, a BIR agent discovered that the Club has never paid percentage tax on the gross receipts
of its bar and restaurant, although it secured licenses. In a letter, the Collector assessed
against and demanded from the Club P12,068.84 as fixed and percentage taxes,
surcharge and compromise penalty. Also, the Collector denied the Club’s request to
cancel the assessment.
On appeal, the CTA reversed the Collector and ruled that the Club is not liable for the assessed
tax liabilities of P12,068.84 allegedly due from it as a keeper of bar and restaurant as it is
a non-stock corporation. Hence, the Collector filed the instant petition for review.
ISSUE: WON the Club is a stock corporation
HELD: NO. It is a non-stock corporation.
The facts that the capital stock of the Club is divided into shares, does not detract from the finding
of the trial court that it is not engaged in the business of operator of bar and restaurant.
What is determinative of whether or not the Club is engaged in such business is its object
or purpose, as stated in its articles and by-laws. The actual purpose is not controlled by
the corporate form or by the commercial aspect of the business prosecuted, but may be
shown by extrinsic evidence, including the by-laws and the method of operation. From
the extrinsic evidence adduced, the CTA concluded that the Club is not engaged in the
business as a barkeeper and restaurateur.
For a stock corporation to exist, two requisites must be complied with:
1. a capital stock divided into shares and
 2. an authority to distribute to the holders of such shares, dividends or allotments of the
surplus profits on the basis of the shares held (sec. 3, Act No. 1459).
Nowhere in its articles of incorporation or by-laws could be found an authority for the distribution
of its dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a
stock corporation, within the contemplation of the corpo law.
ISSUE: WON the Club is liable for the payment of P12,068.84, as fixed and percentage taxes and
surcharges prescribed in sec. 182 , 183 and 191 of the Tax Code, in connection with the
operation of its bar and restaurant; and for P500 as compromise penalty.
HELD: NO. A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic,
non-profit, nonstock organizations, unless the intent to the contrary is manifest and
patent" (Collector v. BPOE Elks Club, et al.), which is not the case here.
Having found as a fact that the Club was organized to develop and cultivate sports of all class and
denomination, for the healthful recreation and entertainment of its stockholders and
members; that upon its dissolution, its remaining assets, after paying debts, shall be
donated to a charitable Phil. Institution in Cebu; that it is operated mainly with funds
derived from membership fees and dues; that the Club's bar and restaurant catered only
to its members and their guests; that there was in fact no cash dividend distribution to its
stockholders and that whatever was derived on retail from its bar and restaurant was used
to defray its overall overhead expenses and to improve its golf-course (cost-plus-
expenses-basis), it stands to reason that the Club is not engaged in the business of an
operator of bar and restaurant.
Ratio: The liability for fixed and percentage taxes, as provided by these sections, does not ipso
facto attach by mere reason of the operation of a bar and restaurant. For the liability to
attach, the operator thereof must be engaged in the business as a barkeeper and
restaurateur. The plain and ordinary meaning of business is restricted to activities or
affairs where profit is the purpose or livelihood is the motive, and the term business when
used without qualification, should be construed in its plain and ordinary meaning,
restricted to activities for profit or livelihood (CIR v. Manila Lodge & CTA, 1959; CIR v.
Sweeney, et al., 1959,; Manila Polo Club v. B. L. Meer, 1960).
The Club derived profit from the operation of its bar and restaurant, but such fact does not
necessarily convert it into a profit-making enterprise. The bar and restaurant are
necessary adjuncts of the Club to foster its purposes and the profits derived therefrom
are necessarily incidental to the primary object of developing and cultivating sports for the
healthful recreation and entertainment of the stockholders and members. That a Club
makes some profit, does not make it a profit-making Club. As has been remarked a club
should always strive, whenever possible, to have surplus (Jesus Sacred Heart College v.
CIR, 1954; CIR v. Sinco Educational Corp., 1956).
2.2. Close Corporations
Sec. 96, Corp. Code
TITLE XII - CLOSE CORPORATIONS Section 96. Definition and applicability of Title. - A close corporation,
within the meaning of this Code, is one whose articles of incorporation provide that: (1) All the corporation's
issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified
number of persons, not exceeding twenty (20); (2) all the issued stock of all classes shall be subject to one
or more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any
stock exchange or make any public offering of any of its stock of any class. Notwithstanding the foregoing, a
corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its voting stock or voting
rights is owned or controlled by another corporation which is not a close corporation within the meaning of
this Code.

Any corporation may be incorporated as a close corporation, except mining or oil companies, stock
exchanges, banks, insurance companies, public utilities, educational institutions and corporations declared
to be vested with public interest in accordance with the provisions of this Code.

The provisions of this Title shall primarily govern close corporations: Provided, That the provisions of other
Titles of this Code shall apply suppletorily except insofar as this Title otherwise provides.
2.3. Corporation Sole
Sec. 110, Corp. Code
Section 110. Corporation sole. - For the purpose of administering and managing, as trustee, the affairs,
property and temporalities of any religious denomination, sect or church, a corporation sole may be formed by the
chief archbishop, bishop, priest, minister, rabbi or other presiding elder of such religious denomination, sect or
church. (154a)
2.4. Parent and Subsidiary Corporations; Holding Corporations; Affiliate Corporations
Parent
What is a Parent Company
A parent company is a company that has a controlling interest in another company, giving it control of its operations.
Parent companies can be either hands-on or hands-off owners of its subsidiaries, depending on the amount of
managerial control given to subsidiary managers.

BREAKING DOWN Parent Company

A parent company is different from a holding company. Parent companies conduct their own business operations,
unlike holding companies which are set up specifically to own a group of subsidiaries – often for tax purposes.
Parent companies can be conglomerates, made up of a number of different, seemingly unrelated businesses, like
General Electric – whose diverse business units are able to benefit from cross-branding. Alternatively, parent
companies and their subsidiaries may be horizontally integrated, like Gap Inc, which owns the Old Navy and
Banana Republic subsidiaries. Or they may be vertically integrated, by owning several companies at different
stages of production or the supply chain. AT&T’s acquisition of Time Warner means that it now owns film production
and broadcast networks in addition to its telecommunications businesses.

Subsidiary
What Is a Subsidiary
A subsidiary company is a company owned and controlled by another company. The owning company is called a
parent company or sometimes a holding company.

A subsidiary's parent company may be the sole owner or one of several owners. If a parent company or holding
company owns 100% of another company, that company is called a "wholly owned subsidiary."

There is a difference between a parent company and a holding company in terms of operations. A holding company
has no operations of its own; it owns a controlling share of stock and holds assets of other companies (the
subsidiary companies).

A parent company is simply a company that runs a business and that owns another business — the subsidiary.
The parent company has operations of its own, and the subsidiary may carry on a related business. For example,
the subsidiary might own and manage property assets of the parent company, to keep the liability from those
assets separate.

A corporation or S corporation is owned by shareholders. In this case, the parent company typically holds 50% or
more of the stock of the subsidiary.

An LLC is owned by members, whose ownership percentage is controlled by an operating agreement. An LLC can
own another LLC.

Why Form a Subsidiary

Subsidiaries are common in some industries, particularly real estate. A company that owns real estate and has
several properties may form an overall holding company, with each property as a subsidiary. The rationale for
doing this is to protect the assets of the various properties from each other's liabilities.

For example, if Company A owns Companies B, C, and D (each a property), and Company D is sued, the other
companies are not affected.

How a Subsidiary Is Formed

A subsidiary is formed by registering with the state in which the company operates. The ownership of the subsidiary
is spelled out in the registration.

Let's say Company A wants to form a subsidiary to manage its properties. The subsidiary, Company B, registers
with the state and indicates that it is wholly owned by Company A.

How a Subsidiary Operates

A subsidiary operates as a normal company would, while the parent company has only oversight. If the parent
company had day-to-day supervision of the subsidiary, that would mean the parent would take on the liability of
the subsidiary.

Disadvantages of a Subsidiary
LegalZoom notes that if the parent company is sued, the liability can move down to the subsidiaries. "If the parent
LLC has a claim or judgment against it, the assets of the subsidiaries could be in jeopardy. Any action against the
parent can legally go after the parent company's assets, which in this case are LLCs themselves."

If company B is a subsidiary of company A, and Company B gets sued, Company A still has liability. If it's a totally
separate company, the liability stays separate.

One disadvantage of subsidiaries is that they are more complicated from a tax, legal, and accounting standpoint.

Holding
What is a Holding Company?
A holding company is a parent corporation, limited liability company, or limited partnership that owns enough voting
stock in another company to control its policies and management. The company does not have any operations or
active business itself; instead, it owns assets in one or more companies.

Holding Company
BREAKING DOWN Holding Company
A holding company exists for the sole purpose of controlling another company, which might also be a corporation,
limited partnership or limited liability company, rather than for the purpose of producing its own goods or services.
Holding companies also exist for the purpose of owning property such as real estate, patents, trademarks, stocks
and other assets. If a business is 100% owned by a holding company, it is called a wholly owned subsidiary.

One benefit of forming a holding company is that the holding company itself is protected from losses. If one of its
companies goes bankrupt, the holding company experiences a capital loss and a decline in net worth, but the
bankrupt company’s debtors and creditors can’t pursue the holding company for remuneration. Thus, a major
corporation might structure itself as a holding company with one subsidiary to own its brand name and trademarks,
another to own its real estate, another to own its equipment and others to operate each franchise. This way, each
subsidiary, as well as the holding company itself, enjoys limited financial and legal liability. Structuring a company
this way can also limit tax liability by strategically basing certain parts of the business in jurisdictions with lower tax
rates.

Holding companies also allow individuals to protect their personal assets. Rather than owning assets personally
and, therefore, being liable for their debts, potential lawsuits and other risks, holding companies can own the assets
so that only the holding company’s assets and not the individual’s assets are at risk.

A holding company’s operations consist of overseeing the companies it owns. It can hire and fire managers if
necessary, but those companies’ managers are responsible for their own operations; the holding company is not.
Although the holding company does not manage the day-to-day operations of the companies it controls, the owners
should still understand how their subsidiaries operate to evaluate the businesses’ performance and prospects on
an ongoing basis.

The holding company supports the subsidiaries by lowering the cost of capital due to its overall strength. Using a
downstream guarantee, the parent company makes a pledge on a loan on behalf of the subsidiary. A downstream
guarantee can be undertaken to help a subsidiary company obtain debt financing that it otherwise couldn't, or to
obtain funds at lower interest rates than it could obtain without the holding company's guarantee. In many
instances, a lender may be willing to provide financing to a corporate borrower only if an affiliate agrees to
guarantee the loan. Once backed by the financial strength of the holding company, the subsidiary company's risk
of defaulting on its debt is considerably less.

A good example of a holding company is Berkshire Hathaway. One of the world's largest multinational companies
by revenue, Berkshire owns assets in over one hundred public and private companies. Its major holdings include
Berkshire Hathaway Energy, Business Wire, Dairy Queen, Clayton Homes, Duracell, GEICO, Fruit of the Loom,
RC Wiley Home Furnishings and Marmon Group. The company also has minor holdings in companies such as
The Coca-Cola Company, Goldman Sachs, IBM, American Express, Apple, Delta Airlines and Kinder Morgan.
Affiliate
What are Affiliated Companies
Affiliated companies are, in general, companies in which the parent company owns less than 50% interest. In other
words, the parent company is a minority shareholder.
 More loosely, the term "affiliated companies" is sometimes used to refer to companies that are related to each
other in some way. For example, Bank of America has numerous affiliated companies, including Banc of America,
US Trust, Landsafe, Balboa, and Merrill Lynch.

BREAKING DOWN Affiliated Companies

Affiliates are a common way for parent businesses to enter foreign markets while keeping a minority interest in a
business that it no longer wishes to be the majority owner of. For example, consumer goods company Unilever is
a British-Dutch company that has an Indian subsidiary called Hindustan Unilever as well as an affiliate in the United
States called Slim-Fast.

There is no single bright-line test to determine if one company is affiliated to another. In fact, the criteria for affiliation
changes from country to country, state to state and even between regulatory bodies. For example, companies that
the Internal Revenue Service (IRS) considers to be affiliated may not be considered affiliated by the Securities and
Exchange Commission (SEC).

An affiliate lies in contrast to a subsidiary, which is usually more than 50% owned by its parent; the parent is a
majority shareholder.

Tax Consequences
In nearly all jurisdictions, there are important tax consequences for affiliated companies. In general, tax credits and
deductions are limited to one affiliate in a group, or a ceiling is imposed on the tax benefits that affiliates may reap
under certain programs. Determining whether companies in a group are affiliates, subsidiaries, or associates is
done using a case-by-case analysis by local tax experts.

In the United States, for example, the Affordable Care Act contains provisions to the effect that certain affiliated
employers with common ownership or part of a controlled group must aggregate their employees to determine
their workforce size. These concepts are sometimes difficult to apply in practice and must be analyzed in detail by
all concerned parties.

3. ORGANIZING THE CORPORATION

3.1. Who May Form Corporation
Sec. 10 Corp. Code
TITLE II - INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS
Section 10. Number and qualifications of incorporators. - Any number of natural persons not less
than five (5) but not more than fifteen (15), all of
legal age and a majority of whom are residents of the Philippines, may form a private corporation
for any lawful purpose or purposes. Each of the
incorporators of s stock corporation must own or be a subscriber to at least one (1) share of the
capital stock of the corporation. (6a)
3.1.1. Must be natural persons
Art. 40. Birth determines personality; but the conceived child shall be considered born for all
purposes that are favorable to it, provided it be born later with the conditions specified in the
following article. (29a)
3.2. At least five incorporators
An incorporator is a person in charge of setting up a corporation. The incorporator signs and files the
Articles of Incorporation with the state in which the corporation is registering, and filing any other
corporate documents needed until the corporation is formally registered and recognized by the state.

Other duties of the incorporator might include:

Selecting members for the board of directors

Organizing an initial meeting of the board
Adopting the corporation's by-laws
Sometimes the incorporator resigns after completing the required signatures and affirmations.

Who Can Serve as an Incorporator?

An incorporator can be but does not necessarily have to be, an attorney. The person designated as the
incorporator is listed on the Articles of Incorporation so he or she may be contacted by the state, if
necessary.
The incorporator may be a shareholder, a director (member of a board of directors), or an officer
(president, treasurer, secretary). Because this person is signing legal documents on behalf of the
corporation, he or she should have the authority to act on behalf of the corporation.

The incorporator has no formal duties once the corporation has been registered with the state. Some
states require that an incorporator be 18 years old. Usually, an incorporator will resign this position after
the documents have been filed.

Why Is an Incorporator Important?

The reason some states require an organizer is for two reasons:

To have someone with authority to sign documents make sure that everything is correct
To assure that the corporation can do business in the state

3.3. Residence requirement; citizenship requirement in certain areas

CASE: Gamboa v. Teves 652 SCRA 690 (2012)
I. THE FACTS

This is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment
Corporation (PTIC) by the government of the Republic of the Philippines, acting through the Inter-
Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of
First Pacific Company Limited (First Pacific), a Hong Kong-based investment management and
holding company and a shareholder of the Philippine Long Distance Telephone Company (PLDT).

The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million
shares (or about 6.3 percent of the outstanding common shares) of PLDT owned by PTIC to First
Pacific. With the this sale, First Pacific’s common shareholdings in PLDT increased from 30.7
percent to 37 percent, thereby increasing the total common shareholdings of foreigners in PLDT
to about 81.47%. This, according to the petitioner, violates Section 11, Article XII of the 1987
Philippine Constitution which limits foreign ownership of the capital of a public utility to not more
than 40%.

II. THE ISSUE

Does the term “capital” in Section 11, Article XII of the Constitution refer to the total common
shares only, or to the total outstanding capital stock (combined total of common and non-voting
preferred shares) of PLDT, a public utility?

III. THE RULING

[The Court partly granted the petition and held that the term “capital” in Section 11, Article XII of
the Constitution refers only to shares of stock entitled to vote in the election of directors of a public
utility, or in the instant case, to the total common shares of PLDT.]

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the
Filipinization of public utilities, to wit:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines, at least sixty per centum of whose capital is owned
by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or
for a longer period than fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration, or repeal by the Congress
when the common good so requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors in the governing body of any
public utility enterprise shall be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or association must be citizens of the
Philippines. (Emphasis supplied)

The term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock entitled
to vote in the election of directors, and thus in the present case only to common shares, and not
to the total outstanding capital stock comprising both common and non-voting preferred shares
[of PLDT].

xxx xxx xxx

Indisputably, one of the rights of a stockholder is the right to participate in the control or
management of the corporation. This is exercised through his vote in the election of directors
because it is the board of directors that controls or manages the corporation. In the absence of
provisions in the articles of incorporation denying voting rights to preferred shares, preferred
shares have the same voting rights as common shares. However, preferred shareholders are
often excluded from any control, that is, deprived of the right to vote in the election of directors
and on other matters, on the theory that the preferred shareholders are merely investors in the
corporation for income in the same manner as bondholders. xxx.

Considering that common shares have voting rights which translate to control, as opposed to
preferred shares which usually have no voting rights, the term “capital” in Section 11, Article XII
of the Constitution refers only to common shares. However, if the preferred shares also have the
right to vote in the election of directors, then the term “capital” shall include such preferred shares
because the right to participate in the control or management of the corporation is exercised
through the right to vote in the election of directors. In short, the term “capital” in Section 11, Article
XII of the Constitution refers only to shares of stock that can vote in the election of directors.

xxx xxx xxx

Mere legal title is insufficient to meet the 60 percent Filipino-owned “capital” required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with
60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of
the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is “considered as non-Philippine national[s].”

xxx xxx xxx

To construe broadly the term “capital” as the total outstanding capital stock, including both
common and non-voting preferred shares, grossly contravenes the intent and letter of the
Constitution that the “State shall develop a self-reliant and independent national economy
effectively controlled by Filipinos.” A broad definition unjustifiably disregards who owns the all-
important voting stock, which necessarily equates to control of the public utility.

We shall illustrate the glaring anomaly in giving a broad definition to the term “capital.” Let us
assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-
voting preferred shares owned by Filipinos, with both classes of share having a par value of one
peso (P1.00) per share. Under the broad definition of the term “capital,” such corporation would
be considered compliant with the 40 percent constitutional limit on foreign equity of public utilities
since the overwhelming majority, or more than 99.999 percent, of the total outstanding capital
stock is Filipino owned. This is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the
election of directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of
less than 0.001 percent, exercise control over the public utility. On the other hand, the Filipinos,
holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence,
have no control over the public utility. This starkly circumvents the intent of the framers of the
Constitution, as well as the clear language of the Constitution, to place the control of public utilities
in the hands of Filipinos. It also renders illusory the State policy of an independent national
economy effectively controlled by Filipinos.

The example given is not theoretical but can be found in the real world, and in fact exists in the
present case.

xxx xxx xxx

[O]nly holders of common shares can vote in the election of directors [of PLDT], meaning only
common shareholders exercise control over PLDT. Conversely, holders of preferred shares, who
have no voting rights in the election of directors, do not have any control over PLDT. In fact, under
PLDT’s Articles of Incorporation, holders of common shares have voting rights for all purposes,
while holders of preferred shares have no voting right for any purpose whatsoever.

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common
shares of PLDT. In fact, based on PLDT’s 2010 General Information Sheet (GIS), which is a
document required to be submitted annually to the Securities and Exchange Commission,
foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622
common shares. In other words, foreigners hold 64.27% of the total number of PLDT’s common
shares, while Filipinos hold only 35.73%. Since holding a majority of the common shares equates
to control, it is clear that foreigners exercise control over PLDT. Such amount of control
unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities
expressly mandated in Section 11, Article XII of the Constitution.

As shown in PLDT’s 2010 GIS, as submitted to the SEC, the par value of PLDT common shares
is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other words,
preferred shares have twice the par value of common shares but cannot elect directors and have
only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are
owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. Worse,
preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares
constitute only 22.15%. This undeniably shows that beneficial interest in PLDT is not with the non-
voting preferred shares but with the common shares, blatantly violating the constitutional
requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility.

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the
hands of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is
constitutionally required for the State’s grant of authority to operate a public utility. The undisputed
fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-voting and earn only
1/70 of the dividends that PLDT common shares earn, grossly violates the constitutional
requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of
the dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII
of the Constitution that “[n]o franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to x x x corporations x x x organized under the
laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens x x
x.”

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares
exercises the sole right to vote in the election of directors, and thus exercise control over PLDT;
(2) Filipinos own only 35.73% of PLDT’s common shares, constituting a minority of the voting
stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by
Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common
shares earn; (5) preferred shares have twice the par value of common shares; and (6) preferred
shares constitute 77.85% of the authorized capital stock of PLDT and common shares only
22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution.

Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock
market value of P2,328.00 per share, while PLDT preferred shares with a par value of P10.00 per
share have a current stock market value ranging from only P10.92 to P11.06 per share, is a glaring
confirmation by the market that control and beneficial ownership of PLDT rest with the common
shares, not with the preferred shares.

xxx xxx xxx

WHEREFORE, we PARTLY GRANT the petition and rule that the term “capital” in Section 11,
Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of
directors, and thus in the present case only to common shares, and not to the total outstanding
capital stock (common and non-voting preferred shares). Respondent Chairperson of the
Securities and Exchange Commission is DIRECTED to apply this definition of the term “capital”
in determining the extent of allowable foreign ownership in respondent Philippine Long Distance
 Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to
impose the appropriate sanctions under the law.

3.4. Restrictions on stock ownership of closely knit groups

Sec. 140 and 97 Corp. Code
Section 140. Stock ownership in certain corporations. - Pursuant to the duties specified by Article XIV of the
Constitution, the National Economic and Development Authority shall, from time to time, make a determination of
whether the corporate vehicle has been used by any corporation or by business or industry to frustrate the provisions
thereof or of applicable laws, and shall submit to the Batasang Pambansa, whenever deemed necessary, a report of
its findings, including recommendations for their prevention or correction.
Maximum limits may be set by the Batasang Pambansa for stockholdings in corporations declared by it to be
vested with a public interest pursuant to the provisions of this section, belonging to individuals or groups of individuals
related to each other by consanguinity or affinity or by close business interests, or whenever it is necessary to achieve
national objectives, prevent illegal monopolies or combinations in restraint or trade, or to implement national economic
policies declared in laws, rules and regulations designed to promote the general welfare and foster economic
development.
In recommending to the Batasang Pambansa corporations, businesses or industries to be declared vested
with a public interest and in formulating proposals for limitations on stock ownership, the National Economic and
Development Authority shall consider the type and nature of the industry, the size of the enterprise, the economies of
scale, the geographic location, the extent of Filipino ownership, the labor intensity of the activity, the export potential,
as well as other factors which are germane to the realization and promotion of business and industry.

Section 97. Articles of incorporation. - The articles of incorporation of a close corporation may provide:

1. For a classification of shares or rights and the qualifications for owning or holding the same and restrictions
on their transfers as may be stated therein, subject to the provisions of the following section;
2. For a classification of directors into one or more classes, each of whom may be voted for and elected solely
by a particular class of stock; and
3. For a greater quorum or voting requirements in meetings of stockholders or directors than those provided
in this Code.

The articles of incorporation of a close corporation may provide that the business of the corporation shall be
managed by the stockholders of the corporation rather than by a board of directors. So long as this provision continues
in effect:
1. No meeting of stockholders need be called to elect directors;
2. Unless the context clearly requires otherwise, the stockholders of the corporation shall be deemed to be
directors for the purpose of applying the provisions of this Code; and
3. The stockholders of the corporation shall be subject to all liabilities of directors.
The articles of incorporation may likewise provide that all officers or employees or that specified officers or
employees shall be elected or appointed by the stockholders, instead of by the board of directors.

3.5. The Process of Incorporation

3.5.1. Promotional stage
3.5.2. Promoter’s Contracts Prior To Incorporation
3.5.3. Drafting Articles of Incorporation
Secs. 14 and 16, Corp. Code
3.5.3.1. Corporate name
CASE: Phil. First Insurance Co. v. Maria Carmen Hartigan, et. al. 34 SCRA 252 (1970)
FACTS:
On June 1, 1953, plaintiff was originally named as 'The Yek Tong Lin Fire and Marine Insurance Co.,
Ltd’ an insurance corp. duly presented with the Security and Exchange Commissioner and
before a Notary Public as provided in their articles of incorporation. Later amended its
articles of incorporation and changed its name on May 26, 1961 as ‘Philippine First
Insurance Co., Inc.’ pursuant to a certificate of the Board of Directors.
The complaint alleges that: Philippine First Insurance Co., Inc., doing business under the name of
'The Yek Tong Lin Fire and Marine Insurance Co., Lt.' signed as co-maker together with
defendant Maria Carmen Hartigan, CGH, to which a promissory note was made in favour
of China Banking. Said defendant failed to pay in full despite renewal of such note. The
complaint ends with a prayer for judgment against the defendants, jointly and severally, for
the sum of P4,559.50 with interest at the rate of 12% per annum from November 23, 1961
plus P911.90 by way of attorney's fees and costs.
Defendants admitted the execution of the indemnity agreement but they claim that they signed said
agreement in favor of the Yek Tong Lin Fire and Marine Insurance Co., Ltd.' and not in favor
of the plaintiff Philippine Insurance. They likewise admit that they failed to pay the
promissory note when it fell due but they allege that since their obligation with the China
Banking Corporation based on the promissory note still subsists, the surety who co-signed
the promissory note is not entitled to collect the value thereof from the defendants otherwise
they will be liable for double amount of their obligation, there being no allegation that the
surety has paid the obligation to the creditor. In their special defense, defendants claim that
there is no privity of contract between the plaintiff and the defendants and consequently, the
plaintiff has no cause of action against them, considering that the complaint does not allege
that the plaintiff and the 'Yek Tong Lin Fire and Marine Insurance Co., Ltd.' are one and the
same or that the plaintiff has acquired the rights of the latter.

ISSUE: May a Philippine corporation change its name and still retain its original personality and
individuality as such?

RULING: YES. As can be gleaned under Sections 6 and 18 of the Corporation Law, the name of a
corporation is peculiarly important as necessary to the very existence of a corporation. The
general rule as to corporations is that each corporation shall have a name by which it is to
sue and be sued and do all legal acts. The name of a corporation in this respect designates
the corporation in the same manner as the name of an individual designates the person."
Since an individual has the right to change his name under certain conditions, there is no
compelling reason why a corporation may not enjoy the same right. There is nothing
sacrosanct in a name when it comes to artificial beings. The sentimental considerations
which individuals attach to their names are not present in corporations and partnerships. Of
course, as in the case of an individual, such change may not be made exclusively. by the
corporation's own act. It has to follow the procedure prescribed by law for the purpose; and
this is what is important and indispensably prescribed — strict adherence to such procedure.
A general power to alter or amend the charter of a corporation necessarily includes the power to alter
the name of the corporation. Hence, a mere change in the name of a corporation, either by
the legislature or by the corporators or stockholders under legislative authority, does not,
generally speaking, affect the identity of the corporation, nor in any way affect the rights,
privileges, or obligations previously acquired or incurred by it. Indeed, it has been said that
a change of name by a corporation has no more effect upon the identity of the corporation
than a change of name by a natural person has upon the identity of such person. The
corporation, upon such change in its name, is in no sense a new corporation, nor the
successor of the original one, but remains and continues to be the original corporation. It is
the same corporation with a different name, and its character is in no respect changed. ...
(6 Fletcher, Cyclopedia of the Law of Private Corporations, 224-225, citing cases.)
As correctly pointed out by appellant, the approval by the stockholders of the amendment of its
articles of incorporation changing the name "The Yek Tong Lin Fire & Marine Insurance Co.,
Ltd." to "Philippine First Insurance Co., Inc." on March 8, 1961, did not automatically change
the name of said corporation on that date. To be effective, Section 18 of the Corporation
Law, earlier quoted, requires that "a copy of the articles of incorporation as amended, duly
certified to be correct by the president and the secretary of the corporation and a majority
of the board of directors or trustees, shall be filed with the Securities & Exchange
Commissioner", and it is only from the time of such filing, that "the corporation shall have
the same powers and it and the members and stockholders thereof shall thereafter be
subject to the same liabilities as if such amendment had been embraced in the original
articles of incorporation." It goes without saying then that appellant rightly acted in its old
name when on May 15, 1961, it entered into the indemnity agreement, Annex A, with the
defendant-appellees; for only after the filing of the amended articles of incorporation with
the Securities & Exchange Commission on May 26, 1961, did appellant legally acquire its
new name; and it was perfectly right for it to file the present case In that new name on
December 6, 1961. Such is, but the logical effect of the change of name of the corporation
upon its actions.
Therefore, actions brought by a corporation after it has changed its name should be brought under
the new name although for the enforcement of rights existing at the time the change was
made. The change in the name of the corporation does not affect its right to bring an action
on a note given to the corporation under its former name.

Lyceum of the Phils. vs. CA 219 SCRA 610

 FACTS:
1. Petitioner had sometime commenced before in the SEC a complaint against Lyceum of
Baguio, to require it to change its corporate name and to adopt another name not similar or
identical with that of petitioner. SEC decided in favor of petitioner. Lyceum of Baguio filed petition
for certiorari but was denied for
lack of merit.

2. Armed with the resolution of the Court, petitioner instituted before the SEC to compel
private respondents, which are also educational institutions, to delete word “Lyceum” from their
corporate names and permanently to enjoin them from using such as part of their respective
names.

3. Hearing officer sustained the claim of petitioner and held that the word “Lyceum” was
capable of appropriation and that petitioner had acquired an enforceable right to the use of that
word.

4. In an appeal, the decision was reversed by the SEC En Banc. They held that the word
“Lyceum” to have become identified with petitioner as to render use thereof of other institutions
as productive of consfusion about the identity of the schools concerned in the mind of the general
public.

5. Petitioner went to appeal with the CA but the latter just affirmed the decision of the SEC
En Banc.

HELD:
Under the corporation code, no corporate name may be allowed by the SEC if the proposed
name is identical or deceptively or confusingly similar to that of any existing corporation or to any
other name already protected by law or is patently deceptive, confusing or contrary to existing
laws. The policy behind this provision is to avoid fraud upon the public, which would have the
occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the
reduction of difficulties of administration and supervision over corporations.

The corporate names of private respondents are not identical or deceptively or confusingly
similar to that of petitioner’s. Confusion and deception has been precluded by the appending of
geographic names to the word “Lyceum”. Furthermore, the word “Lyceum” has become
associated in time with schools and other institutions providing public lectures, concerts, and
public discussions. Thus, it generally refers to a school or an institution of learning.

Petitioner claims that the word has acquired a secondary meaning in relation to petitioner
with the result that the word, although originally generic, has become appropriable by petitioner
to the exclusion of other institutions.

The doctrine of secondary meaning is a principle used in trademark law but has been
extended to corporate names since the right to use a corporate name to the exclusion of others
is based upon the same principle, which underlies the right to use a particular trademark or
tradename. Under this doctrine, a word or phrase originally incapable of exclusive appropriation
with reference to an article in the market, because geographical or otherwise descriptive might
nevertheless have been used for so long and so exclusively by one producer with reference to
this article that, in that trade and to that group of purchasing public, the word or phrase has come
to mean that the article was his produce. The doctrine cannot be made to apply where the
evidence didn't prove that the business has continued for so long a time that it has become of
consequence and acquired good will of considerable value such that its articles and produce have
acquired a well known reputation, and confusion will result by the use of the disputed name.

Petitioner didn't present evidence, which provided that the word “Lyceum” acquired
secondary meaning. The petitioner failed to adduce evidence that it had exclusive use of the word.
Even if petitioner used the word for a long period of time, it hadn’t acquired any secondary
meaning in its favor because the appellant failed to prove that it had been using the same word
all by itself to the exclusion of others.
Republic Planters Bank v. CA, 216 SCRA 738 (1992)
FACTS:
 Shozo Yamaguchi (President/Chief Operating Officer) and Fermin Canlas (Treasurer) by
virtue of Board Resolution of Worldwide Garment Manufacturing, Inc were authorized to apply for
credit facilities with the Republic Planters Bank in the forms of export advances and letters of
credit/trust receipts accommodations.

9 promissory notes with Worldwide Garment Manufacturing, Inc. was apparently rubber
stamped above the signatures of Yamaguchi and Canlas were issued to Republic Planters Bank

December 20, 1982: Worldwide Garment Manufacturing, Inc. changed its corporate name
to Pinch Manufacturing Corporation

February 5, 1982: Republic Planters filed a complaint for the recovery of sums of money

Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled
pre-trial conference despite due notice

Fermin Canlas denied having issued the promissory notes as an officer of Pinch
Manufacturing Corporation and when he issued said promissory notes in behalf of Worldwide
Garment Manufacturing, Inc., it was in blank (typewritten entries not appearing when he signed)

ISSUE: W/N Fermin Canlas is solidarily liable with the other defendants, namely Pinch
Manufacturing Corporation and Shozo Yamaguchi on the 9 promissory notes because they are
negotiable and ruled by the Negotiable Instruments Law

HELD: CA absolving Fermin Canlas is REVERSED and SET ASIDE. Judgement is hereby
rendered declaring private respondent Fermin Canlas jointly and severally liable on all 9
promissory notes with the following sums and at 16% interest per annum
Under the Negotiable lnstruments Law, persons who write their names on the face of
promissory notes are makers and are liable as such.

Fermin Canlas one of the co-makers of the promissory notes cannot escape liability arising
therefrom made clearer and certain, without reason for ambiguity, by the presence of the phrase
"joint and several" as describing the unconditional promise to pay to the order of Republic Planters
Bank

Severally and jointly or solidarily liable

"I promise to pay" is signed by 2 or more persons
"I" ,We" , or "Either of us" promise to, pay, when signed by two or more persons
and (in) his personal capacity" below the signatures of the makers - immaterial and will not
affect to the liability of Fermin Canlas as a joint and several debtor of the notes.

With or without it, he is primarily liable as a co-maker of each of the notes and his liability is
that of a solidary debtor

A change in the corporate name does not make a new corporation, and whether effected
by special act or under a general law, has no affect on the identity of the corporation, or on its
property, rights, or liabilities

The corporation continues, as before, responsible in its new name for all debts or other
liabilities which it had previously contracted or incurred.

GR: officers or directors under the old corporate name bear no personal liability for acts
done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such
officers acted in their capacity as agent of the old corporation and the change of name meant only
the continuation of the old juridical entity, the corporation bearing the same name is still bound by
the acts of its agents if authorized by the Board.

EX: Under the Negotiable Instruments Law, the liability of a person signing as an agent is
specifically provided for as follows:

Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains
or a person adds to his signature words indicating that he signs for or on behalf of a principal , or
in a representative capacity, he is not liable on the instrument if he was duly authorized; but the
mere addition of words describing him as an agent, or as filling a representative character, without
disclosing his principal, does not exempt him from personal liability.
Where the agent signs his name but nowhere in the instrument has he disclosed the fact
that he is acting in a representative capacity or the name of the third party for whom he might
have acted as agent, the agent is personally liable to take holder of the instrument and cannot be
permitted to prove that he was merely acting as agent of another and parol or extrinsic evidence
is not admissible to avoid the agent's personal liability.

incomplete stereotype printed form of promissory notes generally used by commercial

banking institutions to be signed by their clients in obtaining loans.

blank spaces to be filled up on material particulars such as payee's name, amount of the
loan, rate of interest, date of issue and the maturity date.

An incomplete instrument which has been delivered to the borrower for his signature is
governed by Section 14 of the Negotiable Instruments Law:

Sec. 14. Blanks: when may be filled. — Where the instrument is wanting in any material
particular, the person in possesion thereof has a prima facie authority to complete it by filling up
the blanks therein. ... In order, however, that any such instrument when completed may be
enforced against any person who became a party thereto prior to its completion, it must be filled
up strictly in accordance with the authority given and within a reasonable time...
The notes were not incomplete instruments; neither were they given to private respondent
Fermin Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law is not
applicable.

Universal Mills Corp. v. Universal Textile Mills Inc. 78 SCRA 62 [1977)

BARREDO, J.:

Appeal from the order of the Securities and Exchange Commission in S.E.C. Case No.
1079, entitled In the Matter of the Universal Textile Mills, Inc. vs. Universal Mills Corporation, a
petition to have appellant change its corporate name on the ground that such name is "confusingly
and deceptively similar" to that of appellee, which petition the Commission granted.

According to the order, "the Universal Textile Mills, Inc. was organ on December 29, 1953,
as a textile manufacturing firm for which it was issued a certificate of registration on January 8,
1954. The Universal Mills Corporation, on the other hand, was registered in this Commission on
October 27, 1954, under its original name, Universal Hosiery Mills Corporation, having as its
primary purpose the "manufacture and production of hosieries and wearing apparel of all kinds."
On May 24, 1963, it filed an amendment to its articles of incorporation changing its name to
Universal Mills Corporation, its present name, for which this Commission issued the certificate of
approval on June 10, 1963.

The immediate cause of this present complaint, however, was the occurrence of a fire which
gutted respondent's spinning mills in Pasig, Rizal. Petitioner alleged that as a result of this fire and
because of the similarity of respondent's name to that of herein complainant, the news items
appearing in the various metropolitan newspapers carrying reports on the fire created uncertainty
and confusion among its bankers, friends, stockholders and customers prompting petitioner to
make announcements, clarifying the real Identity of the corporation whose property was burned.
Petitioner presented documentary and testimonial evidence in support of this allegation.

On the other hand, respondent's position is that the names of the two corporations are not
similar and even if there be some similarity, it is not confusing or deceptive; that the only reason
that respondent changed its name was because it expanded its business to include the
manufacture of fabrics of all kinds; and that the word 'textile' in petitioner's name is dominant and
prominent enough to distinguish the two. It further argues that petitioner failed to present evidence
of confusion or deception in the ordinary course of business; that the only supposed confusion
proved by complainant arose out of an extraordinary occurrence — a disastrous fire. (pp. 16-&17,
Record.)

Upon these premises, the Commission held:

 From the facts proved and the jurisprudence on the matter, it appears necessary under the
circumstances to enjoin the respondent Universal Mills Corporation from further using its present
corporate name. Judging from what has already happened, confusion is not only apparent, but
possible. It does not matter that the instance of confusion between the two corporate names was
occasioned only by a fire or an extraordinary occurrence. It is precisely the duty of this
Commission to prevent such confusion at all times and under all circumstances not only for the
purpose of protecting the corporations involved but more so for the protection of the public.

In today's modern business life where people go by tradenames and corporate images, the
corporate name becomes the more important. This Commission cannot close its eyes to the fact
that usually it is the sound of all the other words composing the names of business corporations
that sticks to the mind of those who deal with them. The word "textile" in Universal Textile Mills,
Inc.' can not possibly assure the exclusion of all other entities with similar names from the mind of
the public especially so, if the business they are engaged in are the same, like in the instant case.

This Commission further takes cognizance of the fact that when respondent filed the
amendment changing its name to Universal Mills Corporation, it correspondingly filed a written
undertaking dated June 5, 1963 and signed by its President, Mr. Mariano Cokiat, promising to
change its name in the event that there is another person, firm or entity who has obtained a prior
right to the use of such name or one similar to it. That promise is still binding upon the corporation
and its responsible officers. (pp. 17-18, Record.)

It is obvious that the matter at issue is within the competence of the Securities and Exchange
Commission to resolve in the first instance in the exercise of the jurisdiction it used to possess
under Commonwealth Act 287 as amended by Republic Act 1055 to administer the application
and enforcement of all laws affecting domestic corporations and associations, reserving to the
courts only conflicts of judicial nature, and, of course, the Supreme Court's authority to review the
Commissions actuations in appropriate instances involving possible denial of due process and
grave abuse of discretion. Thus, in the case at bar, there being no claim of denial of any
constitutional right, all that We are called upon to determine is whether or not the order of the
Commission enjoining petitioner to its corporate name constitutes, in the light of the circumstances
found by the Commission, a grave abuse of discretion.

We believe it is not. Indeed, it cannot be said that the impugned order is arbitrary and
capricious. Clearly, it has rational basis. The corporate names in question are not Identical, but
they are indisputably so similar that even under the test of "reasonable care and observation as
the public generally are capable of using and may be expected to exercise" invoked by appellant,
We are apprehensive confusion will usually arise, considering that under the second amendment
of its articles of incorporation on August 14, 1964, appellant included among its primary purposes
the "manufacturing, dyeing, finishing and selling of fabrics of all kinds" in which respondent had
been engaged for more than a decade ahead of petitioner. Factually, the Commission found
existence of such confusion, and there is evidence to support its conclusion. Since respondent is
not claiming damages in this proceeding, it is, of course, immaterial whether or not appellant has
acted in good faith, but We cannot perceive why of all names, it had to choose a name already
being used by another firm engaged in practically the same business for more than a decade
enjoying well earned patronage and goodwill, when there are so many other appropriate names
it could possibly adopt without arousing any suspicion as to its motive and, more importantly, any
degree of confusion in the mind of the public which could mislead even its own customers, existing
or prospective. Premises considered, there is no warrant for our interference.

As this is purely a case of injunction, and considering the time that has elapsed since the
facts complained of took place, this decision should not be deemed as foreclosing any further
remedy which appellee may have for the protection of its interests.

WHEREFORE, with the reservation already mentioned, the appealed decision is affirmed.
Costs against petitioners.

Laureano Investment and Development Corporation v. Court of Appeals 272 SCRA

253 (1997)
 The Facts

The antecedents of this petition are summarized by the Respondent Court as follows:
The records show that spouses Reynaldo Laureano and Florence Laureano are majority stockholders of
petitioner Corporation who entered into a series of loan and credit transactions with Philippine National
Cooperative Bank (PNCB for short). To secure payment of the loans, they executed Deeds of Real Estate
Mortgage dated December 11, 1962, January 9, 1963, July 2, 1963 and September 5, 1964, for the
following amounts: P100,000.00, P20,000.00, P70,000.00 and P13,424.04, respectively. In view of their
failure to pay their indebtedness, PNCB applied for extrajudicial foreclosure of the real estate
mortgages. The bank was the purchaser of the properties in question in the foreclosure sale and titles
thereof were consolidated in PNCBs name on February 20, 1984. PNCB did not secure a writ of
possession nor did it file ejectment proceedings against the Laureano spouses, because there were then
pending cases, such as x x x involving the titles of ownership of subject two lots, which are situated at Bel-
Air Subdivision[,] Makati, Metro Manila.
Private respondent Bormaheco, Inc. became the successor of the obligations and liabilities of PNCB over
subject lots by virtue of a Deed of Sale/Assignment on September 26, 1988 wherein Bormaheco bought
from PNCB under a bulk sale 114 titled and untitled properties including the two parcels of land in question,
formerly registered in the name of the Laureano spouses. Transfer Certificate of Title Nos. 157724 and
157725 over the lots in question were issued on October 12, 1988 in the name of Bormaheco.
Five (5) days after securing titles over the said properties, Bormaheco filed an Ex-Parte Petition for the
Issuance of Writ of Possession of Lots 4 and 5, Block 4 situated at Bel-Air Village, Makati, Metro Manila
and embraced in TCT Nos. 157724 and 157725 of the Registry of Deeds of Makati, Metro Manila,
docketed as LRC Case No. M-1530 before respondent Court. Petitioner Corporation filed on January 18,
1989 its Motion for Intervention and to Admit Attached Complaint in Intervention in said case. After an
exchange of pleadings, respondent Court issued its order dated February 9, 1988, which reads:
There being a prima facie showing in the attached complaint in intervention that herein intervenor
LIDECO CORPORATION has an interest which may eventually and adversely be affected in
whatever decision the Court may render in the instant case; to enable the parties concerned to
properly ventilate and litigate all the issues involving the subject property thereby avoid
multiplicity of suits, and in the interest of justice, the Motion for Intervention, filed by LIDECO
CORPORATION is hereby GRANTED; and the attached complaint in intervention ADMITTED.
On July 26, 1989, respondent Bormaheco filed its Motion to Strike out the Complaint in Intervention and all
related pleadings filed by LIDECO Corporation. The motion was granted in the first questioned order dated
September 8, 1989, which reads:
xxx
On the instant motion, the records show that LIDECO Corporation appeared thru counsel and
filed its complaint in intervention, representing therein that it is a corporation duly organized and
registered in accordance with law.
The Corporation Code explicitly provides that the use of the word corporation presupposes that
an entity is duly registered (with the SEC) in accordance with law.
Intervening in the instant petition, with the use of the name LIDECO Corporation, the latter, in
effect, represents to this court that it is a corporation whose personality is distinct and separate
from its stockholders and/or any other corporation bearing different names. Hence, herein
intervenor LIDECO Corporation and LAUREANO INVESTMENT AND DEVELOPMENT
CORPORATION, to the mind of this Court, are two (2) separate and distinct entities.Inasmuch as
the documents in support of its complaint in intervention -- tax declarations -- are in the names of
Laureano Investment and Development Corporation, and it appearing that LIDECO Corporation
is not a corporation or partnership duly organized and registered with the SEC, there is,
therefore, no way whatsoever that LIDECO Corporations interests will be adversely affected by
the outcome of the instant case.
WHEREFORE, for intervenors lack of personality to intervene in the instant proceedings,
petitioners motion to strike out complaint in intervention is hereby GRANTED.
Accordingly, all pleadings filed relative thereto are ordered expunged from the records.
 xxx
After the issuance of the above-cited order, petitioner Corporation filed on October 4, 1989, its Urgent
Motion to Substitute Party Intervenor and to Adopt Complaint in Intervention and All Pleadings. An
opposition thereto was filed by BORMAHECO, after which the lower court issued its second questioned
order quoted below:
xxx
The court has painstakingly examined the two (2) tax declarations and has found out that the
said tax declarations refer to two houses erected on Lot 3, Block 4 and Lot 3, Block 4 of the Bel-
Air Village, Makati, Metro Manila. On the other hand, the subject matter of the instant petition are
Lot 4, Block 4 and Lot 5, Block 4 of Bel-Air Village, Makati, Metro Manila. Clearly, therefore, the
properties upon which the herein movant-corporation has interests refer to properties different
from those subject of the instant petition.
Not only that. As correctly pointed out by the petitioner, the afore-mentioned tax declarations
according to the records of the Makati Assessors Office were canceled on July 22, 1982 or five
(5) years, two (2) months and four (4) days before the petitioner (BORMAHECO) purchased from
the Philippine National Cooperative Bank the two (2) lots and the improvements found thereon
evidenced by the copies of Tax Declaration Nos. A-002-00512 and 6103 attached as Annexes A
and B respectively to the petitioners rejoinder dated October 26, 1989.
The movant-corporation not having shown documentary evidence showing that it has interest on
the two lots subject of the complaint and the improvements found therein, it has, therefore, no
personality to file the instant motion. x x x
There is yet another reason why the motion should not be granted. The movant corporations
request to be substituted as party intervenor is not one of the instances provided for in Sec. 20,
Rule 3 of the Rules of Court. Substitution of party litigant may be requested in the following:

(a) When a party dies and the claim is not extinguished, upon proper motion, the Honorable Court
may order the legal representative of the deceased to appear and to be substituted for the
deceased within the period of thirty (30) days or within such time as may be granted. (Sec. 17,
Rule 3, Rules of Court)

(b) In case of any transfer of interest, upon motion, the Honorable Court may direct the person to
whom the interest is transferred to be substituted in the action or joined with the original
party. (Sec. 20, Rule 30 [should be Rule 3], supra.)

which is not so in the case.

xxx
WHEREFORE, in view of the foregoing considerations, the motions under consideration are
hereby DENIED.
A Motion for Reconsideration of the above-cited order was denied by respondent Court in its third
questioned order dated August 8, 1990, x x x[8]
In likewise denying the petition of Laureano Investment and Development Corporation (petitioner corporation),
Respondent Court ratiocinated:
Petitioner Corporation contends that respondent Bormahecos motion to strike out the complaint in
intervention and all related pleadings filed by LIDECO Corporation was based on misleading and confusing
assertions that LIDECO Corporation is not a registered corporation despite its admission and/or use of the
word LIDECO as acronym for Laureano Investment and Development Corporation. The contention is
untenable. BORMAHECO has shown that LIDECO Corporation is not organized and existing under
Philippine laws. Neither has it been registered with the Securities and Exchange Commission. In support of
said claim, BORMAHECO presented a certification to the effect that the records of the Commission do not
show the registration of LIDECO, INC. either as a corporation or as partnership.
Petitioner also contends that the motion x x x should have been denied outright because it was filed in bad
faith and without legal and factual basis. On the contrary, from the very first motion and pleading filed by
 petitioner in LRC No. M-1530 pending before respondent Court, it is very clear that the intervenor therein is
LIDECO Corporation. Nowhere in its complaint does it appear that LIDECO Corporation is the brevity or
acronym for Laureano Investment and Development Corporation. The claim that Lideco Corporation is the
name of a corporation which is duly registered and organized in accordance with law has been belied by
the absence of SEC record showing the registration of Lideco, Inc. either as corporation or as a
partnership. It was only when intervenor (petitioner herein) filed its opposition to the motion to strike out
that it clarified that Lideco Corporation is the acronym for Laureano Investment and Development
Corporation.
xxxxxxxxx
Moreover, even assuming that Lideco Corporation and Laureano Investment and Development
Corporation are one and the same, it was found by respondent Court that the properties being claimed by
petitioner are different from those for which private respondent is seeking the issuance of a writ of
possession; hence, the complaint in intervention was correctly dismissed.[9]
In conclusion, the appellate court said:
We, therefore, fail to see the alleged grave abuse of discretion on the part of respondent Court in issuing
the questioned orders, as they were issued after the Court had considered the arguments of the parties
and the evidence on record.Clearly, the lower court acted within its authority and sound discretion in
issuing the said orders.[10]
Petitioners motion for reconsideration of the above ruling was, as earlier stated, denied by Respondent Court in
its Resolution[11] promulgated on June 10, 1991. Hence, this petition.

Issues

Petitioner raises for resolution the following questions:

1. Whether Respondent Bormaheco, Inc. is estopped from contesting the legal personality to sue of
Lideco Corporation;
2. Whether bad faith attended the filing of private respondents motion to strike out the complaint in
intervention and related pleadings.[12]
Petitioner contends that private respondent is estopped from, and is in bad faith for, denying its knowledge that
Lideco Corporation and Laureano Investment and Development Corporation are one and the same entity since it has
previously used LIDECO as an acronym for the latter corporation.
Private respondent submitted a lengthy (sixty-page) amended comment[13] to the petition, giving a detailed
background to the instant case including various actions allegedly commenced by the Spouses Laureano questioning
the foreclosure of the subject properties. In sum, Bormaheco, Inc. maintains that Respondent Court did not commit
reversible error in disallowing Lideco Corporation to intervene for the reason that said entity did not satisfy the essential
requisites for being a party to an action, to wit: (1) natural or juridical personality; (2) legal capacity to sue or be sued,
i.e., having all the qualifications and none of the disqualifications provided for by law; and (3) real interest in the subject
matter of the action.[14]
Private respondent adds that petitioner corporation is merely an alter ego of the Laureano spouses who have lost
their rights over the subject properties in favor of Bormahecos predecessor-in-interest, the Philippine National
Cooperative Bank (PNCB), by virtue of extrajudicial foreclosures. Petitioners motion to intervene in the case below is
just another ploy of the spouses to prevent subsequent owners from effectively exercising their rights of ownership over
the properties.
Private respondent also filed before us a motion[15] to declare petitioner as engaged in forum shopping and to
resolve the instant petition. In support of its motion, private respondent enumerates a string of civil actions allegedly
commenced by the Laureano spouses before the trial court as well as petitions before the appellate court concerning
the properties in question. As a result, Bormaheco claims, an issue which could have been laid to rest in 1967 is still
being litigated. Furthermore, in an omnibus motion[16] filed on February 11, 1997, private respondent claims that it is
being unduly deprived of rental income by as much as P40,000.00 a month for each property, or a total of eight million
pesos since 1988. On the other hand, it claims to have been assessed for and to have actually paid real estate taxes
and Bel-Air Village Association dues since such date.
 The Courts Ruling

The petition is not meritorious.

Petitioners Issues:
Estoppel

Petitioner contends that it was private respondent which first made use of LIDECO as a shorter term for Laureano
Investment and Development Corporation when it filed its first motion to strike dated January 9, 1989, [17]prior to the
filing by Lideco Corporation of its motion for intervention and complaint in intervention[18] on January 18, 1989. Hence,
private respondent should be considered estopped from denying that petitioner and Lideco Corporation are one and
the same corporation.
The equitable doctrine of estoppel was explained by this Court in Caltex (Philippines), Inc. vs. Court of Appeals:[19]
Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon. A party may not go
back on his own acts and representations to the prejudice of the other party who relied upon them. In the
law of evidence, whenever a party has, by his own declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing true, to act upon such belief, he cannot, in any litigation
arising out of such declaration, act, or omission, be permitted to falsify it. (footnotes omitted)
We elaborated in Maneclang vs. Baun[20]
In estoppel by pais, as related to the party sought to be estopped, it is necessary that there be a
concurrence of the following requisites: (a) conduct amounting to false representation or concealment of
material facts or at least calculated to convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to assert; (b) intent, or at least expectation
that this conduct shall be acted upon, or at least influenced by the other party; and (c) knowledge, actual or
constructive of the actual facts. (citing Kalalo vs. Luz, 34 SCRA 337, 1974)
Examining the records of the case, we observe that the motion[21] adverted to indeed made use of LIDECO as an
acronym for Laureano Investment and Development Corporation. But said motion distinctly specified that LIDECO was
the shorter term for Laureano Investment and Development Corporation. It is obvious that no false representation or
concealment can be attributed to private respondent. Neither can it be charged with conveying the impression that the
facts are other than, or inconsistent with, those which it now asserts since LIDECO, as an acronym, is clearly different
from Lideco Corporation which represented itself as a corporation duly registered and organized in accordance with
law.[22] Nor can it be logically inferred that petitioner relied or acted upon such representation of private respondent in
thereafter referring to itself as Lideco Corporation; for petitioner is presumed to know by which name it is registered,
and the legal provisions on the use of its corporate name.
Section 1, Rule 3 of the Rules of Court provides that only natural or juridical persons or entities authorized by law
may be parties to a civil action. Under the Civil Code, a corporation has a legal personality of its own (Article 44), and
may sue or be sued in its name, in conformity with the laws and regulations of its organization (Article
46).[23] Additionally, Article 36 of the Corporation Code similarly provides:
Article 36. Corporate powers and capacity. -- Every corporation incorporated under this Code has the
power and capacity:
1. To sue and be sued in its corporate name;
x x x (underscoring supplied)
As the trial and appellate courts have held, Lideco Corporation had no personality to intervene since it had not
been duly registered as a corporation. If petitioner legally and truly wanted to intervene, it should have used its corporate
name as the law requires and not another name which it had not registered. Indeed, as the Respondent Court found,
nowhere in the motion for intervention and complaint in intervention does it appear that Lideco Corporation stands for
Laureano Investment and Development Corporation. Bormaheco, Inc., thus, was not estopped from questioning the
juridical personality of Lideco Corporation, even after the trial court had allowed it to intervene in the case.
Granting arguendo that the name Lideco Corporation could be used by petitioner corporation in its motion, there
is an even more cogent reason for denying the petition. The trial court concluded, and we have no reason to disagree,
that the intervention of Lideco or petitioner corporation was not proper because neither had any legal interest in the
subject of litigation. The evidence (tax declarations) attached to the petition for intervention and the complaint for
intervention pertained to properties not being litigated in the instant case. Lideco and petitioner corporation both claimed
to have an interest in two houses constructed in Lot 3, Block 4 in Bel Air Village, Makati.[24]The subject matter of the
instant petition, on the other hand, are Lots 4 and 5, Block 4, of Bel Air Village. This factual finding was affirmed by the
Court of Appeals.
Since the conclusion of the trial and appellate courts is based on facts, and since the Supreme Court is not a trier
of facts -- our function not being to examine and evaluate the evidence presented to the concerned tribunal which
formed the basis of its questioned decision, resolution or order [25] -- it is clear that we cannot review such holding. We
note further that petitioner has failed to show that the factual findings of the trial and appellate courts were arbitrary
and/or constituted one of the exceptions allowing review by this Court. [26]

Bad Faith

(B)ad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral
obliquity; x x x bad faith contemplates a state of mind affirmatively operating with furtive design or ill will.[27]
Other than its bare allegations that private respondent acted in bad faith, petitioner failed to show that the former
acted consciously and deliberately to achieve a dishonest purpose or moral obliquity, or was motivated by ill will. Rather,
as discussed above, no false representation was contrived nor concealment made by private respondent. Neither did
it deliberately convey facts other than, or inconsistent with, what it now asserts and upon which petitioner had relied or
acted upon due to the representations of private respondent. Hence, we hold that petitioner failed to demonstrate that
private respondent acted in bad faith in filing its assailed second motion.

Private Respondents Issue:

Forum Shopping

Private respondent, in turn, accuses petitioner and/or its chairman of the board and majority stockholder, Reynaldo
Laureano, of forum shopping, alleging that both have improperly instituted a string of cases through deliberate splitting
of causes of action thereby trifling with the courts and abusing their processes.
There is forum shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable
opinion (other than appeal or certiorari) in another,[28] raising identical causes of action, subject matter, and
issues.[29] However, private respondent, other than the enumeration in its motion [30] of the case number and titles,
nature of the actions and decisions therein, failed to substantiate its allegations. It did not show convincingly that the
cases enumerated had identical causes of action, subject matter and issues. From its bare assertions, the Court cannot
intelligently make a valid finding of whether petitioner, indeed, engaged in forum shopping. In any event, a ruling on
this issue is not necessary to the final resolution of the entire case.
WHEREFORE, premises considered, the petition is hereby DENIED for its failure to show any reversible error on
the part of Respondent Court. The questioned Decision of the Court of Appeals is AFFIRMED. Costs against petitioner.
SO ORDERED.

Pison-Arceo Agricultural Development Corp. v. NLRC 279 SCRA 312 (1997).

The Facts

As gathered from the complaint[9] and other submissions of the parties filed with Executive
Labor Arbiter Oscar S. Uy, the facts of the case are as follows:

Together with Complainants Danny and Helen Felix, private respondents -- Jesus Pasco,
Evangeline Pasco, Martin Bonares, Teresita Nava, Felixberto Nava, Johnny Garrido,
Eduardo Nuez and Delma Nuez, all represented by Private Respondent National Federation
of Sugar Workers-Food and General Trade (NSFW-FGT) -- filed on June 13, 1988 a
complaint for illegal dismissal, reinstatement, payment of backwages and attorneys fees
against Hacienda Lanutan/Jose Edmundo Pison. Complainants alleged that they were
previously employed as regular sugar farm workers of Hacienda Lanutan in Talisay, Negros
Occidental. On the other hand, Jose Edmundo Pison claimed that he was merely the
administrator of Hacienda Lanutan which was owned by Pison-Arceo Agricultural and
Development Corporation.

As earlier stated, the executive labor arbiter rendered on September 2, 1992 a decision in
favor of the workers-complainants, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering respondent

Jose Edmundo Pison/Hda. Lanutan, Talisay, Negros Occidental, to PAY the following
complainants their backwages (one year) plus separation pay in the following amounts, to
wit:

BACKWAGES SEPARATION PAY TOTAL

1. J. Pasco -P14,729.00 P12,818.06 P27,547.06

2. E. Pasco - 14,729.00 12,784.81 27,603,81

3. Bonares - 14,729.00 8,404.56 23,133.56

4. F. Nava - 14,729.00 13,505.31 28,234.31

5. T. Nava - 14,729.00 3,427.31 18,146.31

6. J. Garido - 8,489.00 4,463.94 12,952.94

7. E. Nuez - 8,489.00 11,399.44 19,888.44

8. D. Nuez - 8,489.00 9,507.94 17,996.94

plus ten percent (10%) of the total award as attorneys fees in the amount of P17,550.34 or
in the total amount of ONE HUNDRED NINETY THREE THOUSAND FIFTY THREE AND
71/100 (P193,053.71), all these amounts to be deposited with this Office within ten (10)
days from receipt of this decision. The claim of complainants Danny and Helen Felix are
hereby DENIED for lack of merit.

In affirming the decision of the executive labor arbiter, public respondent ordered
respondent-appellant, Jose Edmundo Pison and the respondent Pison-Arceo Agricultural
and Development Corporation to pay jointly and severally the claims for backwages and
separation pay of private respondents. The motion for reconsideration dated October 14,
1993 was apparently filed by Jose Edmundo Pison for and on his own behalf only. However,
Pison did not elevate his case before this Court. The sole petitioner now before us is Pison-
Arceo Agricultural and Development Corporation, the owner of Hacienda Lanutan.

The Issue

Petitioner submits only one issue for our resolution:[10]

Public Respondent NLRC acted without or in excess of jurisdiction or with grave abuse of
discretion when it included motu proprio petitioner corporation as a party respondent and
ordered said corporation liable to pay jointly and severally, with Jose Edmundo Pison the
claims of private respondents.

In essence, petitioner alleges deprivation of due process.

siu
The Courts Ruling

The petition lacks merit.

Petitioner contends that it was never served any summons; hence, public respondent did
not acquire jurisdiction over it. It argues that from the time the complaint was filed before
the Regional Arbitration Branch No. VI up to the time the said case was appealed by Jose
Edmundo Pison to the NLRC, Cebu, petitioner Corporation was never impleaded as one of
the parties x x x. It was only in the public respondents assailed Decision of September 27,
1993 that petitioner Corporation was wrongly included as party respondent without its
knowledge. Copies of the assailed Decision and Resolution were not sent to petitioner but
only to Jose Edmundo Pison, on the theory that the two were one and the same. Petitioner
avers that Jose Edmundo Pison is only a minority stockholder of Hacienda Lanutan, which
in turn is one of the businesses of petitioner.[11] Petitioner further argues that it did not
voluntarily appear before said tribunal and that it was not given (any) opportunity to be
heard;[12] thus, the assailed Decision and Resolution in this case are void for having been
issued without jurisdiction.[13]

In its memorandum, petitioner adds that Eden vs. Ministry of Labor and Employment,[14]
cited by public respondent, does not apply to this case. In Eden, petitioners were duly served
with notices of hearings, while in the instant case, the petitioner was never summoned nor
was served with notice of hearings as a respondent in the case.[15]

At the outset, we must stress that in quasi-judicial proceedings, procedural rules governing
service of summons are not strictly construed. Substantial compliance thereof is
sufficient.[16] Also, in labor cases, punctilious adherence to stringent technical rules may
be relaxed in the interest of the working man; it should not defeat the complete and equitable
resolution of the rights and obligations of the parties. This Court is ever mindful of the
underlying spirit and intention of the Labor Code to ascertain the facts of each case speedily
and objectively without regard to technical rules of law and procedure, all in the interest of
due process.[17] Furthermore, the Labor Code itself, as amended by RA 6715,[18] provides
for the specific power of the Commission to correct, amend, or waive any error, defect or
irregularity whether in the substance or in the form of the proceedings before it[19] under
Article 218 (c) as follows:

(c) To conduct investigation for the determination of a question, matter or controversy within
its jurisdiction, proceed to hear and determine the disputes in the absence of any party
thereto who has been summoned or served with notice to appear, conduct its proceedings
or any part thereof in public or in private, adjourn its hearings to any time and place, refer
technical matters or accounts to an expert and to accept his report as evidence after hearing
of the parties upon due notice, direct parties to be joined in or excluded from the
proceedings, correct, amend, or waive any error, defect or irregularity whether in substance
or in form, give all such directions as it may deem necessary or expedient in the
determination of the dispute before it, and dismiss any matter or refrain from further hearing
or from determining the dispute or part thereof, where it is trivial or where further
proceedings by the Commission are not necessary or desirable; xxx (Underscoring
supplied.)

In this case, there are legal and factual reasons to hold petitioner jointly and severally liable
with Jose Edmundo Pison.

Jurisdiction Acquired over Petitioner

Consistent with the foregoing principles applicable to labor cases, we find that jurisdiction
was acquired over the petitioner. There is no dispute that Hacienda Lanutan, which was
owned SOLELY by petitioner, was impleaded and was heard. If at all, the non-inclusion of
the corporate name of petitioner in the case before the executive labor arbiter was a mere
procedural error which did not at all affect the jurisdiction of the labor tribunals.[20] Petitioner
was adequately represented in the proceedings conducted at the regional arbitration branch
by no less than Hacienda Lanutans administrator, Jose Edmundo Pison, who verified and
signed his/Hacienda Lanutans position paper and other pleadings submitted before the
labor arbiter. It can thus be said that petitioner, acting through its corporate officer Jose
Edmundo Pison, traversed private respondents complaint and controverted their claims.
Further unrebutted by petitioner are the following findings of public respondent:[21]

It should further be noted that two responsible employees of the said corporation, namely,
Teresita Dangcasil, the secretary of the administrator/manager, and Fernando Gallego, the
hacienda overseer, had submitted their affidavits, both dated July 20, 1988, as part of the
evidence for the respondent, and that, as shown by the records, the lawyer who appeared
as the legal counsel of the respondent-appellant, specifically, Atty. Jose Ma. Torres, of the
Torres and Valencia Law Office in Bacolod City, (Rollo, p. 17) was also the legal counsel of
the said corporation. (Rollo, p. 23)

Also, it is undisputed that summons and all notices of hearing were duly served upon Jose
Edmundo Pison. Since Pison is the administrator and representative of petitioner in its
property (Hacienda Lanutan) and recognized as such by the workers therein, we deem the
service of summons upon him as sufficient and substantial compliance with the
requirements for service of summons and other notices in respect of petitioner corporation.
Insofar as the complainants are concerned, Jose Edmundo Pison was their employer and/or
their employers representative. In view of the peculiar circumstances of this case, we rule
that Jose Pisons knowledge of the labor case and effort to resist it can be deemed
knowledge and action of the corporation. Indeed, to apply the normal precepts on corporate
fiction and the technical rules on service of summons would be to overturn the bias of the
Constitution and the laws in favor of labor.

Hence, it is fair to state that petitioner, through its administrator and manager, Jose
Edmundo Pison, was duly notified of the labor case against it and was actually afforded an
opportunity to be heard. That it refused to take advantage of such opportunity and opted to
hide behind its corporate veil will not shield it from the encompassing application of labor
laws. As we held in Bautista vs. Secretary of Labor and Employment:[22]

Moreover, since the proceeding was not judicial but merely administrative, the rigid
requirements of procedural laws were not strictly enforceable. It is settled that --

While the administrative tribunals exercising quasi-judicial powers are free from the rigidity
of certain procedural requirements they are bound by law and practice to observe the
fundamental and essential requirements of due process in justiciable cases presented
before them. However, the standard of due process that must be met in administrative
tribunals allows a certain latitude as long as the element of fairness is not ignored. (fn:
Adamson & Adamson, Inc. vs. Amores, 152 SCRA 237).

xxx

It is of course also sound and settled rule that administrative agencies performing quasi-
judicial functions are unfettered by the rigid technicalities of procedure observed in the
courts of law, and this is so that disputes brought before such bodies may be resolved in
the most expeditious and inexpensive manner possible. (fn: Rizal Workers Union vs. Ferrer-
Calleja, 186 SCRA 431).

Given all these circumstances, we feel that the lack of summons upon the petitioners is not
sufficient justification for annulling the acts of the public respondents.

Contrary to petitioners contention, the principles laid down in Eden are relevant to this case.
In that case, a religious organization, SCAFI,[23] denied responsibility for the monetary
claims of several employees, as these were filed against SCAPS[24] and its officer in charge
-- the employees believed that SCAPS was their employer. In rejecting such defense, this
Court ruled:[25]

With regard to the contention that SCAPS and SCAFI are two different entities, this lacks
merit. The change from SCAPS to SCAFI was a mere modification, if not rectification of the
caption as to respondent in the MOLE case, when it was pointed out in the complainants
position paper that SCAPS belongs to or is integral with SCAFI as gleaned from the
brochure, Annex A of said position paper, which is already part of the records of the case
and incorporated in the Comment by way of reference. The brochure stated that SCAPS is
the implementing and service arm of SCAFI, with Bishop Gaviola as National Director of
SCAPS and Board Chairman of SCAFI, both their address: 2655 F.B. Harrison, St., Pasay
City. Thus, the real party in interest is SCAFI, more so because it has the juridical personality
that can sue and be sued. The change in caption from SCAPS to SCAFI however does not
absolve SCAPS from liability, for SCAFI includes SCAPS, SCAPS -- the arm, SCAFI, -- the
 organism to which the arm is an integral part of the rise and fall of SCAPS, and vice-versa.
Thus, SCAFI has never been a stranger to the case. Jurisprudence is to the effect that:

An action may be entertained, notwithstanding the failure to include an indispensable party

where it appears that the naming of the party would be a formality. (Baguio vs. Rodriguez,
L-11078, May 27, 1959)

Comparable to Eden, Hacienda Lanutan is an arm of petitioner, the organism of which it is

an integral part. Ineluctably, the real party in interest in this case is petitioner, not Hacienda
Lanutan which is merely its non-juridical arm. In dealing with private respondents, petitioner
represented itself to be Hacienda Lanutan. Hacienda Lanutan is roughly equivalent to its
trade name or even nickname or alias. The names may have been different, but the
IDENTITY of the petitioner is not in dispute. Thus, it may be sued under the name by which
it made itself known to the workers.

Liability of Jose Edmundo Pison

Jose Edmundo Pison did not appeal from the Decision of public respondent. It thus follows
that he is bound by the said judgment. A party who has not appealed an adverse decision
cannot obtain from the appellate court any affirmative relief other than those granted, if there
is any, in the decision of the lower court or administrative body.[26]

WHEREFORE, premises considered, the petition is hereby DISMISSED, for its failure to
show grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the
National Labor Relations Commission. The assailed Decision and Resolution are
AFFIRMED. The temporary restraining order issued on January 19, 1995 is hereby LIFTED.
Costs against petitioner.

SO ORDERED.

Narvasa, C.J., (Chairman), Romero, Melo and Francisco, JJ., concur.

3.5.3.2. Purpose Clause
CASE: Uy Siuliong v. Director of Commerce and Industry 40 Phil. 541 [1919]
JOHNSON, J.:

The purpose of this action is to obtain the writ of mandamus to require the respondent to file and
register, upon the payment of the lawful fee, articles of incorporation, and to issue to the petitioners as the
incorporators of a certain corporation to be known as "Siuliong y Compañia, Inc.," a certificate under the
seal of the office of said respondent, certifying that the articles of incorporation have been duly filed and
registered in his office in accordance with the law.

To the petition the respondent demurred and the cause was finally submitted upon the petition and
demurrer.

The important facts necessary for the solution of the question presented, which are found in the
petition, may be stated as follows:

1. That prior to the presentation of the petition the petitioners had been associated together
as partners, which partnership was known as "mercantil regular colectiva, under the style and firm name
of "Siuliong y Cia.;"

2. That the petitioners herein, who had theretofore been members of said partnership of
"Siuliong y Cia.," desired to dissolve said partnership and to form a corporation composed of the same
persons as incorporators, to be known as "Siulong y Compañia, Incorporada;"

3. That the purpose of said corporation, "Siuliong y Cia., Inc.," is (a) to acquire the business of
the partnership theretofore known as Siuliong & Co., and (b) to continue said business with some of its
objects or purposes;

4. That an examination of the articles of incorporation of the said "Siuliong y Compañia,

Incorporada" (Exhibit A) shows that it is to be organized for the following purposes:
 (a) The purchase and sale, importation and exportation, of the products of the country as well
as of foreign countries;

(b) To discount promissory notes, bills of exchange, and other negotiable instruments;

(c) The purchase and sale of bills of exchange, bonds, stocks, or "participaciones de
sociedades mercantiles e industriales [joint account of mercantile and industrial associations]," and of all
classes of mercantile documents; "comisiones [commissions];" "consignaciones [consignments];"

(d) To act as agents for life, marine and fire insurance companies; lawphi1.net

(e) To purchase and sell boats of all classes "y fletamento de los mismos [and charterage of
same];" and

(f) To purchase and sell industrial and mercantile establishments.

While the articles of incorporation of "Siuliong y Cia., Inc." states that its purpose is to acquire and
continue the business, with some of its objects or purposes, of Siuliong & Co., it will be found upon an
examination of the purposes enumerated in the proposed articles of incorporation of "Siuliong y Cia., Inc.,"
that some of the purposes of the original partnership of "Siuliong y Cia." have been omitted. For example,
the articles of partnership of "Siuliong y Cia." gave said company the authority to purchase and sell all
classes "de fincas rusticas y urbanas [of rural and city real estate]" as well as the right to act as agents for
the establishment of any other business which it might esteem convenient for the interests of "la compañia
[the company]." (Exhibit C).

The respondent in his argument in support of the demurrer contends (a) that the proposed articles of
incorporation presented for file and registry permitted the petitioners to engage in a business which had for
its end more than one purpose; (b) that it permitted the petitioners to engage in the banking business, and
(c) to deal in real estate, in violation of the Act of Congress of July 1, 1902.

The petitioners, in reply to said argument of the respondent, while insisting that said proposed articles
of incorporation do not permit it to enter into the banking business nor to engage in the purchase and sale
of real estate in violation of said Act of Congress, expressly renounced in open court their right to engage
in such business under their articles of incorporation, even though said articles might be interpreted in a
way to authorize them to so to do. That renouncement on the part of the petitioners eliminates from the
purposes of said proposed corporation (of "Siuliong y Cia., Inc.") any right to engage in the banking
business as such, or in the purchase and sale of real estate.

We come now to the consideration of the principal question raised by the respondent, to wit: that the
proposed articles of incorporation of "Siuliong y Cia., Inc.," permits it to engage in a business with more
than one purpose.

If upon an examination of the articles of incorporation we find that its purpose is to engage in a
business with but one principal purpose, then that contention of the respondent will have been answered
and it will be unnecessary to discuss at length the question whether or not a corporation organized for
commercial purposes in the Philippine Islands can be organized for more than one purpose.

The attorney for the respondent, at the time of the argument, admitted in open court that corporations
in the Philippine Islands might be organized for both the "importation and exportation" of merchandise and
that there might be no relation between the kind of merchandise imported with the class of merchandise
exported.

Referring again to be proposed articles of incorporation, a copy of which is united with the original
petition and marked Exhibit A, it will be seen that the only purpose of said corporation are those enumerated
in subparagraphs (a), (b), (c), (d), (e) and ( f ) of paragraph 4 above. While said articles of incorporation
are somewhat loosely drawn, it is clear from a reading of the same that the principal purpose of said
corporation is to engage in a mercantile business, with the power to do and perform the particular acts
enumerated in said subparagraphs above referred to.

Without discussing or deciding at this time whether a corporation organized under the laws of the
Philippine Islands may be organized for more than one purpose, we are of the opinion and so decide that
a corporation may be organized under the laws of the Philippine Islands for mercantile purposes, and to
 engage in such incidental business as may be necessary and advisable to give effect to, and aid in, the
successful operation and conduct of the principal business.1awphi1.net

In the present case we are fully persuaded that all of the power and authority included in the articles
of incorporation of "Siuliong y Cia., Inc.," enumerated above in paragraph 4 (Exhibit A) are only incidental
to the principal purpose of said proposed incorporation, to wit: "mercantile business." The purchase and
sale, importation and exportation of the products of the country, as well as of foreign countries, might make
it necessary to purchase and discount promissory notes, bills of exchange, bonds, negotiable instruments,
stock, and interest in other mercantile and industrial associations. It might also become important and
advisable for the successful operation of the corporation to act as agent for insurance companies as well
as to buy, sell and equip boats and to buy and sell other establishments, and industrial and mercantile
businesses.

While we have arrived at the conclusion that the proposed articles of incorporation do not authorize
the petitioners to engage in a business with more than one purpose, we do not mean to be understood as
having decided that corporations under the laws of the Philippine Islands may not engage in a business
with more than one purpose. Such an interpretation might work a great injustice to corporations organized
under the Philippine laws. Such an interpretation would give foreign corporations, which are permitted to
be registered under the laws here and which may be organized for more than one purpose, a great
advantage over domestic corporations. We do not believe that it was the intention of the legislature to give
foreign corporations such an advantage over domestic corporations.

Considering the particular purposes and objects of the proposed articles of incorporation which are
specially enumerated above, we are of the opinion that it contains nothing which violates in the slightest
degree any of the provisions of the laws of the Philippine Islands, and the petitioners are, therefore, entitled
to have such articles of incorporation filed and registered as prayed for by them and to have issued to them
a certificate under the seal of the office of the respondent, setting forth that such articles of incorporation
have been duly filed in his office. (Sec. 11, Act No. 1459.)

Therefore, the petition prayed for is hereby granted, and without any finding as to costs, it is so
ordered.

Arellano, C.J., Torres and Avanceña, JJ., concur.

3.5.3.3. Principal office of the corporation

CASE: Clavecilla Radio System v. Antillon 19 SCRA 379 (1967)

REGALA, J.:

This is an appeal from an order of the Court of First Instance of Misamis Oriental dismissing the petition of the
Clavecilla Radio System to prohibit the City Judge of Cagayan de Oro from taking cognizance of Civil Case No. 1048
for damages.

It appears that on June 22, 1963, the New Cagayan Grocery filed a complaint against the Clavecilla Radio System
alleging, in effect, that on March 12, 1963, the following message, addressed to the former, was filed at the latter's
Bacolod Branch Office for transmittal thru its branch office at Cagayan de Oro:

NECAGRO CAGAYAN DE ORO (CLAVECILLA)

REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE SHALL SHIP LATER
REPLY POHANG

The Cagayan de Oro branch office having received the said message omitted, in delivering the same to the
New Cagayan Grocery, the word "NOT" between the words "WASHED" and "AVAILABLE," thus changing
entirely the contents and purport of the same and causing the said addressee to suffer damages. After
service of summons, the Clavecilla Radio System filed a motion to dismiss the complaint on the grounds that
it states no cause of action and that the venue is improperly laid. The New Cagayan Grocery interposed an
opposition to which the Clavecilla Radio System filed its rejoinder. Thereafter, the City Judge, on September
18, 1963, denied the motion to dismiss for lack of merit and set the case for hearing.1äwphï1.ñët
Hence, the Clavecilla Radio System filed a petition for prohibition with preliminary injunction with the Court of First
Instance praying that the City Judge, Honorable Agustin Antillon, be enjoined from further proceeding with the case
on the ground of improper venue. The respondents filed a motion to dismiss the petition but this was opposed by the
petitioner. Later, the motion was submitted for resolution on the pleadings.

In dismissing the case, the lower court held that the Clavecilla Radio System may be sued either in Manila where it
has its principal office or in Cagayan de Oro City where it may be served, as in fact it was served, with summons
through the Manager of its branch office in said city. In other words, the court upheld the authority of the city court to
take cognizance of the case.1äwphï1.ñët

In appealing, the Clavecilla Radio System contends that the suit against it should be filed in Manila where it holds its
principal office.

It is clear that the case for damages filed with the city court is based upon tort and not upon a written contract.
Section 1 of Rule 4 of the New Rules of Court, governing venue of actions in inferior courts, provides in its paragraph
(b) (3) that when "the action is not upon a written contract, then in the municipality where the defendant or any of the
defendants resides or may be served with summons." (Emphasis supplied)

Settled is the principle in corporation law that the residence of a corporation is the place where its principal office is
established. Since it is not disputed that the Clavecilla Radio System has its principal office in Manila, it follows that
the suit against it may properly be filed in the City of Manila.

The appellee maintain, however, that with the filing of the action in Cagayan de Oro City, venue was properly laid on
the principle that the appellant may also be served with summons in that city where it maintains a branch office. This
Court has already held in the case of Cohen vs. Benguet Commercial Co., Ltd., 34 Phil. 526; that the term "may be
served with summons" does not apply when the defendant resides in the Philippines for, in such case, he may be
sued only in the municipality of his residence, regardless of the place where he may be found and served with
summons. As any other corporation, the Clavecilla Radio System maintains a residence which is Manila in this case,
and a person can have only one residence at a time (See Alcantara vs. Secretary of the Interior, 61 Phil. 459;
Evangelists vs. Santos, 86 Phil. 387). The fact that it maintains branch offices in some parts of the country does not
mean that it can be sued in any of these places. To allow an action to be instituted in any place where a corporate
entity has its branch offices would create confusion and work untold inconvenience to the corporation.

It is important to remember, as was stated by this Court in Evangelista vs. Santos, et al., supra, that the laying of the
venue of an action is not left to plaintiff's caprice because the matter is regulated by the Rules of Court. Applying the
provision of the Rules of Court, the venue in this case was improperly laid.

The order appealed from is therefore reversed, but without prejudice to the filing of the action in Which the venue
shall be laid properly. With costs against the respondents-appellees.

Sy v. Tyson Enterprises, Inc.119 SCRA 367 (1982).

AQUINO, J:

This is a case about the venue of a collection suit. On August 29, 1979, Tyson Enterprises, Inc. filed against John Sy
and Universal Parts Supply Corporation in the Court of First Instance of Rizal, Pasig Branch XXI, a complaint for the
collection of P288,534.58 plus interest, attorney's fees and litigation expenses (Civil Case No. 34302).

It is alleged in the complaint that John Sy, doing business under the trade name, Universal Parts Supply, is a resident
of Fuentebella Subdivision, Bacolod City and that his co-defendant, Universal Parts Supply Corporation, allegedly
controlled by Sy, is doing business in Bacolod City.

Curiously enough, there is no allegation in the complaint as to the office or place of business of plaintiff Tyson
Enterprises, Inc., a firm actually doing business at 1024 Magdalena, now G. Masangkay Street, Binondo, Manila (p.
59, Rollo).
What is alleged is the postal address or residence of Dominador Ti, the president and general manager of plaintiff
firm, which is at 26 Xavier Street, Greenhills Subdivision, San Juan, Rizal. The evident purpose of alleging that
address and not mentioning the place of business of plaintiff firm was to justify the filing of the suit in Pasig, Rizal
instead of in Manila.

Defendant Sy and Universal Parts Supply Corporation first filed a motion for extension of time to file their answer and
later a motion for a bill of particulars. The latter motion was denied. Then, they filed a motion to dismiss on the ground
of improper venue.

They invoked the provision of section 2(b), Rule 4 of the Rules of Court that personal actions "may be commenced
and tried where the defendant or any of the defendants resides or may be found, or where the plaintiffs or any of the
plaintiffs resides, at the election of the plaintiff."

To strengthen that ground, they also cited the stipulation in the sales invoice that "the parties expressly submit to the
jurisdiction of the Courts of the City of Manila for any legal action arising out of" the transaction which stipulation is
quoted in paragraph 4 of plaintiff's complaint.

The plaintiff opposed the motion to dismiss on the ground that the defendants had waived the objection based on
improper venue because they had previously filed a motion for a bill of particulars which was not granted. The trial
court denied the motion to dismiss on the ground that by filing a motion for a bill of particulars the defendants waived
their objection to the venue. That denial order was assailed in a petition for certiorari and prohibition in the Court of
Appeals which issued on July 29, 1980 a restraining order, enjoining respondent judge from acting on the case. He
disregarded the restraining order (p. 133, Rollo).

The Appellate Court in its decision of October 6, 1980 dismissed the petition. It ruled that the parties did not intend
Manila as the exclusive venue of the actions arising under their transactions and that since the action was filed in
Pasig, which is near Manila, no useful purpose would be served by dismissing the same and ordering that it be filed
in Manila (Sy vs. Pineda, CA-G.R. No. SP-10775). That decision was appealed to this Court.

There is no question that the venue was improperly laid in this case. The place of business of plaintiff Tyson
Enterprises, Inc., which for purposes of venue is considered as its residence (18 C.J.S 583; Clavecilla Radio system
vs. Antillon, L-22238, February 18, 1967, 19 SCRA 379), because a corporation has a personality separate and
distinct from that of its officers and stockholders.

Consequently, the collection suit should have been filed in Manila, the residence of plaintiff corporation and the place
designated in its sales invoice, or it could have been filed also in Bacolod City, the residence of defendant Sy.

We hold that the trial court and the Court of Appeals erred in ruling that the defendants, now the petitioners, waived
their objection to the improper venue. As the trial court proceeded in defiance of the Rules of Court in not dismissing
the case, prohibition lies to restrain it from acting in the case (Enriquez vs. Macadaeg, 84 Phil. 674).

Section 4, Rule 4 of the Rules of Court provides that, "when improper venue is not objected to in a motion to dismiss
it is deemed waived" and it can no longer be pleaded as an affirmative defense in the answer (Sec. 5, Rule 16).

In this case, the petitioners, before filing their answer, filed a motion to dismiss based on improper venue. That
motion was seasonably filed (Republic vs. Court of First Instance of Manila, L-30839, November 28, 1975, 68 SCRA
231, 239). The fact that they filed a motion for a bill of particulars before they filed their motion to dismiss did not
constitute a waiver of their objection to the venue.

It should be noted that the provision of Section 377 of the Code of Civil Procedure that "the failure of a defendant to
object to the venue of the action at the time of entering his appearance in the action shall be deemed a waiver on his
part of all objection to the place or tribunal in which the action is brought" is not found in the Rules of Court.

And the provision of section 4, Rule 5 of the 1940 Rules of Court that "when improper venue is not objected to prior to
the trial, it is deemed waived" is not reproduced in the present Rules of Court.

To repeat, what section 4 of Rule 4 of the present Rules of court provides is that the objection to improper venue
should be raised in a motion to dismiss seasonably filed and, if not so raised, then the said objection is waived.
Section 4 does not provide that the objection based on improper venue should be interposed by means of a special
appearance or before any pleading is filed.

The rules on venue, like the other procedural rules, are designed to insure a just and orderly administration of justice
or the impartial and evenhanded determination of every action and proceeding. Obviously, this objective will not be
attained if the plaintiff is given unrestricted freedom to choose the court where he may file his complaint or petition.

The choice of venue should not be left to the plaintiff's whim or caprice. He may be impelled by some ulterior
motivation in choosing to file a case in a particular court even if not allowed by the rules on venue.

As perspicaciously observed by Justice Moreland, the purpose of procedure is not to restrict the court's jurisdiction
over the subject matter but to give it effective facility "in righteous action", "to facilitate and promote the administration
of justice" or to insure "just judgments" by means of a fair hearing. If that objective is not achieved, then "the
administration of justice becomes incomplete and unsatisfactory and lays itself open to grave criticism." (Manila
Railroad Co. vs. Attorney General, 20 Phil. 523, 530.)

The case of Marquez Lim Cay vs. Del Rosario, 55 Phil. 962, does not sustain the trial court's order of denial because
in that case the defendants, before filing a motion to dismiss on the ground of improper venue, interposed a demurrer
on the ground that the complaint does not state a cause of action. Then, they filed a motion for the dissolution of an
attachment, posted a bond for its dissolution and later filed a motion for the assessment of the damages caused by
the attachment. All those acts constituted a submission to the trial court's jurisdiction and a waiver of the objection
based on improper venue under section 377 of the Code of Civil Procedure.

The instant case is similar to Evangelista vs. Santos, 86 Phil. 387, where the plaintiffs sued the defendant in the
Court of First Instance of Rizal on the assumption that he was a resident of Pasay City because he had a house
there. Upon receipt of the summons, the defendant filed a motion to dismiss based on improper venue. He alleged
under oath that he was a resident of Iloilo City.

This Court sustained the dismissal of the complaint on the ground of improper venue, because the defendant was
really a resident of Iloilo City. His Pasay City residence was used by his children who were studying in Manila. Same
holding in Casilan vs. Tomassi, 90 Phil. 765; Corre vs. Corre, 100 Phil. 321; Calo vs. Bislig Industries, Inc., L-19703,
January 30, 1967, 19 SCRA 173; Adamos vs. J. M. Tuason, Co., Inc.,. L-21957, October 14, 1968, 25 SCRA 529.

Where one Cesar Ramirez, a resident of Quezon City, sued in the Court of First Instance of Manila Manuel F. Portillo,
a resident of Caloocan City, for the recovery of a sum of money, the trial court erred in not granting Portillo's motion to
dismiss the complaint on the ground of improper venue This Court issued the writ of prohibition to restrain the trial
court from proceeding in the case (Portillo vs. Judge Reyes and Ramirez, 113 Phil. 288).

WHEREFORE, the decision of the Court of Appeals and the order of respondent judge denying the motion to dismiss
are reversed and set aside. The writ of prohibition is granted. Civil Case No. 34302 should be considered dismissed
without prejudice to refiling - it in the Court of First Instance of Manila or Bacolod City at the election of plaintiff which
should be allowed to withdraw the documentary evidence submitted in that case. All the proceedings in said case,
including the decision, are also set aside. Costs against Tyson Enterprises, Inc.

SOORDERED.

3.5.3.4. Term of existence, Sec. 11 Corp. Code

Section 11. Corporate term. - A corporation shall exist for a period not exceeding fifty (50)
years from the date of incorporation unless sooner
dissolved or unless said period is extended. The corporate term as originally stated in the
articles of incorporation may be extended for periods not
exceeding fifty (50) years in any single instance by an amendment of the articles of
incorporation, in accordance with this Code; Provided, That no
extension can be made earlier than five (5) years prior to the original or subsequent expiry
date(s) unless there are justifiable reasons for an
earlier extension as may be determined by the Securities and Exchange Commission. (6
CASE: Alhambra Cigar v. SEC 24 SCRA 269 (1968).
 On January 15, 1912, Alhambra Cigar & Cigarette Manufacturing Company, Inc. was incorporated.
Its lifespan was for 50 years so on January 15, 1962, it expired. Thereafter, its Board authorized its
liquidation. Under the prevailing law, Alhambra has 3 years to liquidate.

In 1963, while Alhambra was liquidating, Republic Act 3531 was enacted. It amended Section 18 of
the Corporation Law; it empowered domestic private corporations to extend their corporate life beyond the
period fixed by the articles of incorporation for a term not to exceed fifty years in any one instance. Previous
to Republic Act 3531, the maximum non-extendible term of such corporations was fifty years.

Alhambra now amended its articles of incorporation to extend its lifespan for another 50 years. The
Securities and Exchange Commission (SEC) denied the amended articles of incorporation.

ISSUE: Whether or not a corporation under liquidation may still amend its articles of incorporation to
extend its lifespan.

HELD: No. Alhambra cannot avail of the new law because it has already expired at the time of its
passage. When a corporation is liquidating pursuant to the statutory period of three years to liquidate, it is
only allowed to continue for the purpose of final closure of its business and no other purposes. In fact,
within that period, the corporation is enjoined from “continuing the business for which it was established”.
Hence, Alhambra’s board cannot validly amend its articles of incorporation to extend its lifespan.
3.5.3.5. Incorporators and directors; number and qualifications
3.5.3.6. Capital Stock; subscription; payment
3.5.3.7. Other matters
3.5.4. Filing of articles; payment of fees
3.5.5. Examination of articles; approval or rejection by SEC
3.5.6. Issuance of certificate of incorporation
Sec. 19, Corp. Code
Section 19. Commencement of corporate existence. - A private corporation formed or
organized under this Code commences to have corporate
existence and juridical personality and is deemed incorporated from the date the Securities
and Exchange Commission issues a certificate of
incorporation under its official seal; and thereupon the incorporators, stockholders/members
and their successors shall constitute a body politic
and corporate under the name stated in the articles of incorporation for the period of time
mentioned therein, unless said period is extended or the
corporation is sooner dissolved in accordance with law. (n)

3.6. Defective Attempt to Incorporate; De Facto Corporation

Sec. 20, Corp. Code
Section 20. De facto corporations. - The due incorporation of any corporation claiming in good
faith to be a corporation under this Code, and its
right to exercise corporate powers, shall not be inquired into collaterally in any private suit to which
such corporation may be a party. Such inquiry
may be made by the Solicitor General in a quo warranto proceeding. (n)
3.6.1. Use of corporate powers
3.6.2. Law subsequently declared void
CASE: Municipality of Malabang v. Benito 29 SCRA 533 (1969)
Facts:
• Municipality of Balabagan was part of Malabang before but was separated and made into another
municipality by virtue of EO 366 issued by Pres. Garcia
• Petitioner argued that by virtue of the Pelaez ruling, the President cannot create Municipality anymore by
mere executive fiat

• the respondents argue that the rule announced in Pelaez can have no application in this case because
unlike the municipalities involved in Pelaez, the municipality of Balabagan is at least a de facto corporation, having
been organized under color of a statute before this was declared unconstitutional, its officers having been either
elected or appointed, and the municipality itself having discharged its corporate functions for the past five years
preceding the institution of this action.

• It appears that the true basis for denying to the corporation a de facto status lay in the absence of any
legislative act to give vitality to its creation.
 The principle that color of title under an unconstitutional statute can exist only where there is some other valid law
under which the organization may be effected, or at least an authority in potentia by the state constitution

• 2. whether the municipality of Balabagan is a de facto corporation

• NO. in the case at bar, the mere fact that Balabagan was organized at a time when the statute had not been
invalidated cannot conceivably make it a de factocorporation, as, independently of the Administrative Code provision
in question, there is no other valid statute to give color of authority to its creation.
•

The petitioner Amer Macaorao Balindong is the mayor of Malabang, Lanao del Sur, while the respondent
Pangandapun Bonito is the mayor, and the rest of the respondents are the councilors, of the municipality of
Balabagan of the same province.
Balabagan was formerly a part of the municipality of Malabang, having been created on March 15, 1960, by
Executive Order 386 of the then President Carlos P. Garcia, out of barrios and sitios1 of the latter municipality.
petitioners brought this action for prohibition to nullify Executive Order 386 and to restrain the respondent municipal
officials from performing the functions of their respective office relying on the ruling of this Court in Pelaez v. Auditor
General 2 and Municipality of San Joaquin v. Siva
In Pelaez this Court, through Mr. Justice (now Chief Justice) Concepcion, ruled: (1) that section 23 of Republic Act
2370 [Barrio Charter Act, approved January 1, 1960], by vesting the power to create barrios in the provincial board, is
a "statutory denial of the presidential authority to create a new barrio [and] implies a negation of the bigger power to
create municipalities," and (2) that section 68 of the Administrative Code, insofar as it gives the President the power
to create municipalities, is unconstitutional (a) because it constitutes an undue delegation of legislative power and (b)
because it offends against section 10 (1) of article VII of the Constitution, which limits the President's power over local
governments to mere supervision , In short, said section 68, as part of the Revised Administrative Code, approved on
March 10, 1917, must be deemed repealed by the subsequent adoption of the Constitution, in 1935, which is utterly
incompatible and inconsistent with said statutory enactment."

the respondents argue that the rule announced in Pelaez can have no application in this case because unlike the
municipalities involved in Pelaez, the municipality of Balabagan is at least a de facto corporation, having been
organized under color of a statute before this was declared unconstitutional, its officers having been either elected or
appointed, and the municipality itself having discharged its corporate functions for the past five years preceding the
institution of this action.
Thus, its existence cannot be collaterally attacked, although it may be inquired into directly in an action for quo
warranto at the instance of the State and not of an individual like the petitioner Balindong.

Issue:
1. whether a statute can lend color of validity to an attempted organization of a municipality despite the fact that such
statute is subsequently declared unconstitutional
2. whether the municipality of Balabagan is a de facto corporation
3. whether its existence can be collaterally attack

Ruling:
1. No. a statute cannot lend color of validity to an attempted organization of a municipality despite the fact that
such statute is subsequently declared unconstitutional.

An early article in the Yale Law Journal offers the following analysis:

It appears that the true basis for denying to the corporation a de facto status lay in the absence of any legislative act
to give vitality to its creation.
The principle that color of title under an unconstitutional statute can exist only where there is some other valid law
under which the organization may be effected, or at least an authority in potentia by the state constitution
As a result of this analysis of the cases the following principles may be deduced which seem to reconcile the
apparently conflicting decisions:
I. The color of authority requisite to the organization of a de facto municipal corporation may be:
1. A valid law enacted by the legislature.
2. An unconstitutional law, valid on its face, which has either (a) been upheld for a time by the courts or (b) not yet
been declared void; provided that a warrant for its creation can be found in some other valid law or in the recognition
of its potential existence by the general laws or constitution of the state.
II. There can be no de facto municipal corporation unless either directly or potentially, such a de jurecorporation is
authorized by some legislative fiat.
III. There can be no color of authority in an unconstitutional statute alone, the invalidity of which is apparent on its
face.
IV. There can be no de facto corporation created to take the place of an existing de jure corporation, as such
organization would clearly be a usurper.10

In the cases where a de facto municipal corporation was recognized as such despite the fact that the statute
creating it was later invalidated, the decisions could fairly be made to rest on the consideration that there was some
other valid law giving corporate vitality to the organization
2. whether the municipality of Balabagan is a de facto corporation
NO. in the case at bar, the mere fact that Balabagan was organized at a time when the statute had not been
invalidated cannot conceivably make it a de factocorporation, as, independently of the Administrative Code provision
in question, there is no other valid statute to give color of authority to its creation.
In Norton v. Shelby Count, 12 Mr. Justice Field said: "An unconstitutional act is not a law; it confers no rights; it
imposes no duties; it affords no protection; it creates no office; it is, in legal contemplation, as inoperative as though it
had never been passed
Executive Order 386 "created no office." This is not to say, however, that the acts done by the municipality of
Balabagan in the exercise of its corporate powers are a nullity because the executive order "is, in legal contemplation,
as inoperative as though it had never been passed." For the existence of Executive, Order 386 is "an operative fact
which cannot justly be ignored.
Operative fact Doctrine:
The actual existence of a statute, prior to such a determination, is an operative fact and may have consequences
which cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect of the
subsequent ruling as to invalidity may have to be considered in various aspects — with respect to particular relations,
individual and corporate, and particular conduct, private and official

3. whether its existence can be collaterally attack

, generally, an inquiry into the legal existence of a municipality is reserved to the State in a proceeding for quo
warranto or other direct proceeding.
4 But the rule disallowing collateral attacks applies only where the municipal corporation is at least a de facto
corporations. 5 For where it is neither a corporation de jure nor de facto, but a nullity, the rule is that its existence may
be, questioned collaterally or directly in any action or proceeding by any one whose rights or interests ate affected
thereby, including the citizens of the territory incorporated unless they are estopped by their conduct from doing