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G.R. No. 84197 July 28, 1989

PIONEER INSURANCE & SURETY CORPORATION, petitioner,vs.THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO),CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents.

G.R. No. 84157 July 28, 1989

JACOB S. LIM, petitioner,vs.COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER MACHINERY and HEAVYEQUIPMENT CO., INC,, FRANCISCO and MODESTO CERVANTES and CONSTANCIO MAGLANA, respondents.

Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.

Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.

Renato J. Robles for BORMAHECO, Inc. and Cervanteses.

Leonardo B. Lucena for Constancio Maglana.

GUTIERREZ,JR., J.:

The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R. CV No. 66195 whichmodified the decision of the then Court of First Instance of Manila in Civil Case No. 66135. The plaintiffs complaint(petitioner in G.R. No. 84197) against all defendants (respondents in G.R. No. 84197) was dismissed but in all otherrespects the trial court's decision was affirmed.

The dispositive portion of the trial court's decision reads as follows:

WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to pay plaintiff theamount of P311,056.02, with interest at the rate of 12% per annum compounded monthly; plus 15% ofthe amount awarded to plaintiff as attorney's fees from July 2,1966, until full payment is made; plusP70,000.00 moral and exemplary damages.

It is found in the records that the cross party plaintiffs incurred additional miscellaneous expenses asidefrom Pl51,000.00,,making a total of P184,878.74. Defendant Jacob S. Lim is further required to pay crossparty plaintiff, Bormaheco, the Cervanteses one-half and Maglana the other half, the amount ofPl84,878.74 with interest from the filing of the cross-complaints until the amount is fully paid; plus moraland exemplary damages in the amount of P184,878.84 with interest from the filing of the cross-complaints until the amount is fully paid; plus moral and exemplary damages in the amount of P50,000.00for each of the two Cervanteses.

Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and anotherP20,000.00 to Constancio B. Maglana as attorney's fees.

xxx xxx xxx

WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against defendants Bormaheco, theCervanteses and Constancio B. Maglana, is dismissed. Instead, plaintiff is required to indemnify thedefendants Bormaheco and the Cervanteses the amount of P20,000.00 as attorney's fees and theamount of P4,379.21, per year from 1966 with legal rate of interest up to the time it is paid.

Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of P20,000.00 asattorney's fees and costs.


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No moral or exemplary damages is awarded against plaintiff for this action was filed in good faith. Thefact that the properties of the Bormaheco and the Cervanteses were attached and that they were requiredto file a counterbond in order to dissolve the attachment, is not an act of bad faith. When a man tries toprotect his rights, he should not be saddled with moral or exemplary damages. Furthermore, the rightsexercised were provided for in the Rules of Court, and it was the court that ordered it, in the exercise of itsdiscretion.

No damage is decided against Malayan Insurance Company, Inc., the third-party defendant, for it onlysecured the attachment prayed for by the plaintiff Pioneer. If an insurance company would be liable for

damages in performing an act which is clearly within its power and which is the reason for its being, thennobody would engage in the insurance business. No further claim or counter-claim for or against anybodyis declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16)

In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of SouthernAir Lines (SAL) a single proprietorship.

On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract(Exhibit A) for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the totalagreed price of US $109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No. PIC-718, arrived in Manilaon June 7,1965 while the other aircraft, arrived in Manila on July 18,1965.

On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as surety executed

and issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the balance price of theaircrafts and spare parts.

It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes(Cervanteses) and Constancio Maglana (respondents in both petitions) contributed some funds used in the purchase ofthe above aircrafts and spare parts. The funds were supposed to be their contributions to a new corporation proposed byLim to expand his airline business. They executed two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favorof Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. Theindemnity agreements stipulated that the indemnitors principally agree and bind themselves jointly and severally toindemnify and hold and save harmless Pioneer from and against any/all damages, losses, costs, damages, taxes,penalties, charges and expenses of whatever kind and nature which Pioneer may incur in consequence of having becomesurety upon the bond/note and to pay, reimburse and make good to Pioneer, its successors and assigns, all sums andamounts of money which it or its representatives should or may pay or cause to be paid or become liable to pay on them

of whatever kind and nature.

On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattelmortgage as security for the latter's suretyship in favor of the former. It was stipulated therein that Lim transfer and conveyto the surety the two aircrafts. The deed (Exhibit D) was duly registered with the Office of the Register of Deeds of the Cityof Manila and with the Civil Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil AeronauticsLaw (Republic Act No. 776), respectively.

Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer paida total sum of P298,626.12.

Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao City.The Cervanteses and Maglana, however, filed a third party claim alleging that they are co-owners of the aircrafts,

On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachmentagainst Lim and respondents, the Cervanteses, Bormaheco and Maglana.

In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were notprivies to the contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to litigation andfor recovery of the sums of money they advanced to Lim for the purchase of the aircrafts in question.

After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaintagainst all other defendants.


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A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were:

xxx xxx xxx

1. Has Pioneer a cause of action against defendants with respect to so much of its obligations to JDA ashas been paid with reinsurance money?

2. If the answer to the preceding question is in the negative, has Pioneer still any claim againstdefendants, considering the amount it has realized from the sale of the mortgaged properties? (Record on

Appeal, p. 359, Annex B of G.R. No. 84157).

In resolving these issues, the trial court made the following findings:

It appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in favor ofJDA, collected the proceeds of such reinsurance in the sum of P295,000, and paid with the said amountthe bulk of its alleged liability to JDA under the said surety bond, it is plain that on this score it no longerhas any right to collect to the extent of the said amount.

On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing defendants for theamount paid to it by the reinsurers, notwithstanding that the cause of action pertains to the latter, Pioneersays: The reinsurers opted instead that the Pioneer Insurance & Surety Corporation shall pursue alonethe case.. . . . Pioneer Insurance & Surety Corporation is representing the reinsurers to recover theamount.' In other words, insofar as the amount paid to it by the reinsurers Pioneer is suing defendants astheir attorney-in-fact.

But in the first place, there is not the slightest indication in the complaint that Pioneer is suing as attorney-in- fact of the reinsurers for any amount. Lastly, and most important of all, Pioneer has no right to instituteand maintain in its own name an action for the benefit of the reinsurers. It is well-settled that an actionbrought by an attorney-in-fact in his own name instead of that of the principal will not prosper, and this isso even where the name of the principal is disclosed in the complaint.

Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must beprosecuted in the name of the real party in interest.' This provision is mandatory. The realparty in interest is the party who would be benefitted or injured by the judgment or is theparty entitled to the avails of the suit.

This Court has held in various cases that an attorney-in-fact is not a real party in interest,that there is no law permitting an action to be brought by an attorney-in-fact. Arroyo v.Granada and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco and Gonzalo, 19 Phil.Rep. 12; Filipinos Industrial Corporation v. San Diego G.R. No. L- 22347,1968, 23 SCRA706, 710-714.

The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected P295,000.00 fromthe reinsurers, the uninsured portion of what it paid to JDA is the difference between the two amounts, orP3,666.28. This is the amount for which Pioneer may sue defendants, assuming that the indemnityagreement is still valid and effective. But since the amount realized from the sale of the mortgagedchattels are P35,000.00 for one of the airplanes and P2,050.00 for a spare engine, or a total of

P37,050.00, Pioneer is still overpaid by P33,383.72. Therefore, Pioneer has no more claim againstdefendants. (Record on Appeal, pp. 360-363).

The payment to the petitioner made by the reinsurers was not disputed in the appellate court. Considering this admittedpayment, the only issue that cropped up was the effect of payment made by the reinsurers to the petitioner. Therefore, thepetitioner's argument that the respondents had no interest in the reinsurance contract as this is strictly between thepetitioner as insured and the reinsuring company pursuant to Section 91 (should be Section 98) of the Insurance Codehas no basis.

In general a reinsurer, on payment of a loss acquires the same rights by subrogation as are acquired insimilar cases where the original insurer pays a loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A.La., 46 F 2nd 925).


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The rules of practice in actions on original insurance policies are in general applicable to actions orcontracts of reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7Ann. Con. 1134).

Hence the applicable law is Article 2207 of the new Civil Code, to wit:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurancecompany for the injury or loss arising out of the wrong or breach of contract complained of, the insurancecompany shall be subrogated to the rights of the insured against the wrongdoer or the person who has

violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss,the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031[1957]) which we subsequently applied in Manila Mahogany Manufacturing Corporation v. Court of Appeals(154 SCRA650 [1987]):

Note that if a property is insured and the owner receives the indemnity from the insurer, it is provided insaid article that the insurer is deemed subrogated to the rights of the insured against the wrongdoer and ifthe amount paid by the insurer does not fully cover the loss, then the aggrieved party is the one entitled torecover the deficiency. Evidently, under this legal provision, the real party in interest with regard to theportion of the indemnity paid is the insurer and not the insured. (Emphasis supplied).

It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer.

Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's complaint as against therespondents for the reason that the petitioner was not the real party in interest in the complaint and, therefore, has nocause of action against the respondents.

Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors should not have been dismissedon the premise that the evidence on record shows that it is entitled to recover from the counter indemnitors. It does not,however, cite any grounds except its allegation that respondent "Maglanas defense and evidence are certainly incredible"(p. 12, Rollo) to back up its contention.

On the other hand, we find the trial court's findings on the matter replete with evidence to substantiate its finding that thecounter-indemnitors are not liable to the petitioner. The trial court stated:

Apart from the foregoing proposition, the indemnity agreement ceased to be valid and effective after theexecution of the chattel mortgage.

Testimonies of defendants Francisco Cervantes and Modesto Cervantes.

Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to issue thebond provided that the same would be mortgaged to it, but this was not possible because the planes werestill in Japan and could not be mortgaged here in the Philippines. As soon as the aircrafts were brought tothe Philippines, they would be mortgaged to Pioneer Insurance to cover the bond, and this indemnityagreement would be cancelled.

The following is averred under oath by Pioneer in the original complaint:

The various conflicting claims over the mortgaged properties have impaired and renderedinsufficient the security under the chattel mortgage and there is thus no other sufficientsecurity for the claim sought to be enforced by this action.

This is judicial admission and aside from the chattel mortgage there is no other security for the claimsought to be enforced by this action, which necessarily means that the indemnity agreement had ceasedto have any force and effect at the time this action was instituted. Sec 2, Rule 129, Revised Rules ofCourt.


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Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on the planes and spareparts, no longer has any further action against the defendants as indemnitors to recover any unpaidbalance of the price. The indemnity agreement was ipso jure extinguished upon the foreclosure of thechattel mortgage. These defendants, as indemnitors, would be entitled to be subrogated to the right ofPioneer should they make payments to the latter. Articles 2067 and 2080 of the New Civil Code of thePhilippines.

Independently of the preceding proposition Pioneer's election of the remedy of foreclosure precludes anyfurther action to recover any unpaid balance of the price.

SAL or Lim, having failed to pay the second to the eight and last installments to JDA and Pioneer assurety having made of the payments to JDA, the alternative remedies open to Pioneer were as providedin Article 1484 of the New Civil Code, known as the Recto Law.

Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial foreclosure andthe instant suit. Such being the case, as provided by the aforementioned provisions, Pioneer shall haveno further action against the purchaser to recover any unpaid balance and any agreement to the contraryis void.' Cruz, et al. v. Filipinas Investment & Finance Corp. No. L- 24772, May 27,1968, 23 SCRA 791,795-6.

The operation of the foregoing provision cannot be escaped from through the contention that Pioneer isnot the vendor but JDA. The reason is that Pioneer is actually exercising the rights of JDA as vendor,

having subrogated it in such rights. Nor may the application of the provision be validly opposed on theground that these defendants and defendant Maglana are not the vendee but indemnitors. Pascual, et al.v. Universal Motors Corporation, G.R. No. L- 27862, Nov. 20,1974, 61 SCRA 124.

The restructuring of the obligations of SAL or Lim, thru the change of their maturity dates dischargedthese defendants from any liability as alleged indemnitors. The change of the maturity dates of theobligations of Lim, or SAL extinguish the original obligations thru novations thus discharging theindemnitors.

The principal hereof shall be paid in eight equal successive three months intervalinstallments, the first of which shall be due and payable 25 August 1965, the remainder ofwhich ... shall be due and payable on the 26th day x x x of each succeeding three monthsand the last of which shall be due and payable 26th May 1967.

However, at the trial of this case, Pioneer produced a memorandum executed by SAL or Lim and JDA,modifying the maturity dates of the obligations, as follows:

The principal hereof shall be paid in eight equal successive three month intervalinstallments the first of which shall be due and payable 4 September 1965, the remainderof which ... shall be due and payable on the 4th day ... of each succeeding months andthe last of which shall be due and payable 4th June 1967.

Not only that, Pioneer also produced eight purported promissory notes bearing maturity dates differentfrom that fixed in the aforesaid memorandum; the due date of the first installment appears as October 15,1965, and those of the rest of the installments, the 15th of each succeeding three months, that of the lastinstallment being July 15, 1967.

These restructuring of the obligations with regard to their maturity dates, effected twice, were donewithout the knowledge, much less, would have it believed that these defendants Maglana (sic). Pioneer'sofficial Numeriano Carbonel would have it believed that these defendants and defendant Maglana knewof and consented to the modification of the obligations. But if that were so, there would have been thecorresponding documents in the form of a written notice to as well as written conformity of thesedefendants, and there are no such document. The consequence of this was the extinguishment of theobligations and of the surety bond secured by the indemnity agreement which was thereby alsoextinguished. Applicable by analogy are the rulings of the Supreme Court in the case of KabankalanSugar Co. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co. v. Hizon David, 45 Phil.532, 538.


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Art. 2079. An extension granted to the debtor by the creditor without the consent of theguarantor extinguishes the guaranty The mere failure on the part of the creditor todemand payment after the debt has become due does not of itself constitute anyextension time referred to herein, (New Civil Code).'

Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co., Ltd., v. Climacom etal. (C.A.) 36 O.G. 1571.

Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same. Consequently,

Pioneer has no more cause of action to recover from these defendants, as supposed indemnitors, what ithas paid to JDA. By virtue of an express stipulation in the surety bond, the failure of JDA to present itsclaim to Pioneer within ten days from default of Lim or SAL on every installment, released Pioneer fromliability from the claim.

Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity.

Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement from hisco-debtors if such payment is made after the obligation has prescribed or became illegal.

These defendants are entitled to recover damages and attorney's fees from Pioneer and its surety byreason of the filing of the instant case against them and the attachment and garnishment of theirproperties. The instant action is clearly unfounded insofar as plaintiff drags these defendants and

defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157).

We find no cogent reason to reverse or modify these findings.

Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.

We now discuss the merits of G.R. No. 84157.

Petitioner Jacob S. Lim poses the following issues:

l. What legal rules govern the relationship among co-investors whose agreement was to do businessthrough the corporate vehicle but who failed to incorporate the entity in which they had chosen to invest?

How are the losses to be treated in situations where their contributions to the intended 'corporation' wereinvested not through the corporate form? This Petition presents these fundamental questions which webelieve were resolved erroneously by the Court of Appeals ('CA'). (Rollo, p. 6).

These questions are premised on the petitioner's theory that as a result of the failure of respondents Bormaheco, SpousesCervantes, Constancio Maglana and petitioner Lim to incorporate, ade factopartnership among them was created, andthat as a consequence of such relationship all must share in the losses and/or gains of the venture in proportion to theircontribution. The petitioner, therefore, questions the appellate court's findings ordering him to reimburse certain amountsgiven by the respondents to the petitioner as their contributions to the intended corporation, to wit:

However, defendant Lim should be held liable to pay his co-defendants' cross-claims in the total amountof P184,878.74 as correctly found by the trial court, with interest from the filing of the cross-complaintsuntil the amount is fully paid. Defendant Lim should pay one-half of the said amount to Bormaheco and

the Cervanteses and the other one-half to defendant Maglana. It is established in the records thatdefendant Lim had duly received the amount of Pl51,000.00 from defendants Bormaheco and Maglanarepresenting the latter's participation in the ownership of the subject airplanes and spare parts (Exhibit58). In addition, the cross-party plaintiffs incurred additional expenses, hence, the total sum of P184,878.74.

We first state the principles.

While it has been held that as between themselves the rights of the stockholders in a defectivelyincorporated association should be governed by the supposed charter and the laws of the state relatingthereto and not by the rules governing partners (Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form a corporation and who carry


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on business under the corporate name occupy the position of partners inter se (Lynch v. Perryman, 119P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where persons associate themselves together underarticles to purchase property to carry on a business, and their organization is so defective as to comeshort of creating a corporation within the statute, they become in legal effect partners inter se, and theirrights as members of the company to the property acquired by the company will be recognized (Smith v.Schoodoc Pond Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). So, wherecertain persons associated themselves as a corporation for the development of land for irrigationpurposes, and each conveyed land to the corporation, and two of them contracted to pay a third thedifference in the proportionate value of the land conveyed by him, and no stock was ever issued in thecorporation, it was treated as a trustee for the associates in an action between them for an accounting,and its capital stock was treated as partnership assets, sold, and the proceeds distributed among them inproportion to the value of the property contributed by each (Shorb v. Beaudry, 56 Cal. 446). However,such a relation does not necessarily exist, for ordinarily persons cannot be made to assume the relationof partners, as between themselves, when their purpose is that no partnership shall exist(London Assur.Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied onlywhen necessary to do justice between the parties; thus, one who takes no part except to subscribe forstock in a proposed corporation which is never legally formed does not become a partner with othersubscribers who engage in business under the name of the pretended corporation, so as to be liable assuch in an action for settlement of the alleged partnership and contribution(Ward v. Brigham, 127 Mass.24). A partnership relation between certain stockholders and other stockholders, who were also directors,will not be implied in the absence of an agreement, so as to make the former liable to contribute forpayment of debts illegally contracted by the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (CorpusJuris Secundum, Vol. 68, p. 464). (Italics supplied).

In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear during the pretrialdespite notification. In his answer, the petitioner denied having received any amount from respondents Bormaheco, theCervanteses and Maglana. The trial court and the appellate court, however, found through Exhibit 58, that the petitionerreceived the amount of P151,000.00 representing the participation of Bormaheco and Atty. Constancio B. Maglana in theownership of the subject airplanes and spare parts. The record shows that defendant Maglana gave P75,000.00 topetitioner Jacob Lim thru the Cervanteses.

It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite hisrepresentations to them. This gives credence to the cross-claims of the respondents to the effect that they were inducedand lured by the petitioner to make contributions to a proposed corporation which was never formed because thepetitioner reneged on their agreement. Maglana alleged in his cross-claim:

... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand hisairline business. Lim was to procure two DC-3's from Japan and secure the necessary certificates ofpublic convenience and necessity as well as the required permits for the operation thereof. Maglanasometime in May 1965, gave Cervantes his share of P75,000.00 for delivery to Lim which Cervantes didand Lim acknowledged receipt thereof. Cervantes, likewise, delivered his share of the undertaking. Lim inan undertaking sometime on or about August 9,1965, promised to incorporate his airline in accordancewith their agreement and proceeded to acquire the planes on his own account. Since then up to the filingof this answer, Lim has refused, failed and still refuses to set up the corporation or return the money ofMaglana. (Record on Appeal, pp. 337-338).

while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-claim and third partycomplaint:

Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase twoairplanes and spare parts from Japan which the latter considered as their lawful contribution andparticipation in the proposed corporation to be known as SAL. Arrangements and negotiations wereundertaken by defendant Lim. Down payments were advanced by defendants Bormaheco and theCervanteses and Constancio Maglana (Exh. E- 1). Contrary to the agreement among the defendants,defendant Lim in connivance with the plaintiff, signed and executed the alleged chattel mortgage andsurety bond agreement in his personal capacity as the alleged proprietor of the SAL. The answeringdefendants learned for the first time of this trickery and misrepresentation of the other, Jacob Lim, whenthe herein plaintiff chattel mortgage (sic) allegedly executed by defendant Lim, thereby forcing them to filean adverse claim in the form of third party claim. Notwithstanding repeated oral demands made bydefendants Bormaheco and Cervanteses, to defendant Lim, to surrender the possession of the twoplanes and their accessories and or return the amount advanced by the former amounting to an


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aggregate sum of P 178,997.14 as evidenced by a statement of accounts, the latter ignored, omitted andrefused to comply with them. (Record on Appeal, pp. 341-342).

Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership wascreated among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposedcorporation. The record shows that the petitioner was acting on his own and not in behalf of his other would-beincorporators in transacting the sale of the airplanes and spare parts.

WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.

Feliciano, J., took no part.


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G.R. No. 161026 October 24, 2005

HYATT ELEVATORS AND ESCALATORS CORPORATION,Petitioner,vs.GOLDSTAR ELEVATORS, PHILS., INC.,*Respondent.

D E C I S I O N

PANGANIBAN, J.:

ell established in our jurisprudence is the rule that the residenceof a corporation is the place where its principaloffice is located, as stated in its Articles of Incorporation.

The Case

Before us is a Petition for Review1on Certiorari, under Rule 45 of the Rules of Court, assailing the June 26, 2003Decision2and the November 27, 2003 Resolution3of the Court of Appeals (CA) in CA-GR SP No. 74319. Thedecretal portion of the Decision reads as follows:

"WHEREFORE, in view of the foregoing, the assailed Orders dated May 27, 2002 and October 1, 2002 of the RTC,Branch 213, Mandaluyong City in Civil Case No. 99-600, are hereby SET ASIDE. The said case is hereby

ordered DISMISSED on the ground of improper venue."4

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

The relevant facts of the case are summarized by the CA in this wise:

"Petitioner [herein Respondent] Goldstar Elevator Philippines, Inc. (GOLDSTAR for brevity) is a domesticcorporation primarily engaged in the business of marketing, distributing, selling, importing, installing, andmaintaining elevators and escalators, with address at 6th Floor, Jacinta II Building, 64 EDSA, Guadalupe, MakatiCity.

"On the other hand, private respondent [herein petitioner] Hyatt Elevators and Escalators Company (HYATT forbrevity) is a domestic corporation similarly engaged in the business of selling, installing and maintaining/servicingelevators, escalators and parking equipment, with address at the 6th Floor, Dao I Condominium, Salcedo St.,Legaspi Village, Makati, as stated in its Articles of Incorporation.

"On February 23, 1999, HYATT filed a Complaint for unfair trade practices and damages under Articles 19, 20 and21 of the Civil Code of the Philippines against LG Industrial Systems Co. Ltd. (LGISC) and LG InternationalCorporation (LGIC), alleging among others, that: in 1988, it was appointed by LGIC and LGISC as the exclusivedistributor of LG elevators and escalators in the Philippines under a Distributorship Agreement; x x x LGISC, in thelatter part of 1996, made a proposal to change the exclusive distributorship agency to that of a joint venturepartnership; while it looked forward to a healthy and fruitful negotiation for a joint venture, however, the various

meetings it had with LGISC and LGIC, through the latters representatives, were conducted in utmost bad faith andwith malevolent intentions; in the middle of the negotiations, in order to put pressures upon it, LGISC and LGICterminated the Exclusive Distributorship Agreement; x x x [A]s a consequence, [HYATT] sufferedP120,000,000.00as actual damages, representing loss of earnings and business opportunities, P20,000,000.00 as damages for itsreputation and goodwill, P1,000,000.00 as and by way of exemplary damages, andP500,000.00 as and by way ofattorneys fees.

"On March 17, 1999, LGISC and LGIC filed a Motion to Dismiss raising the following grounds: (1) lack of jurisdictionover the persons of defendants, summons not having been served on its resident agent; (2) improper venue; and (3)failure to state a cause of action. The [trial] court denied the said motion in an Order dated January 7, 2000.
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"On March 6, 2000, LGISC and LGIC filed an Answer with Compulsory Counterclaim ex abundante cautela.Thereafter, they filed a Motion for Reconsideration and to Expunge Complaint which was denied.

"On December 4, 2000, HYATT filed a motion for leave of court to amend the complaint, alleging that subsequent tothe filing of the complaint, it learned that LGISC transferred all its organization, assets and goodwill, as aconsequence of a joint venture agreement with Otis Elevator Company of the USA, to LG Otis Elevator Company(LG OTIS, for brevity). Thus, LGISC was to be substituted or changed to LG OTIS, its successor-in-interest.Likewise, the motion averred that x x x GOLDSTAR was being utilized by LG OTIS and LGIC in perpetrating theirunlawful and unjustified acts against HYATT. Consequently, in order to afford complete relief, GOLDSTAR was to

be additionally impleaded as a party-defendant. Hence, in the Amended Complaint, HYATT impleaded x x xGOLDSTAR as a party-defendant, and all references to LGISC were correspondingly replaced with LG OTIS.

"On December 18, 2000, LG OTIS (LGISC) and LGIC filed their opposition to HYATTs motion to amend thecomplaint. It argued that: (1) the inclusion of GOLDSTAR as party-defendant would lead to a change in the theory ofthe case since the latter took no part in the negotiations which led to the alleged unfair trade practices subject of thecase; and (b) HYATTs move to amend the complaint at that time was dilatory, considering that HYATT was awareof the existence of GOLDSTAR for almost two years before it sought its inclusion as party-defendant.

"On January 8, 2001, the [trial] court admitted the Amended Complaint. LG OTIS (LGISC) and LGIC filed a motionfor reconsideration thereto but was similarly rebuffed on October 4, 2001.

"On April 12, 2002, x x x GOLDSTAR filed a Motion to Dismiss the amended complaint, raising the followinggrounds: (1) the venue was improperly laid, as neither HYATT nor defendants reside in Mandaluyong City, wherethe original case was filed; and (2) failure to state a cause of action against [respondent], since the amendedcomplaint fails to allege with certainty what specific ultimate acts x x x Goldstar performed in violation of x x x Hyattsrights. In the Order dated May 27, 2002, which is the main subject of the present petition, the [trial] court denied themotion to dismiss, ratiocinating as follows:

Upon perusal of the factual and legal arguments raised by the movants-defendants, the court finds that these aresubstantially the same issues posed by the then defendant LG Industrial System Co. particularly the matter dealing[with] the issues of improper venue, failure to state cause of action as well as this courts lack of jurisdiction. Underthe circumstances obtaining, the court resolves to rule that the complaint sufficiently states a cause of action andthat the venue is properly laid. It is significant to note that in the amended complaint, the same allegations areadopted as in the original complaint with respect to the Goldstar Philippines to enable this court to adjudicate acomplete determination or settlement of the claim subject of the action it appearing preliminarily as sufficientlyalleged in the plaintiffs pleading that said Goldstar Elevator Philippines Inc., is being managed and operated by thesame Korean officers of defendants LG-OTIS Elevator Company and LG International Corporation.

"On June 11, 2002, [Respondent] GOLDSTAR filed a motion for reconsideration thereto. On June 18, 2002, withoutwaiving the grounds it raised in its motion to dismiss, [it] also filed an Answer Ad Cautelam. On October 1, 2002,[its] motion for reconsideration was denied.

"From the aforesaid Order denying x x x Goldstars motion for reconsideration, it filed the x x x petition for certiorari[before the CA] alleging grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the [trial]court in issuing the assailed Orders dated May 27, 2002 and October 1, 2002."5

Ruling of the Court of Appeals

The CA ruled that the trial court had committed palpable error amounting to grave abuse of discretion when thelatter denied respondents Motion to Dismiss. The appellate court held that the venue was clearly improper, becausenone of the litigants "resided" in Mandaluyong City, where the case was filed.

According to the appellate court, since Makati was the principal place of business of both respondent and petitioner,as stated in the latters Articles of Incorporation, that place was controlling for purposes of determining the propervenue. The fact that petitioner had abandoned its principal office in Makati years prior to the filing of the originalcase did not affect the venue where personal actions could be commenced and tried.
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Hence, this Petition.6

The Issue

In its Memorandum, petitioner submits this sole issue for our consideration:

"Whether or not the Court of Appeals, in reversing the ruling of the Regional Trial Court, erred as a matter of lawand jurisprudence, as well as committed grave abuse of discretion, in holding that in the light of the peculiar facts ofthis case, venue was improper[.]"7

This Courts Ruling

The Petition has no merit.

Sole Issue:

Venue

The resolution of this case rests upon a proper understanding of Section 2 of Rule 4 of the 1997 Revised Rules ofCourt:

"Sec. 2. Venue of personal actions.All other actions may be commenced and tried where the plaintiff or any of theprincipal plaintiff resides, or where the defendant or any of the principal defendant resides, or in the case of a non-resident defendant where he may be found, at the election of the plaintiff."

Since both parties to this case are corporations, there is a need to clarify the meaning of "residence." The lawrecognizes two types of persons: (1) natural and (2) juridical. Corporations come under the latter in accordance with

Article 44(3) of the Civil Code.8

Residence is the permanent home -- the place to which, whenever absent for business or pleasure, one intends toreturn.9Residence is vital when dealing with venue.10A corporation, however, has no residence in the same sensein which this term is applied to a natural person. This is precisely the reason why the Court in Young Auto SupplyCompany v. Court of Appeals11ruled that "for practical purposes, a corporation is in a metaphysical sense a residen

of the place where its principal office is located as stated in the articles of incorporation. "12Even before this ruling, ithas already been established that the residence of a corporation is the place where its principal office isestablished.13

This Court has also definitively ruled that for purposes of venue, the term "residence" is synonymous with"domicile."14Correspondingly, the Civil Code provides:

"Art. 51. When the law creating or recognizing them, or any other provision does not fix the domicile of juridicalpersons, the same shall be understood to be the place where their legal representation is established or where theyexercise their principal functions."15

It now becomes apparent that the residence or domicile of a juridical person is fixed by "the law creating or

recognizing" it. Under Section 14(3) of the Corporation Code, the place where the principal office of the corporationis to be located is one of the required contents of the articles of incorporation, which shall be filed with the Securitiesand Exchange Commission (SEC).

In the present case, there is no question as to the residence of respondent. What needs to be examined is that ofpetitioner. Admittedly,16the latters principal place of business is Makati, as indicated in its Articles of Incorporation.Since the principal place of business of a corporation determines its residence or domicile, then the place indicatedin petitioners articles of incorporation becomes controlling in determining the venue for this case.

Petitioner argues that the Rules of Court do not provide that when the plaintiff is a corporation, the complaint shouldbe filed in the location of its principal office as indicated in its articles of incorporation.17Jurisprudence has, however,settled that the place where the principal office of a corporation is located, as stated in the articles, indeed
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establishes its residence.18This ruling is important in determining the venue of an action by or against acorporation,19as in the present case.

Without merit is the argument of petitioner that the locality stated in its Articles of Incorporation does not conclusivelyindicate that its principal office is still in the same place. We agree with the appellate court in its observation that therequirement to state in the articles the place where the principal office of the corporation is to be located "is not ameaningless requirement. That proviso would be rendered nugatory if corporations were to be allowed to simplydisregard what is expressly stated in their Articles of Incorporation."20

Inconclusive are the bare allegations of petitioner that it had closed its Makati office and relocated to MandaluyongCity, and that respondent was well aware of those circumstances. Assuming arguendothat they transactedbusiness with each other in the Mandaluyong office of petitioner, the fact remains that, in law, the latters residencewas still the place indicated in its Articles of Incorporation. Further unacceptable is its faulty reasoning that theground for the CAs dismissal of its Complaint was its failure to amend its Articles of Incorporation so as to reflect itsactual and present principal office. The appellate court was clear enough in its ruling that the Complaint wasdismissed because the venue had been improperly laid, not because of the failure of petitioner to amend the latters

Articles of Incorporation.

Indeed, it is a legal truism that the rules on the venue of personal actions are fixed for the convenience of theplaintiffs and their witnesses. Equally settled, however, is the principle that choosing the venue of an action is notleft to a plaintiffs caprice; the matter is regulated by the Rules of Court.21Allowing petitioners arguments may lead

precisely to what this Court was trying to avoid in Young Auto Supply Company v. CA:

22

the creation of confusionand untold inconveniences to party litigants. Thus enunciated the CA:

"x x x. To insist that the proper venue is the actual principal office and not that stated in its Articles of Incorporationwould indeed create confusion and work untold inconvenience. Enterprising litigants may, out of some ulteriormotives, easily circumvent the rules on venue by the simple expedient of closing old offices and opening new onesin another place that they may find well to suit their needs."23

We find it necessary to remind party litigants, especially corporations, as follows:

"The rules on venue, like the other procedural rules, are designed to insure a just and orderly administration ofjustice or the impartial and evenhanded determination of every action and proceeding. Obviously, this objective willnot be attained if the plaintiff is given unrestricted freedom to choose the court where he may file his complaint orpetition.

"The choice of venue should not be left to the plaintiffs whim or caprice. He may be impelled by some ulteriormotivation in choosing to file a case in a particular court even if not allowed by the rules on venue."24

WHEREFORE, the Petition is hereby DENIED,and the assailed Decision and Resolution AFFIRMED. Costs againspetitioner.

SO ORDERED.
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G.R. No. L-23606 July 29, 1968

ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC., petitioner,vs.SECURITIES & EXCHANGE COMMISSION,respondent.

Gamboa and Gamboa for petitioner.Office of the Solicitor General for respondent.

SANCHEZ, J .:

To the question May a corporation extend its life by amendment of its articles of incorporation effected during thethree-year statutory period for liquidation when its original term of existence had already expired? the answer ofthe Securities and Exchange Commissioner was in the negative. Offshoot is this appeal.

That problem emerged out of the following controlling facts:

Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter referred to simply asAlhambra)was duly incorporated under Philippine laws on January 15, 1912. By its corporate articles it was to exist for fifty (50)years from incorporation. Its term of existence expired on January 15, 1962. On that date, it ceased transactingbusiness, entered into a state of liquidation.

Thereafter, a new corporation. Alhambra Industries, Inc. was formed to carry on the business of Alhambra.

On May 1, 1962, Alhambra's stockholders, by resolution named Angel S. Gamboa trustee to take charge of itsliquidation.

On June 20, 1963 within Alhambra's three-year statutory period for liquidation - Republic Act 3531 was enactedinto law. It amended Section 18 of the Corporation Law; it empowered domestic private corporations to extend theircorporate life beyond the period fixed by the articles of incorporation for a term not to exceed fifty years in any oneinstance. Previous to Republic Act 3531, the maximum non-extendible term of such corporations was fifty years.

On July 15, 1963, at a special meeting, Alhambra's board of directors resolved to amend paragraph "Fourth" of its

articles of incorporation to extend its corporate life for an additional fifty years, or a total of 100 years from itsincorporation.

On August 26, 1963, Alhambra's stockholders, representing more than two-thirds of its subscribed capital stock,voted to approve the foregoing resolution. The "Fourth" paragraph of Alhambra's articles of incorporation was thusaltered to read:

FOURTH. That the term for which said corporation is to exist is fifty (50) years from and after the date ofincorporation, and for an additional period of fifty (50) years thereafter.

On October 28, 1963, Alhambra's articles of incorporation as so amended certified correct by its president andsecretary and a majority of its board of directors, were filed with respondent Securities and Exchange Commission

(SEC).

On November 18, 1963, SEC, however, returned said amended articles of incorporation to Alhambra's counsel withthe ruling that Republic Act 3531 "which took effect only on June 20, 1963, cannot be availed of by the saidcorporation, for the reason that its term of existence had already expired when the said law took effect in short, saidlaw has no retroactive effect."

On December 3, 1963, Alhambra's counsel sought reconsideration of SEC's ruling aforesaid, refiled the amendedarticles of incorporation.

On September 8, 1964, SEC, after a conference hearing, issued an order denying the reconsideration sought.


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Alhambra now invokes the jurisdiction of this Court to overturn the conclusion below.1

1. Alhambra relies on Republic Act 3531, which amended Section 18 of the Corporation Law. Well it is to take noteof the old and the new statutes as they are framed. Section 18, prior to and after its modification by Republic Act3531, covers the subject of amendment of the articles of incorporation of private corporations. A provision thereofwhich remains unaltered is that a corporation may amend its articles of incorporation "by a majority vote of its boardof directors or trustees and ... by the vote or written assent of the stockholders representing at least two-thirds of thesubscribed capital stock ... "

But prior to amendment by Republic Act 3531, an explicit prohibition existed in Section 18, thus:

... Provided, however, That the life of said corporation shall not be extended by said amendment beyond thetime fixed in the original articles: ...

This was displaced by Republic Act 3531 which enfranchises all private corporations to extend their corporateexistence. Thus incorporated into the structure of Section 18 are the following:

... Provided, however, That should the amendment consist in extending the corporate life, the extensionshall not exceed fifty years in any one instance: Provided, further, That the original articles, and amendedarticles together shall contain all provisions required by law to be set out in the articles of incorporation: ...

As we look in retrospect at the facts, we find these: From July 15 to October 28, 1963, when Alhambra made itsattempt to extend its corporate existence, its original term of fifty years had already expired (January 15, 1962); itwas in the midst of the three-year grace period statutorily fixed in Section 77 of the Corporation Law, thus: .

SEC. 77. Every corporation whose charter expires by its own limitation or is annulled by forfeiture orotherwise, or whose corporate existence for other purposes is terminated in any other manner, shallnevertheless be continued as a body corporate for three years after the time when it would have been sodissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually tosettle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the

purpose of continuing the business for which it was established.2

Plain from the language of the provision is its meaning: continuance of a "dissolved" corporation as a body

corporate for three years has for its purpose the final closure of its affairs, and no other;the corporation isspecifically enjoined from "continuing the business for which it was established". The liquidation of the corporation'saffairs set forth in Section 77 became necessary precisely because its life had ended. For this reason alone, thecorporate existence and juridical personality of that corporation to do business may no longer be extended.

Worth bearing in mind, at this juncture, is the basic development of corporation law.

The common law rule, at the beginning, was rigid and inflexible in that upon its dissolution, a corporation becamelegally dead for all purposes. Statutory authorizations had to be provided for its continuance after dissolution "forlimited and specified purposes incident to complete liquidation of its affairs".3Thus, the moment a corporation's rightto exist as an "artificial person" ceases, its corporate powers are terminated "just as the powers of a natural personto take part in mundane affairs cease to exist upon his death".4There is nothing left but to conduct, as it were, thesettlement of the estate of a deceased juridical person.

2. Republic Act 3531, amending Section 18 of the Corporation Law, is silent, it is true, as to when such act ofextension may be made. But even with a superficial knowledge of corporate principles, it does not take much effortto reach a correct conclusion. For, implicit in Section 77 heretofore quoted is that the privilege giventoprolongcorporate life under the amendment must be exercised before the expiry of the term fixed in the articles ofincorporation.

Silence of the law on the matter is not hard to understand. Specificity is not really necessary. The authority toprolong corporate life was inserted by Republic Act 3531 into a section of the law that deals with the power of acorporation to amendits articles of incorporation. (For, the manner of prolongation is through an amendment of the


16/33

articles.) And it should be clearly evident that under Section 77 no corporation in a state of liquidation can act in anyway, much less amend its articles, "for the purpose of continuing the business for which it was established".

All these dilute Alhambra's position that it could revivify its corporate life simply because when it attempted to do so,Alhambra was still in the process of liquidation. It is surely impermissible for us to stretch the law that merelyempowers a corporation to act in liquidation to inject therein the power to extend its corporate existence.

3. Not that we are alone in this view. Fletcher has written: "Since the privilege of extension is purely statutory, all ofthe statutory conditions precedent must be complied with in order that the extension may be effectuated. And,

generally these conditions must be complied with, and the steps necessary to effect the extension must betaken,during the life of the corporation, and before the expiration of the term of existence as original fixed by itscharter or the general law, since, as a rule, the corporation is ipso facto dissolved as soon as that time expires. Sowhere the extension is by amendment of the articles of incorporation, the amendment must be adopted before thattime. And, similarly, the filing and recording of a certificate of extension after that time cannot relate back to the dateof the passage of a resolution by the stockholders in favor of the extension so as to save the life of the corporation.The contrary is true, however, and the doctrine of relation will apply, where the delay is due to the neglect of theofficer with whom the certificate is required to be filed, or to a wrongful refusal on his part to receive it. And statutesin some states specifically provide that a renewal may be had within a specified time before or after the time fixedfor the termination of the corporate existence".5

The logic of this position is well expressed in a foursquare case decided by the Court of Appeals of

Kentucky.

6

There, pronouncement was made as follows:

... But section 561 (section 2147) provides that, when any corporation expires by the terms of its articles ofincorporation, it may be thereafter continued to act for the purpose of closing up its business, but for noother purpose. The corporate life of the Home Building Association expired on May 3, 1905. After that date,by the mandate of the statute, it could continue to act for the purpose of closing up its business, but for noother purpose. The proposed amendment was not made until January 16, 1908, or nearly three years afterthe corporation expired by the terms of the articles of incorporation. When the corporate life of thecorporation was ended, there was nothing to extend.Here it was proposed nearly three years after thecorporate life of the association had expired to revivify the dead body, and to make that relate back sometwo years and eight months. In other words, the association for two years and eight months had only existedfor the purpose of winding up its business, and, after this length of time, it was proposed to revivify it andmake it a live corporation for the two years and eight months daring which it had not been such.

The law gives a certain length of time for the filing of records in this court, and provides that the time may beextended by the court, but under this provision it has uniformly been held that when the time was expired,there is nothing to extend, and that the appeal must be dismissed... So, when the articles of a corporationhave expired, it is too late to adopt an amendment extending the life of a corporation; for, the corporationhaving expired, this is in effect to create a new corporation ..."7

True it is, that the Alabama Supreme Court has stated in one case.8that a corporation empowered by statutetorenewits corporate existence may do so even after the expiration of its corporate life, provided renewal is takenadvantage of within the extended statutory period for purposes of liquidation. That ruling, however, is inherentlyweak as persuasive authority for the situation at bar for at least two reasons: First. That case was a suit formandamus to compel a former corporate officer to turn over books and records that came into his possession and

control by virtue of his office. It was there held that such officer was obliged to surrender his books and records evenif the corporation had already expired. The holding on the continued existence of the corporation was a meredictum. Second. Alabama's law is different. Corporations in that state were authorized not only to extend but alsoto renewtheir corporate existence.That very casedefined the word "renew" as follows; "To make new again; torestore to freshness; to make new spiritually; to regenerate; to begin again; to recommence; to resume; to restore toexistence, to revive; to re-establish; to recreate; to replace; to grant or obtain an extension of Webster's NewInternational Dict.; 34 Cyc. 1330; Carter v. Brooklyn Life Ins. Co., 110 N.Y. 15, 21, 22, 17 N.E. 396; 54 C.J. 379.Sec".9

On this point, we again draw from Fletcher: "There is a broad distinction between the extension of a charter and thegrant of a new one. To renew a charter is to revive a charter which has expired, or, in other words, "to give a newexistence to one which has been forfeited, or which has lost its vitality by lapse of time". To "extend" a charter is "to


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increase the time for the existence of one which would otherwise reach its limit at an earlier period". 10Nowhere in ourstatute Section 18, Corporation Law, as amended by Republic Act 3531 do we find the word "renew" inreference to the authority given to corporations to protract their lives. Our law limits itself to extensionof corporateexistence. And, as so understood, extension may be made onlybefore the term provided in the corporate charterexpires.

Alhambra draws attention to another case11which declares that until the end of the extended period for liquidation, adissolved corporation "does not become an extinguished entity". But this statement was obviously lifted out ofcontext. That case dissected the question whether or not suits can be commenced by or against a corporation within

its liquidation period. Which was answered in the affirmative. For, the corporation still exists for the settlement of itsaffairs.

People, ex rel. vs. Green,12also invoked by Alhambra, is as unavailing. There, although the corporation amended itsarticles to extend its existence at a time when it had no legal authority yet, it adopted the amended articles later onwhen it had the power to extend its life and during its original term when it could amend its articles.

The foregoing notwithstanding, Alhambra falls back on the contention that its case is arguably within the purview ofthe law. It says that before cessation of its corporate life, it could not have extended the same, for the simple reasonthat Republic Act 3531 had not then become law. It must be remembered that Republic Act 3531 took effect onJune 20, 1963, while the original term of Alhambra's existence expired before that date on January 15, 1962. Themischief that flows from this theory is at once apparent. It would certainly open the gates for all defunct corporations

whose charters have expired even long before Republic Act 3531 came into being to resuscitate theircorporate existence.

4. Alhambra brings into argument Republic Act 1932, which amends Section 196 of the Insurance Act, now readingas follows: 1wph1.t

SEC. 196. Any provision of law to the contrary notwithstanding, every domestic life insurance corporation,formed for a limited period under the provisions of its articles of incorporation, may extend its corporateexistence for a period not exceeding fifty years in any one instance by amendment to its articles ofincorporation on or before the expiration of the term so fixed in said articles ...

To be observed is that the foregoing statute unlike Republic Act 3531 expressly authorizes domestic insurancecorporations to extend their corporate existence "on or before the expiration of the term" fixed in their articles ofincorporation. Republic Act 1932 was approved on June 22, 1957, long before the passage of Republic Act 3531 in1963. Congress, Alhambra points out, must have been aware of Republic Act 1932 when it passed Republic Act3531. Since the phrase "on or before", etc., was omitted in Republic Act 3531, which contains no similar limitation, itfollows, according to Alhambra, that it is not necessary to extend corporate existence on or before the expiration ofits original term.

That Republic Act 3531 stands mute as to when extention of corporate existence may be made, assumes norelevance. We have already said, in the face of a familiar precept, that a defunct corporation is bereft of any legalfaculty not otherwise expressly sanctioned by law.

Illuminating here is the explanatory note of H.B. 1774, later Republic Act 3531 now in dispute. Its first paragraphstates that "Republic Act No. 1932 allows the automatic extension of the corporate existence of domestic life

insurance corporations upon amendment of their articles of incorporation on or before the expiration of the termsfixed by said articles". The succeeding lines are decisive: "This is a good law, a sane and sound one.There appearsto be no valid reason why it should not be made to apply to other private corporations .13

The situation here presented is not one where the law under consideration is ambiguous, where courts have to putin harness extrinsic aids such as a look at another statute to disentangle doubts. It is an elementary rule in legalhermeneutics that where the terms of the law are clear, no statutory construction may be permitted. Upon the basicconceptual scheme under which corporations operate, and with Section 77 of the Corporation Law particularly inmind, we find no vagueness in Section 18, as amended by Republic Act 3531. As we view it, by directing attentionto Republic Act 1932, Alhambra would seek to create obscurity in the law; and, with that, ask of us a ruling that suchobscurity be explained. This, we dare say, cannot be done.


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Thepari materiarule of statutory construction, in fact, commands that statutes must be harmonized with eachother.14So harmonizing, the conclusion is clear that Section 18 of the Corporation Law, as amended by Republic

Act 3531 in reference to extensions of corporate existence, is to be read in the same light as Republic Act 1932.Which means that domestic corporations in general, as with domestic insurance companies, can extend corporateexistence only on or before the expiration of the term fixed in their charters.

5. Alhambra pleads for munificence in interpretation, one which brushes technicalities aside. Bases for this postureare that Republic Act 3531 is a remedial statute, and that extension of corporate life is beneficial to the economy.

Alhambra's stance does not induce assent. Expansive construction is possible only whenthere is something toexpand. At the time of the passage of Republic Act 3531, Alhambra's corporate life had already expired. It hadoverstepped the limits of its limited existence. No life there is to prolong.

Besides, a new corporation Alhambra Industries, Inc., with but slight change in stockholdings15has alreadybeen established. Its purpose is to carry on, and it actually does carry on,16the business of the dissolved entity. Thebeneficial-effects argument is off the mark.

The way the whole case shapes up then, the only possible drawbacks of Alhambra might be that, instead of the newcorporation (Alhambra Industries, Inc.) being written off, the old one (Alhambra Cigar & Cigarette ManufacturingCompany, Inc.) has to be wound up; and that the old corporate name cannot be retained fully in its exactform.17What is important though is that the wordAlhambra,the name that counts [it has goodwill], remains.

FOR THE REASONS GIVEN, the ruling of the Securities and Exchange Commission of November 18, 1963, and itsorder of September 8, 1964, both here under review, are hereby affirmed.

Costs against petitioner Alhambra Cigar & Cigarette Manufacturing Company, Inc. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Angeles and Fernando, JJ., concur.

Footnotes


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G.R. No. 148830. April 13, 2005

NATIONAL HOUSING AUTHORITY,Petitioners,vs.COURT OF APPEALS, BULACAN GARDEN CORPORATION and MANILA SEEDLING BANK FOUNDATION,INC.,Respondents.

D E C I S I O N

CARPIO, J.:

The Case

This is a petition for review1seeking to set aside the Decision2dated 30 March 2001 of the Court of Appeals("appellate court") in CA-G.R. CV No. 48382, as well as its Resolution dated 25 June 2001 denying the motion forreconsideration. The appellate court reversed the Decision3of Branch 87 of the Regional Trial Court of Quezon City("trial court") dated 8 March 1994 in Civil Case No. Q-53464. The trial court dismissed the complaint for injunctionfiled by Bulacan Garden Corporation ("BGC") against the National Housing Authority ("NHA"). BGC wanted to enjointhe NHA from demolishing BGCs facilities on a lot leased from Manila Seedling Bank Foundation, Inc. ("MSBF").MSBF allegedly has usufructuary rights over the lot leased to BGC.

Antecedent Facts

On 24 October 1968, Proclamation No. 481 issued by then President Ferdinand Marcos set aside a 120-hectareportion of land in Quezon City owned by the NHA4as reserved property for the site of the National GovernmentCenter ("NGC"). On 19 September 1977, President Marcos issued Proclamation No. 1670, which removed a seven-hectare portion from the coverage of the NGC. Proclamation No. 1670 gave MSBF usufructuary rights over thissegregated portion, as follows:

Pursuant to the powers vested in me by the Constitution and the laws of the Philippines, I, FERDINAND E.MARCOS, President of the Republic of the Philippines, do hereby exclude from the operation of Proclamation No.481, dated October 24, 1968, which established the National Government Center Site, certain parcels of landembraced therein and reserving the same for the Manila Seedling Bank Foundation, Inc., for use in its operation and

projects, subjectto private rights if any there be, and to future survey, under the administration of theFoundation.

This parcel of land, which shall embrace 7 hectares, shall be determined by the futuresurvey based on thetechnical descriptions found in Proclamation No. 481, and most particularly on the original survey of the area, datedJuly 1910 to June 1911, and on the subdivision survey dated April 19-25, 1968. (Emphasis added)

MSBF occupied the area granted by Proclamation No. 1670. Over the years, MSBFs occupancy exceeded theseven-hectare area subject to its usufructuary rights. By 1987, MSBF occupied approximately 16 hectares. By thenthe land occupied by MSBF was bounded by Epifanio de los Santos Avenue ("EDSA") to the west, Agham Road tothe east, Quezon Avenue to the south and a creek to the north.

On 18 August 1987, MSBF leased a portion of the area it occupied to BGC and other stallholders. BGC leased theportion facing EDSA, which occupies 4,590 square meters of the 16-hectare area.

On 11 November 1987, President Corazon Aquino issued Memorandum Order No. 127 ("MO 127") which revokedthe reserved status of "the 50 hectares, more or less, remaining out of the 120 hectares of the NHA propertyreserved as site of the National Government Center." MO 127 also authorized the NHA to commercialize the areaand to sell it to the public.

On 15 August 1988, acting on the power granted under MO 127, the NHA gave BGC ten days to vacate its occupiedarea. Any structure left behind after the expiration of the ten-day period will be demolished by NHA.
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BGC then filed a complaint for injunction on 21 April 1988 before the trial court. On 26 May 1988, BGC amended itscomplaint to include MSBF as its co-plaintiff.

The Trial Courts Ruling

The trial court agreed with BGC and MSBF that Proclamation No. 1670 gave MSBF the right to conduct the survey,which would establish the seven-hectare area covered by MSBFs usufructuary rights. However, the trial court heldthat MSBF failed to act seasonably on this right to conduct the survey. The trial court ruled that the previous surveysconducted by MSBF covered 16 hectares, and were thus inappropriate to determine the seven-hectare area. The

trial court concluded that to allow MSBF to determine the seven-hectare area now would be grossly unfair to thegrantor of the usufruct.

On 8 March 1994, the trial court dismissed BGCs complaint for injunction. Thus:

Premises considered, the complaint praying to enjoin the National Housing Authority from carrying out thedemolition of the plaintiffs structure, improvements and facilities in the premises in question is hereby DISMISSED,but the suggestion for the Court to rule that Memorandum Order 127 has repealed Proclamation No. 1670 isDENIED. No costs.

SO ORDERED.5

The NHA demolished BGCs facilities soon thereafter.

The Appellate Courts Ruling

Not content with the trial courts ruling, BGC appealed the trial courts Decision to the appellate court. Initially, theappellate court agreed with the trial court that Proclamation No. 1670 granted MSBF the right to determine thelocation of the seven-hectare area covered by its usufructuary rights. However, the appellate court ruled that MSBFdid in fact assert this right by conducting two surveys and erecting its main structures in the area of its choice.

On 30 March 2001, the appellate court reversed the trial courts ruling. Thus:

WHEREFORE, premises considered, the Decision dated March 8, 1994 of the Regional Trial Court of Quezon City,

Branch 87, is hereby REVERSED and SET ASIDE. The National Housing Authority is enjoined from demolishing thestructures, facilities and improvements of the plaintiff-appellant Bulacan Garden Corporation at its leased premiseslocated in Quezon City which premises were covered by Proclamation No. 1670, during the existence of the contractof lease it (Bulacan Garden) had entered with the plaintiff-appellant Manila Seedling Bank Foundation, Inc.

No costs.

SO ORDERED.6

The NHA filed a motion for reconsideration, which was denied by the appellate court on 25 June 2001.

Hence, this petition.

The Issues

The following issues are considered by this Court for resolution:

WHETHER THE PETITION IS NOW MOOT BECAUSE OF THE DEMOLITION OF THE STRUCTURES OF BGC;and

WHETHER THE PREMISES LEASED BY BGC FROM MSBF IS WITHIN THE SEVEN-HECTARE AREA THATPROCLAMATION NO. 1670 GRANTED TO MSBF BY WAY OF USUFRUCT.
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The Ruling of the Court

We remand this petition to the trial court for a joint survey to determine finally the metes and bounds of the seven-hectare area subject to MSBFs usufructuary rights.

Whether the Petition is Moot because of the

Demolition of BGCs Facilities

BGC claims that the issue is now moot due to NHAs demolition of BGCs facilities after the trial court dismissedBGCs complaint for injunction. BGC argues that there is nothing more to enjoin and that there are no longer anyrights left for adjudication.

We disagree.

BGC may have lost interest in this case due to the demolition of its premises, but its co-plaintiff, MSBF, has not.The issue for resolution has a direct effect on MSBFs usufructuary rights. There is yet the central question of theexact location of the seven-hectare area granted by Proclamation No. 1670 to MSBF. This issue is squarely raisedin this petition. There is a need to settle this issue to forestall future disputes and to put this 20-year litigation to rest.

On the Location of the Seven-Hectare Area Granted by

Proclamation No. 1670 to MSBF as Usufructuary

Rule 45 of the 1997 Rules of Civil Procedure limits the jurisdiction of this Court to the review of errors of law.7Absentany of the established grounds for exception,8this Court will not disturb findings of fact of lower courts. Though thematter raised in this petition is factual, it deserves resolution because the findings of the trial court and the appellatecourt conflict on several points.

The entire area bounded by Agham Road to the east, EDSA to the west, Quezon Avenue to the south and by acreek to the north measures approximately 16 hectares. Proclamation No. 1670 gave MSBF a usufruct over only aseven-hectare area. The BGCs leased portion is located along EDSA.

A usufruct may be constituted for a specified term and under such conditions as the parties may deem convenientsubject to the legal provisions on usufruct.9A usufructuary may lease the object held in usufruct.10Thus, the NHAmay not evict BGC if the 4,590 square meter portion MSBF leased to BGC is within the seven-hectare area held inusufruct by MSBF. The owner of the property must respect the lease entered into by the usufructuary so long as theusufruct exists.11However, the NHA has the right to evict BGC if BGC occupied a portion outside of the seven-hectare area covered by MSBFsusufructuary rights.

MSBFs survey shows that BGCs stall is within the seven-hectare area. On the other hand, NHAs survey showsotherwise. The entire controversy revolves on the question of whose land survey should prevail.

MSBFs survey plots the location of the seven-hectare portion by starting its measurement from Quezon Avenuegoing northward along EDSA up until the creek, which serves as the northern boundary of the land in question. Mr.

Ben Malto ("Malto"), surveyor for MSBF, based his survey method on the fact that MSBFs main facilities are locatedwithin this area.

On the other hand, NHAs survey determines the seven-hectare portion by starting its measurement from QuezonAvenue going towards Agham Road. Mr. Rogelio Inobaya ("Inobaya"), surveyor for NHA, based his survey methodon the fact that he saw MSBFs gate fronting Agham Road.

BGC presented the testimony of Mr. Lucito M. Bertol ("Bertol"), General Manager of MSBF. Bertol presented amap,12which detailed the area presently occupied by MSBF. The map had a yellow-shaded portion, which wassupposed to indicate the seven-hectare area. It was clear from both the map and Bertols testimony that MSBFknew that it had occupied an area in excess of the seven-hectare area granted by Proclamation No. 1670.13Upon
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cross-examination, Bertol admitted that he personally did not know the exact boundaries of the seven-hectarearea.14Bertol also admitted that MSBF prepared the map without consulting NHA, the owner of the property.15

BGC also presented the testimony of Malto, a registered forester and the Assistant Vice-President of Planning,Research and Marketing of MSBF. Malto testified that he conducted the land survey, which was used to constructthe map presented by Bertol.16Bertol clarified that he authorized two surveys, one in 1984 when he first joinedMSBF, and the other in 1986.17In both instances, Mr. Malto testified that he was asked to survey a total of 16hectares, not just seven hectares. Malto testified that he conducted the second survey in 1986 on the instruction ofMSBFs general manager. According to Malto, it was only in the second survey that he was told to determine the

seven-hectare portion. Malto further clarified that he based the technical descriptions of both surveys on apreviously existing survey of the property.18

The NHA presented the testimony of Inobaya, a geodetic engineer employed by the NHA. Inobaya testified that aspart of the NHAs Survey Division, his duties included conducting surveys of properties administered by theNHA.19Inobaya conducted his survey in May 1988 to determine whether BGC was occupying an area outside theseven-hectare area MSBF held in usufruct.20Inobaya surveyed the area occupied by MSBF following the sametechnical descriptions used by Malto. Inobaya also came to the same conclusion that the area occupied by MSBF,as indicated by the boundaries in the technical descriptions, covered a total of 16 hectares. He further testified thatthe seven-hectare portion in the map presented by BGC,21which was constructed by Malto, does not tally with theboundaries BGC and MSBF indicated in their complaint.

Article 565 of the Civil Cod

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