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
sitios1 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 prof it
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