Aurbach vs.

Sanitary Wares
(Partnership; Joint Venture; Foreign and Domestic Corp)

FACTS: This consolidated petition assailed the decision of the CA directing a certain MANNER OF
ELECTION OF OFFICERS IN THE BOARD OF DIRECTORS

There are two groups in this case, the Lagdameo group composed of Filipino investors and the
American Standard Inc. (ASI) composed of foreign investors.

The ASI Group and petitioner Salazar contend that the actual intention of the parties should be viewed
strictly on the "Agreement" dated August 15,1962 wherein it is clearly stated that the parties' intention
was to form a corporation and not a joint venture.

The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its
annual stockholders' meeting held on March 8, 1983.
To answer this question the following factors should be determined:
(1) the nature of the business established by the parties whether it was a joint venture or a corporation

ISSUE: WON the nature of the business is a Joint Venture or a Corporation.

HELD: Joint Venture.

 While certain provisions of the Agreement would make it appear that the parties thereto
disclaim being partners or joint venturers such disclaimer is directed at third parties and is not
inconsistent with, and does not preclude, the existence of two distinct groups of stockholders in
Saniwares one of which (the Philippine Investors) shall constitute the majority, and the other ASI
shall constitute the minority stockholder. In any event, the evident intention of the Philippine
Investors and ASI in entering into the Agreement is to enter into a joint venture enterprise.
 The legal concept of a joint venture is of common law origin. It has no precise legal definition
but it has been generally understood to mean an organization formed for some temporary
purpose. It is in fact hardly distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and a mutual right of
control.
 The main distinction cited by most opinions in common law jurisdictions is that the partnership
contemplates a general business with some degree of continuity, while the joint venture is formed
for the execution of a single transaction, and is thus of a temporary nature.

 It would seem therefore that under Philippine law, a joint venture is a form of partnership and
should thus be governed by the law of partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held that although a corporation cannot
enter into a partnership contract, it may however engage in a joint venture with others.
[BUSINESS ORGANIZATION IN GENERAL]

DR. JOEL C. MENDEZ vs. PEOPLE OF THE PHILIPPINES and COURT OF TAX APPEALS
G.R. No. 179962 June 11, 2014

FACTS:

Dr. Joel Mendez was the sole proprietor of 6 different businesses. When a complaint was filed against
him by the BIR for failure to file an income tax return, petitioner admitted that he has been operating as
a single proprietor under these trade names in Quezon City, Makati, Dagupan and San Fernando. An
information was filed against him in the Court of Tax Appeals for violation of Art. 255 of the Tax Reform
Act of 1997, to which he plead not guilty. After his arraignment, the prosecution filed a motion to
amend the information:
i. change in the date in the commission of the crime from 2001 to 2002;
ii. the addition of the phrase “doing business in the name and style of”
iii. the addition of the phrase "for income earned."
iv. Business name was changed to “WEIGH LESS CENTER/MENDEZ MEDICAL
GROUP”
v. DAGUPAN, SAN FERNANDO omitted, MANDALUYONG, MUNTINLUPA added

Petitioner failed to file a comment on the motion. The motion was granted.

Petitioner now assails the validity of the amended information. (PETITION FOR CERTIORARI AND
PROHIBITION).

He contends that the prosecution’s amendment is a substantial amendment prohibited under Section
14, Rule 110 of the Revised Rules of Criminal Procedure.

a. It is substantial in nature because its additional allegations alter the prosecution’s

theory of the case so as to cause surprise to him and affect the form of his defense.

b. Thus, he was not properly informed of the nature and cause of the accusation
against him.

ISSUE: WON the prosecution’s amendments made after the petitioner’s arraignment are
substantial in nature and must perforce be denied?

HELD: NO SUBSTANTIAL AMENDMENT

 1. The "change" in the date from 2001 to 2002 and the addition of the phrase "for income
earned"
a. Accordingly, the addition of the phrase "for the income earned" before the phrase "for
the taxable year 2001" cannot but be a mere formal amendment since the added phrase
merely states with additional precision something that is already contained in the
original information, i.e., the income tax return is required to be filed precisely for the
income earned for the preceding taxable year.
2. The addition of the phrase "doing business under the name and style of Mendez Medical
Group and the change and/or addition of the branches of petitioner’s operation
a. Under the National Internal Revenue Code, a person practicing his profession must file
an income tax return on his INCOME FROM ALL SOURCES.
b. Since the petitioner operates as a sole proprietor from taxable years 2001 to 2003, the
petitioner should have filed a consolidated return IN HIS PRINCIPAL PLACE OF
BUSINESS, regardless of the number and location of his other branches.
i. Consequently, the change and/or addition of the branches of the petitioner’s
operation in the information does not constitute substantial amendment
because it does not change the prosecution’s theory that the petitioner failed
to file his income tax return.
1. PETITIONER’S FAILURE TO FILE HIS RETURN and consequently to pay
the correct amount of taxes. Accordingly, the petitioner could not
have been surprised at all.
c. “doing business”
i. Merely an added description of the business operations of the petitioner
1. Because his businesses are not separate juridical entities
a. A sole proprietorship is a form of business organization
conducted for profit by a single individual, and requires the
proprietor or owner thereof, like the petitioner-accused, to
secure licenses and permits, register the business name, and
pay taxes to the national government without acquiring
juridical or legal personality of its own.

4. FELICIANO VS. COA (G.R. NO. 147402, JANUARY 14, 2004

FACTS: COA assessed Leyte Metropolitan Water District (LMWD) auditing fees. Petitioner Feliciano, as
General Manager of LMWD, contended that the water district could not pay the said fees on the basis of
Sections 6 and 20 of P.D. No. 198 as well as Section 18 of R.A. No. 6758. He primarily claimed that
LMWD is a private corporation not covered by COA's jurisdiction. Petitioner also asked for refund of all
auditing fees LMWD previously paid to COA.COA Chairman denied petitioner’s requests. Petitioner filed
a motion for reconsideration which COA denied. Hence, this petition.

ISSUE: Whether a Local Water District (“LWD”) created under PD 198, as amended, is a government-
owned or controlled corporation subject to the audit jurisdiction of COA or a private corporation which
is outside of COA’s audit jurisdiction.

HELD: Petition lacks merit. The Constitution under Sec. 2(1), Article IX-D and existing laws mandate COA
to audit all government agencies, including government-owned and controlled corporations with
original charters. An LWD is a GOCC with an original charter.

The Constitution recognizes two classes of corporations. The first refers to private corporations created
under a general law. The second refers to government-owned or controlled corporations created by
special charters. Under existing laws, that general law is the Corporation Code.

Obviously, LWD’s are not private corporations because they are not created under the Corporation
Code. LWD’s are not registered with the Securities and Exchange Commission. Section 14 of the
Corporation Code states that “all corporations organized under this code shall file with the SEC articles
of incorporation x x x.” LWDs have no articles of incorporation, no incorporators and no stockholders or
members. There are no stockholders or members to elect the board directors of LWDs as in the case of
all corporations registered with the SEC. The local mayor or the provincial governor appoints the
directors of LWDs for a fixed term of office. The board directors of LWDs are not co-owners of the LWDs.
The board directors and other personnel of LWDs are government employees subject to civil service
laws and anti-graft laws. Clearly, an LWD is a public and not a private entity, hence, subject to COA’s
audit jurisdiction.

FILIPINAS COMPAÑIA DE SEGUROS, vs. CHRISTERN, HUENEFELD and CO., INC.,

G.R. No. L-2294 May 25, 1951

FACTS: The respondent corporation obtained from the petitioner a fire policy No. 29333 in the sum of
P1, 000,000, covering merchandise contained in their building located in Binondo Manila. During the
Japanese military occupation, the building and insured merchandise were burned. Respondent then
claimed under its policy with the petitioner.
The petitioner refused to pay the claim on the ground that the policy in favor of the
respondent had ceased to be in force on the date the United States declared war against Germany, the
respondent Corporation (though organized under and by virtue of the laws of the Philippines) being
controlled by the German subjects and the petitioner being a company under American jurisdiction
when said
policy wasissued on October 1,1941. The petitioner, however, in pursuance of the order of the Director
of Bureau of Financing, Philippine ExecutiveCommission paid to the respondent the sum of P92,650.
After trial, the Court of First Instance of Manila dismissed the action filed by the petitioner to recover
the amount from respondent. Upon appeal to the Court of Appeals, the judgment of the Court of First
Instance of Manila was affirmed. Hence this petition.
ISSUE: Whether or not Filipinas Cia de Seguros can claim the amount it paid against respondent.

HELD: In case of war, the control test applies to determine the nationality of a corporation. The Court of
Appeals overruled the contention of the petitioner that the respondent corporation became an enemy
when the United States declared war against Germany, relying on English and American cases which
held that a corporation is a citizen of the country or state by and under the laws of which it was created
or organized. It rejected the theory that nationality of private corporation is determine by the character
or citizenship of its controlling stockholders. There is no question that majority of the stockholders of
the respondent corporation were German subjects.
This being so, we have to rule that said respondent became an enemy corporation upon the outbreak of
the war between the United States and Germany. The English and American cases relied upon by the
Court of Appeals have lost their force in view of the latest decision of the Supreme Court of the United
States in Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law. Ed. Advance
Opinions, No. 4, pp. 148-153, in which the control test has been adopted. This pronouncement was
based on the situation that arise during the WWI and WWII.

7. G.R. No. 194964-65

UNIVERSITY OF MINDANAO, INC.
vs.
BANGKO SENTRAL NG PILIPINAS, ET AL.
Corporate Juridical Personality

Principle: A corporation may exercise its powers only within the express provisions of their Articles
of Incorporations or by-laws. The only exception to this rule is when acts are necessary and incidental to
carry out a corporation’s purposes, and to the exercise of powers conferred by the Corporation Code and
under a corporation’s articles of incorporation.

Facts: University of Mindanao is an educational institution. Its Board of trustees was chaired
by Guillermo B. Torres and his wife sat as Treasurer. The spouses Torres incorporated and operated two
(2) thrift banks: (1) First Iligan Savings & Loan Association, Inc. (FISLAI); and (2) Davao Savings and Loan
Association, Inc. (DSLAI).

Mr. Torres had requested, in his name, respondent BSP to issue a P1.9M standby emergency credit to
FISLAI and a loan which was all secured by real estate mortgage over UM’s properties in CDO and Iligan.
Respondent BSP sent a letter to petitioner University of Mindanao, informing it that the bank would
foreclose its properties.

UM denied having received any loan proceeds from BSP and that UM properties were mortgaged.
Moreover, as an educational institution, it cannot mortgage its properties to secure another person’s
debts.
Issue: Whether or not petitioner University of Mindanao is bound by the real estate mortgage contracts
executed in favor of respondent BSP.

Held: No.

Rationale: Corporations are artificial entities granted legal personalities upon their creation by their
incorporators in accordance with law. Unlike natural persons, they have no inherent powers. Third
persons dealing with corporations cannot assume that corporations have powers. It is up to those
persons dealing with corporations to determine their competence as expressly defined by the law and
their articles of incorporation.

A corporation may exercise its powers only within those definitions. Corporate acts that are outside
those express definitions under the law or articles of incorporation or those "committed outside the
object for which a corporation is created"76 are ultra vires.

The only exception to this rule is when acts are necessary and incidental to carry out a corporation’s
purposes, and to the exercise of powers conferred by the Corporation Code and under a corporation’s
articles of incorporation.

Petitioner does not have the power to mortgage its properties in order to secure loans of other persons.
As an educational institution, it is limited to developing human capital through formal instruction. It is
not a corporation engaged in the business of securing loans of others. Securing loans is not an adjunct of
the educational institution’s conduct of business. Petitioner has no business in securing FISLAI, DSLAI, or
MSLAI’s loans. This activity is not compatible with its business of providing quality instruction to its
constituents.

9. OLONGAPO CITY v. SUBIC WATER

Facts: Presidential Decree No. 198 (PD 198) took effect which authorized the creation of local water
district. Petitioner passed a resolution which transferred all its existing water facilities and assets under
the Olongapo City Public Utilities Department Waterworks Division, to the jurisdiction and ownership of
the Olongapo City Water District (OCWD). Petitioner filed a complaint for sum of money and damages
against OCWD. Pursuant to the compromise agreement petitioner and OCWD executed a Deed of
Assignment. OCWD assigned all of its rights in the JVA in favor of the petitioner, including but not
limited to the assignment of its shares, lease payments, regulatory assistance fees and other receivables
arising out of or related to the Joint Venture Agreement and the Lease Agreement. Thereafter, OCWD
was judicially dissolved. In the present case, the compromise agreement, although signed by Mr. Noli
Aldip, did not carry the express conformity of Subic Water. Mr. Aldip was never given any authorization
to conform to or bind Subic Water in the compromise agreement. Also, the agreement merely labeled
Subic Water as a co-maker. It did not contain any provision where Subic Water acknowledged its
solidary liability with OCWD.

Issue: Whether or not an officer's actions can bind the corporation if he had been authorized to do so.
Ruling: An examination of the compromise agreement reveals that it was not accompanied by any
document showing a grant of authority to Mr. Noli Aldip to sign on behalf of Subic Water. Subic Water is
a corporation. A corporation, as a juridical entity, primarily acts through its board of directors, which
exercises its corporate powers.

In this capacity, the general rule is that, in the absence of authority from the board of directors, no
person, not even its officers, can validly bind a corporation.

Section 23 of the Corporation Code provides. A corporate officer or agent may represent and bind the
corporation in transactions with third persons to the extent that [the] authority to do so has been
conferred upon him, and this includes powers which have been intentionally conferred, and also such
powers as, in the usual course of the particular business, are incidental to, or may be implied from, the
powers intentionally conferred, powers added by custom and usage, as usually pertaining to the
particular officer or agent, and such apparent powers as the corporation has caused persons dealing
with the officer or agent to believe that it has conferred. Mr. Noli Aldip signed the compromise
agreement purely in his own capacity.

THE FOLLOWING ARE CASES UNDER RECOVERY OF MORAL DAMAGES

MAMBULAO LUMBER COMPANY V. PNB (G.R. NO. L-22973)

Facts:
Petitioner Mambulao Lumber applied for an industrial loan with herein respondent PNB and was
approved with its real estate, machinery and equipments as collateral. PNB released the approved loan
but petitioner failed to pay and was later discovered to have already stopped in its operation. PNB then
moved for the foreclosure and sale of the mortgaged properties. The properties were sold and
petitioner sent a bank draft to PNB to settle the balance of the obligation. PNB however alleges that a
remaining balance stands and a foreclosure sale would still be held unless petitioner remits said
amount. The foreclosure sale proceeded and petitioner’s properties were taken out of its compound.
Petitioner filed actions before the court and claims among others, moral damages.

Issue:
Whether or not petitioner corporation, who has already ceased its operation, may claim for moral
damages.

Ruling: NO.
Herein appellant’s claim for moral damages, however, 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

Bache & Co v Ruiz

Facts:

Respondent Misael Vera, Commissioner of Internal Revenue, wrote a letter addressed to respondent
Judge Vicencio Ruiz requesting the issuance of a search warrant against petitioners for violation of the
NIRC and authorizing respondent de Leon to make and file the application for the same.

In the afternoon of the following day, de Leon and his witness, Logronio, went to the CFI of Rizal for the
application for search warrant. Judge Ruiz was able to take Logronio’s oath and signed the application.
Thus, the issuance of Search Warrant No. 2-M-70.

Thereafter the BIR agents served the search warrant at petitioner’s corporate office in Ayala, Makati.
Petitioners’ lawyers protested the search on the ground that no formal complaint, transcript or
testimony was attached. The agents nevertheless proceeded with the search and yielded 6 boxes of
documents.

Petitioner filed a petition with the CFI of Rizal praying that the search warrant be quashed and be
considered null and void. But respondent Judge dismissed the petition. Consequently, the BIR made tax
assessments against petitioners based on the seized documents. Hence, this present petition.

ISSUE: Whether or not petitioners may object against search and seizure?

RULING: YES.

Among others, the issue that a corporation is not entitled to protection against unreasonable search and
seizures is being raised in this case.

The Court ruled that although it is of the opinion that an officer of a corporation which is charged with a
violation of a statute of the state of its creation, nevertheless, they do not wish to be understood as
holding a corporation not entitled to immunity against unreasonable search and seizures. After all, a
corporation is an association of individuals under an assumed name and with a distinct legal entity. In
organizing itself as a collective body, it waives no constitutional immunities appropriate to such body. Its
property cannot be taken without compensation. It can only be proceeded against by due process of
law, and is protected under the 4thamendment against unlawful discrimination.

In addition, the Court states, citing the case of Stonehill v. Diokno, the imlied recognition on the right of
a corporation to object against unreasonable search and seizures, to wit:
“It is well settled that the legality of a seizure can be contested only by the party whose rights have been
impaired thereby, and that the objection to an unlawful search and seizure is purely personal and cannot
be availed of by third parties. Consequently, petitioners may not validly invoke object to the use as
evidence against them of the documents, papers and things seized from the offices and premises of the
corporation, since such right belongs exclusively to the corporations, the whom the seized effects belong,
and may not be invoked by the corporate officers in proceedings against them in their individual
capacity.

Philippine National Bank vs Court of Appeals et al

83 SCRA 237 – Business Organization – Corporation Law – Corporation’s Liability for Negligence
Rita Tapnio owes PNB an amount of P2,000.00. The amount is secured by her sugar crops about to be
harvested including her export quota allocatio. The said export quota was later dealt by Tapnio to a
certain Jacobo Tuazon at P2.50 per picul or a total of P2,500. Since the subject of the deal is mortgaged
with PNB, the latter has to approve it. The branch manager of PNB recommended that the price should
be at P2.80 per picul which was the prevailing minimum amount allowable. Tapnio and Tuazon agreed
to the said amount. And so the bank manager recommended the agreement to the vice president of
PNB. The vice president in turn recommended it to the board of directors of PNB.
However, the Board of Directors wanted to raise the price to P3.00 per picul. This Tuazon does not want
hence he backed out from the agreement. This resulted to Tapnio not being able to realize profit and at
the same time rendered her unable to pay her P2,000.00 crop loan which would have been covered by
her agreement with Tuazon.
Eventually, Tapnio was sued by her other creditors and Tapnio filed a third party complaint against PNB
where she alleged that her failure to pay her debts was because of PNB’s negligence and
unreasonableness.
ISSUE: Whether or not Tapnio is correct.
HELD: Yes. In this type of transaction, time is of the essence considering that Tapnio’s sugar quota for
said year needs to be utilized ASAP otherwise her allotment may be assigned to someone else, and if she
can’t use it, she won’t be able to export her crops. It is unreasonable for PNB’s board of directors to
disallow the agreement between Tapnio and Tuazon because of the mere difference of 0.20 in the
agreed price rate. What makes it more unreasonable is the fact that the P2.80 was recommended both
by the bank manager and PNB’s VP yet it was disapproved by the board. Further, the P2.80 per picul rate
is the minimum allowable rate pursuant to prevailing market trends that time. This unreasonable stand
reflects PNB’s lack of the reasonable degree of care and vigilance in attending to the matter. PNB is
therefore negligent.
A corporation is civilly liable in the same manner as natural persons for torts, because “generally
speaking, the rules governing the liability of a principal or master for a tort committed by an agent or
servant are the same whether the principal or master be a natural person or a corporation, and whether
the servant or agent be a natural or artificial person. All of the authorities agree that a principal or
master is liable for every tort which it expressly directs or authorizes, and this is just as true of a
corporation as of a natural person, a corporation is liable, therefore, whenever a tortious act is
committed by an officer or agent under express direction or authority from the stockholders or
members acting as a body, or, generally, from the directors as the governing body.”

Facts:

1. In Time’s Asian Edition Magazine, Manila Mayor Antonio Villegas was accused of having
coffers containing “far more pesos than seemed reasonable in the light of his income.” Juan
Ponce Enrile was dragged onto the article because he allegedly lent Villegas 30,000 pesos as he
was his compadre and at that time, Enrile was the Secretary of Finance.

2. Villegas and Enrile sought to recver damages from Time Magazine, an American Corporation, so
they filed a complaint in the CFI of Rizal.
3. Petitioner received the summons and a copy of the complaint at its offices in New York on 13
December 1967 and, on 27 December 1967, it filed a motion to dismiss the complaint for lack of
jurisdiction and improper venue, relying upon the provisions of Republic Act 4363.
4. The judge deferred the proceedings for the reason that "the rule laid down
under Republic Act. No. 4363, amending Article 360 of the Revised Penal Code, is not applicable
to actions against non-resident defendants, and because questions involving harassment and
inconvenience, as well as disruption of public service do not appear indubitable.

Issue/s

2. WON Republic Act 4363 is applicable to action against a foreign corporation or non-resident
defendant – NO

Ruling:

Petitioner's failure to aver its legal capacity to institute the present petition is not fatal, for A
foreign corporation may, by writ of prohibition, seek relief against the wrongful assumption of
jurisdiction. And a foreign corporation seeking a writ of prohibition against further maintenance
of a suit, on the ground of want of jurisdiction in which jurisdiction is not bound by the ruling of
the court in which the suit was brought, on a motion to quash service of summons, that it has
jurisdiction.

It is also advanced that the present petition is premature, since respondent court has not definitely
ruled on the motion to dismiss, nor held that it has jurisdiction, but only argument is untenable.
The motion to dismiss was predicated on the respondent court's lack of jurisdiction to entertain
the action; and the rulings of this Court are that writs of certiorari or prohibition, or both, may
issue in case of a denial or deferment of action on such a motion to dismiss for lack of
jurisdiction.