CORPO

G.R. No. 159121 February 3, 2005

PAMPLONA PLANTATION COMPANY, INC. and/or JOSE LUIS

BONDOC, petitioners,
vs.
RODEL TINGHIL, MARYGLENN SABIHON, ESTANISLAO BOBON,
CARLITO TINGHIL, BONIFACIO TINGHIL, NOLI TINGHIL, EDGAR
TINGHIL, ERNESTO ESTOMANTE, SALLY TOROY, BENIGNO TINGHIL
JR., ROSE ANN NAPAO, DIOSDADO TINGHIL, ALBERTO TINGHIL,
ANALIE TINGHIL, and ANTONIO ESTOMANTE,respondents.

DECISION

PANGANIBAN, J.:

To protect the rights of labor, two corporations with identical directors,

management, office and payroll should be treated as one entity only. A suit
by the employees against one corporation should be deemed as a suit
against the other. Also, the rights and claims of workers should not be
prejudiced by the acts of the employer that tend to confuse them about its
corporate identity. The corporate fiction must yield to truth and justice.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court,

seeking to annul the January 31, 2003 Decision2 and the June 17, 2003
Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 62813. The
assailed Decision disposed as follows:

"WHEREFORE, in view of the foregoing, the petition is GRANTED. The

assailed decision of public respondent NLRC dated 19 July 2000
[is] REVERSED and SET ASIDE and a new one
entered DIRECTING private respondents to reinstate petitioners, except
Rufino Bacubac, Felix Torres and Antonio Canolas, to their former positions
without loss of seniority rights plus payment of full backwages. However, if
reinstatement is no longer feasible, a one-month salary for every year of
service shall be paid the petitioners as ordered by the Labor Arbiter in his
decision dated 31 August 1998 plus payment of full backwages computed
from date of illegal dismissal to the finality of this decision."4

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The Decision5 of the National Labor Relations Commission

6
(NLRC), reversed by the CA, disposed as follows:

"WHEREFORE, premises considered, the decision appealed from is hereby

REVERSED, and another one entered DISMISSING the complaint."7

The June 17, 2003 Resolution denied petitioners’ Motion for

Reconsideration.

The Facts

The CA summarized the antecedents as follows:

"Sometime in 1993, [Petitioner] Pamplona Plantations Company, Inc.

(company for brevity) was organized for the purpose of taking over the
operations of the coconut and sugar plantation of Hacienda Pamplona
located in Pamplona, Negros Oriental. It appears that Hacienda Pamplona
was formerly owned by a certain Mr. Bower who had in his employ several
agricultural workers.

"When the company took over the operation of Hacienda Pamplona in 1993,
it did not absorb all the workers of Hacienda Pamplona. Some, however,
were hired by the company during harvest season as coconut hookers or
‘sakador,’ coconut filers, coconut haulers, coconut scoopers or ‘lugiteros,’
and charcoal makers.

"Sometime in 1995, Pamplona Plantation Leisure Corporation was

established for the purpose of engaging in the business of operating tourist
resorts, hotels, and inns, with complementary facilities, such as restaurants,
bars, boutiques, service shops, entertainment, golf courses, tennis courts,
and other land and aquatic sports and leisure facilities.

"On 15 December 1996, the Pamplona Plantation Labor Independent Union

(PAPLIU) conducted an organizational meeting wherein several
[respondents] who are either union members or officers participated in said
meeting.

"Upon learning that some of the [respondents] attended the said meeting,
[Petitioner] Jose Luis Bondoc, manager of the company, did not allow
[respondents] to work anymore in the plantation.
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"Thereafter, on various dates, [respondents] filed their respective complaints

with the NLRC, Sub-Regional Arbitration Branch No. VII, Dumaguete City
against [petitioners] for unfair labor practice, illegal dismissal,
underpayment, overtime pay, premium pay for rest day and holidays,
service incentive leave pay, damages, attorney’s fees and 13th month pay.

"On 09 October 1997, [respondent] Carlito Tinghil amended his complaint to

implead Pamplona Plantation Leisure Corporation x x x.

"On 31 August 1998, Labor Arbiter Jose G. Gutierrez rendered a decision

finding [respondents], except Rufino Bacubac, Antonio Cañolas and Felix
Torres who were complainants in another case, to be entitled to separation
pay.

xxxxxxxxx

"[Petitioners] appealed the Labor Arbiter’s decision to [the] NLRC. In the

assailed decision dated 19 July 2000, the NLRC’s Fourth Division reversed
the Labor Arbiter, ruling that [respondents], except Carlito Tinghil, failed to
implead Pamplona Plantation Leisure Corporation, an indispensable party
and that ‘there exist no employer-employee relation between the parties.’

xxxxxxxxx

"[Respondents] filed a motion for reconsideration which was denied by [the]

NLRC in a Resolution dated 06 December 2000."8

Respondents elevated the case to the CA via a Petition for Certiorari under
Rule 65 of the Rules of Court.

Ruling of the Court of Appeals

Guided by the fourfold test for determining the existence of an employer-

employee relationship, the CA held that respondents were employees of
petitioner-company. Finding there was a "power to hire," the appellate court
considered the admission of petitioners in their Comment that they had
hired respondents as coconut filers, coconut scoopers, charcoal makers, or
as pieceworkers. The fact that respondents were paid by piecework did not
mean that they were not employees of the company. Further, the CA ruled
that petitioners necessarily exercised control over the work they performed,
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since the latter were working within the premises of the plantation.
According to the CA, the mere existence -- not necessarily the actual
exercise -- of the right to control the manner of doing work sufficed to meet
the fourth element of an employer-employee relation.

The appellate court also held that respondents were regular employees,
because the tasks they performed were necessary and indispensable to the
operation of the company. Since there was no compliance with the twin
requirements of a valid and/or authorized cause and of procedural due
process, their dismissal was illegal.

Hence, this Petition.9

Issues

In their Memorandum, petitioners submit the following issues for our

consideration:

"1. Whether or not the finding of the Court of Appeals that herein
respondents are employees of Petitioner Pamplona Plantation Company,
Inc. is contrary to the admissions of the respondents themselves.

"2. Whether or not the Court of Appeals has decided in a way not in accord
with law and jurisprudence, and with grave abuse of discretion, in not
dismissing the respondents’ complaint for failure to implead Pamplona
Plantation Leisure Corp., which is an indispensable party to this case.

"3. Whether or not the Court of Appeals has decided in a way not in accord
with law and jurisprudence, and with grave abuse of discretion in ordering
reinstatement or payment of separation pay and backwages to the
respondents, considering the lack of employer-employee relationship
between petitioner and respondents."10

The main issue raised is whether the case should be dismissed for the non-
joinder of the Pamplona Plantation Leisure Corporation. The other issues
will be taken up in the discussion of the main question.

The Court’s Ruling

The Petition lacks merit.

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Preliminary Issue:

Factual Matters

Section 1 of Rule 45 of the Rules of Court states that only questions of law
are entertained in appeals by certiorari to the Supreme Court. However,
jurisprudence has recognized several exceptions in which factual issues
may be resolved by this Court:11 (1) the legal conclusions made by the lower
tribunal are speculative;12 (2) its inferences are manifestly
mistaken,13 absurd, or impossible; (3) the lower court committed grave
abuse of discretion; (4) the judgment is based on a misapprehension of
facts;14 (5) the findings of fact of the lower tribunals are conflicting;15 (6) the
CA went beyond the issues; (7) the CA’s findings are contrary to the
admissions of the parties;16 (8) the CA manifestly overlooked facts not
disputed which, if considered, would justify a different conclusion; (9) the
findings of fact are conclusions without citation of the specific evidence on
which they are based; and (10) when the findings of fact of the CA are
premised on the absence of evidence but such findings are contradicted by
the evidence on record.17

The very same reason that constrained the appellate court to review the
factual findings of the NLRC impels this Court to take its own look at the
facts. Normally, the Supreme Court is not a trier of facts.18 However, since
the findings of the CA and the NLRC on this point were conflicting, we
waded through the records to find out if there was basis for the former’s
reversal of the NLRC’s Decision. We shall discuss our factual findings
together with our review of the main issue.

Main Issue:

Piercing the Corporate Veil

Petitioners contend that the CA should have dismissed the case for the
failure of respondents (except Carlito Tinghil) to implead the Pamplona
Plantation Leisure Corporation, an indispensable party, for being the true
and real employer. Allegedly, respondents admitted in their Affidavits dated
February 3, 1998,19 that they had been employed by the leisure corporation
and/or engaged to perform activities that pertained to its business.

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Further, as the NLRC allegedly noted in their individual Complaints,

respondents specifically averred that they had worked in the "golf course"
and performed related jobs in the "recreational facilities" of the leisure
corporation. Hence, petitioners claim that, as a sugar and coconut plantation
company separate and distinct from the Pamplona Plantation Leisure
Corporation, the petitioner-company is not the real party in interest.

We are not persuaded.

An examination of the facts reveals that, for both the coconut plantation and
the golf course, there is only one management which the laborers deal with
regarding their work.20 A portion of the plantation (also called Hacienda
Pamplona) had actually been converted into a golf course and other
recreational facilities. The weekly payrolls issued by petitioner-company
bore the name "Pamplona Plantation Co., Inc."21 It is also a fact that
respondents all received their pay from the same person, Petitioner Bondoc
-- the managing director of the company. Since the workers were working
for a firm known as Pamplona Plantation Co., Inc., the reason they sued
their employer through that name was natural and understandable.

True, the Petitioner Pamplona Plantation Co., Inc., and the Pamplona
Plantation Leisure Corporation appear to be separate corporate entities. But
it is settled that this fiction of law cannot be invoked to further an end
subversive of justice.22

The principle requiring the piercing of the corporate veil mandates courts to
see through the protective shroud that distinguishes one corporation from a
seemingly separate one.23 The corporate mask may be removed and the
corporate veil pierced when a corporation is the mere alter ego of
another.24 Where badges of fraud exist, where public convenience is
defeated, where a wrong is sought to be justified thereby, or where a
separate corporate identity is used to evade financial obligations to
employees or to third parties,25 the notion of separate legal entity should be
set aside26 and the factual truth upheld. When that happens, the corporate
character is not necessarily abrogated.27 It continues for other legitimate
objectives. However, it may be pierced in any of the instances cited in order
to promote substantial justice.

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In the present case, the corporations have basically the same incorporators
and directors and are headed by the same official. Both use only one office
and one payroll and are under one management. In their individual
Affidavits, respondents allege that they worked under the supervision and
control of Petitioner Bondoc -- the common managing director of both the
petitioner-company and the leisure corporation. Some of the laborers of the
plantation also work in the golf course.28 Thus, the attempt to make the two
corporations appear as two separate entities, insofar as the workers are
concerned, should be viewed as a devious but obvious means to defeat the
ends of the law. Such a ploy should not be permitted to cloud the truth and
perpetrate an injustice.

We note that this defense of separate corporate identity was not raised
during the proceedings before the labor arbiter. The main argument therein
raised by petitioners was their alleged lack of employer-employee
relationship with, and power of control over, the means and methods of
work of respondents because of the seasonal nature of the latter’s work.29

Neither was the issue of non-joinder of indispensable parties raised in

petitioners’ appeal before the NLRC.30Nevertheless, in its Decision31 dated
July 19, 2000, the Commission concluded that the plantation company and
the leisure corporation were two separate and distinct corporations, and that
the latter was an indispensable party that should have been impleaded. We
quote below pertinent portions of that Decision:

"Respondent posits that it is engaged in operating and maintaining sugar

and coconut plantation. The positions of complainants could only be
determined through their individual complaints. Yet all complainants alleged
in their affidavits x x x that they were working at the ‘golf course.’ Worthy to
note that only Carlito Tinghil amended his complaint to include Pamplona
Leisure Corporation, which respondents maintain is a separate corporation
established in 1995. Thus, xxx Pamplona Plantation Co., Inc. and Pamplona
Leisure Corporation are two separate and distinct corporations. Except for
Carlito Tinghil the complainants have the wrong party respondent.
Pamplona Leisure Corporation is an indispensable party without which there
could be no final determination of the case."32

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Indeed, it was only after this NLRC Decision was issued that the petitioners
harped on the separate personality of the Pamplona Plantation Co., Inc.,
vis-à-vis the Pamplona Plantation Leisure Corporation.

As cited above, the NLRC dismissed the Complaints because of the alleged
admission of respondents in their Affidavits that they had been working at
the golf course. However, it failed to appreciate the rest of their averments.
Just because they worked at the golf course did not necessarily mean that
they were not employed to do other tasks, especially since the golf course
was merely a portion of the coconut plantation. Even petitioners admitted
that respondents had been hired as coconut filers, coconut scoopers or
charcoal makers.33 Consequently, NLRC’s conclusion derived from the
Affidavits of respondents stating that they were employees of the Pamplona
Plantation Leisure Corporation alone was the result of an improper selective
appreciation of the entire evidence.

Furthermore, we note that, contrary to the NLRC’s findings, some

respondents indicated that their employer was the Pamplona Plantation
Leisure Corporation, while others said that it was the Pamplona Plantation
Co., Inc. But in all these Affidavits, both the leisure corporation and
petitioner-company were identified or described as entities engaged in the
development and operation of sugar and coconut plantations, as well as
recreational facilities such as a golf course. These allegations reveal that
petitioner successfully confused the workers as to who their true and real
employer was. All things considered, their faulty belief that the plantation
company and the leisure corporation were one and the same can be
attributed solely to petitioners. It would certainly be unjust to prejudice the
claims of the workers because of the misleading actions of their employer.

Non-Joinder of Parties

Granting for the sake of argument that the Pamplona Plantation Leisure
Corporation is an indispensable party that should be impleaded, NLRC’s
outright dismissal of the Complaints was still erroneous.

The non-joinder of indispensable parties is not a ground for the dismissal of

an action.34 At any stage of a judicial proceeding and/or at such times as are
just, parties may be added on the motion of a party or on the initiative of the
tribunal concerned.35 If the plaintiff refuses to implead an indispensable
Page 8 of 77
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party despite the order of the court, that court may dismiss the complaint for
the plaintiff’s failure to comply with the order. The remedy is to implead the
non-party claimed to be indispensable.36 In this case, the NLRC did not
require respondents to implead the Pamplona Plantation Leisure
Corporation as respondent; instead, the Commission summarily dismissed
the Complaints.

In any event, there is no need to implead the leisure corporation because,

insofar as respondents are concerned, the leisure corporation and
petitioner-company are one and the same entity. Salvador v. Court of
Appeals37 has held that this Court has "full powers, apart from that power
and authority which is inherent, to amend the processes, pleadings,
proceedings and decisions by substituting as party-plaintiff the real party-in-
interest."

In Alonso v. Villamor,38 we had the occasion to state thus:

"There is nothing sacred about processes or pleadings, their forms or

contents. Their sole purpose is to facilitate the application of justice to the
rival claims of contending parties. They were created, not to hinder and
delay, but to facilitate and promote, the administration of justice. They do
not constitute the thing itself, which courts are always striving to secure to
litigants. They are designed as the means best adapted to obtain that thing.
In other words, they are a means to an end. When they lose the character of
the one and become the other, the administration of justice is at fault and
courts are correspondingly remiss in the performance of their obvious duty."

The controlling principle in the interpretation of procedural rules is liberality,

so that they may promote their object and assist the parties in obtaining just,
speedy and inexpensive determination of every action and
proceeding.39When the rules are applied to labor cases, this liberal
interpretation must be upheld with even greater vigor.40Without in any way
depriving the employer of its legal rights, the thrust of statutes and rules
governing labor cases has been to benefit workers and avoid subjecting
them to great delays and hardships. This intent holds especially in this case,
in which the plaintiffs are poor laborers.

Employer-Employee Relationship

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Petitioners insist that respondents are not their employees, because the
former exercised no control over the latter’s work hours and method of
performing tasks. Thus, petitioners contend that under the "control test," the
workers were independent contractors.

We disagree. As shown by the evidence on record, petitioners hired

respondents, who performed tasks assigned by their respective officers-in-
charge, who in turn were all under the direct supervision and control of
Petitioner Bondoc. These allegations are contained in the workers’
Affidavits, which were never disputed by petitioners. Also uncontroverted
are the payrolls bearing the name of the plantation company and signed by
Petitioner Bondoc. Some of these payrolls include the time records of the
employees. These documents prove that petitioner-company exercised
control and supervision over them.

To operate against the employer, the power of control need not have been
actually exercised. Proof of the existence of such power is
enough.41 Certainly, petitioners wielded that power to hire or dismiss, as well
as to check on the progress and the quality of work of the laborers.

Jurisprudence provides other equally important considerations42 that support

the conclusion that respondents were not independent contractors. First,
they cannot be said to have carried on an independent business or
occupation.43They are not engaged in the business of filing, scooping and
hauling coconuts and/or operating and maintaining a plantation and a golf
course. Second, they do not have substantial capital or investment in the
form of tools, equipment, machinery, work premises, and other implements
needed to perform the job, work or service under their own account or
responsibility.44 Third, they have been working exclusively for petitioners for
several years. Fourth, there is no dispute that petitioners are in the business
of growing coconut trees for commercial purposes. There is no question,
either, that a portion of the plantation was converted into a golf course and
other recreational facilities. Clearly, respondents performed usual, regular
and necessary services for petitioners’ business.

WHEREFORE, the Petition is DENIED, and the assailed

Decision AFFIRMED. Costs against the petitioners.

SO ORDERED.
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G.R. No. 174938 October 1, 2014

GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners,

vs.
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C.
RAMOS, RUFO B. COLAYCO, MAXIMO G. LICAUCO III, AND
BENJAMIN C. RAMOS, Respondents.

DECISION

LEONEN, J.:

Corporate representatives may be compelled to submit to arbitration

proceedings pursuant to a contract entered into by the corporation they
represent if there are allegations of bad faith or malice in their acts
representing the corporation.

This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006
decision and October 5, 2006 resolution. The Court of Appeals affirmed the
trial court's decision holding that petitioners, as director, should submit
themselves as parties tothe arbitration proceedings between BF Corporation
and Shangri-La Properties, Inc. (Shangri-La).

In 1993, BF Corporation filed a collection complaint with the Regional Trial

Court against Shangri-Laand the members of its board of directors: Alfredo
C. Ramos, Rufo B.Colayco, Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo
G. Licauco III, and Benjamin C. Ramos.1

BF Corporation alleged in its complaint that on December 11, 1989 and May
30, 1991, it entered into agreements with Shangri-La wherein it undertook to
construct for Shangri-La a mall and a multilevel parking structure along
EDSA.2

Shangri-La had been consistent in paying BF Corporation in accordance

with its progress billing statements.3However, by October 1991, Shangri-La
started defaulting in payment.4
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BF Corporation alleged that Shangri-La induced BF Corporation to continue

with the construction of the buildings using its own funds and credit despite
Shangri-La’s default.5 According to BF Corporation, ShangriLa
misrepresented that it had funds to pay for its obligations with BF
Corporation, and the delay in payment was simply a matter of delayed
processing of BF Corporation’s progress billing statements.6

BF Corporation eventually completed the construction of the

buildings.7 Shangri-La allegedly took possession of the buildings while still
owing BF Corporation an outstanding balance.8

BF Corporation alleged that despite repeated demands, Shangri-La refused

to pay the balance owed to it.9 It also alleged that the Shangri-La’s directors
were in bad faith in directing Shangri-La’s affairs. Therefore, they should be
held jointly and severally liable with Shangri-La for its obligations as well as
for the damages that BF Corporation incurred as a result of Shangri-La’s
default.10

On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco,

Maximo G. Licauco III, and Benjamin C. Ramos filed a motion to suspend
the proceedings in view of BF Corporation’s failure to submit its dispute to
arbitration, in accordance with the arbitration clauseprovided in its contract,
quoted in the motion as follows:11

35. Arbitration

(1) Provided always that in case any dispute or difference shall arise
between the Owner or the Project Manager on his behalf and the
Contractor, either during the progress or after the completion or
abandonment of the Works as to the construction of this Contract or as to
any matter or thing of whatsoever nature arising there under or inconnection
therewith (including any matter or thing left by this Contract to the discretion
of the Project Manager or the withholding by the Project Manager of any
certificate to which the Contractor may claim to be entitled or the
measurement and valuation mentioned in clause 30(5)(a) of these
Conditions or the rights and liabilities of the parties under clauses 25, 26, 32
or 33 of these Conditions), the owner and the Contractor hereby agree to
exert all efforts to settle their differences or dispute amicably. Failing these

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efforts then such dispute or difference shall be referred to arbitration in

accordance with the rules and procedures of the Philippine Arbitration Law.

xxx xxx xxx

(6) The award of such Arbitrators shall be final and binding on the parties.
The decision of the Arbitrators shall be a condition precedent to any right of
legal action that either party may have against the other. . .
.12 (Underscoring in the original)

On August 19, 1993, BF Corporation opposed the motion to suspend

proceedings.13

In the November 18, 1993 order, the Regional Trial Court denied the motion
to suspend proceedings.14

On December 8, 1993, petitioners filed an answer to BF Corporation’s

complaint, with compulsory counter claim against BF Corporation and
crossclaim against Shangri-La.15 They alleged that they had resigned as
members of Shangri-La’s board of directors as of July 15, 1991.16

After the Regional Trial Court denied on February 11, 1994 the motion for
reconsideration of its November 18, 1993 order, Shangri-La, Alfredo C.
Ramos, Rufo B. Colayco,Maximo G. Licauco III, and Benjamin Ramos filed
a petition for certiorari with the Court of Appeals.17

On April 28, 1995, the Court of Appeals granted the petition for certiorari
and ordered the submission of the dispute to arbitration.18

Aggrieved by the Court of Appeals’ decision, BF Corporation filed a petition

for review on certiorari with this court.19On March 27, 1998, this court
affirmed the Court of Appeals’ decision, directing that the dispute be
submitted for arbitration.20

Another issue arose after BF Corporation had initiated arbitration

proceedings. BF Corporation and Shangri-La failed to agree as to the law
that should govern the arbitration proceedings.21 On October 27, 1998, the
trial court issued the order directing the parties to conduct the proceedings
in accordance with Republic Act No. 876.22

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Shangri-La filed an omnibus motion and BF Corporation an urgent motion

for clarification, both seeking to clarify the term, "parties," and whether
Shangri-La’s directors should be included in the arbitration proceedings and
served with separate demands for arbitration.23

Petitioners filed their comment on Shangri-La’s and BF Corporation’s

motions, praying that they be excluded from the arbitration proceedings for
being non-parties to Shangri-La’s and BF Corporation’s agreement.24

On July 28, 2003, the trial court issued the order directing service of
demands for arbitration upon all defendants in BF Corporation’s
complaint.25 According to the trial court, Shangri-La’s directors were
interested parties who "must also be served with a demand for arbitration to
give them the opportunity to ventilate their side of the controversy,
safeguard their interest and fend off their respective positions."26 Petitioners’
motion for reconsideration ofthis order was denied by the trial court on
January 19, 2005.27

Petitioners filed a petition for certiorari with the Court of Appeals, alleging
grave abuse of discretion in the issuance of orders compelling them to
submit to arbitration proceedings despite being third parties to the contract
between Shangri-La and BF Corporation.28

In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners’
petition for certiorari. The Court of Appeals ruled that ShangriLa’s directors
were necessary parties in the arbitration proceedings.30 According to the
Court of Appeals:

[They were] deemed not third-parties tothe contract as they [were] sued for
their acts in representation of the party to the contract pursuant to Art. 31 of
the Corporation Code, and that as directors of the defendant corporation,
[they], in accordance with Art. 1217 of the Civil Code, stand to be benefited
or injured by the result of the arbitration proceedings, hence, being
necessary parties, they must be joined in order to have complete
adjudication of the controversy. Consequently, if [they were] excluded as
parties in the arbitration proceedings and an arbitral award is rendered,
holding [Shangri-La] and its board of directors jointly and solidarily liable to
private respondent BF Corporation, a problem will arise, i.e., whether

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petitioners will be bound bysuch arbitral award, and this will prevent
complete determination of the issues and resolution of the controversy.31

The Court of Appeals further ruled that "excluding petitioners in the

arbitration proceedings . . . would be contrary to the policy against
multiplicity of suits."32

The dispositive portion of the Court of Appeals’ decision reads:

WHEREFORE, the petition is DISMISSED. The assailed orders dated July

28, 2003 and January 19, 2005 of public respondent RTC, Branch 157,
Pasig City, in Civil Case No. 63400, are AFFIRMED.33

The Court of Appeals denied petitioners’ motion for reconsideration in the

October 5, 2006 resolution.34

On November 24, 2006, petitioners filed a petition for review of the May 11,
2006 Court of Appeals decision and the October 5, 2006 Court of Appeals
resolution.35

The issue in this case is whether petitioners should be made parties to the
arbitration proceedings, pursuant to the arbitration clause provided in the
contract between BF Corporation and Shangri-La.

Petitioners argue that they cannot be held personally liable for corporate
acts or obligations.36 The corporation is a separate being, and nothing
justifies BF Corporation’s allegation that they are solidarily liable with
Shangri-La.37Neither did they bind themselves personally nor did they
undertake to shoulder Shangri-La’s obligations should it fail in its
obligations.38 BF Corporation also failed to establish fraud or bad faith on
their part.39

Petitioners also argue that they are third parties to the contract between BF
Corporation and Shangri-La.40Provisions including arbitration stipulations
should bind only the parties.41 Based on our arbitration laws, parties who
are strangers to an agreement cannot be compelled to arbitrate.42

Petitioners point out thatour arbitration laws were enacted to promote the
autonomy of parties in resolving their disputes.43 Compelling them to submit

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to arbitration is against this purpose and may be tantamount to stipulating

for the parties.44

Separate comments on the petition werefiled by BF Corporation, and

Maximo G. Licauco III, Alfredo C.Ramos and Benjamin C. Ramos.45

Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed

with petitioners that Shangri-La’sdirectors, being non-parties to the contract,
should not be made personally liable for Shangri-La’s acts.46 Since the
contract was executed only by BF Corporation and Shangri-La, only they
should be affected by the contract’s stipulation.47 BF Corporation also failed
to specifically allege the unlawful acts of the directors that should make
them solidarily liable with Shangri-La for its obligations.48

Meanwhile, in its comment, BF Corporation argued that the courts’ ruling

that the parties should undergo arbitration "clearly contemplated the
inclusion of the directors of the corporation[.]"49 BF Corporation also argued
that while petitioners were not parties to the agreement, they were still
impleaded under Section 31 of the Corporation Code.50Section 31 makes
directors solidarily liable for fraud, gross negligence, and bad
faith.51 Petitioners are not really third parties to the agreement because they
are being sued as Shangri-La’s representatives, under Section 31 of the
Corporation Code.52

BF Corporation further argued that because petitioners were impleaded for

their solidary liability, they are necessary parties to the arbitration
proceedings.53 The full resolution of all disputes in the arbitration
proceedings should also be done in the interest of justice.54

In the manifestation dated September 6, 2007, petitioners informed the

court that the Arbitral Tribunal had already promulgated its decision on July
31, 2007.55 The Arbitral Tribunal denied BF Corporation’s claims against
them.56Petitioners stated that "[they] were included by the Arbitral Tribunal
in the proceedings conducted . . . notwithstanding [their] continuing
objection thereto. . . ."57 They also stated that "[their] unwilling participation
in the arbitration case was done ex abundante ad cautela, as manifested
therein on several occasions."58 Petitioners informed the court that they
already manifested with the trial court that "any action taken on [the Arbitral

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Tribunal’s decision] should be without prejudice to the resolution of [this]

case."59

Upon the court’s order, petitioners and Shangri-La filed their respective
memoranda. Petitioners and Maximo G. Licauco III, Alfredo C. Ramos, and
Benjamin C. Ramos reiterated their arguments that they should not be held
liable for Shangri-La’s default and made parties to the arbitration
proceedings because only BF Corporation and Shangri-La were parties to
the contract.

In its memorandum, Shangri-La argued that petitioners were impleaded for

their solidary liability under Section 31 of the Corporation Code. Shangri-La
added that their exclusion from the arbitration proceedings will result in
multiplicity of suits, which "is not favored in this jurisdiction." 60 It pointed out
that the case had already been mooted by the termination of the arbitration
proceedings, which petitioners actively participated in.61 Moreover, BF
Corporation assailed only the correctness of the Arbitral Tribunal’s award
and not the part absolving Shangri-La’s directors from liability.62

BF Corporation filed a counter-manifestation with motion to dismiss63 in lieu

of the required memorandum.

In its counter-manifestation, BF Corporation pointed out that since

"petitioners’ counterclaims were already dismissed with finality, and the
claims against them were likewise dismissed with finality, they no longer
have any interest orpersonality in the arbitration case. Thus, there is no
longer any need to resolve the present Petition, which mainly questions the
inclusion of petitioners in the arbitration proceedings."64 The court’s decision
in this case will no longer have any effect on the issue of petitioners’
inclusion in the arbitration proceedings.65

The petition must fail.

The Arbitral Tribunal’s decision, absolving petitioners from liability, and its
binding effect on BF Corporation, have rendered this case moot and
academic.

The mootness of the case, however, had not precluded us from resolving
issues so that principles may be established for the guidance of the bench,
bar, and the public. In De la Camara v. Hon. Enage,66 this court disregarded
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the fact that petitioner in that case already escaped from prison and ruled on
the issue of excessive bails:

While under the circumstances a ruling on the merits of the petition for
certiorari is notwarranted, still, as set forth at the opening of this opinion, the
fact that this case is moot and academic should not preclude this Tribunal
from setting forth in language clear and unmistakable, the obligation of
fidelity on the part of lower court judges to the unequivocal command of the
Constitution that excessive bail shall not be required.67

This principle was repeated in subsequent cases when this court deemed it
proper to clarify important matters for guidance.68

Thus, we rule that petitioners may be compelled to submit to the arbitration

proceedings in accordance with Shangri-Laand BF Corporation’s
agreement, in order to determine if the distinction between Shangri-La’s
personality and their personalities should be disregarded.

This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the

parties to avoid litigation and settle disputes amicably and more
expeditiously by themselves and through their choice of arbitrators.

The policy in favor of arbitration has been affirmed in our Civil Code, 69 which
was approved as early as 1949. It was later institutionalized by the approval
of Republic Act No. 876,70 which expressly authorized, made valid,
enforceable, and irrevocable parties’ decision to submit their controversies,
including incidental issues, to arbitration. This court recognized this policy in
Eastboard Navigation, Ltd. v. Ysmael and Company, Inc.:71

As a corollary to the question regarding the existence of an arbitration

agreement, defendant raises the issue that, even if it be granted that it
agreed to submit its dispute with plaintiff to arbitration, said agreement is
void and without effect for it amounts to removing said dispute from the
jurisdiction of the courts in which the parties are domiciled or where the
dispute occurred. It is true that there are authorities which hold that "a
clause in a contract providing that all matters in dispute between the parties
shall be referred to arbitrators and to them alone, is contrary to public policy
and cannot oust the courts of jurisdiction" (Manila Electric Co. vs. Pasay
Transportation Co., 57 Phil., 600, 603), however, there are authorities which
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favor "the more intelligent view that arbitration, as an inexpensive, speedy

and amicable method of settling disputes, and as a means of avoiding
litigation, should receive every encouragement from the courts which may
be extended without contravening sound public policy or settled law" (3 Am.
Jur., p. 835). Congress has officially adopted the modern view when it
reproduced in the new Civil Code the provisions of the old Code on
Arbitration. And only recently it approved Republic Act No. 876 expressly
authorizing arbitration of future disputes.72 (Emphasis supplied)

In view of our policy to adopt arbitration as a manner of settling disputes,

arbitration clauses are liberally construed to favor arbitration. Thus, in LM
Power Engineering Corporation v. Capitol Industrial Construction Groups,
Inc.,73 this court said:

Being an inexpensive, speedy and amicable method of settling disputes,

arbitration — along with mediation, conciliation and negotiation — is
encouraged by the Supreme Court. Aside from unclogging judicial dockets,
arbitration also hastens the resolution of disputes, especially of the
commercial kind. It is thus regarded as the "wave of the future" in
international civil and commercial disputes. Brushing aside a contractual
agreement calling for arbitration between the parties would be a step
backward.

Consistent with the above-mentioned policy of encouraging alternative

dispute resolution methods, courts should liberally construe arbitration
clauses. Provided such clause is susceptible of an interpretation that covers
the asserted dispute, an order to arbitrate should be granted. Any doubt
should be resolved in favor of arbitration.74(Emphasis supplied)

A more clear-cut statement of the state policy to encourage arbitration and

to favor interpretations that would render effective an arbitration clause was
later expressed in Republic Act No. 9285:75

SEC. 2. Declaration of Policy.- It is hereby declared the policy of the State to

actively promote party autonomy in the resolution of disputes or the freedom
of the party to make their own arrangements to resolve their disputes.
Towards this end, the State shall encourage and actively promote the use of
Alternative Dispute Resolution (ADR) as an important means to achieve
speedy and impartial justice and declog court dockets. As such, the State
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shall provide means for the use of ADR as an efficient tool and an
alternative procedure for the resolution of appropriate cases. Likewise, the
State shall enlist active private sector participation in the settlement of
disputes through ADR. This Act shall be without prejudice to the adoption by
the Supreme Court of any ADR system, such as mediation, conciliation,
arbitration, or any combination thereof as a means of achieving speedy and
efficient means of resolving cases pending before all courts in the
Philippines which shall be governed by such rules as the Supreme Court
may approve from time to time.

....

SEC. 25. Interpretation of the Act.- In interpreting the Act, the court shall
have due regard to the policy of the law in favor of arbitration.Where action
is commenced by or against multiple parties, one or more of whomare
parties who are bound by the arbitration agreement although the civil action
may continue as to those who are not bound by such arbitration agreement.
(Emphasis supplied)

Thus, if there is an interpretation that would render effective an arbitration

clause for purposes ofavoiding litigation and expediting resolution of the
dispute, that interpretation shall be adopted. Petitioners’ main argument
arises from the separate personality given to juridical persons vis-à-vis their
directors, officers, stockholders, and agents. Since they did not sign the
arbitration agreement in any capacity, they cannot be forced to submit to the
jurisdiction of the Arbitration Tribunal in accordance with the arbitration
agreement. Moreover, they had already resigned as directors of Shangri-
Laat the time of the alleged default.

Indeed, as petitioners point out, their personalities as directors of Shangri-

La are separate and distinct from Shangri-La.

A corporation is an artificial entity created by fiction of law.76 This means

that while it is not a person, naturally, the law gives it a distinct personality
and treats it as such. A corporation, in the legal sense, is an individual with
a personality that is distinct and separate from other persons including its
stockholders, officers, directors, representatives,77 and other juridical
entities. The law vests in corporations rights,powers, and attributes as if
they were natural persons with physical existence and capabilities to act on
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their own.78 For instance, they have the power to sue and enter into
transactions or contracts. Section 36 of the Corporation Code enumerates
some of a corporation’s powers, thus:

Section 36. Corporate powers and capacity.– Every corporation

incorporated under this Code has the power and capacity:

1. To sue and be sued in its corporate name;

2. Of succession by its corporate name for the period of time stated in

the articles of incorporation and the certificate ofincorporation;

3. To adopt and use a corporate seal;

4. To amend its articles of incorporation in accordance with the

provisions of this Code;

5. To adopt by-laws, not contrary to law, morals, or public policy, and

to amend or repeal the same in accordance with this Code;

6. In case of stock corporations, to issue or sell stocks to subscribers

and to sell treasury stocks in accordance with the provisions of this
Code; and to admit members to the corporation if it be a non-stock
corporation;

7. To purchase, receive, take or grant, hold, convey, sell, lease,

pledge, mortgage and otherwise deal with such real and personal
property, including securities and bonds of other corporations, as the
transaction of the lawful business of the corporation may reasonably
and necessarily require, subject to the limitations prescribed by law
and the Constitution;

8. To enter into merger or consolidation with other corporations as

provided in this Code;

9. To make reasonable donations, including those for the public

welfare or for hospital, charitable, cultural, scientific, civic, or similar
purposes: Provided, That no corporation, domestic or foreign, shall
give donations in aid of any political party or candidate or for purposes
of partisan political activity;
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10. To establish pension, retirement, and other plans for the benefit of
its directors, trustees, officers and employees; and

11. To exercise such other powers asmay be essential or necessary to

carry out its purpose or purposes as stated in its articles of
incorporation. (13a)

Because a corporation’s existence is only by fiction of law, it can only

exercise its rights and powers through itsdirectors, officers, or agents, who
are all natural persons. A corporation cannot sue or enter into contracts
without them.

A consequence of a corporation’s separate personality is that consent by a

corporation through its representatives is not consent of the representative,
personally. Its obligations, incurred through official acts of its
representatives, are its own. A stockholder, director, or representative does
not become a party to a contract just because a corporation executed a
contract through that stockholder, director or representative.

Hence, a corporation’s representatives are generally not bound by the terms

of the contract executed by the corporation. They are not personally liable
for obligations and liabilities incurred on or in behalf of the corporation.

Petitioners are also correct that arbitration promotes the parties’ autonomy
in resolving their disputes. This court recognized in Heirs of Augusto Salas,
Jr. v. Laperal Realty Corporation79 that an arbitration clause shall not apply
to persons who were neither parties to the contract nor assignees of
previous parties, thus:

A submission to arbitration is a contract. As such, the Agreement,

containing the stipulation on arbitration, binds the parties thereto, as well as
their assigns and heirs. But only they.80 (Citations omitted)

Similarly, in Del Monte Corporation-USA v. Court of Appeals,81 this court

ruled:

The provision to submit to arbitration any dispute arising therefrom and the
relationship of the parties is part of that contract and is itself a contract. As a
rule, contracts are respected as the law between the contracting parties and
produce effect as between them, their assigns and heirs. Clearly, only
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parties to the Agreement . . . are bound by the Agreement and its arbitration
clause as they are the only signatories thereto.82 (Citation omitted)

This court incorporated these rulings in Agan, Jr. v. Philippine International

Air Terminals Co., Inc.83 and Stanfilco Employees v. DOLE Philippines, Inc.,
et al.84

As a general rule, therefore, a corporation’s representative who did not

personally bind himself or herself to an arbitration agreement cannot be
forced to participate in arbitration proceedings made pursuant to an
agreement entered into by the corporation. He or she is generally not
considered a party to that agreement.

However, there are instances when the distinction between personalities of

directors, officers,and representatives, and of the corporation, are
disregarded. We call this piercing the veil of corporate fiction.

Piercing the corporate veil is warranted when "[the separate personality of a

corporation] is used as a means to perpetrate fraud or an illegal act, or as a
vehicle for the evasion of an existing obligation, the circumvention of
statutes, or to confuse legitimate issues."85 It is also warranted in alter ego
cases "where a corporation is merely a farce since it is a mere alter ego or
business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation."86

When corporate veil is pierced, the corporation and persons who are
normally treated as distinct from the corporation are treated as one person,
such that when the corporation is adjudged liable, these persons, too,
become liable as if they were the corporation.

Among the persons who may be treatedas the corporation itself under
certain circumstances are its directors and officers. Section 31 of the
Corporation Code provides the instances when directors, trustees, or
officers may become liable for corporate acts:

Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who

willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or pecuniary interest in
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conflict with their duty as such directors or trustees shall be liable jointly and
severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in

violation of his duty, any interest adverse to the corporation in respect of any
matter which has been reposed inhim in confidence, as to which equity
imposes a disability upon him to deal in his own behalf, he shall be liable as
a trustee for the corporation and must account for the profits which
otherwise would have accrued to the corporation. (n)

Based on the above provision, a director, trustee, or officer of a corporation

may be made solidarily liable with it for all damages suffered by the
corporation, its stockholders or members, and other persons in any of the
following cases:

a) The director or trustee willfully and knowingly voted for or assented

to a patently unlawful corporate act;

b) The director or trustee was guilty of gross negligence or bad faith in

directing corporate affairs; and

c) The director or trustee acquired personal or pecuniary interest in

conflict with his or her duties as director or trustee.

Solidary liability with the corporation will also attach in the following
instances:

a) "When a director or officer has consented to the issuance of watered

stocks or who, having knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto";87

b) "When a director, trustee or officer has contractually agreed or

stipulated to hold himself personally and solidarily liable with the
corporation";88 and

c) "When a director, trustee or officer is made, by specific provision of

law, personally liable for his corporate action."89

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When there are allegations of bad faith or malice against corporate directors
or representatives, it becomes the duty of courts or tribunals to determine if
these persons and the corporation should be treated as one. Without a trial,
courts and tribunals have no basis for determining whether the veil of
corporate fiction should be pierced. Courts or tribunals do not have such
prior knowledge. Thus, the courts or tribunals must first determine whether
circumstances exist towarrant the courts or tribunals to disregard the
distinction between the corporation and the persons representing it. The
determination of these circumstances must be made by one tribunal or court
in a proceeding participated in by all parties involved, including current
representatives of the corporation, and those persons whose personalities
are impliedly the sameas the corporation. This is because when the court or
tribunal finds that circumstances exist warranting the piercing of the
corporate veil, the corporate representatives are treated as the corporation
itself and should be held liable for corporate acts. The corporation’s distinct
personality is disregarded, and the corporation is seen as a mere
aggregation of persons undertaking a business under the collective name of
the corporation.

Hence, when the directors, as in this case, are impleaded in a case against
a corporation, alleging malice orbad faith on their part in directing the affairs
of the corporation, complainants are effectively alleging that the directors
and the corporation are not acting as separate entities. They are alleging
that the acts or omissions by the corporation that violated their rights are
also the directors’ acts or omissions.90 They are alleging that contracts
executed by the corporation are contracts executed by the directors.
Complainants effectively pray that the corporate veilbe pierced because the
cause of action between the corporation and the directors is the same.

In that case, complainants have no choice but to institute only one

proceeding against the parties.1âwphi1 Under the Rules of Court, filing of
multiple suits for a single cause of action is prohibited. Institution of more
than one suit for the same cause of action constitutes splitting the cause of
action, which is a ground for the dismissal ofthe others. Thus, in Rule 2:

Section 3. One suit for a single cause of action. — A party may not institute
more than one suit for a single cause of action. (3a)

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Section 4. Splitting a single cause of action;effect of. — If two or more suits

are instituted on the basis of the same cause of action, the filing of one or a
judgment upon the merits in any one is available as a ground for the
dismissal of the others. (4a)

It is because the personalities of petitioners and the corporation may later

be found to be indistinct that we rule that petitioners may be compelled to
submit to arbitration.

However, in ruling that petitioners may be compelled to submit to the

arbitration proceedings, we are not overturning Heirs of Augusto Salas
wherein this court affirmed the basic arbitration principle that only parties to
an arbitration agreement may be compelled to submit to arbitration. In that
case, this court recognizedthat persons other than the main party may be
compelled to submit to arbitration, e.g., assignees and heirs. Assignees and
heirs may be considered parties to an arbitration agreement entered into by
their assignor because the assignor’s rights and obligations are transferred
to them upon assignment. In other words, the assignor’s rights and
obligations become their own rights and obligations. In the same way, the
corporation’s obligations are treated as the representative’s obligations
when the corporate veil is pierced. Moreover, in Heirs of Augusto Salas, this
court affirmed its policy against multiplicity of suits and unnecessary delay.
This court said that "to split the proceeding into arbitration for some parties
and trial for other parties would "result in multiplicity of suits, duplicitous
procedure and unnecessary delay."91 This court also intimated that the
interest of justice would be best observed if it adjudicated rights in a single
proceeding.92 While the facts of that case prompted this court to direct the
trial court to proceed to determine the issues of thatcase, it did not prohibit
courts from allowing the case to proceed to arbitration, when circumstances
warrant.

Hence, the issue of whether the corporation’s acts in violation of

complainant’s rights, and the incidental issue of whether piercing of the
corporate veil is warranted, should be determined in a single proceeding.
Such finding would determine if the corporation is merely an aggregation of
persons whose liabilities must be treated as one with the corporation.

However, when the courts disregard the corporation’s distinct and separate
personality from its directors or officers, the courts do not say that the
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corporation, in all instances and for all purposes, is the same as its
directors, stockholders, officers, and agents. It does not result in an absolute
confusion of personalities of the corporation and the persons composing or
representing it. Courts merely discount the distinction and treat them as
one, in relation to a specific act, in order to extend the terms of the contract
and the liabilities for all damages to erring corporate officials who
participated in the corporation’s illegal acts. This is done so that the legal
fiction cannot be used to perpetrate illegalities and injustices.

Thus, in cases alleging solidary liability with the corporation or praying for
the piercing of the corporate veil, parties who are normally treated as
distinct individuals should be made to participate in the arbitration
proceedings in order to determine ifsuch distinction should indeed be
disregarded and, if so, to determine the extent of their liabilities.

In this case, the Arbitral Tribunal rendered a decision, finding that BF

Corporation failed to prove the existence of circumstances that render
petitioners and the other directors solidarily liable. It ruled that petitioners
and Shangri-La’s other directors were not liable for the contractual
obligations of Shangri-La to BF Corporation. The Arbitral Tribunal’s decision
was made with the participation of petitioners, albeit with their continuing
objection. In view of our discussion above, we rule that petitioners are
bound by such decision.

WHEREFORE, the petition is DENIED. The Court of Appeals' decision of

May 11, 2006 and resolution of October 5, 2006 are AFFIRMED.

SO ORDERED.

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.
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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
Page 28 of 77
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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

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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 records14 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. 902-A; (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

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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 Names25 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
Page 31 of 77
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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
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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 of Ang
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

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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.

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.

YNARES-SANTIAGO, J.:

This is a petition for review assailing the Decision dated October 7,

19971 and the Resolution dated February 16, 19992 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
Page 34 of 77
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of respondent, ordering the Iglesia 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.5No 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.

Page 35 of 77
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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:

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

INTERPRETATION 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.

Page 36 of 77
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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

Page 37 of 77
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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
Page 38 of 77
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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.

Page 39 of 77
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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.

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.

Page 40 of 77
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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
Page 41 of 77
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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
Page 42 of 77
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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

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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
Page 44 of 77
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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
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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.

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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
Page 47 of 77
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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
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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.

Page 49 of 77
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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

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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.

G.R. No. L-26370 July 31, 1970

PHILIPPINE FIRST INSURANCE COMPANY, INC., plaintiff-appellant,

vs.
MARIA CARMEN HARTIGAN, CGH, and O. ENGKEE, defendants-
appellees.

Bausa, Ampil & Suarez for plaintiff-appellant.

Nicasio E. Martin for defendants-appellees.

BARREDO, J.:

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Appeal from the decision dated 6 October 1962 of the Court of First
Instance of Manila — dismissing the action in its Civil Case No. 48925 —
brought by the herein plaintiff-appellant Philippine First Insurance Co., Inc.
to the Court of Appeals which could, upon finding that the said appeal raises
purely questions of law, declared itself without jurisdiction to entertain the
same and, in its resolution dated 15 July 1966, certified the records thereof
to this Court for proper determination.

The antecedent facts are set forth in the pertinent portions of the resolution
of the Court of Appeals referred to as follows:

According to the complaint, plaintiff was originally organized as an

insurance corporation under the name of 'The Yek Tong Lin Fire
and Marine Insurance Co., Ltd.' The articles of incorporation
originally presented before the Security and Exchange
Commissioner and acknowledged before Notary Public Mr. E. D.
Ignacio on June 1, 1953 state that the name of the corporation
was 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' On
May 26, 1961 the articles of incorporation were amended
pursuant to a certificate of the Board of Directors dated March 8,
1961 changing the name of the corporation to 'Philippine First
Insurance Co., Inc.'.

The complaint alleges that the plaintiff Philippine First Insurance

Co., Inc., doing business under the name of 'The Yek Tong Lin
Fire and Marine Insurance Co., Lt.' signed as co-maker together
with defendant Maria Carmen Hartigan, CGH, a promissory note
for P5,000.00 in favor of the China Banking Corporation payable
within 30 days after the date of the promissory note with the usual
banking interest; that the plaintiff agreed to act as such co-maker
of the promissory note upon the application of the defendant
Maria Carmen Hartigan, CGH, who together with Antonio F. Chua
and Chang Ka Fu, signed an indemnity agreement in favor of the
plaintiff, undertaking jointly and severally, to pay the plaintiff
damages, losses or expenses of whatever kind or nature,
including attorney's fees and legal costs, which the plaintiff may
sustain as a result of the execution by the plaintiff and co-maker
of Maria Carmen Hartigan, CGH, of the promissory note above-
referred to; that as a result of the execution of the promissory note
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by the plaintiff and Maria Carmen Hartigan, CGH, the China

Banking Corporation delivered to the defendant Maria Carmen
Hartigan, CGH, the sum of P5,000.00 which said defendant failed
to pay in full, such that on August 31, 1961 the same was.
renewed and as of November 27, 1961 there was due on account
of the promissory note the sum of P4,559.50 including interest.
The complaint ends with a prayer for judgment against the
defendants, jointly and severally, for the sum of P4,559.50 with
interest at the rate of 12% per annum from November 23, 1961
plus P911.90 by way of attorney's fees and costs.

Although O. Engkee was made as party defendant in the caption

of the complaint, his name is not mentioned in the body of said
complaint. However, his name Appears in the Annex A attached
to the complaint which is the counter indemnity agreement
supposed to have been signed according to the complaint by
Maria Carmen Hartigan, CGH, Antonio F. Chua and Chang Ka
Fu.

In their answer the defendants deny the allegation that the plaintiff
formerly conducted business under the name and style of 'The
Yek Tong Lin Fire and Marine Insurance Co., Ltd.' They admit the
execution of the indemnity agreement but they claim that they
signed said agreement in favor of the Yek Tong Lin Fire and
Marine Insurance Co., Ltd.' and not in favor of the plaintiff. They
likewise admit that they failed to pay the promissory note when it
fell due but they allege that since their obligation with the China
Banking Corporation based on the promissory note still subsists,
the surety who co-signed the promissory note is not entitled to
collect the value thereof from the defendants otherwise they will
be liable for double amount of their obligation, there being no
allegation that the surety has paid the obligation to the creditor.

By way of special defense, defendants claim that there is no

privity of contract between the plaintiff and the defendants and
consequently, the plaintiff has no cause of action against them,
considering that the complaint does not allege that the plaintiff
and the 'Yek Tong Lin Fire and Marine Insurance Co., Ltd.' are
one and the same or that the plaintiff has acquired the rights of
Page 53 of 77
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the latter. The parties after the admission of Exhibit A which is the
amended articles of incorporation and Exhibit 1 which is a
demand letter dated August 16, 1962 signed by the manager of
the loans and discount department of the China Banking
Corporation showing that the promissory note up to said date in
the sum of P4,500.00 was still unpaid, submitted the case for
decision based on the pleadings.

Under date of 6 October 1962, the Court of First Instance of Manila

rendered the decision appealed. It dismissed the action with costs against
the plaintiff Philippine First Insurance Co., Inc., reasoning as follows:

... With these undisputed facts in mind, the parties correctly

concluded that the issues for resolution by this Court are as
follows:

(a) Whether or not the plaintiff is the real party in interest that may
validly sue on the indemnity agreement signed by the defendants
and the Yek Tong Lin Fire & Marine Insurance Co., Ltd. (Annex A
to plaintiff's complaint ); and

(b) Whether or not a suit for indemnity or reimbursement may

under said indemnity agreement prosper without plaintiff having
yet paid the amount due under said promissory note.

In the first place, the change of name of the Yek Tong Lin Fire &
Marine Insurance Co., Ltd. to the Philippines First Insurance Co.,
Inc. is of dubious validity. Such change of name in effect
dissolved the original corporation by a process of dissolution not
authorized by our corporation law (see Secs. 62 and 67, inclusive,
of our Corporation Law). Moreover, said change of name,
amounting to a dissolution of the Yek Tong Lin Fire & Marine
Insurance Co., Ltd., does not appear to have been effected with
the written note or assent of stockholders representing at least
two-thirds of the subscribed capital stock of the corporation, a
voting proportion required not only for the dissolution of a
corporation but also for any amendment of its articles of
incorporation (Secs. 18 and 62, Corporation Law). Furthermore,
such change of corporate name appears to be against public
Page 54 of 77
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policy and may be effected only by express authority of law (Red

Line Transportation Co. v. Rural Transit Co., Ltd., 60 Phil. 549,
555; Cincinnati Cooperage Co., Ltd. vs. Vate, 26 SW 538, 539;
Pilsen Brewing Co. vs. Wallace, 125 NE 714), but there is nothing
in our corporation law authorizing the change of corporate name
in this jurisdiction.

In the second place, assuming that the change of name of the

Yek Tong Lin Fire & Marine Insurance Co. Ltd., to Philippines
pine First Insurance Co., Inc., as accomplished on March 8, 1961,
is valid, that would mean that the original corporation, the Yek
Tong Lin Fire & Marine Insurance Co., Ltd., became dissolved
and of no further existence since March 8, 1961, so that on May
15, 1961, the date the indemnity agreement, Annex A, was
executed, said original corporation bad no more power to enter
into any agreement with the defendants, and the agreement
entered into by it was ineffective for lack of capacity of said
dissolved corporation to enter into said agreement. At any rate,
even if we hold that said change of name is valid, the fact remains
that there is no evidence showing that the new entity, the
Philippine First Insurance Co., Inc. has with the consent of the
original parties, assumed the obligations or was assigned the
rights of action in the original corporation, the Yek Tong Lin Fire &
Marine Insurance Co., Ltd. In other words, there is no evidence of
conventional subrogation of the Plaintiffs in the rights of the Yek
Tong Lin Fire & Marine Insurance Co., Ltd. under said indemnity
agreement (Arts. 1300, 1301, New Civil Code). without such
subrogation assignment of rights, the herein plaintiff has no cause
of action against the defendants, and is, therefore, not the right
party in interest as plaintiff.

Last, but not least, assuming that the said change of name was
legal and operated to dissolve the original corporation, the
dissolved corporation, must pursuant to Sec. 77 of our corporation
law, be deemed as continuing as a body corporate for three (3)
years from March 8, 1961 for the purpose of prosecuting and
defending suits. It is, therefore, the Yek Tong Lin Fire & Marine

Page 55 of 77
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Insurance Co., Ltd. that is the proper party to sue the defendants
under said indemnity agreement up to March 8, 1964.

Having arrived at the foregoing conclusions, this Court need not

squarely pass upon issue (b) formulated above.

WHEREFORE, plaintiff's action is hereby dismissed, with costs

against the plaintiff.

In due time, the Philippine First Insurance Company, Inc. moved for
reconsideration of the decision aforesaid, but said motion was denied on
December 3, 1962 in an order worded thus:

The motion for reconsideration, dated November 8, 1962, raises

no new issue that we failed to consider in rendering our decision
of October 6, 1962. However, it gives us an opportunity to amplify
our decision as regards the question of change of name of a
corporation in this jurisdiction.

We find nothing in our Corporation Law authorizing a change of

name of a corporation organized pursuant to its provisions. Sec.
18 of the Corporation Law authorizes, in our opinion, amendment
to the Articles of Incorporation of a corporation only as to matters
other than its corporate name. Once a corporation is organized in
this jurisdiction by the execution and registration of its Articles of
Incorporation, it shall continue to exist under its corporate name
for the lifetime of its corporate existence fixed in its Articles of
Incorporation, unless sooner legally dissolved (Sec. 11, Corp.
Law). Significantly, change of name is not one of the methods of
dissolution of corporations expressly authorized by our
Corporation Law. Also significant is the fact that the power to
change its corporate name is not one of the general powers
conferred on corporations in this jurisdiction (Sec. 13, Corp. Law).
The enumeration of corporate powers made in our Corporation
Law implies the exclusion of all others (Thomas v. West Jersey R.
Co., 101 U.S. 71, 25 L. ed. 950). It is obvious, in this connection,
that change of name is not one of the powers necessary to the
exercise of the powers conferred on corporations by said Sec. 13
(see Sec. 14, Corp. Law).
Page 56 of 77
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To rule that Sec. 18 of our Corporation Law authorizes the

change of name of a corporation by amendment of its Articles of
Incorporation is to indulge in judicial legislation. We have
examined the cases cited in Volume 13 of American
Jurisprudence in support of the proposition that the general power
to alter or amend the charter of a corporation necessarily includes
the power to alter the name of a corporation, and find no
justification for said conclusion arrived at by the editors of
American Jurisprudence. On the contrary, the annotations in favor
of plaintiff's view appear to have been based on decisions in
cases where the statute itself expressly authorizes change of
corporate name by amendment of its Articles of Incorporation.
The correct rule in harmony with the provisions of our Corporation
Law is well expressed in an English case as follows:

After a company has been completely register without

defect or omission, so as to be incorporated by the
name set forth in the deed of settlement, such
incorporated company has not the power to change its
name ... Although the King by his prerogative might
incorporate by a new name, and the newly named
corporation might retain former rights, and sometimes
its former name also, ... it never appears to be such an
act as the corporation could do by itself, but required
the same power as created the corporation. (Reg. v.
Registrar of Joint Stock Cos 10 Q.B. 839, 59 E.C.L.
839).

The contrary view appears to represent the minority doctrine,

judging from the annotations on decided cases on the matter.

The movant invokes as persuasive precedent the action of the

Securities Commissioner in tacitly approving the Amended,
Articles of Incorporation on May 26, 1961. We regret that we
cannot in good conscience lend approval to this action of the
Securities and Exchange Commissioner. We find no justification,
legal, moral, or practical, for adhering to the view taken by the
Securities and Exchange Commissioner that the name of a
corporation in the Philippines may be changed by mere
Page 57 of 77
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amendment of its Articles of Incorporation as to its corporate

name. A change of corporate name would serve no useful
purpose, but on the contrary would most probably cause
confusion. Only a dubious purpose could inspire a change of a
corporate. name which, unlike a natural person's name, was
chosen by the incorporators themselves; and our Courts should
not lend their assistance to the accomplishment of dubious
purposes.

WHEREFORE, we hereby deny plaintiff's motion for

reconsideration, dated November 8, 1962, for lack of merit.

In this appeal appellant contends that —

THE TRIAL COURT ERRED IN HOLDING THAT IN THIS

JURISDICTION, THERE IS NOTHING IN OUR CORPORATION
LAW AUTHORIZING THE CHANGE OF CORPORATE NAME;

II

THE TRIAL COURT ERRED IN DECLARING THAT A CHANGE

OF CORPORATE NAME APPEARS TO BE AGAINST PUBLIC
POLICY;

III

THE TRIAL COURT ERRED IN HOLDING THAT A CHANGE OF

CORPORATE NAME HAS THE LEGAL EFFECT OF
DISSOLVING THE ORIGINAL CORPORATION:

IV

THE TRIAL COURT ERRED IN HOLDING THAT THE CHANGE

OF NAME OF THE YEK TONG LIN FIRE & MARINE
INSURANCE CO., LTD. IS OF DUBIOUS VALIDITY;

Page 58 of 77
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THE TRIAL COURT ERRED IN HOLDING THAT THE

APPELLANT HEREIN IS NOT THE RIGHT PARTY INTEREST
TO SUE DEFENDANTS-APPELLEES;

IV

THE TRIAL COURT FINALLY ERRED IN DISMISSING THE

COMPLAINT.

Appellant's Position is correct; all the above assignments of error are well
taken. The whole case, however, revolves around only one question. May a
Philippine corporation change its name and still retain its original personality
and individuality as such?

The answer is not difficult to find. True, under Section 6 of the Corporation
Law, the first thing required to be stated in the Articles of Incorporation of
any corn corporation is its name, but it is only one among many matters
equally if not more important, that must be stated therein. Thus, it is also
required, for example, to state the number and names of and residences of
the incorporators and the residence or location of the principal office of the
corporation, its term of existence, the amount of its capital stock and the
number of shares into which it is divided, etc., etc.

On the other hand, Section 18 explicitly permits the articles of incorporation

to be amended thus:

Sec. 18. — Any corporation may for legitimate corporate purpose

or purposes, amend its articles of incorporation by a majority vote
of its board of directors or trustees and the vote or written assent
of two-thirds of its members, if it be a nonstock corporation or, if it
be a stock corporation, by the vote or written assent of the
stockholders representing at least two-thirds of the subscribed
capital stock of the corporation Provided, however, That if such
amendment to the articles of incorporation should consist in
extending the corporate existence or in any change in the rights of
holders of shares of any class, or would authorize shares with
preferences in any respect superior to those of outstanding
shares of any class, or would restrict the rights of any stockholder,
then any stockholder who did not vote for such corporate action
Page 59 of 77
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may, within forty days after the date upon which such action was
authorized, object thereto in writing and demand Payment for his
shares. If, after such a demand by a stockholder, the corporation
and the stockholder cannot agree upon the value of his share or
shares at the time such corporate action was authorized, such
values all be ascertained by three disinterested persons, one of
whom shall be named by the stockholder, another by the
corporation, and the third by the two thus chosen. The findings of
the appraisers shall be final, and if their award is not paid by the
corporation within thirty days after it is made, it may be recovered
in an action by the stockholder against the corporation. Upon
payment by the corporation to the stockholder of the agreed or
awarded price of his share or shares, the stockholder shall
forthwith transfer and assign the share or shares held by him as
directed by the corporation: Provided, however, That their own
shares of stock purchased or otherwise acquired by banks, trust
companies, and insurance companies, should be disposed of
within six months after acquiring title thereto.

Unless and until such amendment to the articles of incorporation

shall have been abandoned or the action rescinded, the
stockholder making such demand in writing shall cease to be a
stockholder and shall have no rights with respect to such shares,
except the right to receive payment therefor as aforesaid.

A stockholder shall not be entitled to payment for his shares

under the provisions of this section unless the value of the
corporate assets which would remain after such payment would
be at least equal to the aggregate amount of its debts and
liabilities and the aggregate par value and/or issued value of the
remaining subscribed capital stock.

A copy of the articles of incorporation as amended, duly certified

to be correct by the president and the secretary of the corporation
and a majority of the board of directors or trustees, shall be filed
with the Securities and Exchange Commissioner, who shall attach
the same to the original articles of incorporation, on file in his
office. From the time of filing such copy of the amended articles of
incorporation, the corporation shall have the same powers and it
Page 60 of 77
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and the members and stockholders thereof shall thereafter be

subject to the same liabilities as if such amendment had been
embraced in the original articles of incorporation: Provided,
however, That should the amendment consist in extending the
corporate life, the extension shall not exceed 50 years in any one
instance. Provided, further, That the original articles and amended
articles together shall contain all provisions required by law to be
set out in the articles of incorporation: And provided, further, That
nothing in this section shall be construed to authorize any
corporation to increase or diminish its capital stock or so as to
effect any rights or actions which accrued to others between the
time of filing the original articles of incorporation and the filing of
the amended articles.

The Securities and, Exchange Commissioner shall be entitled to collect and

receive the sum of ten pesos for filing said copy of the amended articles of
incorporation. Provided, however, That when the amendment consists in
extending the term of corporate existence, the Securities and Exchange
Commissioner shall be entitled to collect and receive for the filing of its
amended articles of incorporation the same fees collectible under existing
law for the filing of articles of incorporation. The Securities & Exchange
Commissioner shall not hereafter file any amendment to the articles of
incorporation of any bank, banking institution, or building and loan
association unless accompanied by a certificate of the Monetary Board (of
the Central Bank) to the effect that such amendment is in accordance with
law. (As further amended by Act No. 3610, Sec. 2 and Sec. 9. R.A. No. 337
and R.A. No. 3531.)

It can be gleaned at once that this section does not only authorize
corporations to amend their charter; it also lays down the procedure for such
amendment; and, what is more relevant to the present discussion, it
contains provisos restricting the power to amend when it comes to the term
of their existence and the increase or decrease of the capital stock. There is
no prohibition therein against the change of name. The inference is clear
that such a change is allowed, for if the legislature had intended to enjoin
corporations from changing names, it would have expressly stated so in this
section or in any other provision of the law.

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No doubt, "(the) name (of a corporation) is peculiarly important as

necessary to the very existence of a corporation. The general rule as to
corporations is that each corporation shall have a name by which it is to sue
and be sued and do all legal acts. The name of a corporation in this respect
designates the corporation in the same manner as the name of an individual
designates the person."1 Since an individual has the right to change his
name under certain conditions, there is no compelling reason why a
corporation may not enjoy the same right. There is nothing sacrosanct in a
name when it comes to artificial beings. The sentimental considerations
which individuals attach to their names are not present in corporations and
partnerships. Of course, as in the case of an individual, such change may
not be made exclusively. by the corporation's own act. It has to follow the
procedure prescribed by law for the purpose; and this is what is important
and indispensably prescribed — strict adherence to such procedure.

Local well known corporation law commentators are unanimous in the view
that a corporation may change its name by merely amending its charter in
the manner prescribed by law.2 American authorities which have persuasive
force here in this regard because our corporation law is of American origin,
the same being a sort of codification of American corporate law,3 are of the
same opinion.

A general power to alter or amend the charter of a corporation

necessarily includes the power to alter the name of the
corporation. Ft. Pitt Bldg., etc., Assoc. v. Model Plan Bldg., etc.,
Assoc., 159 Pa. St. 308, 28 Atl. 215; In re Fidelity Mut. Aid
Assoc., 12 W.N.C. (Pa.) 271; Excelsior Oil Co., 3 Pa. Co. Ct. 184;
Wetherill Steel Casting Co., 5 Pa. Co. Ct. 337.

xxx xxx xxx

Under the General Laws of Rhode Island, c 176, sec. 7, relating

to an increase of the capital stock of a corporation, it is provided
that 'such agreement may be amended in any other particular,
excepting as provided in the following section', which relates to a
decrease of the capital stock This section has been held to
authorize a change in the name of a corporation. Armington v.
Palmer, 21 R.I. 109, 42 Atl. 308, 43, L.R.A. 95, 79 Am. St. Rep.
786. (Vol. 19, American and English Annotated Cases, p. 1239.)
Page 62 of 77
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Fletcher, a standard authority on American an corporation law also says:

Statutes are to be found in the various jurisdictions dealing with

the matter of change in corporate names. Such statutes have
been subjected to judicial construction and have, in the main,
been upheld as constitutional. In direct terms or by necessary
implication, they authorize corporations new names and prescribe
the mode of procedure for that purpose. The same steps must be
taken under some statutes to effect a change in a corporate
name, as when any other amendment of the corporate charter is
sought .... When the general law thus deals with the subject, a
corporation can change its name only in the manner provided. (6
Fletcher, Cyclopedia of the Law of Private Corporations, 1968
Revised Volume, pp. 212-213.) (Emphasis supplied)

The learned trial judge held that the above-quoted proposition are not
supported by the weight of authority because they are based on decisions in
cases where the statutes expressly authorize change of corporate name by
amendment of the articles of incorporation. We have carefully examined
these authorities and We are satisfied of their relevance. Even Lord
Denman who has been quoted by His Honor from In Reg. v. Registrar of
Joint Stock Cos. 10, Q.B., 59 E.C.L. maintains merely that the change of its
name never appears to be such an act as the corporation could do for itself,
but required ;the same Power as created a corporation." What seems to
have been overlooked, therefore, is that the procedure prescribes by
Section 18 of our Corporation Law for the amendment of corporate charters
is practically identical with that for the incorporation itself of a corporation.

In the appealed order of dismissal, the trial court, made the observation that,
according to this Court in Red Line Transportation Co. v. Rural Transit Co.,
Ltd., 60 Phil, 549, 555, change of name of a corporation is against public
policy. We must clarify that such is not the import of Our said decision. What
this Court held in that case is simply that:

We know of no law that empowers the Public Service

Commission or any court in this jurisdiction to authorize one
corporation to assume the name of another corporation as a trade
name. Both the Rural Transit Company, Ltd., and the Bachrach
Motor Co., Inc., are Philippine corporations and the very law of
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their creation and continued existence requires each to adopt and

certify a distinctive name. The incorporators 'constitute a body
politic and corporate under the name stated in the certificate.'
(Section 11, Act No. 1459, as amended.) A corporation has the
power 'of succession by its corporate name.'(Section 13, ibid.)
The name of a corporation is therefore essential to its existence. It
cannot change its name except in the manner provided by the
statute. By that name alone is it authorized to transact business.
The law gives a corporation no express or implied authority to
assume another name that is unappropriated; still less that of
another corporation, which is expressly set apart for it and
protected by the law. If any corporation could assume at pleasure
as an unregistered trade name the name of another corporation,
this practice would result in confusion and open the door to frauds
and evasions and difficulties of administration and supervision.
The policy of the law as expressed our corporation statute and the
Code of Commerce is clearly against such a practice. (Cf.
Scarsdale Pub. Co. — Colonial Press vs. Carter, 116 New York
Supplement, 731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn.,
205 Illinois [Appellate Courts], 428, 434.)

In other words, what We have held to be contrary to public policy is the use
by one corporation of the name of another corporation as its trade name.
We are certain no one will disagree that such an act can only "result in
confusion and open the door to frauds and evasions and difficulties of
administration and supervision." Surely, the Red Line case was not one of
change of name.

Neither can We share the posture of His Honor that the change of name of
a corporation results in its dissolution. There is unanimity of authorities to
the contrary.

An authorized change in the name of a corporation has no more

effect upon its identity as a corporation than a change of name of
a natural person has upon his identity. It does not affect the rights
of the corporation or lessen or add to its obligations. After a
corporation has effected a change in its name it should sue and
be sued in its new name .... (13 Am. Jur. 276-277, citing cases.)

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A mere change in the name of a corporation, either by the

legislature or by the corporators or stockholders under legislative
authority, does not, generally speaking, affect the identity of the
corporation, nor in any way affect the rights, privileges, or
obligations previously acquired or incurred by it. Indeed, it has
been said that a change of name by a corporation has no more
effect upon the identity of the corporation than a change of name
by a natural person has upon the identity of such person. The
corporation, upon such change in its name, is in no sense a new
corporation, nor the successor of the original one, but remains
and continues to be the original corporation. It is the same
corporation with a different name, and its character is in no
respect changed. ... (6 Fletcher, Cyclopedia of the Law of Private
Corporations, 224-225, citing cases.)

The change in the name of a corporation has no more effect upon

its identity as a corporation than a change of name of a natural
person has upon his identity. It does not affect the rights of the
corporation, or lessen or add to its obligations.

England. — Doe v. Norton, 11 M. & W. 913, 7 Jur. 751, 12 L. J.

Exch. 418.

United States. — Metropolitan Nat. Bank v. Claggett, 141 U.S.

520, 12 S. Ct. 60, 35 U.S. (L. ed.) 841.

Alabama. — Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17 So.
670; North Birmingham Lumber Co. v. Sims, 157 Ala. 595, 48 So.
84.

Connecticut. — Trinity Church v. Hall, 22 Com. 125.

Illinois. — Mt. Palatine Academy v. Kleinschnitz 28 III, 133; St.

Louis etc. R. Co. v. Miller, 43 Ill. 199; Reading v. Wedder, 66 III.
80.

Indiana. — Rosenthal v. Madison etc., Plank Road Co., 10 Ind.

358.

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Kentucky. — Cahill v. Bigger, 8 B. Mon. 211; Wilhite v. Convent of

Good Shepherd, 177 Ky. 251, 78 S. W. 138.

Maryland. — Phinney v. Sheppard & Enoch Pratt Hospital, 88 Md.

633, 42 Atl. 58, writ of error dismissed, 177 U.S. 170, 20 S. Ct.
573, 44 U.S. (L. ed.) 720.

Missouri. — Dean v. La Motte Lead Co., 59 Mo. 523.

Nebraska. — Carlon v. City Sav. Bank, 82 Neb. 582, 188 N. W.

334. New York First Soc of M.E. Church v. Brownell, 5 Hun 464.

Pennsylvania. — Com. v. Pittsburgh, 41 Pa. St. 278.

South Carolina. — South Carolina Mut Ins. Co. v. Price 67 S.C.

207, 45 S.E. 173.

Virginia. — Wilson v. Chesapeake etc., R. Co., 21 Gratt

654; Wright-Caesar Tobacco Co. v. Hoen, 105 Va. 327, 54 S.E.
309.

Washington. — King v. Ilwaco R. etc., Co., 1 Wash. 127. 23 Pac.

924.

Wisconsin. — Racine Country Bank v. Ayers, 12 Wis. 512.

The fact that the corporation by its old name makes a format
transfer of its property to the corporation by its new name does
not of itself show that the change in name has affected a change
in the identity of the corporation. Palfrey v. Association for Relief,
etc., 110 La. 452, 34 So. 600. The fact that a corporation
organized as a state bank afterwards becomes a national bank by
complying with the provisions of the National Banking Act, and
changes its name accordingly, has no effect on its right to sue
upon obligations or liabilities incurred to it by its former name.
Michigan Ins. Bank v. Eldred 143 U.S. 293, 12 S. Ct. 450, 36 U.S.
(L. ed.) 162.

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A deed of land to a church by a particular name has been held not

to be affected by the fact that the church afterwards took a
different name. Cahill v. Bigger, 8 B. Mon (ky) 211.

A change in the name of a corporation is not a divestiture of title

or such a change as requires a regular transfer of title to property,
whether real or personal, from the corporation under one name to
the same corporation under another name. McCloskey v.
Doherty, 97 Ky. 300, 30 S. W. 649. (19 American and English
Annotated Cases 1242-1243.)

As was very aptly said in Pacific Bank v. De Ro 37 Cal. 538, "The

changing of the name of a corporation is no more the creation of a
corporation than the changing of the name of a natural person is
the begetting of a natural person. The act, in both cases, would
seem to be what the language which we use to designate it
imports — a change of name, and not a change of being.

Having arrived at the above conclusion, We have agree with appellant's

pose that the lower court also erred in holding that it is not the right party in
interest to sue defendants-appellees.4 As correctly pointed out by appellant,
the approval by the stockholders of the amendment of its articles of
incorporation changing the name "The Yek Tong Lin Fire & Marine
Insurance Co., Ltd." to "Philippine First Insurance Co., Inc." on March 8,
1961, did not automatically change the name of said corporation on that
date. To be effective, Section 18 of the Corporation Law, earlier quoted,
requires that "a copy of the articles of incorporation as amended, duly
certified to be correct by the president and the secretary of the corporation
and a majority of the board of directors or trustees, shall be filed with the
Securities & Exchange Commissioner", and it is only from the time of such
filing, that "the corporation shall have the same powers and it and the
members and stockholders thereof shall thereafter be subject to the same
liabilities as if such amendment had been embraced in the original articles
of incorporation." It goes without saying then that appellant rightly acted in
its old name when on May 15, 1961, it entered into the indemnity
agreement, Annex A, with the defendant-appellees; for only after the filing of
the amended articles of incorporation with the Securities & Exchange
Commission on May 26, 1961, did appellant legally acquire its new name;
and it was perfectly right for it to file the present case In that new name on
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December 6, 1961. Such is, but the logical effect of the change of name of
the corporation upon its actions.

Actions brought by a corporation after it has changed its name

should be brought under the new name although for the
enforcement of rights existing at the time the change was
made. Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17 So.
670: Newlan v. Lombard University, 62 III. 195; Thomas v. Visitor
of Frederick County School, 7 Gill & J (Md.) 388; Delaware, etc.,
R. Co. v. Trick, 23 N. J. L. 321; Northumberland Country Bank v.
Eyer, 60 Pa. St. 436; Wilson v. Chesapeake etc., R. Co., 21 Gratt
(Va.) 654.

The change in the name of the corporation does not affect its right
to bring an action on a note given to the corporation under its
former name. Cumberland College v. Ish, 22. Cal.
641; Northwestern College v. Schwagler, 37 Ia. 577. (19
American and English Annotated Cases 1243.)

In consequence, We hold that the lower court erred in dismissing appellant's

complaint. We take this opportunity, however, to express the Court's feeling
that it is apparent that appellee's position is more technical than otherwise.
Nowhere in the record is it seriously pretended that the indebtedness sued
upon has already been paid. If appellees entertained any fear that they
might again be made liable to Yek Tong Lin Fire & Marine Insurance Co.
Ltd., or to someone else in its behalf, a cursory examination of the records
of the Securities & Exchange Commission would have sufficed to clear up
the fact that Yek Tong Lin had just changed its name but it had not ceased
to be their creditor. Everyone should realize that when the time of the courts
is utilized for cases which do not involve substantial questions and the claim
of one of the parties, therein is based on pure technicality that can at most
delay only the ultimate outcome necessarily adverse to such party because
it has no real cause on the merits, grave injustice is committed to
numberless litigants whose meritorious cases cannot be given all the
needed time by the courts. We address this appeal once more to all
members of the bar, in particular, since it is their bounden duty to the
profession and to our country and people at large to help ease as fast as
possible the clogged dockets of the courts. Let us not wait until the people

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resort to other means to secure speedy, just and inexpensive determination

of their cases.

WHEREFORE, judgment of the lower court is reversed, and this case is

remanded to the trial court for further proceedings consistent herewith With
costs against appellees.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro,

Fernando, Teehankee and Villamor, JJ., concur.

G.R. No. 157900 July 22, 2013

ZUELLIG FREIGHT AND CARGO SYSTEMS, Petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION AND RONALDO V. SAN
MIGUEL, Respondents.

DECISION

BERSAMIN, J.:

The mere change in the corporate name is not considered under the law as
the creation of a new corporation; hence, the renamed corporation remains
liable for the illegal dismissal of its employee separated under that guise.

The Case

Petitioner employer appeals the decision promulgated on November 6,

2001,1 whereby the Court of Appeals (CA) dismissed its petition for
certiorari and upheld the adverse decision of the National Labor Relations
Commission (NLRC) finding respondent Ronaldo V. San Miguel to have
been illegally dismissed.

Antecedents

San Miguel brought a complaint for unfair labor practice, illegal dismissal,
non-payment of salaries and moral damages against petitioner, formerly
known as Zeta Brokerage Corporation (Zeta).2 He alleged that he had been
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a checker/customs representative of Zeta since December 16, 1985; that in

January 1994, he and other employees of Zeta were informed that Zeta
would cease operations, and that all affected employees, including him,
would be separated; that by letter dated February 28, 1994, Zeta informed
him of his termination effective March 31, 1994; that he reluctantly accepted
his separation pay subject to the standing offer to be hired to his former
position by petitioner; and that on April 15, 1994, he was summarily
terminated, without any valid cause and due process.

San Miguel contended that the amendments of the articles of incorporation

of Zeta were for the purpose of changing the corporate name, broadening
the primary functions, and increasing the capital stock; and that such
amendments could not mean that Zeta had been thereby dissolved.3

On its part, petitioner countered that San Miguel’s termination from Zeta had
been for a cause authorized by the Labor Code; that its non-acceptance of
him had not been by any means irregular or discriminatory; that its
predecessor-in-interest had complied with the requirements for termination
due to the cessation of business operations; that it had no obligation to
employ San Miguel in the exercise of its valid management prerogative; that
all employees had been given sufficient time to make their decision whether
to accept its offer of employment or not, but he had not responded to its
offer within the time set; that because of his failure to meet the deadline, the
offer had expired; that he had nonetheless been hired on a temporary basis;
and that when it decided to hire another employee instead of San Miguel,
such decision was not arbitrary because of seniority considerations. 4

Decision of the Labor Arbiter

On November 15, 1999, Labor Arbiter Francisco A. Robles rendered a

decision holding that San Miguel had been illegally dismissed,5 to wit:

Contrary to respondents’ claim that Zeta ceased operations and closed its
business, we believe that there was merely a change of business name and
primary purpose and upgrading of stocks of the corporation. Zuellig and
Zeta are therefore legally the same person and entity and this was admitted
by Zuellig’s counsel in its letter to the VAT Department of the Bureau of
Internal Revenue on 08 June 1994 (Reply, Annex "A"). As such, the
termination of complainant’s services allegedly due to cessation of business
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operations of Zeta is deemed illegal. Notwithstanding his receipt of

separation benefits from respondents, complainant is not estopped from
questioning the legality of his dismissal.6

xxxx

WHEREFORE, in view of the foregoing, complainant is found to have been

illegally dismissed. Respondent Zuellig Freight and Cargo Systems, Inc. is
hereby ordered to pay complainant his backwages from April 1, 1994 up to
November 15, 1999, in the amount of THREE HUNDRED TWENTY FOUR
THOUSAND SIX HUNDRED FIFTEEN PESOS (₱324,615.00).

The same respondent is ordered to pay the complainant Ronaldo San

Miguel attorney’s fees equivalent to ten percent (10%) of the total award.

All other claims are dismissed.

SO ORDERED.7

Decision of the NLRC

Petitioner appealed, but the NLRC issued a resolution on April 4,

2001,8 affirming the decision of the Labor Arbiter.

The NLRC later on denied petitioner’s motion for reconsideration via its
resolution dated June 15, 2001.9

Decision of the CA

Petitioner then filed a petition for certiorari in the CA, imputing to the NLRC
grave abuse of discretion amounting to lack or excess of jurisdiction, as
follows:

1. In failing to consider the circumstances attendant to the cessation of

business of Zeta;

2. In failing to consider that San Miguel failed to meet the deadline

Zeta fixed for its employees to accept the offer of petitioner for re-
employment;

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3. In failing to consider that San Miguel’s employment with petitioner

from April 1 to 15, 1994 could in no way be interpreted as a
continuation of employment with Zeta;

4. In admitting in evidence the letter dated January 21, 1994 of

petitioner’s counsel to the Bureau of Internal Revenue; and

5. In awarding attorney’s fees to San Miguel based on Article 2208 of

the Civil Code and Article 111 of the Labor Code.

On November 6, 2002, the CA promulgated its assailed decision dismissing

the petition for certiorari,10 viz:

A careful perusal of the records shows that the closure of business

operation was not validly made. Consider the Certificate of Filing of the
Amended Articles of Incorporation which clearly shows that petitioner Zuellig
is actually the former Zeta as per amendment dated January 21, 1994. The
same observation can be deduced with respect to the Certificate of Filing of
Amended By-Laws dated May 10, 1994. As aptly pointed out by private
respondent San Miguel, the amendment of the articles of incorporation
merely changed its corporate name, broadened its primary purpose and
increased its authorized capital stocks. The requirements contemplated in
Article 283 were not satisfied in this case. Good faith was not established by
mere registration with the Securities and Exchange Commission (SEC) of
the Amended Articles of Incorporation and ByLaws. The factual milleu of the
case, considered in its totality, shows that there was no closure to speak of.
The termination of services allegedly due to cessation of business
operations of Zeta was illegal. Notwithstanding private respondent San
Miguel’s receipt of separation benefits from petitioner Zuellig, the former is
not estopped from questioning the legality of his dismissal.

Petitioner Zuellig’s allegation that the five employees who refused to receive
the termination letters were verbally informed that they had until 6:00 p.m. of
March 1, 1994 to receive the termination letters and sign the employment
contracts, otherwise the former would be constrained to withdraw its offer of
employment and seek for replacements in order to ensure the smooth
operations of the new company from its opening date, is of no moment in
view of the foregoing circumstances. There being no valid closure of
business operations, the dismissal of private respondent San Miguel on
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alleged authorized cause of cessation of business pursuant to Article 283 of

the Labor Code, was utterly illegal. Despite verbal notice that the employees
had until 6:00 p.m. of March 1, 1994 to receive the termination letters and
sign the employment contracts, the dismissal was still illegal for the said
condition is null and void. In point of facts and law, private respondent San
Miguel remained an employee of petitioner Zuellig. If at all, the alleged
closure of business operations merely operates to suspend employment
relation since it is not permanent in character.

Where there is no showing of a clear, valid, and legal cause for the
termination of employment, the law considers the matter a case of illegal
dismissal and the burden is on the employer to prove that the termination
was for a valid or authorized cause.

Findings of facts of the NLRC, particularly when both the NLRC and Labor
Arbiter are in agreement, are deemed binding and conclusive upon the
Supreme Court.

As regards the second and last argument advanced by petitioner Zuellig

that private respondent San Miguel is not entitled to attorney’s fees, this
Court finds no reason to disturb the ruling of the public respondent NLRC.
Petitioner Zuellig maintains that the factual backdraft (sic) of this petition
does not call for the application of Article 2208 of the Civil Code and Article
111 of the Labor Code as private respondent’s wages were not withheld. On
the other hand, public respondent NLRC argues that paragraphs 2 and 3,
Article 2208 of the Civil Code and paragraph (a), Article 111 of the Labor
Code justify the award of attorney’s fees. NLRC was saying to the effect that
by petitioner Zuellig’s act of illegally dismissing private respondent San
Miguel, the latter was compelled to litigate and thus incurred expenses to
protect his interest. In the same passion, private respondent San Miguel
contends that petitioner Zuellig acted in gross and evident bad faith in
refusing to satisfy his plainly valid, just and demandable claim.

After careful and judicious evaluation of the arguments advanced to support

the propriety or impropriety of the award of attorney’s fees to private
respondent San Miguel, this Court finds the resolutions of public respondent
NLRC supported by laws and jurisprudence. It does not need much
imagination to see that by reason of petitioner Zuellig’s feigned closure of
business operations, private respondent San Miguel incurred expenses to
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protect his rights and interests. Therefore, the award of attorney’s fees is in
order.

WHEREFORE, in view of the foregoing, the resolutions dated April 4, 2001

and June 15, 2001 of the National Labor Relations Commission affirming
the November 15, 1999 decision of the Labor

Arbiter in NLRC NCR 05-03639-94 (CA No. 022861-00) are hereby

AFFIRMED and the instant petition for certiorari is hereby DENIED and
ordered DISMISSED.

SO ORDERED.

Hence, petitioner appeals.

Issues

Petitioner asserts that the CA erred in holding that the NLRC did not act with
grave abuse of discretion in ruling that the closure of the business operation
of Zeta had not been bona fide, thereby resulting in the illegal dismissal of
San Miguel; and in holding that the NLRC did not act with grave abuse of
discretion in ordering it to pay San Miguel attorney’s fees.11

In his comment,12 San Miguel counters that the CA correctly found no grave
abuse of discretion on the part of the NLRC because the ample evidence on
record showed that he had been illegally terminated; that such finding
accorded with applicable laws and jurisprudence; and that he was entitled to
back wages and attorney’s fees.

In its reply,13 petitioner reiterates that the cessation of Zeta’s business,

which resulted in the severance of San Miguel from his employment, was
valid; that the CA erred in upholding the NLRC’s finding that San Miguel had
been illegally terminated; that his acknowledgment of the validity of his
separation from Zeta by signing a quitclaim and waiver estopped him from
claiming that it had subsequently employed him; and that the award of
attorney’s fees had no basis in fact and in law.

Ruling

The petition for review on certiorari is denied for its lack of merit.
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First of all, the outcome reached by the CA that the NLRC did not commit
any grave abuse of discretion was borne out by the records of the case. We
cannot undo such finding without petitioner making a clear demonstration to
the Court now that the CA gravely erred in passing upon the petition for
certiorari of petitioner.

Indeed, in a special civil action for certiorari brought against a court or

quasi-judicial body with jurisdiction over a case, petitioner carries the burden
of proving that the court or quasi-judicial body committed not a merely
reversible error but a grave abuse of discretion amounting to lack or excess
of jurisdiction in issuing the impugned order.14Showing mere abuse of
discretion is not enough, for it is necessary to demonstrate that the abuse of
discretion was grave. Grave abuse of discretion means either that the
judicial or quasi-judicial power was exercised in an arbitrary or despotic
manner by reason of passion or personal hostility, or that the respondent
judge, tribunal or board evaded a positive duty, or virtually refused to
perform the duty enjoined or to act in contemplation of law, such as when
such judge, tribunal or board exercising judicial or quasi-judicial powers
acted in a capricious or whimsical manner as to be equivalent to lack of
jurisdiction.15 Under the circumstances, the CA committed no abuse of
discretion, least of all grave, because its justifications were supported by the
records and by the applicable laws and jurisprudence.

Secondly, it is worthy to point out that the Labor Arbiter, the NLRC, and the
CA were united in concluding that the cessation of business by Zeta was not
a bona fide closure to be regarded as a valid ground for the termination of
employment of San Miguel within the ambit of Article 283 of the Labor Code.
The provision pertinently reads:

Article 283. Closure of establishment and reduction of personnel. — The

employer may also terminate the employment of any employee due to the
installation of labor-saving devices, redundancy, retrenchment to prevent
losses or the closing or cessation of operation of the establishment or
undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the workers and the
Department of Labor and Employment at least one (1) month before the
intended date thereof. x x x.

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The unanimous conclusions of the CA, the NLRC and the Labor Arbiter,
being in accord with law, were not tainted with any abuse of discretion, least
of all grave, on the part of the NLRC. Verily, the amendments of the articles
of incorporation of Zeta to change the corporate name to Zuellig Freight and
Cargo Systems, Inc. did not produce the dissolution of the former as a
corporation. For sure, the Corporation Code defined and delineated the
different modes of dissolving a corporation, and amendment of the articles
of incorporation was not one of such modes. The effect of the change of
name was not a change of the corporate being, for, as well stated in
Philippine First Insurance Co., Inc. v. Hartigan:16 "The changing of the name
of a corporation is no more the creation of a corporation than the changing
of the name of a natural person is begetting of a natural person. The act, in
both cases, would seem to be what the language which we use to designate
it imports – a change of name, and not a change of being."

The consequences, legal and otherwise, of the change of name were

similarly dealt with in P.C. Javier & Sons, Inc. v. Court of Appeals, 17 with the
Court holding thusly:

From the foregoing documents, it cannot be denied that petitioner

corporation was aware of First Summa Savings and Mortgage Bank’s
change of corporate name to PAIC Savings and Mortgage Bank, Inc.
Knowing fully well of such change, petitioner corporation has no valid
reason not to pay because the IGLF loans were applied with and obtained
from First Summa Savings and Mortgage Bank. First Summa Savings and
Mortgage Bank and PAIC Savings and Mortgage Bank, Inc., are one and
the same bank to which petitioner corporation is indebted. A change in the
corporate name does not make a new corporation, whether effected by a
special act or under a general law. It has no effect on the identity of the
corporation, or on its property, rights, or liabilities. The corporation, upon to
change in its name, is in no sense a new corporation, nor the successor of
the original corporation. It is the same corporation with a different name, and
its character is in no respect changed. (Bold underscoring supplied for
emphasis)

In short, Zeta and petitioner remained one and the same corporation. The
change of name did not give petitioner the license to terminate employees
of Zeta like San Miguel without just or authorized cause. The situation was
not similar to that of an enterprise buying the business of another company
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where the purchasing company had no obligation to rehire terminated

employees of the latter.18 Petitioner, despite its new name, was the mere
continuation of Zeta's corporate being, and still held the obligation to honor
all of Zeta's obligations, one of which was to respect San Miguel's security
of tenure. The dismissal of San Miguel from employment on the pretext that
petitioner, being a different corporation, had no obligation to accept him as
its employee, was illegal and ineffectual.

And, lastly, the CA rightfully upheld the NLRC's affirmance of the grant of
attorney's fees to San Miguel. Thereby, the NLRC did not commit any grave
abuse of its discretion, considering that San Miguel had been compelled to
litigate and to incur expenses to protect his rights and interest. In Producers
Bank of the Philippines v. Court of Appeals,19the Court ruled that attorney's
fees could be awarded to a party whom an unjustified act of the other party
compelled to litigate or to incur expenses to protect his interest. It was plain
that petitioner's refusal to reinstate San Miguel with backwages and other
benefits to which he had been legally entitled was unjustified, thereby
entitling him to recover attorney's fees.

WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals

promulgated on November 6, 2002; and ORDERS petitioner to pay the
costs of suit.

SO ORDERED.

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