RED LINE TRANSPORTATION CO., Petitioner-Appellant, vs. RURAL TRANSIT CO., LTD., Respondent-Appellee.

G.R. No. 41570           September 6, 1934 (ANG)

Doctrine:A corporation has the power "of succession by its corporate name."

(Section 13) The name of a corporation is therefore essential to its existence. It cannot change its name except in the manner provided by the statute. By that name alone is it authorized to transact business. The law gives a corporation no express or implied authority to assume another name that is unappropriated: still less that of another corporation, which is expressly set apart for it and protected by the law. 

Nature of the Case: Review of an order of the Public Service Commission which granted respondent a certificate of public convenience to operate a transportation service between Ilagan in the Province of Isabela and Tuguegarao in the Province of Cagayan.Facts: Respondent Rural Transit Co, a Philippine corporation, filed an application to the Public Company Service Commission stating among others that:

a.) it is a holder of a certificate of public convenience to operate a passenger bus service between Manila and Tuguegarao

b.) it is the only operator of direct service between said points and the present authorized schedule of only one trip daily is not sufficient

c.) it will be also to the public convenience to grant the applicant a certificate for a new service between Tuguegarao and Ilagan.ch

Petitioner Red Line Transportation Co opposed the application alleging that:a.) it already holds a certificate of public convenience and is rendering

adequate and satisfactory serviceb.) granting of the application of the Rural Transit Company, Ltd., would not

serve public convenience but would constitute a ruinous competition for the oppositor over said route

The Commission, after hearing the testimonies of both parties, granted the application and issued a certificate of public convenience to respondent Rural Transit Co. Petitioner filed a motion for reconsideration contending that there was pending in the Court of First Instance of Manila case N. 42343, an application for the voluntary dissolution of the corporation, Rural Transit Company, Ltd. Upon the hearing of the said motion, the commission admitted without objection the following documents filed in said case:

a.) the petition for dissolution dated July 6, 1932, b.) the decision of the said Court of First Instance of Manila, dated February

28, 1933, decreeing the dissolution of the Rural Transit Company, Ltd.During the trial, Respondent’s secretary Olsen initially said that Bachrach was just a principal stockholder of Rural Transit and that the latter was the operator but later on admitted that Bachrach was in fact, doing business under the name of Rural Transit Co.

JUDGE.  According to the records of this commission the Bachrach Motor Company is the owner of the certificates and the Rural Transit Company, Ltd., is operating without any certificate.

JUDGE.  If you filed this application for the Rural Transit Company, Ltd., and afterwards it is found out that the Rural Transit Company, Ltd., is not an operator, everything will be turned down. library

JUDGE.  My question was, when you filed this application you evidently made it for the operator (Rural Transit)? 

A.            Yes, sir.

JUDGE.  Who was that operator you had in mind? 

A.            According to the status of the ownership of the certificates of the former Rural Transit Company, the operator was the operator authorized in case No. 23217 to whom all of the assets of the former Rural Transit Company were sold.

JUDGE.  Bachrach Motor Company?

A.            All actions have been prosecuted in the name of the Rural Transit Company, Ltd

JUDGE.  You mean the Bachrach Motor Company, Inc., doing business under the name of the Rural Transit Company, Ltd.?

A.            Yes, sir.Issue: W/N Public Service Commission committed an error in granting respondent’s application despite the fact that Bachrach Motor Co assumed the name of respondent?Held: Yes. Decision of Public Service Commission was set aside. Ratio:

The Public Service Commission or any court in this jurisdiction does not have the power to authorize one corporation to assume the name of another corporation as a trade name. 

Both the Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and the very law of their creation and continued existence requires each to adopt and certify a distinctive name. The incorporators "constitute a body politic and corporate under the name stated in the certificate."

A corporation has the power "of succession by its corporate name." (Section 13) The name of a corporation is therefore essential to its existence. It cannot change its name except in the manner provided by the statute. By that name alone is it authorized to transact business. The law gives a corporation no express or implied authority to assume another name that is unappropriated: still less that of another corporation, which is expressly set apart for it and protected by the law. Wherefore the order of the commission of November 26, 1932, authorizing the Bachrach Motor Co., Incorporated, to assume the name of the Rural Transit Co., Ltd. likewise in corporated, as its trade name being void, and accepting the order of December 21, 1932, at its face as granting a certificate of public convenience to

the applicant Rural Transit Co., Ltd., the said order last mentioned is set aside and vacated on the ground that the Rural Transit Company, Ltd., is not the real party in interest and its application was fictitious.chan

JESUS V. LANUZA, MAGADYA REYES, BAYANI REYES and ARIEL REYES vs. COURT OF APPEALS, SECURITIES AND EXCHANGE

COMMISSION, DOLORES ONRUBIA, ELENITA NOLASCO, JUAN O. NOLASCO III, ESTATE OF FAUSTINA M. ONRUBIA, PHILIPPINE

MERCHANT MARINE SCHOOL, INC.G.R. NO. 131394 March 28, 2005

(Corz)

Doctrine: The articles of incorporation have been described as that which defines the charter of the corporation and the contractual relationships between the State and the corporation, the stockholders and the State, and between the corporation and its stockholders.

Nature: Petition for review on certiorari of the decision and resolution of the Court of Appeals

FACTS 1952: The Philippine Merchant Marine School, Inc. (PMMSI) was

incorporated, with 700 founders’ shares and 76 common shares as its initial capital stock subscription reflected in the articles of incorporation. 

1978: Private respondents and their predecessors in control of PMMSI  registered the company’s stock and transfer book for the first time, recording 33 common shares as the only issued and outstanding shares of PMMSI.

1979: A special stockholders’ meeting was called and held on the basis of what was considered as a quorum of 27 common shares, representing more than 2/3 of the common shares issued and outstanding.

1982: the heirs of one of the original incorporators, Juan Acayan, filed a petition with the Securities and Exchange Commission (SEC) for the registration of their property rights over 120 founders’ shares and 12 common shares owned by their father.  The SEC hearing officer held that the heirs of Acayan were entitled to the claimed shares and called for a special stockholders’ meeting to elect a new set of officers. The SEC En Banc affirmed the decision.  The shares of Acayan were recorded in the stock and transfer book.

On May 6 1992, a stockholders’ meeting was held to elect a new set of directors. Subsequently, private respondents filed a petition with the SEC questioning the validity of the said meeting, alleging that the quorum for the said meeting should not be based on the 165 issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital stock of 776 shares, as reflected in the 1952 Articles of Incorporation.  The petition was dismissed.

Appeal was made to the SEC En Banc, which granted said appeal, holding that the shares of the deceased incorporators should be duly represented by their respective administrators or heirs concerned.  The SEC directed the parties to call for a stockholders meeting on the basis of the stockholdings reflected in the articles of incorporation for the purpose of electing a new set of officers for the corporation.

Petitioners, PMMSI stockholders, filed a petition for review with the CA. Some stockholders and directors of PMMSI, earlier filed another petition for review of the same SEC En Banc’s orders. The petitions were consolidated and essentially raised the main issue as to whether the basis for the outstanding capital stock and accordingly also for determining the quorum at stockholders’ meetings should be the 1978 stock and transfer book or if it should be the 1952 articles of incorporation.

CA held that for purposes of transacting business, the quorum should be based on the outstanding capital stock as found in the articles of incorporation.

Petitioners claim that the 1992 stockholders’ meeting was valid and legal.  They submit that reliance on the 1952 articles of incorporation for determining the quorum negates the existence and validity of the stock and transfer book which private respondents themselves prepared. 

In private respondents’ Memorandum, they point out that the instant petition raises the same facts and issues as those raised in  G.R. No. 131315, which was denied by the SC for failure to show  that the CA committed any reversible error.  They add that the instant petition should be dismissed due to res judicata.  Thus, petitioners and their counsel should be cited for contempt for violating the rule against forum-shopping.

In their Manifestation and Motion, private respondents moved for the dismissal of the instant petition in view of the dismissal of G.R. No. 131315. 

ISSUE

1. What should be the basis of quorum for a stockholders’ meeting—the outstanding capital stock as indicated in the articles of incorporation or that contained in the company’s stock and transfer book?

HELD1. The Articles of Incorporation should serve as the basis. The articles of

incorporation have been described as that which defines the charter of the corporation and the contractual relationships between the State and the corporation, the stockholders and the State, and between the corporation and its stockholders. When PMMSI was incorporated, it complied with the prevailing law which was Act No. 1459, otherwise known as “The Corporation Law.”

2. The contents of the articles of incorporation are binding, not only on the corporation, but also on its shareholders. In the instant case, the articles of incorporation indicate that at the time of incorporation, the incorporators were bona fide stockholders of 700 founders’ shares and 76 common shares.  Hence, at that time, the corporation had 776 issued and outstanding shares.

3. On the other hand, a stock and transfer book is the book which records the names and addresses of all stockholders arranged alphabetically, the installments paid and unpaid on all stock for which subscription has been made, and the date of payment thereof; a statement of every alienation, sale or transfer of stock made, the date thereof and by and to whom made; and such other entries as may be prescribed by law. A stock and transfer book is necessary as a measure of precaution, expediency and convenience since it provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing the ownership of stock and like matters. However, a stock and transfer book, like other corporate books and records, is not in any sense a public record, and thus is not exclusive evidence of the matters and things which ordinarily are or should be written therein. In fact, it is generally held that the records and minutes of a corporation are not conclusive even against the corporation but are prima facie evidence only.

4. Quorum in meetings is based on the totality of the shares which have been subscribed and issued, whether it be founders’ shares or common

shares. To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and transfer book, and completely disregarding the issued and outstanding shares as indicated in the articles of incorporation would work injustice to the owners and/or successors in interest of the said shares.   The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does not reflect the totality of shares which have been subscribed, more so when the articles of incorporation show a significantly larger amount of shares issued and outstanding as compared to that listed in the stock and transfer book.

WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED.  Costs against petitioners.

INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS, SECURITIES AND

EXCHANGE COMMISSION, and REFRACTORIES CORPORATION OF THE PHILIPPINES, respondents.

G.R. No. 122174; October 3, 2002; Austria-Martinez, J.(Jun)

Nature of the case is a petition for review on certiorari, under Rule 45 of the ROC, assailing the decision of the CA, which dismissed the petition filed by IRCP.

FACTS:1. The private respondent RCP is a corporation duly organized on October

13, 1976, engaged in the business of manufacturing, producing, selling, exporting and otherwise dealing in any and all refractory bricks, its by-products and derivatives. The petitioner IRCP was incorporated on August 23, 1979 under the name Synclaire Manufacturing Corporation of the Philippines , but changed its corporate name under the one under litigation on August 23, 1985, engaged in the manufacturing of all kinds of ceramics and other products. Both entities are the only local supplier of monolithic gunning mix.

2. When RCP discovered that such entity is acting under such a corporate name, it filed with the SEC a petition to compel the petitioner to change its corporate name as such is confusingly similar which may mislead the public into believing that they are one and the same corporation.

3. SEC decided in favor of RCP and ordered IRCP to drop the words “Refractories Corporation of the Philippines” from its corporate name and to pay P 50.000.00 as attorney’s fees. IRCP appealed to SEC En Banc, which modified the appealed decision, that only the word “Refractories” should be dropped. IRCP filed a petition for certiorari with the CA, which ruled that the corporate names of IRCP and RCP are confusingly similar and that RCP has established its prior right to use the word “Refractories”, and that the petition was filed beyond the reglementary period.

ISSUES:1. Whether or not the corporate names, Industrial Refractories Corp. of the

Phils. and Refractories Corp. of the Phils. are indeed confusingly similar, and if so, that RCP has proven to have a prior right of use of such name to compel IRCP to change its corporate name.

HELD/RATIO: YES

“WHEREFORE, the instant petition for review on certiorari is hereby DENIED for lack of merit. Costs against petitioner. SO ORDERED.”

1. The Court found that indeed IRCP failed to rebut the RCP’s allegation that the former failed to file its petition on time, as evidenced by a certification issued by SEC officials that the decision was received by IRCP on August 15, 1994, and therefore when the former filed its petition with CA on September 6, 1994, it was 21 days beyond the reglementary period.

2. The Court also ruled that the SEC has jurisdiction over the case, as the same has absolute jurisdiction, supervision, and control over all corporations. It also exercises regulatory and administrative powers in implementing and enforcing the Corporation Code.

a. By virtue of Sec. 18, SEC has the duty to prevent confusion in the use of the corporate name not only for the protection of the corporations involved but more so of the public. It has the authority to de-register at all times and under all circumstances

corporate names which in its estimation are likely to generate confusion.

3. The Court found that the corporate names are likely to cause confusiona. The policy behind the prohibition enshrined in Sec. 18 is to

avoid fraud upon the public that will have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over corporation.

b. The Revised Guidelines in the Approval of Corporate and Partnership Names requires that: 1) a corporate name is not identical, misleading or confusingly similar to one already registered by another corporation with the Commission; 2) if the proposed name is similar to the name of a registered entity, the proposed name must contain at least one distinctive word different from that already registered.

c. In the case of Philips Export B.V. vs. Court of Appeals, states the requisites to be proven for the prohibition to apply: 1) complainant corporation acquired a prior right over the use of such corporate name; 2) proposed name is either identical, or deceptively or confusingly similar to that already registered, or patently deceptive, confusing or contrary to existing law.

i. First requisite – right to the exclusive use of a corporate name with freedom from infringement by similarity is determined by priority of adoption. Referring to the facts stated above, RCP was first to use when it was organized on October 13, 1976.

There was a 9 year difference from the respondent’s first use of its name and the petitioner’s change of name.

ii. Second Requisite – the test in determining the existence of confusing similarity is whether the similarity is such as to mislead a person using ordinary care and discrimination, and the Court must look to the record as well as the names themselves. Both corporate names carry the words “Refractories”, “Corporation”, and “Philippines”, the only difference being the word “Industrial” found in the name of the petitioner.

Both entities cater to the same clientele, steel industry.

SEC found instances where different steel companies were actually confused between the two since they also have the same packaging. These findings of the SEC are accorded great respect and finality unless rendered arbitrarily.

d. Although the word refractory is a generic term, it usage is not wide spread and is limited merely to the industry in which it is used, RCP’s use of such word for a considerable length of time has made it closely indentified with the respondent RCP.

e. Based on the case of Ang Kaanib sa Iglesia ng Dios kay Kristo Hesus, H.S.K. sa Bansang Pilipinas, Inc. vs. Iglesia ng Dios kay Cristo Jesus, Haligi at Suhay ng Katotohanan, petitioner’s use of respondent’s corporate name cannot find justification under the generic word rule. A contrary ruling would encourage other corporations to use corporate names already registered to the detriment of the public.

Shangri-La International Hotel v. CAG.R. Nos. 111580 & 114802

Ynares-Santiago, J.:Danna

Doctrine: An application with BPTTT for an administrative cancellation of a registered trade mark cannot per se have the effect of restraining or preventing the courts from the exercise of their lawfully conferred jurisdiction.

Nature of the case: Petition for review on certiorari on the decision of the CA Facts:

Shangri-La Group filed with the Bureau of Patents, Trademarks and Technology Transfer (BPTTT) a petition cancelling the registration of the Shangri-La mark and S device/logo issued to the Developers Group of Companies, Inc. Shangri-La contends that it has been using the mark and logo since 1975 while Developers Group only started using it in 1982. Shangri-La Group also filed with BPTTT an application for registration of the subject mark and logo to which Developers Group opposed.

After almost 3 years, Developers Group instituted with the Regional Trial Court of Quezon City, Branch 99, a complaint for infringement and damages with prayer for injunction against Shangri-La Group. The latter moved for the suspension of the proceedings in the infringement case on account of the pendency of the administrative proceedings before the BPTTT. This was denied by the trial court. Shangri-La also filed a petition for certiorari before the CA but the same was dismissed. Hence, this petition docketed as G.R. No. 111580 questioning whether the infringement case should be dismissed and whether the judge should inhibit himself from trying the infringement case.

Meanwhile, Developers Group filed in Inter Partes Case No. 3145 case an Urgent Motion to Suspend Proceedings, invoking the pendency of the infringement case it filed before the Regional Trial Court of Quezon City. This was denied. From the denial by the BPTTT of its Urgent Motion to Suspend Proceedings and Motion for Reconsideration, the Developers Group filed with the Court of Appeals but was also denied Hence, this petition docketed as G.R. No. 114802 questioning if a civil action in the RTC and an administrative proceeding may co-exist.

Both cases were consolidated.

However, while the case was pending with the Supreme Court, the trial court rendered a decision on the infringement case favoring Developers Group. Such decision is still on appeal with the CA. Issue:

1. Does an institution of an Inter Partes case for the cancellation of a mark with the BPTTT bar a subsequent action for infringement with the regular courts of justice? NO.

2. Should the case for the cancellation of the mark still continue when the trial court already rendered a decision favorable to Developers Group?

Held: 1. No.

o Section 151.2 of RA 8293 (Intellectual Property Code). Notwithstanding the foregoing provisions, the court or the administrative agency vested with jurisdiction to hear and adjudicate any action to enforce the rights to a registered mark

shall likewise exercise jurisdiction to determine whether the registration of said mark may be cancelled in accordance with this Act. The filing of a suit to enforce the registered mark with the proper court or agency shall exclude any other court or agency from assuming jurisdiction over a subsequently filed petition to cancel the same mark. On the other hand, the earlier filing of petition to cancel the mark with the Bureau of Legal Affairs shall not constitute a prejudicial question that must be resolved before an action to enforce the rights to same registered mark may be decided. (Emphasis provided)

o Rule 8, Section 7 of Regulation on Inter Partes Proceedings. Effect of filing of a suit before the Bureau or with the proper court. - The filing of a suit to enforce the registered mark with the proper court or Bureau shall exclude any other court or agency from assuming jurisdiction over a subsequently filed petition to cancel the same mark. On the other hand, the earlier filing of petition to cancel the mark with the Bureau shall not constitute a prejudicial question that must be resolved before an action to enforce the rights to same registered mark may be decided. (Emphasis provided)

o The rationale is plain: Certificate of Registration No. 31904, upon which the infringement case is based, remains valid and subsisting for as long as it has not been cancelled by the Bureau or by an infringement court. Since the certificate still subsists, Developers Group may thus file a corresponding infringement suit and recover damages from any person who infringes upon the formers rights.

2. No.

o There can be no denying that the infringement court may validly pass upon the right of registration. Section 161 of Republic Act No. 8293 provides to wit –

SEC. 161. Authority to Determine Right to Registration – In any action involving a registered mark the court may determine the right to registration, order the cancellation of the registration, in whole or in part, and otherwise rectify the register with respect to the registration of any party to the action in the

exercise of this. Judgement and orders shall be certified by the court to the Director, who shall make appropriate entry upon the records of the Bureau, and shall be controlled thereby. (Sec. 25, R.A. No. 166a). (Emphasis provided)

o With the decision of the Regional Trial Court upholding the validity of the registration of the service mark Shangri-La and S logo in the name of Developers Group, the cancellation case filed with the Bureau hence becomes moot. To allow the Bureau to proceed with the cancellation case would lead to a possible result contradictory to that which the Regional Trial Court has rendered, albeit the same is still on appeal. Such a situation is certainly not in accord with the orderly administration of justice. In any event, the Court of Appeals has the competence and jurisdiction to resolve the merits of the said RTC decision.

WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing G.R. No. 111580 for being moot and academic, and ordering the Bureau of Legal Affairs, Intellectual Property Office, to suspend further proceedings in Inter Partes Case No. 3145, to await the final outcome of the appeal in Civil Case No. Q-91-8476.

Lyceum of the Philippines vs. Court of Appeals[GR 101897, 5 March 1993]

(James)

Doctrine: No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws.

FACTS:

1. Petitioner had sometime commenced before in the SEC a complaint against Lyceum of Baguio, to require it to change its corporate name and to adopt another name not similar or identical with that of petitioner. SEC decided in favor of

petitioner. Lyceum of Baguio filed petition for certiorari but was denied forlack of merit.

2. Armed with the resolution of the Court, petitioner instituted before the SEC to compel private respondents, which are also educational institutions, to delete word “Lyceum” from their corporate names and permanently to enjoin them from using such as part of their respective names.

3. Hearing officer sustained the claim of petitioner and held that the word “Lyceum” was capable of appropriation and that petitioner had acquired an enforceable right to the use of that word.

4. In an appeal, the decision was reversed by the SEC En Banc. They held that the word “Lyceum” to have become identified with petitioner as to render use thereof of other institutions as productive of confusion about the identity of the schools concerned in the mind of the general public.

5. Petitioner went to appeal with the CA but the latter just affirmed the decision of the SEC En Banc.

ISSUES:

1. W/N the names of the contending Lyceum schools are confusingly similar.

2. W/N the use by the Lyceum of the Philippines of "Lyceum" in its corporate name has been for such length of time and with such exclusivity as to have become associated or identified with the petitioner institution in the mind of the general public (or at least that portion of the general public which has to do with schools).

HELD:

[1]: “No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an

amended certificate of incorporation under the amended name." The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical or deceptively or confusingly similar" to that of any existing corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over corporations. Herein, the Court does not consider that the corporate names of the academic institutions are "identical with, or deceptively or confusingly similar" to that of Lyceum of the Philippines Inc.. True enough, the corporate names of the other schools (defendant institutions) entities all carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of geographic names to the word "Lyceum." Thus, the "Lyceum of Aparri" cannot be mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines. Further, etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn referred to a locality on the river Ilissius in ancient Athens "comprising an enclosure dedicated to Apollo and adorned with fountains and buildings erected by Pisistratus, Pericles and Lycurgus frequented by the youth for exercise and by the philosopher Aristotle and his followers for teaching." In time, the word "Lyceum" became associated with schools and other institutions providing public lectures and concerts and public discussions. Thus today, the word "Lyceum" generally refers to a school or an institution of learning. Since "Lyceum" or "Liceo" denotes a school or institution of learning, it is not unnatural to use this word to designate an entity which is organized and operating as an educational institution. To determine whether a given corporate name is "identical" or "confusingly or deceptively similar" with another entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate names in their entirety and when the name of Lyceum of the Philippines is juxtaposed with the names of private respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other.

[2]: The number alone of the private respondents in the present case suggests strongly that the Lyceum of the Philippines' use of the word "Lyceum" has not been attended with the exclusivity essential for applicability of the doctrine of secondary meaning. It may be noted also that at least one of the private respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term "Lyceum"

17 years before Lyceum of the Philippines registered its own corporate name with the SEC and began using the word "Lyceum." It follows that if any institution had acquired an exclusive right to the word "Lyceum," that institution would have been the Western Pangasinan Lyceum, Inc. rather than Lyceum of the Philippines. Hence, Lyceum of the Philippines is not entitled to a legally enforceable exclusive right to use the word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of their corporate names.

ASIA BANKING CORPORATION,  vs. STANDARD PRODUCTS, CO., INC.,

G.R. No. 22106 ; September 11, 1924; BON

Doctrine: In the absence of fraud a person who has contracted or otherwise dealt with an association in such a way as to recognize and in effect admit its legal existence as a corporate body is thereby estopped to deny its corporate existence

Nature of the case: Appeal from the judgment of the lower court.FACTS:

1. This action is brought by Asia Banking to recover the sum of P24,736.47 from the Standard Products, the balance due from the original loan of P37,757.22.

2. Standard Products sent promissory note to Asia Banking Corp. in which it promised to pay the petitioner: P37,757.22 plus 10% interest per annum as signed by George Seaver (President of Standard Products).

3. Trial Court: endered judgment in favor of the plaintiff for the sum demanded in the complaint, with interest on the sum of P24,147.34 from November 1, 1923, at the rate of 10 per cent per annum, and the costs.

4. Standard appeals to the Supreme Court with the allegation: That during the trial of the case Asia Banking failed to prove

affirmatively the corporate existence of the parties and such under these circumstances the trial court erred in finding that the parties were corporations with juridical personality.

ISSUE: Whether or not Standard Products Co. is estopped from denying the corporate existence of Asia Banking Corp.

RULING: YES.

GENERAL RULE: In the absence of fraud a person who has contracted or otherwise

dealt with an association in such a way as to recognize and in effect admit its legal existence as a corporate body is thereby estopped to deny its corporate existence in any action leading out of or involving such contract or dealing, unless its existence is attacked for cause which have arisen since making the contract or other dealing relied on as an estoppel and this applies to foreign as well as to domestic corporations.

APPLICATION IN THIS CASE: Standard Products Co. having recognized the corporate existence of Asia

Banking Corp., by making a promissory note in its favor and making partial payments on the same is therefore estopped to deny said plaintiff's corporate existence.

It is also estopped from denying its own corporate existence. Under these circumstances it was unnecessary for the plaintiff to present

other evidence of the corporate existence of either of the parties. It may be noted that there is no evidence showing circumstances taking

the case out of the rules stated.

The judgment appealed from is affirmed, with the costs against the appellant-defendant.

Communication Materials and Design, Inc. vs. CAG.R. No. 102223, August 22, 1996

(Kat)

Doctrine: A foreign corporation although not authorized to do business here in the Philippines, may sue in our courts against a Philippine citizen or entity who had contracted with and benefited by said corporation. A party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it.

Nature: Petition for review on certiorari of the decision of the CA

Facts:1. Petitioners Communication Materials and Design (CMDI) and Aspac

Multi-Trade, Inc. (CASPAC) are both domestic corporations while

petitioner Francisco Aguirre is their President and majority stockholder. Respondents ITEC INC. and/ or ITEC INTERNATIONAL, INC. (ITEC) on the other hand are corporations duly organized and existing under the laws of the State of Alabama, United States of America. It is a foreign corporation not licensed to do business in the Philippines.

2. ITEC entered into a contract with ASPA referred to as “Representative Agreement”. Pursuant to this agreement, ITEC engaged ASPAC as the “exclusive representative” in the Philippines for the sale of ITEC’s products. ASPAC was paid a stipulated commission. The agreement was initially for a term of 24 months, and was renewed for another 24 months.

3. The parties subsequently entered into a “License Agreement”. Through this, ASPAC was able to incorporate and use the name of ITEC in its own name. Thus, ASPAC Multi-Trade became legally and publicly known as ASPAC-ITEC Philippines.

4. By virtue of the said contracts, ASPAC sold electronic products exported by ITEC to their sole customer, the Philippine Long Distance Company (PLDT).

5. ITEC eventually decided to terminate their Representative Agreement. ASPAC allegedly violated their contractual commitment by using the knowledge and information of ITEC’s products specifications to develop their own line of equipment and product support which are identical to ITEC’s own, and offering it to ITEC’s former customer.

6. RTC Level -ITEC filed a complaint before the RTC:

a. To enjoin ASPAC from selling copied products b. To cease from using its corporate name, letter heads, business

dealings, etc. c. Damages

- On the other hand, ASPAC filed a motion to dismiss on the following grounds:

a. Being a foreign corporation, ITEC has no capacity to sue. It has no BOI authority and SEC licenseb. engaged in forum shopping

-RTC ruling: - Motion to dismiss denied on both grounds - Preliminary injunction be issued against ASPAC

7. CA level -ASPAC filed a Petition for Certiorari (Rule 65) and Prohibition assailing the issuance of the Writ of preliminary injunction- CA denied the same.- MR was filed before the CA, which was also denied. Thus, this petition.

8. ASPAC contends that:a. ITEC being a foreign corporation actually doing business in the

Philippines, without the requisite authority and license from the Board of Investments and the Securities and Exchange Commission is disqualified from instituting a court action. ASPAC is not an independent entity; it is merely an extension of ITEC in the Philippines, thus ITEC is not exempted from the requirements of RA 54551. b. Having no capacity to bring suit here, the Philippines is not the “most convenient forum” because the trial court has no power to enforce its orders or decisions in a case that could not have been commenced to begin with

9. ITEC on the other hand contends that:a. Although ASPAC was named as representative of ITEC, it actually

acted in its own name and for its own account. Their Representative Agreement shows that ASPAC named itself as an Independent Contractor.

Issue/s:

1.) Is ITEC an unlicensed corporation doing business in the Philippines? YES

2.) Is it disqualified from instituting a court action? NO

Held:

- A foreign corporation has no legal existence within the state in which it is foreign. Before it can transact business in the Philippines, it must first obtain a license to transact business in the Philippines and a certificate

1 RA 5455 requires a BOI and SEC certificate for a foreign corporation to operate. As mentioned in the case of Top-Weld Manufacturing Inc. vs. ECED et. al., one could be exempted from the requirements if the local company is an independent entity which buys and distributes products not only of the foreign company but also other manufacturers or suppliers

from the appropriate government agency. If it transacts without a license, it shall not be permitted to file an action before any court but it may be sued on any valid cause.

o Purpose of the law is to submit the foreign corporation doing business in the Philippines to the jurisdiction of its courts

- The true test to determine whether a foreign corporation is “doing business” seems to be whether the foreign corporation is continuing the substance of the business for which it was organized.

- The court ruled that ITEC had been doing business in the Philippines. It introduces itself to the general public through ASPAC; it has local technical representatives and a local service center

- ASPAC’s contract with ITEC is highly restrictive, meaning the former acts exclusively for the latter; No Competing Product clause of their agreement proves the same

- Notwithstanding the court’s finding that ITEC is doing business in the country without the required certificate, ASPAC is estopped from raising this fact in order to bar ITEC from instituting an injunction case.

o A foreign corporation although not authorized to do business here in the Philippines, may sue in our courts against a Philippine citizen or entity who had contracted with and benefited by said corporation

o A party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it.

o The doctrine of estoppels to deny corporate existence applies to a foreign as well as to domestic corporations

- By entering into a “Representative Agreement” with ITEC, ASPAC is charged with knowledge that it has no license to engage into business in the country. It is thus estopped from raising in defense such incapacity, having chosen to ignore or even presumptively take advantage of the same

- The court has already acquired jurisdiction over ITEC through the injunction suit it originally filed against ASPAC.

Wherefore, the petition is dismissed. Decision of CA upholding the RTC affirmed.

R& E TRANSPORT, INC. AND HONORIO ENRIQUEZ v. AVELINA LATAG, representing her husband , PEDRO LATAG (deceased)

GR No.155214; February 13, 2004; J. Panganiban(Mickey)

Nature: Petition for Review on Certiorari of the decision and resolution of the CA

Doctrine: Any application of the doctrine of Peircing corporate vaeil should be done with caution. It should be certain that fiction was misused to such extent that injustice, fraud or crime was committed against another, in disregard of its rights.

Facts:1. From being regular employee of La Mallorca Taxi (for 23 years) , Pedro

Latag transferred to R &E Transport (PETITIONER) after the former company ceased its business operation . There he receives an average daily salary of Five hundred pesos. (Latag worked at R&E for 14 years)

2. He later got sick and was forced to apply for partial disability with SSS which was granted. Upon recovery, he attempted to return to work but was no longer allowed to continue due to old age.

3. He thus asked the administrative officer of the petitioner for his retirement pay pursuant to RA 7641 but was ignored. He therefore filed a case for payment of retirement pay before the NLRC.

4. However, Pedro Latag died and thus, he was subsequently substituted by his wife Avelina (RESPONDENT). Labor Arbiter then rendered a decision in favour of Latag saying that both R&E Transport and Honorio Enriquez, as executive officer, are jointly and severally liable to pay the retirement pay of Latag.

5. Few days after, Avelina was invited to the office of petitioner’s counsel and there she was offered the amount of 38,500 which she accepted. She was also asked to sign a prepared quitclaim and releas and a joint motion to dismiss the case.

6. Petitioners then filed the quit claim and motion to dismiss. The Labor Arbiter rendered that the earlier decision stands and the Labor Arbitration Associate to preoare the writ of execution.

7. The case was appealed to the NLRC which dismissed it for failure to post cash bond as mandated by law. Upon Motion for reconsideration, NLRC rendered its decision not in favour of the petitioners. This prompted it to appeal to Court of Appeals which ruled that the Labor arbiter’s decision is final and executory.

8. Thus this petition.

Issue:Should the years of service of Latag with La Mallorca be considered in computing for the benefits he has to receive?

Held:NO. There was no showing that La Mallorca Taxi and R&E Transport are one and the same entity.

- The averment that the two companies are the same is negated by the documentary evidence presented by the petitioners. Honorio Enriquez was the president and not the stockholder of LA Mallorca. Likewise none of the stockholder of La Mallorca holds stocks in R&E Transport.

- The basic rule of Piercing Corporate Veil could not be applied in this case. Respondent has not shown that one company had stock control and complete domination over the other and vice versa

- There was no evidence that La Mallorca Taxi was renamed as R&E Transport , Inc.

- Moreover, the seven year gap between the time La Mallorca clodes its shop until the date when R&E came into being casts doubts on any alleged intention to violate statutory duty.

Decision: Partly Granted. The number of years of service considered is only 14 years. Latag is entitled to retirement benefits less the amount which Avelina has already received.

PHILIPPINE NATIONAL BANK, petitioner, vs. RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL

MERCHANDISE, respondents.G.R. No. 142616; July 31, 2001; P: Kapunan

Doctrine: general rule: as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members, and is not affected by

the personal rights, obligations and transactions of the latter.NATURE: Petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to annul and set aside the Court of Appeals' decision in C.A. CV G.R. S.P. No. 55374 dated March 27, 2000, affirming the Order issuing

a writ of preliminary injunction of the Regional Trial Court of Makati, Branch 147 dated June 30, 1999, and its Order dated October 4, 1999, which denied petitioner's motion to dismiss.FACTS:

1. Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law. Respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise are domestic corporations, likewise, organized and existing under Philippine law.

2. On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized and doing business in Hong Kong, extended a letter of credit in favor of the respondents in the amount of US$300,000.00 secured by real estate mortgages constituted over four (4) parcels of land in Makati City.

a. This credit facility was later increased successively to US$1,140,000.00 in September 1996;

i. to US$1,290,000.00 in November 1996; ii. to US$1,425,000.00 in February 1997;

iii. decreased to US$1,421,316.18 in April 1998. b. Respondents made repayments of the loan incurred by remitting

those amounts to their loan account with PNB-IFL in Hong Kong.

3. However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70.

4. Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the respondents of the foreclosure of all the real estate mortgages and that the properties subject thereof were to be sold at a public auction on May 27, 1999 at the Makati City Hall.

5. On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order before the Regional Trial Court of Makati.

a. The Executive Judge of the Regional Trial Court of Makati issued a 72-hour temporary restraining order.

6. On May 28, 1999, the case was raffled to Branch 147 of the Regional Trial Court of Makati. The trial judge then set a hearing on June 8, 1999.

a. At the hearing of the application for preliminary injunction, petitioner was given a period of seven days to file its written opposition to the application.

7. On June 15, 1999, petitioner filed an opposition to the application for a writ of preliminary injunction to which the respondents filed a reply.

8. On June 25, 1999, petitioner filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of any privity between the petitioner and respondents.

9. On June 30, 1999, the trial court judge issued an Order for the issuance of a writ of preliminary injunction, which writ was correspondingly issued on July 14, 1999.

10. On October 4, 1999, the motion to dismiss was denied by the trial court judge for lack of merit.

11. Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ of preliminary injunction before the Court of Appeals.

12. In the impugned decision, the appellate court dismissed the petition. 13. Petitioner thus seeks recourse to this Court

a. Petitioner prays that the Court of Appeals' Decision dated March 27, 2000 and the trial court's Orders dated June 30, 1999 and October 4, 1999 be set aside and the dismissal of the complaint in the instant case

b. Respondents sought to enjoin and restrain PNB from the foreclosure and eventual sale of the property in order to protect their rights to said property by reason of void credit facilities as bases for the real estate mortgage over the said property.

i. argue that even assuming that petitioner and PNB-IFL are two separate entities, petitioner is still the party-in-interest in the application for preliminary injunction because it is tasked to commit acts of foreclosing respondents' properties.

ii. maintains that the entire credit facility is void as it contains stipulations in violation of the principle of mutuality of contracts.

1. The determination of the interest rates being left to the sole discretion of the defendant PNB contravenes the principal of mutuality of contracts

2. There being a stipulation in the loan agreement that the rate of interest agreed upon may be unilaterally modified by defendant, there was no stipulation that the rate of

interest shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the monetary board

iii. justified the act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate Identity" by stating that petitioner is merely an alter ego or a business conduit of PNB-IFL.

ISSUE:1. Whether Ritratto Group Inc. has a cause of action against Philippine

National Bank?2. Whether the trial court was correct in piercing the veil of corporate

fiction?3. Whether the preliminary injunction was issued properly?

HELD:1. No, Ritratto Group Inc has no cause of action against the Philippine

National Bank. contract questioned is one entered into between respondent and

PNB-IFL, not PNB. o In their complaint, respondents admit that petitioner is

a mere attorney-in-fact for the PNB-IFL with full power and authority to foreclose on the properties mortgaged to secure their loan obligations with PNB-IFL.

o petitioner is an agent with limited authority and specific duties under a special power of attorney incorporated in the real estate mortgage.

not privy to the loan contracts entered into by respondents and PNB-IFL.

The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and the party to the loan contracts, and the respondents.

despite the recognition that petitioner is a mere agent, the respondents in their complaint prayed that the petitioner PNB be ordered to re-compute the rescheduling of the interest to be paid by them in accordance with the terms and conditions in the documents evidencing the credit facilities, and crediting the amount previously paid to PNB by herein respondents.

o Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set forth in the contract.

o Respondents, therefore, do not have any cause of action against petitioner.

In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case since the petitioner was not sued because it is the parent company of PNB-IFL.

o petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings.

o A suit against an agent cannot without compelling reasons be considered a suit against the principal.

o Under the Rules of Court, every action must be prosecuted or defended in the name of the real party-in-interest, unless otherwise authorized by law or these Rules.

o In mandatory terms, the Rules require that "parties-in-interest without whom no final determination can be had, an action shall be joined either as plaintiffs or defendants."

o In the case at bar, the injunction suit is directed only against the agent, not the principal.

2. No, the circumstances do not warrant the piercing of the corporate veil.

Trial court ruled that since PNB-IFL, is a wholly owned subsidiary of defendant Philippine National Bank, the suit against the defendant PNB is a suit against PNB-IFL.

o Koppel Phil. Inc. vs. Yatco: corporate entity may be disregarded where a corporation is the mere alter ego, or business conduit of a person or where the corporation is so organized and controlled and its affairs are so conducted, as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.

general rule: as a legal entity, a corporation has a personality distinct and separate from its individual

stockholders or members, and is not affected by the personal rights, obligations and transactions of the latter.

o mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity.

o If used to perform legitimate functions, a subsidiary's separate existence may be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business.

o The courts may in the exercise of judicial discretion step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity

the ruling in Koppel finds no application in the case at baro respondents fail to show any cogent reason why the

separate entities of the PNB and PNB-IFL should be disregarded.

though, no definite test of general application in determining when a subsidiary may be treated as a mere instrumentality of the parent corporation, some factors have been identified that will justify the application of the treatment of the doctrine of the piercing of the corporate veil.

o Garrett vs. Southern Railway Co.: The Circumstance rendering the subsidiary an instrumentality –

(a) The parent corporation owns all or most of the capital stock of the subsidiary.

(b) The parent and subsidiary corporations have common directors or officers.

(c) The parent corporation finances the subsidiary.

(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation.

(e) The subsidiary has grossly inadequate capital.

(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.

(g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation.

(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own.

(i) The parent corporation uses the property of the subsidiary as its own.

(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation.

(k) The formal legal requirements of the subsidiary are not observed.

doctrine of piercing the corporate veil is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. It applies:

o when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime

o when it is made as a shield to confuse the legitimate issues

o where a corporation is the mere alter ego or business conduit of a person

o where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.

Concept Builders, Inc. v. NLRC: the test in determining the applicability of the doctrine of piercing the veil of corporate fiction

o 1. Control, not mere majority or complete control, but complete domination, not only of finances but of

policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own.

o 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and, unjust act in contravention of plaintiffs legal rights; and,

o 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents "piercing the corporate veil."

In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant's relationship to the operation

the doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at bar.

o no showing of the indicative factors that the former corporation is a mere instrumentality of the latter are present.

Neither is there a demonstration that any of the evils sought to be prevented by the doctrine of piercing the corporate veil exists.

3. No, the preliminary injunction was not issued properly Anent the issuance of the preliminary injunction, the same must

be lifted as it is a mere provisional remedy but adjunct to the main suit.

A writ of preliminary injunction is an ancillary or preventive remedy that may only be resorted to by a litigant to protect or preserve his rights or interests and for no other purpose during the pendency of the principal action.

o The dismissal of the principal action thus results in the denial of the prayer for the issuance of the writ.

there is no showing that respondents are entitled to the issuance of the writ

an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation

o Respondents do not deny their indebtedness. o Their properties are by their own choice encumbered

by real estate mortgages. o Upon the non-payment of the loans, which were

secured by the mortgages sought to be foreclosed, the mortgaged properties are properly subject to a foreclosure sale.

o Moreover, respondents questioned the alleged void stipulations in the contract only when petitioner initiated the foreclosure proceedings.

o Clearly, respondents have failed to prove that they have a right protected and that the acts against which the writ is to be directed are violative of said

respondents committed the mistake of filing the case against the wrong party, thus, they must suffer the consequences of their error.

DISPOSITION: Respondents do not have a cause of action against the petitioner as the latter is not privy to the contract the provisions of which respondents seek to declare void. Accordingly, the case before the Regional Trial Court must be dismissed and the preliminary injunction issued in connection therewith, must be lifted.

IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of the Court of Appeals is hereby REVERSED. The Orders dated June 30, 1999 and October 4, 1999 of the Regional Trial Court of Makati, Branch 147 in Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE and the complaint in said case DISMISSED.

ARB Construction Co., Inc. vs Court of AppealsGR No. 126554 May 31, 2000

Bellosillo, J.

Nature: Petitions for review on certiorari of a decision of the Court of Appeals

Doctrine: Officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority.

Facts:1. TBS Security and Investigation Agency (TBSS) entered into two (2)

Service Contracts with ARBC wherein TBSS agreed to provide and post security guards in the five (5) establishments being maintained by ARBC.

Service Contracts provides: The contract shall be effective for a period of one (1) and shall be considered automatically renewed for the same period unless otherwise a written notice of termination shall have been given by one party to the other party thirty (30) days in advance.

2. ARBC informed TBSS of its desire to terminate the Service Contracts effective thirty (30) days after receipt of the letter. 

ARBC through its Vice President for Operations, Mark Molina, informed TBSS that it was replacing its security guards with those of Global Security Investigation Agency (GSIA).

TBSS informed ARBC that the latter could not pre-terminate the Service Contracts nor could it post security guards from GSIA as it would run counter to the provisions of their Service Contracts.

3. TBSS filed a Complaint for Preliminary Injunction against ARBC and GSIA

Answer: ARBC claimed that it decreased the number of security guards being posted at its establishments to only one (1) as the security guards assigned by TBSS were found to be grossly negligent and inefficient

4. TBSS filed a Motion for Leave to File Attached Amended and Supplemental Complaint. TBSS submitted that it now desired to pursue a case for Sum of Money and Damages instead of the one previously filed for Preliminary Injunction. 

Allegations: ARBC illegally deducted from the payroll the amounts of P15,500.00 and P2,800.00 representing the value of one (1) unit concrete vibrator and cassette recorder, respectively.

It further argued that ARBC withheld additional amounts from its payroll as payment for the parts of the grader that were stolen.

RTC granted the motion of TBSS to file the amended and supplemental complaint.

ARBC filed a Motion for Reconsideration which was denied.5. Petitions of ARBC and Molina to the Court of Appeals were denied.

Hence this petition.

Issue: WON the allegations in the amended and supplemental complaint were sufficient to hold petitioner Molina liable to private respondent in his personal capacity.

Held: No. Officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority.

Ratio:1. It is basic that a corporation is invested by law with a personality

separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. As a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa.

However, the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice; or for purposes that could not have been intended by the law that created it; or to defeat public convenience, justify wrong, protect fraud, or defend crime; or to perpetuate deception; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders.

Petitioner Molina could not be held jointly and severally liable for any obligation which petitioner ARBC may be held accountable for, absent any proof of bad faith or malice on his part. Corollarily, it is also incorrect on the part of the Court of Appeals to conclude that there was a sufficient cause of action against Molina as to make him personally liable for his actuations as Vice President for Operations of ARBC. A cursory reading of the records of the instant case would reveal that Molina did not summarily withhold certain amounts from the

payroll of TBSS. Instead, he enumerated instances22 which in his view were enough bases to do so.

Court Disposition: Petition is partially granted.

Gregorio Araneta, Inc. v. Tuason de Paterno and Jose VidalL-2886 August 22, 1952Tuason, J.

(bry)

Doctrine: The piercing of the Corporate Fiction doctrine is meant to prevent fraud, and cannot be employed to perpetrate fraud or a wrong.

Nature: Appeal from the Judgement of the Court of First Instance

Facts: Paz Tuason de Paterno is the registered owner of a parcel of land, which was subdivided i n t o l o t s . M o s t o f t h e s e l o t s w e r e o c c u p i e d b y lessees who had contracts of lease that would expire at a certain time, and carried a stipulation giving the lessees a right of first refusal in case the lots were to be sold. In 1940 and 1941, Paz Tuason obtained from Jose Vidal several loans, and constituted a mortgage on t h e p r o p e r t y t o s e c u r e t h e d e b t . I n 1 9 4 3 , s h e obtained additional loans upon the same security then decided to sell the whole property to Gregorio Araneta, Inc. The day after the agreement was signed, Paz Tuason offered to Vidal a check in full settlement of her mortgage obligation but Vidal refused to accept it or cancel the mortgage. Gregorio Araneta instituted the case to compel Paz Tuason to deliver to the former a clear title of the lots. One of the objections made against the sale is that Jose Araneta, president of Gregorio Araneta Inc., was also the agent of Paz Tuason thus saying that the corporate fiction should be disregarded since the sale is not valid because it was made to an agent of the seller.

Issue: Should the Corporate Fiction Doctrine be disregarded?

Held: No. Gregorio Araneta, Inc. had long been organized and engaged in real estate business. The corporate entity was not used to circumvent the law or perpetrate deception. There is no denying that Gregorio Araneta, Inc. entered into

the contract for itself and for its benefit as a corporation. The contract and the roles of the parties who participated therein were exactly as they purported to be and were fully revealed to the seller. There is no pretense, nor is there reason to suppose, that if Paz Tuason had known Jose Araneta to be Gregorio Araneta, Inc's president, which she knew, she would not have gone ahead with the deal. From her point of view and from the point of view of public interest, it would have made no difference Under these circumstances the result of the suggested disregard of a technicality would be, not to stop the commission of deceit by the purchaser but to pave the way for the evasion of a legitimate and binding commitment by the seller. The principle invoked by the defendant is resorted to by the courts as a measure or protection against deceit and not to open the door to deceit. "The courts," it has been said, "will not ignore the corporate entity in order to further the perpetration of a fraud."

Disposition: 1st and 2nd motions for reconsideration are both denied.

LUCIA MAGALING, PARALUMAN R. MAGALING, MARCELINA MAGALING-TABLADA, AND BENITO R. MAGALING (HEIRS OF THE LATE REYNALDO MAGALING), PETITIONERS, VS. PETER ONG, RESPONDENT.

G. R. No. 173333, August 13, 2008(Dino)

Doctrine: The veil of corporate fiction may be pierced if there’s gross negligence on the part of the directors.

Nature: Petition for Review on Certiorari filed under Rule 45 seeking the reversal of the Decision of the CA.

FACTS:1) Respondent Ong instituted with the RTC a Complaint for the collection of the

sum of P389,000.00, with interest, attorney's fees and costs of suit, with prayer for issuance of a writ of preliminary attachment against the spouses Magaling and Termo Loans. The allegation was that said sps. are the controlling

stockholders/owners of Termo Loans and had used the corporation as mere alter ego or adjunct to evade the payment of valid obligation

2) The sps. sought a loan from Peter Ong and promised a corresponding interest of 2.5 %. As a guarantee, Reynaldo issued 7 checks, but only 2 were cleared by the bank. Despite demands, the sps. and and Termo Loans failed to pay.

3) RTC grants the writ of preliminary attachment against sps Magaling as it finds that the petition of Ong was impressed with merit. In their response with counterclaim, the sps. alleged that Ong voluntarily invested the money without any inducement because he got attracted with the interest rate and that the checks that were issued by Termo Loans as a corporation and answering defendants are not even signatories thereto.

4) Pursuant to the writ of preliminary attachment earlier issued the Sheriff of RTC, Br. 13 of Lipa City, caused the attachment of two (2) parcels of land covered by Transfer Certificates of Title No. T-109347 and No. T-75559, both in the names of the Spouses Magaling.

5) The Sps. Magaling expectedly moved for the reconsideration of the Order of the RTC granting the writ of preliminary attachment which the RTC granted. The RTC found that Spouses Magaling's Motion to Discharge Attachment was impressed with merit: FIRSTLY, it appears that the obligation was incurred by Termo Loans. It is therefore a corporate liability and not the personal obligation of the sps.

6) RTC decided against Termo Loans and ordered the execution of the order against it and subsequently cleared the sps. Magaling of liability ratiocinating that Termo Loans has a personality separate and distinct from that of Reynaldo Magaling who happens to be only a stockholder thereof and president at that time. However, the Sheriff was not able to attach any of the properties of Termo Loans as it had already stopped its operations.

7) CA reverses the decision of RTC and held that pouses Magaling jointly and severally liable to Ong for the corporate obligation of Termo Loans. The CA pierced the veil of corporate fiction and held the sps. Magaling solidarily liable with Termo Loans for the corporate obligations of the latter since it found that Reynaldo Magaling was grossly negligent in managing the affairs of the said corporation. MoR of sps was denied by CA and grants the motion of Ong for

the re-issuance of preliminary attachment against the properties of sps Magaling.

ISSUE: Was the CA correct in making the sps Magaling liable for the loans contracted by Termo Loans?

HELD: Yes!

The general rule is that obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities, and vice versa.

There are times, however, when solidary liabilities may be incurred and the veil of corporate fiction may be pierced. Exceptional circumstances warranting such disregard of a separate personality are summarized as follows:

1. When directors and trustees or, in appropriate case, the officers of a corporation:

(a) vote for or assent to patently unlawful acts of the corporation;

(b) act in bad faith or with gross negligence in directing the corporate affairs;

(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons;

2. When a director or officer has consented to the issuance of watered down stocks or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto;

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation; or

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.

Although there’s no bad faith and fraud in this instance , the Court still cannot totally absolve Reynaldo Magaling from any liability considering his gross negligence in directing the affairs of Termo Loans; thus, he must be made personally liable for the debt of Termo Loans to Ong.

In order to pierce the veil of corporate fiction, for reasons of negligence by the director, trustee or officer in the conduct of the transactions of the corporation, such negligence must be gross. Gross negligence is one that is characterized by the want of even slight care, acting or omitting to act in a situation where there is a duty to act, not inadvertently but willfully and intentionally with a conscious indifference to consequences insofar as other persons may be affected; and must be established by clear and convincing evidence. Parenthetically, gross or willful negligence could amount to bad faith.

He never told the investors of the risks that their investment will be subjected to in his testimony when he said, upon cross-examination, that “I did not tell that to investors, what is going on for fear that they might be afraid of what is happening, Your Honor.” Worse, he didn’t pursue the investements when Termo Loans closed down because he was also managing 9 other loan companies simultaneously.

The Court of Appeals observed correctly when it succinctly stated that, "[c]learly, Reynaldo Magaling was grossly negligent in directing the affairs of Thermo (sic) Loans without due regard to the plight of its investors and thus should be held jointly and severally liable for the corporate obligation of Thermo (sic) Loans to appellant Peter Ong."

YAMAMOTO vs. NISHINO LEATHER INDUSTRIES INC. AND IKUO NISHINO

GR 150283 April 16, 2008(Jamie)

Doctrine: While the veil of separate corporate personality may be pierced when the corporation is merely an adjunct, a business conduit, or alter ego of a person, the mere ownership by a single stockholder of even all or nearly all of the capital stocks of a corporation is not by itself a sufficient ground to disregard the separate corporate personality.

Nature: PETITION for review on certiorari of the decision and resolution of the CA

FACTS: 1. Yamamoto organized WAKO Enterprises which engaged in leather tanning

who then changed their name to Nishino Leather Industries Inc. (NLII).2. Yamamoto and Ikuo forged a Memorandum of Agreement (MOA) where

they agreed to enter a joint venture where Ikuo would acquire shares amounting to 70% of the authorized capital stock of WAKO.

3. Ikuo and his brother Yoshinobu acquired more than 70% of the authorized capital stock reducing Yamamoto’s investment to less than 10%

4. Negotiations then arose wherein Ikuo would take over and buy-out the shares of stock of Yamamoto.

5. During the negotiation, the counsel of the brothers Noshino advised Yamamoto in a letter stating:

a. That Yamamoto may take 5 machineries which he contributed to the company if he wanted, provided that the value of such is deducted from his and WAKO’s capital contributions

b. And that Yamamoto was asked to give his comments concerning the letter

6. On the basis of the letter, Yamamoto tried to recover such machineries which were refused by Nishino

7. Yamamoto then filed with the RTC for a writ of replevin which was then issued

8. Nishino claimed that:a. The equipment form part of Yamamoto’s capital contribution and

should be treated as corporate propertyb. That the letter by their attorney was just a mere proposal conditioned

on the sell-out of Yamamoto which proposal was to be authorized by stockholders and board of directors

9. On appeal, CA reversed RTC and claimed that:a. Machineries and equipment claimed by Yamamoto are corporate

property of NLII and cannot be retrieved without the authority if the NLII Board of Directors

b. That petitioners contention that Nishino and Yamamoto cannot hide between the shield of corporate fiction does not lie, nor does Yamamoto’s invocation of the doctrine of promissory estoppel

ISSUE:

1. WON the advice in the letter where Yamamoto may retrieve the equipment which were part of his investment, bound the corporation?

2. WON the court may pierce the veil of corporate fiction?

HELD:

1. Without a Board Resolution authorizing Nishino to act for and in behalf of the corporation, he cannot bind the corporation.

a. Under Corporation Law, unless otherwise provided, corporate powers are exercised by the Board.

2. Yamamoto argues so as to pierce the veil of corporate fiction:a. Noshino brothers and Yamamoto were the owners of the

corporation, the presence of the other stockholders being only for the purpose of complying with the minimum requirements of the law.

b. Course of action the corporation will do depends on what the brothers decide and that the company.

c. That the fact that parties started at 70-30 ration and 10% left to Yamamoto, doesn’t mean that the 20% went to others. It went to Ikuo. Yoshinobu has no say in the business.

d. There were no other members of the Board who have not given their approval.

While the veil of separate corporate personality may be pierced when the corporation is merely an adjunct, a business conduit, or alter ego of a person, the mere ownership by a single stockholder of even all or nearly all of the capital stocks of a corporation is not by itself a sufficient ground to disregard the separate corporate personality.

The elements of the doctrine of piercing the veil of corporate fiction follow:

"1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of the plaintiff's legal rights; and3. The aforesaid control and breach of duty must proximately cause the injury or

unjust loss complained of.

The absence of any one of these elements prevents "piercing the corporate veil."   In applying the `instrumentality' or `alter ego' doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant's relationship to that operation."

In relation to the second element, to disregard the separate juridical personality of a corporation, the wrongdoing or unjust act in contravention of a plaintiff's legal rights must be clearly and convincingly established; it cannot be presumed. Without a demonstration that any of the evils sought to be prevented by the doctrine is present, it does not apply.

In the case at bar, there is no showing that Nishino used the separate personality of NLII to unjustly act or do wrong to Yamamoto in contravention of his legal rights.

Wherefore, petition is DENIED