colr1 case summaries ii

8/12/2019 COLR1 Case Summaries II

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1 | C o m m e r c i a l L a w R e v i e w I

M a z o , E d w a r d J u d e S .

S a n S e b a s t i a n C o l l e g e - R e c o l e t o s

CORPORATE JURIDICAL PERSONALITY; PIERCING THE VEIL OF CORPORATE FICTION

G.R. No. 108734 May 29, 1996

CONCEPT BUILDERS, INC., petitioner,vs.THE NATIONAL LABOR RELATIONS COMMISSION, (First Division etal., respondents.HERMOSISIMA, JR., J.:FACTS:

Petitioner, a domestic corporation engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and

riggers. Private respondents were served individual written notices of termination

employment by petitioner. It was stated in the individual notices that theircontracts of employment had expired and the project in which they were hiredhad been completed.

Public respondent found it to be, the fact, however, that at the time of thetermination of private respondent's employment, the project in which they werehired had not yet been finished and completed. Petitioner had to engage theservices of sub-contractors whose workers performed the functions of privaterespondents.

Aggrieved, private respondents filed a complaint for illegal dismissal, ULP andnon-payment of their legal holiday pay, overtime pay and thirteenth-month payagainst petitioner.

LA ruled for the private respondents. Writ of execution follows. A certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter

alleging that the properties sought to be levied upon by the sheriff were ownedby Hydro (Phils.), Inc. (HPPI).

HPPI alleged that it is a corporation separate and distinct from petitioner. HPPIalso alleged that the two corporations are engaged in two different kinds ofbusinesses, i.e., HPPI is a manufacturing firm while petitioner was then engagedin construction.

ISSUE:

WON the doctrine of piercing the corporate veil should be applied in the instantcase.

HELD: The SC held in the AFFIRMATIVE. It is a fundamental principle of corporation law that a corporation is an entity

separate and distinct from its stockholders and from other corporations to whichit may be connected.


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But, this separate and distinct personality of a corporation is merely a fictioncreated by law for convenience and to promote justice.

So, when the notion of separate juridical personality is used to defeat publicconvenience, justify wrong, protect fraud or defend crime, or is used as a deviceto defeat the labor laws, this separate personality of the corporation may bedisregarded or the veil of corporate fiction pierced.

This is true likewise when the corporation is merely an adjunct, a businessconduit or an alter ego of another corporation.

The conditions under which the juridical entity may be disregarded varyaccording to the peculiar facts and circumstances of each case. No hard and fastrule can be accurately laid down, but certainly, there are some probativefactors of identity that will justify the application of the doctrine ofpiercing the corporate veil, to wit:

Stock ownership by one or common ownership of bothcorporations.

Identity of directors and officers. The manner of keeping corporate books and records. Methods of conducting the business.

Test in determining the applicability of the doctrine of piercing the veil ofcorporate fiction, to wit:

Control, not mere majority or complete control, but complete domination,not only of finances but of policy and business practice in respect to thetransaction attacked so that the corporate entity as to this transaction hadat the time no separate mind, will or existence of its own.

Such control must have been used by the defendant to commit fraud orwrong, to perpetuate the violation of a statutory or other positive legalduty, or dishonest and, unjust act in contravention of plaintiffs legalrights; and,

The aforesaid control and breach of duty must proximately cause theinjury or unjust loss complained of.

In this case, the NLRC noted that, while petitioner claimed that it ceased itsbusiness operations on April 29, 1986, it filed an Information Sheet with theSecurities and Exchange Commission on May 15, 1987, stating that its officeaddress is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand,

HPPI, the third-party claimant, submitted on the same day, a similar informationsheet stating that its office address is at 355 Maysan Road, Valenzuela, MetroManila.

Both information sheets were filed by the same Virgilio O. Casio as thecorporate secretary of both corporations. It would also not be amiss to note thatboth corporations had the same president, the same board of directors,the same corporate officers, and substantially the same subscribers.


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Among other things, herein petitioner and the third-party claimant sharedthe same address and/or premises. Under this circumstances, it cannot be saidthat the property levied upon by the sheriff were not of respondents.

The petition was DISMISSED._______________________________

G.R. No. 182729 September 29, 2010KUKAN INTERNATIONAL CORPORATION,Petitioner,vs.HON. AMOR REYES, in her capacity as Presiding Judge of the Regional TrialCourt of Manila, Branch 21, and ROMEO M. MORALES, doing business underthe name and style "RM Morales Trophies and Plaques,"Respondents.

VELASCO, JR., J.:

FACTS: Kukan, Inc. conducted bidding for the supply and installation of signages in abuilding being constructed in Makati City. Romeo Morales tendered the winningbid and was awarded the PhP 5 million-contract.

Some of the items in the project award were later excluded resulting in thecorresponding reduction of the contract price. Short changed, Morales filed aComplaint with the RTC against Kukan, Inc. for a sum of money.

The RTC rendered a Decision in favor of Morales and against Kukan, Inc. Afterthe decision became final and executory, Morales moved for and secured a writof execution against Kukan, Inc. The sheriff then levied upon various personalproperties of Kukan International Corporation (KIC). KIC then filed an Affidavit of

Third-Party Claim. Notably, KIC was incorporated in August 2000, or shortly after Kukan, Inc. had

stopped participating in Civil Case. In reaction to the third party claim, Moralesinterposed an Omnibus Motion. In it, Morales prayed, applying the principle ofpiercing the veil of corporate fiction, that an order be issued for the satisfactionof the judgment debt of Kukan, Inc. with the properties under the name or in thepossession of KIC, it being alleged that both corporations are but one and thesame entity. The court denied the omnibus motion.

In a bid to establish the link between KIC and Kukan, Inc., and thus determinethe true relationship between the two, Morales filed a Motion for Examination of

Judgment Debtors. In this motion Morales sought that subpoena be issuedagainst the primary stockholders of Kukan, Inc., among them Michael Chan,a.k.a. Chan Kai Kit. This too was denied by the trial.

Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr.,who eventually granted the motion. The case was re-raffled to Branch 21,presided by public respondent Judge Amor Reyes.

Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil ofCorporate Fiction to declare KIC as having no existence separate from Kukan,


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Inc. This time around, the RTC granted the motion. KIC moved but was deniedreconsideration. On petition for certiorari before CA, the same was denied. TheCA later denied KICs motion for reconsideration in the assailed resolution.

Hence, the instant petition for review.

ISSUE:WON the trial and appellate courts correctly applied the principle of piercing the

veil of corporate fiction.

HELD: The SC held in the NEGATIVE. Piercing the veil of corporate entity applies only when the following concurs: (1)

the court must first acquire jurisdiction over the corporation or corporations

involved before its or their separate personalities are disregarded; and (2) thedoctrine of piercing the veil of corporate entity can only be raised during a full-blown trial over a cause of action duly commenced involving parties duly broughtunder the authority of the court by way of service of summons or what passes assuch service.

Mere ownership by a single stockholder or by another corporation of asubstantial block of shares of a corporation does not, standing alone, providesufficient justification for disregarding the separate corporate personality. Forthis ground to hold sway in this case there must be proof that Chan had controlor complete dominion of Kukan and KICs finances, policies, and businesspractices; he used such control to commit fraud; and the control was the

proximate cause of the financial loss complained of by Morales. The absence ofany of the elements prevents the piercing of the corporate veil. And indeed, therecords do not show the presence of these elements.

In fine, there is no showing that the incorporation, and the separate and distinctpersonality, of KIC was used to defeat Morales right to recover from Kukan, Inc.Judging from the records, no serious attempt was made to levy on the propertiesof Kukan, Inc. Morales could not, thus, validly argue that Kukan, Inc. tried toavoid liability or had no property against which to proceed.

The suggestion that KIC is but a continuation and successor of Kukan, Inc.,owned and controlled as they are by the same stockholders, stands without

factual basis. It is true that Michael Chan, a.k.a. Chan Kai Kit, owns 40% of theoutstanding capital stock of both corporations. But such circumstance, standingalone, is insufficient to establish identity. There must be at least a substantialidentity of stockholders for both corporations in order to consider this factor tobe constitutive of corporate identity.

Evidently, the aforementioned case relied upon by Morales cannot justify theapplication of the principle of piercing the veil of corporate fiction to the instantcase. As shown by the records, the name Michael Chan, the similarity of business


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activities engaged in, and incidentally the word "Kukan" appearing in thecorporate names provide the nexus between Kukan, Inc. and KIC. As illustrated,these circumstances are insufficient to establish the identity of KIC as the alter

ego or successor of Kukan, Inc. The fact that Kukan, Inc. entered into a PhP 3.3 million contract when

it only had a paid-up capital of PhP 5,000 is not an indication of theintent on the part of its management to defraud creditors. Paid-upcapital is merely seed money to start a corporation or a business entity.

As in this case, it merely represented the capitalization uponincorporation in 1997 of Kukan, Inc. Paid-up capitalization of PhP5,000 is not and should not be taken as a reflection of the firmscapacity to meet its recurrent and long-term obligations. It must beborne in mind that the equity portion cannot be equated to the viability of a

business concern, for the best test is the working capital which consists of theliquid assets of a given business relating to the nature of the business concern._____________________________________

G.R. No. 165442 August 25, 2010NASECO GUARDS ASSOCIATION-PEMA (NAGA-PEMA), Petitioner,

vs.

NATIONAL SERVICE CORPORATION (NASECO),Respondent.

VILLARAMA, JR., J.:FACTS:

NASECO is a wholly-owned subsidiary of the PNB organized underthe Corporation Code. It supplies security and manpower services to differentclients such as the SEC, the PDIC, Food Terminal Incorporated, ForexCorporation and PNB. Petitioner is the collective bargaining representative of theregular rank and file security guards of respondent. NASECO Employees Union-PEMA (NEMU-PEMA) is the collective bargaining representative of the regularrank and file (non-security) employees of respondent such as messengers,

janitors, typists, clerks and radio-telephone operators. Respondent entered into a memorandum of agreement with petitioner. The

terms of the agreement covered the monetary claims of the petitioner. Petitioner and respondent agreed to sign a CBA on non-economic terms. Petitioner filed a notice of strike because of respondents refusal to bargain for

economic benefits in the CBA. Following conciliation hearings, the parties againcommenced CBA negotiations and started to resolve the issues.

Petitioner filed a notice of strike before the National Conciliation and MediationBoard (NCMB) against respondent and PNB due to a bargaining deadlock. Thefollowing day, NEMU-PEMA likewise filed a notice of strike against respondentand PNB on the ground of ULP.


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Then DOLE Secretary issued a resolution directing petitioner and respondent toexecute a new CBA incorporating therein his dispositions regarding benefits ofthe employees.

Respondent promptly filed a petition for certiorari before the CA questioning theDOLE Secretarys order and arguing that the ruling of the DOLE Secretary infavor of the unions and awarding them monetary benefits was inimical anddeleterious to its financial standing and will result in closure and cessation ofbusiness for the company.

The charges of unfair labor practice against NASECO and PNB are dismissed forlack of merit.

Respondent thus filed a petition for certiorari with the CA arguing that the DOLESecretary deprived respondent of due process of law for there was no re-evaluation that took place in the DOLE.

The CA granted the petition.

ISSUE:WON the PNB should be held liable to shoulder the CBA benefits awarded to

herein petitioners.

HELD: The SC held in the NEGATIVE. It is a fundamental principle of corporation law that a corporation is an entity

separate and distinct from its stockholders and from other corporations to whichit may be connected. But, this separate and distinct personality of a corporation

is merely a fiction created by law for convenience and to promote justice.So,when the notion of separate juridical personality is used to defeat publicconvenience, justify wrong, protect fraud or defend crime, or is used as a deviceto defeat the labor laws, this separate personality of the corporation may bedisregarded or the veil of corporate fiction pierced. This is true likewise when thecorporation is merely an adjunct, a business conduit or an alter ego of anothercorporation.

As to the petitioners argument that respondent and PNB are essentially thesame when it comes to financial condition, respondent contends that although asubsidiary, it has a separate and distinct personality from PNB with its own

charter. Hence, the issue of PNBs financial well-being is immaterial in this case. No reason to pierce the corporate veil of respondent and go beyond its legalpersonality. Control, by itself, does not mean that the controlled corporation is amere instrumentality or a business conduit of the mother company. Evencontrol over the financial and operational concerns of a subsidiarycompany does not by itself call for disregarding its corporate fiction.There must be a perpetuation of fraud behind the control or at least afraudulent or illegal purpose behind the control in order to justify


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piercing the veil of corporate fiction.Such fraudulent intent is lacking in thiscase.

There is no showing that such "no loss, no profit" scheme between respondentand PNB was implemented to defeat public convenience, justify wrong, protectfraud or defend crime, or is used as a device to defeat the labor laws, nor doesthe scheme show that respondent is a mere business conduit or alter ego ofPNB. Absent proof of these circumstances, respondents corporate personalitycannot be pierced.

_____________________________

"G" HOLDINGS, INC.,Petitioner,vs.NATIONAL MINES AND ALLIED WORKERS UNION Local 103 (NAMAWU);

SHERIFFS RICHARD H. APROSTA and ALBERTO MUNOZ, all acting Sheriffs;DEPARTMENT OF LABOR AND EMPLOYMENT, Region VI, Bacolod DistrictOffice, Bacolod City,Respondents.NACHURA, J.:FACTS:

The petitioner is a domestic corporation primarily engaged in the business ofowning and holding shares of stock of different companies. It was registeredwith the SEC. Private respondent was the exclusive bargaining agent of the rankand file employees of Maricalum Mining Corporation (MMC),an entity operating acopper mine and mill complex at Sipalay, Negros Occidental.

MMC was incorporated by the DBP and the PNB on account of their foreclosureof Marinduque Mining and Industrial Corporations assets. MMC started itscommercial operations. Later, DBP and PNB transferred it to the NationalGovernment for disposition or privatization because it had become a non-performing asset.

Pursuant to a Purchase and Sale Agreement executed between GHI and AssetPrivatization Trust (APT), the former bought 90% of MMCs shares and financialclaims. These financial claims were converted into three promissory notes issuedby MMC in favor of GHI totalling P500M and secured by mortgages over MMCsproperties.

GHI immediately took physical possession of the mine site and its facilities, andtook full control of the management and operation of MMC. A labor dispute arose between MMC and NAMAWU, with the latter eventuallyfiling with the National Conciliation and Mediation Board of Bacolod City a noticeof strike.

On motion of NAMAWU, a partial writ of execution was issued and ordered theDOLE sheriffs to proceed to the MMC premises for the execution of the same.

ISSUE:WON GHI is a distinct and separate corporate entity from MMC.


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HELD: The SC held in the NEGATIVE. A corporation, upon coming into existence, is invested by law with a personality

separate and distinct from those persons composing it as well as from any otherlegal entity to which it may be related. By this attribute, a stockholder may not,generally, be made to answer for acts or liabilities of the said corporation, andvice versa. This separate and distinct personality is, however, merely a fictioncreated by law for convenience and to promote the ends of justice. For thisreason, it may not be used or invoked for ends subversive to the policy andpurpose behind its creation or which could not have been intended by law towhich it owes its being. This is particularly true when the fiction is used to defeatpublic convenience, justify wrong, protect fraud, defend crime, confuse

legitimate legal or judicial issues, perpetrate deception or otherwise circumventthe law. This is likewise true where the corporate entity is being used as an alterego, adjunct, or business conduit for the sole benefit of the stockholders or ofanother corporate entity. In all these cases, the notion of corporate entity will bepierced or disregarded with reference to the particular transaction involved.

The factual antecedents of the case do not warrant a finding that themortgage and loan agreements between MMC and GHI were simulated,then their separate personalities must be recognized. To pierce the veilof corporate fiction would require that their personalities as creditorand debtor be conjoined, resulting in a merger of the personalities ofthe creditor (GHI) and the debtor (MMC) in one person, such that the

debt of one to the other is thereby extinguished. But the debtembodied in the 1992 Financial Notes has been established, and evenmade subject of court litigation. This can only mean that GHI and MMChave separate corporate personalities.

Neither was MMC used merely as an alter ego, adjunct, or business conduit forthe sole benefit of GHI, to justify piercing the formers veil of corporate fiction sothat the latter could be held liable to claims of third-party judgment creditors,like NAMAWU.

The mere interlocking of directors and officers does not warrant piercing theseparate corporate personalities of MMC and GHI. Not only must there be a

showing that there was majority or complete control, but complete domination,not only of finances but of policy and business practice in respect to thetransaction attacked, so that the corporate entity as to this transaction had atthe time no separate mind, will or existence of its own.

__________________________________


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G.R. No. 170689 March 17, 2009PEA-PTGWO and PANREA,Petitioners,vs.

NLRC et al.,Respondents.x - - - - - - - - - - - - - - - - - - - - - - -xG.R. No. 170705 March 17, 2009PHILIPPINE NATIONAL BANK,Petitioner,vs.PEA-PTGWO, et al.,Respondents.NACHURA, J.:FACTS:

The Gonzales family owned two corporations, namely, the PNEI and MacrisRealty Corporation (Macris). PNEI provided transportation services to the public,

and had its bus terminal at the corner of Quezon and Roosevelt Avenues inQuezon City. The terminal stood on four valuable pieces of real estate (known asPantranco properties) registered under the name of Macris. The Gonzales familylater incurred huge financial losses despite attempts of rehabilitation and loaninfusion. Their creditors took over the management of PNEI and Macris. Fullownership was transferred to one of their creditors, the NIDC, a subsidiary of thePNB.

Macris was later renamed as the National Realty Development Corporation(Naredeco) and eventually merged with the National Warehousing Corporation(Nawaco) to form the new PNB subsidiary, the PNB-Madecor.

PNEI was among the several companies placed under sequestration by the PCGGshortly after the historic events in EDSA. PCGG lifted the sequestration order topave the way for the sale of PNEI back to the private sector through the AssetPrivatization Trust (APT). APT thus took over the management of PNEI.

PNEI applied with the SEC for suspension of payments. A managementcommittee was thereafter created which recommended to the SEC the sale ofthe company through privatization. As a cost-saving measure, the committeelikewise suggested the retrenchment of several PNEI employees. Eventually,PNEI ceased its operation. Along with the cessation of business came the variouslabor claims commenced by the former employees of PNEI where the latterobtained favorable decisions.

The Labor Arbiter issued the writ of execution commanding the NLRC Sheriffs tolevy on the assets of PNEI in order to satisfy the sum due its former employees,as full and final satisfaction of the judgment awards in the labor cases. Thesheriffs were likewise instructed to proceed against PNB, PNB-Madecor and MegaPrime.


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ISSUE:WON the properties (specifically the Pantranco properties) of PNB, PNB-Madecor

and Mega Prime can be attached to satisfy their unpaid labor claims against PNEI.

HELD: The SC held in the NEGATIVE. First, the subject property is not owned by the judgment debtor, that is, PNEI.

Nowhere in the records was it shown that PNEI owned the Pantranco properties.Petitioners, in fact, never alleged in any of their pleadings the fact of suchownership. What was established instead was that the properties were owned byMacris, the predecessor of PNB-Madecor. Hence, they cannot be pursued againstby the creditors of PNEI.

Second, PNB, PNB-Madecor and Mega Prime are corporations with personalitiesseparate and distinct from that of PNEI. PNB is sought to be held liable becauseit acquired PNEI through NIDC at the time when PNEI was suffering financialreverses. PNB-Madecor is being made to answer for petitioners labor claims asthe owner of the subject Pantranco properties and as a subsidiary of PNB. MegaPrime is also included for having acquired PNBs shares over PNB -Madecor.

The general rule is that a corporation has a personality separate and distinctfrom those of its stockholders and other corporations to which it may beconnected. This is a fiction created by law for convenience and to preventinjustice. Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI are corporationswith their own personalities. The "separate personalities" of the first threecorporations had been recognized by the Court in PNB v. Mega Prime Realty and

Holdings Corporation/Mega Prime Realty and Holdings Corporation v. PNB whereit stated that PNB was only a stockholder of PNB-Madecor which later sold itsshares to Mega Prime; and that PNB-Madecor was the owner of the Pantrancoproperties. Moreover, these corporations are registered as separate entities and,absent any valid reason, we maintain their separate identities and we cannottreat them as one.

Neither the SC can merge the personality of PNEI with PNB simply because thelatter acquired the former. Settled is the rule that where one corporationsells or otherwise transfers all its assets to another corporation for

value, the latter is not, by that fact alone, liable for the debts and

liabilities of the transferor. Lastly, while the SC recognized that there are peculiar circumstances or validgrounds that may exist to warrant the piercing of the corporate veil, none appliesin the present case whether between PNB and PNEI; or PNB and PNB-Madecor.

Under the doctrine of "piercing the veil of corporate fiction," the court looks atthe corporation as a mere collection of individuals or an aggregation of personsundertaking business as a group, disregarding the separate juridical personalityof the corporation unifying the group. Another formulation of this doctrine is that


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when two business enterprises are owned, conducted and controlled by thesame parties, both law and equity will, when necessary to protect the rights ofthird parties, disregard the legal fiction that two corporations are distinct entities

and treat them as identical or as one and the same.__________________________________

CORPORATE CONTRACT LAW

G.R. No. L-2598 June 29, 1950C. ARNOLD HALL and BRADLEY P. HALL,petitioners,vs.EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FREDBROWN, EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of

the Far Eastern Lumber and Commercial Co., Inc.,respondents.BENGZON, J.:FACTS:

C. Arnold Hall and Bradley P. Hall, and Fred Brown, Emma Brown, Hipolita D.Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the articleof incorporation of the Far Eastern Lumber and Commercial Co., Inc., organizedto engage in a general lumber business to carry on as general contractors,operators and managers, etc.

Attached to the article was an affidavit of the treasurer stating that 23,428shares of stock had been subscribed and fully paid with certain propertiestransferred to the corporation described in a list appended thereto.

Immediately after the execution of said articles of incorporation, the corporationproceeded to do business with the adoption of by-laws and the election of itsofficers.

The said articles of incorporation were filed in the office of the Securities andExchange Commissioner, for the issuance of the corresponding certificate ofincorporation.

Pending action on the articles of incorporation by the aforesaid governmentaloffice, Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abellafiled before the Court of First Instance of Leyte the civil case, alleging amongother things that the Far Eastern Lumber and Commercial Co. was an

unregistered partnership; that they wished to have it dissolved because of bitterdissension among the members, mismanagement and fraud by the managersand heavy financial losses. C. Arnold Hall and Bradley P. Hall, filed a motion todismiss, contesting the court's jurisdiction and the sufficiently of the cause ofaction.

After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution ofthe company; and at the request of Brown, et. al., appointed Pedro A. Capuciongas the receiver of the properties thereof, upon the filing of a P20,000 bond. Hall


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and Hall offered to file a counter-bond for the discharge of the receiver, butJudge Piccio refused to accept the offer and to discharge the receiver.Whereupon, Hall and Hall instituted the present special civil action with the

Supreme Court.

ISSUE:WON Brown, et. al. may file an action to cause the dissolution of the Far Eastern

Lumber and Commercial Co., without State intervention.

HELD: The SC held in the AFFIRMATIVE. The Securities and Exchange Commission has not issued the corresponding

certificate of incorporation. The personality of a corporation begins to exist only

from the moment such certificate is issued not before. Not having obtainedthe certificate of incorporation, the Far Eastern Lumber and Commercial Co. even its stockholders may not probably claim "in good faith" to be acorporation. Under the statue it is to be noted that it is the issuance of acertificate of incorporation by the Director of the Bureau of Commerce andIndustry which calls a corporation into being. The immunity if collateral attack isgranted to corporations "claiming in good faith to be a corporation under thisact." Such a claim is compatible with the existence of errors and irregularities;but not with a total or substantial disregard of the law. Unless there has been anevident attempt to comply with the law the claim to be a corporation "under thisact" could not be made "in good faith."

This is not a suit in which the corporation is a party. This is a litigationbetween stockholders of the alleged corporation, for the purpose ofobtaining its dissolution. Even the existence of a de jure corporationmay be terminated in a private suit for its dissolution betweenstockholders, without the intervention of the state.

___________________________________

G.R. No. 119002 October 19, 2000INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner,vs.

HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALLFEDERATION, respondents.KAPUNAN, J.:FACTS:

The International Express Travel and Tour Services, Inc., through its managingdirector, wrote a letter to the Philippine Football Federation, through itspresident, Henri Kahn, wherein the former offered its services as a travel agencyto the latter. The offer was accepted. IETTSI secured the airline tickets for the


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trips of the athletes and officials of the Federation to the South East AsianGames in Kuala Lumpur as well as various other trips to the People's Republic ofChina and Brisbane.

For the tickets received, the Federation made two partial payments. IETTSIwrote the Federation, through Kahn a demand letter requesting for the amountof P265,894.33. The Federation, through the Project Gintong Alay, paid theamount. Henri Kahn issued a personal check in the amount of P50,000 as partialpayment for the outstanding balance of the Federation. Thereafter, no furtherpayments were made despite repeated demands. This prompted IETTSI to file acivil case before the Regional Trial Court of Manila. IETTSI sued Henri Kahn inhis personal capacity and as President of the Federation and impleaded theFederation as an alternative defendant. IETTSI sought to hold Henri Kahn liablefor the unpaid balance for the tickets purchased by the Federation on the ground

that Henri Kahn allegedly guaranteed the said obligation. Kahn filed his answerwith counterclaim, while the Federation failed to file its answer and was declaredin default by the trial court.

In due course, the trial court rendered judgment and ruled in favor of IETTSIand declared Henri Kahn personally liable for the unpaid obligation of theFederation. The complaint of IETTSI against the Philippine Football Federationand the counterclaims of Henri Kahn were dismissed, with costs against Kahn.

Only Henri Kahn elevated the decision to the Court of Appeals. The appellatecourt rendered a decision reversing the trial court. IETTSI filed a motion forreconsideration and as an alternative prayer pleaded that the Federation be heldliable for the unpaid obligation. The same was denied by the appellate court in

its resolution of 8 February 1995. IETTSI filed the petition with the SupremeCourt.

ISSUES: WON the Philippine Football Federation has a corporate existence of its own. WON Kahn should be made personally liable for the unpaid obligations of the

Philippine Football Federation. WON the appellate court properly applied the doctrine of corporation by

estoppel.

HELD: Issue No. 1. Both RA 3135 (the Revised Charter of the Philippine AmateurAthletic Federation) and PD 604 recognized the juridical existence of nationalsports associations. This may be gleaned from the powers and functions grantedto these associations. The powers and functions granted to national sportsassociations indicate that these entities may acquire a juridical personality. Thepower to purchase, sell, lease and encumber property are acts which may onlybe done by persons, whether natural or artificial, with juridical capacity.


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However, while national sports associations may be accorded corporatestatus, such does not automatically take place by the mere passage ofthese laws. It is a basic postulate that before a corporation may

acquire juridical personality, the State must give its consent either inthe form of a special law or a general enabling act.

The Philippine Football Federation did not come into existence upon the passageof these laws. Nowhere can it be found in RA 3135 or PD 604 any provisioncreating the Philippine Football Federation.

These laws merely recognized the existence of national sports associations andprovided the manner by which these entities may acquire juridical personality.Section 11 of RA 3135 and Section 8 of PD 604 require that before an entity maybe considered as a national sports association, such entity must be recognized bythe accrediting organization, the Philippine, Amateur Athletic Federation under

RA 3135, and the Department of Youth and Sports Development under PD 604. This fact of recognition, however, Henri Kahn failed to substantiate. A copy ofthe constitution and by-laws of the Philippine Football Federation does not provethat said Federation has indeed been recognized and accredited by either thePhilippine Amateur Athletic Federation or the Department of Youth and SportsDevelopment.

Accordingly, the Philippine Football Federation is not a national sports associationwithin the purview of the aforementioned laws and does not have corporateexistence of its own.

Issue No. 2. Henry Kahn should be held liable for the unpaid obligations of theunincorporated Philippine Football Federation. It is a settled principal in

corporation law that any person acting or purporting to act on behalf of acorporation which has no valid existence assumes such privileges and becomespersonally liable for contract entered into or for other acts performed as suchagent. As president of the Federation, Henri Kahn is presumed to have knownabout the corporate existence or non-existence of the Federation.

Issue No. 3. The Court cannot subscribe to the position taken by the appellatecourt that even assuming that the Federation was defectively incorporated,IETTSI cannot deny the corporate existence of the Federation because it hadcontracted and dealt with the Federation in such a manner as to recognize and ineffect admit its existence. The doctrine of corporation by estoppel is mistakenly

applied by the appellate court to IETTSI. The application of the doctrine appliesto a third party only when he tries to escape liabilities on a contract from whichhe has benefited on the irrelevant ground of defective incorporation. Herein,IETTSI is not trying to escape liability from the contract but rather is the oneclaiming from the contract.

__________________________________


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G.R. No. 125221 June 19, 1997REYNALDO M. LOZANO, petitioner,vs.

HON. ELIEZER R. DE LOS SANTOS, Presiding Judge, RTC, Br. 58, Angeles City;and ANTONIO ANDA,respondents.PUNO, J.:FACTS:

Reynaldo Lozano was the president of KAMAJDA (Kapatirang Mabalacat-AngelesJeepney DriversAssociation, Inc.).

Antonio Anda was the president of SAMAJODA (Samahang Angeles-MabalacatJeepney Operators and Drivers Association, Inc.).

In 1995, the two agreed to consolidate the two corporations, thus, UMAJODA(Unified Mabalacat-Angeles Jeepney Operators and Drivers Association, Inc.).

In the same year, elections for the officers of UMAJODA were held. Lozano andAnda both ran for president. Lozano won but Anda alleged fraud and theelections and thereafter he refused to participate with UMAJODA.

Anda continued to collect fees from members of SAMAJODA and refused torecognize Lozano as president of UMAJODA. Lozano then filed a complaint fordamages against Anda with the MCTC of Mabalacat (and Magalang), Pampanga.

Anda moved for the dismissal of the case for lack of jurisdiction. The MCTC judgedenied Andas motion.

On certiorari, Judge Eliezer De Los Santos of RTC Angeles City reversed andordered the dismissal of the case on the ground that what is involved is an intra-corporate dispute which should be under the jurisdiction of the Securities and

Exchange Commission (SEC).

ISSUE:WON what is involved herein is an intra-corporate dispute.

HELD: The SC held in the NEGATIVE. The regular courts have jurisdiction over the case. The case between Lozano and

Anda is not an intra-corporate dispute. UMAJODA is not yet incorporated. It isyet to submit its articles of incorporation to the SEC. It is not even a dispute

between KAMAJDA or SAMAJODA. The controversy between Lozano andAnda does not arise from intra-corporate relations but rather from amere conflict from their plan to merge the two associations.

Consolidation becomes effective not upon mere agreement of the members butonly upon issuance of the certificate of consolidation by the SEC.

_____________________________


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ARTICLES OF INCORPORATION AND BY-LAWSULTRA VIRES DOCTRINE

G.R. No. L-15092 May 18, 1962ALFREDO MONTELIBANO, ET AL.,plaintiffs-appellants,vs.BACOLOD-MURCIA MILLING CO., INC.,defendant-appellee.REYES, J.B.L., J.:FACTS:

Plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and the Limitedco-partnership Gonzaga and Company, had been and are sugar planters adheredto the defendant-appellees sugar central mill under identical milling contracts.

Originally executed in 1919, said contracts were stipulated to be in force for 30years starting with the 1920-21 crop, and provided that the resulting productshould be divided in the ratio of 45% for the mill and 55% for the planters.

Sometime in 1936, it was proposed to execute amended milling contracts,increasing the planters share to 60% of the manufactured sugar and resultingmolasses, besides other concessions, but extending the operation of the millingcontract from the original 30 years to 45 years.

The Board of Directors of the appellee Bacolod-Murcia Milling Co., Inc., adopteda resolution granting further concessions to the planters over and above thosecontained in the printed Amended Milling Contract.

The appellants initiated the present action, contending that three Negros sugarcentrals with a total annual production exceeding one-third of the production of

all the sugar central mills in the province, had already granted increasedparticipation (of 62.5%) to their planters, and that under the resolution theappellee had become obligated to grant similar concessions to the plaintiffs.

The appellee Bacolod-Murcia Milling Co., Inc., resisted the claim, and defendedby urging that the stipulations contained in the resolution were made withoutconsideration; that the resolution in question was, therefore, null and void abinitio, being in effect a donation that was ultra vires and beyond the powers ofthe corporate directors to adopt.

ISSUE:

WON the board resolution is an ultra vires act and in effect a donation from theboard of directors.

HELD: The SC held in the NEGATIVE. There can be no doubt that the directors of the appellee company had authority

to modify the proposed terms of the Amended Milling Contract for the purpose ofmaking its terms more acceptable to the other contracting parties.


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As the resolution in question was passed in good faith by the board ofdirectors, it is valid and binding, and whether or not it will cause lossesor decrease the profits of the central, the court has no authority to

review them. Whether the business of a corporation should be operated at a loss during

depression, or close down at a smaller loss, is a purely business and economicproblem to be determined by the directors of the corporation and not by thecourt.

The appellee Bacolod-Murcia Milling Company is, under the terms of itsResolution of August 20, 1936, duty bound to grant similar increases to plaintiffs-appellants herein.

________________________________

G.R. No. 165548 June 13, 2011PHILIPPINE REALTY AND HOLDINGS CORPORATION,Petitioner,vs.LEY CONSTRUCTION AND DEVELOPMENT CORPORATION,Respondent.x - - - - - - - - - - - - - - - - - - - - - - -xG.R. No. 167879LEY CONSTRUCTION AND DEVELOPMENT CORPORATION,Petitioner,vs.PHILIPPINE REALTY AND HOLDINGS CORPORATION,Respondent.SERENO, J.:FACTS:

Project contractor LCDC and project owner PRHC (with Engr. Dennis Abcede asits project construction manager, and Joselito Santos, its general manager andvice-president for operations) entered into several construction projects,including the Tektite Building.

LCDC president, Manuel Ley, met with Abcede to discuss the unanticipated delayin construction due to sudden, unexpected hike in the prices of cement and otherconstruction materials.

Abcede asked LCDC to advance the amount necessary to complete construction.Ley acceded on condition that PRHC would allow escalation of contract price anddisregard the prohibition contained in the agreements.

The PRHC board of directors turned down the request, but it gave no notice toLCDC of said denial.

Instead, Abcede signed a letter and sent it to LCDC, asking for its conformity, tothe effect that should it infuse P36M into the project, a contract price escalationfor the same amount would be granted in LCDCs favor.

However, the letter-agreement revealed no signature above PRHCs name.Notwithstanding the absence of said signature, LCDC proceeded with theconstruction of Tektite Building. It infused amounts totalling P38.2M, and


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religiously submitted to PRHC monthly reports on the same. But PRHC neverreplied to any of these monthly reports.

When Ley inquired from Abcede and Santos why its requests for extension oftime were not granted in full, the two assured him that LCDC would not bepenalized with damages because the fact that it was working hard on the TektiteBuilding project was known to PRHC.

However, when 96.43% of Tektite Building had been completed and LCDCrequested the release of the P36M escalation price, PRHC did not reply. Afterthe construction of the building was completed, it conveyed its decision to setoff, in the form of liquidated damages, its claim to the supposed LCDCs liability.

LCDCs alleged liability included the corrective works to redo or repair thedefective waterproofing in one of the projects. LCDC denied the same byalleging that PRHC, as the principal, forced LCDC, as the agent, into hiring

Vulchem Corp., as sub-agent or substitute, for the waterproofing works. Itargued that under Art. 1892 of the Civil Code, an agent is responsible for theacts of the substitute if he was given the power to appoint a substitute.Conversely, if it is the principal and not the agent who appointed the substitute,the agent bears no responsibility for the acts of the sub-agent.

LCDC filed a Complaint before the RTC in Makati City which ruled in its favor.PRHC filed a Notice of Appeal. The CA)reversed RTCs amended Decision.

ISSUES: WON the signed letter of Abcede, without the signature above PRHCs name,

could bind PRHC to the escalation agreement with LCDC.

Whether or not LCDC correctly applied Article 1892 on the principles of agency tothe case at bar.

HELD: Issue No. 1. The SC held in the AFFIRMATIVE. SC ruled that the signature of Abcede, as PRHC construction manager,

on the letter-agreement is sufficient to bind PRHC because it indicatedauthority to make such representation on behalf of PRHC. SC furtheragreed with LCDC that the actions of Abcede and Santos, assuming they werebeyond the authority given to them by PRHC which they were

representing, still bound PRHC under the doctrine of apparentauthority. Thus, the lack of authority on their part should not be used toprejudice it, considering that the two were clothed with apparent authority toexecute such agreements.

Issue No. 2. SC ruled that LCDCs reliance on Art. 1892 was misplaced. Theprinciples of agency could not to be applied to this case, since the legalrelationship between PRHC and LCDC was not one of agency, but was ratherthat between the owner of the project and an independent contractor under a


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contract of service. Thus, it is the agreement between the parties and not theCivil Code provisions on agency that should be applied to resolve this issue.

SC set aside CAs decision and ruled to set off the respective liabilities of theparties against each other, and PRHC was directed to pay LCDC the net amountdue.

________________________________

G.R. No. 109491 February 28, 2001ATRIUM MANAGEMENT CORPORATION,petitioner,vs.COURT OF APPEALS, et al.,respondents.----------------------------------------G.R. No. 121794 February 28, 2001

LOURDES M. DE LEON, petitioner,vs.COURT OF APPEALS, et al., respondents.PARDO, J.:FACTS:

Hi-Cement Corporation through its corporate signatories, Lourdes M. de Leon,treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor ofE.T. Henry and Co. Inc., as payee.

E.T. Henry and Co., Inc., in turn, endorsed the four checks to AtriumManagement Corporation for valuable consideration.

Upon presentment for payment, the drawee bank dishonored all four checks forthe common reason "payment stopped".

Atrium Management Corporation filed with the Regional Trial Court, Manila anaction for collection of the proceeds of four post-dated checks in the totalamount of P2 million, after its demand for payment of the value of the checkswas denied.

After due proceedings, the trial court rendered a decision ordering Lourdes M. deLeon, her husband Rafael de Leon, E.T. Henry and Co., Inc. and Hi-CementCorporation to pay Atrium jointly and severally, the amount of P2 millioncorresponding to the value of the four checks, plus interest and attorney's fees.

On appeal, the Court of Appeals promulgated its decision modifying the decisionof the trial court, absolving Hi-Cement Corporation from liability and dismissingthe complaint as against it. The appellate court ruled that: (1) Lourdes M. deLeon was not authorized to issue the subject checks in favor of E.T. Henry, Inc.;(2) The issuance of the subject checks by Lourdes M. de Leon and the late

Antonio de las Alas constituted ultra vires acts; and (3) The subject checks werenot issued for valuable consideration. Hence, Atrium filed the petition.


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ISSUES: WON the issuance of the checks was an ultra vires act. WON Lourdes M. de Leon and Antonio de las Alas were personally liable for the

checks issued as corporate officers and authorized signatories of the check.

HELD: Issue No. 1. The SC held in the NEGATIVE. The record reveals that Hi-Cement Corporation issued the 4 checks to extend

financial assistance to E.T. Henry, not as payment of the balance of the P30million pesos cost of hydro oil delivered by E.T. Henry to Hi-Cement. Why elsewould petitioner de Leon asks for counterpart checks from E.T. Henry if thechecks were in payment for hydro oil delivered by E.T. Henry to Hi-Cement?

Hi-Cement, however, maintains that the checks were not issued for considerationand that Lourdes and E.T. Henry engaged in a "kiting operation" to raise fundsfor E.T. Henry, who admittedly was in need of financial assistance. There was nosufficient evidence to show that such is the case.

Lourdes M. de Leon is the treasurer of the corporation and is authorized to signchecks for the corporation. At the time of the issuance of the checks, there weresufficient funds in the bank to cover payment of the amount of P2 million pesos.

The act of issuing the checks was well within the ambit of a validcorporate act, for it was for securing a loan to finance the activities ofthe corporation, hence, not an ultra vires act.

An ultra vires act is one committed outside the object for which a corporation iscreated as defined by the law of its organization and therefore beyond the power

conferred upon it by law" The term "ultra vires" is "distinguished from an illegalact for the former is merely voidable which may be enforced by performance,ratification, or estoppel, while the latter is void and cannot be validated.

Issue No. 2. The SC held in the AFFIRMATIVE. Personal liability of a corporate director, trustee or officer along (although not

necessarily) with the corporation may so validly attach, as a rule, only when: (1)He assents (a) to a patently unlawful act of the corporation, or (b) for bad faithor gross negligence in directing its affairs, or (c) for conflict of interest,resulting in damages to the corporation, its stockholders or other persons; (2) Heconsents to the issuance of watered down stocks or who, having knowledgethereof, does not forthwith file with the corporate secretary his written objectionthereto; (3) He agrees to hold himself personally and solidarily liable with thecorporation; or (4) He is made, by a specific provision of law, to personallyanswer for his corporate action."

Herein, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairmanof Hi-Cement were authorized to issue the checks.

However, Ms. de Leon was negligent when she signed the confirmation letterrequested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the


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rediscounting of the crossed checks issued in favor of E.T. Henry. She was awarethat the checks were strictly endorsed for deposit only to the payee's accountand not to be further negotiated.

What is more, the confirmation letter contained a clause that was not true, thatis, "that the checks issued to E.T. Henry were in payment of Hydro oil bought byHi-Cement from E.T. Henry". Her negligence resulted in damage to thecorporation.

Hence, Ms. de Leon may be held personally liable therefor._______________________________

G.R. No. 137686 February 8, 2000RURAL BANK OF MILAOR (CAMARINES SUR),petitioner,vs.

FRANCISCA OCFEMIA, et al.,J.:

FACTS: Several parcels of land were mortgaged by the respondents during the lifetime of

the respondents grandparents to the Rural bank of Milaor as shown by the Deedof Real Estate Mortgage and the Promissory Note.

Spouses Felicisimo Ocfemia and Juanita Ocfemia, one of the respondents, werenot able to redeem the mortgaged properties consisting of seven parcels of landand so the mortgage was foreclosed and thereafter ownership was transferred tothe petitioner bank.

Out of the seven parcels of land that were foreclosed, five of them are in thepossession of the respondents because these five parcels of land were sold by

the petitioner bank to the respondents as evidenced by a Deed of Sale. However, the five parcels of land cannot be transferred in the name of the

parents of Merife Nino, one of the respondents, because there is a need to havethe document of sale registered.

The Register of deeds, however, said that the document of sale cannot beregistered without the board resolution of the petitioner bank confirming boththe Deed of sale and the authority of the bank manager, Fe S. Tena, to entersuch transaction.

The petitioner bank refused her request for a board resolution and made manyalibis.

Respondents initiated the present proceedings so that they could transfer to theirnames the subject five parcel of land and subsequently mortgage said lots and touse the loan proceeds for the medical expenses of their ailing mother.

ISSUE:WON the Board of Directors of a rural banking corporation be compelled to

confirm a deed of absolute sale of real property owned by the corporation which deed


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of sale was executed by the bank manager without prior authority of the board ofdirectors of the rural banking corporation?

HELD: The SC held in the AFFIRMATIVE. The bank acknowledges, by its own acts or failure to act, the authority of Fe S.

Tena to enter into binding contracts. After the execution of the Deed of Sale, respondents occupied the properties in

dispute and paid the real estate taxes. If the bank management believed that ithad title to the property, it should have taken measured to prevent theinfringement and invasion of title thereto and possession thereof.

Likewise, Tena had previously transacted business on behalf of the bank, and thelatter had acknowledged her authority.

A bank is liable to innocent third persons where representation is madein the course of its normal business by an agent like Manager Tenaeven though such agent is abusing her authority.

Clearly, persons dealing with her could not be blamed for believing that she wasauthorized to transact business for and on behalf of the bank.

The bank is estopped from questioning the authority of the bank to enter intocontract of sale. If a corporation knowingly permits one of its officers or anyother agent to act within the scope of an apparent authority, it holds the agentout to the public as possessing the power to do those acts; thus,the corporation will, as against anyone who has in good faith dealt with itthrough such agent, be estopped from denying the agents authority.

_______________________________________

G.R. No.176897 December 11, 2013ADVANCE PAPER CORPORATION and GEORGE HAW, in his capacity asPresident of Advance Paper Corporation,Petitioners,vs.

ARMA TRADERS CORPORATION, MANUEL TING, CHENG GUI and BENJAMINNG,Respondents.x-------------------------------------------------x

ANTONIO TAN and UY SENG KEE WILLY,Respondents.

BRION,J.:

FACTS: Petitioner Advance Paper is a domestic corporation engaged in the business of

producing, printing, manufacturing, distributing and selling of various paperproducts. Petitioner George Haw is the President while his wife, Connie Haw, isthe General Manager.

Respondent Arma Traders is also a domestic corporation engaged in thewholesale and distribution of school and office supplies, and novelty


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products. Respondent Antonio Tan was formerly the President while respondentUy Seng Kee Willy is the Treasurer of Arma Traders. They represented ArmaTraders when dealing with its supplier, Advance Paper, for about 14 years.

On the other hand, respondents Manuel Ting, Cheng Gui and Benjamin Ngworked for Arma Traders as Vice-President, General Manager and corporatesecretary, respectively.

On various, Arma Traders purchased on credit notebooks and other paperproducts from Advance Paper.

Upon the representation of Tan and Uy, Arma Traders also obtained three loansfrom Advance Paper. Arma Traders needed the loan to settle its obligations toother suppliers because its own collectibles did not arrive on time. Because ofits good business relations with Arma Traders, Advance Paper extended theloans.

As payment for the purchase on credit and the loan transactions, Arma Tradersissued 82 post-dated checkspayable to cash or to Advance Paper. Tan and Uywere Arma Traders authorized bank signatories who signed and issued thesechecks.

Advance Paper presented the checks to the drawee bank but these weredishonored either for "insufficiency of funds" or "account closed." Despiterepeated demands, however, Arma Traders failed to settle its account with

Advance Paper. The petitioners filed a complaint for collection of sum of money with application

for preliminary attachment against Arma Traders, Tan, Uy, Ting, Gui, and Ng.

ISSUE:WON Arma Traders is liable to pay the loans applying the doctrine of apparent

authority.

HELD: The SC held in the AFFIRMATIVE. Arma Traders is liable to pay the loans on the basis of the doctrine of apparent

authority. The doctrine of apparent authority provides that a corporation will be estopped

from denying the agents authority if it knowingly permits one of its officers or

any other agent to act within the scope of an apparent authority, and it holdshim out to the public as possessing the power to do those acts. The doctrine ofapparent authority does not apply if the principal did not commit any acts orconduct which a third party knew and relied upon in good faith as a result of theexercise of reasonable prudence. Moreover, the agents acts or conduct musthave produced a change of position to the third partys detriment.


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Arma Traders Articles of Incorporationprovides that the corporation may borrowor raise money to meet the financial requirements of its business by the issuanceof bonds, promissory notes and other evidence of indebtedness.

Likewise, it states that Tan and Uy are not just ordinary corporate officers andauthorized bank signatories because they are also ArmaTradersincorporators along with respondents Ng and Ting, and Pedro Chao.

Furthermore, the respondents, through Ng who is Arma Traders corporatesecretary, incorporator, stockholder and director, testified that the solemanagement of Arma Traders was left to Tan and Uy and that he and the otherofficers never dealt with the business and management of Arma Traders for 14years. He also confirmed that since 1984 up to the filing of the complaint against

Arma Traders, its stockholders and board of directors never had its meeting. Arma Traders bestowed upon Tan and Uy broad powers by allowing

them to transact with third persons without the necessary writtenauthority from its non-performing board of directors. Arma Tradersfailed to take precautions to prevent its own corporate officers fromabusing their powers. Because of its own laxity in its business dealings,

Arma Traders is now estopped from denying Tan and Uys authority toobtain loan from Advance Paper.

_______________________________________

ARTICLES OF INCORPORATION

G.R. No. 122174 October 3, 2002

INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES,petitioner,vs.COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION andREFRACTORIES CORPORATION OF THE PHILIPPINES,respondents.

AUSTRIA-MARTINEZ, J.:FACTS:

Refractories Corporation of the Philippines (RCP) is a corporation duly organizedfor the purpose of engaging in the business of manufacturing, producing, selling,exporting and otherwise dealing in any and all refractory bricks, its by-productsand derivatives. It registered its corporate and business name with the Bureau of

Domestic Trade. Industrial Refractories Corp. of the Philippines (IRCP) on the other hand, wasincorporated originally under the name "Synclaire Manufacturing Corporation". Itamended its Articles of Incorporation to change its corporate name to "IndustrialRefractories Corp. of the Philippines". It is engaged in the business ofmanufacturing all kinds of ceramics and other products, except paints and zincs.

Discovering that IRCP was using such corporate name, RCP filed with the SEC apetition to compel IRCP to change its corporate name on the ground that its


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corporate name is confusingly similar with that of RCP's such that the public maybe confused or deceived into believing that they are one and the samecorporation.

The SEC decided in favor of RCP. IRCP appealed to the SEC En Banc, arguingthat it does not have any jurisdiction over the case, and that RCP has no right tothe exclusive use of its corporate name as it is composed of generic or commonwords.

The SEC En Banc modified the appealed decision in that IRCP was ordered todelete or drop from its corporate name only the word "Refractories".

IRCP elevated the decision of the SEC En Banc through a petition for review oncertiorari to the Court of Appeals which then rendered the decision, denying togive due course the petition filed by IRCP by upholding the jurisdiction of theSEC over the case, and ruling that the corporate names of IRCP and RCP are

confusingly or deceptively similar, and that RCP has established its prior right touse the word "Refractories" as its corporate name. The appellate court also found that the petition was filed beyond the

reglementary period. IRCP filed the petition for review on certiorari.

ISSUE: WON the SEC has jurisdiction over the instant case.

HELD: The SC held in the AFFIRMATIVE. The jurisdiction of the SEC is not merely confined to the adjudicative functions

provided in Section 5 of PD 902-A, as amended. It is the SEC's duty toprevent confusion in the use of corporate names not only for theprotection of the corporations involved but more so for the protectionof the public and it has authority to de-register at all times and underall circumstances corporate names which in its estimation are likely togenerate confusion.

Section 18 of the Corporation Code expressly prohibits the use of a corporatename which is "identical or deceptively or confusingly similar to that of anyexisting 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 thatwill have occasion to deal with the entity concerned, the evasion of legalobligations and duties, and the reduction of difficulties of administration andsupervision over corporation.

Pursuant thereto, the Revised Guidelines in the Approval of Corporate andPartnership Names 25 specifically requires that: (1) a corporate name shall notbe identical, misleading or confusingly similar to one already registered by


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another corporation with the Commission; and (2) if the proposed name issimilar to the name of a registered firm, the proposed name must contain atleast one distinctive word different from the name of the company already

registered. To fall within the prohibition of the law, two requisites must be proven: (1) that

the complainant corporation acquired a prior right over the use of such corporatename; and (2) the proposed name is either: (a) identical, or (b) deceptively orconfusingly similar to that of any existing corporation or to any other namealready protected by law; or (c) patently deceptive, confusing or contrary toexisting law.

As regards the first requisite, it has been held that the right to the exclusive useof a corporate name with freedom from infringement by similarity is determinedby priority of adoption. Herein, being the prior registrant, 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 incorporate names, the test is whether the similarity is such as to mislead a personusing ordinary care and discrimination and the Court must look to the record aswell as the names themselves. Herein, the only word that distinguishes IRCPfrom RCP is the word "Industrial" which merely identifies a corporation's generalfield of activities or operations.

The two corporate names are patently similar that even with reasonable care andobservation, confusion might arise. It must be noted that both cater to the sameclientele, i.e., the steel industry. In fact, the SEC found that there were instanceswhen different steel companies were actually confused between the two,

especially since they also have similar product packaging.__________________________________G.R. No. 157900 July 22, 2013ZUELLIG FREIGHT AND CARGO SYSTEMS,Petitioner,vs.NATIONAL LABOR RELATIONS COMMISSION AND RONALDO V. SANMIGUEL,Respondents.BERSAMIN, J.:FACTS:

San Miguel brought a complaint for ULP, illegal dismissal, non-payment ofsalaries and moral damages against petitioner, formerly known as ZetaBrokerage Corporation. He alleged that he had been a checker/customsrepresentative of Zeta and that he and other employees of Zeta were informedthat Zeta would cease operations, and that all affected employees, including him,would be separated; that by letter, Zeta informed him of his termination; that hereluctantly accepted his separation pay subject to the standing offer to be hiredto his former position by petitioner; and that he was summarily terminated,without any valid cause and due process.


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San Miguel contended that the amendments of the articles of incorporation ofZeta were for the purpose of changing the corporate name, broadening theprimary functions, and increasing the capital stock; and that such amendments

could not mean that Zeta had been thereby dissolved. Labor Arbiter Francisco A. Robles rendered a decision holding that San Miguel

had been illegally dismissed. Petitioner appealed, but the NLRC affirmed the decision of the Labor Arbiter.

ISSUE:WON the renamed corporation remains liable for the illegal dismissal of its

employee.

HELD:

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

Zeta and petitioner remained one and the same corporation. The change ofname did not give petitioner the license to terminate employees of Zeta like SanMiguel without just or authorized cause. The situation was not similar to that ofan enterprise buying the business of another company where the purchasingcompany had no obligation to rehire terminated employees of the latter.

Petitioner, despite its new name, was the mere continuation of Zeta's corporatebeing, 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.

__________________________


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BY-LAWS; AMENDMENTS

G.R. No. L-23241 March 14, 1925

HENRY FLEISCHER,plaintiff-appellee,vs.BOTICA NOLASCO CO., INC.,defendant-appellant.JOHNSON, J.:FACTS:

Manuel Gonzales assigned his 5 shares of Botica Nolasco stock to Fleischer inconsideration of a debt he owed to the latter. Gonzales requested Botica Nolascoto transfer the shares to Fleischers name.

The treasurer of Botica Nolasco offered to buy the shares from Fleischer for P100each (total P500). Fleischer refused the offer.

Fleischer filed an action for mandamus against the board of directors of BoticaNolasco.

Fleischer wanted Botica Nolasco to:o Register in its books 5 shares of stock under his name, ando Pay him the sum of P500 for damages.

Botica Nolasco refused to accede to Fleischers demands pursuant toArticle 12 ofits by-laws (preferential right to buy shares from retiring stockholders).

According to Article 12, it had the preferential right to buy the shares fromFleischer at the par value of P100 per share, with P90 as dividends, and thatFleischer refused the offer.

The lower court ruled that Article 12 was in conflict with the provisions of theCorporation Law.

Article 12 creates in favor of Botica Nolasco a preferential right to buy the sharesof a retiring shareholder (in this case, Botica Nolasco has a preferential right tobuy Gonzales shares over Fleischer.)

ISSUE:WON said Article 12 is in conflict with the Corporation Law.

HELD: The SC held in the AFFIRMATIVE. Said Article 12 is in conflict with the Corporation Law because it is a restraint of

trade not contemplated by Sec. 35 of the Corporation Law. While it was validlycreated under the provisions of Sec 13(7), it is not in harmony with Sec 35.

Fleischer had no knowledge of Article 12 when Gonzales assigned the shares tohim. He was not a privy to the contract and obtained the shares in good faithand for valuable consideration.


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According to Secs. 13(7) and 35 of the Corporation Law, by-laws relating totransfer of stock should be in harmony with the law on the subject of transfer ofstock.

Sec. 35 provides no restriction as to whom shares may be transferred or sold.The shareholder, as owner of shares, which are personal property, is free todispose of them in favor of any one. The only restraint in Sec. 35 is that thetransfer will only be valid if it is entered and noted upon the books of thecorporation.

In this case, Article 12 was consistent with Sec. 13(7) but not with Sec. 35. By-laws of a corporation are valid if they are reasonable and calculated to carry

into effect the objects of the corporation and are not contradictory to the laws ofthe land.

o By-laws are subordinate to the constitution and the laws of the land.o

They should not infringe state policy or be hostile to public welfare.o They cannot disturb vested rights or impair the obligation of a contracto They cannot take away or abridge the rights of stockholders or members,

affect property rights, or create obligations unknown to law A corporation cannot prevent or restrain transfers of its shares unless it is

expressly authorized in its charter or governing statute. A by-law of a corporation which provides that transfers of stock shall not be valid

without board approval cannot defeat the rights of third persons.___________________________________

G.R. No. 184088 July 6, 2010

IGLESIA EVANGELICA METODISTA EN LAS ISLAS FILIPINAS (IEMELIF)(Corporation Sole), INC., et al.,Petitioners,vs.BISHOP NATHANAEL LAZARO, et al.,Respondents.

ABAD, J.:FACTS:

IEMELIF is a corporation sole. It was registered and by-laws were created whichempowered the election of officers to manage the affairs of the organization.

Although, the petitioner remained a corporation sole on paper, it had alwaysacted like a corporation aggregate.

The Consistory, IEMELIFs BOD, together with the general membership changethe organizational structure from corporation sole to corporation aggregate,which was approved by SEC. However, the corporate papers remained unalteredas a corporation sole.

About 28 years later, the issue re-emerge. The SEC answered, this time, is thatthe conversion was not properly carried out and documented and that it neededto amend its AOI for that purpose. Acting on the advice, the Consistory resolvedto convert but petitioner Rev. Nestor Pineda in IEMELIFs name did not support


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the conversion. Petitioners claim that a complete shift from IEMELIFs status as acorporation sole to a corporation aggregate required, not just an amendment ofthe IEMELIFs articles of incorporation, but a complete dissolution of the existing

corporation sole followed by a re-incorporation.

ISSUE:WON a corporation sole may be converted into a corporation aggregate by mere

amendment of its articles of incorporation.

HELD: The SC held in the AFFIRMATIVE. A corporation may change its character as a corporation sole into a corporation

aggregate by mere amendment of its articles of incorporation without first going

through the process of dissolution. True, the Corporation Code provides no specific mechanism for amending thearticles of incorporation of a corporation sole. However, Section 109 of theCorporation Code allows the application to religious corporations of the generalprovisions governing non-stock corporations.

For non-stock corporations, the power to amend its articles of incorporation liesin its members. The code requires two-thirds of their votes for the approval ofsuch an amendment. So how will this requirement apply to a corporation solethat has technically but one member (the head of the religious organization) whoholds in his hands its broad corporate powers over the properties, rights, andinterests of his religious organization?

Although a non-stock corporation has a personality that is distinct fromthose of its members who established it, its articles of incorporationcannot be amended solely through the action of its board oftrustees. The amendment needs the concurrence of at least two-thirdsof its membership. If such approval mechanism is made to operate in acorporation sole, its one member in whom all the powers of thecorporation technically belongs, needs to get the concurrence of two-thirds of its membership. The one member, here the GeneralSuperintendent, is but a trustee, according to Section 110 of the

Corporation Code, of its membership.

There is no point to dissolving the corporation sole of one member to enable thecorporation aggregate to emerge from it. Whether it is a non-stock corporationor a corporation sole, the corporate being remains distinct from its members,whatever be their number. The increase in the number of its corporatemembership does not change the complexion of its corporate responsibility tothird parties. The one member, with the concurrence of two-thirds of themembership of the organization for whom he acts as trustee, can self-will theamendment. He can, with membership concurrence, increase the technical


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number of the members of the corporation from sole or one to the greaternumber authorized by its amended articles.

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colr1 case summaries ii

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