CORPO CASES COMPILED III

8/10/2019 CORPO CASES COMPILED III

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G.R. No. 101897. March 5, 1993.

LYCEUM OF THE PHILIPPINES, INC., petitioner, vs. COURT OFAPPEALS, LYCEUM OF APARRI, LYCEUM OF CABAGAN,LYCEUM OF CAMALANIUGAN, INC., LYCEUM OF LALLO, INC.,LYCEUM OF TUAO, INC., BUHI LYCEUM, CENTRAL LYCEUM OFCATANDUANES, LYCEUM OF SOUTHERN PHILIPPINES, LYCEUMOF EASTERN MINDANAO, INC. and WESTERN PANGASINANLYCEUM, INC., respondents.

Quisumbing, Torres & Evangelista Law Offices and Ambrosio Padillafor petitioner.

Antonio M. Nuyles and Purungan, Chato, Chato, Tarriela & Tan LawOffices for respondents.

Froilan Siobal for Western Pangasinan Lyceum.

SYLLABUS

1. CORPORATION LAW; CORPORATE NAMES; REGISTRATIONOF PROPOSED NAME WHICH IS IDENTICAL OR CONFUSINGLYSIMILAR TO THAT OF ANY EXISTING CORPORATION,PROHIBITED; CONFUSION AND DECEPTION EFFECTIVELYPRECLUDED BY THE APPENDING OF GEOGRAPHIC NAMES TOTHE WORD "LYCEUM". The Articles of Incorporation of acorporation must, among other things, set out the name of thecorporation. Section 18 of the Corporation Code establishes arestrictive rule insofar as corporate names are concerned: "Section

18. Corporate name. No corporate name may be allowed by theSecurities an Exchange Commission if the proposed name is identicalor deceptively or confusingly similar to that of any existing corporationor to any other name already protected by law or is patentlydeceptive, confusing or contrary to existing laws. When a change inthe corporate name is approved, the Commission shall issue anamended certificate of incorporation under the amended name." Thepolicy underlying the prohibition in Section 18 against the registrationof a corporate name which is "identical or deceptively or confusinglysimilar" to that of any existing corporation or which is "patentlydeceptive" or "patently confusing" or "contrary to existing laws," is the

avoidance of fraud upon the public which would have occasion to dealwith the entity concerned, the evasion of legal obligations and duties,

and the reduction of difficulties of administration and supervision overcorporations. We do not consider that the corporate names of privaterespondent institutions are "identical with, or deceptively orconfusingly 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 bythe appending of geographic names to the word "Lyceum." Thus, wedo not believe that the "Lyceum of Aparri" can be mistaken by thegeneral public for the Lyceum of the Philippines, or that the "Lyceumof Camalaniugan" would be confused with the Lyceum of thePhilippines.

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 asecondary meaning in relation to petitioner with the result that word,although originally a generic, has become appropriable by petitionerto the exclusion of other institutions like private respondents herein.The doctrine of secondary meaning originated in the field of trademarklaw. Its application has, however, been extended to corporate namessine the right to use a corporate name to the exclusion of others isbased upon the same principle which underlies the right to use aparticular trademark or tradename. In Philippine Nut Industry, Inc. v.Standard Brands, Inc., the doctrine of secondary meaning waselaborated in the following terms: " . . . a word or phrase originallyincapable of exclusive appropriation with reference to an article on themarket, because geographically or otherwise descriptive, mightnevertheless have been used so long and so exclusively by oneproducer with reference to his article that, in that trade and to thatbranch of the purchasing public, the word or phrase has come tomean that the article was his product." The question which arises,therefore, is whether or not the use by petitioner of "Lyceum" in itscorporate name has been for such length of time and with suchexclusivity as to have become associated or identified with thepetitioner institution in the mind of the general public (or at least thatportion of the general public which has to do with schools). The Courtof Appeals recognized this issue and answered it in the negative:"Under the doctrine of secondary meaning, a word or phrase originallyincapable of exclusive appropriation with reference to an article in themarket, because geographical or otherwise descriptive mightnevertheless have been used so long and so exclusively by oneproducer with reference to this article that, in that trade and to that


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group of the purchasing public, the word or phrase has come to meanthat the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil.56). This circumstance has been referred to as the distinctiveness intowhich the name or phrase has evolved through the substantial andexclusive use of the same for a considerable period of time. . . . Noevidence was ever presented in the hearing before the Commissionwhich sufficiently proved that the word 'Lyceum' has indeed acquiredsecondary meaning in favor of the appellant. If there was any of thiskind, the same tend to prove only that the appellant had been usingthe disputed word for a long period of time. . . . In other words, whilethe appellant may have proved that it had been using the word'Lyceum' for a long period of time, this fact alone did not amount tomean that the said word had acquired secondary meaning in its favorbecause the appellant failed to prove that it had been using the sameword all by itself to the exclusion of others. More so, there was noevidence presented to prove that confusion will surely arise if thesame word were to be used by other educational institutions.Consequently, the allegations of the appellant in its first two assignederrors must necessarily fail." We agree with the Court of Appeals. Thenumber alone of the private respondents in the case at bar suggestsstrongly that petitioner's use of the word "Lyceum" has not beenattended with the exclusivity essential for applicability of the doctrineof secondary meaning. Petitioner's use of the word "Lyceum" was notexclusive but was in truth shared with the Western PangasinanLyceum and a little later with other private respondent institutionswhich registered with the SEC using "Lyceum" as part of theircorporation names. There may well be other schools using Lyceum orLiceo in their names, but not registered with the SEC because theyhave not adopted the corporate form of organization.

3. ID.; ID.; MUST BE EVALUATED IN THEIR ENTIRETY TODETERMINE WHETHER THEY ARE CONFUSINGLY ORDECEPTIVELY SIMILAR TO ANOTHER CORPORATE ENTITY'SNAME. petitioner institution is not entitled to a legally enforceableexclusive right to use the word "Lyceum" in its corporate name andthat other institutions may use "Lyceum" as part of their corporatenames. To determine whether a given corporate name is "identical" or"confusingly or deceptively similar" with another entity's corporatename, it is not enough to ascertain the presence of "Lyceum" or"Liceo" in both names. One must evaluate corporate names in theirentirety 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.

D E C I S I O N

FELICIANO, J p:

Petitioner is an educational institution duly registered with theSecurities and Exchange Commission ("SEC"). When it firstregistered with the SEC on 21 September 1950, it used the corporatename Lyceum of the Philippines, Inc. and has used that name eversince.

On 24 February 1984, petitioner instituted proceedings before theSEC to compel the private respondents, which are also educationalinstitutions, to delete the word "Lyceum" from their corporate namesand permanently to enjoin them from using "Lyceum" as part of theirrespective names.

Some of the private respondents actively participated in theproceedings before the SEC. These are the following, the dates oftheir original SEC registration being set out below opposite theirrespective 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 failureto file an answer despite service of summons:

Buhi Lyceum;


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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 Lyceumof Malacanay and the Lyceum of Marbel, for failure to serve summonsupon these two (2) entities. The case against the Liceum of Araullo

was dismissed when that school motu proprio change its corporatename to "Pamantasan ng Araullo."

The background of the case at bar needs some recounting. Petitionerhad sometime before commenced in the SEC a proceeding (SEC-Case No. 1241) against the Lyceum of Baguio, Inc. to require it tochange 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 ofpetitioner and that of the Lyceum of Baguio, Inc. were substantiallyidentical because of the presence of a "dominant" word, i.e.,

"Lyceum," the name of the geographical location of the campus beingthe only word which distinguished one from the other corporate name.The SEC also noted that petitioner had registered as a corporationahead of the Lyceum of Baguio, Inc. in point of time, 1 and orderedthe 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 theSupreme Court in a case docketed as G.R. No. L-46595. In a MinuteResolution dated 14 September 1977, the Court denied the Petitionfor Review for lack of merit. Entry of judgment in that case was madeon 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 usingthe word "Lyceum" as part of their corporate name, and advised themto discontinue such use of "Lyceum." When, with the passage of time,it became clear that this recourse had failed, petitioner institutedbefore the SEC SEC-Case No. 2579 to enforce what petitioner claimsas its proprietary right to the word "Lyceum." The SEC hearing officerrendered a decision sustaining petitioner's claim to an exclusive rightto use the word "Lyceum." The hearing officer relied upon the SECruling in the Lyceum of Baguio, Inc. case (SEC-Case No. 1241) andheld that the word "Lyceum" was capable of appropriation and thatpetitioner had acquired an enforceable exclusive right to the use ofthat word.

On appeal, however, by private respondents to the SEC En Banc, thedecision of the hearing officer was reversed and set aside. The SECEn Banc did not consider the word "Lyceum" to have become soidentified with petitioner as to render use thereof by other institutionsas productive of confusion about the identity of the schools concernedin the mind of the general public. Unlike its hearing officer, the SECEn Banc held that the attaching of geographical names to the word"Lyceum" served sufficiently to distinguish the schools from oneanother, especially in view of the fact that the campuses of petitionerand those of the private respondents were physically quite remotefrom each other. 3

Petitioner then went on appeal to the Court of Appeals. In its Decisiondated 28 June 1991, however, the Court of Appeals affirmed thequestioned Orders of the SEC En Banc. 4 Petitioner filed a motion for

reconsideration, without success.

Before this Court, petitioner asserts that the Court of Appealscommitted the following errors:

1. The Court of Appeals erred in holding that the Resolution of theSupreme Court in G.R. No. L-46595 did not constitute stare decisis asto apply to this case and in not holding that said Resolution boundsubsequent determinations on the right to exclusive use of the wordLyceum.

2. The Court of Appeals erred in holding that respondent WesternPangasinan Lyceum, Inc. was incorporated earlier than petitioner.


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3. The Court of Appeals erred in holding that the word Lyceum hasnot acquired a secondary meaning in favor of petitioner.

4. The Court of Appeals erred in holding that Lyceum as a genericword cannot be appropriated by the petitioner to the exclusion ofothers. 5

We will consider all the foregoing ascribed errors, though notnecessarily seriatim. We begin by noting that the Resolution of theCourt in G.R. No. L-46595 does not, of course, constitute resadjudicata in respect of the case at bar, since there is no identity ofparties. Neither is stare decisis pertinent, if only because the SEC EnBanc itself has re-examined Associate Commissioner Sulit's ruling inthe Lyceum of Baguio case. The Minute Resolution of the Court inG.R. No. L-46595 was not a reasoned adoption of the Sulit ruling.

The Articles of Incorporation of a corporation must, among otherthings, set out the name of the corporation. 6 Section 18 of the

Corporation Code establishes a restrictive rule insofar as corporatenames are concerned:

"SECTION 18. Corporate name. No corporate name may beallowed by the Securities an Exchange Commission if the proposedname is identical or deceptively or confusingly similar to that of anyexisting corporation or to any other name already protected by law oris patently deceptive, confusing or contrary to existing laws. When achange in the corporate name is approved, the Commission shallissue an amended certificate of incorporation under the amendedname." (Emphasis supplied)

The policy underlying the prohibition in Section 18 against theregistration of a corporate name which is "identical or deceptively orconfusingly similar" to that of any existing corporation or which is"patently deceptive" or "patently confusing" or "contrary to existinglaws," is the avoidance of fraud upon the public which would haveoccasion to deal with the entity concerned, the evasion of legalobligations and duties, and the reduction of difficulties ofadministration 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" tothat of the petitioner institution. True enough, the corporate names of

private respondent entities all carry the word "Lyceum" but confusionand deception are effectively precluded by the appending ofgeographic names to the word "Lyceum." Thus, we do not believe thatthe "Lyceum of Aparri" can be mistaken by the general public for theLyceum 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 Greeklykeion which in turn referred to a locality on the river Ilissius inancient Athens "comprising an enclosure dedicated to Apollo andadorned with fountains and buildings erected by Pisistratus, Periclesand Lycurgus frequented by the youth for exercise and by thephilosopher Aristotle and his followers for teaching." 8 In time, theword "Lyceum" became associated with schools and other institutionsproviding public lectures and concerts and public discussions. Thustoday, the word "Lyceum" generally refers to a school or an institutionof learning. While the Latin word "lyceum" has been incorporated intothe English language, the word is also found in Spanish (liceo) and inFrench (lycee). As the Court of Appeals noted in its Decision, RomanCatholic schools frequently use the term; e.g., "Liceo de Manila,""Liceo de Baleno" (in Baleno, Masbate), "Liceo de Masbate," "Liceode Albay." 9 "Lyceum" is in fact as generic in character as the word"university." In the name of the petitioner, "Lyceum" appears to be asubstitute 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 asthe use of "university," but it is clear that a not inconsiderable numberof educational institutions have adopted "Lyceum" or "Liceo" as part oftheir corporate names. Since "Lyceum" or "Liceo" denotes a school orinstitution of learning, it is not unnatural to use this word to designatean entity which is organized and operating as an educationalinstitution.

It is claimed, however, by petitioner that the word "Lyceum" hasacquired a secondary meaning in relation to petitioner with the resultthat that word, although originally a generic, has become appropriableby petitioner to the exclusion of other institutions like privaterespondents herein.

The doctrine of secondary meaning originated in the field of trademarklaw. Its application has, however, been extended to corporate names


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sine the right to use a corporate name to the exclusion of others isbased upon the same principle which underlies the right to use aparticular trademark or tradename. 10 In Philippine Nut Industry, Inc.v. Standard Brands, Inc., 11 the doctrine of secondary meaning waselaborated in the following terms:

" . . . a word or phrase originally incapable of exclusive appropriationwith reference to an article on the market, because geographically orotherwise descriptive, might nevertheless have been used so longand so exclusively by one producer with reference to his article that, inthat trade and to that branch of the purchasing public, the word orphrase has come to mean that the article was his product." 12

The question which arises, therefore, is whether or not the use bypetitioner of "Lyceum" in its corporate name has been for such lengthof time and with such exclusivity as to have become associated oridentified 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 itin the negative:

"Under the doctrine of secondary meaning, a word or phrase originallyincapable of exclusive appropriation with reference to an article in themarket, because geographical or otherwise descriptive mightnevertheless have been used so long and so exclusively by oneproducer with reference to this article that, in that trade and to thatgroup of the purchasing public, the word or phrase has come to meanthat 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 andexclusive use of the same for a considerable period of time.Consequently, the same doctrine or principle cannot be made to applywhere the evidence did not prove that the business (of the plaintiff)has continued for so long a time that it has become of consequenceand acquired a good will of considerable value such that its articlesand produce have acquired a well-known reputation, and confusionwill result by the use of the disputed name (by the defendant) (Ang SiHeng 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 everpresented in the hearing before the Commission which sufficiently

proved that the word 'Lyceum' has indeed acquired secondarymeaning in favor of the appellant. If there was any of this kind, thesame tend to prove only that the appellant had been using thedisputed word for a long period of time. Nevertheless, its (appellant)exclusive use of the word (Lyceum) was never established or provenas in fact the evidence tend to convey that the cross-claimant wasalready using the word 'Lyceum' seventeen (17) years prior to thedate the appellant started using the same word in its corporate name.Furthermore, educational institutions of the Roman Catholic Churchhad been using the same or similar word like 'Liceo de Manila,' 'Liceode Baleno' (in Baleno, Masbate), 'Liceo de Masbate,' 'Liceo de Albay'long before appellant started using the word 'Lyceum'. The appellantalso failed to prove that the word 'Lyceum' has become so identifiedwith its educational institution that confusion will surely arise in theminds of the public if the same word were to be used by othereducational institutions.

In other words, while the appellant may have proved that it had beenusing the word 'Lyceum' for a long period of time, this fact alone didnot amount to mean that the said word had acquired secondarymeaning in its favor because the appellant failed to prove that it hadbeen using the same word all by itself to the exclusion of others. Moreso, there was no evidence presented to prove that confusion willsurely arise if the same word were to be used by other educationalinstitutions. Consequently, the allegations of the appellant in its firsttwo assigned errors must necessarily fail." 13 (Underscoring partly inthe 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 useof the word "Lyceum" has not been attended with the exclusivityessential for applicability of the doctrine of secondary meaning. It maybe noted also that at least one of the private respondents, i.e., theWestern Pangasinan Lyceum, Inc., used the term "Lyceum"seventeen (17) years before the petitioner registered its owncorporate name with the SEC and began using the word "Lyceum." Itfollows that if any institution had acquired an exclusive right to theword "Lyceum," that institution would have been the WesternPangasinan Lyceum, Inc. rather than the petitioner institution.

In this connection, petitioner argues that because the WesternPangasinan Lyceum, Inc. failed to reconstruct its records before the


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SEC in accordance with the provisions of R.A. No. 62, which recordshad been destroyed during World War II, Western PangasinanLyceum should be deemed to have lost all rights it may have acquiredby virtue of its past registration. It might be noted that the WesternPangasinan Lyceum, Inc. registered with the SEC soon afterpetitioner had filed its own registration on 21 September 1950.Whether or not Western Pangasinan Lyceum, Inc. must be deemed tohave lost its rights under its original 1933 registration, appears to us tobe quite secondary in importance; we refer to this earlier registrationsimply to underscore the fact that petitioner's use of the word"Lyceum" was neither the first use of that term in the Philippines noran exclusive use thereof. Petitioner's use of the word "Lyceum" wasnot exclusive but was in truth shared with the Western PangasinanLyceum and a little later with other private respondent institutionswhich registered with the SEC using "Lyceum" as part of theircorporation names. There may well be other schools using Lyceum orLiceo in their names, but not registered with the SEC because theyhave not adopted the corporate form of organization.

We conclude and so hold that petitioner institution is not entitled to alegally enforceable exclusive right to use the word "Lyceum" in itscorporate name and that other institutions may use "Lyceum" as partof their corporate names. To determine whether a given corporatename is "identical" or "confusingly or deceptively similar" with anotherentity's corporate name, it is not enough to ascertain the presence of"Lyceum" or "Liceo" in both names. One must evaluate corporatenames in their entirety and when the name of petitioner is juxtaposedwith the names of private respondents, they are not reasonablyregarded as "identical" or "confusingly or deceptively similar" witheach other.

WHEREFORE, the petitioner having failed to show any reversibleerror on the part of the public respondent Court of Appeals, thePetition for Review is DENIED for lack of merit, and the Decision ofthe Court of Appeals dated 28 June 1991 is hereby AFFIRMED. Nopronouncement as to costs.

SO ORDERED.

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.

D E C I S I O N

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 Appealsin CA-G.R. SP No. 40933, which affirmed the Decision of the Securities andExchange and Commission (SEC) in SEC-AC No. 539.[3]

RespondentIglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng

Katotohanan(Church of God in Christ Jesus, the Pillar and Ground ofTruth),[4]is a non-stock religious society or corporation registered in1936. Sometime in 1976, one Eliseo Soriano and several other members ofrespondent corporation disassociated themselves from the latter andsucceeded in registering on March 30, 1977 a new non-stock religioussociety or corporation, namedIglesia ng Dios Kay Kristo Hesus, Haligi atSaligan ng Katotohanan.

On July 16, 1979, respondent corporation filed with the SEC a petitionto compel theIglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng

Katotohananto change its corporate name, which petition was docketed asSEC Case No. 1774. On May 4, 1988, the SEC rendered judgment in favor

of respondent, ordering theIglesia ng Dios Kay Kristo Hesus, Haligi atSaligan ng Katotohananto change its corporate name to another name that isnot similar or identical to any name already used by a corporation,

partnership or association registered with the Commission.[5]No appeal wastaken from said decision.

It appears that during the pendency of SEC Case No. 1774, Soriano, etal., caused the registration on April 25, 1980 of petitionercorporation,AngMga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K.,

sa Bansang Pilipinas. The acronym H.S.K. stands forHaligi at Saligan ngKatotohanan.

[6]
http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn1http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn1http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn1http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn2http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn2http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn2http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn3http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn3http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn3http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn4http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn4http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn4http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn5http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn5http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn5http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn6http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn6http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn6http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn6http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn5http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn4http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn3http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn2http://sc.judiciary.gov.ph/jurisprudence/2001/dec2001/137592.htm#_edn1


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On March 2, 1994, respondent corporation filed before the SEC apetition, docketed as SEC Case No. 03-94-4704, praying that petitioner becompelled to change its corporate name and be barred from using the same orsimilar name on the ground that the same causes confusion among theirmembers as well as the public.

Petitioner filed a motion to dismiss on the ground of lack of cause ofaction. The motion to dismiss was denied. Thereafter, for failure to file an

answer, petitioner was declared in default and respondent was allowed topresent its evidence ex parte.

On November 20, 1995, the SEC rendered a decision ordering petitionerto change its corporate name. The dispositive portion thereof reads:

PREMISES CONSIDERED, judgment is hereby rendered in favor of thepetitioner (respondent herein).

Respondent Mga Kaanib sa Iglesia ng Dios Kay Kristo Jesus (sic), H.S.K. saBansang Pilipinas (petitioner herein) is hereby MANDATEDto change its

corporate name to another not deceptively similar or identical to the samealready used by the Petitioner, any corporation, association, and/orpartnership presently registered with the Commission.

Let a copy of this Decisionbe furnished the Records Divisionandthe Corporate and Legal Department [CLD]of this Commission for theirrecords, reference and/or for whatever requisite action, if any, to beundertaken at their end.

SO ORDERED.[7]

Petitioner appealed to the SECEn Banc, where its appeal was docketedas SEC-AC No. 539. In a decision dated March 4, 1996, the SEC En

Bancaffirmed the above decision, upon a finding that petitioner's corporatename was identical or confusingly or deceptively similar to that ofrespondents corporate name.[8]

Petitioner filed a petition for review with the Court of Appeals. OnOctober 7, 1997, the Court of Appeals rendered the assailed decisionaffirming the decision of the SECEn Banc. Petitioners motion forreconsideration 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 INCONCLUDING THAT PETITIONER HAS NOT BEEN DEPRIVEDOF ITS RIGHT TO PROCEDURAL DUE PROCESS, THEHONORABLE COURT OF APPEALS DISREGARDED THEJURISPRUDENCE APPLICABLE TO THE CASE AT BAR ANDINSTEAD RELIED ON TOTALLY INAPPLICABLEJURISPRUDENCE.

II

THE HONORABLE COURT OF APPEALS ERRED IN ITSINTEPRETATION OF THE CIVIL CODE PROVISIONS ONEXTINCTIVE PRESCRIPTION, THEREBY RESULTING IN ITSFAILURE TO FIND THAT THE RESPONDENT'S RIGHT OFACTION TO INSTITUTE THE SEC CASE HAS SINCEPRESCRIBED PRIOR TO ITS INSTITUTION.

III

THE HONORABLE COURT OF APPEALS FAILED TO CONSIDERAND PROPERLY APPLY THE EXCEPTIONS ESTABLISHED BYJURISPRUDENCE IN THE APPLICATION OF SECTION 18 OFTHE CORPORATION CODE TO THE INSTANT CASE.

IV

THE HONORABLE COURT OF APPEALS FAILED TO PROPERLY

APPRECIATE THE SCOPE OF THE CONSTITUTIONALGUARANTEE ON RELIGIOUS FREEDOM, THEREBY FAILINGTO APPLY THE SAME TO PROTECT PETITIONERS RIGHTS.[9]

Invoking the case ofLegarda v. Court of Appeals,[10]petitioner insiststhat the decision of the Court of Appeals and the SEC should be set aside

because the negligence of its former counsel of record, Atty. JoaquinGaraygay, 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 alawyer within the scope of his general or implied authority is regarded as an
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act of his client.[11]An exception to the foregoing is where the reckless orgross negligence of the counsel deprives the client of due process oflaw.[12]Said exception, however, does not obtain in the present case.

InLegarda v. Court of Appeals, the effort of the counsel in defendinghis clients cause consisted in filing a motion for extension of time to fileanswer before the trial court. When his client was declared in default, thecounsel did nothing and allowed the judgment by default to become final and

executory. Upon the insistence of his client, the counsel filed a petition toannul the judgment with the Court of Appeals, which denied the petition, andagain the counsel allowed the denial to become final and executory. ThisCourt found the counsel grossly negligent and consequently declared as nulland void the decision adverse to his client.

The factual antecedents of the case at bar are different. Atty. Garaygayfiled before the SEC a motion to dismiss on the ground of lack of cause ofaction. When his client was declared in default for failure to file an answer,Atty. Garaygay moved for reconsideration and lifting of the order ofdefault.[13]After judgment by default was rendered against petitionercorporation, Atty. Garaygay filed a motion for extension of time toappeal/motion for reconsideration, and thereafter a motion to set aside thedecision.[14]

Evidently, Atty. Garaygay was only guilty of simplenegligence. Although he failed to file an answer that led to the rendition of a

judgment by default against petitioner, his efforts were palpably real, albeitbereft of zeal.[15]

Likewise, the issue of prescription, which petitioner raised for the firsttime 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 timesand under all circumstances corporate names which in its estimation arelikely to spawn confusion. It is the duty of the SEC to prevent confusion inthe use of corporate names not only for the protection of the corporationsinvolved 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 Securitiesand Exchange Commission if the proposed name is identical or deceptivelyor confusingly similar to that of any existing corporation or to any othername 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 theamended name.

Corollary thereto, the pertinent portion of the SEC Guidelines onCorporate Names states:

(d) If the proposed name contains a word similar to a word already used aspart of the firm name or style of a registered company, the proposed namemust contain two other words different from the name of the companyalready registered;

Parties organizing a corporation must choose a name at their peril; andthe 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 theexercise of its corporate functions, regardless of intent, may be prevented bythe corporation having a prior right, by a suit for injunction against the newcorporation 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: AngMga Kaanib"and "Sa Bansang Pilipinas, Inc.,which, petitioner argues,effectively distinguished it from respondent corporation.

The additional words Ang Mga Kaaniband Sa Bansang Pilipinas,Inc.in petitioners name are, as correctly observed by the SEC, merelydescriptive of and also referring to the members, or kaanib, of respondentwho are likewise residing in the Philippines. These words can hardly serveas an effective differentiating medium necessary to avoid confusion ordifficulty 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 espousingreligious beliefs and operating in the same place. Parenthetically, it is well tomention that the acronym H.S.K. used by petitioner stands for Haligi atSaligan ng Katotohanan.

[20]

Then, too, the records reveal that in holding out their corporate name tothe public, petitioner highlights the dominant words IGLESIA NG DIOS

KAY KRISTO HESUS, HALIGI AT SALIGAN NG KATOTOHANAN,whichis strikingly similar to respondent's corporate name, thus making it evenmore evident that the additional words Ang Mga Kaaniband Sa Bansang

Pilipinas, Inc.,are merely descriptive of and pertaining to the members ofrespondent corporation.[21]
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Significantly, the only difference between the corporate names ofpetitioner and respondent are the words SALIGANand SUHAY.These wordsare synonymous --- both mean ground, foundation or support. Hence, thiscase is on all fours with Universal Mills Corporation v. Universal Textile

Mills, Inc.,[22]where the Court ruled that the corporate names Universal MillsCorporation and Universal Textile Mills, Inc., are undisputably so similarthat even under the test of reasonable care and observation confusion mayarise.

Furthermore, the wholesale appropriation by petitioner of respondent'scorporate name cannot find justification under the generic word rule. Weagree with the Court of Appeals conclusion that a contrary ruling wouldencourage 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 corporationsusing the names Church of the Living God, Inc., Church of God Jesus Christthe Son of God the Head, Church of God in Christ & By the Holy Spirit, andother similar names, is of no consequence. It does not authorize the use by

petitioner of the essential and distinguishing feature of respondent'sregistered 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 itsconstitutionally guaranteed right to religious freedom. In so doing, the SECmerely compelled petitioner to abide by one of the SEC guidelines in theapproval of partnership and corporate names, namely its undertaking tomanifest 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 firmname or one deceptively or confusingly similar to it.

WHEREFORE, in view of all the foregoing, the instant petition forreview is DENIED. The appealed decision of the Court of Appeals isAFFIRMEDin toto.

SO ORDERED.

G.R. No. 104175 June 25, 1993

YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners,vs.THE HONORABLE COURT OF APPEALS (THIRTEENTHDIVISION) AND GEORGE CHIONG ROXAS,respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioners.

Antonio Nuyles for private respondent.

QUIASON, J .:

Petitioners seek to set aside the decision of respondent Court ofAppeals in CA-G.R. SP No. 25237, which reversed the Order datedFebruary 8, 1991 issued by the Regional Trial Court, Branch 11, CebuCity in Civil Case No. CEB 6967. The order of the trial court deniedthe motion to dismiss filed by respondent George C. Roxas of thecomplaint for collection filed by petitioners.

It appears that sometime on October 28, 1987, Young Auto SupplyCo. Inc. (YASCO) represented by Nemesio Garcia, its president,Nelson Garcia and Vicente Sy, sold all of their shares of stock in

Consolidated Marketing & Development Corporation (CMDC) toRoxas. The purchase price was P8,000,000.00 payable as follows: adownpayment of P4,000,000.00 and the balance of P4,000,000.00 infour post dated checks of P1,000,000.00 each.

Immediately after the execution of the agreement, Roxas took fullcontrol of the four markets of CMDC. However, the vendors held on tothe stock certificates of CMDC as security pending full payment of thebalance of the purchase price.

The first check of P4,000,000.00, representing the down-payment,

was honored by the drawee bank but the four other checksrepresenting the balance of P4,000,000.00 were dishonored. In themeantime, Roxas sold one of the markets to a third party. Out of theproceeds of the sale, YASCO received P600,000.00, leaving abalance of P3,400,000.00 (Rollo, p. 176).

Subsequently, Nelson Garcia and Vicente Sy assigned all their rightsand title to the proceeds of the sale of the CMDC shares to NemesioGarcia.

On June 10, 1988, petitioners filed a complaint against Roxas in the

Regional Trial Court, Branch 11, Cebu City, praying that Roxas be
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ordered to pay petitioners the sum of P3,400,00.00 or that full controlof the three markets be turned over to YASCO and Garcia. Thecomplaint also prayed for the forfeiture of the partial payment ofP4,600,000.00 and the payment of attorney's fees and costs (Rollo, p.290).

Roxas filed two motions for extension of time to submit his answer.But despite said motion, he failed to do so causing petitioners to file amotion to have him declared in default. Roxas then filed, through anew counsel, a third motion for extension of time to submit aresponsive pleading.

On August 19, 1988, the trial court declared Roxas in default. Theorder of default was, however, lifted upon motion of Roxas.

On August 22, 1988, Roxas filed a motion to dismiss on the groundsthat:

1. The complaint did not state a cause of action due tonon-joinder of indispensable parties;

2. The claim or demand set forth in the complaint hadbeen waived, abandoned or otherwise extinguished;and

3. The venue was improperly laid (Rollo, p. 299).

After a hearing, wherein testimonial and documentary evidence werepresented by both parties, the trial court in an Order dated February 8,

1991 denied Roxas' motion to dismiss. After receiving said order,Roxas filed another motion for extension of time to submit his answer.He also filed a motion for reconsideration, which the trial court deniedin its Order dated April 10, 1991 for beingpro-forma (Rollo, p. 17).Roxas was again declared in default, on the ground that his motion forreconsideration did not toll the running of the period to file his answer.

On May 3, 1991, Roxas filed an unverified Motion to Lift the Order ofDefault which was not accompanied with the required affidavit ormerit. But without waiting for the resolution of the motion, he filed apetition for certiorari with the Court of Appeals.

The Court of Appeals sustained the findings of the trial court withregard to the first two grounds raised in the motion to dismiss butordered the dismissal of the complaint on the ground of impropervenue (Rollo, p. 49).

A subsequent motion for reconsideration by petitioner was to no avail.

Petitioners now come before us, alleging that the Court of Appealserred in:

1. holding the venue should be in Pasay City, and notin Cebu City (where both petitioners/plaintiffs areresidents;

2. not finding that Roxas is estopped from questioningthe choice of venue (Rollo, p. 19).

The petition is meritorious.

In holding that the venue was improperly laid in Cebu City, the Courtof Appeals relied on the address of YASCO, as appearing in the Deedof Sale dated October 28, 1987, which is "No. 1708 Dominga Street,Pasay City." This was the same address written in YASCO's lettersand several commercial documents in the possession of Roxas(Decision, p. 12; Rollo, p. 48).

In the case of Garcia, the Court of Appeals said that he gave PasayCity as his address in three letters which he sent to Roxas' brothersand sisters (Decision, p. 12; Rollo, p. 47). The appellate court held

that Roxas was led by petitioners to believe that their residence is inPasay City and that he had relied upon those representations(Decision, p. 12, Rollo, p. 47).

The Court of Appeals erred in holding that the venue was improperlylaid in Cebu City.

In the Regional Trial Courts, all personal actions are commenced andtried in the province or city where the defendant or any of thedefendants resides or may be found, or where the plaintiff or any ofthe plaintiffs resides, at the election of the plaintiff [Sec. 2(b) Rule 4,

Revised Rules of Court].


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There are two plaintiffs in the case at bench: a natural person and adomestic corporation. Both plaintiffs aver in their complaint that theyare residents of Cebu City, thus:

1.1. Plaintiff Young Auto Supply Co., Inc., ("YASCO") isa domestic corporation duly organized and existingunder Philippine laws with principal place of businessat M. J. Cuenco Avenue, Cebu City. It also has abranch office at 1708 Dominga Street, Pasay City,Metro Manila.

Plaintiff Nemesio Garcia is of legal age, married,Filipino citizen and with business address at Young

Auto Supply Co., Inc., M. J. Cuenco Avenue, CebuCity. . . . (Complaint, p. 1; Rollo, p. 81).

The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:

THIRD That the place where the principal office of thecorporation is to be established or located is at CebuCity, Philippines (as amended on December 20, 1980and further amended on December 20, 1984) (Rollo, p.273).

A corporation has no residence in the same sense in which this termis applied to a natural person. But for practical purposes, acorporation is in a metaphysical sense a resident of the place whereits principal office is located as stated in the articles of incorporation(Cohen v. Benguet Commercial Co., Ltd., 34 Phil. 256 [1916]

Clavecilla Radio System v. Antillon, 19 SCRA 379 [1967]). TheCorporation Code precisely requires each corporation to specify in itsarticles of incorporation the "place where the principal office of thecorporation is to be located which must be within the Philippines"(Sec. 14 [3]). The purpose of this requirement is to fix the residence ofa corporation in a definite place, instead of allowing it to beambulatory.

In Clavencilla Radio System v. Antillon, 19 SCRA 379 ([1967]), thisCourt explained why actions cannot be filed against a corporation inany place where the corporation maintains its branch offices. The

Court ruled that to allow an action to be instituted in any place wherethe corporation has branch offices, would create confusion and work

untold inconvenience to said entity. By the same token, a corporationcannot be allowed to file personal actions in a place other than itsprincipal place of business unless such a place is also the residenceof a co-plaintiff or a defendant.

If it was Roxas who sued YASCO in Pasay City and the latterquestioned the venue on the ground that its principal place ofbusiness was in Cebu City, Roxas could argue that YASCO was inestoppel because it misled Roxas to believe that Pasay City was itsprincipal place of business. But this is not the case before us.

With the finding that the residence of YASCO for purposes of venue isin Cebu City, where its principal place of business is located, itbecomes unnecessary to decide whether Garcia is also a resident ofCebu City and whether Roxas was in estoppel from questioning thechoice of Cebu City as the venue.

WHEREFORE, the petition is GRANTED. The decision of the Court of

Appeals appealed from is SET ASIDE and the Order dated February8, 1991 of the Regional Trial Court is REINSTATED.

SO ORDERED.

Cruz, Grio-Aquino and Bellosillo, JJ., concur.

G.R. No. 51765 March 3, 1997

REPUBLIC PLANTERS BANK, petitioner,vs.

HON. ENRIQUE A. AGANA, SR., as Presiding Judge, Court ofFirst Instance of Rizal, Branch XXVIII, Pasay City, ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION andADALIA F. ROBES, respondents.

HERMOSISIMA, JR., J .:

This is a petition for certiorariseeking the annulment of theDecision1of the then Court of First Instance of Rizal 2for having beenrendered in grave abuse of discretion. Private respondents Robes-


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Francisco Realty and Development Corporation (hereafter, "theCorporation") and Adalia F. Robes filed in the court a quo, an actionfor specific performance to compel petitioner to redeem 800 preferredshares of stock with a face value of P8,000.00 and to pay 1%quarterly interest thereon as quarterly dividend owing them under theterms and conditions of the certificates of stock.

The court a quo rendered judgment in favor of private respondents;hence, this instant petition.

Herein parties debate only legal issues, no issues of fact having beenraised by them in the court a quo. For ready reference, however, thefollowing narration of pertinent transactions and events is in order:

On September 18, 1961, private respondent Corporation secured aloan from petitioner in the amount of P120,000.00. As part of theproceeds of the loan, preferred shares of stocks were issued toprivate respondent Corporation, through its officers then, private

respondent Adalia F. Robes and one Carlos F. Robes. In other words,instead of giving the legal tender totaling to the full amount of the loan,which is P120,000.00, petitioner lent such amount partially in the formof money and partially in the form of stock certificates numbered 3204and 3205, each for 400 shares with a par value of P10.00 per share,or for P4,000.00 each, for a total of P8,000.00. Said stock certificateswere in the name of private respondent Adalia F. Robes and Carlos F.Robes, who subsequently, however, endorsed his shares in favor of

Adalia F. Robes.

Said certificates of stock bear the following terms and conditions:

The Preferred Stock shall have the following rights,preferences, qualifications and limitations, to wit:

1. Of the right to receive a quarterly dividend ofOne Per Centum(1%), cumulative and participating.

xxx xxx xxx

2. That such preferred shares may be redeemed, bythe system of drawing lots, at any time after two (2)

years from the date of issue at the option of theCorporation. . . .

On January 31, 1979, private respondents proceeded againstpetitioner and filed a Complaint anchored on private respondents'alleged rights to collect dividends under the preferred shares inquestion and to have petitioner redeem the same under the terms andconditions of the stock certificates. Private respondents attached totheir complaint, a letter-demand dated January 5, 1979 which,significantly, was not formally offered in evidence.

Petitioner filed a Motion to Dismiss3private respondents' Complaint

on the following grounds: (1) that the trial court had no jurisdictionover the subject-matter of the action; (2) that the action wasunenforceable under substantive law; and (3) that the action wasbarred by the statute of limitations and/or laches.

Petitioner's Motion to Dismiss was denied by the trial court in an

Order dated March 16, 1979.

4

Petitioner then filed its Answer on May2, 1979. 5Thereafter, the trial court gave the parties ten (10) daysfrom July 30, 1979 to submit their respective memoranda after thesubmission of which the case would be deemed submitted forresolution.6

On September 7, 1979, the trial court rendered the herein assaileddecision in favor of private respondents. In ordering petitioner to payprivate respondents the face value of the stock certificates asredemption price, plus 1% quarterly interest thereon until full payment,the trial court ruled:

There being no issue of fact raised by either of theparties who filed their respective memorandadelineating their respective contentions, a judgment onthe pleadings, conformably with an earlier order of theCourt, appears to be in order.

From a further perusal of the pleadings, it appears thatthe provision of the stock certificates in question to theeffect that the plaintiffs shall have the right to receive aquarterly dividend of One Per Centum(1%), cumulative

and participating, clearly and unequivocably [sic]indicates that the same are "interest bearing stocks"


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which are stocks issued by a corporation under anagreement to pay a certain rate of interest thereon (5Thompson, Sec. 3439). As such, plaintiffs becomeentitled to the payment thereof as a matter of rightwithout necessity of a prior declaration of dividend.

On the question of the redemption by the defendant ofsaid preferred shares of stock, the very wordings of theterms and conditions in said stock certificates clearlyallows the same.

To allow the herein defendant not to redeem saidpreferred shares of stock and/or pay the interest duethereon despite the clear import of said provisions bythe mere invocation of alleged Central Bank Circularsprohibiting the same is tantamount to an impairment ofthe obligation of contracts enshrined in no less than thefundamental law itself.

Moreover, the herein defendant is considered inestoppel from taking shelter behind a General Banking

Act provision to the effect that it cannot buy its ownshares of stocks considering that the very terms andconditions in said stock certificates allowing theirredemption are its own handiwork.

As to the claim by the defendant that plaintiffs' cause ofaction is barred by prescription, suffice it to state thatthe running of the prescriptive period was considered

interrupted by the written extrajudicial demands madeby the plaintiffs from the defendant.7

Aggrieved by the decision of the trial court, petitioner elevated thecase before us essentially on pure questions of law. Petitioner'sstatement of the issues that it submits for us to adjudicate upon, is asfollows:

A. RESPONDENT JUDGE COMMITTED A GRAVEABUSE OF DISCRETION AMOUNTING TO LACK OREXCESS OF JURISDICTION IN ORDERING

PETITIONER TO PAY RESPONDENT ADALIA F.ROBES THE AMOUNT OF P8213.69 AS INTERESTS

FROM 1961 TO 1979 ON HER PREFERREDSHARES.

B. RESPONDENT JUDGE COMMITTED A GRAVEABUSE OF DISCRETION AMOUNTING TO LACK OREXCESS OF JURISDICTION IN ORDERINGPETITIONER TO REDEEM RESPONDENT ADALIA F.ROBES' PREFERRED SHARES FOR P8,000.00.

C. RESPONDENT JUDGE COMMITTED A GRAVEABUSE OF DISCRETION AMOUNTING TO LACK OREXCESS OF JURISDICTION IN DISREGARDINGTHE ORDER OF THE CENTRAL BANK TOPETITIONER TO DESIST FROM REDEEMING ITSPREFERRED SHARES AND FROM PAYINGDIVIDENDS THEREON . . . .

D. THE TRIAL COURT ERRED IN NOT HOLDING

THAT THE COMPLAINT DOES NOT STATE ACAUSE OF ACTION.

E. THE TRIAL COURT ERRED IN NOT HOLDINGTHAT THE CLAIM OF RESPONDENT ADALIA F.ROBES IS BARRED BY PRESCRIPTION ORLACHES.

8

The petition is meritorious.

Before passing upon the merits of this petition, it may be pertinent to

provide an overview on the nature of preferred shares and theredemption thereof, considering that these issues lie at the heart ofthe dispute.

A preferred share of stock, on one hand, is one which entitles theholder thereof to certain preferences over the holders of commonstock. The preferences are designed to induce persons to subscribefor shares of a corporation.

9Preferred shares take a multiplicity offorms. The most common forms may be classified into two: (1)preferred shares as to assets; and (2) preferred shares as todividends. The former is a share which gives the holder thereof

preference in the distribution of the assets of the corporation in case


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of liquidation;10the latter is a share the holder of which is entitled to

receive dividends on said share to the extent agreed upon before anydividends at all are paid to the holders of common stock. 11There isno guaranty, however, that the share will receive any dividends.Under the old Corporation Law in force at the time the contractbetween the petitioner and the private respondents was entered into,it was provided that "no corporation shall make or declare anydividend except from the surplus profits arising from its business, or

distribute its capital stock or property other than actual profits amongits members or stockholders until after the payment of its debts andthe termination of its existence by limitation or lawfuldissolution."

12Similarly, the present Corporation Code 13providesthat the board of directors of a stock corporation may declaredividends only out of unrestricted retained earnings.

14The Code, inSection 43, adopting the change made in accounting terminology,substituted the phrase "unrestricted retained earnings," which may bea more precise term, in place of "surplus profits arising from itsbusiness" in the former law. Thus, the declaration of dividends isdependent upon the availability of surplus profit or unrestricted

retained earnings, as the case may be. Preferences granted topreferred stockholders, moreover, do not give them a lien upon theproperty of the corporation nor make them creditors of thecorporation, the right of the former being always subordinate to thelatter. Dividends are thus payable only when there are profits earnedby the corporation and as a general rule, even if there are existingprofits, the board of directors has the discretion to determine whetheror not dividends are to be declared.

15Shareholders, both common

and preferred, are considered risk takers who invest capital in thebusiness and who can look only to what is left after corporate debtsand liabilities are fully paid. 16

Redeemable shares, on the other hand, are shares usually preferred,which by their terms are redeemable at a fixed date, or at the option ofeither issuing corporation, or the stockholder, or both at a certainredemption price.

17A redemption by the corporation of its stock is, ina sense, a repurchase of it for cancellation.

18The present Codeallows redemption of shares even if there are no unrestricted retainedearnings on the books of the corporation. This is a new provisionwhich in effect qualifies the general rule that the corporation cannotpurchase its own shares except out of current retainedearnings.

19However, while redeemable shares may be redeemedregardless of the existence of unrestricted retained earnings, this is

subject to the condition that the corporation has, after suchredemption, assets in its books to cover debts and liabilities inclusiveof capital stock. Redemption, therefore, may not be made where thecorporation is insolvent or if such redemption will cause insolvency orinability of the corporation to meet its debts as they mature.

20

We come now to the merits of the case. The petitioner argues that itcannot be compelled to redeem the preferred shares issued to theprivate respondent. We agree. Respondent judge, in ruling thatpetitioner must redeem the shares in question, stated that:

On the question of the redemption by the defendant ofsaid preferred shares of stock, the very wordings of theterms and conditions in said stock certificates clearlyallows the same.

21

What respondent judge failed to recognize was that while thestock certificate does allow redemption, the option to do so

was clearly vested in the petitioner bank. The redemptiontherefore is clearly the type known as "optional". Thus, exceptas otherwise provided in the stock certificate, the redemptionrests entirely with the corporation and the stockholder iswithout right to either compel or refuse the redemption of itsstock.

22Furthermore, the terms and conditions set forth therein

use the word "may". It is a settled doctrine in statutoryconstruction that the word "may" denotes discretion, andcannot be construed as having a mandatory effect. We fail tosee how respondent judge can ignore what, in his words, arethe "very wordings of the terms and conditions in said stock

certificates" and construe what is clearly a mere option to behis legal basis for compelling the petitioner to redeem theshares in question.

The redemption of said shares cannot be allowed. As pointed out bythe petitioner, the Central Bank made a finding that said petitioner hasbeen suffering from chronic reserve deficiency,

23and that suchfinding resulted in a directive, issued on January 31, 1973 by thenGov. G.S. Licaros of the Central Bank, to the President and ActingChairman of the Board of the petitioner bank prohibiting the latter fromredeeming any preferred share, on the ground that said redemption

would reduce the assets of the Bank to the prejudice of its depositorsand creditors.24Redemption of preferred shares was prohibited for a


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just and valid reason. The directive issued by the Central BankGovernor was obviously meant to preserve the status quo, and toprevent the financial ruin of a banking institution that would haveresulted in adverse repercussions, not only to its depositors andcreditors, but also to the banking industry as a whole. The directive, inlimiting the exercise of a right granted by law to a corporate entity,may thus be considered as an exercise of police power. Therespondent judge insists that the directive constitutes an impairment

of the obligation of contracts. It has, however, been settled that theConstitutional guaranty of non-impairment of obligations of contract islimited by the exercise of the police power of the state, the reasonbeing that public welfare is superior to private rights.

25

The respondent judge also stated that since the stock certificategranted the private respondents the right to receive a quarterlydividend of One Per Centum(1%) cumulative and participating, it"clearly and unequivocably (sic) indicates that the same are "interestbearing stocks" or stocks issued by a corporation under an agreementto pay a certain rate of interest thereon. As such, plaintiffs (privaterespondents herein) become entitled to the payment thereof as amatter of right without necessity of a prior declaration ofdividend."

26There is no legal basis for this observation. Both Sec. 16of the Corporation Law and Sec. 43 of the present Corporation Codeprohibit the issuance of any stock dividend without the approval ofstockholders, representing not less than two-thirds (2/3) of theoutstanding capital stock at a regular or special meeting duly calledfor the purpose. These provisions underscore the fact that payment ofdividends to a stockholder is not a matter of right but a matter ofconsensus. Furthermore, "interest bearing stocks", on which thecorporation agrees absolutely to pay interest before dividends arepaid to common stockholders, is legal only when construed asrequiring payment of interest as dividends from net earnings orsurplus only.

27Clearly, the respondent judge, in compelling thepetitioner to redeem the shares in question and to pay thecorresponding dividends, committed grave abuse of discretionamounting to lack or excess of jurisdiction in ignoring both the termsand conditions specified in the stock certificate, as well as the clearmandate of the law.

Anent the issue of prescription, this Court so holds that the claim ofprivate respondent is already barred by prescription as well as laches.

Art. 1144 of the New Civil Code provides that a right of action that is

founded upon a written contract prescribes in ten (10) years. Theletter-demand made by the private respondents to the petitioner wasmade only on January 5, 1979, or almost eighteen years after receiptof the written contract in the form of the stock certificate. As notedearlier, this letter-demand, significantly, was not formally offered inevidence, nor were any other evidence of demand presented.Therefore, we conclude that the only time the private respondentssaw it fit to assert their rights, if any, to the preferred shares of stock,

was after the lapse of almost eighteen years. The same clearlyindicates that the right of the private respondents to any relief underthe law has already prescribed. Moreover, the claim of the privaterespondents is also barred by laches. Laches has been defined as thefailure or neglect, for an unreasonable length of time, to do that whichby exercising due diligence could or should have been done earlier; itis negligence or omission to assert a right within a reasonable time,warranting a presumption that the party entitled to assert it either hasabandoned it or declined to assert it.

28

Considering that the terms and conditions set forth in the stockcertificate clearly indicate that redemption of the preferred shares maybe made at any time after the lapse of two years from the date ofissue, private respondents should have taken it upon themselves,after the lapse of the said period, to inquire from the petitioner thereason why the said shares have not been redeemed. As it is, notonly two years had lapsed, as agreed upon, but an additional sixteenyears passed before the private respondents saw it fit to demand theirright. The petitioner, at the time it issued said preferred shares to theprivate respondents in 1961, could not have known that it would besuffering from chronic reserve deficiency twelve years later. Had theprivate respondents been vigilant in asserting their rights, theredemption could have been effected at a time when the petitionerbank was not suffering from any financial crisis.

WHEREFORE, the instant petition, being impressed with merit, ishereby GRANTED. The challenged decision of respondent judge isset aside and the complaint against the petitioner is dismissed.

Costs against the private respondents.

SO ORDERED.

Bellosillo, Vitug and Kapunan, JJ., concur.


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Padilla, J., concurs in the result.

G.R. No. 150976 October 18, 2004

CECILIA CASTILLO, OSCAR DEL ROSARIO, ARTURO S.FLORES, XERXES NAVARRO, MARIA ANTONIA TEMPLO andMEDICAL CENTER PARAAQUE, INC.,petitioners,vs.

ANGELES BALINGHASAY, RENATO BERNABE, ALODIA DELROSARIO, ROMEO FUNTILA, TERESITA GAYANILO, RUSTICOJIMENEZ, ARACELI**JO, ESMERALDA MEDINA, CECILIAMONTALBAN, VIRGILIO OBLEPIAS, CARMENCITA PARRENO,CESAR REYES, REYNALDO SAVET, SERAPIO TACCAD,VICENTE VALDEZ, SALVACION VILLAMORA, and HUMBERTOVILLAREAL,respondents.

D E C I S I O N

QUISUMBING, J .:

For review on certiorari is the Partial Judgment1dated November 26,2001 in Civil Case No. 01-0140, of the Regional Trial Court (RTC) ofParaaque City, Branch 258. The trial court declared the February 9,2001, election of the board of directors of the Medical CenterParaaque, Inc. (MCPI) valid. The Partial Judgment dismissedpetitioners first cause of action, specifically, to annul said election fordepriving petitioners their voting rights and to be voted on asmembers of the board.

The facts, as culled from records, are as follows:

Petitioners and the respondents are stockholders of MCPI,with the former holding Class "B" shares and the latter owningClass "A" shares.

MCPI is a domestic corporation with offices at Dr. A. Santos Avenue,Sucat, Paraaque City. It was organized sometime in September1977. At the time of its incorporation, Act No. 1459, the oldCorporation Law was still in force and effect. Article VII of MCPIsoriginal Articles of Incorporation, as approved by the Securities and

Exchange Commission (SEC) on October 26, 1977, reads as follows:

SEVENTH. That the authorized capital stock of the corporationis TWO MILLION (P2,000,000.00) PESOS, PhilippineCurrency, divided into TWO THOUSAND (2,000) SHARES ata par value of P100 each share, whereby the ONETHOUSAND SHARES issued to, and subscribed by, theincorporating stockholders shall be classified as Class Ashares while the other ONE THOUSAND unissued sharesshall be considered as Class B shares. Only holders of Class

A shares can have the right to vote and the right to be electedas directors or as corporate officers.2(Stress supplied)

On July 31, 1981, Article VII of the Articles of Incorporation of MCPIwas amended, to read thus:

SEVENTH. That the authorized capital stock of the corporationis FIVE MILLION (P5,000,000.00) PESOS, divided as follows:

CLASS NO. OF SHARES PAR VALUE

"A" 1,000 P1,000.00"B" 4,000 P1,000.00

Only holders of Class A shares have the right to vote and theright to be elected as directors or as corporateofficers.3(Emphasis supplied)

The foregoing amendment was approved by the SEC on June 7,1983. While the amendment granted the right to vote and to beelected as directors or corporate officers only to holders of Class "A"shares, holders of Class "B" stocks were granted the same rights and

privileges as holders of Class "A" stocks with respect to the paymentof dividends.

On September 9, 1992, Article VII was again amended to provide asfollows:

SEVENTH: That the authorized capital stock of the corporationis THIRTY TWO MILLION PESOS (P32,000,000.00) dividedas follows:

CLASS NO. OF SHARES PAR VALUE

"A" 1,000 P1,000.00


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"B" 31,000 1,000.00

Except when otherwise provided by law, only holders of Class"A" shares have the right to vote and the right to be elected asdirectors or as corporate officers

4 (Stress and underscoring

supplied).

The SEC approved the foregoing amendment on September 22,1993.

On February 9, 2001, the shareholders of MCPI held their annualstockholders meeting and election for directors. During the course ofthe proceedings, respondent Rustico Jimenez, citing Article VII, asamended, and notwithstanding MCPIs history, declared over theobjections of herein petitioners, that no Class "B" shareholder wasqualified to run or be voted upon as a director. In the past, MCPI hadseen holders of Class "B" shares voted for and serve as members ofthe corporate board and some Class "B" share owners were in fact

nominated for election as board members. Nonetheless, Jimenezwent on to announce that the candidates holding Class "A" shareswere the winners of all seats in the corporate board. The petitionersprotested, claiming that Article VII was null and void for deprivingthem, as Class "B" shareholders, of their right to vote and to be votedupon, in violation of the Corporation Code (Batas Pambansa Blg. 68),as amended.

On March 22, 2001, after their protest was given short shrift, hereinpetitioners filed a Complaint for Injunction, Accounting and Damages,docketed as Civil Case No. CV-01-0140 before the RTC of Paraaque

City, Branch 258. Said complaint was founded on two (2) principalcauses of action, namely:

a. Annulment of the declaration of directors of the MCPI madeduring the February 9, 2001 Annual Stockholders Meeting,and for the conduct of an election whereat all stockholders,irrespective of the classification of the shares they hold, shouldbe afforded their right to vote and be voted for; and

b. Stockholders derivative suit challenging the validity of acontract entered into by the Board of Directors of MCPI for the

operation of the ultrasound unit.5

Subsequently, the complaint was amended to implead MCPI as party-plaintiff for purposes only of the second cause of action.

Before the trial court, the herein petitioners alleged that they weredeprived of their right to vote and to be voted on as directors at theannual stockholders meeting held on February 9, 2001, becauserespondents had erroneously relied on Article VII of the Articles ofIncorporation of MCPI, despite Article VII being contrary to the

Corporation Code, thus null and void. Additionally, respondents werein estoppel, because in the past, petitioners were allowed to vote andto be elected as members of the board. They further claimed that theprivilege granted to the Class "A" shareholders was more in thenature of a right granted to founders shares.

In their Answer, the respondents averred that the provisions of ArticleVII clearly and categorically state that only holders of Class "A" shareshave the exclusive right to vote and be elected as directors andofficers of the corporation. They denied that the exclusivity wasintended only as a privilege granted to founders shares, as no suchproviso is found in the Articles of Incorporation. The respondentsfurther claimed that the exclusivity of the right granted to Class "A"holders cannot be defeated or impaired by any subsequent legislativeenactment, e.g.the New Corporation Code, as the Articles ofIncorporation is an intra-corporate contract between the corporationand its members; between the corporation and its stockholders; andamong the stockholders. They submit that to allow Class "B"shareholders to vote and be elected as directors would constitute aviolation of MCPIs franchise or charter as granted by the State.

At the pre-trial, the trial court ruled that a partial judgment could berendered on the first cause of action and required the parties tosubmit their respective position papers or memoranda.

On November 26, 2001, the RTC rendered the Partial Judgment, thedispositive portion of which reads:

WHEREFORE, viewed in the light of the foregoing, theelection held on February 9, 2001 is VALID as the holders ofCLASS "B" shares are not entitled to vote and be voted forand this case based on the First Cause of Action is

DISMISSED.


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SO ORDERED.6

In finding for the respondents, the trial court ruled that corporationshad the power to classify their shares of stocks, such as "voting andnon-voting" shares, conformably with Section 6

7 of the Corporation

Code of the Philippines. It pointed out that Article VII of both theoriginal and amended Articles of Incorporation clearly provided thatonly Class "A" shareholders could vote and be voted for to the

exclusion of Class "B" shareholders, the exception being in instancesprovided by law, such as those enumerated in Section 6, paragraph 6of the Corporation Code. The RTC found merit in the respondentstheory that the Articles of Incorporation, which defines the rights andlimitations of all its shareholders, is a contract between MCPI and itsshareholders. It is thus the law between the parties and should bestrictly enforced as to them. It brushed aside the pet itioners claim thatthe Class "A" shareholders were in estoppel, as the election of Class"B" shareholders to the corporate board may be deemed as a mereact of benevolence on the part of the officers. Finally, the courtbrushed aside the "founders shares" theory of the petitioners for lack

of factual basis.

Hence, this petition submitting the sole legal issue of whether or notthe Court a quo, in rendering the Partial Judgment dated November26, 2001, has decided a question of substance in a way not in accordwith law and jurisprudence considering that:

1. Under the Corporation Code, the exclusive voting right andright to be voted granted by the Articles of Incorporation of theMCPI to Class A shareholders is null and void, or alreadyextinguished;

2. Hence, the declaration of directors made during theFebruary 9, 2001 Annual Stockholders Meeting on the basisof the purported exclusive voting rights is null and void forhaving been done without the benefit of an election and inviolation of the rights of plaintiffs and Class B shareholders;and

3. Perforce, another election should be conducted to elect thedirectors of the MCPI, this time affording the holders of Class

B shares full voting right and the right to be voted.

8

The issue for our resolution is whether or not holders of Class "B"shares of the MCPI may be deprived of the right to vote and be votedfor as directors in MCPI.

Before us, petitioners assert that Article VII of the Articles ofIncorporation of MCPI, which denied them voting rights, is null andvoid for being contrary to Section 6 of the Corporation Code. Theypoint out that Section 6 prohibits the deprivation of voting rights

except as to preferred and redeemable shares only. Hence, under thepresent law on corporations, all shareholders, regardless ofclassification, other than holders of preferred or redeemable shares,are entitled to vote and to be elected as corporate directors or officers.Since the Class "B" shareholders are not classified as holders ofeither preferred or redeemable shares, then it necessarily follows thatthey are entitled to vote and to be voted for as directors or officers.

The respondents, in turn, maintain that the grant of exclusive votingrights to Class "A" shares is clearly provided in the Articles ofIncorporation and is in accord with Section 5

9of the Corporation Law

(Act No. 1459), which was the prevailing law when MCPI wasincorporated in 1977. They likewise submit that as the Articles ofIncorporation of MCPI is in the nature of a contract between thecorporation and its shareholders and Section 6 of the CorporationCode could not retroactively apply to it without violating the non-impairment clause10of the Constitution.

We find merit in the petition.

When Article VII of the Articles of Incorporation of MCPI was

amended in 1992, the phrase "except when otherwise provided bylaw" was inserted in the provision governing the grant of votingpowers to Class "A" shareholders. This particular amendment isrelevant for it speaks of a law providing for exceptions to the exclusivegrant of voting rights to Class "A" stockholders. Which law was theamendment referring to? The determination of which law to apply isnecessary. There are two laws being cited and relied upon by theparties in this case. In this instance, the law in force at the time of the1992 amendment was the Corporation Code (B.P. Blg. 68), not theCorporation Law (Act No. 1459), which had been repealed by then.

We find and so hold that the law referred to in the amendment toArticle VII refers to the Corporation Code and no other law. At the time


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of the incorporation of MCPI in 1977, the right of a corporation toclassify its shares of stock was sanctioned by Section 5 of Act No.1459. The law repealing Act No. 1459, B.P. Blg. 68, retained thesame grant of right of classification of stock shares to corporations,but with a significant change. Under Section 6 of B.P. Blg. 68, therequirements and restrictions on voting rights were explicitly providedfor, such that "no share may be deprived of voting rights except thoseclassified and issued as "preferred" or "redeemable" shares, unless

otherwise provided in this Code" and that "there shall always be aclass or series of shares which have complete voting rights." Section6 of the Corporation Code being deemed written into Article VII of the

Articles of Incorporation of MCPI, it necessarily follows that unlessClass "B" shares of MCPI stocks are clearly categorized to be"preferred" or "redeemable" shares, the holders of said Class "B"shares may not be deprived of their voting rights. Note that there isnothing in the Articles of Incorporation nor an iota of evidence onrecord to show that Class "B" shares were categorized as either"preferred" or "redeemable" shares. The only possible conclusion isthat Class "B" shares fall under neither category and thus, under the

law, are allowed to exercise voting rights.

One of the rights of a stockholder is the right to participate in thecontrol and management of the corporation that is exercised throughhis vote. The right to vote is a right inherent in and incidental to theownership of corporate stock, and as such is a property right. Thestockholder cannot be deprived of the right to vote his stock nor maythe right be essentially impaired, either by the legislature or by thecorporation, without his consent, through amending the charter, or theby-laws.

11

Neither do we find merit in respondents position that Section 6 of theCorporation Code cannot apply to MCPI without running afoul of thenon-impairment clause of the Bill of Rights. Section 148

12of the

Corporation Code expressly provides that it shall apply to corporationsin existence at the time of the effectivity of the Code. Hence, the non-impairment clause is inapplicable in this instance. When Article VII ofthe Articles of Incorporation of MCPI were amended in 1992, theboard of directors and stockholders must have been aware of Section6 of the Corporation Code and intended that Article VII be construedin harmony with the Code, which was then already in force and effect.Since Section 6 of the Corporation Code expressly prohibits thedeprivation of voting rights, except as to "preferred" and "redeemable"

shares, then Article VII of the Articles of Incorporation cannot beconstrued as granting exclusive voting rights to Class "A"shareholders, to the prejudice of Class "B" shareholders, withoutrunning afoul of the letter and spirit of the Corporation Code.

The respondents then take the tack that the phrase "except whenotherwise provided by law" found in the amended Articles is only ahandwritten insertion and could have been inserted by anybody and

that no board resolution was ever passed authorizing or approvingsaid amendment.

Said contention is not for this Court to pass upon, involving as it doesa factual question, which is not proper in this petition. In anappeal via certiorari, only questions of law may bereviewed.

13Besides, respondents did not adduce persuasive

evidence, but only bare allegations, to support their suspicion. Thepresumption that in the amendment process, the ordinary course ofbusiness has been followed

14and that official duty has been regularly

performed15

on the part of the SEC, applies in this case.

WHEREFORE,the petition is GRANTED. The Partial Judgment datedNovember 26, 2001 of the Regional Trial Court of Paraaque City,Branch 258, in Civil Case No. 01-0140 is REVERSED AND SETASIDE. No pronouncement as to costs.

SO ORDERED.

WILSON P. GAMBOA,

Petitioner,

G.R. No. 176579

Present:

- versus -

FINANCE SECRETARY MARGARITO B.

TEVES, FINANCE UNDERSECRETARYJOHN P. SEVILLA, AND

COMMISSIONER RICARDO ABCEDE OF

THE PRESIDENTIAL COMMISSION ON

CORONA, C.J.,

CARPIO,

VELASCO, JR.,


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OOD GOVERNMENT (PCGG) IN THEIR

APACITIES AS CHAIR AND MEMBERS,

ESPECTIVELY, OF THE

RIVATIZATION COUNCIL,

HAIRMAN ANTHONI SALIM OF FIRST

ACIFIC CO., LTD. IN HIS CAPACITY AS

IRECTOR OF METRO PACIFIC ASSET

OLDINGS INC., CHAIRMAN MANUEL

. PANGILINAN OF PHILIPPINE LONG

ISTANCE TELEPHONE COMPANY

LDT) IN HIS CAPACITY AS

ANAGING DIRECTOR OF FIRST

ACIFIC CO., LTD., PRESIDENTAPOLEON L. NAZARENO OF

HILIPPINE LONG DISTANCE

ELEPHONE COMPANY, CHAIR FEARIN OF THE SECURITIES EXCHANGE

OMMISSION, and PRESIDENT FRANCIS

IM OF THE PHILIPPINE STOCKXCHANGE,

espondents.

LEONARDO-DE CASTRO,

BRION,

PERALTA,

BERSAMIN,

DEL CASTILLO,

ABAD,

VILLARAMA, JR.,

PEREZ,

MENDOZA, and

SERENO,JJ.

PABLITO V. SANIDAD and

ARNO V. SANIDAD,

Petitioners-in-Intervention.

Promulgated:

June 28, 2011

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

D E C I S I O N

CARPIO, J.:

The Case

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