Case Digests of Assigned Cases (Batch 1) in Corporation Law

By J.Paul R. Tan
MAGSAYSAY-LABRADOR vs. COURT OF APPEALS
G.R. No. 58168. December 19, 1989.
Fernan, C.J.

FACTS:
Private respondent Adelaida Rodriguez Magsaysay filed an action against Subic Land Corporation (SUBIC),
among others, to annul the deed of assignment and deed of mortgage executed in favor of the latter by her late husband.

Private respondent alleged that the subject land of the two deeds was acquired through conjugal funds. Since her consent to
the disposition of the same was not obtained, she claimed that the acts of assignment and mortgage were done to defraud the
conjugal partnership. She further contended that the same were done without consideration and hence null and void.

Petitioners, sisters of the deceased husband of the private respondent, filed a motion for intervention on the ground that their
brother conveyed to them one-half of his shareholdings in SUBIC, or about 41%. The trial court denied the motion for
intervention ruling that petitioners have no legal interest because SUBIC has a personality separate and distinct from its
stockholders. The CA confirmed the denial on appeal. Hence, this petition.

ISSUE:
Whether petitioners, as stockholders of SUBIC, have a legal interest in the action for annulment of the deed of assignment
and deed of mortgage in favor of the corporation.

HELD:
NO. The Court noted that the interest which entitles person to intervene in a suit between other parties must be in the matter in
litigation and of such direct and immediate character that the intervenor will either gain or lose by the direct legal
operation and effect of the judgment. In the instant petition, it was said that the interest, if it exists at all, of petitioners-
movants is indirect, contingent, remote, conjectural, consequential and collateral. At the very least, their interest is purely
inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the profits
thereof and in the properties and assets thereof on dissolution, after payment of the corporate debts and
obligations. While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it
does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property
being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property,
which is owned by the corporation as a distinct legal person.

SPS. LIPAT V. PACIFIC BANKING CORPORATION (G.R. NO. 142435)

Facts:
Petitioner spouses Lipat owned Bela’s Export Trading (BET) a single proprietorship engaged in the
manufacture of garments for domestic and foreign consumption. The spouses by virtue of an SPA
appointed and authorized their daughter to obtain loan from respondent Pacific Bank. A loan was secured
and as security therefore a REM was executed over the property of the spouses. Sometime after, BET was
incorporated into a family corporation named Bela’s Export Corporation (BEC) and the loan was
restructured in its name. Subsequent loans were obtained in behalf of BEC all secured by the previous
REM. BEC defaulted in its payments which led to the foreclosure and sale of the mortgaged property. The
spouses moved to annul the sale alleging that BEC is a distinct and separate personality from them and
that the REM was executed only to secure BET’s loan. Both trial court and CA ruled to pierce the
corporate veil to hold petitioner spouses liable for BEC’s obligations.
Issue:
Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case.
Ruling: YES.
We find that the evidence on record demolishes, rather than buttresses, petitioners’ contention that BET
and BEC are separate business entities. Note that Estelita Lipat admitted that she and her husband,
Alfredo, were the owners of BET and were two of the incorporators and majority stockholders of BEC. It
is also undisputed that Estelita Lipat executed a special power of attorney in favor of her daughter,
Teresita, to obtain loans and credit lines from Pacific Bank on her behalf. Incidentally, Teresita was
designated as executive-vice president and general manager of both BET and BEC, respectively.
It could not have been coincidental that BET and BEC are so intertwined with each other in terms of
ownership, business purpose, and management. Apparently, BET and BEC are one and the same and the
latter is a conduit of and merely succeeded the former. Petitioners’ attempt to isolate themselves from and
hide behind the corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely
what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy.
In our view, BEC is a mere continuation and successor of BET and petitioners cannot evade their
obligations in the mortgage contract secured under the name of BEC on the pretext that it was signed for
the benefit and under the name of BET. We are thus constrained to rule that the Court of Appeals did not
err when it applied the instrumentality doctrine in piercing the corporate veil of BEC.

International Express Travel & Tour Services vs CA Case Digest

International Express Travel & Tour Services, Inc. vs. Court of Appeals
[GR 119002, 19 October 2000]

Facts: On 30 June 1989, the International Express Travel and Tour Services, Inc. (IETTSI), through its
managing director, wrote a letter to the Philippine Football Federation (Federation), through its president,
Henri Kahn, wherein the former offered its services as a travel agency to the latter. The offer was accepted.
IETTSI secured the airline tickets for the trips of the athletes and officials of the Federation to the South East
Asian Games in Kuala Lumpur as well as various other trips to the People's Republic of China and Brisbane.
The total cost of the tickets amounted to P449,654.83. For the tickets received, the Federation made two
partial payments, both in September of 1989, in the total amount of P176,467.50. On 4 October 1989, IETTSI
wrote the Federation, through Kahn a demand letter requesting for the amount of P265,894.33. On 30
October 1989, the Federation, through the Project Gintong Alay, paid the amount of P31,603.00. On 27
December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the
outstanding balance of the Federation.

Thereafter, no further payments were made despite repeated demands. This prompted IETTSI to file a civil
case before the Regional Trial Court of Manila. IETTSI sued Henri Kahn in his personal capacity and as
President of the Federation and impleaded the Federation as an alternative defendant. IETTSI sought to hold
Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on the ground that Henri
Kahn allegedly guaranteed the said obligation. Kahn filed his answer with counterclaim, while the Federation
failed to file its answer and was declared in default by the trial court. In due course, the trial court rendered
judgment and ruled in favor of IETTSI and declared Henri Kahn personally liable for the unpaid obligation of
the Federation. The complaint of IETTSI against the Philippine Football Federation and the counterclaims of
Henri Kahn were dismissed, with costs against Kahn. Only Henri Kahn elevated the decision to the Court of
Appeals. On 21 December 1994, the appellate court rendered a decision reversing the trial court. IETTSI filed
a motion for reconsideration and as an alternative prayer pleaded that the Federation be held liable for the
unpaid obligation. The same was denied by the appellate court in its resolution of 8 February 1995. IETTSI
filed the petition with the Supreme Court.

Issue
1. Whether the Philippine Football Federation has a corporate existence of its own.
 2. Whether Kahn should be made personally liable for the unpaid obligations of the Philippine
Football Federation.
3. Whether the appellate court properly applied the doctrine of corporation by estoppel.
Held

1. Both RA 3135 (the Revised Charter of the Philippine Amateur Athletic Federation) and PD 604 recognized
the juridical existence of national sports associations. This may be gleaned from the powers and functions
granted to these associations (See Section 14 of RA 3135 and Section 8 of PD 604). The powers and
functions granted to national sports associations indicate that these entities may acquire a juridical
personality. The power to purchase, sell, lease and encumber property are acts which may only be done by
persons, whether natural or artificial, with juridical capacity. However, while national sports associations may
be accorded corporate status, such does not automatically take place by the mere passage of these laws. It is
a basic postulate that before a corporation may acquire juridical personality, the State must give its consent
either in the form of a special law or a general enabling act. The Philippine Football Federation did not come
into existence upon the passage of these laws. Nowhere can it be found in RA 3135 or PD 604 any provision
creating the Philippine Football Federation. These laws merely recognized the existence of national sports
associations and provided the manner by which these entities may acquire juridical personality. Section 11 of
RA 3135 and Section 8 of PD 604 require that before an entity may be considered as a national sports
association, such entity must be recognized by the accrediting organization, the Philippine, Amateur Athletic
Federation under RA 3135, and the Department of Youth and Sports Development under PD 604. This fact of
recognition, however, Henri Kahn failed to substantiate. A copy of the constitution and by-laws of the
Philippine Football Federation does not prove that said Federation has indeed been recognized and
accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports
Development. Accordingly, the Philippine Football Federation is not a national sports association within the
purview of the aforementioned laws and does not have corporate existence of its own.

2. Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football
Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and becomes personally liable for contract
entered into or for other acts performed as such agent. As president of the Federation, Henri Kahn is
presumed to have known about the corporate existence or non-existence of the Federation.

3. The Court cannot subscribe to the position taken by the appellate court that even assuming that the
Federation was defectively incorporated, IETTSI cannot deny the corporate existence of the Federation
because it had contracted and dealt with the Federation in such a manner as to recognize and in effect admit
its existence. The doctrine of corporation by estoppel is mistakenly applied by the appellate court to IETTSI.
The application of the doctrine applies to a third party only when he tries to escape liabilities on a contract
from which he has benefited on the irrelevant ground of defective incorporation. Herein, IETTSI is not trying to
escape liability from the contract but rather is the one claiming from the contract.

INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES vs. COURT OF

APPEALS, SECURITIES AND EXCHANGE COMMISSION and REFRACTORIES
CORPORATION OF THE PHILIPPINES

G.R. No. 122174, October 3, 2002

Facts:

Respondent Refractories Corporation of the Philippines (RCP) is a corporation duly organized

on October 13, 1976. On June 22, 1977, it registered its corporate and business name with the
Bureau of Domestic Trade.
Petitioner IRCP was incorporated on August 23, 1979 originally under the name "Synclaire
Manufacturing Corporation". It amended its Articles of Incorporation on August 23, 1985 to
change its corporate name to "Industrial Refractories Corp. of the Philippines".

Both companies are the only local suppliers of monolithic gunning mix.

Respondent RCP then filed a petition with the Securities and Exchange Commission to compel
petitioner IRCP to change its corporate name.

The SEC rendered judgment in favor of respondent RCP.

Petitioner appealed to the SEC En Banc. The SEC En Banc modified the appealed decision and
the petitioner was ordered to delete or drop from its corporate name only the word
"Refractories".

Petitioner IRCP filed a petition for review on certiorari to the Court of Appeals and the appellate
court upheld the jurisdiction of the SEC over the case and ruled that the corporate names of
petitioner IRCP and respondent RCP are confusingly or deceptively similar, and that respondent
RCP has established its prior right to use the word "Refractories" as its corporate name.

Petitioner then filed a petition for review on certiorari

Issue:

Are corporate names Refractories Corporation of the Philippines (RCP) and "Industrial
Refractories Corp. of the Philippines" confusingly and deceptively similar?

Ruling:

Yes, the petitioner and respondent RCP’s corporate names are confusingly and deceptively
similar.
Further, Section 18 of the Corporation Code expressly prohibits the use of a corporate name
which 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 said prohibition is to avoid fraud upon the public that will have
occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the
reduction of difficulties of administration and supervision over corporation.

The Supreme Court denied the petition for review on certiorari due for lack of merit.