corporation law cases

SECOND DIVISION

[G.R. No. 131394. March 28, 2005]

JESUS V. LANUZA, MAGADYA REYES, BAYANI REYES and ARIEL REYES, petitioners, vs. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, DOLORES ONRUBIA, ELENITA NOLASCO, JUAN O. NOLASCO III, ESTATE OF FAUSTINA M. ONRUBIA, PHILIPPINE MERCHANT MARINE SCHOOL, INC.,respondents. DECISION TINGA, J.: Presented in the case at bar is the apparently straight-forward but complicated question: What should be the basis of quorum for a stockholders’ meeting—the outstanding capital stock as indicated in the articles of incorporation or that contained in the company’s stock and transfer book? Petitioners seek to nullify the Court of Appeals’ Decision in CA–G.R. SP No. 41473[1] promulgated on 18 August 1997, affirming the SECOrder dated 20 June 1996, and the Resolution[2] of the Court of Appeals dated 31 October 1997 which denied petitioners’ motion for reconsideration. The antecedents are not disputed. In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred (700) founders’ shares and seventy-six (76) common shares as its initial capital stock subscription reflected in the articles of incorporation. However, private respondents and their predecessors who were in control of PMMSI registered the company’s stock and transfer book for the first time in 1978, recording thirty-three (33) common shares as the only issued and outstanding shares of PMMSI. Sometime in 1979, a special stockholders’ meeting was called and held on the basis of what was considered as a quorum of twenty-seven (27) common shares, representing more than two-thirds (2/3) of the common shares issued and outstanding. In 1982, the heirs of one of the original incorporators, Juan Acayan, filed a petition with the Securities and Exchange Commission (SEC) for the registration of their property rights over one hundred (120) founders’ shares and twelve (12) common shares owned by their father. The SEC hearing officer held that the heirs of Acayan were entitled to the claimed shares and called for a special stockholders’ meeting to elect a new set of officers.[3] The SEC En Banc affirmed the decision. As a result, the shares of Acayan were recorded in the stock and transfer book. On 06 May 1992, a special stockholders’ meeting was held to elect a new set of directors. Private respondents thereafter filed a petition with the SEC questioning the validity of the 06 May 1992 stockholders’ meeting, alleging that the quorum for the said meeting should not be based on the 165 issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation. The petition was dismissed.[4] Appeal was made to the SEC En Banc, which granted said appeal, holding that the shares of the deceased incorporators should be duly represented by their respective administrators or heirs concerned. The SEC directed the parties to call for a stockholders meeting on the basis of the stockholdings reflected in the articles of incorporation for the purpose of electing a new set of officers for the corporation.[5] Petitioners, who are PMMSI stockholders, filed a petition for review with the Court of Appeals. [6] Rebecca Acayan, Jayne O. Abuid, Willie O. Abuid and Renato Cervantes, stockholders and directors of PMMSI, earlier filed another petition for review of the same SEC En Banc’s orders. The petitions were thereafter consolidated.[7] The consolidated petitions essentially raised the following issues, viz: (a) whether the basis the outstanding capital stock and accordingly also for determining the quorum at stockholders’ meetings it should be the 1978 stock and transfer book or if it should be the 1952 articles of incorporation; and (b) whether the Court of Appeals “gravely erred in applying the Espejo Decision to the benefit of respondents.”[8] The “Espejo Decision” is the decision of the SEC en banc in SEC Case No. 2289 which ordered the recording of the shares of Jose Acayan in the stock and transfer book.

The Court of Appeals held that for purposes of transacting business, the quorum should be based on the outstanding capital stock as found in the articles of incorporation.[9] As to the second issue, the Court of Appeals held that the ruling in the Acayan case would ipso facto benefit the private respondents, since to require a separate judicial declaration to recognize the shares of the original incorporators would entail unnecessary delay and expense. Besides, the Court of Appeals added, the incorporators have already proved their stockholdings through the provisions of the articles of incorporation.[10] In the instant petition, petitioners claim that the 1992 stockholders’ meeting was valid and legal. They submit that reliance on the 1952 articles of incorporation for determining the quorum negates the existence and validity of the stock and transfer book which private respondents themselves prepared. In addition, they posit that private respondents cannot avail of the benefits secured by the heirs of Acayan, as private respondents must show and prove entitlement to the founders and common shares in a separate and independent action/proceeding. In private respondents’ Memorandum[11] dated 08 March 2000, they point out that the instant petition raises the same facts and issues as those raised in G.R. No. 131315[12], which was denied by the First Division of this Court on 18 January 1999 for failure to show that the Court of Appeals committed any reversible error. They add that as a logical consequence, the instant petition should be dismissed on the ground of resjudicata. Furthermore, private respondents claim that in view of the applicability of the rule on res judicata, petitioners’ counsel should be cited for contempt for violating the rule against forum-shopping.[13] For their part, petitioners claim that the principle of res judicata does not apply to the instant case. They argue that the instant petition is separate and distinct from G.R. No. 131315, there being no identity of parties, and more importantly, the parties in the two petitions have their own distinct rights and interests in relation to the subject matter in litigation. For the same reasons, they claim that counsel for petitioners cannot be found guilty of forum-shopping.[14] In their Manifestation and Motion[15] dated 22 September 2004, private respondents moved for the dismissal of the instant petition in view of the dismissal of G.R. No. 131315. Attached to the said manifestation is a copy of the Entry of Judgment[16] issued by the First Division dated 01 December 1999. The petition must be denied, not on res judicata, but on the ground that like the petition in G.R. No. 131315 it fails to impute reversible error to the challenged Court of Appeals’ Decision. Res judicata does not apply in the case at bar. Res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing or matter settled by judgment.[17] The doctrine of resjudicata provides that a final judgment, on the merits rendered by a court of competent jurisdiction is conclusive as to the rights of the parties and their privies and constitutes an absolute bar to subsequent actions involving the same claim, demand, or cause of action.[18] The elements of res judicata are (a) identity of parties or at least such as representing the same interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (c) the identity in the two (2) particulars is such that any judgment which may be rendered in the other action will, regardless of which party is successful, amount to res judicata in the action under consideration.[19] There is no dispute as to the identity of subject matter since the crucial point in both cases is the propriety of including the still unproven shares of respondents for purposes of determining the quorum. Petitioners, however, deny that there is identity of parties and causes of actions between the two petitions. The test often used in determining whether causes of action are identical is to ascertain whether the same facts or evidence would support and establish the former and present causes of action. [20] More significantly, there is identity of causes of action when the judgment sought will be inconsistent with the prior judgment.[21] In both petitions, petitioners assert that the Court of Appeals’ Decision effectively negates the existence and validity of the stock and transfer book, as well as automatically grants private respondents’ shares of stocks which they do not own, or the ownership of which remains to be unproved. Petitioners in the two petitions rely on the entries in the stock and transfer book as the proper basis for computing the quorum, and consequently determine the degree of control one has over the company. Essentially, the affirmance of the SECOrder had the effect of diminishing their control and interests in the company, as it allowed the participation of the individual private respondents in the election of officers of the corporation. Absolute identity of parties is not a condition sine qua non for res judicata to apply—a shared identity of interest is sufficient to invoke the coverage of the principle.[22] However, there is no identity of parties between the two cases. The parties in the two petitions have their own rights and interests in relation to the subject matter in litigation. As stated by petitioners in their Reply to Respondents’ Memorandum,[23] there are no two separate actions filed, but rather, two separate petitions for review on certiorari filed by two distinct parties with the Court and represented by their own

counsels, arising from an adverse consolidated decision promulgated by the Court of Appeals in one action or proceeding.[24] As such,res judicata is not present in the instant case. Likewise, there is no basis for declaring petitioners or their counsel guilty of violating the rules against forumshopping. In theVerification/Certification[25] portion of the petition, petitioners clearly stated that there was then a pending motion for reconsideration of the 18 August 1997 Decision of the Court of Appeals in the consolidated cases (CAG.R. SP No. 41473 and CA-G.R. SP No. 41403) filed by the Abuids, as well as a motion for clarification. Moreover, the records indicate that petitioners filed their Manifestation[26] dated 20 January 1998, informing the Court of their receipt of the petition in G.R. No. 131315 in compliance with their duty to inform the Court of the pendency of another similar petition. The Court finds that petitioners substantially complied with the rules against forum-shopping. The Decision of the Court of Appeals must be upheld. The petition in this case involves the same facts and substantially the same issues and arguments as those in G.R. No. 131315 which the First Division has long denied with finality. The First Division found the petition before it inadequate in failing to raise any reversible error on the part of the Court of Appeals. We reach a similar conclusion as regards the present petition. The crucial issue in this case is whether it is the company’s stock and transfer book, or its 1952 Articles of Incorporation, which determines stockholders’ shareholdings, and provides the basis for computing the quorum. We agree with the Court of Appeals. The articles of incorporation has been described as one that defines the charter of the corporation and the contractual relationships between the State and the corporation, the stockholders and the State, and between the corporation and its stockholders.[27] When PMMSI was incorporated, the prevailing law was Act No. 1459, otherwise known as “The Corporation Law.” Section 6 thereof states: Sec. 6. Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippines, may form a private corporation for any lawful purpose or purposes by filing with the Securities and Exchange Commission articles of incorporation duly executed and acknowledged before a notary public, setting forth: .... (7) If it be a stock corporation, the amount of its capital stock, in lawful money of the Philippines, and the number of shares into which it is divided, and if such stock be in whole or in part without par value then such fact shall be stated; Provided, however, That as to stock without par value the articles of incorporation need only state the number of shares into which said capital stock is divided. (8) If it be a stock corporation, the amount of capital stock or number of shares of no-par stock actually subscribed, the amount or number of shares of no-par stock subscribed by each and the sum paid by each on his subscription. . . .[28] A review of PMMSI’s articles of incorporation[29] shows that the corporation complied with the requirements laid down by Act No. 1459. It provides in part: 7. That the capital stock of the said corporation is NINETY THOUSAND PESOS (P90,000.00) divided into two classes, namely: FOUNDERS’ STOCK - 1,000 shares at P20 par value- P 20,000.00 COMMON STOCK700 shares at P 100 par value – P 70,000.00 TOTAL ---------------------1,700 shares----------------------------P 90,000.00 .... 8. That the amount of the entire capital stock which has been actually subscribed is TWENTY ONE THOUSAND SIX HUNDRED PESOS (P21,600.00) and the following persons have subscribed for the number of shares and amount of capital stock set out after their respective names:

SUBSCRIBER

SUBSCRIBED No. of Shares

AMOUNT SUBSCRIBED Par Value P 2,400.00 2, 400.00 " " 2, 000.00 1, 000.00 1, 000.00 2, 800.00 800.00 1,600.00 P 14,000.00 AMOUNT SUBSCRIBED Par Value

Crispulo J. Onrubia Juan H. Acayan Martin P. Sagarbarria Mauricio G. Gallaga Luis Renteria Faustina M. de Onrubia Mrs. Ramon Araneta Carlos M. Onrubia

120 Founders 120 " 100 50

50 " 140 " 40 " 80 " 700

SUBSCRIBER

SUBSCRIBED No. of Shares

Crispulo J. Onrubia Juan H. Acayan Martin P. Sagarbarria Mauricio G. Gallaga Luis Renteria Faustina M. de Onrubia Mrs. Ramon Araneta Carlos M. Onrubia 8 "

12 Common 12 8 8 8 12 " " " " "

P 1,200.00 1,200.00 800.00 800.00 800.00 1,200.00 800.00

8 " 76

800.00 P 7,600.00[30]

There is no gainsaying that the contents of the articles of incorporation are binding, not only on the corporation, but also on its shareholders. In the instant case, the articles of incorporation indicate that at the time of incorporation, the incorporators were bona fide stockholders of seven hundred (700) founders’ shares and seventy-six (76) common shares. Hence, at that time, the corporation had 776 issued and outstanding shares. On the other hand, a stock and transfer book is the book which records the names and addresses of all stockholders arranged alphabetically, the installments paid and unpaid on all stock for which subscription has been made, and the date of payment thereof; a statement of every alienation, sale or transfer of stock made, the date thereof and by and to whom made; and such other entries as may be prescribed by law.[31] A stock and transfer book is necessary as a measure of precaution, expediency and convenience since it provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing the ownership of stock and like matters. [32] However, a stock and transfer book, like other corporate books and records, is not in any sense a public record, and thus is not exclusive evidence of the matters and things which ordinarily are or should be written therein.[33] In fact, it is generally held that the records and minutes of a corporation are not conclusive even against the corporation but are prima facie evidence only,[34] and may be impeached or even contradicted by other competent evidence. [35] Thus, parol evidence may be admitted to supply omissions in the records or explain ambiguities, or to contradict such records.[36] In 1980, Batas Pambansa Blg. 68, otherwise known as “The Corporation Code of the Philippines” supplanted Act No. 1459. BP Blg. 68 provides:

Sec. 24. Election of directors or trustees.—At all elections of directors or trustees, there must be present, either in person or by representative authorized to act by written proxy, the owners of a majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote. . . . Sec. 52. Quorum in meetings.- Unless otherwise provided for in this Code or in the by-laws, a quorum shall consist of the stockholders representing a majority of the outstanding capital stock or majority of the members in the case of non-stock corporation. Outstanding capital stock, on the other hand, is defined by the Code as: Sec. 137. Outstanding capital stock defined.— The term “outstanding capital stock” as used in this code, means the total shares of stock issued to subscribers or stockholders whether or not fully or partially paid (as long as there is binding subscription agreement) except treasury shares. Thus, quorum is based on the totality of the shares which have been subscribed and issued, whether it be founders’ shares or common shares.[37] In the instant case, two figures are being pitted against each other— those contained in the articles of incorporation, and those listed in the stock and transfer book. To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and transfer book, and completely disregarding the issued and outstanding shares as indicated in the articles of incorporation would work injustice to the owners and/or successors in interest of the said shares. This case is one instance where resort to documents other than the stock and transfer books is necessary. The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does not reflect the totality of shares which have been subscribed, more so when the articles of incorporation show a significantly larger amount of shares issued and outstanding as compared to that listed in the stock and transfer book. As aptly stated by the SEC in its Order dated 15 July 1996:[38] It is to be explained, that if at the onset of incorporation a corporation has 771 shares subscribed, the Stock and Transfer Book should likewise reflect 771 shares. Any sale, disposition or even reacquisition of the company of its own shares, in which it becomes treasury shares, would not affect the total number of shares in the Stock and Transfer Book. All that will change are the entries as to the owners of the shares but not as to the amount of shares already subscribed. This is precisely the reason why the Stock and Transfer Book was not given probative value. Did the shares, which were not recorded in the Stock and Transfer Book, but were recorded in the Articles of Iincorporation just vanish into thin air? . . . .[39] As shown above, at the time the corporation was set-up, there were already seven hundred seventy-six (776) issued and outstanding shares as reflected in the articles of incorporation. No proof was adduced as to any transaction effected on these shares from the time PMMSI was incorporated up to the time the instant petition was filed, except for the thirtythree (33) shares which were recorded in the stock and transfer book in 1978, and the additional one hundred thirty-two (132) in 1982. But obviously, the shares so ordered recorded in the stock and transfer book are among the shares reflected in the articles of incorporation as the shares subscribed to by the incorporators named therein. One who is actually a stockholder cannot be denied his right to vote by the corporation merely because the corporate officers failed to keep its records accurately.[40] A corporation’s records are not the only evidence of the ownership of stock in a corporation.[41] In an American case,[42]persons claiming shareholders status in a professional corporation were listed as stockholders in the amendment to the articles of incorporation. On that basis, they were in all respects treated as shareholders. In fact, the acts and conduct of the parties may even constitute sufficient evidence of one’s status as a shareholder or member.[43] In the instant case, no less than the articles of incorporation declare the incorporators to have in their name the founders and several common shares. Thus, to disregard the contents of the articles of incorporation would be to pretend that the basic document which legally triggered the creation of the corporation does not exist and accordingly to allow great injustice to be caused to the incorporators and their heirs. Petitioners argue that the Court of Appeals “gravely erred in applying the Espejo decision to the benefit of respondents.” The Court believes that the more precise statement of the issue is whether in its assailed Decision, the Court of Appeals can declare private respondents as the heirs of the incorporators, and consequently register the founders shares in their name. However, this issue as recast is not actually determinative of the present controversy as explained below.

Petitioners claim that the Decision of the Court of Appeals unilaterally divested them of their shares in PMMSI as recorded in the stock and transfer book and instantly created inexistent shares in favor of private respondents. We do not agree. The assailed Decision merely declared that a separate judicial declaration to recognize the shares of the original incorporators would entail unnecessary delay and expense on the part of the litigants, considering that the incorporators had already proved ownership of such shares as shown in the articles of incorporation.[44] There was no declaration of who the individual owners of these shares were on the date of the promulgation of the Decision. As properly stated by the SEC in its Order dated 20 June 1996, to which the appellate court’s Decision should be related, “if at all, the ownership of these shares should only be subjected to the proper judicial (probate) or extrajudicial proceedings in order to determine the respective shares of the legal heirs of the deceased incorporators.”[45] WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioners. SO ORDERED. Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur. EN BANC

[G.R. No. 130876. December 5, 2003]

FRANCISCO ALONSO (Deceased), substituted by MERCEDES V. ALONSO, TOMAS V. ALONSO and ASUNCION V. ALONSO, petitioners, vs. CEBU COUNTRY CLUB, INC., respondent. RESOLUTION AUSTRIA-MARTINEZ, J.: In our Decision dated January 31, 2002, we declared that: ... neither Tomas N. Alonso nor his son Francisco M. Alonso or the latter’s heirs are the lawful owners of Lot No. 727 in dispute. Neither has the respondent Cebu Country Club, Inc. been able to establish a clear title over the contested estate. The reconstitution of a title is simply the re-issuance of a lost duplicate certificate of title in its original form and condition. It does not determine or resolve the ownership of the land covered by the lost or destroyed title. A reconstituted title, like the original certificate of title, by itself does not vest ownership of the land or estate covered thereby.[1] on which basis, the dispositive portion of the decision reads: WHEREFORE, we DENY the petition for review. However, we SET ASIDE the decision of the Court of Appeals and that of the Regional Trial Court, Cebu City, Branch 08. IN LIEU THEREOF, we DISMISS the complaint and counterclaim of the parties in Civil Case No. CEB 12926 of the trial court. We declare that Lot No. 727 D-2 of the Banilad Friar Lands Estate covered by Original Certificate of Title Nos. 251, 232, and 253 legally belongs to the Government of the Philippines. No costs. SO ORDERED.[2] Petitioners and respondent filed separate motions for reconsideration, each assailing a different aspect of the decision.

Petitioners, in their Motion for Reconsideration dated March 6, 2002, vigorously argue that: (a) the majority decision unduly deprives petitioners of their property without due process of law and “in a manner shocking to good conscience”; (b) in invalidating the sale of Lot 727 to the late Tomas Alonso, the ponencia unfairly deviated from established doctrine to favor a mere obiter dictum as misapplied in Liao vs. Court of Appeals, using as basis factual findings either unsupported by the evidence or contradicted by the appellate court’s findings of fact; (c) the core issues of fraud and want of jurisdiction afflicting the reconstitution of respondent Cebu Country Club’s title were not squarely and frontally met, to the prejudice and damage of the petitioners; and (d) the dissenting opinion deserves a second hard look as it presents a more balanced, sober, factually accurate, and juridically precise approach to the critical issues of this case, including prescription and laches. On the other hand, respondent Cebu Country Club, Inc., in its Motion for Reconsideration dated March 5, 2002, staunchly assails the decision insofar as it declared that “Lot 727-D-2 of the Banilad Friar Lands Estate legally belongs to the Government of the Republic of the Philippines”. Respondent argues that the Office of the Solicitor General (OSG), as representative of the Government, has not intervened nor has it been impleaded in the Regional Trial Court (RTC) nor during the appeal in the Court of Appeals, and, the Torrens Certificate of Title, TCT No. RT-1310 (T-11351) of respondent, covering Lot 727, Banilad Friar Lands Estate, cannot be collaterally attacked and nullified in this case at bar. We find no merit in petitioners’ motion for reconsideration. The matters raised in the motion have already been substantially discussed in the decision. It must be emphasized that in civil cases, the burden of proof to be established by preponderance of evidence is on the plaintiff who is asserting the affirmative of an issue. He has the burden of presenting evidence required to obtain a favorable judgment, and he, having the burden of proof, will be defeated if no evidence were given on either side.[3] Inasmuch as petitioners pray for the “Declaration of Nullity and Non-Existence of Deed/Title, Cancellation of Certificates of Title and Recovery of Property” against the respondent, they had the burden to establish their claims of ownership of the subject property which they failed to do in this case. Section 18 of Act No. 1120 or the Friar Lands Act[4] unequivocally provides: “No lease or sale made by the Chief of the Bureau of Public Lands (now the Director of Lands) under the provisions of this Act shall be valid until approved by the Secretary of the Interior (now, the Secretary of Natural Resources). Thus, petitioners’ claim of ownership must fail in the absence of positive evidence showing the approval of the Secretary of Interior. Approval of the Secretary of the Interior cannot simply be presumed or inferred from certain acts since the law is explicit in its mandate. This is the settled rule as enunciated in Solid State Multi-Products Corporation vs. Court of Appeals[5] and reiterated in Liao vs. Court of Appeals.[6] Petitioners have not offered any cogent reason that would justify a deviation from this rule. Contrary to petitioners’ protestations, we squarely resolved the core issues of fraud and want of jurisdiction afflicting the reconstitution of respondent’s title. While we held that the issue of the validity of respondent’s title is factual which cannot be reviewed on appeal, nevertheless, we have answered each ground raised by petitioner in assailing respondent’s title.[7] Needless to stress, mere allegations of fraud are not enough.[8]Fraud is never presumed but must be proved by clear and convincing evidence,[9] mere preponderance of evidence not even being adequate.[10]As we have held in Saguid vs. Court of Appeals, contentions must be proved by competent evidence and reliance must be had on the strength of the party’s own evidence and not upon the weakness of the opponent’s defense. [11] Petitioners failed to discharge that burden. Moreover, it cannot be over-accentuated that Tomas Alonso, petitioners’ predecessor-in-interest, never asserted any claim of ownership over the disputed property during his lifetime. When he was alive, Tomas Alonso did not exert any effort to have the title of the disputed property reconstituted in his name or seek recovery thereof from the respondent which was in possession since 1931.[12] Significantly, Tomas Alonso had caused the reconstitution of his title on Lot 810, which is adjacent to the disputed property, sometime in 1946 and yet petitioners failed to show that Tomas Alonso exerted the same effort to reconstitute his alleged title to the subject property. As successors-in-interest, petitioners merely stepped into the shoes of Tomas Alonso. They cannot claim a right greater than that of their predecessor. Notably, Tomas Alonso and his son Francisco Alonso were not ordinary or unschooled men. They were learned men of the law. They belonged to the landed gentry and, thus, had adequate financial resources at their disposal. Tomas Alonso was even a member of Congress. The length of time that has elapsed, spanning six decades, before the institution of the suit to recover the property, begs for a valid explanation, of which none was convincingly offered. Petitioners’ silent acquiescence for several decades and belated invocation of an alleged right speak strongly of the staleness of their claim. Their claims can hardly evoke judicial compassion. Vigilantibus et non dormientibus jura subveniunt. “If eternal vigilance is the price of safety, one cannot sleep on one’s right for more than a tenth of a century and expect it to be preserved in its pristine purity”.[13] We likewise find no merit in respondent’s motion for reconsideration insofar as the decision declared that Lot 727D-2 of the Banilad Friar Lands Estate legally belongs to the Government of the Republic of the Philippines.

It must be borne in mind that the disputed property is part of the “Friar Lands” over which the Government holds title and are not public lands but private or patrimonial property of the Government[14] and can be alienated only upon proper compliance with the requirements of Act No. 1120 or the Friar Lands Act. Sections 11, 12 and 18 of Act No. 1120 provide: SECTION 11. Should any person who is the actual and bona fide settler upon and occupant of any portion of said lands . . . desire to purchase the land so occupied by him, he shall be entitled to do so at the actual cost thereof to the Government, and shall be allowed ten years from the date of purchase within which to pay for the same in equal annual installments, if he so desires, all deferred payments to bear interest at the rate of four per centum per annum on all deferred payments. ... SECTION 12. ... When the cost thereof shall have been thus ascertained the Chief of the Bureau of Public Lands shall give the said settler and occupant a certificate which shall set forth in detail that the Government has agreed to sell to such settler and occupant the amount of land so held by him, at the prize so fixed, payable as provided in this Act . . . and that upon the payment of the final installment together with all accrued interest the Government will convey to such settler and occupant the said land so held by him by proper instrument of conveyance, which shall be issued and become effective in the manner provided in section one hundred and twenty-two of the Land Registration Act. ... SECTION 18. No lease or sale made by the Chief of the Bureau of Public Lands under the provisions of this Act shall be valid until approved by the Secretary of the Interior. It was thus primordial for the respondent to prove its acquisition of its title by clear and convincing evidence in view of the nature of the land. In fact, it is essential for both respondent and petitioners to establish that it had become private property. Both parties failed to do so. As we have held earlier, petitioners have not succeeded to prove their claim of ownership over the subject property. On the part of respondent, it failed to shed light on how its predecessor in interest, United Services Country Club, Inc., acquired its title. Surprisingly, there is not even one evidence to show when and how its predecessor in interest, United Services Country Club, Inc., acquired the property from anybody. It may be true that records were destroyed during the war, but respondent has not offered any clear evidence, testimonial or documentary, on the circumstances surrounding the acquisition of Lot 727, thereby creating a wide chasm in its claim of ownership. It only serves to underscore the paucity of the proof of respondent to support its claim of ownership over the disputed property. Respondent relies solely on its reconstituted title which, by itself, does not determine or resolve the ownership of the land covered by the lost or destroyed title. The reconstitution of a title is simply the re-issuance of a lost duplicate certificate of title in its original form and condition. It does not determine or resolve the ownership of the land covered by the lost or destroyed title. A reconstituted title, like the original certificate of title, by itself does not vest ownership of the land or estate covered thereby.[15] Neither may the rewards of prescription be successfully invoked by respondent, as it is an iron-clad dictum that prescription can never lie against the Government. Since respondent failed to present the paper trail of the property’s conversion to private property, the lengthy possession and occupation of the disputed land by respondent cannot be counted in its favor, as the subject property being a friar land, remained part of the patrimonial property of the Government. Possession of patrimonial property of the Government, whether spanning decades or centuries, can notipso facto ripen into ownership. Moreover, the rule that statutes of limitation do not run against the State, unless therein expressly provided, is founded on “the great principle of public policy, applicable to all governments alike, which forbids that the public interests should be prejudiced by the negligence of the officers or agents to whose care they are confided.”[16] Furthermore, the declaration in the Court’s judgment that the subject property belongs to the Government is not an offshoot of a collateral attack on respondent’s title. The validity of the reconstitution of title to the land in question was directly in dispute, and the proceedings before the trial court was in the nature of a direct attack on the legality of respondent’s title. Finally, our declaration that Lot 727-D-2 of the Banilad Friar Lands Estate legally belongs to the Government does not amount to reversion without due process of law insofar as both parties are concerned. The disputed property is a Friar Land and both parties failed to show that it had ceased to belong to the patrimonial property of the State or that it had become private property.

IN VIEW THEREOF, we DENY with finality the separate motions for reconsideration of the petitioners and respondent. SO ORDERED.

SECOND DIVISION

[G.R. No. 122174. October 3, 2002]

INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and REFRACTORIES CORPORATION OF THE PHILIPPINES,respondents. DECISION
AUSTRIA-MARTINEZ, J.:

Filed before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Decision of the Court of Appeals in CA-G.R. SP No. 35056, denying due course and dismissing the petition filed by Industrial Refractories Corp. of the Philippines (IRCP). Respondent Refractories Corporation of the Philippines (RCP) is a corporation duly organized on October 13, 1976 for the purpose of engaging in the business of manufacturing, producing, selling, exporting and otherwise dealing in any and all refractory bricks, its by-products and derivatives. On June 22, 1977, it registered its corporate and business name with the Bureau of Domestic Trade. Petitioner IRCP on the other hand, was incorporated on August 23, 1979 originally under the name ―Synclaire Manufacturing Corporation‖. It amended its Articles of Incorporation on August 23, 1985 to change its corporate name to ―Industrial Refractories Corp. of the Philippines‖. It is engaged in the business of manufacturing all kinds of ceramics and other products, except paints and zincs. Both companies are the only local suppliers of monolithic gunning mix. [1] Discovering that petitioner was using such corporate name, respondent RCP filed on April 14, 1988 with the Securities and Exchange Commission (SEC) a petition to compel petitioner to change its corporate name on the ground that its corporate name is confusingly similar with that of petitioner’s such that the public may be confused or deceived into believing that they are one and the same corporation. [2]

The SEC decided in favor of respondent RCP and rendered judgment on July 23, 1993 with the following dispositive portion:

“WHEREFORE, judgment is hereby rendered in favor of the petitioner and against the respondent declaring the latter‟s corporate name „Industrial Refractories Corporation of the Philippines‟ as deceptively and confusingly similar to that of petitioner‟s corporate name „Refractories Corporation of the Philippines‟. Accordingly, respondent is hereby directed to amend its Articles of Incorporation by deleting the name „Refractories Corporation of the Philippines‟ in its corporate name within thirty (30) days from finality of this Decision. Likewise, respondent is hereby ordered to pay the petitioner the sum of P50,000.00 as attorney‟s fees.”
[3]

Petitioner appealed to the SEC En Banc, arguing that it does not have any jurisdiction over the case, and that respondent RCP has no right to the exclusive use of its corporate name as it is composed of generic or common words.[4] In its Decision dated July 23, 1993, the SEC En Banc modified the appealed decision in that petitioner was ordered to delete or drop from its corporate name only the word ―Refractories‖.[5] Petitioner IRCP elevated the decision of the SEC En Banc through a petition for review on certiorari to the Court of Appeals which then rendered the herein assailed decision. The appellate court upheld the jurisdiction of the SEC over the case and ruled that the corporate names of petitioner IRCP and respondent RCP are confusingly or deceptively similar, and that respondent RCP has established its prior right to use the word ―Refractories‖ as its corporate name.[6] The appellate court also found that the petition was filed beyond the reglementary period.[7] Hence, herein petition which we must deny. Petitioner contends that the petition before the Court of Appeals was timely filed. It must be noted that at the time the SEC En Banc rendered its decision on May 10, 1994, the governing rule on appeals from quasi-judicial agencies like the SEC was Supreme Court Circular No. 1-91. As provided therein, the remedy should have been a petition for review filed before the Court of Appeals within fifteen (15) days from notice, raising questions of fact, of law, or mixed questions of fact and law. [8] A motion for reconsideration suspends the running of the period.[9] In the case at bench, there is a discrepancy between the dates provided by petitioner and respondent. Petitioner alleges the following dates of receipt and filing:[10]

June 10, 1994 Receipt of SEC‟s Decision dated May 10, 1994 June 20, 1994 Filing of Motion for Reconsideration September 1, 1994 Receipt of SEC‟s Order dated August 3, 1994 denying petitioner‟s motion for reconsideration September 2, 1994 Filing of Motion for extension of time

September 6, 1994 Filing of Petition
Respondent RCP, however, asserts that the foregoing dates are incorrect as the certifications issued by the SEC show that petitioner received the SEC’s Decision dated May 10, 1994 on June 9, 1994, filed the motion for reconsideration via registered mail on June 25, 1994, and received the Order dated August 3, 1994 on August 15, 1994.[11] Thus, the petition was filed twenty-one (21) days beyond the reglementary period provided in Supreme Court Circular No. 1-91.[12] If reckoned from the dates supplied by petitioner, then the petition was timely filed. On the other hand, if reckoned from the dates provided by respondent RCP, then it was filed way beyond the reglementary period. On this score, we agree with the appellate court’s finding that petitioner failed to rebut respondent RCP’s allegations of material dates of receipt and filing.[13] In addition, the certifications were executed by the SEC officials based on their official records[14] which enjoy the presumption of regularity.[15] As such, these are prima facie evidence of the facts stated therein.[16] And based on such dates, there is no question that the petition was filed with the Court of Appeals beyond the fifteen (15) day period. On this ground alone, the instant petition should be denied as the SEC En Banc’s decision had already attained finality and the SEC’s findings of fact, when supported by substantial evidence, is final.[17] Nevertheless, to set the matters at rest, we shall delve into the other issues posed by petitioner. Petitioner’s arguments, substantially, are as follows: (1) jurisdiction is vested with the regular courts as the present case is not one of the instances provided in P.D. 902A; (2) respondent RCP is not entitled to use the generic name ―refractories‖; (3) there is no confusing similarity between their corporate names; and (4) there is no basis for the award of attorney’s fees.[18] Petitioner’s argument on the SEC’s jurisdiction over the case is utterly myopic. The jurisdiction of the SEC is not merely confined to the adjudicative functions provided in Section 5 of P.D. 902-A, as amended.[19] By express mandate, it has absolute jurisdiction, supervision and control over all corporations.[20] It also exercises regulatory and administrative powers to implement and enforce the Corporation Code,[21] one of which is Section 18, which provides:

“SEC. 18. Corporate name. -- No corporate name may be allowed by the Securities and Exchange Commission 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. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name.”
It is the SEC’s duty to prevent confusion in the use of corporate names not only for the protection of the corporations involved but more so for the protection of the public, and it has authority to de-register at all times and under all circumstances corporate

names which in its estimation are likely to generate confusion.[22] Clearly therefore, the present case falls within the ambit of the SEC’s regulatory powers.[23] Likewise untenable is petitioner’s argument that there is no confusing or deceptive similarity between petitioner and respondent RCP’s corporate names. Section 18 of the Corporation Code expressly prohibits the use of a corporate name which is ―identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws‖. The policy behind the foregoing prohibition is to avoid fraud upon the public that will have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over corporation.[24] Pursuant thereto, the Revised Guidelines in the Approval of Corporate and Partnership Names[25] specifically requires that: (1) a corporate name shall not be identical, misleading or confusingly similar to one already registered by another corporation with the Commission;[26] and (2) if the proposed name is similar to the name of a registered firm, the proposed name must contain at least one distinctive word different from the name of the company already registered.[27] As held in Philips Export B.V. vs. Court of Appeals,[28] to fall within the prohibition of the law, two requisites must be proven, to wit:
(1) that the complainant corporation acquired a prior right over the use of such corporate name; and (2) the proposed name is either: (a) identical, or (b) deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law; or (c) patently deceptive, confusing or contrary to existing law.

As regards the first requisite, it has been held that the right to the exclusive use of a corporate name with freedom from infringement by similarity is determined by priority of adoption.[29] In this case, respondent RCP was incorporated on October 13, 1976 and since then has been using the corporate name ―Refractories Corp. of the Philippines‖. Meanwhile, petitioner was incorporated on August 23, 1979 originally under the name ―Synclaire Manufacturing Corporation‖. It only started using the name ―Industrial Refractories Corp. of the Philippines‖ when it amended its Articles of Incorporation on August 23, 1985, or nine (9) years after respondent RCP started using its name. Thus, being the prior registrant, respondent RCP has acquired the right to use the word ―Refractories‖ as part of its corporate name. Anent the second requisite, in determining the existence of confusing similarity in corporate names, the test is whether the similarity is such as to mislead a person using ordinary care and discrimination and the Court must look to the record as well as the names themselves.[30] Petitioner’s corporate name is ―Industrial Refractories Corp. of the Phils.‖, while respondent’s is ―Refractories Corp. of the Phils.‖ Obviously, both names contain the identical words ―Refractories‖, ―Corporation‖ and ―Philippines‖. The only word that distinguishes petitioner from respondent RCP is the word ―Industrial‖ which merely identifies a corporation’s general field of activities or operations. We need not

linger on these two corporate names to conclude that they are patently similar that even with reasonable care and observation, confusion might arise. [31] It must be noted that both cater to the same clientele, i.e.¸ the steel industry. In fact, the SEC found that there were instances when different steel companies were actually confused between the two, especially since they also have similar product packaging. [32] Such findings are accorded not only great respect but even finality, and are binding upon this Court, unless it is shown that it had arbitrarily disregarded or misapprehended evidence before it to such an extent as to compel a contrary conclusion had such evidence been properly appreciated. [33] And even without such proof of actual confusion between the two corporate names, it suffices that confusion is probable or likely to occur.[34] Refractory materials are described as follows:

“Refractories are structural materials used at high temperatures to [sic] industrial furnaces. They are supplied mainly in the form of brick of standard sizes and of special shapes. Refractories also include refractory cements, bonding mortars, plastic firebrick, castables, ramming mixtures, and other bulk materials such as dead-burned grain magneside, chrome or ground ganister and special clay.”
[35]

While the word ―refractories‖ is a generic term, its usage is not widespread and is limited merely to the industry/trade in which it is used, and its continuous use by respondent RCP for a considerable period has made the term so closely identified with it. [36] Moreover, as held in the case ofAng Kaanib sa Iglesia ng Dios kay Kristo Hesus, H.S.K. sa Bansang Pilipinas, Inc. vs. Iglesia ng Dios kay Cristo Jesus, Haligi at Suhay ng Katotohanan, petitioner’s appropriation of respondent's corporate name cannot find justification under the generic word rule. [37] A contrary ruling would encourage other corporations to adopt verbatim and register an existing and protected corporate name, to the detriment of the public.[38] Finally, we find the award of P50,000.00 as attorney's fees to be fair and reasonable. Article 2208 of the Civil Code allows the award of such fees when its claimant is compelled to litigate with third persons or to incur expenses to protect its just and valid claim. In this case, despite its undertaking to change its corporate name in case another firm has acquired a prior right to use such name,[39] it refused to do so, thus compelling respondent to undergo litigation and incur expenses to protect its corporate name. WHEREFORE, the instant petition for review on certiorari is hereby DENIED for lack of merit. Costs against petitioner. SO ORDERED. Bellosillo, Acting C.J., (Chairman), Quisumbing, and Callejo, Sr., JJ., concur. Mendoza, J., on official leave.

FIRST DIVISION

[G.R. No. 137592. December 12, 2001]

ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, H.S.K. SA BANSANG PILIPINAS, INC. petitioner, vs. IGLESIA NG DIOS KAY CRISTO JESUS, HALIGI AT SUHAY NG KATOTOHANAN, respondent. DECISION
YNARES-SANTIAGO, J.:

This is a petition for review assailing the Decision dated October 7, 1997[1] and the Resolution dated February 16, 1999[2] of the Court of Appeals in CA-G.R. SP No. 40933, which affirmed the Decision of the Securities and Exchange and Commission (SEC) in SEC-AC No. 539.[3] Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church of God in Christ Jesus, the Pillar and Ground of Truth),[4] is a non-stock religious society or corporation registered in 1936. Sometime in 1976, one Eliseo Soriano and several other members of respondent corporation disassociated themselves from the latter and succeeded in registering on March 30, 1977 a new non-stock religious society or corporation, named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan. On July 16, 1979, respondent corporation filed with the SEC a petition to compel the Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate name, which petition was docketed as SEC Case No. 1774. On May 4, 1988, the SEC rendered judgment in favor of respondent, ordering theIglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate name to another name that is not similar or identical to any name already used by a corporation, partnership or association registered with the Commission.[5] No appeal was taken from said decision. It appears that during the pendency of SEC Case No. 1774, Soriano, et al., caused the registration on April 25, 1980 of petitioner corporation, Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K., sa Bansang Pilipinas. The acronym “H.S.K.” stands for Haligi at Saligan ng Katotohanan.[6] On March 2, 1994, respondent corporation filed before the SEC a petition, docketed as SEC Case No. 03-94-4704, praying that petitioner be compelled to change its corporate name and be barred from using the same or similar name on the ground that the same causes confusion among their members as well as the public.

Petitioner filed a motion to dismiss on the ground of lack of cause of action. The motion to dismiss was denied. Thereafter, for failure to file an answer, petitioner was declared in default and respondent was allowed to present its evidence ex parte. On November 20, 1995, the SEC rendered a decision ordering petitioner to change its corporate name. The dispositive portion thereof reads:

PREMISES CONSIDERED, judgment is hereby rendered in favor of the petitioner (respondent herein). Respondent Mga Kaanib sa Iglesia ng Dios Kay Kristo Jesus (sic), H.S.K. sa Bansang Pilipinas (petitioner herein) is hereby MANDATED to change its corporate name to another not deceptively similar or identical to the same already used by the Petitioner, any corporation, association, and/or partnership presently registered with the Commission. Let a copy of this Decision be furnished the Records Division and the Corporate and Legal Department [CLD] of this Commission for their records, reference and/or for whatever requisite action, if any, to be undertaken at their end. SO ORDERED.[7]
Petitioner appealed to the SEC En Banc, where its appeal was docketed as SEC-AC No. 539. In a decision dated March 4, 1996, the SEC En Banc affirmed the above decision, upon a finding that petitioner's corporate name was identical or confusingly or deceptively similar to that of respondent‟s corporate name.[8] Petitioner filed a petition for review with the Court of Appeals. On October 7, 1997, the Court of Appeals rendered the assailed decision affirming the decision of the SEC En Banc. Petitioner‟s motion for reconsideration was denied by the Court of Appeals on February 16, 1992. Hence, the instant petition for review, raising the following assignment of errors:
I

THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER HAS NOT BEEN DEPRIVED OF ITS RIGHT TO PROCEDURAL DUE PROCESS, THE HONORABLE COURT OF APPEALS DISREGARDED THE JURISPRUDENCE APPLICABLE TO THE CASE AT BAR AND INSTEAD RELIED ON TOTALLY INAPPLICABLE JURISPRUDENCE.
II

THE HONORABLE COURT OF APPEALS ERRED IN ITS INTEPRETATION OF THE CIVIL CODE PROVISIONS ON EXTINCTIVE PRESCRIPTION, THEREBY RESULTING IN ITS FAILURE TO FIND THAT THE RESPONDENT'S RIGHT OF ACTION TO INSTITUTE THE SEC CASE HAS SINCE PRESCRIBED PRIOR TO ITS INSTITUTION.
III

THE HONORABLE COURT OF APPEALS FAILED TO CONSIDER AND PROPERLY APPLY THE EXCEPTIONS ESTABLISHED BY JURISPRUDENCE IN THE APPLICATION OF SECTION 18 OF THE CORPORATION CODE TO THE INSTANT CASE.
IV

THE HONORABLE COURT OF APPEALS FAILED TO PROPERLY APPRECIATE THE SCOPE OF THE CONSTITUTIONAL GUARANTEE ON RELIGIOUS FREEDOM, THEREBY FAILING TO APPLY THE SAME TO PROTECT PETITIONER‟S RIGHTS.[9]
Invoking the case of Legarda v. Court of Appeals,[10] petitioner insists that the decision of the Court of Appeals and the SEC should be set aside because the negligence of its former counsel of record, Atty. Joaquin Garaygay, in failing to file an answer after its motion to dismiss was denied by the SEC, deprived them of their day in court. The contention is without merit. As a general rule, the negligence of counsel binds the client. This is based on the rule that any act performed by a lawyer within the scope of his general or implied authority is regarded as an act of his client.[11] An exception to the foregoing is where the reckless or gross negligence of the counsel deprives the client of due process of law.[12] Said exception, however, does not obtain in the present case. In Legarda v. Court of Appeals, the effort of the counsel in defending his client‟s cause consisted in filing a motion for extension of time to file answer before the trial court. When his client was declared in default, the counsel did nothing and allowed the judgment by default to become final and executory. Upon the insistence of his client, the counsel filed a petition to annul the judgment with the Court of Appeals, which denied the petition, and again the counsel allowed the denial to become final and executory. This Court found the counsel grossly negligent and consequently declared as null and void the decision adverse to his client. The factual antecedents of the case at bar are different. Atty. Garaygay filed before the SEC a motion to dismiss on the ground of lack of cause of action. When his client was declared in default for failure to file an answer, Atty. Garaygay moved for reconsideration and lifting of the order of default.[13] After judgment by default was rendered against petitioner corporation, Atty. Garaygay filed a motion for extension of time to appeal/motion for reconsideration, and thereafter a motion to set aside the decision.[14]

Evidently, Atty. Garaygay was only guilty of simple negligence. Although he failed to file an answer that led to the rendition of a judgment by default against petitioner, his efforts were palpably real, albeit bereft of zeal.[15] Likewise, the issue of prescription, which petitioner raised for the first time on appeal to the Court of Appeals, is untenable. Its failure to raise prescription before the SEC can only be construed as a waiver of that defense.[16] At any rate, the SEC has the authority to de-register at all times and under all circumstances corporate names which in its estimation are likely to spawn confusion. It is the duty of the SEC to prevent confusion in the use of corporate names not only for the protection of the corporations involved but more so for the protection of the public.[17] Section 18 of the Corporation Code provides:

Corporate Name. --- No corporate name may be allowed by the Securities and Exchange Commission 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 is contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name.
Corollary thereto, the pertinent portion of the SEC Guidelines on Corporate Names states:

(d) If the proposed name contains a word similar to a word already used as part of the firm name or style of a registered company, the proposed name must contain two other words different from the name of the company already registered;
Parties organizing a corporation must choose a name at their peril; and the use of a name similar to one adopted by another corporation, whether a business or a nonprofit organization, if misleading or likely to injure in the exercise of its corporate functions, regardless of intent, may be prevented by the corporation having a prior right, by a suit for injunction against the new corporation to prevent the use of the name.[18] Petitioner claims that it complied with the aforecited SEC guideline by adding not only two but eight words to their registered name, to wit: “Ang Mga Kaanib"and "Sa Bansang Pilipinas, Inc.,” which, petitioner argues, effectively distinguished it from respondent corporation. The additional words “Ang Mga Kaanib” and “Sa Bansang Pilipinas, Inc.” in petitioner‟s name are, as correctly observed by the SEC, merely descriptive of and also referring to the members, or kaanib, of respondent who are likewise residing in the Philippines. These words can hardly serve as an effective differentiating medium necessary to avoid confusion or difficulty in distinguishing petitioner from respondent. This is especially so, since both petitioner and respondent corporations are using the same acronym --- H.S.K.;[19] not to mention the fact that both are espousing religious beliefs and operating in the same place. Parenthetically, it is well to mention that the acronym H.S.K. used by petitioner stands for “Haligi at Saligan ng Katotohanan.”[20] Then, too, the records reveal that in holding out their corporate name to the public, petitioner highlights the dominant words “IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI AT

SALIGAN NG KATOTOHANAN,” which is strikingly similar to respondent's corporate name, thus making it even more evident that the additional words “Ang Mga Kaanib” and “Sa Bansang Pilipinas, Inc.”, are merely descriptive of and pertaining to the members of respondent corporation.[21] Significantly, the only difference between the corporate names of petitioner and respondent are the words SALIGAN and SUHAY. These words are synonymous --- both mean ground, foundation or support. Hence, this case is on all fours with Universal Mills Corporation v. Universal Textile Mills, Inc.,[22] where the Court ruled that the corporate names Universal Mills Corporation and Universal Textile Mills, Inc., are undisputably so similar that even under the test of “reasonable care and observation” confusion may arise. Furthermore, the wholesale appropriation by petitioner of respondent's corporate name cannot find justification under the generic word rule. We agree with the Court of Appeals‟ conclusion that a contrary ruling would encourage other corporations to adopt verbatim and register an existing and protected corporate name, to the detriment of the public. The fact that there are other non-stock religious societies or corporations using the names Church of the Living God, Inc., Church of God Jesus Christ the Son of God the Head, Church of God in Christ & By the Holy Spirit, and other similar names, is of no consequence. It does not authorize the use by petitioner of the essential and distinguishing feature of respondent's registered and protected corporate name.[23] We need not belabor the fourth issue raised by petitioner. Certainly, ordering petitioner to change its corporate name is not a violation of its constitutionally guaranteed right to religious freedom. In so doing, the SEC merely compelled petitioner to abide by one of the SEC guidelines in the approval of partnership and corporate names, namely its undertaking to manifest its willingness to change its corporate name in the event another person, firm, or entity has acquired a prior right to the use of the said firm name or one deceptively or confusingly similar to it. WHEREFORE, in view of all the foregoing, the instant petition for review is DENIED. The appealed decision of the Court of Appeals is AFFIRMED in toto. SO ORDERED. Davide, Jr., C.J., (Chairman), Kapunan, and Pardo, JJ., concur. Puno, J., on official leave.

[5]

Rollo, pp. 419-424.
Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. L-28351 July 28, 1977

UNIVERSAL MILLS CORPORATION, petitioner, vs. UNIVERSAL TEXTILE MILLS, INC., respondent. Emigdio G. Tanjuatco for petitioner. Picazo, Santayana, Reyes, Tayao & Alfonso for respondent.

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. Fernando (Chairman), Antonio, Aquino, Concepcion Jr. and Santos, JJ., concur.

Republic of the Philippines SUPREME COURT Baguio City THIRD DIVISION G.R. No. 139371 April 4, 2001

INDIANA AEROSPACE UNIVERSITY, petitioner, vs. COMMISSION ON HIGHER EDUCATION (CHED), respondent. PANGANIBAN, J.: When the delayed filing of an answer causes no prejudice to the plaintiff, default orders should be avoided. Inasmuch as herein respondent was improvidently declared in default, its Petition for Certiorari to annul its default may be given due course. The act of the Commission on Higher Education enjoining petitioner from using the word "university" in

its corporate name and ordering it to revert to its authorized name does not violate its proprietary rights or constitute irreparable damage to the school. Indeed, petitioner has no vested right to misrepresent itself to the public. An injunction is a remedy in equity and should not be used to perpetuate a falsehood. The Case Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, challenging the July 21, 1999 Decision1 of the Court of Appeals (CA) in CA-GR SP No. 51346. The appellate court directed the Regional Trial Court (RTC) of Makati City, Branch 136, to cease and desist from proceeding with Civil Case No. 98-811 and to dismiss the Complaint for Damages filed by the "Indiana Aerospace University" against the Commission on Higher Education (CHED). The dispositive portion of the CA Decision reads as follows: "WHEREFORE, in the light of the foregoing consideration, and pursuant to pertinent existing laws and jurisprudence on the matter, [the trial court] is hereby DIRECTED to cease and desist from proceeding with Civil Case No. 98-811 and to order the dismissal of [petitioner's] Petition dated March 31, 1999 in Civil Case No. 98-911 for lack of merit and valid cause of action." 2 The Facts The facts of this case are summarized by the CA, as follows: "Sometime in October 1996, Dr. Reynaldo B. Vera, Chairman, Technical Panel for Engineering, Architecture, and Maritime Education (TPRAM) of [CHED], received a letter dated October 18, 1998 (Annex 'C') from Douglas R. Macias, Chairman, Board of Aeronautical Engineering, Professional Regulat[ory] Commission (PRC) and Chairman, Technical Committee for Aeronautical Engineering (TPRAME) inquiring whether [petitioner] had already acquired [u]niversity status in view of the latter's advertisement in [the] Manila Bulletin. "In a letter dated October 24, 1996, Dr. Vera formally referred the aforesaid letter to Chairman Alcala with a request that the concerned Regional Office of [CHED] be directed to conduct appropriate investigation on the alleged misrepresentation by [petitioner]. Thereafter, [CHED] referred the matter to its Regional Director in Cebu City, requesting said office to conduct an investigation and submit its report. The [R]eport submitted in January 1997, stated in substance: 'x x x xxx xxx

'To recall it was in the month of May 1996, [that] Director Ma. Lilia Gaduyon met the school [p]resident in the regional office and verbally talked [with] and advised them not to use University when it first came out in an advertisement column of a local daily newspaper in Cebu City. It was explained that there was a violation [committed by] his institution [when it used] the term university unless the school ha[d] complied [with] the basic requirement of being a university as prescribed in CHED Memorandum Order No. 48, s. 1996.' xxx xxx x x x.'

"As a consequence of said Report, [respondent's] Legal Affairs Service was requested to take legal action against [petitioner]. Subsequently, on February 3, 1997, [respondent] directed [petitioner] to desist from using the term University, including the use of the same in any of its alleged branches. In the course of its investigation, [respondent] was able to verify from the Securities and Exchange Commission (SEC) that [petitioner had] filed a proposal to amend its corporate name from Indiana School of Aeronautics to Indiana Aerospace University, which was supposedly favorably recommended by the Department of Education, Culture and Sports (DECS) per its Indorsement dated 17 July 1995, and on [that] basis, SEC issued to [petitioner] Certificate of Registration No. AS-083-002689 dated August 7, 1995. Surprisingly, however, it ought to be noted, that SEC Chairman Perfecto R. Yasay, Jr. wrote the following letter to the [c]hairman of [respondent]: 'Hon. Angel C. Alcala Chairman

Commission on Higher Education DAP Bldg., San Miguel Avenue Ortigas Center, Pasig City Dear Chairman Alcala: This refers to your letter dated September 18, 1997 requesting this Commission to make appropriate changes in the Articles of Incorporation of Indiana School of Aeronautics, Inc. due to its unauthorized use of the term 'University' in its corporate name. Relative thereto, please be informed that our records show that the above-mentioned corporation has not filed any amended articles of incorporation that changed its corporate name to include the term 'University.' In case the corporation submit[s] an application for change of name, your Cease and Desist Order shall be considered accordingly. Very Truly yours, (SGD.) PERFECTO R. YASAY, JR. Chairman' "In reaction to [respondent's] order for [petitioner] to desist from using the word 'University', Jovenal Toring, [c]hairman and [f]ounder of [petitioner] wrote a letter dated February 24, 1997 (Annex 'G') appealing for reconsideration of [respondent's] Order, with a promise to follow the provisions of CMO No. 48, pertinent portions of which have been quoted in the Petition, to wit: 'On 07 August 1995, in line with the call of the government to go for global competitiveness and our vision to help in the development of aerospace technology, the Board of Directors applied with the SEC for the amendment of Article I of the Articles of Incorporation to read as 'Indiana Aerospace University' instead of 'Indiana School of Aeronautics, Inc.' xxx xxx xxx

'In view thereof, we would like to appeal to you Fr. Delagoza to please reconsider your order of February 3, 1997, otherwise the school will encounter financial difficulties and suffer damages which will eventually result in the mass dislocation of x x x thousand[s] of students. The undersigned, being the [c]hairman and [f]ounder, will try our very best to follow the provisions of CHED MEMO No. 48, series of 1996 that took effect last June 18, 1996. xxx xxx xxx

Thank you very much for giving me a copy of said CHED MEMO Order No. 48. More power and God Bless You. xxx xxx xxx

"The appeal of [petitioner] was however rejected by [respondent] in its decision dated July 30, 1998 and [the latter] ordered the former to cease and desist from using the word 'University.' However, prior to said date, on April 2, 1998, [petitioner] filed a Complaint for Damages with prayer for Writ of Preliminary and Mandatory Injunction and Temporary Restraining Order against [respondent], docketed as Civil Case No. 98-811 before public respondent judge. "On April 7, 1998, [respondent] filed a Special Appearance with Motion to Dismiss, based on 1) improper venue; 2) lack of authority of the person instituting the action; and 3) lack of cause of action. On April 17, 1998, [petitioner] filed its Opposition to the Motion to Dismiss [on] grounds stated therein, to which [respondent] filed a Reply on April 21, 1998, reiterating the same arguments in its Motion to Dismiss. After

due hearing, [petitioner] formally offered its evidence on July 23, 1998 while [respondent] made a formal offer of evidence on July 28, 1998 to which [petitioner] filed its Comments/Objections and finally, [respondent] submitted its Memorandum relative thereto on October 1, 1998. "Public respondent judge, in an Order dated August 14, 1998, denied [respondent's] Motion to Dismiss and at the same time, issued a Writ of Preliminary Injunction in favor of [petitioner]. [Respondent], in the same Order, was directed to file its Answer within fifteen (15) days from receipt of said Order, which was August 15, 1998. xxx xxx xxx

'WHEREFORE, and in consideration of all the foregoing, [respondent's] Motion to Dismiss is hereby denied, and the [respondent] is directed to file its [A]nswer to the [C]omplaint within fifteen (15) days from receipt of this order. In the meantime, [respondent], its officials, employees and all parties acting under its authority are hereby enjoined to observe the following during the pendency of this case: 1. Not to publish or circulate any announcement in the newspaper, radio or television regarding its Cease and Desist Order against x x x [petitioner]; 2. Not to enforce the Cease and Desist Order issued against x x x [petitioner]; 3. To maintain the status quo by not withholding the issuance of yearly school permits and special order to all graduates. Let a Writ of Preliminary Injunction to that effect issue upon posting by [petitioner] of an injunction bond in the amount of One Hundred Thousand Pesos (P100,000.00), and subject to the approval of the Court. SO ORDERED.' "On September 22, 1998, [petitioner] filed before public respondent a Motion To Declare [Respondent] in [D]efault pursuant to Section 3, Rule 9 in relation to Section 4, Rule 16 of the Rules of Court, as amended, and at the same time praying [for] the Motion to [S]et for [H]earing on October 30, 1998 at 8:30 a.m. On the same date, [respondent] filed a Motion For Extension of Time to File its Answer, x x x until November 18, 1998. On November 17, 1998, [respondent] filed its [A]nswer. "[Petitioner], on November 11, 1998 filed its Opposition to the Motion for Extension of Time to File [Respondent's] Answer and on November 9, 1998, a Motion to Expunge [Respondent's] Answer and at the same time praying that its [M]otion be heard on November 27, 1998 at 9:00 a.m. On even date, public respondent judge issued an Order directing the Office of the Solicitor General to file within a period of ten (10) days from date its written Opposition to the Motion to Expunge [Respondent's] Answer and within the same period to file a written [N]otice of [A]ppearance in the case. Unable to file their written Opposition to the Motion to Expunge within the period given by public respondent, the OSG filed a Motion to Admit Written Opposition stating the reasons for the same, attaching thereto the Opposition with [F]ormal [E]ntry of [A]ppearance. "In an Order dated December 9, 1998, (Annex 'A'), public respondent judge ruled on [Petitioner's] Motion to Declare [Respondent in Default], to wit: "WHEREFORE, and in view of all the foregoing, the present motion is granted. [Petitioner] is hereby directed to present its evidence ex-parte before the [b]ranch [c]lerk of [c]ourt, who is designated as [c]ommissioner for the purpose, within ten (10) days from receipt of this [O]rder, and for the latter to submit his report within twenty (20) days from the date the case is submitted for decision."

SO ORDERED.'"3 On February 23, 1999, respondent filed with the CA a Petition for Certiorari, arguing that the RTC had committed grave abuse of discretion (a) in denying the former's Motion to Dismiss, (b) in issuing a Writ of Preliminary Injunction, and (c) in declaring respondent in default despite its filing an Answer. Ruling of the Court of Appeals The CA ruled that petitioner had no cause of action against respondent. Petitioner failed to show any evidence that it had been granted university status by respondent as required under existing law and CHED rules and regulations. A certificate of incorporation under an unauthorized name does not confer upon petitioner the right to use the word "university" in its name. The evidence submitted by respondent showed that the Securities and Exchange Commission (SEC) had denied that petitioner had ever amended its Articles of Incorporation to include "university" in its corporate name. For its part, the Department of Education, Culture and Sports (DECS) denied having issued the alleged Certification dated May 18, 1998, indorsing the change in petitioner's corporate name. Besides, neither the Corporation Code nor the SEC Charter vests the latter with the authority to confer university status on a corporation that it regulates. For the same reason, the appellate court also ruled that the Writ of Preliminary Injunction had improvidently been issued. The doubtful right claimed by petitioner is subordinate to the public interest to protect unsuspecting students and their parents from the unauthorized operation and misrepresentation of an educational institution. Respondent should not have been declared in default, because its Answer had been filed long before the RTC ruled upon petitioner's Motion to declare respondent in default. Thus, respondent had not obstinately refused to file an Answer; on the contrary, its failure to do so on time was due to excusable negligence. Declaring it in default did not serve the ends of justice, but only prevented it from pursuing the merits of its case.
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Hence, this Petition.4 Issues Petitioner alleges that the appellate court committed the following reversible errors: "A. In giving due course to respondent CHED's Petition for Certiorari filed way beyond the 60-day reglementary period prescribed by Section 4, Rule 65 of the Rules of Court; B. In not requiring Respondent CHED to first file a Motion to Set Aside the Order of Default dated December 9, 1998; and C. In ordering the dismissal of Civil Case No. 98-811."5 In its Memorandum, petitioner adds that the CA erred in dissolving the Writ of Preliminary Injunction issued by the RTC. We shall take up these issues in the following order: (1) timeliness of the certiorari petition, (2) validity of the default order, 93) validity of the preliminary injunction, and (4) dismissal of the Complaint. This Court's Ruling The Petition is partly meritorious. First Issue: Timeliness of Certiorari Petitioner claims that the Petition for Certiorari of respondent should have been dismissed by the CA, because it was filed out of time and was not preceded by a motion for reconsideration in the RTC. The copy of the Order of August 14, 1998 had been served at respondent's office on August 15, 1998, but its Answer was filed only after 180 days

which, according to petitioner, could not be considered a reasonable period. On the other hand, the Office of the Solicitor General (OSG) argues that the Order is null and void and, hence, may be assailed at any time. We hold that respondent's Petition for Certiorari was seasonably filed. In computing its timeliness, what should have been considered was not the Order of august 14, 1998, but the date when respondent received the December 9, 1998 Order declaring it in default. Since it received this Order only on January 13, 1999, and filed its Petition for Certiorari on February 23, 1999, it obviously complied with the sixty-day reglementary period stated in Section 4, Rule 65 of the 1997 Rules of Court. Moreover, the August 14, 1998 Order was not a proper subject of certiorari or appeal, since it was merely an interlocutory order. Exhaustion of Available Remedies Petitioner also contends that certiorari cannot prosper in this case, because respondent did not file a motion for reconsideration before filing its Petition for Certiorari with the CA. Respondent counters that reconsideration should be dispensed with, because the December 9, 1998 Order is a patent nullity. The general rule is that, in order to give the lower court the opportunity to correct itself, a motion for reconsideration is a prerequisite to certiorari. It is also basic that a petitioner must exhaust all other available remedies before resorting to certiorari. This rule, however, is subject to certain exceptions such as any of the following: (1) the issues raised are purely legal in nature, (2) public interest is involved, (3) extreme urgency is obvious or (4) special circumstances warrant immediate or more direct action.6 It is patently clear that the regulation or administration of educational institutions, especially on the tertiary level, is invested with public interest. Hence, the haste with which the solicitor general raised these issues before the appellate court is understandable. For the reason mentioned, we rule that respondent's Petition for Certiorari did not require prior resort to a motion for reconsideration. Second Issue: Validity of the Default Order Petitioner avers that the RTC was justified in declaring respondent in default, because the August 14, 1998 Order directing the filing of an answer had been served on August 25, 1998. And as late as October 30, 1998, respondent could only file a Motion for Extension of Time, which the trial court denied because of the expiry of the fifteen-day period. Petitioner adds that respondent's proper remedy would have been a Motion to Set Aside the Order of Default, pursuant to Section 3(b), Rule 9 of the Rules of Court. Respondent, in turn, avers that certiorari was the only plain, speedy and adequate remedy in the ordinary course of law, because the default Order had improvidently been issued. We agree with respondent. Lina v. Court of Appeals7 discussed the remedies available to a defendant declared in default, as follows: (1) a motion to set aside the order of default under Section 3(b), Rule 9 of the Rules of Court, if the default was discovered before judgment could be rendered; (2) a motion for new trial under Section 1(a) of Rule 37, if the default was discovered after judgment but while appeal is still available; (3) a petition for relief under Rule 38, if judgment has become final and executory; and (4) an appeal from the judgment under Section 1, Rule 41, even if no petition to set aside the order of default has been resorted to. These remedies, however, are available only to a defendant who has been validly declared in default. Such defendant irreparably loses the right to participate in the trial. On the other hand, a defendant improvidently declared in default may retain and exercise such right after the order of default and the subsequent judgment by default are annulled, and the case remander to the court of origin. The former is limited to the remedy set forth in Section 2, paragraph 3 of Rule 41 of the pre 997 Rules of Court, and can therefore contest only the judgment by default on the designated ground that it is contrary to evidence or law. The latter, however, has the following options: to resort to this same remedy; to interpose a petition for certiorari seeking the nullification of the order of default, even before the promulgation of a judgment by default; or in the event that judgment has been rendered, to have such order and judgment declared void. In prohibiting appeals from interlocutory orders, the law does not intend to accord executory force to such writs, particularly when the effect would be to cause irreparable damage. If, in the course of trial, a judge proceeds without or in excess of jurisdiction, this rule prohibiting an appeal does not leave the aggrieved party without any remedy.8 In a case like this, a special civil action of certiorari is the plain, speedy and adequate remedy.

Herein respondent controverts the judgment by default, not on the ground that it is unsubstantiated by evidence or that it is contrary to law, but on the ground that it is intrinsically void for having been rendered pursuant to a patently invalid order of default.9 Grave Abuse of Discretion Petitioner claims that in issuing the default Order, the RTC did not act with grave abuse of discretion, because respondent had failed to file its answer within fifteen days after receiving the August 14, 1998 Order. We disagree. Quite the contrary, the trial court gravely abused its discretion when it declared respondent in default despite the latter's filing of an Answer.10 Placing respondent in default thereafter served no practical purpose. Petitioner was lax in calling the attention of the Court to the fifteen-day period for filing an Answer. It moved to declare respondent in default only on September 20, 1998, when the filing period had expired on August 30, 1998. The only conclusion in this case is that petitioner has not been prejudiced by the delay. The same leniency can also be accorded to the RTC, which declared respondent in default only on December 9, 1998, or twenty-two days after the latter had filed its Answer on November 17, 1998. Defendant's Answer should be admitted, because it had been filed before it was declared in default, and no prejudice was caused to plaintiff. The hornbook rule is that default judgments are generally disfavored.11 While there are instances when a party may be properly declared in default, these cases should be deemed exceptions to the rule and should be resorted to only in clear cases of obstinate refusal or inordinate neglect in complying with the orders of the court.12 In the present case, however, no such refusal or neglect can be attributed to respondent. It appears that respondent failed to file its Answer because of excusable negligence. Atty. Joel Voltaire Mayo, director of the Legal Affairs Services of CHED, had to relinquish his position in accordance with the Memorandum dated July 7, 1998, requiring all non-CESO eligibles holding non-career positions to vacate their respective offices. It was only on September 25, 1998, after CHED Special Order No. 63 had been issued, when he resumed his former position. Respondent also presented a meritorious defense in its Answer – that it was duty-bound to pursue the state policy of protecting, fostering and promoting the right of all citizens to affordable quality education at all levels. In stark contrast, petitioner neither qualified for nor was ever conferred university status by respondent. Judges, as a rule, should avoid issuing default orders that deny litigants the chance to be heard. Instead, the former should give the latter every opportunity to present their conflicting claims on the merits of the controversy, as much as possible avoiding any resort to procedural technicalities. 13 Third Issue: Preliminary Injunction Petitioner contends that the RTC validly issued the Writ of Preliminary Injunction. According to the trial court, respondent's actions adversely affected petitioner's interests, faculty and students. In fact, the very existence of petitioner as a business concern would have been jeopardized had its proprietary rights not been protected. We disagree. We concur with the CA that the trial court acted with grave abuse of discretion in issuing the Writ of Preliminary Injunction against respondent. Petitioner failed to establish a clear right to continue representing itself to the public as a university. Indeed, it has no vested right to misrepresent itself. Before an injunction can be issued, it is essential that (1) there must be a right in esse to be protected, and (2) the act against which the injunction is to be directed must have violated such right.14 The establishment and the operation of schools are subject to prior authorization from the government. No school may claim to be a university unless it has first complied with the prerequisites provided in Section 34 of the Manual of Regulations for Private Schools. Section 3, Rule 58 of the Rules of Court, limits the grant of preliminary injunction to cases in which the plaintiff is clearly entitled to the relief prayed for. We also agree with the finding of the CA that the act sought to be enjoined by petitioner is not violative of the latter's rights. Respondent's Cease and Desist Order of July 30, 1997 merely restrained petitioner from using the term "university" in its name. It was not ordered to close, but merely to revert to its authorized name; hence, its proprietary rights were not violated.

Fourth Issue: Dismissal of the Complaint Petitioner claims that the CA went beyond its limited jurisdiction under Rule 65 when it reversed the trial court and dismissed the Complaint on the ground that petitioner had failed to state a cause of action. The RTC had yet to conduct trial, but the CA already determined the factual issue regarding petitioner's acquisition of university status, a determination that is not permitted in certiorari proceedings. The CA ruled that the trial court gravely abused its discretion in denying respondent's Motion to Dismiss on the ground of lack of cause of action because of petitioner's lack of legal authority or right to use the word "university." Said the appellate court: "x x x. No matter how we interpret the Corporation Code and the law granting the Securities and Exchange Commission its powers and duties, there is nothing there which grants it the power or authority to confer University Status to an educational institution. Fundamental is the rule that when there is no power granted, none exist[s], not even implied ones for there is none from where to infer. The mere fact of securing an alleged Certificate of Incorporation under an unauthorized name does not confer the right to use such name. "But what makes the conclusion of [the trial court] even anomalous, to say the least, is that no less than the Chairman of the SEC in his letter to the [respondent] (Exh. "J") expressly said that [petitioner] never filed any Amended Articles of Incorporation so as to have a change of corporate name to include the term "University". Worse, the records officer of DECS issued a Certification dated May 18, 1998 (Annex "AA") to the effect that there was no Indorsement made by that office addressed to the SEC or the Proposed Amended Article of Incorporation of Indiana Aeronautics. x x x. "Under such clear pattern of deceitful maneuvering to circumvent the requirement for acquiring University Status, it is [a] patently reversible error for [the trial court] to hold that [petitioner] has a right to use the word "University" which must be protected. Dismissal of [petitioner's] Complaint for lack of a valid cause of action should have been the proper action taken by [the trial court] judge." 15 An order denying a motion to dismiss is interlocutory, and so the proper remedy in such a case is to appeal after a decision has been rendered. A writ of certiorari is not intended to correct every controversial interlocutory ruling; it is resorted to only to correct a grave abuse of discretion or a whimsical exercise of judgment equivalent to lack of jurisdiction. Its function is limited to keeping an inferior court within its jurisdiction and to relieve persons from arbitrary acts – acts which courts or judges have no power or authority in law to perform. It is not designed to correct erroneous findings and conclusions made by the court.16 In the case at bar, we find no grave abuse of discretion in the RTC's denial of the Motion to Dismiss, as contained in the August 14, 1998 Order. The CA erred in ruling otherwise. The trial court stated in its Decision that petitioner was an educational institution, originally registered with the Securities and Exchange Commission as the "Indiana School of Aeronautics, Inc." That name was subsequently changed to "Indiana Aerospace University" after the Department of Education, Culture and Sports had interposed no objection to such change. 17 Respondent issued a formal Cease and Desist Order directing petitioner to stop using the word "university" in its corporate name. The former also published an announcement in the March 21, 1998 issue of Freeman, a local newspaper in Cebu City, that there was no institution of learning by that name. The counsel of respondent was quoted as saying in the March 28, 1998 issue of the newspaper Today that petitioner had been ordered closed by the respondent for illegal advertisement, fraud and misrepresentation of itself as a university. Such acts, according to the RTC undermined the public's confidence in petitioner as an educational institution. 18 This was a clear statement of a sufficient cause of action. When a motion to dismiss is grounded on the failure to state a cause of action, a ruling thereon should be based only on the facts alleged in the complaint.19 The court must pass upon this issue based solely on such allegations, assuming them to be true. For it to do otherwise would be a procedural error and a denial of plaintiff's right to due process.20 WHEREFORE, the Petition is hereby GRANTED IN PART, and the assailed Decision MODIFIED. The trial court isDIRECTED to SET ASIDE the Order of Default of December 9, 1998; to ADMIT the Answer dated November 5,

1998; to LIFT the preliminary injunction; and to CONTINUE, with all deliberate speed, the proceedings in Civil Case NO. 98-811.
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SO ORDERED. Melo, Vitug, Gonzaga-Reyes, Sandoval-Gutierrez, JJ., concur. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 101897. March 5, 1993. LYCEUM OF THE PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS, LYCEUM OF APARRI, LYCEUM OF CABAGAN, LYCEUM OF CAMALANIUGAN, INC., LYCEUM OF LALLO, INC., LYCEUM OF TUAO, INC., BUHI LYCEUM, CENTRAL LYCEUM OF CATANDUANES, LYCEUM OF SOUTHERN PHILIPPINES, LYCEUM OF EASTERN MINDANAO, INC. and WESTERN PANGASINAN LYCEUM, INC., respondents. Quisumbing, Torres & Evangelista Law Offices and Ambrosio Padilla for petitioner. Antonio M. Nuyles and Purungan, Chato, Chato, Tarriela & Tan Law Offices for respondents. Froilan Siobal for Western Pangasinan Lyceum. SYLLABUS 1. CORPORATION LAW; CORPORATE NAMES; REGISTRATION OF PROPOSED NAME WHICH IS IDENTICAL OR CONFUSINGLY SIMILAR TO THAT OF ANY EXISTING CORPORATION, PROHIBITED; CONFUSION AND DECEPTION EFFECTIVELY PRECLUDED BY THE APPENDING OF GEOGRAPHIC NAMES TO THE WORD "LYCEUM". — The Articles of Incorporation of a corporation must, among other things, set out the name of the corporation. Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate names are concerned: "Section 18. Corporate name. — No corporate name may be allowed by the Securities an Exchange Commission 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. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name." The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical or deceptively or confusingly similar" to that of any existing corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over corporations. We do not consider that the corporate names of private respondent institutions are "identical with, or deceptively or confusingly similar" to that of the petitioner institution. True enough, the corporate names of private respondent entities all carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of geographic names to the word "Lyceum." Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines. 2. ID.; ID.; DOCTRINE OF SECONDARY MEANING; USE OF WORD "LYCEUM," NOT ATTENDED WITH EXCLUSIVITY. — It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning in relation to petitioner with the result that word, although originally a generic, has become appropriable by petitioner to the exclusion of other institutions like private respondents herein. The doctrine of secondary meaning originated in the field of trademark law. Its application has, however, been extended to corporate names sine 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. In Philippine Nut Industry, Inc. v. Standard Brands, Inc., the doctrine of secondary meaning was elaborated in the following terms: " . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on the market, because geographically or otherwise descriptive, might nevertheless have been used so long and so exclusively by one producer with reference to his article that, in that trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was his product." The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name has been for such length of time and with such exclusivity as to have become associated or identified with the petitioner institution in the mind of the general public (or at least that portion of the general public which has to do with schools). The Court of Appeals recognized this issue and answered it in the negative: "Under the doctrine of secondary meaning, 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 so long and so exclusively by one producer with reference to this article that, in that trade and to that group of the purchasing public, the word or phrase has come to mean that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been referred to as the distinctiveness into which the name or phrase has evolved through the substantial and exclusive use of the same for a considerable period of time. . . . No evidence was ever presented in the hearing before the Commission which sufficiently proved that the word 'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If there was any of this kind, the same tend to prove only that the appellant had been using the disputed word for a long period of time. . . . In other words, while the appellant may have proved that it had been using the word 'Lyceum' for a long period of time, this fact alone did not amount to mean that the said word had acquired 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. More so, there was no evidence presented to prove that confusion will surely arise if the same word were to be used by other educational institutions. Consequently, the allegations of the appellant in its first two assigned errors must necessarily fail." We agree with the Court of Appeals. The number alone of the private respondents in the case at bar suggests strongly that petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for applicability of the doctrine of secondary meaning. Petitioner's use of the word "Lyceum" was not exclusive but was in truth shared with the Western Pangasinan Lyceum and a little later with other private respondent institutions which registered with the SEC using "Lyceum" as part of their corporation names. There may well be other schools using Lyceum or Liceo in their names, but not registered with the SEC because they have not adopted the corporate form of organization. 3. ID.; ID.; MUST BE EVALUATED IN THEIR ENTIRETY TO DETERMINE WHETHER THEY ARE CONFUSINGLY OR DECEPTIVELY SIMILAR TO ANOTHER CORPORATE ENTITY'S NAME. — petitioner institution is not entitled to a legally enforceable exclusive right to use the word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of their corporate names. To determine whether a given corporate name is "identical" or "confusingly or deceptively similar" with another entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate names in their entirety and when the name of petitioner is juxtaposed with the names of private respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other. DECISION FELICIANO, J p: Petitioner is an educational institution duly registered with the Securities and Exchange Commission ("SEC"). When it first registered with the SEC on 21 September 1950, it used the corporate name Lyceum of the Philippines, Inc. and has used that name ever since. On 24 February 1984, petitioner instituted proceedings before the SEC to compel the private respondents, which are also educational institutions, to delete the word "Lyceum" from their corporate names and permanently to enjoin them from using "Lyceum" as part of their respective names. Some of the private respondents actively participated in the proceedings before the SEC. These are the following, the dates of their original SEC registration being set out below opposite their respective names: Western Pangasinan Lyceum — 27 October 1950 Lyceum of Cabagan — 31 October 1962

Lyceum of Lallo, Inc. — 26 March 1972 Lyceum of Aparri — 28 March 1972 Lyceum of Tuao, Inc. — 28 March 1972 Lyceum of Camalaniugan — 28 March 1972 The following private respondents were declared in default for failure to file an answer despite service of summons: Buhi Lyceum; Central Lyceum of Catanduanes; Lyceum of Eastern Mindanao, Inc.; and Lyceum of Southern Philippines Petitioner's original complaint before the SEC had included three (3) other entities: 1. The Lyceum of Malacanay; 2. The Lyceum of Marbel; and 3. The Lyceum of Araullo The complaint was later withdrawn insofar as concerned the Lyceum of Malacanay and the Lyceum of Marbel, for failure to serve summons upon these two (2) entities. The case against the Liceum of Araullo was dismissed when that school motu proprio change its corporate name to "Pamantasan ng Araullo." The background of the case at bar needs some recounting. Petitioner had sometime before commenced in the SEC a proceeding (SEC-Case No. 1241) against the Lyceum of Baguio, Inc. to require it to change its corporate name and to adopt another name not "similar [to] or identical" with that of petitioner. In an Order dated 20 April 1977, Associate Commissioner Julio Sulit held that the corporate name of petitioner and that of the Lyceum of Baguio, Inc. were substantially identical because of the presence of a "dominant" word, i.e., "Lyceum," the name of the geographical location of the campus being the only word which distinguished one from the other corporate name. The SEC also noted that petitioner had registered as a corporation ahead of the Lyceum of Baguio, Inc. in point of time, 1 and ordered the latter to change its name to another name "not similar or identical [with]" the names of previously registered entities. The Lyceum of Baguio, Inc. assailed the Order of the SEC before the Supreme Court in a case docketed as G.R. No. L-46595. In a Minute Resolution dated 14 September 1977, the Court denied the Petition for Review for lack of merit. Entry of judgment in that case was made on 21 October 1977. 2 Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote all the educational institutions it could find using the word "Lyceum" as part of their corporate name, and advised them to discontinue such use of "Lyceum." When, with the passage of time, it became clear that this recourse had failed, petitioner instituted before the SEC SEC-Case No. 2579 to enforce what petitioner claims as its proprietary right to the word "Lyceum." The SEC hearing officer rendered a decision sustaining petitioner's claim to an exclusive right to use the word "Lyceum." The hearing officer relied upon the SEC ruling in the Lyceum of Baguio, Inc. case (SEC-Case No. 1241) and held that the word "Lyceum" was capable of appropriation and that petitioner had acquired an enforceable exclusive right to the use of that word. On appeal, however, by private respondents to the SEC En Banc, the decision of the hearing officer was reversed and set aside. The SEC En Banc did not consider the word "Lyceum" to have become so identified with petitioner as to render use thereof by other institutions as productive of confusion about the identity of the schools concerned in

the mind of the general public. Unlike its hearing officer, the SEC En Banc held that the attaching of geographical names to the word "Lyceum" served sufficiently to distinguish the schools from one another, especially in view of the fact that the campuses of petitioner and those of the private respondents were physically quite remote from each other. 3 Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28 June 1991, however, the Court of Appeals affirmed the questioned Orders of the SEC En Banc. 4 Petitioner filed a motion for reconsideration, without success. Before this Court, petitioner asserts that the Court of Appeals committed the following errors: 1. The Court of Appeals erred in holding that the Resolution of the Supreme Court in G.R. No. L-46595 did not constitute stare decisis as to apply to this case and in not holding that said Resolution bound subsequent determinations on the right to exclusive use of the word Lyceum. 2. The Court of Appeals erred in holding that respondent Western Pangasinan Lyceum, Inc. was incorporated earlier than petitioner. 3. The Court of Appeals erred in holding that the word Lyceum has not acquired a secondary meaning in favor of petitioner. 4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be appropriated by the petitioner to the exclusion of others. 5 We will consider all the foregoing ascribed errors, though not necessarily seriatim. We begin by noting that the Resolution of the Court in G.R. No. L-46595 does not, of course, constitute res adjudicata in respect of the case at bar, since there is no identity of parties. Neither is stare decisis pertinent, if only because the SEC En Banc itself has re-examined Associate Commissioner Sulit's ruling in the Lyceum of Baguio case. The Minute Resolution of the Court in G.R. No. L-46595 was not a reasoned adoption of the Sulit ruling. The Articles of Incorporation of a corporation must, among other things, set out the name of the corporation. 6 Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate names are concerned: "SECTION 18. Corporate name. — No corporate name may be allowed by the Securities an Exchange Commission 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. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name." (Emphasis supplied) The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical or deceptively or confusingly similar" to that of any existing corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over corporations. 7 We do not consider that the corporate names of private respondent institutions are "identical with, or deceptively or confusingly similar" to that of the petitioner institution. True enough, the corporate names of private respondent entities all carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of geographic names to the word "Lyceum." Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines. Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn referred to a locality on the river Ilissius in ancient Athens "comprising an enclosure dedicated to Apollo and adorned with fountains and buildings erected by Pisistratus, Pericles and Lycurgus frequented by the youth for exercise and by the philosopher Aristotle and his followers for teaching." 8 In time, the word "Lyceum" became associated with schools and other institutions providing public lectures and concerts and public discussions. Thus today, the word "Lyceum" generally refers to a school or an institution of learning. While the Latin word "lyceum" has been incorporated into the English language,

the word is also found in Spanish (liceo) and in French (lycee). As the Court of Appeals noted in its Decision, Roman Catholic schools frequently use the term; e.g., "Liceo de Manila," "Liceo de Baleno" (in Baleno, Masbate), "Liceo de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as generic in character as the word "university." In the name of the petitioner, "Lyceum" appears to be a substitute for "university;" in other places, however, "Lyceum," or "Liceo" or "Lycee" frequently denotes a secondary school or a college. It may be (though this is a question of fact which we need not resolve) that the use of the word "Lyceum" may not yet be as widespread as the use of "university," but it is clear that a not inconsiderable number of educational institutions have adopted "Lyceum" or "Liceo" as part of their corporate names. Since "Lyceum" or "Liceo" denotes a school or institution of learning, it is not unnatural to use this word to designate an entity which is organized and operating as an educational institution. It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning in relation to petitioner with the result that that word, although originally a generic, has become appropriable by petitioner to the exclusion of other institutions like private respondents herein. The doctrine of secondary meaning originated in the field of trademark law. Its application has, however, been extended to corporate names sine 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. 10 In Philippine Nut Industry, Inc. v. Standard Brands, Inc., 11 the doctrine of secondary meaning was elaborated in the following terms: " . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on the market, because geographically or otherwise descriptive, might nevertheless have been used so long and so exclusively by one producer with reference to his article that, in that trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was his product." 12 The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name has been for such length of time and with such exclusivity as to have become associated or identified with the petitioner institution in the mind of the general public (or at least that portion of the general public which has to do with schools). The Court of Appeals recognized this issue and answered it in the negative: "Under the doctrine of secondary meaning, 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 so long and so exclusively by one producer with reference to this article that, in that trade and to that group of the purchasing public, the word or phrase has come to mean that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been referred to as the distinctiveness into which the name or phrase has evolved through the substantial and exclusive use of the same for a considerable period of time. Consequently, the same doctrine or principle cannot be made to apply where the evidence did not prove that the business (of the plaintiff) has continued for so long a time that it has become of consequence and acquired a 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 (by the defendant) (Ang Si Heng vs. Wellington Department Store, Inc., 92 Phil. 448). With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the aforementioned requisites. No evidence was ever presented in the hearing before the Commission which sufficiently proved that the word 'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If there was any of this kind, the same tend to prove only that the appellant had been using the disputed word for a long period of time. Nevertheless, its (appellant) exclusive use of the word (Lyceum) was never established or proven as in fact the evidence tend to convey that the cross-claimant was already using the word 'Lyceum' seventeen (17) years prior to the date the appellant started using the same word in its corporate name. Furthermore, educational institutions of the Roman Catholic Church had been using the same or similar word like 'Liceo de Manila,' 'Liceo de Baleno' (in Baleno, Masbate), 'Liceo de Masbate,' 'Liceo de Albay' long before appellant started using the word 'Lyceum'. The appellant also failed to prove that the word 'Lyceum' has become so identified with its educational institution that confusion will surely arise in the minds of the public if the same word were to be used by other educational institutions. In other words, while the appellant may have proved that it had been using the word 'Lyceum' for a long period of time, this fact alone did not amount to mean that the said word had acquired 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. More so, there was no evidence presented to prove that confusion will surely arise if the same word were to be used by other educational institutions. Consequently, the allegations of the appellant in its first two assigned errors must necessarily fail." 13 (Underscoring partly in the original and partly supplied)

We agree with the Court of Appeals. The number alone of the private respondents in the case at bar suggests strongly that petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for applicability of the doctrine of secondary meaning. It may be noted also that at least one of the private respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term "Lyceum" seventeen (17) years before the petitioner registered its own corporate name with the SEC and began using the word "Lyceum." It follows that if any institution had acquired an exclusive right to the word "Lyceum," that institution would have been the Western Pangasinan Lyceum, Inc. rather than the petitioner institution. In this connection, petitioner argues that because the Western Pangasinan Lyceum, Inc. failed to reconstruct its records before the SEC in accordance with the provisions of R.A. No. 62, which records had been destroyed during World War II, Western Pangasinan Lyceum should be deemed to have lost all rights it may have acquired by virtue of its past registration. It might be noted that the Western Pangasinan Lyceum, Inc. registered with the SEC soon after petitioner had filed its own registration on 21 September 1950. Whether or not Western Pangasinan Lyceum, Inc. must be deemed to have lost its rights under its original 1933 registration, appears to us to be quite secondary in importance; we refer to this earlier registration simply to underscore the fact that petitioner's use of the word "Lyceum" was neither the first use of that term in the Philippines nor an exclusive use thereof. Petitioner's use of the word "Lyceum" was not exclusive but was in truth shared with the Western Pangasinan Lyceum and a little later with other private respondent institutions which registered with the SEC using "Lyceum" as part of their corporation names. There may well be other schools using Lyceum or Liceo in their names, but not registered with the SEC because they have not adopted the corporate form of organization. We conclude and so hold that petitioner institution is not entitled to a legally enforceable exclusive right to use the word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of their corporate names. To determine whether a given corporate name is "identical" or "confusingly or deceptively similar" with another entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate names in their entirety and when the name of petitioner is juxtaposed with the names of private respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other. WHEREFORE, the petitioner having failed to show any reversible error on the part of the public respondent Court of Appeals, the Petition for Review is DENIED for lack of merit, and the Decision of the Court of Appeals dated 28 June 1991 is hereby AFFIRMED. No pronouncement as to costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 96161 February 21, 1992 PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC.,petitioners, vs. COURT OF APPEALS, SECURITIES & EXCHANGE COMMISSION and STANDARD PHILIPS CORPORATION,respondents. Emeterio V. Soliven & Associates for petitioners. Narciso A. Manantan for private respondent.

MELENCIO-HERRERA, J.: Petitioners challenge the Decision of the Court of Appeals, dated 31 July 1990, in CA-GR Sp. No. 20067, upholding the Order of the Securities and Exchange Commission, dated 2 January 1990, in SEC-AC No. 202, dismissing petitioners' prayer for the cancellation or removal of the word "PHILIPS" from private respondent's corporate name. Petitioner Philips Export B.V. (PEBV), a foreign corporation organized under the laws of the Netherlands, although not engaged in business here, is the registered owner of the trademarks PHILIPS and PHILIPS SHIELD EMBLEM under Certificates of Registration Nos. R-1641 and R-1674, respectively issued by the Philippine Patents Office (presently known as the Bureau of Patents, Trademarks and Technology Transfer). Petitioners Philips Electrical Lamps, Inc. (Philips Electrical, for brevity) and Philips Industrial Developments, Inc. (Philips Industrial, for short), authorized users of the trademarks PHILIPS and PHILIPS SHIELD EMBLEM, were incorporated on 29 August 1956 and 25 May 1956, respectively. All petitioner corporations belong to the PHILIPS Group of Companies. Respondent Standard Philips Corporation (Standard Philips), on the other hand, was issued a Certificate of Registration by respondent Commission on 19 May 1982. On 24 September 1984, Petitioners filed a letter complaint with the Securities & Exchange Commission (SEC) asking for the cancellation of the word "PHILIPS" from Private Respondent's corporate name in view of the prior registration with the Bureau of Patents of the trademark "PHILIPS" and the logo "PHILIPS SHIELD EMBLEM" in the name of Petitioner, PEBV, and the previous registration of Petitioners Philips Electrical and Philips Industrial with the SEC. As a result of Private Respondent's refusal to amend its Articles of Incorporation, Petitioners filed with the SEC, on 6 February 1985, a Petition (SEC Case No. 2743) praying for the issuance of a Writ of Preliminary Injunction, alleging, among others, that Private Respondent's use of the word PHILIPS amounts to an infringement and clear violation of Petitioners' exclusive right to use the same considering that both parties engage in the same business. In its Answer, dated 7 March 1985, Private Respondent countered that Petitioner PEBV has no legal capacity to sue; that its use of its corporate name is not at all similar to Petitioners' trademark PHILIPS when considered in its entirety; and that its products consisting of chain rollers, belts, bearings and cutting saw are grossly different from Petitioners' electrical products. After conducting hearings with respect to the prayer for Injunction; the SEC Hearing Officer, on 27 September 1985, ruled against the issuance of such Writ. On 30 January 1987, the same Hearing Officer dismissed the Petition for lack of merit. In so ruling, the latter declared that inasmuch as the SEC found no sufficient ground for the granting of injunctive relief on the basis of the testimonial and documentary evidence presented, it cannot order the removal or cancellation of the word "PHILIPS" from Private Respondent's corporate name on the basis of the same evidence adopted in toto during trial on the merits. Besides, Section 18 of the Corporation Code (infra) is applicable only when the corporate names in question are identical. Here, there is no confusing similarity between Petitioners' and Private Respondent's corporate names as those of the Petitioners contain at least two words different from that of the Respondent. Petitioners' Motion for Reconsideration was likewise denied on 17 June 1987. On appeal, the SEC en banc affirmed the dismissal declaring that the corporate names of Petitioners and Private Respondent hardly breed confusion inasmuch as each contains at least two different words and, therefore, rules out any possibility of confusing one for the other. On 30 January 1990, Petitioners sought an extension of time to file a Petition for Review on Certiorari before this Court, which Petition was later referred to the Court of Appeals in a Resolution dated 12 February 1990. In deciding to dismiss the petition on 31 July 1990, the Court of Appeals 1 swept aside Petitioners' claim that following the ruling in Converse Rubber Corporation v. Universal Converse Rubber Products, Inc., et al, (G. R. No. L-27906, January 8, 1987, 147 SCRA 154), the word PHILIPS cannot be used as part of Private Respondent's corporate name as the same constitutes a dominant part of Petitioners' corporate names. In so holding, the Appellate Court observed that the Converse case is not four-square with the present case inasmuch as the contending parties in Converse are engaged in a similar business, that is, the manufacture of rubber shoes. Upholding the SEC, the Appellate Court concluded that "private respondents' products

consisting of chain rollers, belts, bearings and cutting saw are unrelated and non-competing with petitioners' products i.e. electrical lamps such that consumers would not in any probability mistake one as the source or origin of the product of the other." The Appellate Court denied Petitioners' Motion for Reconsideration on 20 November 1990, hence, this Petition which was given due course on 22 April 1991, after which the parties were required to submit their memoranda, the latest of which was received on 2 July 1991. In December 1991, the SEC was also required to elevate its records for the perusal of this Court, the same not having been apparently before respondent Court of Appeals. We find basis for petitioners' plea. As early as Western Equipment and Supply Co. v. Reyes, 51 Phil. 115 (1927), the Court declared that a corporation's right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect against the world in the same manner as it may protect its tangible property, real or personal, against trespass or conversion. It is regarded, to a certain extent, as a property right and one which cannot be impaired or defeated by subsequent appropriation by another corporation in the same field (Red Line Transportation Co. vs. Rural Transit Co., September 8, 1934, 20 Phil 549). A name is peculiarly important as necessary to the very existence of a corporation (American Steel Foundries vs. Robertson, 269 US 372, 70 L ed 317, 46 S Ct 160; Lauman vs. Lebanon Valley R. Co., 30 Pa 42; First National Bank vs. Huntington Distilling Co. 40 W Va 530, 23 SE 792). Its name is one of its attributes, an element of its existence, and essential to its identity (6 Fletcher [Perm Ed], pp. 3-4). The general rule as to corporations is that each corporation must 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 (Cincinnati Cooperage Co. vs. Bate. 96 Ky 356, 26 SW 538; Newport Mechanics Mfg. Co. vs. Starbird. 10 NH 123); and the right to use its corporate name is as much a part of the corporate franchise as any other privilege granted (Federal Secur. Co. vs. Federal Secur. Corp., 129 Or 375, 276 P 1100, 66 ALR 934; Paulino vs. Portuguese Beneficial Association, 18 RI 165, 26 A 36). A corporation acquires its name by choice and need not select a name identical with or similar to one already appropriated by a senior corporation while an individual's name is thrust upon him (See Standard Oil Co. of New Mexico, Inc. v. Standard Oil Co. of California, 56 F 2d 973, 977). A corporation can no more use a corporate name in violation of the rights of others than an individual can use his name legally acquired so as to mislead the public and injure another (Armington vs. Palmer, 21 RI 109. 42 A 308). Our own Corporation Code, in its Section 18, expressly provides that: No corporate name may be allowed by the Securities and Exchange Commission 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 law.Where a change in a corporate name is approved, the commission shall issue an amended certificate of incorporation under the amended name. (Emphasis supplied) The statutory prohibition cannot be any clearer. To come within its scope, two requisites must be proven, namely: (1) that the complainant corporation acquired a prior right over the use of such corporate name; and (2) the proposed name is either: (a) identical; or (b) deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law; or (c) patently deceptive, confusing or contrary to existing law.

The right to the exclusive use of a corporate name with freedom from infringement by similarity is determined by priority of adoption (1 Thompson, p. 80 citing Munn v. Americana Co., 82 N. Eq. 63, 88 Atl. 30; San Francisco Oyster House v. Mihich, 75 Wash. 274, 134 Pac. 921). In this regard, there is no doubt with respect to Petitioners' prior adoption of' the name ''PHILIPS" as part of its corporate name. Petitioners Philips Electrical and Philips Industrial were incorporated on 29 August 1956 and 25 May 1956, respectively, while Respondent Standard Philips was issued a Certificate of Registration on 12 April 1982, twenty-six (26) years later (Rollo, p. 16). Petitioner PEBV has also used the trademark "PHILIPS" on electrical lamps of all types and their accessories since 30 September 1922, as evidenced by Certificate of Registration No. 1651. The second requisite no less exists in this case. In determining the existence of confusing similarity in corporate names, the test is whether the similarity is such as to mislead a person, using ordinary care and discrimination. In so doing, the Court must look to the record as well as the names themselves (Ohio Nat. Life Ins. Co. v. Ohio Life Ins. Co., 210 NE 2d 298). While the corporate names of Petitioners and Private Respondent are not identical, a reading of Petitioner's corporate names, to wit: PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC., inevitably leads one to conclude that "PHILIPS" is, indeed, the dominant word in that all the companies affiliated or associated with the principal corporation, PEBV, are known in the Philippines and abroad as the PHILIPS Group of Companies. Respondents maintain, however, that Petitioners did not present an iota of proof of actual confusion or deception of the public much less a single purchaser of their product who has been deceived or confused or showed any likelihood of confusion. It is settled, however, that proof of actual confusion need not be shown. It suffices that confusion is probably or likely to occur (6 Fletcher [Perm Ed], pp. 107-108, enumerating a long line of cases). It may be that Private Respondent's products also consist of chain rollers, belts, bearing and the like, while petitioners deal principally with electrical products. It is significant to note, however, that even the Director of Patents had denied Private Respondent's application for registration of the trademarks "Standard Philips & Device" for chain, rollers, belts, bearings and cutting saw. That office held that PEBV, "had shipped to its subsidiaries in the Philippines equipment, machines and their parts which fall under international class where "chains, rollers, belts, bearings and cutting saw," the goods in connection with which Respondent is seeking to register 'STANDARD PHILIPS' . . . also belong" ( Inter Partes Case No. 2010, June 17, 1988, SEC Rollo). Furthermore, the records show that among Private Respondent's primary purposes in its Articles of Incorporation (Annex D, Petition p. 37, Rollo) are the following: To buy, sell, barter, trade, manufacture, import, export, or otherwise acquire, dispose of, and deal in and deal with any kind of goods, wares, and merchandise such as but not limited to plastics, carbon products, office stationery and supplies, hardware parts, electrical wiring devices, electrical component parts, and/or complement of industrial, agricultural or commercial machineries, constructive supplies, electrical supplies and other merchandise which are or may become articles of commerce except food, drugs and cosmetics and to carry on such business as manufacturer, distributor, dealer, indentor, factor, manufacturer's representative capacity for domestic or foreign companies. (emphasis ours) For its part, Philips Electrical also includes, among its primary purposes, the following: To develop manufacture and deal in electrical products, including electronic, mechanical and other similar products . . . (p. 30, Record of SEC Case No. 2743) Given Private Respondent's aforesaid underlined primary purpose, nothing could prevent it from dealing in the same line of business of electrical devices, products or supplies which fall under its primary purposes. Besides, there is showing that Private Respondent not only manufactured and sold ballasts for fluorescent lamps with their corporate name printed thereon but also advertised the same as, among others, Standard Philips (TSN, before the SEC, pp. 14, 17, 25, 26, 37-42, June 14, 1985; pp. 16-19, July 25, 1985). As aptly pointed out by Petitioners, [p]rivate respondent's choice of "PHILIPS" as part of its corporate name [STANDARD PHILIPS CORPORATION] . . . tends to show said respondent's intention to ride on the popularity and established goodwill of said petitioner's business throughout the world" (Rollo, p. 137). The subsequent appropriator of the name or one confusingly similar thereto usually seeks an unfair advantage, a free ride of another's goodwill (American Gold Star Mothers, Inc. v. National Gold Star Mothers, Inc., et al, 89 App DC 269, 191 F 2d 488).

In allowing Private Respondent the continued use of its corporate name, the SEC maintains that the corporate names of Petitioners PHILIPS ELECTRICAL LAMPS. INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC. contain at least two words different from that of the corporate name of respondent STANDARD PHILIPS CORPORATION, which words will readily identify Private Respondent from Petitioners and vice-versa. True, under the Guidelines in the Approval of Corporate and Partnership Names formulated by the SEC, the proposed name "should not be similar to one already used by another corporation or partnership. If the proposed name contains a word already used as part of the firm name or style of a registered company; the proposed name must contain two other words different from the company already registered" (Emphasis ours). It is then pointed out that Petitioners Philips Electrical and Philips Industrial have two words different from that of Private Respondent's name. What is lost sight of, however, is that PHILIPS is a trademark or trade name which was registered as far back as 1922. Petitioners, therefore, have the exclusive right to its use which must be free from any infringement by similarity. A corporation has an exclusive right to the use of its name, which may be protected by injunction upon a principle similar to that upon which persons are protected in the use of trademarks and tradenames (18 C.J.S. 574). Such principle proceeds upon the theory that it is a fraud on the corporation which has acquired a right to that name and perhaps carried on its business thereunder, that another should attempt to use the same name, or the same name with a slight variation in such a way as to induce persons to deal with it in the belief that they are dealing with the corporation which has given a reputation to the name (6 Fletcher [Perm Ed], pp. 39-40, citingBorden Ice Cream Co. v. Borden's Condensed Milk Co., 210 F 510). Notably, too, Private Respondent's name actually contains only a single word, that is, "STANDARD", different from that of Petitioners inasmuch as the inclusion of the term "Corporation" or "Corp." merely serves the Purpose of distinguishing the corporation from partnerships and other business organizations. The fact that there are other companies engaged in other lines of business using the word "PHILIPS" as part of their corporate names is no defense and does not warrant the use by Private Respondent of such word which constitutes an essential feature of Petitioners' corporate name previously adopted and registered and-having acquired the status of a well-known mark in the Philippines and internationally as well (Bureau of Patents Decision No. 88-35 [TM], June 17, 1988, SEC Records). In support of its application for the registration of its Articles of Incorporation with the SEC, Private Respondent had submitted an undertaking "manifesting its willingness to change its corporate name in the event another person, firm or entity has acquired a prior right to the use of the said firm name or one deceptively or confusingly similar to it." Private respondent must now be held to its undertaking. As a general rule, parties organizing a corporation must choose a name at their peril; and the use of a name similar to one adopted by another corporation, whether a business or a nonbusiness or non-profit organization if misleading and likely to injure it in the exercise in its corporate functions, regardless of intent, may be prevented by the corporation having the prior right, by a suit for injunction against the new corporation to prevent the use of the name (American Gold Star Mothers, Inc. v. National Gold Star Mothers, Inc., 89 App DC 269, 191 F 2d 488, 27 ALR 2d 948). WHEREFORE, the Decision of the Court of Appeals dated 31 July 1990, and its Resolution dated 20 November 1990, are SET ASIDE and a new one entered ENJOINING private respondent from using "PHILIPS" as a feature of its corporate name, and ORDERING the Securities and Exchange Commission to amend private respondent's Articles of Incorporation by deleting the word PHILIPS from the corporate name of private respondent. No costs. SO ORDERED. Paras, Padilla, Regalado and Nocon, JJ., concur.

FIRST DIVISION

[G.R. No. 156819. December 11, 2003]

ALICIA E. GALA, GUIA G. DOMINGO and RITA G. BENSON, petitioners, vs. ELLICE AGRO-INDUSTRIAL CORPORATION, MARGO MANAGEMENT AND DEVELOPMENT CORPORATION, RAUL E. GALA, VITALIANO N. AGUIRRE II, ADNAN V. ALONTO, ELIAS N. CRESENCIO, MOISES S. MANIEGO, RODOLFO B. REYNO, RENATO S. GONZALES, VICENTE C. NOLAN, NESTOR N. BATICULON, respondents. DECISION
YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court, seeking the reversal of the decision dated November 8, 2002[1] and the resolution dated December 27, 2002[2] of the Court of Appeals in CA-G.R. SP No. 71979. On March 28, 1979, the spouses Manuel and Alicia Gala, their children Guia Domingo, Ofelia Gala, Raul Gala, and Rita Benson, and theirencargados Virgilio Galeon and Julian Jader formed and organized the Ellice AgroIndustrial Corporation.[3] The total subscribed capital stock of the corporation was apportioned as follows:

Name Number of Shares Amount Manuel R. Gala 11, 700 1,170,000.00 Alicia E. Gala 23,200 2,320,000.00 Guia G. Domingo 16 1,600.00 Ofelia E. Gala 40 4,000.00 Raul E. Gala 40 4,000.00 Rita G. Benson 2 200.00 Virgilio Galeon 1 100.00 Julian Jader 1 100.00 TOTAL 35,000 P3,500,000.00
[4]

As payment for their subscriptions, the Gala spouses transferred several parcels of land located in the provinces of Quezon and Laguna toEllice. [5] In 1982, Manuel Gala, Alicia Gala and Ofelia Gala subscribed to an additional 3,299 shares, 10,652.5 shares and 286.5 shares, respectively.[6] On June 28, 1982, Manuel Gala and Alicia Gala acquired an additional 550 shares and 281 shares, respectively. [7]

Subsequently, on September 16, 1982, Guia Domingo, Ofelia Gala, Raul Gala, Virgilio Galeon and Julian Jader incorporated the Margo Management and Development Corporation (Margo). [8] The total subscribed capital stock of Margo was apportioned as follows: Name Raul E. Gala Ofelia E. Gala Guia G. Domingo Virgilio Galeon Julian Jader TOTAL Number of Shares 6,640 6,640 6,640 40 40 20,000 Amount 66,400.00 66,400.00 66,400.00 40.00 40.00 P200,000.00[9]

On November 10, 1982, Manuel Gala sold 13,314 of his shares in Ellice to Margo. [10] Alicia Gala transferred 1,000 of her shares in Ellice to a certain Victor de Villa on March 2, 1983. That same day, de Villa transferred said shares to Margo. [11] A few months later, on August 28, 1983, Alicia Gala transferred 854.3 of her shares to Ofelia Gala, 500 to Guia Domingo and 500 to Raul Gala. [12] Years later, on February 8, 1988, Manuel Gala transferred all of his remaining holdings in Ellice, amounting to 2,164 shares, to Raul Gala. [13] On July 20, 1988, Alicia Gala transferred 10,000 of her shares to Margo. [14] Thus, as of the date on which this case was commenced, the stockholdings in Ellice were allocated as follows: Name Margo Alicia Gala Raul Gala Ofelia Gala Gina Domingo Rita Benson Virgilio Galeon Julian Jader Adnan Alonto Elias Cresencio TOTAL Number of Shares 24,312.5 21,480.2 2,704.5 980.8 516 2 1 1 1 1 50,000 Amount 2,431,250.00 2,148,020.00 270,450.00 98,080.00 51,600.00 200.00 100.00 100.00 100.00 100.00 P5,000,000.00

On June 23, 1990, a special stockholders’ meeting of Margo was held, where a new board of directors was elected. [15] That same day, the newly-elected board elected a new set of officers. Raul Gala was elected as chairman, president and general manager. During the meeting, the board approved several actions, including the commencement of proceedings to annul certain dispositions of Margo’s property made by Alicia Gala. The board also resolved to change the name of the corporation to MRG Management and Development Corporation. [16]

Similarly, a special stockholders’ meeting of Ellice was held on August 24, 1990 to elect a new board of directors. In the ensuing organizational meeting later that day, a new set of corporate officers was elected. Likewise, Raul Gala was elected as chairman, president and general manager. On March 27, 1990, respondents filed against petitioners with the Securities and Exchange Commission (SEC) a petition for the appointment of a management committee or receiver, accounting and restitution by the directors and officers, and the dissolution of Ellice Agro-Industrial Corporation for alleged mismanagement, diversion of funds, financial losses and the dissipation of assets, docketed as SEC Case No. 3747. [17]The petition was amended to delete the prayer for the appointment of a management committee or receiver and for the dissolution of Ellice. Additionally, respondents prayed that they be allowed to inspect the corporate books and documents of Ellice. [18] In turn, petitioners initiated a complaint against the respondents on June 26, 1991, docketed as SEC Case No. 4027, praying for, among others, the nullification of the elections of directors and officers of both Margo Management and Development Corporation and Ellice Industrial Corporation; the nullification of all board resolutions issued by Margo from June 23, 1990 up to the present and all board resolutions issued byEllice from August 24, 1990 up to the present; and the return of all titles to real property in the name of Margo and Ellice, as well as all corporate papers and records of both Margo and Ellice which are in the possession and control of the respondents. [19] The two cases were consolidated in an Order dated November 23, 1993. [20] Meanwhile, during the pendency of the SEC cases, the shares of stock of Alicia and Ofelia Gala in Ellice were levied and sold at public auction to satisfy a judgment rendered against them by he Regional Trial Court of Makati, Branch 66, in Civil Case No. 42560, entitled “ReginesCondominium v. Ofelia (Gala) Panes and Alicia Gala.” [21] On November 3, 1998, the SEC rendered a Joint Decision in SEC Cases Nos. 3747 and 4027, the dispositive portion of which states:

WHEREFORE, premises considered, judgment is hereby rendered, as follows: 1. 2. Dismissing the petition in SEC Case No. 3747, Issuing the following orders in SEC Case No. 4027; (a) (b) Enjoining herein respondents to perform corporate acts of both Ellice and Margo, as directors and officers thereof. Nullifying the election of the new sets of Board of Directors and Officers of Ellice and Margo from June 23, 1990 to the present, and that of Ellice from August 24, 1990 to the present.

(c)

Ordering the respondent Raul Gala to return all the titles of real properties in the names of Ellice and Margo which were unlawfully taken and held by him. Directing the respondents to return to herein petitioners all corporate papers, records of both Ellice and Margo which are in their possession and control.
[22]

(d)

SO ORDERED.

Respondents appealed to the SEC En Banc, which, on July 4, 2002, rendered its Decision, the decretal portion of which reads:

WHEREFORE, the Decision of the Hearing Officer dated November 3, 1998 is hereby REVERSED and SET ASIDE and a new one hereby rendered granting the appeal, upholding the Amended Petition in SEC Case No. 3747, and dismissing the Petition with Prayer for Issuance of Preliminary Restraining Order and granting the Compulsory Counterclaim in SEC Case No. 4027. Accordingly, appellees Alicia Gala and Guia G. Domingo are ordered as follows: (1) jointly and solidarily pay ELLICE and/or MARGO the amount of P700,000.00 representing the consideration for the unauthorized sale of a parcel of land to Lucky Homes and Development Corporation (Exhs. “N” and “CCC”); jointly and severally pay ELLICE and MARGO the proceeds of sales of agricultural products averaging P120,000.00 per month from February 17, 1988; jointly and severally indemnify the appellants P90,000.00 as attorney‟s fees; jointly and solidarily pay the costs of suit; turn over to the individual appellants the corporate records of ELLICE and MARGO in their possession; and desist and refrain from interfering with the management of ELLICE and MARGO.
[23]

(2)

(3) (4) (5) (6)

SO ORDERED.

Petitioners filed a petition for review with the Court of Appeals which dismissed the petition for review and affirmed the decision of the SEC En Banc. [24] Hence, this petition, raising the following issues:
I WHETHER OR NOT THE LOWER COURT ERRED IN NOT DECLARING AS ILLEGAL AND CONTRARY TO PUBLIC POLICY THE PURPOSES AND MANNER IN WHICH RESPONDENT CORPORATIONS WERE ORGANIZED – WHICH WERE, E.G. TO (1) ―PREVENT THE GALA ESTATE FROM BEING BROUGHT UNDER THE COVERAGE (SIC)‖ OF THE COMPREHENSIVE AGRARIAN REFORM PROGRAM (CARP) AND (2) PURPORTEDLY FOR ―ESTATE PLANNING.‖ II WHETHER OR NOT THE LOWER COURT ERRED (1) IN SUSPICIOUSLY RESOLVING THE CASE WITHIN TWO (2) DAYS FROM RECEIPT OF RESPONDENTS’ COMMENT; AND (2) IN NOT MAKING A DETERMINATION OF THE ISSUES OF FACTS AND INSTEAD RITUALLY CITING THE FACTUAL FINDINGS OF THE COMMISSION A QUO WITHOUT DISCUSSION AND ANALYSIS; III WHETHER OR NOT THE LOWER COURT ERRED IN RULING THAT THE ORGANIZATION OF RESPONDENT CORPORATIONS WAS NOT ILLEGAL FOR DEPRIVING PETITIONER RITA G. BENSON OF HER LEGITIME. IV WHETHER OR NOT THE LOWER COURT ERRED IN NOT PIERCING THE VEILS OF CORPORATE FICTION OF RESPONDENTS CORPORATIONS ELLICE AND MARGO. [25]

In essence, petitioners want this Court to disregard the separate juridical personalities of Ellice and Margo for the purpose of treating all property purportedly owned by said corporations as property solely owned by the Gala spouses. The petitioners’ first contention in support of this theory is that the purposes for which Ellice and Margo were organized should be declared as illegal and contrary to public policy. They claim that the respondents never pursued exemption from land reform coverage in good faith and instead merely used the corporations as tools to circumvent land reform laws and to avoid estate taxes. Specifically, they point out that respondents have not shown that the transfers of the land in favor of Ellice were executed in compliance with the requirements of Section 13 of R.A. 3844. [26]Furthermore, they alleged that respondent corporations were run without any of the conventional corporate formalities. [27] At the outset, the Court holds that petitioners’ contentions impugning the legality of the purposes for which Ellice and Margo were organized, amount to collateral attacks which are prohibited in this jurisdiction. [28]

The best proof of the purpose of a corporation is its articles of incorporation and bylaws. The articles of incorporation must state the primary and secondary purposes of the corporation, while the by-laws outline the administrative organization of the corporation, which, in turn, is supposed to insure or facilitate the accomplishment of said purpose. [29] In the case at bar, a perusal of the Articles of Incorporation of Ellice and Margo shows no sign of the allegedly illegal purposes that petitioners are complaining of. It is well to note that, if a corporation’s purpose, as stated in the Articles of Incorporation, is lawful, then the SEC has no authority to inquire whether the corporation has purposes other than those stated, and mandamus will lie to compel it to issue the certificate of incorporation. [30] Assuming there was even a grain of truth to the petitioners’ claims regarding the legality of what are alleged to be the corporations’ true purposes, we are still precluded from granting them relief. We cannot address here their concerns regarding circumvention of land reform laws, for the doctrine of primary jurisdiction precludes a court from arrogating unto itself the authority to resolve a controversy the jurisdiction over which is initially lodged with an administrative body of special competence. [31] Since primary jurisdiction over any violation of Section 13 of Republic Act No. 3844 that may have been committed is vested in the Department of Agrarian Reform Adjudication Board (DARAB),[32] then it is with said administrative agency that the petitioners must first plead their case. With regard to their claim that Ellice and Margo were meant to be used as mere tools for the avoidance of estate taxes, suffice it say that the legal right of a taxpayer to reduce the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted. [33] The petitioners’ allegation that Ellice and Margo were run without any of the typical corporate formalities, even if true, would not merit the grant of any of the relief set forth in their prayer. We cannot disregard the corporate entities of Ellice and Margo on this ground. At most, such allegations, if proven to be true, should be addressed in an administrative case before the SEC. [34] Thus, even if Ellice and Margo were organized for the purpose of exempting the properties of the Gala spouses from the coverage of land reform legislation and avoiding estate taxes, we cannot disregard their separate juridical personalities. Next, petitioners make much of the fact that the Court of Appeals promulgated its assailed Decision a mere two days from the time the respondents filed their Comment. They alleged that the appellate court could not have made a deliberate study of the factual questions in the case, considering the sheer volume of evidence available. [35] In support of this allegation, they point out that the Court of Appeals merely adopted the factual findings of the SEC En Banc verbatim, without deliberation and analysis. [36] In People v. Mercado, [37] we ruled that the speed with which a lower court disposes of a case cannot thus be attributed to the injudicious performance of its function. Indeed, magistrates are not supposed to study a case only after all the pertinent pleadings have been filed. It is a mark of diligence and devotion to duty that

jurists study a case long before the deadline set for the promulgation of their decision has arrived. The two-day period between the filing of petitioners’ Comment and the promulgation of the decision was sufficient time to consider their arguments and to incorporate these in the decision. As long as the lower court does not sacrifice the orderly administration of justice in favor of a speedy but reckless disposition of a case, it cannot be taken to task for rendering its decision with due dispatch. The Court of Appeals in this intra-corporate controversy committed no reversible error and, consequently, its decision should be affirmed. [38] Verily, if such swift disposition of a case is considered a non-issue in cases where the life or liberty of a person is at stake, then we see no reason why the same principle cannot apply when only private rights are involved. Furthermore, well-settled is the rule that the factual findings of the Court of Appeals are conclusive on the parties and are not reviewable by the Supreme Court. They carry even more weight when the Court of Appeals affirms the factual findings of a lower factfinding body.[39] Likewise, the findings of fact of administrative bodies, such as the SEC, will not be interfered with by the courts in the absence of grave abuse of discretion on the part of said agencies, or unless the aforementioned findings are not supported by substantial evidence. [40] However, in the interest of equity, this Court has reviewed the factual findings of the SEC En Banc, which were affirmed in toto by the Court of Appeals, and has found no cogent reason to disturb the same. Indeed, we are convinced that the arguments raised by the petitioners are nothing but unwarranted conclusions of law. Specifically, they insist that the Gala spouses never meant to part with the ownership of the shares which are in the names of their children and encargados, and that all transfers of property to these individuals are supposedly void for being absolutely simulated for lack of consideration.[41] However, as correctly held by the SEC En Banc, the transfers were only relatively simulated, inasmuch as the evident intention of the Gala spouses was to donate portions of their property to their children and encargados. [42] In an attempt to bolster their theory that the organization of the respondent corporations was illegal, the petitioners aver that the legitimepertaining to petitioners Rita G. Benson and Guia G. Domingo from the estate of their father had been subject to unwarranted reductions as a result thereof. In sum, they claim that stockholdings in Ellice which the late Manuel Gala had assigned to them were insufficient to cover their legitimes, since Benson was only given two shares while Domingo received only sixteen shares out of a total number of 35,000 issued shares. [43] Moreover, the reliefs sought by petitioners should have been raised in a proceeding for settlement of estate, rather than in the present intra-corporate controversy. If they are genuinely interested in securing that part of their late father’s property which has been reserved for them in their capacity as compulsory heirs, then they should simply exercise their actio ad supplendam legitimam, or their right of completion of legitime.[44]Such relief must be sought during the distribution and partition stage of a case for the settlement of the estate of Manuel Gala, filed before a court which has taken jurisdiction over the settlement of said estate. [45]

Finally, the petitioners pray that the veil of corporate fiction that shroud both Ellice and Margo be pierced, consistent with their earlier allegation that both corporations were formed for purposes contrary to law and public policy. In sum, they submit that the respondent corporations are mere business conduits of the deceased Manuel Gala and thus may be disregarded to prevent injustice, the distortion or hiding of the truth or the ―letting in‖ of a just defense. [46] However, to warrant resort to the extraordinary remedy of piercing the veil of corporate fiction, there must be proof that the corporation is being used as a cloak or cover for fraud or illegality, or to work injustice, [47] and the petitioners have failed to prove that Ellice and Margo were being used thus. They have not presented any evidence to show how the separate juridical entities of Ellice and Margo were used by the respondents to commit fraudulent, illegal or unjust acts. Hence, this contention, too, must fail. On June 5, 2003, the petitioners filed a Reply, where, aside from reiterating the contentions raised in their Petition, they averred that there is no proof that either capital gains taxes or documentary stamp taxes were paid in the series of transfers of Ellice and Margo shares. Thus, they invoke Sections 176 and 201 of the National Internal Revenue Code, which would bar the presentation or admission into evidence of any document that purports to transfer any benefit derived from certificates of stock if the requisite documentary stamps have not been affixed thereto and cancelled. Curiously, the petitioners never raised this issue before the SEC Hearing Officer, the SEC En Banc or the Court of Appeals. Thus, we are precluded from passing upon the same for, as a rule, no question will be entertained on appeal unless it has been raised in the court below, for points of law, theories, issues and arguments not brought to the attention of the lower court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time at that late stage. Basic considerations of due process impel this rule.[48] Furthermore, even if these allegations were proven to be true, such facts would not render the underlying transactions void, for these instruments would not be the sole means, much less the best means, by which the existence of these transactions could be proved. For this purpose, the books and records of a corporation, which include the stock and transfer book, are generally admissible in evidence in favor of or against the corporation and its members. They can be used to prove corporate acts, a corporation’s financial status and other matters, including one’s status as a stockholder. Most importantly, these books and records are, ordinarily, the best evidence of corporate acts and proceedings.[49] Thus, reference to these should have been made before the SEC Hearing Officer, for this Court will not entertain this belated questioning of the evidence now. It is always sad to see families torn apart by money matters and property disputes. The concept of a close corporation organized for the purpose of running a family business or managing family property has formed the backbone of Philippine commerce and industry. Through this device, Filipino families have been able to turn their humble, hard-earned life savings into going concerns capable of providing them and their families with a modicum of material comfort and financial security as a reward for years of hard work. A family corporation should serve as a rallying point for family

unity and prosperity, not as a flashpoint for familial strife. It is hoped that people reacquaint themselves with the concepts of mutual aid and security that are the original driving forces behind the formation of family corporations and use these tenets in order to facilitate more civil, if not more amicable, settlements of family corporate disputes. WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated November 8, 2002 and the Resolution dated December 27, 2002, both of the Court of Appeals, are AFFIRMED. Costs against petitioners. SO ORDERED. Davide, Jr., C.J., Panganiban, Carpio, and Azcuna, JJ., concur.

[1]

CA Rollo, p. 452; penned by Associate Justice Martin S. Villarama, Jr., concurred in by Associate Justices Godardo A. Jacinto and Mario L. Guariña III. Id. CA Rollo, pp. 101-101, 452. Id., p. 102. Id., p. 91. Id., p. 454. Id. Id., pp. 111, 453. Id., p. 112. Id., p. 454. Id. Id. Id. Id. Id., p. 136. Id., p. 140. Id., p. 455.. Id., p. 155-156.. Id., p. 180.. Id., p. 208; penned by SEC Hearing Officer Alberto P. Atas.. Id., p. 455.. Rollo, pp. 144-145; penned by SEC Hearing Officer Juanito B. Almosa, Jr.

[2]

[3]

[4]

[5]

[6]

[7]

[8]

[9]

[10]

[11]

[12]

[13]

[14]

[15]

[16]

[17]

[18]

[19]

[20]

[21]

[22]

[23]

Id., pp. 170-171; docketed as SEC AC No. 642. Singed by Chairperson Lilia R. Bautista, Commissioners Fe Eloisa C. Gloria, Josela J. Poblador, Ma. Juanita A. Cuetoand Jesus G. Martinez Enrique. CA Rollo, p. 466. Rollo, p. 37 (Emphasis in the original). Id., pp. 40-41.

[24]

[25]

[26]

Section 13, of R.A. 3844 provides: SEC. 13. Affidavit Required in Sale of Land Subject to Right to Preemption.- No deed of sale of agricultural land under cultivation by an agricultural lessee or lessees shall be recorded in the Registry of Property unless accompanied by an affidavit of the vendor that he has given the written notice required in Section eleven of this chapter or that the land is not worked by an agricultural lessee.
[27]

Rollo, p. 40.. CORPORATION CODE, SEC 20. Jesus Sacred Heart College v. Collector of Internal Revenue, 95 Phil. 16, 22 (1954); cited in Commissioner of Internal Revenue v. Court of Appeals, 358 Phil. 562, 584 (1998), dissenting opinion of Senior Associate Justice Josue N. Bellosillo. I CAMPOS, THE CORPORATION CODE: COMMENTS, NOTES AND SELECTED CASES 75-76 (1990 ed.); citing Asuncion v. Yriarte, 28 Phil. 67 (1914). Machete v. Court of Appeals, 320 Phil. 227 (1995); citing Vidad v. Regional Trial Court of Negros Oriental, G.R. No. 98084, 18 October 1993, 227 SCRA 271.

[28]

[29]

[30]

[31]

CORPORATION CODE, sec. 144; Pres. Dec. No. 902-A, sec. 6 (i), Rep. Act No. 8799, sec. 5 (d) and (f).
[32]

Rep. Act No. 6657, sec. 50. Delpher Trades Corporation v. Intermediate Appellate Court, G.R. No. 69259, 26 January 1988, 157 SCRA 349, 356; citing Liddell & Co., Inc. v. The Collector of Internal Revenue, G.R. No. 9687, 30 June 1961, 2 SCRA 632, 641.

[33]

SPECIAL FIRST DIVISION

[G.R. No. 133547. November 11, 2003]

HEIRS OF ANTONIO PAEL AND ANDREA ALCANTARA AND CRISANTO PAEL, petitioners, vs. COURT OF APPEALS, JORGE H. CHIN AND RENATO B. MALLARI, respondents.

[G.R. No. 133843. November 11, 2003]

MARIA DESTURA, petitioner, vs. COURT OF APPEALS, JORGE H. CHIN AND RENATO MALLARI, respondents. RESOLUTION
PUNO, J.:

This treats of the Report submitted to this Court by the Former Special Fourth Division of the Court of Appeals, dated July 30, 2003, pursuant to our Resolution, dated December 7, 2001, directing said court to receive evidence on the conflicting claims over the subject properties covered by TCT Nos. 52928 and 52929 between private respondents Jorge H. Chin and Renato B. Mallari, on the one hand, and intervenor University of the Philippines (UP), on the other. The case at bar is another crass attempt to grab part of the Diliman Campus of the University of the Philippines. Over and over again, this Court has ruled that the title of UP over its Diliman Campus is indefeasible and beyond dispute. We cannot deviate from this ruling. The facts reveal that on December 9, 1993, Maria Destura filed a complaint before the Regional Trial Court of Quezon City against her husband, Pedro Destura, together with Jorge Chin and Renato Mallari. The complaint sought the annulment of the memorandum of agreement (MOA) dated March 26, 1992 executed by Chin and Mallari as first parties, Pedro Destura as second party, and Jaime Lumansag, Jr. as third party, over Lot Nos. 588-A and 588-B located in Barrio Culiat, Quezon City, covered by TCT No. 52928 and TCT No. 52929. It alleged that Chin and Mallari were former agents of Pedro Destura, authorized to sell Lot Nos. 588-A and 588-B, then covered by TCT No. 36048; that when Destura came from Canada, he discovered that the title to the land has been transferred to Chin and Mallari in whose names TCT No. 52928 and TCT No. 52929 were registered; that Chin and Mallari executed the MOA subject of the complaint to appease Destura; that the MOA stated that Chin and Mallari had a buyer of the lots and they promised to pay Destura one hundred million pesos (P100,000,000.00) upon finality of the sale; that the sale did not materialize and the payment of the promised amount has become uncertain, to the prejudice of the Destura spouses. The complaint also sought the annulment of TCT No. 52928 and TCT No. 52929 as they were allegedly obtained through fraudulent means. It prayed that the Register of Deeds issue a new title in the name of the Destura spouses. [1] The case was dismissed against Pedro Destura after he and his wife entered into an amicable settlement. Chin and Mallari, meanwhile, were declared in default for failure to file their Answer.[2] On January 24, 1995, the trial court rendered a judgment by default. The trial court nullified the MOA in question. It ruled:

On the issue of the memorandum of agreement, it is to be noted that under its express terms the payment of the P100,000,000.00 to Pedro Destura depended on the sale of

the properties covered by Transfer Certificates of Title Nos. 52928 and 52929 to the alleged ready buyer of the third party, Jaime B. Lumansag, Jr. Since no sale materialized in accordance therewith because the buyer backed out of the transactions, the agreement lost its efficacy. Pursuant to Art. 1181, Civil Code, upon the nonfulfillment of the condition, the obligation of the defendants under the memorandum of agreement did not take effect and Destura ceased to be bound thereby. That the fulfillment of the condition, i.e., the payment of the P100,000,000.00 to Destura, already became uncertain and indefinite is also established competently and conclusively. As a consequence, the memorandum of agreement should be nullified because it was made to depend upon a condition that was void for being dependent upon the sole will of the debtors.
[3]

The trial court likewise nullified TCT No. 52928 and TCT No. 52929. It found:

Concerning the validity of the transfers of the certificates of title into the names of defendants Mallari and Chin, the records competently and credibly show that highly suspicious circumstances attended such transfers of registered ownership resulting in the issuance of Transfer Certificates of Title Nos. 52928 and 52929. The transfers were by virtue of two deeds of sale covering the land described in Transfer Certificate of Title No. 36048 which appear to have been executed on the same date of December 10, 1978. The vendors in the first deed of sale were the spouses Luis and Leony Menor and those in the other were Roberto Pael, Crisanto Pael, and Teofila Pael. The deeds were supposedly notarized by a certain Catalino C. Manalaysay. Yet, as certified to by the Chief of the Archives Division, Records Management and Archives Office, no copy of the first deed of sale, Exhibit U, was available at said office because the latest notarial record on file under the name of Catalino C. Manalaysay was for the year 1964. Another document submitted to support the transfer of the property to the defendants was a deed of extra-judicial settlement of estate with waiver made and entered in among Crisanto, Roberto, Teofila, and Cresencia, all surnamed Pael, under date of December 27, 1965, by which the alleged heirs of Antonio Pael and Andrea Alcantara divided and adjudicated among themselves the property covered by Transfer Certificate of Title No. 36048. Again the Chief of the Archives Division, Records Management and Archives Office, certified that no copy of the document was available at said office because the notary public before whom the document appeared to have been acknowledged, one Catalino E. Dumlao, had no records thereat for the period from January, 1964 toDecember 18, 1967. There was, moreover, a certification issued on September 2, 1992 by the Chief, Official Gazette Publication, National Printing Office, attested (sic) that there were no

records in said office showing that a publication of LRC Case No. N-10792, LRC Record No. 7672, entitled Spouses Antonio Pael and Andrea Alcantara, et al., Applicants, Petition of Extra-judicial Settlement had been made in the Official Gazette. This contradicted the alleged certificate of publication of notice of initial hearing. The sale appears to have been made in 1978. But if that was so, then it was fictitious, since the defendants willingly accepted appointments as the agents of Pedro Destura with authority to sell the property in his behalf only in 1990. Their act of accepting the appointment was a declaration against interest, in that they thereby admitted quite expressly the ownership of the property on the part of the Desturas as late as 1990, in effect debunking the alleged sale in 1978 in their favor. It is additionally relevant to note that this fact of Destura‟s ownership was further confirmed by the fact that the defendants caused the transfer of the certificates in their names only in 1992.
[4]

The trial court then ordered the Register of Deeds of Quezon City to ―cancel Transfer Certificates of Title Nos. 52928 and 52929 in the names of Jorge Chin and Renato B. Mallari and the transfer certificates of title from which said certificates were derived until but not including Transfer Certificate of Title No. 36048, and thereafter reinstate Transfer Certificate of Title No. 36048 in the names of Spouses Antonio Pael and Andrea Alcantara and Crisanto Pael.‖[5] On February 13, 1995, Atty. Oliver Lozano, counsel for Chin and Mallari, filed a notice of appeal.[6] The following day, the trial court approved the notice of appeal and forwarded the records to the Court of Appeals.[7] A week later, Atty. Lozano filed a motion for new trial and a supplemental motion. [8] On August 28, 1995, the trial court denied the motion for new trial for lack of merit. It also dismissed the appeal previously allowed on the ground of abandonment. The trial court’s decision was thus declared final and executory.[9] In September 1997, Chin and Mallari, assisted by new counsel, Atty. Samuel Alentaje, filed before the Court of Appeals a Petition for Annulment of Judgment. They claimed that the gross negligence of their former counsel, Atty. Lozano, constituted extrinsic fraud which prevented them from presenting their case before the trial court. They also assailed the trial court’s order cancelling their title and upholding the title of thePaels who were not parties to the case.[10] On April 29, 1998, the Court of Appeals rendered a decision[11] in favor of Chin and Mallari. It annulled the decision of the trial court upon finding that the gross and reckless negligence of their former counsel which caused them to be declared in default and which later led to the dismissal of their appeal and finality of the judgment amounted to extrinsic fraud. Further, the appellate court reversed the order of the trial court canceling TCT No. 52928 and TCT No. 52929 and reinstating TCT No. 36048 registered in the name of the Paels. It also rejected Maria Destura’s claim over the property. It instead upheld the validity of the sale of 70% of the property by a certain Luis and Leony Menor

and 30% thereof by the Paels to Chin and Mallari. The dispositive portion of the decision reads:

WHEREFORE, premises considered, the decision dated January 24, 1995 and the Order dated August 28, 1995, both issued in Civil Case No. Q-93-18569, are hereby ANNULLED and SET ASIDE, and accordingly judgment is issued: a) DECLARING as valid the memorandum of agreement dated March 26, 1992;

b) DECLARING as null and void both the cancellation of the titles, Transfer Certificates of Title Nos. 52928 and 52929 of petitioners Jorge H. Chin and Renato B. Mallari over the subject property and the reinstatement of the title Transfer Certificate No. 36048, in the names of Antonio Pael, Andrea Alcantara and Crisanto Pael; c) DECLARING the petitioners as the true and absolute owners of the subject property and ORDERING the Register of Deeds of Quezon City to REINSTATE the aforementioned titles, TCT Nos. 52928 and 52929 in favor of petitioners Jorge H. Chin and Renato B. Mallari;
xxx xxx xxx
[12]

The case was elevated to this Court by the Heirs of Pael and by Maria Destura via separate petitions for review. The Heirs of Pael argued in G.R. No. 133547:
1. The Honorable Court of Appeals gravely misappreciated, ignored, misapplied and/or overlooked the fact that under the facts and circumstances of this case, the annulment of judgment is improper as there was no extrinsic fraud or reckless and gross negligence committed by private respondents’ former counsel, Atty. Oliver Lozano, hence, the assailed decision of the appellate court should be stricken down for being without credible basis. 2. The Honorable Court of Appeals seriously erred in not holding that assuming arguendo that extrinsic fraud and gross and reckless negligence were committed by Atty. Lozano, private respondents were bound by said extrinsic fraud and gross and reckless negligence as they themselves contributed to the commission of such fraud and negligence of their counsel. 3. The Honorable Court of Appeals gravely erred in not holding that the revival of the title in favor of Antonio Pael and Andrea Alcantara and Crisanto Pael, even if they are not parties to the case below, was a logical consequence of the default judgment. 4. The Honorable Court of Appeals gravely erred in not holding that since the default judgment had already long become final and executory, consequently the reinstatement of the titles of private respondent and the declaration as null and void

of the title in the names of Antonio Pael and Andrea Alcantara and Crisanto Pael were erroneous and improper. 5. The Honorable Court of Appeals gravely erred when in its decision it adjudicated the case on the merits, which is procedurally flawed.[13]

Destura raised the following errors in G.R. No. 133843:
1. The ruling of the respondent Court of Appeals that private respondents are not bound by the negligence and incompetence of their counsel is erroneous and contrary to law and jurisprudence. 2. The ruling of the respondent Court of Appeals that the gross negligence of counsel for private respondents constitutes ―extrinsic fraud‖ is likewise erroneous and contrary to law and jurisprudence. 3. Granting for the sake of argument, that there is basis to annul the questioned decision, the action of respondent Court of Appeals in adjudicating the merits of the case is contrary to Section 7, Rule 47 of the Rules of Court. 4. The findings of the respondent Court of Appeals that the interest of the private respondent in the subject property over that of petitioner is not borne out by any evidence in the records of the case in the trial court.[14]

On February 10, 2000, this Court rendered a Decision denying both petitions and affirming the title of Chin and Mallari over the property. The Heirs of Pael and Destura filed separate motions for reconsideration. During their pendency, the University of the Philippines (UP) filed a motion for intervention,[15] alleging that the properties covered by TCT Nos. 52928 and 52929 in the names of Chin and Mallari form part of its Diliman Campus, registered in the name of UP under TCT No. 9462. On December 7, 2001, this Court denied the motions for reconsideration of Destura and the Heirs of Pael, but granted the motion for intervention filed by UP. The Court remanded the case to the Court of Appeals for reception of evidence on the conflicting claims over the property in question by Chin and Mallari as against UP.[16] On July 30, 2003, the Former Special Fourth Division of the Court of Appeals submitted its Report recommending that this Court recognize the better rights of Chin and Mallari over the property as against the claim of UP. It made the following observations:

It is the view of this court that petitioners have successfully refuted U.P.‟s assertion of ownership over the subject properties, more particularly, the two (2) parcels of land denominated as Lot No. 588-A consisting of 518,455 square meters, and Lot 588-B, comprising 261,022 square meters, or a total of 779,477 square meters, or 77.9477 hectares. The preponderance of evidence supports the claim of petitioners Chin and Mallari over the subject properties covered by TCT Nos. 52928 and 52929, as shown by the following:

1. The April 29, 1998 decision of this court and the February 10, 2000 decision of the Supreme Court in G.R. Nos. 133547 and 133843 which plainly and categorically stated that petitioners Chin and Mallari are the true and absolute owners of the subject properties. 2. The December 7, 2001 resolution of the Supreme Court itself which remanded the instant cases to this court for reception of evidence merely to determine the conflicting boundary claims of the parties, petitioners and intervenor U.P. 3. The verification survey report dated January 16, 2003 submitted to the RTC, Branch 99, Quezon City, which found that “the property of Jorge Chin and Renato Mallari described on TCT Nos. 52928 and 52929 falls inside and is entirely within the property covered by TCT Nos. RT-107359 (192689), RT-107350 (192686), RT58201 (192687), RT-57441 (192688) PR-32309, registered in the name of the University of the Philippines.” 4. The findings of Atty. Virgilio B. Tiongson, Assistant Regional Executive Director for Legal Services and Public Affairs, DENR-NCR, in his memorandum dated January 14, 2003, that since the verification and survey report found that the properties of Chin and Mallari, covered by TCT Nos. 52928 and 52929, “fall(s) inside the property covered by the titles of the University of the Philippines,” then there is an apparent overlapping of the titles. His findings refuted the Tiburcio and other cases cited by U.P. which were found to be inapplicable and irrelevant to the claim of Chin and Mallari. Atty. Tiongson recommended that the report on the verification/relocation survey over the properties covered by TCT Nos. 52928 and 52929 in the names of Jorge H. Chin and Renato B. Mallari be adopted as it appears from the record that the properties of U.P. under TCT No. 9462 overlap the properties of Chin and Mallari, hence, the same should be returned to Chin and Mallari, the true and absolute owners thereof. 5. The aforementioned decision of this court dated April 29, 1998 and the decision of the Supreme Court dated February 10, 2000 in G.R. Nos. 133547 and 133843 which categorically ruled that petitioners Chin and Mallari are the true and absolute owners of the subject properties and its resolution dated December 7, 2001 remanding the cases to this court for reception of evidence to determine the conflicting boundary claims of petitioners Chin and Mallari and intervenor U.P. 6. The findings of Geodetic Engineer Mauro Gabriel in the narrative report dated February 20, 1995 on the verification survey of the subject properties which he submitted to the Regional Technical Director, DENR-NCR, who then found that the properties of U.P. overlap the properties of the Paels identified as Lot 588-A and Lot

588-B, Psd-1006, and recommended that said properties be excluded from the properties claimed by U.P. under its TCT No. 9462, thus:
―xxx xxx xxx

In order to correct whatever mislead (sic) that had been (sic) transpired by the previous preparation of the Deed of Conveyance is to exclude properties and rights that had been long existing before the transfer of ownership from the Commonwealth Government of the Philippines to University of the Philippines. That is to exclude the private property of the Paels, the survey plan, Psd-1006 from lot 42-C, Pcs-13 (8th parcel of land) covered by T.C.T. No. 9462 (U.P.). In view of the foregoing, I am recommending that the long existing private property of Antonio Pael, et al. (now Jorge H. Chin & Renato B. Mallari) identified as lots 588-A & 588-B, Psd-1006 be respected and that lot 42-C, Pcs-13 be amended in order to exclude the private rights from University of the Philippines properties, upon approval and confirmation of the proper legal authorities concerned.” (emphases supplied)
[17]

The Court of Appeals further found that the certificate of title held by Chin and Mallari originated from OCT No. 730 registered on May 5, 1914, while that of UP originated from OCT No. 735 which was allegedly registered on a later date, July 6, 1914. It declared:

This court, after a studied and judicious examination and appreciation of the totality of the evidence submitted by petitioners Chin and Mallari and intervenor U.P., finds that petitioners‟ TCT Nos. 52928 and 52929 originated from OCT No. 730 which was registered on May 5, 1914. On the other hand, the court finds that intervenor U.P. has failed to sufficiently establish that its TCT No. RT-107350 (192689) similarly originated from the same OCT No. 730. For one, intervenor failed to submit authenticated or certified copies of the TCT of the Commonwealth of the Philippines which covers the parcels of land sold to U.P. and which thereafter secured its TCT No. 9462. To note once more, in her report to the LRA Verification Committee (Exh. “3”), Atty. Edelwina C. Pastoral lamented that because of “the loss of said documents, it is difficult to establish the link and determine the manner of transfer of the lot in question owned by the Tuasons from OCT No. 730 to TCT No. 2681, TCT No. 6075 & TCT No. 26550, and to the Commonwealth of the Philippines leading to the issuance of TCT No. 36048 in the name of the latter.” Moreover, the TCTs presented by intervenor U.P. to prove its ownership of the lands allegedly conveyed to it by the Commonwealth of the Philippines (marked as Exhs. “1,” “2,” “3,” “4,” “5” and “6”), uniformly show that the OCT No. 730 which, U.P. claims,

was the root of said TCTs was registered on May 3, 1914. This date appears, however, to fall on a Sunday, which casts doubts on U.P.‟s claim. This court, therefore, finds that in line with its observations on the cases cited by U.P., the latter‟s TCT, which overlaps that of petitioners, originated from another title - OCT No. 735 which was registered on July 6, 1914 (see Galvez vs. Tuason, supra).
[18]

We rule in favor of intervenor UP. The facts show that Chin and Mallari and the Desturas trace their claim of ownership over the property to the Paels. The Desturas allegedly purchased the property from the Paels through their agent, a certain Lutgarda Marilao. Chin and Mallari claim that they bought 70% of the property from spouses Luis and Leony Menor, and 30% thereof directly from the Paels. The Menor spouses, in turn, allegedly acquired the 70% also from the Paels. The disputed property, however, is part of the UP Diliman Campus, covered by TCT No. 9462. It was established, after the survey conducted by the Department of Environment and Natural Resources, National Capital Region (DENR-NCR) that the property claimed by Chin and Mallari overlaps the property covered by UP’s title. The superiority of UP’s title over that of the Paels has been recognized by the courts in an earlier case filed by Roberto Pael, et al. against UP. Roberto Pael, et al., previously filed before the Court of First Instance of Quezon City, Branch 52 a complaint against UP for declaration of nullity and damages docketed as Civil Case No. Q-31629. The complainants alleged that they were the heirs of Antonio Pael and Andrea Alcantara, the registered owners of a parcel of land consisting of Lot Nos. 588-A and 588-B of subdivision Plan Psd-1006, located in Barrio Culiat, Quezon City and covered by TCT No. 36048. They sought to nullify the title of UP, TCT No. 9462, which also covered said parcel of land. After the complainants rested their case, UP filed a demurrer to evidence which was denied by the trial court. UP then went to the Court of Appeals via a petition for prohibition to restrain the trial court from proceeding with Civil Case No. Q-31619. UP contended that the question of the validity of the certificate of title of the land in dispute has been put to rest in three cases decided by the Supreme Court as early as 1959. The Court of Appeals granted the petition for prohibition and permanently enjoined the trial court from hearing and proceeding with Civil Case No. Q-31619. It cited the findings of this Court in prior cases that the land in question covered by OCT No. 730 was originally owned by the Tuasons who sold the same to UP. OCT No. 730 was cancelled and TCT No. 9462 was later issued and registered in the name of UP. It held that as early as 1959, this Court has declared that the decree of registration with respect to the land covered by OCT No. 730 had become conclusive and binding against the whole world. Upholding the validity of UP’s title over the property, the Court of Appeals ruled that Pael’s complaint lacked legal basis. Pael filed before this Court a petition docketed as G.R. No. 97277 entitled “Roberto Pael, et al. vs. University of the Philippines” to review the decision of the Court of Appeals. The petition was denied by this Court on April 15, 1991 for late filing. Entry of judgrnent was made on August 15, 1991. The ruling in this

case is final and binds the Paels and all their successors-in-interest which include Chin and Mallari. Nonetheless, despite the above decision, Chin and Mallari filed another Petition against UP for Quieting of Title before the Regional Trial Court of Quezon City. The petition filed on February 5, 1995 alleged that Chin and Mallari were the individual owners of Lot Nos. 588-A and 588-B located in Barrio Culiat, Quezon City and covered by TCT No. 52928 and TCT No. 52929. They claimed to have derived their titles from TCT No. 36048 registered under the name of Spouses Antonio Pael and Andrea Alcantara and their son Crisanto Pael. They alleged that based on official records and entries in the land registration offices of the government, there appears to be two TCT No. 36048 in existence -- one registered in the name of the Commonwealth Government and another registered in the name of the Paels. The Commonwealth Government’s title was later cancelled and TCT No. 9462 was issued and registered in the name of UP. They averred that this created a cloud on the title of the Paels from whom they derived their titles, hence the Petition for Quieting of Title. During the course of the proceedings, Chin and Mallari filed a ―Motion to Order for Relocation and Verification Survey.‖ They alleged that there was a need to define in an appropriate sketch plan the relative locations of the individual properties of the parties for the purpose of determining whether their lots were within the perimeter area of UP’s property. The trial court granted the motion. UP filed a petition for certiorari before the Court of Appeals to set aside the order of the trial court granting the motion. The appellate court dismissed the petition after finding no grave abuse of discretion on the part of the trial court. UP filed a petition for review before the Supreme Court docketed as G.R. No. 127537 entitled “University of the Philippines vs. Hon. Felix M. De Guzman, etc., Jorge H. Chin and Renato B. Mallari.” The petition was denied on March 19, 1997 as it was filed late. Entry of judgment was made on August 4, 1997. Hence, in an Order dated August 2, 2002, the Quezon City RTC ordered the DENRNCR to conduct a relocation and verification survey of the properties covered by TCT Nos. 52928 and 52929.[19] The Verification Survey Report dated January 16, 2003 of the DENR-NCR survey team revealed that “the property of Jorge Chin and Renato Mallari described in TCT Nos. 52928 and 52929 falls inside and is entirely within the property covered by TCT Nos. RT-107350 (192689), RT-107360 (192689), RT58201 (192687) and RT 57441 (192688) PR32309 registered in the name of the University of the Philippines,”[20] confirming its initial findings that there was an overlapping of titles.[21] It is judicial notice that the legitimacy of UP’s title has been settled in several other cases decided by this Court. The case of Tiburcio, et al. vs. People’s Homesite & Housing Corp. (PHHC), et al.[22] was an action for reconveyance of a 430-hectare lot in Quezon City, filed by the heirs of Eladio Tiburcio against PHHC and UP. A portion of the disputed land was covered by TCT No. 1356 registered in the name of PHHC and another portion was covered by TCT No. 9462 registered in the name of UP. Affirming the validity of TCT No. 1356 and TCT No. 9462, this Court ruled:

x x x the land in question has been placed under the operation of the Torrens system since 1914 when it has been originally registered in the name of defendant‟s

predecessor-in-interest. It further appears that sometime in 1955 defendant People‟s Homesite & Housing Corporation acquired from the original owner a parcel of land embracing practically all of plaintiff‟s property for which Transfer Certificate of Title No. 1356 was issued in its favor, while defendant University of the Philippines likewise acquired from the same owner another portion of land which embraces the remainder of the property for which Transfer Certificate of Title No. 9462 was issued in its favor. It is, therefore, clear that the land in question has been registered in the name of defendant‟s predecessor-in-interest since 1914 under the Torrens system and that notwithstanding what they now claim that the original title lacked the essential requirements prescribed by law for their validity, they have never taken any step to nullify said title until 1957 when they instituted the present action. In other words, they allowed a period of 43 years before they woke up to invoke what they claim to be erroneous when the court decreed in 1914 the registration of the land in the name of defendants‟ predecessor-in-interest. Evidently, this cannot be done for under our law and jurisprudence, a decree of registration can only be set aside within one year after entry on the ground of fraud provided no innocent purchaser for value has acquired the property.
[23]

Thus, this Court held that the decree of registration in the name of the predecessor-ininterest of PHHC and UP, as well as the titles issued pursuant thereto have become incontrovertible. This Court again affirmed the validity and indefeasibility of UP’s title in the case of Galvez vs. Tuason,[24] where Maximo Galvez and the heirs of Eladio Tiburcio sought the recovery of a parcel of land in Quezon City registered under the names of Mariano Severo, Maria Teresa Eriberta, Juan Jose, Demetrio Asuncion, Augusto Huberto, all surnamed Tuason y de la Paz, UP, and PHHC. This is the same land subject of the controversy in Tiburcio vs. PHHC. This Court held in Galvez that the question of ownership of the disputed land has been thrice settled definitely and conclusively by the courts: first, in the proceedings for the registration of the property in the name of the Tuasons; second, in the application filed by Marcelino Tiburcio with the Court of First Instance of Rizal for registration of the disputed property in his name which was dismissed by said court; and third, in the action for reconveyance filed by the heirs of Eladio Tiburcio against PHHC and UP which was also dismissed by the court, which dismissal was affirmed by this Court in Tiburcio vs. PHHC. We held that the issue of ownership of the property was already beyond review. The rulings in Tiburcio vs. PHHC and Galvez vs. Tuason were reiterated by this Court in PHHC vs. Mencias[25] and Varsity Hills vs. Mariano.[26] In upholding the alleged right of Chin and Mallari over the property in dispute, the Court of Appeals relied heavily on the Decision of this Court dated February 10, 2000 that Chin and Mallari are its true and absolute owners. It should be emphasized, however, that our February 10, 2000 Decision involved only the conflicting claims of Chin and Mallari as against Maria Destura and the Heirs of Pael. Our Decision upholding the superior rights of Chin and Mallari over those of the petitioners was based

on its findings on the sale of the property by the Paels and a certain Menor to Chin and Mallari. Thus, this Court held:

On the other hand, the records show that private respondents are the owners of the subject property by virtue of the sale to them by the Menors and the Paels as early as December 10, 1978. As above stated, the Paels sold 70% of the total land area of the property to the spouses Luis and Leony Menor. The Menors, in turn, sold to private respondents the same 70%, while the remaining 30% was sold by the surviving heirs of the Paels to private respondents. x x x.
[27]

UP was then not a party in the case and its right over the property was not considered when this Court rendered its decision. It was only after the petitioners filed a motion for reconsideration that UP intervened and claimed that the property subject of this case is within its premises and is titled to its name. Our Decision, therefore, should not bind UP and our initial ruling as regards the rights of the original parties to the case should not prejudice the rights of UP. The remand of the case to the Court of Appeals was precisely intended to determine the veracity of the allegation of UP that the contested property is indeed within its premises. And this fact was affirmed in the Verification Survey Report of the DENR-NCR Survey Team which found that Lot Nos. 588-A and 588-B overlap the property of UP. Needless to stress, Chin and Mallari are precluded from claiming ownership of the land in dispute as the issue of ownership by UP has long been settled in numerous decisions by this Court, and have therefore become incontestable. Contrary to the opinion of the Court of Appeals, the rulings of this Court in the various cases questioning the validity of UP’s title, especially inG.R. No. 97277 entitled “Roberto Pael, et al. vs. University of the Philippines,” apply to the case at bar and constitute res judicata in the concept of conclusiveness of judgment. There is conclusiveness of judgment when, between the first case where the judgment was rendered and the second case where such judgment is invoked, there is identity of parties, not of causes of action. The judgment is conclusive in the second case, only as to those matters actually and directly controverted and determined, and not as to matters merely involved therein.[28] G.R. No. 97277 involved an action by the Paels to nullify the title of UP over Lot Nos. 588-A and 588-B which they claim to be likewise registered in their name. The appellate court affirmed the validity of UP’s title and held that Pael’s complaint lacked legal basis. It is admitted in this case that Chin and Mallari derived their title to Lot Nos. 588-A and 588-B from the Paels. The ruling in the former case, therefore, insofar as the superiority of UP’s title is concerned, is conclusive in the case at bar. It has been said that the foundation principle upon which the doctrine of res judicata rests is that parties should not be permitted to litigate the same issue more than once; that when a right or fact has been judicially tried and determined by a court of competent jurisdiction, or an opportunity for such trial has been given, the judgment of the court, so long as it remains unreversed, should be conclusive upon the parties and those in privity with them in law or estate.[29]

Finally, it should be emphasized that this Court’s Decision in Tiburcio, et al. vs. PHHC, as well as in the subsequent cases upholding the validity and indefeasibility of the certificate of title covering the UP Diliman Campus, precludes the courts from looking anew into the validity of UP’s title. Thus, the appellate court’s discourse in the case at bar as regards the origin of UP’s certificate of title, whether it came from OCT 730 or OCT 735 is intolerable, to say the least. The rule is that material facts or questions which were in issue in a former action and were there admitted or judicially determined are conclusively settled by a judgment rendered therein and that such facts or questions become res judicata and may not again be litigated in a subsequent action between the same parties or their privies, regardless of the form the issue may take in the subsequent action, whether the subsequent action involves the same or a different form of proceedings, or whether the second action is upon the same or a different cause of action, subject matter, claim or demand, as the earlier action. In such cases, it is also immaterial that the two actions are based on different grounds, or tried on different theories, or instituted for different purposes, and seek different reliefs. By the same token, whatever is once irrevocably established as the controlling legal principle or decision continues to be the law of the case between the same parties in the same case, whether correct on general principles or not, so long as the facts on which such decision was predicated continue to be the facts of the case before the court.[30] IN VIEW OF THE FOREGOING, the Decision dated February 10, 2000 is SET ASIDE insofar as it declares private respondents Jorge H. Chin and Renato B. Mallari as the true and absolute owners of Lot Nos. 588-A and 588-B. The title of intervenor UP over the disputed property is upheld. Thus, the Registry of Deeds in Quezon City is ordered to cancel TCT Nos. 52928 and 52929 in the names of private respondents Jorge H. Chin and Renato B. Mallari, and Civil Case No. Q-95-22961 filed by private respondents against intervenor UP before the Regional Trial Court of Quezon City, Branch 99, for quieting of title is hereby dismissed. SO ORDERED. Davide, Jr., C.J., (Chairman), and Austria-Martinez, JJ., concur. Ynares-Santiago, J., see dissenting opinion. Azcuna, J., agrees with the dissent.

[1]

Original Records,
Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 9321

September 24, 1914

NORBERTO ASUNCION, ET AL., petitioners-appellants, vs. MANUEL DE YRIARTE, respondent-appellee. Modesto Reyes for appellants. Attorney-General Villamor for appellee. MORELAND, J.: This is an action to obtain a writ of mandamus to compel the chief of the division of achieves of the Executive Bureau to file a certain articles of incorporation. The chief of the division of archives, the respondent, refused to file the articles of incorporation, hereinafter referred to, upon the ground that the object of the corporation, as stated in the articles, was not lawful and that, in pursuance of section 6 of Act No. 1459, they were not registerable. The proposed incorporators began an action in the Court of First Instance of the city of Manila to compel the chief of the division of archives to receive and register said articles of incorporation and to do any and all acts necessary for the complete incorporation of the persons named in the articles. The court below found in favor of the defendant and refused to order the registration of the articles mentioned, maintaining ad holding that the defendant, under the Corporation Law, had authority to determine both the sufficiency of the form of the articles and the legality of the object of the proposed corporation. This appeal is taken from that judgment. The first question that arises is whether or not the chief of the division of archives has authority, under the Corporation for registration, to decide not only as to the sufficiency of the form of the articles, but also as to the lawfulness of the purpose of the proposed corporation. It is strongly urged on the part of the appellants that the duties of the defendant are purely ministerial and that he has no authority to pass upon the lawfulness of the object for which the incorporators propose to organize. No authorities are cited to support this proposition and we are of the opinion that it is not sound. Section 6 of the Corporation Law reads in part as follows: Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippine Islands, may form a private corporation for any lawful purpose by filing with the division of archives, patents, copyrights, and trademarks if the Executive Bureau articles of incorporation duly executed and acknowledged before a notary public, . . . . Simply because the duties of an official happens to be ministerial, it does not necessarily follow that he may not, in the administration of his office, determine questions of law. We are of the opinion that it is the duty of the division of archives, when articles of incorporation are presented for registration, to determine whether the objects of the corporation as expressed in the articles are lawful. We do not believe that, simply because articles of incorporation presented foe registration are perfect in form, the division of archives must accept and register them and issue the corresponding certificate of incorporation no matter what the purpose of the corporation may be as expressed in the articles. We do not believe it was intended that the division of archives should issue a certificate of incorporation to, and thereby put the seal of approval of the Government upon, a corporation which was organized for base of immoral purposes. That such corporation might later, if it sought to carry out such purposes, be dissolved, or its officials imprisoned or itself heavily fined furnished no reason why it should have been created in the first instance. It seems to us to be not only the right but the duty of the divisions of archives to determine the lawfulness of the objects and purposes of the corporation before it issues a certificate of incorporation. It having determined that the division of archives, through its officials, has authority to determine not only the sufficiency as to form of the articles of incorporation offered for registration, but also the lawfulness of the purposes of leads us to the determination of the question whether or not the chief of the division of archives, who is the representative thereof and clothed by it with authority to deal subject to mandamus in the performance of his duties. We are of the opinion that he may be mandamused if he act in violation of law or if he refuses, unduly, to comply with the law. While we have held that defendant has power to pass upon the lawfulness of the purposes of the proposed

corporation and that he may, in the fulfillment of his duties, determine the question of law whether or not those purposes are lawful and embraced within that class concerning which the law permits corporations to be formed, that does not necessarily mean, as we have already intimated, that his duties are not ministerial. On the contrary, there is no incompatibility in holding, as we do hold, that his duties are ministerial and that he has no authority to exercise discretion in receiving and registering articles of incorporation. He may exercise judgment — that is, the judicial function — in the determination of the question of law referred to, but he may not use discretion. The question whether or not the objects of a proposed corporation are lawful is one that can be decided one way only. If he err in the determination of that question and refuse to file articles which should be filed under the law, the decision is subject to review and correction and, upon proper showing, he will be ordered to file the articles. This is the same kind of determination which a court makes when it decides a case upon the merits, the court makes when it decides a case upon the merits. When a case is presented to a court upon the merits, the court can decide only one way and be right. As a matter of law, there is only one way and be right. As a matter of law, there is only one course to pursue. In a case where the court or other official has discretion in the resolution of a question, then, within certain limitations, he may decide the question either way and still be right. Discretion, it may be said generally, is a faculty conferred upon a court or other official by which he may decide a question either way and still be right. The power conferred upon the division of archives with respect to the registration of articles of incorporation is not of that character. It is of the same character as the determination of a lawsuit by a court upon the merits. It can be decided only one way correctly. If, therefore, the defendant erred in determining the question presented when the articles were offered for registration, then that error will be corrected by this court in this action and he will be compelled to register the articles as offered. If, however, he did not commit an error, but decided that question correctly, then, of course, his action will be affirmed to the extent that we will deny the relief prayed for. The next question leads us to the determination of whether or not the purposes of the corporation as stated in the articles of incorporation are lawful within the meaning of the Corporation Law. The purpose of the incorporation as stated in the articles is: "That the object of the corporation is (a) to organize and regulate the management, disposition, administration and control which the barrio of Pulo or San Miguel or its inhabitants or residents have over the common property of said residents or inhabitants or property belonging to the whole barrio as such; and (b) to use the natural products of the said property for institutions, foundations, and charitable works of common utility and advantage to the barrio or its inhabitants." The municipality of Pasig as recognized by law contains within its limits several barrios or small settlements, like Pulo or San Miguel, which have no local government of their own but are governed by the municipality of Pasig through its municipal president and council. The president and members of the municipal council are elected by a general vote of the municipality, the qualified electors of all the barrios having the right to participate. The municipality of Pasig is a municipal corporation organized by law. It has the control of all property of the municipality. The various barrios of the municipality have no right to own or hold property, they not being recognized as legal entities by any law. The residents of the barrios participate in the advantages which accrue to the municipality from public property and receive all the benefits incident to residence in a municipality organized by law. If there is any public property situated in the barrio of Pulo or San Miguel not belonging to the general government or the province, it belongs to the municipality of Pasig and the sole authority to manage and administer the same resides in that municipality. Until the present laws upon the subject are charged no other entity can be the owner of such property or control or administer it. The object of the proposed corporation, as appears from the articles offered for registration, is to make of the barrio of Pulo or San Miguel a corporation which will become the owner of and have the right to control and administer any property belonging to the municipality of Pasig found within the limits of that barrio. This clearly cannot be permitted. Otherwise municipalities as now established by law could be deprived of the property which they now own and administer. Each barrio of the municipality would become under the scheme proposed, a separate corporation, would take over the ownership, administration, and control of that portion of the municipal territory within its limits. This would disrupt, in a sense, the municipalities of the Islands by dividing them into a series of smaller municipalities entirely independent of the original municipality. What the law does not permit cannot be obtained by indirection. The object of the proposed corporation is clearly repugnant to the provisions of the Municipal Code and the governments of municipalities as they have been organized thereunder. (Act No. 82, Philippine Commission.)

The judgment appealed from is affirmed, with costs against appellants. Arellano, C.J., Torres, Johnson, Carson and Araullo, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 93262 December 29, 1991 DAVAO LIGHT & POWER CO., INC., petitioner, vs. THE COURT OF APPEALS, QUEENSLAND HOTEL or MOTEL or QUEENSLAND TOURIST INN, and TEODORICO ADARNA, respondents. Breva & Breva Law Offices for petitioner. Goc-Ong & Associates for private respondents.

NARVASA, J.:p Subject of the appellate proceedings at bar is the decision of the Court of Appeals in CA-G.R. Sp. No. 1967 entitled "Queensland Hotel, Inc., etc. and Adarna v. Davao Light & Power Co., Inc.," promulgated on May 4, 1990.1 That decision nullified and set aside the writ of preliminary attachment issued by the Regional Trial Court of Davao City 2 in Civil Case No. 19513-89 on application of the plaintiff (Davao Light & Power Co.), before the service of summons on the defendants (herein respondents Queensland Co., Inc. and Adarna). Following is the chronology of the undisputed material facts culled from the Appellate Tribunal's judgment of May 4, 1990. 1. On May 2, 1989 Davao Light & Power Co., Inc. (hereafter, simply Davao Light) filed a verified complaint for recovery of a sum of money and damages against Queensland Hotel, etc. and Teodorico Adarna (docketed as Civil Case No. 19513-89). The complaint contained an ex parte application for a writ of preliminary attachment. 2. On May 3, 1989 Judge Nartatez, to whose branch the case was assigned by raffle, issued an Order granting theex parte application and fixing the attachment bond at P4,600,513.37. 3. On May 11, 1989 the attachment bond having been submitted by Davao Light, the writ of attachment issued. 4. On May 12, 1989, the summons and a copy of the complaint, as well as the writ of attachment and a copy of the attachment bond, were served on defendants Queensland and Adarna; and pursuant to the writ, the sheriff seized properties belonging to the latter. 5. On September 6, 1989, defendants Queensland and Adarna filed a motion to discharge the attachment for lack of jurisdiction to issue the same because at the time the order of attachment was promulgated (May 3, 1989) and the attachment writ issued (May 11, 1989), the Trial Court had not yet acquired jurisdiction over the cause and over the persons of the defendants. 6. On September 14, 1989, Davao Light filed an opposition to the motion to discharge attachment.

7. On September 19, 1989, the Trial Court issued an Order denying the motion to discharge. This Order of September 19, 1989 was successfully challenged by Queensland and Adarna in a special civil action of certiorari instituted by them in the Court of Appeals. The Order was, as aforestated, annulled by the Court of Appeals in its Decision of May 4, 1990. The Appellate Court's decision closed with the following disposition: . . . the Orders dated May 3, 1989 granting the issuance of a writ of preliminary attachment, dated September 19, 1989 denying the motion to discharge attachment; dated November 7, 1989 denying petitioner's motion for reconsideration; as well as all other orders emanating therefrom, specially the Writ of Attachment dated May 11, 1989 and Notice of Levy on Preliminary Attachment dated May 11, 1989, are hereby declared null and void and the attachment hereby ordered DISCHARGED. The Appellate Tribunal declared that — . . . While it is true that a prayer for the issuance of a writ of preliminary attachment may be included m the complaint, as is usually done, it is likewise true that the Court does not acquire jurisdiction over the person of the defendant until he is duly summoned or voluntarily appears, and adding the phrase that it be issued "ex parte" does not confer said jurisdiction before actual summons had been made, nor retroact jurisdiction upon summons being made. . . . It went on to say, citing Sievert v. Court of Appeals, 3 that "in a proceedings in attachment," the "critical time which must be identified is . . . when the trial court acquires authority under law to act coercively against the defendant or his property . . .;" and that "the critical time is the of the vesting of jurisdiction in the court over the person of the defendant in the main case." Reversal of this Decision of the Court of Appeals of May 4, 1990 is what Davao Light seeks in the present appellate proceedings. The question is whether or not a writ of preliminary attachment may issue ex parte against a defendant before acquisition of jurisdiction of the latter's person by service of summons or his voluntary submission to the Court's authority. The Court rules that the question must be answered in the affirmative and that consequently, the petition for review will have to be granted. It is incorrect to theorize that after an action or proceeding has been commenced and jurisdiction over the person of the plaintiff has been vested in the court, but before the acquisition of jurisdiction over the person of the defendant (either by service of summons or his voluntary submission to the court's authority), nothing can be validly done by the plaintiff or the court. It is wrong to assume that the validity of acts done during this period should be defendant on, or held in suspension until, the actual obtention of jurisdiction over the defendant's person. The obtention by the court of jurisdiction over the person of the defendant is one thing; quite another is the acquisition of jurisdiction over the person of the plaintiff or over the subject-matter or nature of the action, or the res or object hereof. An action or proceeding is commenced by the filing of the complaint or other initiatory pleading. 4 By that act, the jurisdiction of the court over the subject matter or nature of the action or proceeding is invoked or called into activity; 5 and it is thus that the court acquires jurisdiction over said subject matter or nature of the action. 6 And it is by that self-same act of the plaintiff (or petitioner) of filing the complaint (or other appropriate pleading) — by which he signifies his submission to the court's power and authority — that jurisdiction is acquired by the court over his person. 7 On the other hand, jurisdiction over the person of the defendant is obtained, as above stated, by the service of summons or other coercive process upon him or by his voluntary submission to the authority of the court. 8 The events that follow the filing of the complaint as a matter of routine are well known. After the complaint is filed, summons issues to the defendant, the summons is then transmitted to the sheriff, and finally, service of the summons is effected on the defendant in any of the ways authorized by the Rules of Court. There is thus ordinarily some appreciable interval of time between the day of the filing of the complaint and the day of service of summons of the defendant. During this period, different acts may be done by the plaintiff or by the Court, which are unquestionable validity and propriety. Among these, for example, are the appointment of a guardian ad litem, 9 the grant of authority

to the plaintiff to prosecute the suit as a pauper litigant, 10 the amendment of the complaint by the plaintiff as a matter of right without leave of court, 11 authorization by the Court of service of summons by publication, 12 the dismissal of the action by the plaintiff on mere notice. 13 This, too, is true with regard to the provisional remedies of preliminary attachment, preliminary injunction, receivership or replevin. 14 They may be validly and properly applied for and granted even before the defendant is summoned or is heard from. A preliminary attachment may be defined, paraphrasing the Rules of Court, as the provisional remedy in virtue of which a plaintiff or other party may, at the commencement of the action or at any time thereafter, have the property of the adverse party taken into the custody of the court as security for the satisfaction of any judgment that may be recovered. 15 It is a remedy which is purely statutory in respect of which the law requires a strict construction of the provisions granting it. 16 Withal no principle, statutory or jurisprudential, prohibits its issuance by any court before acquisition of jurisdiction over the person of the defendant. Rule 57 in fact speaks of the grant of the remedy "at the commencement of the action or at any time thereafter." 17The phase, "at the commencement of the action," obviously refers to the date of the filing of the complaint — which, as above pointed out, is the date that marks "the commencement of the action;" 18 and the reference plainly is to a time before summons is served on the defendant, or even before summons issues. What the rule is saying quite clearly is that after an action is properly commenced — by the filing of the complaint and the payment of all requisite docket and other fees — the plaintiff may apply for and obtain a writ of preliminary attachment upon fulfillment of the pertinent requisites laid down by law, and that he may do so at any time, either before or after service of summons on the defendant. And this indeed, has been the immemorial practice sanctioned by the courts: for the plaintiff or other proper party to incorporate the application for attachment in the complaint or other appropriate pleading (counter-claim, cross-claim, third-party claim) and for the Trial Court to issue the writ ex-parteat the commencement of the action if it finds the application otherwise sufficient in form and substance. In Toledo v. Burgos, 19 this Court ruled that a hearing on a motion or application for preliminary attachment is not generally necessary unless otherwise directed by the Trial Court in its discretion. 20 And in Filinvest Credit Corporation v. Relova, 21 the Court declared that "(n)othing in the Rules of Court makes notice and hearing indispensable and mandatory requisites for the issuance of a writ of attachment." The only pre-requisite is that the Court be satisfied, upon consideration of "the affidavit of the applicant or of some other person who personally knows the facts, that a sufficient cause of action exists, that the case is one of those mentioned in Section 1 . . . (Rule 57), that there is no other sufficient security for the claim sought to be enforced by the action, and that the amount due to the applicant, or the value of the property the possession of which he is entitled to recover, is as much as the sum for which the order (of attachment) is granted above all legal counterclaims." 22 If the court be so satisfied, the "order of attachment shall be granted," 23 and the writ shall issue upon the applicant's posting of "a bond executed to the adverse party in an amount to be fixed by the judge, not exceeding the plaintiffs claim, conditioned that the latter will pay all the costs which may be adjudged to the adverse party and all damages which he may sustain by reason of the attachment, if the court shall finally adjudge that the applicant was not entitled thereto." 24 In Mindanao Savings & Loan Association, Inc. v. Court of Appeals, decided on April 18, 1989, 25 this Court had occasion to emphasize the postulate that no hearing is required on an application for preliminary attachment, with notice to the defendant, for the reason that this "would defeat the objective of the remedy . . . (since the) time which such a hearing would take, could be enough to enable the defendant to abscond or dispose of his property before a writ of attachment issues." As observed by a former member of this Court, 26 such a procedure would warn absconding debtors-defendants of the commencement of the suit against them and the probable seizure of their properties, and thus give them the advantage of time to hide their assets, leaving the creditor-plaintiff holding the proverbial empty bag; it would place the creditor-applicant in danger of losing any security for a favorable judgment and thus give him only an illusory victory. Withal, ample modes of recourse against a preliminary attachment are secured by law to the defendant. The relative ease with which a preliminary attachment may be obtained is matched and paralleled by the relative facility with which the attachment may legitimately be prevented or frustrated. These modes of recourse against preliminary attachments granted by Rule 57 were discussed at some length by the separate opinion in Mindanao Savings & Loans Asso. Inc. v. CA., supra. That separate opinion stressed that there are two (2) ways of discharging an attachment: first, by the posting of a counterbond; and second, by a showing of its improper or irregular issuance.

1.0. The submission of a counterbond is an efficacious mode of lifting an attachment already enforced against property, or even of preventing its enforcement altogether. 1.1. When property has already been seized under attachment, the attachment may be discharged upon counterbond in accordance with Section 12 of Rule 57. Sec. 12. Discharge of attachment upon giving counterbond. — At any time after an order of attachment has been granted, the party whose property has been attached or the person appearing in his behalf, may, upon reasonable notice to the applicant, apply to the judge who granted the order, or to the judge of the court in which the action is pending, for an order discharging the attachment wholly or in part on the security given . . . in an amount equal to the value of the property attached as determined by the judge to secure the payment of any judgment that the attaching creditor may recover in the action. . . . 1.2. But even before actual levy on property, seizure under attachment may be prevented also upon counterbond. The defendant need not wait until his property is seized before seeking the discharge of the attachment by a counterbond. This is made possible by Section 5 of Rule 57. Sec. 5. Manner of attaching property. — The officer executing the order shall without delay attach, to await judgment and execution in the action, all the properties of the party against whom the order is issued in the province, not exempt from execution, or so much thereof as may be sufficient to satisfy the applicant's demand, unless the former makes a deposit with the clerk or judge of the court from which the order issued, or gives a counter-bond executed to the applicant, in an amount sufficient to satisfy such demand besides costs, or in an amount equal to the value of the property which is about to be attached, to secure payment to the applicant of any judgment which he may recover in the action. . . . (Emphasis supplied) 2.0. Aside from the filing of a counterbond, a preliminary attachment may also be lifted or discharged on the ground that it has been irregularly or improperly issued, in accordance with Section 13 of Rule 57. Like the first, this second mode of lifting an attachment may be resorted to even before any property has been levied on. Indeed, it may be availed of after property has been released from a levy on attachment, as is made clear by said Section 13, viz.: Sec. 13. Discharge of attachment for improper or irregular issuance. — The party whose property has been attached may also, at any time either BEFORE or AFTER the release of the attached property, or before any attachment shall have been actually levied, upon reasonable notice to the attaching creditor, apply to the judge who granted the order, or to the judge of the court in which the action is pending, for an order to discharge the attachment on the ground that the same was improperly or irregularly issued. If the motion be made on affidavits on the part of the party whose property has been attached, but not otherwise, the attaching creditor may oppose the same by counter-affidavits or other evidence in addition to that on which the attachment was made. . . . (Emphasis supplied) This is so because "(a)s pointed out in Calderon v. I.A.C., 155 SCRA 531 (1987), The attachment debtor cannot be deemed to have waived any defect in the issuance of the attachment writ by simply availing himself of one way of discharging the attachment writ, instead of the other. Moreover, the filing of a counterbond is a speedier way of discharging the attachment writ maliciously sought out by the attaching creditor instead of the other way, which, in most instances . . . would require presentation of evidence in a fullblown trial on the merits, and cannot easily be settled in a pending incident of the case." 27 It may not be amiss to here reiterate other related principles dealt with in Mindanao Savings & Loans Asso. Inc. v.C.A., supra., 28 to wit: (a) When an attachment may not be dissolved by a showing of its irregular or improper issuance: . . . (W)hen the preliminary attachment is issued upon a ground which is at the same time the applicant's cause of action; e.g., "an action for money or property embezzled or fraudulently misapplied or converted to his own use by a public officer, or an officer of a corporation, or an attorney, factor, broker, agent, or clerk, in the course of his employment as such, or by any other person in a fiduciary capacity, or for a willful violation of duty." (Sec. 1 [b], Rule 57), or "an action

against a party who has been guilty of fraud m contracting the debt or incurring the obligation upon which the action is brought" (Sec. 1 [d], Rule 57), the defendant is not allowed to file a motion to dissolve the attachment under Section 13 of Rule 57 by offering to show the falsity of the factual averments in the plaintiff's application and affidavits on which the writ was based — and consequently that the writ based thereon had been improperly or irregularly issued (SEE Benitez v. I.A.C., 154 SCRA 41) — the reason being that the hearing on such a motion for dissolution of the writ would be tantamount to a trial of the merits of the action. In other words, the merits of the action would be ventilated at a mere hearing of a motion, instead of at the regular trial. Therefore, when the writ of attachment is of this nature, the only way it can be dissolved is by a counterbond (G.B. Inc. v. Sanchez, 98 Phil. 886). (b) Effect of the dissolution of a preliminary attachment on the plaintiffs attachment bond: . . . The dissolution of the preliminary attachment upon security given, or a showing of its irregular or improper issuance, does not of course operate to discharge the sureties on plaintiff's own attachment bond. The reason is simple. That bond is "executed to the adverse party, . . . conditioned that the . . . (applicant) will pay all the costs which may be adjudged to the adverse party and all damages which he may sustain by reason of the attachment, if the court shall finally adjudge that the applicant was not entitled thereto" (SEC. 4, Rule 57). Hence, until that determination is made, as to the applicant's entitlement to the attachment, his bond must stand and cannot be with-drawn. With respect to the other provisional remedies, i.e., preliminary injunction (Rule 58), receivership (Rule 59), replevin or delivery of personal property (Rule 60), the rule is the same: they may also issue ex parte. 29 It goes without saying that whatever be the acts done by the Court prior to the acquisition of jurisdiction over the person of defendant, as above indicated — issuance of summons, order of attachment and writ of attachment (and/or appointments of guardian ad litem, or grant of authority to the plaintiff to prosecute the suit as a pauper litigant, or amendment of the complaint by the plaintiff as a matter of right without leave of court 30 — and however valid and proper they might otherwise be, these do not and cannot bind and affect the defendant until and unless jurisdiction over his person is eventually obtained by the court, either by service on him of summons or other coercive process or his voluntary submission to the court's authority. Hence, when the sheriff or other proper officer commences implementation of the writ of attachment, it is essential that he serve on the defendant not only a copy of the applicant's affidavit and attachment bond, and of the order of attachment, as explicity required by Section 5 of Rule 57, but also the summons addressed to said defendant as well as a copy of the complaint and order for appointment of guardian ad litem, if any, as also explicity directed by Section 3, Rule 14 of the Rules of Court. Service of all such documents is indispensable not only for the acquisition of jurisdiction over the person of the defendant, but also upon considerations of fairness, to apprise the defendant of the complaint against him, of the issuance of a writ of preliminary attachment and the grounds therefor and thus accord him the opportunity to prevent attachment of his property by the posting of a counterbond in an amount equal to the plaintiff's claim in the complaint pursuant to Section 5 (or Section 12), Rule 57, or dissolving it by causing dismissal of the complaint itself on any of the grounds set forth in Rule 16, or demonstrating the insufficiency of the applicant's affidavit or bond in accordance with Section 13, Rule 57. It was on account of the failure to comply with this fundamental requirement of service of summons and the other documents above indicated that writs of attachment issued by the Trial Court ex parte were struck down by this Court's Third Division in two (2) cases, namely: Sievert v. Court of Appeals, 31 and BAC Manufacturing and Sales Corporation v. Court of Appeals, et al. 32 In contrast to the case at bar — where the summons and a copy of the complaint, as well as the order and writ of attachment and the attachment bond were served on the defendant — in Sievert, levy on attachment was attempted notwithstanding that only the petition for issuance of the writ of preliminary attachment was served on the defendant, without any prior or accompanying summons and copy of the complaint; and in BAC Manufacturing and Sales Corporation, neither the summons nor the order granting the preliminary attachment or the writ of attachment itself was served on the defendant "before or at the time the levy was made." For the guidance of all concerned, the Court reiterates and reaffirms the proposition that writs of attachment may properly issue ex parte provided that the Court is satisfied that the relevant requisites therefor have been fulfilled by the applicant, although it may, in its discretion, require prior hearing on the application with notice to the defendant; but that levy on property pursuant to the writ thus issued may not be validly effected unless preceded, or contemporaneously accompanied, by service on the defendant of summons, a copy of the complaint (and of the

appointment of guardian ad litem, if any), the application for attachment (if not incorporated in but submitted separately from the complaint), the order of attachment, and the plaintiff's attachment bond. WHEREFORE, the petition is GRANTED; the challenged decision of the Court of Appeals is hereby REVERSED, and the order and writ of attachment issued by Hon. Milagros C. Nartatez, Presiding Judge of Branch 8, Regional Trial Court of Davao City in Civil Case No. 19513-89 against Queensland Hotel or Motel or Queensland Tourist Inn and Teodorico Adarna are hereby REINSTATED. Costs against private respondents. SO ORDERED. Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Padilla, Bidin, Griño-Aquino, Medialdea, Regalado and Romero, JJ., concur. Fernan, C.J., is on leave. Davide, Jr., J., took no part. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-22238 February 18, 1967

CLAVECILLIA RADIO SYSTEM, petitioner-appellant, vs. HON. AGUSTIN ANTILLON, as City Judge of the Municipal Court of Cagayan de Oro City and NEW CAGAYAN GROCERY, respondents-appellees. B. C. Padua for petitioner and appellant. Pablo S. Reyes for respondents and appellees. 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.