FORMATION AND ORGANIZATION OF CORPORATION

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?

HELD:

Yes, No doubt, "(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."1 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.

A general power to alter or amend the charter of a corporation necessarily includes the
power to alter the name of the corporation. A mere change in the name of a corporation,
either by the legislature or by the corporators or stockholders under legislative authority,
does not, generally speaking, affect the identity of the corporation, nor in any way affect
the rights, privileges, or obligations previously acquired or incurred by it. Indeed, it has
been said that a change of name by a corporation has no more effect upon the identity of
the corporation than a change of name by a natural person has upon the identity of such
person. The corporation, upon such change in its name, is in no sense a new corporation,
nor the successor of the original one, but remains and continues to be the original
corporation. It is the same corporation with a different name, and its character is in no
respect changed.

As correctly pointed out by appellant, the approval by the stockholders of the amendment
of its articles of incorporation changing the name "The Yek Tong Lin Fire & Marine
Insurance Co., Ltd." to "Philippine First Insurance Co., Inc." on March 8, 1961, did not
automatically change the name of said corporation on that date. To be effective, Section
18 of the Corporation Law, earlier quoted, requires that "a copy of the articles of
incorporation as amended, duly certified to be correct by the president and the secretary
of the corporation and a majority of the board of directors or trustees, shall be filed with
the Securities & Exchange Commissioner", and it is only from the time of such filing, that
"the corporation shall have the same powers and it and the members and stockholders
thereof shall thereafter be subject to the same liabilities as if such amendment had been
embraced in the original articles of incorporation." It goes without saying then that
appellant rightly acted in its old name when on May 15, 1961, it entered into the
indemnity agreement, Annex A, with the defendant-appellees; for only after the filing of
the amended articles of incorporation with the Securities & Exchange Commission on
May 26, 1961, did appellant legally acquire its new name; and it was perfectly right for it
to file the present case In that new name on December 6, 1961. Such is, but the logical
effect of the change of name of the corporation upon its actions.

Actions brought by a corporation after it has changed its name should be brought under
the new name although for the enforcement of rights existing at the time the change was
made. The change in the name of the corporation does not affect its right to bring an
action on a note given to the corporation under its former name.
THE CORPORATE ENTITY
Garrett vs. Southern Railway Company, 173 F. Suppl 915
(1959)
FACTS:
In this court action, a wheel moulder in the employ of Lenoir Car Works, a Tennessee
corporation, brought suit against the Southern Railway Company for alleged injuries
from silicosis, claimed to have been contracted from silica dust which permeated the
foundry.

Upon completion of the trial, at which much evidence was received, the United States
District Judge entered judgment in favor of the defendant railway company.

Appellant contends that the district court was in error in finding that the Lenoir Car
Works was not the alter ego, adjunct, subsidiary, agent or instrumentality of the appellee,
Southern Railway Company, and consequently was not required to respond in damages
for the personal injuries sustained by appellant.

In a carefully considered opinion, the United States District Court found that there was no
evidence that the Southern Railway Company dictated the management of the Lenoir Car
Works, although it owned the entire capital stock of that corporation. It was found that
the evidence indicated that an individual, Henry Marius, was in full control of the
operation of the car works. He established prices and handled all negotiations and
collective bargaining agreements. Lenoir paid local taxes, had local counsel, and
maintained workmen's compensation.

The district judge noted that "a substantial part of its requirements in the field of
operation of Lenoir were bought elsewhere." Lenoir sold substantial quantities of its
product to other companies than Southern; it operated no rolling stock; and had nothing
to do with the transportation business.
The court found further that the facts did not reveal such intimacy and inseparability of
control as would lead to the conclusion that the Southern Railway Company and Lenoir
Car Works were one and the same.

ISSUE:

Whether or not the control by Southern of Lenoir was of such character as to constitute
the latter a mere adjunct of the former, the court held that no such control was evident.

HELD:

In Kentucky Electric Power Company v. Norton Coal Company, court said: "On the other
hand, it is likewise well settled that a corporation is ordinarily an entity, separate and
apart from its stockholders, and mere ownership of all the stock of one corporation by
another, and the identity of officers of one with officers of another, are not alone
sufficient to create identity of corporate interest between the two companies or to create
the relation of principal and agent or to create a representative or fiduciary relationship
between the two. If such stock ownership and potential control be resorted to only for the
purpose of normally participating in the affairs of the subsidiary corporation in a manner
usual to stockholders and not for the purpose of taking some unfair advantage of the
subsidiary or using it as a mere adjunct to the main corporation or as a subterfuge to
justify wrongdoing, their identity as separate corporations will not be disregarded but
their respective rights when dealing with each other in respect to their separate property
will be recognized and maintained. The extent of stock ownership and mere potential
control of one company over another has never been regarded as the determining factor in
the consideration of such cases. Something must be disclosed to indicate the exercise of
undue domination or influence resulting in an infringement upon the rights of the
subservient corporation for the benefit of the dominant one. Otherwise, the rights of the
separate corporations in respect to their corporate property must be governed by the rules
applicable in ordinary cases.

The district court concluded that, upon the principles of the Kentucky Electric Power
Company case, the control of Southern Railway Company over Lenoir Car Works was
not such as constituted Lenoir an adjunct of Southern. We think this conclusion was
correct.

Accordingly, the judgment of the district court dismissing the complaint herein is
affirmed.
CORPORATE POWERS

Mambulao Lumber vs. PNB, 22 SRA 359

FACTS:
On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 (approved for a
loan of P100,000 only) with the Naga Branch of defendant PNB. To secure payment, the
plaintiff mortgaged a parcel of land, together with the buildings and improvements
existing thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao),
province of Camarines Norte. The PNB released from the approved loan the sum of
P27,500, and another release of P15,500.

The plaintiff failed to pay the amortization on the amounts released to and received by it.
It was found that the plaintiff had already stopped operation about the end of 1957 or
early part of 1958.

The unpaid obligation of the plaintiff as of September 22, 1961, amounted to P57,646.59,
excluding attorney's fees. A foreclosure sale of the parcel of land, together with the
buildings and improvements thereon was, held on November 21, 1961, and the said
property was sold to the PNB for the sum of P56,908.00, subject to the right of the
plaintiff to redeem the same within a period of one year.

The plaintiff sent a letter reiterating its request that the foreclosure sale of the mortgaged
chattels be discontinued on the grounds that the mortgaged indebtedness had been fully
paid and that it could not be legally effected at a place other than the City of Manila.

The trial court sentenced the Mambulao Lumber Company to pay to the defendant PNB
the sum of P3,582.52 with interest thereon at the rate of 6% per annum. The plaintiff on
appeal advanced that its total indebtedness to the PNB as of November 21, 1961, was
only P56,485.87 and not P58,213.51 as concluded by the court a quo; hence, the proceeds
of the foreclosure sale of its real property alone in the amount of
P56,908.00 on that date, added to the sum of P738.59 it remitted to the PNB thereafter
was more than sufficient to liquidate its obligation, thereby rendering the subsequent
foreclosure sale of its chattels unlawful;

That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard
of plaintiff's vigorous opposition thereto, and in taking possession thereof after the sale
thru force, intimidation, coercion, and by detaining its "man-in-charge" of said properties,
the PNB is liable to plaintiff for
damages and attorney's fees.

ISSUE:
Whether or not PNB may be held liable to plaintiff Corporation for damages and
attorney’s fees.

HELD:
Herein appellant's claim for moral damages, seems to have no legal or factual basis.
Obviously, an artificial person like herein appellant corporation cannot experience
physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral
shock or social humiliation which are basis of moral damages. A corporation may have
a good reputation which, if besmirched, may also be a ground for the award of moral
damages. The same cannot be considered under the facts of this case, however, not only
because it is admitted that herein appellant had already ceased in its business operation at
the time of the foreclosure sale of the chattels, but also for the reason that whatever
adverse effects of the foreclosure sale of the chattels could have upon its reputation or
business standing would undoubtedly be the same whether the sale was conducted at Jose
Panganiban, Camarines Norte, or in Manila which is the place agreed upon by the parties
in the mortgage contract.

But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines
Norte in proceeding with the sale in utter disregard of the agreement to have the chattels
sold in Manila as provided for in the mortgage contract, to which their attentions were
timely called by herein appellant, and in disposing of the chattels in gross for the
miserable amount of P4,200.00, herein appellant should be awarded exemplary damages
in the sum of P10,000.00. The circumstances of the case also warrant the award of
P3,000.00 as attorney's fees for herein appellant.