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Kukan International Corporation vs.

Reyes
631 SCRA 596

PHILIPPINE NATIONAL BANK v. HYDRO RESOURCES CONTRACTORS CORPORATION


G.R. No. 167530
March 13, 2013

FACTS:
Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages made on the properties of Marinduque
Mining and Industrial Corporation (MMIC). As a result of the foreclosure, DBP and PNB acquired substantially all the
assets of MMIC and resumed the business operations of the defunct MMIC by organizing the Nonoc Mining and Industrial
Corp. (NMIC). DBP and PNB owned 57% and 43% of the shares of NMIC, respectively, except for five qualifying shares.
The members of the Board of Directors of NMIC were either from DBP or PNB.

Subsequently, NMIC engaged the services of Hercon, Inc., for their Mine Stripping and Road Construction Program. After
computing the payments already made by NMIC under the program and crediting the NMIC’s receivables from Hercon,
Inc., the latter found that NMIC still has an unpaid balance of P8,370,934.74.10. Hercon, Inc. made several demands on
NMIC, and when these were not heeded, a complaint for sum of money was filed in the RTC of Makati seeking to hold
petitioners NMIC, DBP, and PNB solidarily liable for the amount owing to Hercon, Inc.

Subsequent to the filing of the complaint, Hercon, Inc. was acquired by Hydro Resources Contractors Corporation (HRCC)
in a merger.

Thereafter, then President Corazon C. Aquino issued Proclamation No. 50 creating the Asset Privatization Trust (APT) for
the expeditious disposition and privatization of certain government corporations and/or the assets thereof. Pursuant to
the said Proclamation, DBP and PNB executed their respective deeds of transfer in favor of the National Government
assigning, transferring and conveying certain assets and liabilities, including their respective stakes in NMIC. In turn and
on even date, the National Government transferred the said assets and liabilities to the APT as trustee under a Trust
Agreement.

ISSUE: Whether or not there is sufficient ground to pierce the veil of corporate fiction of NMIC and hold DBP and PNB
(and APPT as their assignee) solidarily liable with NMIC?

HELD: No. DBP and PNB cannot be held solidarily liable with NMIC.

A corporation is an artificial entity created by operation of law. It possesses the right of succession and such powers,
attributes, and properties expressly authorized by law or incident to its existence. It has a personality separate and
distinct from that of its stockholders and from that of other corporations to which it may be connected. Equally well-
settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just
an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate
veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third
persons. However, any application of the doctrine of piercing the corporate veil should be done with caution. A court must
be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against
another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed.

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience
as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the
corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is
merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.

Here, HRCC has alleged from the inception of this case that DBP and PNB (and the APT as assignee of DBP and PNB)
should be held solidarily liable for using NMIC as alter ego. The RTC sustained the allegation of HRCC and pierced the
corporate veil of NMIC pursuant to the alter ego theory when it concluded that NMIC "is a mere adjunct, business conduit
or alter ego of both DBP and PNB." The Court of Appeals upheld such conclusion of the trial court. In other words, both
the trial and appellate courts relied on the alter ego theory when they disregarded the separate corporate personality of
NMIC.

In this connection, case law lays down a three-pronged test to determine the application of the alter ego theory , which is
also known as the instrumentality theory, namely:

(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 plaintiff’s legal right; and
(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained of.

The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be completely under the
control and domination of the parent. It examines the parent corporation’s relationship with the subsidiary. It inquires
whether a subsidiary corporation is so organized and controlled and its affairs are so conducted as to make it a mere
instrumentality or agent of the parent corporation such that its separate existence as a distinct corporate entity will be
ignored. It seeks to establish whether the subsidiary corporation has no autonomy and the parent corporation, though
acting through the subsidiary in form and appearance, "is operating the business directly for itself."

The second prong is the "fraud" test. This test requires that the parent corporation’s conduct in using the subsidiary
corporation be unjust, fraudulent or wrongful. It examines the relationship of the plaintiff to the corporation. It recognizes
that piercing is appropriate only if the parent corporation uses the subsidiary in a way that harms the plaintiff creditor. As
such, it requires a showing of "an element of injustice or fundamental unfairness."

The third prong is the "harm" test. This test requires the plaintiff to show that the defendant’s control, exerted in a
fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered. A causal connection between the
fraudulent conduct committed through the instrumentality of the subsidiary and the injury suffered or the damage
incurred by the plaintiff should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will
have been treated unjustly by the defendant’s exercise of control and improper use of the corporate form and, thereby,
suffer damages.

To summarize, piercing the corporate veil based on the alter ego theory requires the concurrence of three elements:
control of the corporation by the stockholder or parent corporation, fraud or fundamental unfairness imposed on the
plaintiff, and harm or damage caused to the plaintiff by the fraudulent or unfair act of the corporation. The absence of
any of these elements prevents piercing the corporate veil.

This Court finds that none of the tests has been satisfactorily met in this case.

Macasaet etal vs CA
G.R. No. 156759
June 5, 2013
Topic: Corporation by Estoppel

Facts: On July 3, 2000, respondent, a retired police officer assigned at the Western Police District in Manila, sued Abante
Tonite, a daily tabloid of general circulation; its Publisher Allen A. Macasaet; its Managing Director Nicolas V. Quijano; its
Circulation Manager Isaias Albano; its Editors Janet Bay, Jesus R. Galang and Randy Hagos; and its Columnist/Reporter
Lily Reyes (petitioners), claiming damages because of an allegedly libelous article petitioners published in the June 6,
2000 issue of Abante Tonite. The suit, docketed as Civil Case No. 0097907, was raffled to Branch 51 of the RTC, which in
due course issued summons to be served on each defendant, including Abante Tonite, at their business address at
Monica Publishing Corporation, 301-305 3rd Floor, BF Condominium Building, Solana Street corner A. Soriano Street,
Intramuros, Manila. In the morning of September 18, 2000, RTC Sheriff Raul Medina proceeded to the stated address to
effect the personal service of the summons on the defendants. But his efforts to personally serve each defendant in the
address were futile because the defendants were then out of the office and unavailable. He returned in the afternoon of
that day to make a second attempt at serving the summons, but he was informed that petitioners were still out of the
office. He decided to resort to substituted service of the summons, and explained why in his sheriff’s return dated
September 22, 2005.
It was then contended by the petitioners and moved for the dismissal of the complaint alleging that there is lack of
jurisdiction over their persons because of the invalid and ineffectual substituted service of summons as there are no prior
attempts to serve summons personally in accordance with Section 6 and 7 of Rules 14 of the Rules of Court. And that
They further moved to drop Abante Tonite as a defendant by virtue of its being neither a natural nor a juridical person
that could be impleaded as a party in a civil action.
On March 12, 2001, the RTC denied the motion to dismiss, ruling that substituted service of summonses was validly
applied. That, were considered competent persons with sufficient discretion to realize the importance of the legal papers
served upon them and to relay the same to the defendants named therein (Sec. 7, Rule 14, 1997 Rules of Civil
Procedure).
They filed MR asserting the improper service and that Abante Tonite, being neither a natural nor a juridical person cannot
be a party to the action. However, this was also denied for the reason that there is substantial compliance with the
service of summons . Also, "Abante Tonite" is a daily tabloid of general circulation. The persons who organized said
publication obviously derived profit from it. The information written on the said newspaper will affect the person, natural
as well as juridical, who was stated or implicated in the news. All of these facts imply that "Abante Tonite" falls within the
provision of Art. 44 (2 or 3), New Civil Code. Assuming arguendo that "Abante Tonite" is not registered with the Securities
and Exchange Commission, it is deemed a corporation by estoppels considering that it possesses attributes of a
juridical person, otherwise it cannot be held liable for damages and injuries it may inflict to other persons.
A petition for certiorari, prohibition, and mandamus was then filed to CA by the petitioner. However, CA affirmed the
decision of RTC. And that Abante Tonite’s newspapers are circulated nationwide, showing ostensibly its being a corporate
entity, thus the doctrine of corporation by estoppel may appropriately apply.
An unincorporated association, which represents itself to be a corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relies in good faith on such representation. Thus, there being no grave
abuse of discretion committed by the respondent Judge in the exercise of his jurisdiction, the relief of prohibition is also
unavailable.
Issue:
1.Whether or not jurisdiction over the petitioners have been acquired.
2.WON Abante Tonite can be a party in the case as a corporation by estoppel. (main issue)
Held: Yes.
1.Jurisdiction over the person, or jurisdiction in personam –the power of the court to render a personal judgment or to
subject the parties in a particular action to the judgment and other rulings rendered in the action – is an element of due
process that is essential in all actions, civil as well as criminal, except in actions in rem or quasi in rem. Jurisdiction over
the defendant in an action in rem or quasi in rem is not required, and the court acquires jurisdiction over an action as
long as it acquires jurisdiction over the res that is the subject matter of the action. The purpose of summons in such
action is not the acquisition of jurisdiction over the defendant but mainly to satisfy the constitutional
requirement of due process.
The service of the summons fulfills two fundamental objectives, namely: (a) to vest in the court
jurisdiction over the person of the defendant; and (b) to afford to the defendant the opportunity to be
heard on the claim brought against him. The compliance with the rules regarding the service of the summons is as
much an issue of due process as it is of jurisdiction.
The rule on personal service is to be rigidly enforced in order to ensure the realization of the two fundamental objectives
earlier mentioned. If, for justifiable reasons, the defendant cannot be served in person within a reasonable
time, the service of the summons may then be effected either (a) by leaving a copy of the summons at his
residence with some person of suitable age and discretion then residing therein, or (b) by leaving the copy
at his office or regular place of business with some competent person in charge thereof. The latter mode of
service is known as substituted service because the service of the summons on the defendant is made through his
substitute.
There is no question that Sheriff Medina twice attempted to serve the summons upon each of petitioners in person at
their office address, the first in the morning of September 18, 2000 and the second in the afternoon of the same date.
Each attempt failed because Macasaet and Quijano were “always out and not available” and the other
petitioners were “always roving outside and gathering news.” The circumstances fully warranted his conclusion.
He was not expected or required as the serving officer to effect personal service by all means and at all times,
considering that he was expressly authorized to resort to substituted service should he be unable to effect the personal
service within a reasonable time. While we are strict in insisting on personal service on the defendant, we do not cling to
such strictness should the circumstances already justify substituted service instead. It is the spirit of the procedural rules,
not their letter, that governs.
2.THUS, nor we sustain petitioners’ contention that Abante Tonite could not be sued as a defendant due to its not being
either a natural or a juridical person. In rejecting their contention, the CA categorized Abante Tonite as a corporation
by estoppel as the result of its having represented itself to the reading public as a corporation despite its
not being incorporated. Thereby, the CA concluded that the RTC did not gravely abuse its discretion in holding that
the non-incorporation of Abante Tonite with the Securities and Exchange Commission was of no consequence, for,
otherwise, whoever of the public who would suffer any damage from the publication of articles in the pages of its tabloids
would be left without recourse.

ABOITIZ EQUITY VENTURES (AEV) versus VICTOR S. CHIONGBIAN, BENJAMIN D. GOTHONG, and CARLOS
A. GOTHONG LINES, INC. (CAGLI);
G.R. No.197530
July 9, 2014
TOPIC: Corporate Juridical Personality > 1. Doctrine of Separate Juridical Personality; 2. Doctrine of Piercing the
Corporate Veil.

FACTS:
On January 8, 1996, Aboitiz Shipping Corporation ("ASC"), principally owned by the Aboitiz family, CAGLI,
principally owned by the Gothong family, and William Lines, Inc. ("WLI"), principally owned by the Chiongbian family,
entered into an agreement whereby ASC and CAGLI would transfer their shipping assets to WLI in exchange for WLI’s
shares of stock. WLI, in turn, would run their merged shipping businesses and, henceforth, be known as WG&A, Inc.
("WG&A"). Sec. 11.06 of the Agreement required all disputes arising out of or in connection with the Agreement Tobe
settled by Arbitration. Among the attachments to the Agreement was Annex SL-V. Annex SL-V confirmed WLI’s
commitment to acquire certain inventories of CAGLI. These inventories would have a total aggregate value of, at most,
₱400 million. Annex SL-V also specifically stated that such acquisition was "pursuant to the Agreement." Pursuant to
Annex SL-V, inventories were transferred from CAGLI to WLI. These inventories were assessed to have a value of 514
million, which was later adjusted to 558.89 million. Of the total amount of 558.89 million, "CAGLI was paid the amount of
400 Million." In addition to the payment of 400 million, petitioner Aboitiz Equity Ventures ("AEV") noted that WG&A
shares with a book value of 38.5 million were transferred to CAGLI. As there was still a balance, in 2001, CAGLI sent
WG&A (the renamed WLI) demand letters "for the return of or the payment for the excess inventories." AEV alleged that
to satisfy CAGLI’s demand, WLI/WG&A returned inventories amounting to 120.04 million. As proof of this, AEV attached
copies of delivery receipts signed by CAGLI’s representatives.

Sometime in 2002, the Chiongbian and Gothong families decided to leave the WG&A enterprise and sell their
interest in WG&A to the Aboitiz family. As such, a share purchase agreement ("SPA") was entered into by petitioner AEV
and the respective shareholders groups of the Chiongbians and Gothongs. In the SPA, AEV agreed to purchase the
Chiongbian group's 40.61% share and the Gothong group's 20.66% share in WG&A’s issued and outstanding stock.
Section 6.5 of the SPA provided for arbitration as the mode of settling any dispute arising from the SPA. Section 6.8 of
the SPA further provided that the Agreement (of January 8, 1996) shall be deemed terminated except its Annex SL-V. As
part of the SPA, the parties entered into an Escrow Agreement whereby ING Bank N.V.-Manila Branch was to take
custody of the shares subject of the SPA. Section 14.7 of the Escrow Agreement provided that all disputes arising from it
shall be settled through arbitration. As a result of the SPA, AEV became a stockholder of WG&A. Subsequently, WG&A
was renamed Aboitiz Transport Shipping Corporation ("ATSC").

Petitioner AEV alleged that in 2008, CAGLI resumed making demands despite having already received 120.04
million worth of excess inventories. CAGLI initially made its demand to ATSC (the renamed WLI/WG&A). As alleged by
AEV, however, CAGLI subsequently resorted to a "shotgun approach" and directed its subsequent demand letters to AEV
as well as to FCLC (a company related to respondent Chiongbian). AEV responded to CAGLI’s demands through several
letters. AEV rebuffed CAGLI's demands noting that: (1) CAGLI already received the excess inventories; (2) it was not a
party to CAGLI's claim as it had a personality distinct from WLI/WG&A/ATSC; and (3) CAGLI's claim was already barred
by prescription. In a reply-letter, CAGLI claimed that it was unaware of the delivery to it of the excess inventories and
asked for copies of the corresponding delivery receipts. CAGLI threatened that unless it received proof of payment or
return of excess inventories having been made on or before March 31, 1996, it would pursue arbitration. In letters written
for AEV, it was noted that the excess inventories were delivered to GT Ferry Warehouse. Attached to these letters were a
listing and/or samples of the corresponding delivery receipts. In these letters it was also noted that the amount of excess
inventories delivered (120.04 million) was actually in excess of the value of the supposedly unreturned inventories
(119.89 million). Thus, it was pointed out that it was CAGLI which was liable to return the difference between 120.04
million and 119.89 million.

Its claims not having been satisfied, CAGLI filed on November 6, 2008 the first of two applications for arbitration
against respondent Chiongbian, ATSC, ASC, and petitioner AEV, before the Cebu City Regional Trial Court, Branch 20. In
response, AEV filed a motion to dismiss and argued that CAGLI failed to state a cause of action as there was no
agreement to arbitrate between CAGLI and AEV. Specifically, AEV pointed out that: (1) AEV was never a party to the
January 8, 1996 Agreement or to its Annex SL-V; (2) while AEV is a party to the SPA and Escrow Agreement, CAGLI's
claim had no connection to either agreement; (3) the unsigned and unexecuted SPA attached to the complaint cannot be
a source of any right to arbitrate; and (4) CAGLI did not say how WLI/WG&A/ATSC's obligation to return the excess
inventories can be charged to AEV.

On December 4, 2009, the Cebu City Regional Trial Court, Branch 20 issued an order dismissing the first
complaint with respect to AEV. It sustained AEV’s assertion that there was no agreement binding AEV and CAGLI to
arbitrate CAGLI’s claim. Whether by motion for reconsideration, appeal or other means, CAGLI did not contest this
dismissal. On February 26, 2010, the Cebu City Regional Trial Court, Branch 20 issued an order directing the parties
remaining in the first complaint (after the discharge of AEV) to proceed with arbitration. The second complaint was
docketed as Civil Case No. CEB-37004 and was also in view of the return of the same excess inventories subject of the
first complaint. On October 28, 2010, AEV filed a motion to dismiss the second complaint on the following grounds (1)
forum shopping; (2) failure to state a cause of action; (3) res judicata; and (4) litis pendentia. In the first of the two (2)
assailed orders dated May 5, 2011, the Cebu City Regional Trial Court, Branch 10 denied AEV's motion to dismiss.

ISSUES: (specific to the topic)


1. Whether petitioner, Aboitiz Equity Ventures, Inc., is bound by an agreement to arbitrate with Carlos A. Gothong
Lines, Inc., with respect to the latter’s claims for unreturned inventories delivered to William Lines, Inc./WG&A,
Inc./Aboitiz Transport System Corporation

RULING: WHEREFORE, the petition is GRANTED. The assailed orders dated May 5, 2011 and June 24, 2011 of the
Regional Trial Court, Cebu City, Branch 10 in Civil Case No. CEB-37004 are declared VOID. The Regional Trial Court, Cebu
City, Branch 10 is ordered to DISMISS Civil Case No. CEB-37004.

1. There is no agreement binding AEV to arbitrate with CAGLI on the latter’s claims arising from Annex SL-V.

For arbitration to be proper, it is imperative that it be grounded on an agreement between the parties. In this
petition, not one of the parties — AEV, CAGLI, Victor S. Chiongbian, and Benjamin D. Gothong — has alleged and/or
shown that the controversy is properly the subject of "compulsory arbitration [as] provided by statute." Thus, the
propriety of compelling AEV to submit itself to arbitration must necessarily be founded on contract. Four (4) distinct
contracts have been cited in the present petition:

1. The January 8, 1996 Agreement in which ASC, CAGLI, and WLI merged their shipping enterprises, with WLI
(subsequently renamed WG&A) as the surviving entity. Section 11.06 of this Agreement provided for
arbitration as the mechanism for settling all disputes arising out of or in connection with the Agreement.

2. Annex SL-V of the Agreement between CAGLI and WLI (and excluded ASC and any other Aboitiz controlled
entity), and which confirmed WLI’s commitment to acquire certain inventories, worth not more than 400
million, of CAGLI. Annex SL-V stated that the acquisition was "pursuant to the Agreement." It did not contain
an arbitration clause.

3. The September 23, 2003 Share Purchase Agreement or SPA in which AEV agreed to purchase the Chiongbian
and Gothong groups' shares in WG&A’s issued and outstanding stock. Section 6.5 of the SPA provided for
arbitration as the mode of settling any dispute arising from the SPA. Section 6.8 of the SPA further provided
that the Agreement of January 8, 1996 shall be deemed terminated except its Annex SL-V.
4. The Escrow Agreement whereby ING Bank N.V.-Manila Branch was to take custody of the shares subject of
the SPA. Section 14.7 of the Escrow Agreement provided that all disputes arising from it shall be settled via
arbitration.

Annex SL-V is only between WLI and CAGLI — it necessarily follows that none but WLI/WG&A/ATSC and CAGLI
are bound by the terms of Annex SL-V. It is elementary that contracts are characterized by relativity or privity, that is,
that "[c]ontracts take effect only between the parties, their assigns and heirs." As such, one who is not a party to a
contract may not seek relief for such contract’s breach. Likewise, one who is not a party to a contract may not be held
liable for breach of any its terms. While the principle of privity or relativity of contracts acknowledges that contractual
obligations are transmissible to a party’s assigns and heirs, AEV is not WLI’s successor-in-interest. In the period relevant
to this petition, the transferee of the inventories transferred by CAGLI pursuant to Annex SL-V assumed three (3) names:
(1) WLI, the original name of the entity that survived the merger under the January 8, 1996 Agreement; (2) WG&A, the
name taken by WLI in the wake of the Agreement; and (3) ATSC, the name taken by WLI/WG&A in the wake of the SPA.
As such, it is now ATSC that is liable under Annex SL-V.

Pursuant to the January 8, 1996 Agreement, the Aboitiz group (via ASC) and the Gothong group (via CAGLI)
became stockholders of WLI/WG&A, along with the Chiongbian group (which initially controlled WLI). This continued
until, pursuant to the SPA, the Gothong group and the Chiongbian group transferred their shares to AEV. With the SPA,
AEV became a stockholder of WLI/WG&A, which was subsequently renamed ATSC. Nonetheless, AEV’s status as ATSC’s
stockholder does not subject it to ATSC’s obligations. It is basic that a corporation has a personality separate and distinct
from that of its individual stockholders. Thus, a stockholder does not automatically assume the liabilities of the
corporation of which he is a stockholder. A corporation is an artificial entity created by operation of law. It possesses the
right of succession and such powers, attributes, and properties expressly authorized by law or incident to its existence. It
has a personality separate and distinct from that of its stockholders and from that of other corporations to which it may
be connected. As a consequence of its status as a distinct legal entity and as a result of a conscious policy decision to
promote capital formation, a corporation incurs its own liabilities and is legally responsible for payment of its obligations.
In other words, by virtue of the separate juridical personality of a corporation, the corporate debt or credit is not the debt
or credit of the stockholder. This protection from liability for shareholders is the principle of limited liability.

In fact, even the ownership by a single stockholder of all or nearly all the capital stock of a corporation is not, in
and of itself, a ground for disregarding a corporation’s separate personality. Mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a corporation is not in itself sufficient ground for disregarding
the separate corporate personality. A corporation’s authority to act and its liability for its actions are separate and apart
from the individuals who own it. The so-called veil of corporation fiction treats as separate and distinct the affairs of a
corporation and its officers and stockholders. As a general rule, a corporation will be looked upon as a legal entity, unless
and until sufficient reason to the contrary appears. When the notion of legal entity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. Also, the
corporate entity may be disregarded in the interest of justice in such cases as fraud that may work inequities among
members of the corporation internally, involving no rights of the public or third persons. In both instances, there must
have been fraud and proof of it. For the separate juridical personality of a corporation to be disregarded, the wrongdoing
must be clearly and convincingly established. It cannot be presumed.

AEV’s status as ATSC’s stockholder is, in and of itself, insufficient to make AEV liable for ATSC’s obligations.
Moreover, the SPA does not contain any stipulation which makes AEV assume ATSC’s obligations. At no point does the
text of Section 6.8 support the position that AEV steps into the shoes of the obligor under Annex SL-V and assumes its
obligations. Neither does Section 6.5 of the SPA suffice to compel AEV to submit itself to arbitration. While it is true that
Section 6.5 mandates arbitration as the mode for settling disputes between the parties to the SPA, Section 6.5 does not
indiscriminately cover any and all disputes which may arise between the parties to the SPA. Rather, Section 6.5 is limited
to "dispute[s] arising between the parties relating to this Agreement [i.e., the SPA]."122 To belabor the point, the
obligation which is subject of the present dispute pertains to Annex SL-V, not to the SPA. That the SPA, in Section 6.8,
recognizes the subsistence of Annex SL-V is merely a factual recognition. It does not create new obligations and does not
alter or modify the obligations spelled out in Annex SL-V. AEV was drawn into the present controversy on account of its
having entered into the SPA. This SPA made AEV a stockholder of WLI/WG&A/ATSC. Even then, AEV retained a
personality separate and distinct from WLI/WG&A/ATSC. The SPA did not render AEV personally liable for the obligations
of the corporation whose stocks it held. The obligation animating CAGLI’s desire to arbitrate is rooted in Annex SL-V.
Annex SL-V is a contract entirely different from the SPA. It created distinct obligations for distinct parties. AEV was never
a party to Annex SL-V. Rather than pertaining to AEV, Annex SL-V pertained to a different entity: WLI (renamed WG&A
then renamed ATSC). AEV is, thus, not bound by Annex SL-V. On one hand, Annex SL-V does not stipulate that disputes
arising from it are to be settled via arbitration. On the other hand, the SPA requires arbitration as the mode for settling
disputes relating to it and recognizes the subsistence of the obligations under Annex SL-V. But as a separate contract, the
mere mention of Annex SL-V in the SPA does not suffice to place Annex SL-V under the ambit of the SPA or to render it
subject to the SPA’s terms, such as the requirement to arbitrate.

Medical Plaza vs. Cullen


709 SCRA 110

Gamboa vs. Teves


652 SCRA 690 and 682 SCRA 397
Narra Nickel Mining vs Redmont
GR 185590
Apr 21 2014

Facts:

Redmont is a domestic corporation interested in the mining and exploration of some areas in Palawan. Upon learning
that those areas were covered by MPSA (Mineral Production Sharing Agreement) applications of other three (allegedly
Filipino) corporations – Narra, Tesoro, and MacArthur, it filed a petition before the Panel of Arbitrators of DENR seeking to
deny their permits on the ground that these corporations are in reality foreign-owned. MBMI, a 100% Canadian
corporation, owns 40% of the shares of PLMC (which owns 5,997 shares of Narra), 40% of the shares of MMC (which
owns 5,997 shares of McArthur) and 40% of the shares of SLMC (which, in turn, owns 5,997 shares of Tesoro).

Issue: WON Narra, Tesoro and McArthur are Filipino owned corporations.

Ruling:

NO, Narra, Tesoro and McArthur are not Filipino owned corporations. In determining the nationality of a corporation,
there are 2 acknowledged tests, namely: the CONTROL TEST and the GRANDFATHER TEST. Under Paragraph 7 of DOJ
Opinion No. 020, Series of 2005 it provides: Shares belonging to corporations or partnerships at least 60% of the capital
of which is owned by Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all
of the shares shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of
the corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned by
Filipinos and the other 50,000 shall be recorded as belonging to aliens.

The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or partnerships at least
60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality," pertains to the
control test or the liberal rule. On the other hand, the second part of the DOJ Opinion which provides, "if the percentage
of the Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to
such percentage shall be counted as Philippine nationality," pertains to the stricter, more stringent grandfather rule.

In the case at hand, since theCourt finds that nationality of the corporation is in doubt it is the GRANDFATHER RULE
THAT SHOULD APPLY. This rule applies only when the 60-40 Filipino-Foreign equity ownership is in doubt. In using the
test, the court ruled that Narra, Tesoro and McArthur are not Filipino owned corporations since MBMI, a 100% Canadian
corporation owns 60% or more of their equity interests.

Narra Nickel Mining et al. vs. Redmont Consolidated Mines Corporation,


GR 195580
January 28, 2015

Philips Export BV. vs. CA


206 SCRA 457
Doctrine: A corporation’s right to use its corporate and trade name is a property right, a right in rem, which it may
assert and protect against the whole world.

FACTS:
Philips Export B.V. (PEBV) filed with the SEC for the cancellation of the word “Philips” the corporate name of Standard
Philips Corporation in view of its prior registration with the Bureau of Patents and the SEC. However, Standard Philips
refused to amend its Articles of Incorporation so PEBV filed with the SEC a petition for the issuance of a Writ of
Preliminary Injunction, however this was denied ruling that it can only be done when the corporate names are identical
and they have at least 2 words different. This was affirmed by the SEC en banc and the Court of Appeals thus the case at
bar.

ISSUE: Whether or not Standard Philips can be enjoined from using Philips in its corporate name

RULING: YES
A corporation’s right to use its corporate and trade name is a property right, a right in rem, which it may assert and
protect against the whole world. According to Sec. 18 of the Corporation Code, no corporate name may be allowed if the
proposed name is identical or deceptively 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 law.

For the prohibition to apply, 2 requisites must be present:


(1) the complainant corporation must have acquired a prior right over the use of such corporate name and
(2) the proposed name is either identical or deceptively or confusingly similar to that of any existing corporation or to any
other name already protected by law or patently deceptive, confusing or contrary to existing law.

With regard to the 1st requisite, PEBV adopted the name “Philips” part of its name 26 years before Standard Philips. As
regards the 2nd, the test for the existence of confusing similarity is whether the similarity is such as to mislead a person
using ordinary care and discrimination. Standard Philips only contains one word, “Standard”, different from that of PEBV.
The 2 companies’ products are also the same, or cover the same line of products. Although PEBV primarily deals with
electrical products, it has also shipped to its subsidiaries machines and parts which fall under the classification of “chains,
rollers, belts, bearings and cutting saw”, the goods which Standard Philips also produce. Also, among Standard Philips’
primary purposes are to buy, sell trade x x x electrical wiring devices, electrical component, electrical supplies. Given
these, there is nothing to prevent Standard Philips from dealing in the same line of business of electrical devices. The use
of “Philips” by Standard Philips tends to show its intention to ride on the popularity and established goodwill of PEBV.

Lyceum of the Phils. vs. CA


219 SCRA 610

Facts: 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 for lack of merit.

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.

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.

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.

Held: Under the corporation code, no corporate name may be allowed by the SEC 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. The policy behind this provision is to avoid fraud upon the
public, which would have the 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.

The corporate names of private respondents are not identical or deceptively or confusingly similar to that of petitioner’s.
Confusion and deception has been precluded by the appending of geographic names to the word “Lyceum”. Furthermore,
the word “Lyceum” has become associated in time with schools and other institutions providing public lectures, concerts,
and public discussions. Thus, it generally refers to a school or an institution of learning.

Petitioner claims that the word has acquired a secondary meaning in relation to petitioner with the result that the word,
although originally generic, has become appropriable by petitioner to the exclusion of other institutions. The doctrine of
secondary meaning is a principle used in trademark law but has been extended to corporate names since the right to use
a corporate name to the exclusion of others is based upon the same principle, which underlies the right to use a
particular trademark or trade name.

Under this doctrine, a word or phrase originally incapable of exclusive appropriation with reference to an article in the
market, because geographical or otherwise descriptive might nevertheless have been used for so long and so exclusively
by one producer with reference to this article that, in that trade and to that group of purchasing public, the word or
phrase has come to mean that the article was his produce. The doctrine cannot be made to apply where the evidence
didn't prove that the business has continued for so long a time that it has become of consequence and acquired good will
of considerable value such that its articles and produce have acquired a well-known reputation, and confusion will result
by the use of the disputed name.

P.C. Javier & Sons, Inc., et. at.,vs. CA, et. at.
462 SCRA 36

Facts:
On May 1984, PC Javier and Sons and Spouses Javier filed a complaint for annulment of mortgage and foreclosure with
preliminary injunction against PAIC Savings and Mortgage Bank plus supplemental complaint to include defendants.

On February 1981, PC Javier and Sons applied with First Summa Savings and Mortgage Bank later renamed PAIC Savings
a loan accommodation under Industrial Guarantee Loan Fund worth P1,500,000.

On March 1981, Javier was advised that the loan application was approved and the same was to be forwarded to the
Central Bank for processing and release.

Central Bank released the loan to PAIC in two tranches of 750,000 each, released to Javier Corporation but from second
tranche release, 250,000 was deducted and deposited in name of Javier Corporation under time deposit.
Javier Corporation claims loan releases were delayed. The 250,000 was deducted from IGLF Loan and placed it under
time deposit. They were never allowed to withdraw the proceeds of the time deposit because PAIC intended this time
deposit as automatic payments on accrued principal and interest due on the loan.

PAIC claims only final proceeds of the loan was delayed, because of shortfall in collateral cover of Javier Corp’s loan. The
Second tranche was then released after firm commitment by Javier Corporation to cover collateral deficiency through
opening of a time deposit using portion of the loan proceeds and in compliance with their commitment to submit
additional security and open a time deposit. Javier executed a chattel mortgage over some machineries in favor of PAIC.

When Javier defaulted in payment of its loan, PAIC sent a demand letter, and then sent a second informing forceosure.
An extrajudicial foreclosure of real estate mortgage was initiated and an auction sale was executed by the sheriffs.

The RTC declared First Summa and PAIC as one and the same. Javier Corporation is liable to the bank for the unpaid
balance of loans and the extrajudicial foreclosure is justified because loans were due and demandable.

Issue:

Whether or not First Summa Savings and Mortgage Bank and PAIC Savings are one and the same entity
Ruling:

Yes. A change in the corporate name does not make a new corporation, whether effected by a special act or under a
general law. It has no effect on the identity of the corporation or on its property, rights or liabilities. The corporation,
upon such change in its name, is in no sense a new corporation nor the successor of the original corporation. It is the
same corporation with a different name and its character is in no respect changed.

Philippine first Insurance Company, Inc. vs. Hartigan, et. al.


74 SCRA 252

Philippine first Insurance Company, Inc. vs. Hartigan, et. al., 74 SCRA 252
Facts: On June 1, 1953, plaintiff was originally named as 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd’ an
insurance corp. duly presented with the Security and Exchange Commissioner and before a Notary Public as provided in
their articles of incorporation. Later amended its articles of incorporation and changed its name on May 26, 1961 as
‘Philippine First Insurance Co., Inc.’ pursuant to a certificate of the Board of Directors.

The complaint alleges that: Philippine First Insurance Co., Inc., doing business under the name of 'The Yek Tong Lin Fire
and Marine Insurance Co., Lt.' signed as co-maker together with defendant Maria Carmen Hartigan, CGH, to which a
promissory note was made in favour of China Banking. Said defendant failed to pay in full despite renewal of such note.
The complaint ends with a prayer for judgment against the defendants, jointly and severally, for the sum of P4,559.50
with interest at the rate of 12% per annum from November 23, 1961 plus P911.90 by way of attorney's fees and costs.

Defendants admitted the execution of the indemnity agreement but they claim that they signed said agreement in favor
of the Yek Tong Lin Fire and Marine Insurance Co., Ltd.' and not in favor of the plaintiff Philippine Insurance. They
likewise admit that they failed to pay the promissory note when it fell due but they allege that since their obligation with
the China Banking Corporation based on the promissory note still subsists, the surety who co-signed the promissory note
is not entitled to collect the value thereof from the defendants otherwise they will be liable for double amount of their
obligation, there being no allegation that the surety has paid the obligation to the creditor. In their special defense,
defendants claim that there is no privity of contract between the plaintiff and the defendants and consequently, the
plaintiff has no cause of action against them, considering that the complaint does not allege that the plaintiff and the 'Yek
Tong Lin Fire and Marine Insurance Co., Ltd.' are one and the same or that the plaintiff has acquired the rights of the
latter.

Issue:
May a Philippine corporation change its name and still retain its original personality and individuality as such?

Ruling

YES. As can be gleaned under Sections 6 and 18 of the Corporation Law, the name of a corporation is peculiarly
important as necessary to the very existence of a corporation. The general rule as to corporations is that each corporation
shall have a name by which it is to sue and be sued and do all legal acts. The name of a corporation in this respect
designates the corporation in the same manner as the name of an individual designates the person." Since an individual
has the right to change his name under certain conditions, there is no compelling reason why a corporation may not
enjoy the same right. There is nothing sacrosanct in a name when it comes to artificial beings. The sentimental
considerations which individuals attach to their names are not present in corporations and partnerships. Of course, as in
the case of an individual, such change may not be made exclusively. by the corporation's own act. It has to follow the
procedure prescribed by law for the purpose; and this is what is important and indispensably prescribed — strict
adherence to such procedure.

Zuellig Freight vs. NLCR


G.R. No. 157900
July 22, 2013
TOPIC: The mere change in the corporate name is not considered under the law as the creation of a new corporation;
hence, the renamed corporation remains liable for the illegal dismissal of its employee separated under that guise.

FACTS: San Miguel brought a complaint for unfair labor practice, illegal dismissal, non-payment of salaries and moral
damages against formerly Zeta Brokerage Corporation (Zeta) now Zuelig Freight and Cargo Systems (Zuellig), alleging
that he had been a checker/customs rep of Zeta since Dec 1985 + in Jan 9194, he and other EEs of Zeta were informed
of ceasing operations that affected all EEs who would be separated _ was informed of termination effective March 1994
_ reluctantly accepted separation pay subject standing offer to be hired to former position + April 1994, summarily
terminated w/o valid cause and due process. San Miguel contends that amendments of articles of incorporation of Zeta
were for purpose of changing corporate name, broadening primary functions, and increasing capital stock, but NOT that
Zeta had been dissolved.

Zeta argues that San Miguel’s termination had been for cause authorized by Labor Code + non-acceptance was not
irregular + had complied with requirements or termination due to cessation of business operations + no obligation to
employ San Miguel in exercise of valid management prerogative + all EEs had been given sufficient time to make their
decision whether to accept its offer of employment or not, but he had not responded + due to failure to meet deadline,
offer had expired + had been hired on temporary basis + picking other EE over San Miguel was not arbitrary but due to
seniority considerations

LA: San Miguel had been illegally dismissed. Mere change of business name and primary purpose and upgrade of stocks
of corp. Zuellig and Zeta are legally the same person and entity (as admitted by Zuellig’s counsel in letter to VAT Dept. of
BIR). Termination of San Miguel’s services due to alleged cessation of business operations is deemed illegal. Ordered
Zuellig to pay San Miguel back wages

NLRC affirmed LA
CA: affirmed NLRC
Closure of business ops not validly made
Certificate of filing of amended articles of incorporation show zuellig is former zeta
Certificate of filing of amended by-laws = show the same
Amendment of articles of incorporation merely changed corporate name, broadened primary purpose, increased
authorized capital stocks
Requirements in Art 283, Labor Code, were not satisfied = good faith not established by mere registration with SEC of
amended articles of incorporation
Fact of verbally informing EEs of the termination and requirement to sign employment contract to ensure smooth
operations of new company is irrelevant – no valid closure of business operations means San Miguel’s dismissal on
alleged authorized cause of cessation of business pursuant to Art 283 was utterly illegal

Issue: WON cessation of business by Zeta was a bona fide closure to be regarded as valid ground for termination of
employment of San Miguel under Art 283.

RULING: NO.

Art 283: Valid grounds for termination: installation of labor-saving devices, redundancy, and retrenchment to prevent
losses, or closing or cessation of operation of establishment or undertaking unless closing is for purpose of circumventing
provisions of title. Amendments of the articles of incorporation of Zeta to change corporate name to Zuellig Freight did
not produce the dissolution of Zeta as a corporation. Corporation Code defined and delineated the diff modes of
dissolving a corporation, and amendment of articles of incorporation was not one of such modes.

Effect of change of name (Ph First Insurance Inc v Hartigan): no more the creation of a corporation than the change of
the name of a natural person is begetting of a natural person – change of NAME is NOT a change of BEING

Consequences of change of name (PC Javier and Sons v CA): A change in the corporate name does not make a new
corporation, whether effected by a special act or under a general law. It has no effect on the identity of the corporation,
or on its property, rights, or liabilities. The Corporation, upon change in its name, is in no sense a new corporation, nor
the successor of the original corporation. It is the same corporation with a different name, and its character is in no
respect changed.
DOCTRINE: the mere change in the corporate name is not considered under the law as the creation of a new corporation;
hence, the renamed corporation remains liable for the illegal dismissal of its employee separated under that guise.

AS APPLIED:
 Zeta and Zuelling remained the same corp.
 Change of name did not give Zuellig license to terminate EEs of Zeta
 NOT similar to situation where buying business of another company means purchasing
company has no obligation to rehire terminated EEs
 Zuellig despite new name was mere continuation of Zeta’s corporate being + still held
obligation to honor all of Zeta’s obligations, one of which was to respect San Miguel’s
security of tenure
CA also rightfully upheld NLRC”s affirmance of grant of attorney’s fees – San Miguel was compelled to litigate to protect
his interest.
HENCE, decision appealed from AFFIRMED.
Malabang vs. Benito
27 SCRA 533
Facts:The petitioner Amer Macaorao Balindong is the mayor of Malabang, Lanao del Sur, while the respondent
Pangandapun Bonito is the mayor, and the rest of the respondents are the councilors, of the municipality of Balabagan of
the same province. Balabagan was formerly a part of the municipality of Malabang, having been created on March 15,
1960, by Executive Order 386 of the then President Carlos P. Garcia, out of barrios and sitios 1 of the latter municipality.

The petitioners brought this action for prohibition to nullify Executive Order 386 and to restrain the respondent municipal
officials from performing the functions of their respective office relying on the ruling of this Court in Pelaez v. Auditor
General 2 and Municipality of San Joaquin v. Siva.

On the other hand, the respondents, while admitting the facts alleged in the petition, nevertheless argue that the rule
announced in Pelaez can have no application in this case because unlike the municipalities involved in Pelaez, the
municipality of Balabagan is at least a de facto corporation, having been organized under color of a statute before this
was declared unconstitutional, its officers having been either elected or appointed, and the municipality itself having
discharged its corporate functions for the past five years preceding the institution of this action. It is contended that as
a de facto corporation, its existence cannot be collaterally attacked, although it may be inquired into directly in an action
for quo warranto at the instance of the State and not of an individual like the petitioner Balindong.
Issue: Whether or not the Municipality of Balabagan is a De Facto Corporation.
Ruling: No.
Executive Order 386, creating Municipality of Balabagan is declared void, and the respondents are hereby permanently
restrained from performing the duties and functions of their respective offices.
In Norton v. Shelby Count, 12 Mr. Justice Field said: "An unconstitutional act is not a law; it confers no rights; it imposes
no duties; it affords no protection; it creates no office; it is, in legal contemplation, as inoperative as though it had never
been passed." Accordingly, he held that bonds issued by a board of commissioners created under an invalid statute were
unenforceable.

Executive Order 386 "created no office." This is not to say, however, that the acts done by the municipality of Balabagan
in the exercise of its corporate powers are a nullity because the executive order "is, in legal contemplation, as inoperative
as though it had never been passed." For the existence of Executive, Order 386 is "an operative fact which cannot justly
be ignored." As Chief Justice Hughes explained in Chicot County Drainage District v. Baxter State Bank: 13

The courts below have proceeded on the theory that the Act of Congress, having been found to be
unconstitutional, was not a law; that it was inoperative, conferring no rights and imposing no duties, and hence
affording no basis for the challenged decree. Norton v. Shelby County, 118 U.S. 425, 442; Chicago, I. & L. Ry.
Co. v. Hackett, 228 U.S. 559, 566. It is quite clear, however, that such broad statements as to the effect of a
determination of unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to
such a determination, is an operative fact and may have consequences which cannot justly be ignored. The past
cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may
have to be considered in various aspects — with respect to particular relations, individual and corporate, and
particular conduct, private and official. Questions of rights claimed to have become vested, of status of prior
determinations deemed to have finality and acted upon accordingly, of public policy in the light of the nature both
of the statute and of its previous application, demand examination. These questions are among the most difficult
of those which have engaged the attention of courts, state and federal, and it is manifest from numerous
decisions that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified.
Harril vs. Davis,
168 F. 187
DOCTRINE: REGISTRATION AND ISSUANCE OF CERTIFICATE OF INCORPORATION

The general rule is that parties who associate themselves together and actively engage in business for profit under
any name are liable as partners for the debts they incur under that name. It is an exception to this rule that such
associates may escape individual liability for such debts by a compliance with incorporation laws or by a real attempt
to comply with them which gives the color of a legal corporation, and by the user of the franchise of such a
corporation in the honest belief that it is duly incorporated.

When the fact appears, by indisputable evidence that parties associated and knowingly incurred liabilities under a
given name, the legal presumption is that they are governed by the general rule, and the burden is upon them to
prove that they fall under some exception to it.

For the exception to apply, the filing of articles of incorporation with the clerk of the Court of Appeals was a sine qua
non of any color of a legal corporation. Without that there was not, and there could not be, an apparent corporation or
the color of a corporation, Agreements to form one, statements that there was one, signed articles of association to
make one, acts as one, created no color of incorporation, because there could be no incorporation or color of it under
the law until the articles were filed.

FACTS:
The four defendants(Walter B. Mann, Frank Davis, Robert S. Davis, and James G. Knight) agreed in April or June, 1902,
to take specified shares in a $10,000 enterprise for the purpose of building a cotton gin and carrying on the business
of buying, ginning, and selling cotton, and to organize a corporation for this purpose. They transacted a business with
the plaintiff consisting of the purchase of lumber, materials, and labor for their buildings and of dealing in cotton with it
which amounted to several tens of thousands of dollars, and they remained indebted to it over $5,000, of which
$4,700.

On September 3, 1902, three of the defendants met and signed articles of incorporation as the "Coweta Cotton & Milling
Company" and a declaration of the purpose of the incorporation, which the statutes required to be verified by the
signers and to be filed with the clerk of the Court of Appeals and with the clerk of the judicial district in which the
contemplated corporation was to do business.

This declaration was verified by Mann on November 10, 1902, and by Frank M. Davis on December 10, 1902, and it was
filed with the clerk of the Court of Appeals on December 22, 1902, and was never filed elsewhere. Frank M. Davis, as
general manager of the investment company, treated the milling company as a corporation all the time during which
this indebtedness was contracted, and never charged any of it to himself or his associates.

The Western Investment Company brought this action for a balance due It upon an account for lumber and materials
sold, cotton handled, and services rendered to Walter B. Mann, Frank Davis, Robert S. Davis, and James G. Knight, as
partners doing business under the firm name the "Coweta Cotton & Milling Company. The defendants denied the
partnership and their liability, and averred that the indebtedness in question was that of the milling company and
that that company was a corporation.

ISSUE: W-O-N there was a ‘colorable’ compliance enough to give the supposed corporation at least the status of a
‘de facto’ corporation?

RULING: No. The defendants cannot escape individual liability on the ground that the Coweta Cotton & Milling
Company was a corporation de facto when that portion of the plaintiff's claim was incurred, because it then had no color
of incorporation, and they knew it and yet, actively used
its name to incur the obligation.

The general rule is that parties who associate themselves together and actively engage in business for profit
under any name are liable as partners for the debts they incur under that name. It is an exception to this rule that such
associates may escape individual liability for such debts by a compliance with incorporation laws or by a real attempt
to comply with them which gives the color of a legal corporation, and by the user of the franchise of such a
corporation in the honest belief that it is duly incorporated.

When the fact appears, as it does in the case at bar, by indisputable evidence that parties associated and
knowingly incurred liabilities under a given name, the legal presumption is that they are governed by the general
rule, and the burden is upon them to prove that they fall under some exception to it.

For the exception to apply, under the general law of Arkansas in force in the Indian Territory, the filing of
articles of incorporation with the clerk of the Court of Appeals was a sine qua non of any color of a legal corporation.
Without that there was not, and there could not be, an apparent corporation or the color of a corporation, Agreements
to form one, statements that there was one, signed articles of association to make one, acts as one, created no color of
incorporation, because there could be no incorporation or color of it under the law until the articles were filed.

The defendants never became a corporation de facto prior to December 22, 1902, that they never became a
corporation de jure, that the indebtedness here in question was not incurred under any promise or assurance of the
defendants as promoters that it should become the obligation of a corporation to be formed, that a large part of it was
incurred in the conduct of a general commercial business, and not to prepare for the commencement of such a business
or for the organization of a corporation.

Hall vs. Piccio


86 Phil 603

Asia Banking Corporation vs. Standard Products Co.,


46 Phil 145

This action is brought to recover the sum of P24,736.47, the balance due on the following promissory note:

P37,757.22

MANILA, P. I., Nov. 28, 1921.

MANILA, P. I., Nov. 28, 1921.

On demand, after date we promise to pay to the Asia Banking Corporation, or order, the sum of thirty-seven
thousand seven hundred fifty-seven and 22/100 pesos at their office in Manila, for value received, together with
interest at the rate of ten per cent per annum.

No. ________ Due __________


THE STANDARD PRODUCTS CO., INC.
By (Sgd.) GEORGE H. SEAVER

By President

The court below rendered 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. From this judgment the
defendant appeals to this court.

At the trial of the case the plaintiff failed to prove affirmatively the corporate existence of the parties and the appellant
insists that under these circumstances the court erred in finding that the parties were corporations with juridical
personality and assigns same as reversible error.

There is no merit whatever in the appellant's contention. The general rule is that 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. (14 C. J., 227; Chinese
Chamber of Commerce vs. Pua Te Ching, 14 Phil., 222.)

The defendant having recognized the corporate existence of the plaintiff 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, of course,
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. So ordered.

Cranson vs. International Business Machines Corporation


200 A. 2d 33

Salvattiera vs. Garlitos, et al.


103 Phil 757
TOPIC: SEPARATE AND DISTINCT PERSONALITY – WHEN NOT APPLICABLE
In 1954, Manuela Vda. De Salvatierra entered into a lease contract with Philippine Fibers Producers Co., Inc. (PFPC).
PFPC was represented by its president Segundino Refuerzo. It was agreed that Manuela shall lease her land to PFPC in
exchange of rental payments plus shares from the sales of crops. However, PFPC failed to comply with its obligations and
so in 1955, Manuela sued PFPC and she won. An order was issued by Judge Lorenzo Garlitos of CFI Leyte ordering the
execution of the judgment against Refuerzo’s property (there being no property under PFPC). Refuerzo moved for
reconsideration on the ground that he should not be held personally liable because he merely signed the lease contract in
his official capacity as president of PFPC. Garlitos granted Refuerzo’s motion.
Manuela assailed the decision of the judge on the ground that she sued PFPC without impleading Refuerzo because she
initially believed that PFPC was a legitimate corporation. However, during trial, she found out that PFPC was not actually
registered with the Securities and Exchange Commission (SEC) hence Refuerzo should be personally liable.
ISSUE: Whether or not Manuela is correct.
HELD: Yes. It is true that as a general rule, the corporation has a personality separate and distinct from its incorporators
and as such the incorporators cannot be held personally liable for the obligations of the corporation. However, this
doctrine is not applicable to unincorporated associations. The reason behind this doctrine is obvious-since an
organization which before the law is non-existent has no personality and would be incompetent to act and appropriate for
itself the powers and attribute of a corporation as provided by law; it cannot create agents or confer authority on another
to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at
their own risk. In this case, Refuerzo was the moving spirit behind PFPC. As such, his liability cannot be limited or
restricted that imposed upon [would-be] corporate shareholders. In acting on behalf of a corporation which he knew to
be unregistered, he assumed the risk of reaping the consequential damages or resultant rights, if any, arising out of such
transaction.

Chiang Kai Shek School vs. CA


172 SCRA 389

Lozano vs. delos Santos


274 SCRA 452

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