1. PNB & NSDC vs.

ANDRADA ELECTRIC & ENGINEERING COMPANY GR 142936

FACTS: On 26 August 1975, the Philippine national Bank (PNB) acquired the assets of the Pampanga
Sugar Mills (PASUMIL) that were earlier foreclosed by the Development Bank of the Philippines (DBP)
under LOI 311. The PNB organized the National Sugar Development Corporation (NASUDECO) in
September 1975, to take ownership and possession of the assets and ultimately to nationalize and
consolidate its interest in other PNB controlled sugar mills. Prior to 29 October 1971, PASUMIL engaged
the services of the Andrada Electric & Engineering Company (AEEC) for electrical rewinding and repair,
most of which were partially paid by PASUMIL, leaving several unpaid accounts with AEEC. On 29
October 1971, AEEC and PASUMIL entered into a contract for AEEC to perform the (a) Construction of a
power house building; 3 reinforced concrete foundation for 3 units 350 KW diesel engine generating sets, 3
reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo generator sets, among others. Aside
from the work contract, PASUMIL required AEEC to perform extra work, and provide electrical
equipment and spare parts. Out of the total obligation of P777, 263.80, PASUMIL had paid only P250,
000.00, leaving an unpaid balance, as of 27 June 1973, amounting to P527, 263.80. Out of said unpaid
balance of P527, 263.80, PASUMIL made a partial payment to AEEC of P14, 000.00, in broken amounts,
covering the period from 5 January 1974 up to 23 May 1974, leaving an unpaid balance of P513,263.80.
PASUMIL and PNB, and now NASUDECO, allegedly failed and refused to pay AEEC their just, valid and
demandable obligation (The President of the NASUDECO is also the Vice-President of the PNB. AEEC
besought said official to pay the outstanding obligation of PASUMIL, inasmuch as PNB and NASUDECO
now owned and possessed the assets of PASUMIL, and these defendants all benefited from the works, and
the electrical, as well as the engineering and repairs, performed by AEEC).

Because of the failure and refusal of PNB, PASUMIL and/or NASUDECO to pay their obligations,
AEEC allegedly suffered actual damages in the total amount of P513, 263.80; and that in order to recover
these sums, AEEC was compelled to engage the professional services of counsel, to whom AEEC agreed to
pay a sum equivalent to 25% of the amount of the obligation due by way of attorney's fees. PNB and
NASUDECO filed a joint motion to dismiss on the ground that the complaint failed to state sufficient
allegations to establish a cause of action against PNB and NASUDECO, inasmuch as there is lack or want
of privity of contract between the them and AEEC. Said motion was denied by the trial court in its 27
November order, and ordered PNB and NASUDECO to file their answers within 15 days. After due
proceedings, the Trial Court rendered judgment in favor of AEEC and against PNB, NASUDECO and
PASUMIL; the latter being ordered to pay jointly and severally the former (1) the sum of P513, 623.80 plus
interest thereon at the rate of 14% per annum as claimed from 25 September 1980 until fully paid; (2) the
sum of P102, 724.76 as attorney's fees; and, (3) Costs. PNB and NASUDECO appealed. The Court of
Appeals affirmed the decision of the trial court in its decision of 17 April 2000 (CA-GR CV 57610. PNB
and NASUDECO filed the petition for review.

ISSUE: WON PNB and NASUDECO may be held liable for PASUMIL’s liability to AEEC?

RULING: Basic is the rule that a corporation has a legal personality distinct and separate from the
persons and entities owning it. The corporate veil may be lifted only if it has been used to shield fraud,
defend crime, justify a wrong, defeat public convenience, insulate bad faith or perpetuate injustice. Thus,
the mere fact that the Philippine National Bank (PNB) acquired ownership or management of some assets
of the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the resulting
public auction by the Development Bank of the Philippines (DBP), will not make PNB liable for the
PASUMIL's contractual debts to Andrada Electric & Engineering Company (AEEC). Piercing the veil of
corporate fiction may be allowed only if the following elements concur: (1) control — not mere stock
control, but complete domination — not only of finances, but of policy and business practice in respect to
the transaction attacked, must have been such 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 a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a
dishonest and an unjust act in contravention of plaintiff's legal right; and (3) the said control and breach of
duty must have proximately caused the injury or unjust loss complained of. The absence of the foregoing
elements in the present case precludes the piercing of the corporate veil.

First, other than the fact that PNB and NASUDECO acquired the assets of PASUMIL, there is no
showing that their control over it warrants the disregard of corporate personalities.

Second, there is no evidence that their juridical personality was used to commit a fraud or to do a
wrong; or that the separate corporate entity was farcically used as a mere alter ego, business conduit or
instrumentality of another entity or person.

Third, AEEC was not defrauded or injured when PNB and NASUDECO acquired the assets of
PASUMIL. Hence, although the assets of NASUDECO can be easily traced to PASUMIL, the transfer of
the latter's assets to PNB and NASUDECO was not fraudulently entered into in order to escape liability for
its debt to AEEC.

Neither was there any merger or consolidation with respect to PASUMIL and PNB. The procedure
prescribed under Title IX of the Corporation Code 59 was not followed. In fact, PASUMIL's corporate
existence had not been legally extinguished or terminated. Further, prior to PNB's acquisition of the
foreclosed assets, PASUMIL had previously made partial payments to AEEC for the former's obligation in
the amount of P777, 263.80. As of 27 June 1973, PASUMIL had paid P250, 000 to AEEC and, from 5
January 1974 to 23 May 1974, another P14,000. Neither did PNB expressly or impliedly agree to assume
the debt of PASUMIL to AEEC. LOI 11 explicitly provides that PNB shall study and submit
recommendations on the claims of PASUMIL's creditors. Clearly, the corporate separateness between
PASUMIL and PNB remains, despite AEEC's insistence to the contrary.

A consolidation is the union of two or more existing entities to form a new entity called the
consolidated corporation.

A merger, on the other hand, is a union whereby one or more existing corporations are
absorbed by another corporation that survives and continues the combined business. Same; Same;
Same; Same;

Merger does not become effective upon the mere agreement of the constituent corporations;
There must be an express provision of law authorizing them;

The merger, however, does not become effective upon the mere agreement of the constituent
corporations. Since a merger or consolidation involves fundamental changes in the corporation, as
well as in the rights of stockholders and creditors, there must be an express provision of law
authorizing them. For a valid merger or consolidation, the approval by the Securities and Exchange
Commission (SEC) of the articles of merger or consolidation is required. These articles must likewise
be duly approved by a majority of the respective stockholders of the constituent corporations.

2. Associated Bank vs. Court of Appeals, G. R. No. 123793, June 29, 1998

FACTS: Associated Banking Corporation and Citizens Bank and Trust Company (CBTC) merged to form
just one banking corporation known as Associated Citizens Bank (later renamed Associated Bank), the
surviving bank. After the merger agreement had been signed, but before a certificate of merger was issued,
respondent Lorenzo Sarmiento, Jr. executed in favor of Associated Bank a promissory note, promising to
pay the bank P2.5 million on or before due date at 14% interest per annum, among other accessory dues.
For failure to pay the amount due, Sarmiento was sued by Associated Bank. Respondent argued that the
plaintiff is not the proper party in interest because the promissory note was executed in favor of CBTC.
Also, while respondent executed the promissory note in favor of CBTC, said note was a contract pour
autrui, one in favor of a third person who may demand its fulfillment. Also, respondent claimed that he
received no consideration for the promissory note and, in support thereof, cites petitioner's failure to submit
any proof of his loan application and of his actual receipt of the amount loaned.

ISSUES: Whether or not Associated Bank, the surviving corporation, may enforce the promissory
note made by private respondent in favor of CBTC, the absorbed company, after the merger
agreement had been signed, but before a certificate of merger was issued? Whether or not the
promissory note was a contract pour autrui and was issued without consideration?

HELD: The petition is impressed with merit. Associated Bank assumed all the rights of CBTC. Although
absorbed corporations are dissolved, there is no winding up of their affairs or liquidation of their assets,
because the surviving corporation automatically acquires all their rights, privileges and powers, as well as
their liabilities. The merger, however, does not become effective upon the mere agreement of the
constituent corporations. The Securities and Exchange Commission (SEC) and majority of the respective
stockholders of the constituent corporations must have approved the merger. (Section 79, Corporation
Code) It will be effective only upon the issuance by the SEC of a certificate of merger. Records do not
show when the SEC approved the merger.

But assuming that the effectivity date of the merger was the date of its execution, we still cannot agree that
petitioner no longer has any interest in the promissory note. The agreement itself clearly provides that all
contracts — irrespective of the date of execution — entered into in the name of CBTC shall be understood
as pertaining to the surviving bank, herein petitioner. Such must have been deliberately included in the
agreement in order to avoid giving the merger agreement a farcical interpretation aimed at evading
fulfillment of a due obligation. Thus, although the subject promissory note names CBTC as the payee, the
reference to CBTC in the note shall be construed, under the very provisions of the merger agreement, as a
reference to petitioner bank.

On the issue that the promissory note was a contract pour autrui and was issued without consideration, the
Supreme Court held it was not. In a contract por autrui, an incidental benefit or interest, which another
person gains, is not sufficient. The contracting parties must have clearly and deliberately conferred a favor
upon a third person. The "fairest test" in determining whether the third person's interest in a contract is a
stipulation por autrui or merely an incidental interest is to examine the intention of the parties as disclosed
by their contract. It did not indicate that a benefit or interest was created in favor of a third person. The
instrument itself says nothing on the purpose of the loan, only the terms of payment and the penalties in
case of failure to pay. Private respondent also claims that he received no consideration for the promissory
note, citing petitioner's failure to submit any proof of his loan application and of his actual receipt of the
amount loaned. These arguments deserve no merit.

Res ipsa loquitur. The instrument, bearing the signature of private respondent, speaks for itself. Respondent
Sarmiento has not questioned the genuineness and due execution thereof. That he partially paid his
obligation is itself an express acknowledgment of his obligation.

4. PVB Employees Union-N.U.B.E. vs. Vega

FACTS: In 1985, the Central Bank of the Philippines filed a petition for assistance in the liquidation of the
Philippine Veterans Bank (PVB), in the RTC of Manila, Branch 39. Thereafter, the PVB Employees Union
filed claim for accrued and unpaid employee wages and benefits.
On January 2, 1992, R.A. 7169 (An Act to Rehabilitate the PVB) was signed into law by then Pres.
Corazon Aquino and was published in the Official Gazette on February 24, 1992. This law sought the
rehabilitation of the PVB which means that Congress mandated that the PVB be not dissolved.
However, the liquidation judge, Judge Benjamin Vega, did not immediately stop the liquidation
proceeding. In fact he went on with it.
When questioned, Vega argued that R.A. 7169 did not immediately take effect and that it only took effect
15 days after publication in the Official Gazette or on March 10, 1992.
ISSUE: Whether or not Judge Benjamin Vega is correct.
HELD: No. R.A. 7169 provides in its effectivity clause that:
Sec. 10. Effectivity. – This Act shall take effect upon its approval.
As a rule, laws take effect after 15 days following completion of their publication in the Official Gazette or
in a newspaper of general circulation in the Philippines. However, the legislature has the authority to
provide for exceptions as indicated in the clause “unless otherwise provided”. Hence, it is clear that the
legislature intended to make the law effective immediately upon its approval. It is undisputed that R.A. No.
7169 was signed into law by President Corazon C. Aquino on January 2, 1992. Therefore, said law became
effective on said date. Assuming for the sake of argument that publication is necessary for the effectivity of
R.A. No. 7169, then it became legally effective on February 24, 1992, the date when the same was
published in the Official Gazette, and not on March 10, 1992.
6. RCBC v. IAC

Facts: On September 28, 1984, BF Homes filed a “Petition for Rehabilitation and for Declaration of
Suspension of Payments” with the SEC. RCBC, one of the creditors listed in BF Homes’ inventory of
creditors and liabilities, on October 26, 1984, requested the Provincial Sheriff of Rizal to extra-judicially
foreclose its real estate mortgage on some properties of BF Homes. BF Homes opposed the auction sale
and the SEC ordered the issuance of a writ of preliminary injunction upon petitioners filing of a bond.
Presumably unaware of the filing of the bond on the very day of the auction sale, the sheriff proceeded with
the public auction sale in which RCBC was the highest bidder for the properties auctioned. But because of
the proceedings in the SEC, the sheriff withheld the delivery to RCBC of the certificate of sale covering the
auctioned properties. On March 13, 1985, despite the SEC case, RCBC filed with RTC an action for
mandamus against the provincial sheriff of Rizal to compel him to execute in its favor a certificate of sale
of the auctioned properties. On March 18, 1985, the SEC appointed a Management Committee for BF
Homes. Consequently, the trial court granted RCBC’s “motion for judgment on the pleading” ordering
respondents to execute and deliver to petitioner the Certificate of Auction Sale.

On appeal, the SC affirmed CA’s decision (setting aside RTC’s decision dismissing the mandamus case
and suspending issuance to RCBC of new land titles until the resolution of the SEC case) ruling that
“whenever a distressed corporation asks the SEC for rehabilitation and suspension of payments, preferred
creditors may no longer assert such preference but stand on equal footing with other creditors.”

Issue: When should the suspension of actions for claims against BF Homes take effect?

Held: The issue of whether or not preferred creditors of distressed corporations stand on equal footing with
all other creditors gains relevance and materiality only upon the appointment of a management committee,
rehabilitation receiver, board or body.

Upon cursory reading of Section 6, par (c) of PD 902-A, it is adequately clear that suspension of claims
against a corporation under rehabilitation is counted or figured up only upon the appointment of a
management committee or a rehabilitation takes effect as soon as the application or a petition for
rehabilitation is filed with the SEC may to some, be more logical and wise but unfortunately, such is
incongruent with the clear language of the law. To insist on such ruling, no matter how practical and noble
would be to encroach upon legislative prerogative to define the wisdom of the law --- plainly judicial
legislation.

Once a management committee, rehabilitation receiver, board or body is appointed pursuant to PD 902-A,
all actions for claims against a distressed corporation pending before any court, tribunal, board or body
shall be suspended accordingly; Suspension shall not prejudice or render ineffective the status of a secured
creditor as compared to a totally unsecured creditor. What it merely provides is that all actions for claims
against the corporation, partnership or association shall be suspended. This should give the receiver a
chance to rehabilitate the corporation if there should still be a possibility for doing so. In the event that
rehabilitation is no longer feasible and claims against the distressed corporation would eventually have to
be settled, the secured creditors shall enjoy preference over the unsecured creditors, subject only to the
provisions of the Civil Code on Concurrence and Preferences of Credit.

8. Republic of the Philippines v. Marsman Development Corp.

FACTS: Defendant Corporation was a timber license holder with concessions in Camarines Norte.
Investigations led to the discovery that certain taxes were due on it. BIR assessed Marsman 3 times for
unpaid taxes. Atty. Moya, in behalf of the corporation, received the first 2 assessments. He requested for
reinvestigation. As a result, corporation failed to pay within the prescribed period. Numerous BIR warnings
were given. After three years of futile notifications, BIR sued the corporation.

ISSUE: WON present action is barred by prescription, in light of the fact that the corporation law
allows corporations to continue only for 3 years after its dissolution, for the purpose of presenting or
defending suits by or against it, and to settle its affairs.

RULING: NO. Although Marsman was extra-judicially dissolved, with the 3-year rule, nothing however
bars an action for recovery of corporate debts against the liquidators. In fact, the 1st assessment was given
before dissolution, while the 2nd and 3rd assessments were given just 6 months after dissolution (within the
3-year rule). Such facts definitely established that the Government was a creditor of the corporation for
whom the liquidator was supposed to hold assets of the corporation. The Code provides for a 3-year period
for continuation of the corporate existence for purposes of liquidation, BUT there is nothing in the
provision which bars an action for recovery of debts of the corporation against the liquidator himself, after
the lapse of the 3-year period rule.

10. BOARD OF LIQUIDATORS v. KALAW, G.R. No. L-18805

FACTS: The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit
governmental organization on avowedly for the protection, preservation and development of the coconut
industry in the Philippines. On August 1, 1946, NACOCO's charter was amended [Republic Act 5] to grant
that corporation the express power to buy and sell copra. The charter amendment was enacted to stabilize
copra prices, to serve coconut producers by securing advantageous prices for them, to cut down to a
minimum, if not altogether eliminate, the margin of middlemen, mostly aliens. General Manager and board
chairman was Maximo M. Kalaw; defendants Juan Bocar and Casimiro Garcia were members of the Board;
defendant Leonor Moll became director only on December 22, 1947. NACOCO, after the passage of
Republic Act 5, embarked on copra trading activities.

An unhappy chain of events conspired to deter NACOCO from fulfilling the contracts it entered into.
Nature supervened. Four devastating typhoons visited the Philippines in 1947. When it became clear that
the contracts would be unprofitable, Kalaw submitted them to the board for approval. It was not until
December 22, 1947 when the membership was completed. Defendant Moll took her oath on that date. A
meeting was then held. Kalaw made a full disclosure of the situation apprised the board of the impending
heavy losses. No action was first taken on the contracts but not long thereafter, that is, on January 30, 1948,
the board met again with Kalaw, Bocar, Garcia and Moll in attendance. They unanimously approved the
contracts hereinbefore enumerated.

As was to be expected, NACOCO but partially performed the contracts. The buyers threatened damage
suits, some of which were settled. But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue
before the Court of First Instance of Manila. The cases culminated in an out-of- court amicable settlement
when the Kalaw management was already out. With particular reference to the Dreyfus claims, NACOCO
put up the defenses that:

(1) the contracts were void because Louis Dreyfus & Co. (Overseas) Ltd. did not have license to do
business here; and
(2) Failure to deliver was due to force majeure, the typhoons. All the settlements sum up to P1, 343,274.52.
In this suit started in February, 1949, NACOCO seeks to recover the above sum of P1, 343,274.52 from
general manager and board chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia and
Leonor Moll. It charges Kalaw with negligence under Article 1902 of the old Civil Code (now Article
2176, new Civil Code); and defendant board members, including Kalaw, with bad faith and/or breach of
trust for having approved the contracts. By Executive Order 372, dated November 24, 1950, NACOCO,
together with other government-owned corporations, was abolished, and the Board of Liquidators was
entrusted with the function of settling and closing its affairs.

DECISION OF LOWER COURTS: CFI-Manila: dismissed the complaint. Plaintiff was ordered to pay
the heirs of Maximo Kalaw the sum of P2, 601.94 for unpaid salaries and cash deposit due the deceased
Kalaw from NACOCO.

ISSUE: Whether plaintiff Board of Liquidators has lost its legal personality to continue with this suit
since the three year period has elapsed, the Board of Liquidators may not now continue with, and
prosecute, the present case to its conclusion.

RULING: No. The provision should be read not as an isolated provision but in conjunction with the whole.
So reading, it will be readily observed that no time limit has been tacked to the existence of the Board of
Liquidators and its function of closing the affairs of the various government owned corporations, including
NACOCO. The President thought it best to do away with the boards of directors of the defunct
corporations; at the same time, however, the President had chosen to see to it that the Board of Liquidators
step into the vacuum. And nowhere in the executive order was there any mention of the lifespan of the
Board of Liquidators.

Three methods by which corporation may wind up it its affairs:

1. Voluntary dissolution, "such disposition of its assets as justice requires, and may appoint a receiver
to collect such assets and pay the debts of the corporation;
2. Corporate existence is terminated - "shall nevertheless be continued as a body corporate for
three years after the time when it would have been so dissolved, for the purpose of prosecuting
and defending suits by or against it and of enabling it gradually to settle and close its affairs,
to dispose of and convey its property and to divide its capital stock, but not for the purpose of
continuing the business for which it was established;”
3. Corporation, within the three year period just mentioned, "is authorized and empowered to convey
all of its property to trustees for the benefit of members, stockholders, creditors, and others
interested. Corpus Juris Secundum likewise is authority for the statement that "[t]he
dissolution of a corporation ends its existence so that there must be statutory authority for
prolongation of its life even for purposes of pending litigation.

Board of Liquidators escapes from the operation thereof for the reason that "obviously, the complete loss of
plaintiff's corporate existence after the expiration of the period of three (3) years for the settlement of its
affairs is what impelled the President to create a Board of Liquidators, to continue the management of such
matters as may then be pending."
The Board of Liquidators thus became the trustee on behalf of the government. It was an express trust. The
legal interest became vested in the trustee — the Board of Liquidators. The beneficial
interest remained with the sole stockholder — the government. At no time had the government withdrawn
the property, or the authority to continue the present suit, from the Board of Liquidators. If for this reason
alone, we cannot stay the hand of the Board of Liquidators from prosecuting this case to its final
conclusion. The provisions of Section 78 of the Corporation Law — the third method of winding up
corporate affairs — find application.

12. JAIME T. BUENAFLOR vs. CAMARINES SUR INDUSTRY CORPORATION

TOPIC: Effects of Dissolution; winding up and dissolution: (1) Loss of Juridical Personality

FACTS: On 25 June 1957, Jaime T. Buenaflor filed his application (P.S. Case 107548) together with
another application to establish a cold storage and refrigeration service of about 6,000 cubic feet capacity
(P.S. Case 107549). The Commission, by order of 12 September 1957, set the applications for hearing on 9
October 1957, requiring Buenaflor to publish them in two newspapers, and to serve copy thereof to Iñigo
Daza and Camarines Sur Industry Corporation (Camarines Corporation, for brevity). The two owned ice
plants in neighboring municipalities and had been apparently selling ice to Sabang’s inhabitants.

After receiving a copy of Buenaflor’s application, the Camarines Corporation submitted to the Commission
on 1 October 1957, its own two applications: one for authority to construct and manage a 5-ton ice plant,
and likewise registered opposition to Buenaflor’s proposed ice business, on the ground that it was the
pioneer distributor of the commodity in that particular locality. A joint hearing of the four applications of
both parties was set on 25 October 1957. On said hearing, Buenaflor’s attorneys presented a motion to
dismiss the Camarines Corporation’s applications, challenging its personality, inasmuch as its corporate life
had expired in November 1953, in accordance with its own articles of incorporation. The counsel of
Camarines Corporation was surprised by such motion and asked, and was granted time to answer. The
incorporators of Camarines Corporation got busy and executed on 30 October 1957, and registered on 31
October 1957, new articles of incorporation of Camarines Sur Industry Corporation, and at the same time,
notarized a deed of conveyance assigning to the new corporation, all the assets of the expired (old)
corporation, together with its existing certificates of public convenience to operate ice factories in Naga and
Magarao. On 8 November 1957, the Camarines Corporation (new) answered the motion to dismiss, by
alleging, to the amazement of Buenaflor, its recent incorporation, plus its acquisition of the assets and
certificates of the old Camarines Corporation with the Commission’s approval as above described.

In the Commission’s decision as regards the applications of the corporations, the following were held:
Camarines Corporation is really the pioneer ice plant in Maragao since 1945. We believe, therefore, that
applicant Camarines Corporation has a better right than Buenaflor to the certificate for a 5-ton ice plant in
Sabang. However, in light of the fact that the services rendered by Camarines Corporation in this aspect
may not necessarily be adequate, Buenaflor is granted a certificate for one ton ice plant in Sabang.

As to the cold storage service, we think that Buenaflor has a better right to the certificate by virtue of
Buenaflor’s right of priority in the filing of his application and the fact that he is as financially capable as
the Camarines Corporation to install the service, we believe that the certificate for the cold storage service
in Sabang should be granted to Buenaflor. He is granted a certificate of 5,000 cubic feet cold storage
service. Buenaflor appealed in so far as he was denied authority to erect a 5-ton ice plant.

ISSUE: Has the Camarines Sur Industry Corporation lost its standing as a juridical entity upon the
expiration/termination of its corporate life? YES

RULING: YES. Since 1953, the old Corporation had been illegally plying its business of selling ice in
Sabang because, under the Corporation Law, Section 77 (now Section 122 of the Corporation Code), after
November 1953, it could not lawfully continue the business for which it had been established (operate ice
plant, sell ice, etc.). After November 1953, it could only continue to exist for three years for the purpose of
prosecuting and defending suits by or against it, and of enabling it gradually to settle and close its affairs, to
dispose and convey its property and to divide its capital stock. It could not, without violating the law,
continue to sell ice.

When the old Corporation docketed its application on 1 October 1957, it had no juridical
personality, it had ceased to exist as a corporation and could not sue nor apply for certificate, for it was
incapable of receiving a grant. It was not even a corporation de facto. And then there is no application
subscribed by the new Camarines Corporation. Far from being mere technicality, these points support a
conclusion, which appears to be just and equitable, not only for the reasons already indicated, but also to
compensate Buenaflor’s diligence and courage in exposing the irregular practice of a “ghost” corporation
foisting its services upon the unsuspecting public of Sabang and neighboring territory, enjoying a franchise
without paying, perhaps the corporate income tax and other burdens attached to corporate existence.

Remembering the Camarines Corporation’s automatic cessation in November 1956 (3 years after
November 1953), the Court must decline to regard the new Camarines Corporation (formed 30 October
1957) as a continuation of the old. At most, it is the transferee of the properties of the old corporation (or
more property, the assets of the stockholders) plus the certificate of public convenience to operate the ice
plant in Naga and Magarao. And yet, as stated, the new corporation has not yet filed any application for
certificate of public convenience in Sabang, and has not published such application.

14. TAN TIONG BIO v. CIR, G.R. No. L-15778

DOCTRINE: A corporation is deemed to lose its status as a juridical entity upon the expiration of its
corporate life according to its articles of incorporation (absent renewal). It cannot lawfully continue the
business for which it had been established. It could only continue to exist for three years for the purpose of
prosecuting and defending suits by or against it, and of enabling it gradually to settle and close its affairs, to
dispose and convey its property and to divide its capital stock.

FACTS: Central Syndicate (syndicate for short) a corporation, sent a letter to the Collector of Internal
Revenue advising the latter that (1) it purchased from Dee Hong Lue the surplus properties which the said
Dee Hong Lue had bought from the Foreign Liquidation Commission (2) that it assumed Dee Hong Lue's
obligation and would pay a portion of the sales tax on said surplus goods (3) it was paying P43,750.00 in
behalf of Dee Hong Lue as deposit to answer for the payment of said sales tax. The syndicate again wrote
the Collector requesting a refund for the purchase price of goods obtained from Dee Hong Lue was
adjusted and reduced. The CIR investigated the matter and the Collector decided that the Central Syndicate
was the importer and original seller of the surplus goods in question and, therefore, the one liable to pay the
sales tax. The Collector denied the request of the syndicate for the refund. The Central Syndicate elevated
the case to the Court of Tax Appeals. The Collector filed a motion requiring the syndicate to file a bond to
guarantee the payment of the tax assessed against it.

COURT OF TAX APPEALS DECISION: Denied Collector’s motion (1) on the ground that cannot be
legally done it appearing that the syndicate is already a non-existing entity due to the expiration of its
corporate existence (2) dismissing syndicate’s appeal primarily on the ground that the Central Syndicate
has no personality to maintain the action then pending before it. From this order the syndicate appealed to
the Supreme Court wherein it intimated that the appeal should not be dismissed because it could be
substituted by its successors-in-interest. The syndicate was later substituted by its officers and directors
(petitioners herein). Court of Tax Appeals proceeded to hear the case.

COURT OF TAX APPEALS DECISION: Petitioners ordered to pay jointly and severally, to the Collector
of Internal Revenue deficiency sales tax and surcharge on the surplus goods purchased by them from the
Foreign Liquidation Commission. Petitioners filed appeal.

ISSUE: W/N the sales tax in question can be enforced against the corporation’s successors-in-interest
who are the present petitioners since the Central Syndicate has already been dissolved because of the
expiration of its corporate existence.

HELD: YES. The creditor of a dissolved corporation may follow its assets once they passed into the hands
of the stockholders. Net profit of the corporation (from the sale of the surplus goods) was distributed
among the stockholders when the corporation liquidated and distributed its assets immediately after the sale
of the said surplus goods. Petitioners are therefore the beneficiaries of the defunct corporation and as such
should be held liable to pay the taxes in question. The dissolution of a corporation does not extinguish the
debts due or owing to it because a creditor of a dissolved corporation may follow its assets, as in the nature
of a trust fund, into the hands of its stockholders. With reference to the effect of dissolution upon taxes due
from a corporation, "that the hands of the government cannot, of course, collect taxes from a defunct
corporation, it loses thereby none of its rights to assess taxes which had been due from the corporation, and
to collect them from persons, who by reason of transactions with the corporation, hold property against
which the tax can be enforced and that the legal death of the corporation no more prevents such action than
would the physical death of an individual prevent the government from assessing taxes against him and
collecting them from his administrator, who holds the property which the decedent had formerly
possessed". It was found out that Dee Hong Lue purchased the surplus goods in question not for himself
but for the Central Syndicate (as an agent) which was then in the process of incorporation such that the
deed of sale which purports to show that Dee Hong Lue sold said goods to the syndicate is but a ruse for
the syndicate to evade payment of a greater amount of percentage tax.

25. The Mentholatum Co. Inc. vs. Mangaliman [GR 47701, June 27, 1941]

Facts: The Mentholatum Co., Inc. is a Kansas corporation which manufactures "Mentholatum," a
medicament and salve adapted for the treatment of colds, nasal irritations, chapped skin, insect bites, rectal
irritation and other external ailments of the body. The Philippine-American Drug Co., Inc., is its exclusive
distributing agent in the Philippines authorized by it to look after and protect its interests. On 26 June 1919
and on 21 January 1921, the Mentholatum Co., Inc. registered with the Bureau of Commerce and Industry
the word, "Mentholatum", as trade mark for its products. The Mangaliman brothers prepared a medicament
and salve named "Mentholiman" which they sold to the public packed in a container of the same size, color
and shape as "Mentholatum." As a consequence of these acts of the Mangalimans, Mentholatum, etc.
suffered damages from the diminution of their sales and the loss of goodwill and reputation of their product
in the market. On 1 October 1935, the Mentholatum Co., Inc., and the Philippine-American Drug, Co., Inc.
instituted an action in the Court of First Instance (CFI) of Manila against Anacleto Mangaliman, Florencio
Mangaliman and the Director of the Bureau of Commerce for infringement of trade mark and unfair
competition (Civil case 48855).

Mentholatum, etc. prayed for the issuance of an order restraining Anacleto and Florencio Mangaliman from
selling their product "Mentholiman," and directing them to render an accounting of their sales and profits
and to pay damages. After a protracted trial, featured by the dismissal of the case on 9 March 1936 for
failure of plaintiff's counsel to attend, and its subsequent reinstatement on April 4, 1936, the Court of First
Instance of Manila, on 29 October 1937, rendered judgment in favor of Mentholatum, etc. In the Court of
Appeals (CA-GR 46067), the decision of the trial court was, on 29 June 1940, reversed, said tribunal
holding that the activities of the Mentholatum Co., Inc. were business transactions in the Philippines, and
that by section 69 of the Corporation Law, it may not maintain the suit. Mentholatum, etc. filed the petition
for certiorari.

Issue: Whether Mentholatum, etc. could prosecute the instant action without having secured the
license required in section 69 of the Corporation Law.

Held: No general rule or governing principle can be laid down as to what constitutes "doing" or "engaging
in" or "transacting" business. Indeed, each case must be judged in the light of its peculiar environmental
circumstances. The true test, however, seems to be whether the foreign corporation is continuing the body
or substance of the business or enterprise for which it was organized or whether it has substantially retired
from it and turned it over to another. The term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of
the functions normally incident to, and in progressive prosecution of, the purpose and object of its
organization. Herein, Mentholatum Co., through its agent, the Philippine-American Drug Co., Inc., has
been doing business in the Philippines by selling its products here since the year 1929, at least. Whatever
transactions the Philippine-American Drug Co., Inc., had executed in view of the law, the Mentholatum
Co., Inc., being a foreign corporation doing business in the Philippines without the license required by
section 68 of the Corporation Law, it may not prosecute this action for violation of trade mark and unfair
competition. Neither may the Philippine-American Drug Co., Inc. maintain the action here for the reason
that the distinguishing features of the agent being his representative character and derivative authority, it
cannot now, to the advantage of its principal, claim an independent standing in court. Further, the
recognition of the legal status of a foreign corporation is a matter affecting the policy of the forum, and the
distinction drawn in Philippine Corporation Law is an expression of the policy. The general statement made
in Western Equipment and Supply Co. vs. Reyes regarding the character of the right involved should not be
construed in the derogation of the policy-determining authority of the State. The right of Mentholatum
conditioned upon compliance with the requirement of section 69 of the Corporation Law to protect its
rights, is reserved.

18. Avon Insurance PLC vs. CA (GR No. 97642 [1997])

A single act or transaction made in the Philippines could qualify a foreign corporation to be doing
business in the Philippines, if such singular act is not merely incidental or casual, but indicates the
foreign corporation’s intention to do business in the Philippines.— The term ordinarily implies a
continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of
acts or works or the exercise of the functions normally incident to and in progressive prosecution of the
purpose and object of its organization. A single act or transaction made in the Philippines, however, could
qualify a foreign corporation to be doing business in the Philippines, if such singular act is not merely
incidental or casual, but indicates the foreign corporation’s intention to do business in the Philippines.

There is authority to the effect that a reinsurance company is not doing business in a certain state
merely because the property or lives which are insured by the original insurer company are located
in that state.—As it is, private respondent has made no allegation or demonstration of the existence of
petitioners’ domestic agent, but avers simply that they are doing business not only abroad but in the
Philippines as well. It does not appear at all that the petitioners had performed any act which would give
the general public the impression that it had been engaging, or intends to engage in its ordinary and usual
business undertakings in the country. The reinsurance treaties between the petitioners and Worldwide
Surety and Insurance were made through an international insurance broker, and not through any entity or
means remotely connected with the Philippines. Moreover, there is authority to the effect that a reinsurance
company is not doing business in a certain state merely because the property or lives which are insured by
the original insurer company are located in that state. The reason for this is that a contract of reinsurance is
generally a separate and distinct arrangement from the original contract of insurance, whose contracted risk
is insured in the reinsurance agreement. Hence, the original insured has generally no interest in the contract
of reinsurance.

20. Granger Associates vs. Microwave Systems, 189 SCRA 631

Corporations; Foreign Corporations; The term “doing business” implies a continuity of commercial
dealings and arrangements and the performance of acts or works or the exercise of some of the
functions normally incident to the purpose and object of its organization.—This Court interpreted the
same phrase in the old case of Mentholatum v. Mangaliman as follows: The true test, however, seems to be
whether the foreign corporation is continuing the body or substance of the business or enterprise for which
it was organized or whether it has substantially retired from it and turned it over to another. The term
implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of the functions normally incident to, and in
progressive prosecution of, the purpose and object of its organization.

A single actor transaction, if not merely incidental or casual but indicates the foreign corporation’s
intention to do other business in the Philippines, also constitutes doing business in the Philippines.—
We have amplified on that discussion in subsequent cases, among them TopWeld Manufacturing, Inc. v.
ECED, S.A., where we said: There is no general rule or governing principle laid down as to what
constitutes “doing” or “engaging in” or “transacting” business in the Philippines. Each case must be judged
in the light of its peculiar circumstances. Thus, a foreign corporation with a settling agent in the Philippines
which issued twelve marine policies covering different shipments to the Philippines and a foreign
corporation which had been collecting premiums on outstanding policies were regarded as doing business
here. The acts of these corporations should be distinguished from a single or isolated business transaction
or occasional, incidental and casual transactions which do not come within the meaning of the law. Where a
single act or transaction, however, is not merely incidental or casual but indicates the foreign corporation’s
intention to do other business in the Philippines, said single act or transaction constitutes “doing” or
“engaging in” or “transacting” business in the Philippines.

A foreign corporation operating in the Philippines without submitting to our laws, should not be
allowed to invoke the minor courts when it should need them for its own protection.—The purpose of
the rule requiring foreign corporations to secure a license to do business in the Philippines is to enable us to
exercise jurisdiction over them for the regulation of their activities in this country. If a foreign corporation
operates in the Philippines without submitting to our laws, it is only just that it not be allowed to invoke
them in our courts when it should need them later for its own protection. While foreign investors are always
welcome in this land to collaborate with us for our mutual benefit, they must be prepared as an
indispensable condition to respect and be bound by Philippine law in proper cases, as in the one at bar.

22. Facilities Management vs. Dela Osa, 89 SCRA 131

Corporations; A foreign corporation not doing business in the Philippines may be sued here for acts
done against persons in the Philippine.—Indeed, if a foreign corporation, not engaged in business in the
Philippines, is not barred from seeking redress from courts in the Philippines, a fortiori that same
corporation cannot claim exemption from being sued in Philippine courts for acts done against a person or
persons in the Philippines.

24. Schmid vs. Oberly, 116 SCRA 186

Corporation Law; “Indentor,” defined under P.D. No. 1789; Broker, defined. — On the other hand,
there is no statutory definition of “indent” in this jurisdiction. However, the Rules and Regulations to
Implement Presidential Decree No. 1789 (the Omnibus Investments Code) lumps “indentors” together with
“commercial brokers” and “commission merchants” in this manner: . . . A foreign firm which does business
through the middlemen acting in their own names, such as indentors, commercial brokers or commission
merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers
or commission merchants shall be the ones deemed to be doing business in the Philippines Therefore, an
indentor is a middleman in the same class as commercial brokers and commission merchants. To get an
idea of what an indentor is, a look at the definition of those in his class may prove helpful. A broker is
generally defined as one who is engaged, for others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; The negotiator between other parties, never acting in
his own name but in the name of those who employed him; He is strictly a middleman and for some
purpose the agent of both parties. A broker is one whose occupation it is to bring parties together to
bargain, or to bargain for them, in matters of trade, commerce or navigation. Judge Storey, in his work on
Agency, defines a broker as an agent employed to make bargains and contracts between other persons, in
matters of trade, commerce or navigation; for compensation commonly called brokerage. A commission
merchant is one engaged in the purchase or sale for another of personal property which, for this purpose, is
placed in his possession and at his disposal. He maintains a relation not only with his principal and the
purchasers or vendors, but also with the property which is subject matter of the transaction.

Parties to an “indent” transaction. —Webster defines an indent as “a purchase order for goods especially
when sent from a foreign country”. It would appear that there are three parties to an indent transaction,
namely, the buyer, the indentor, and the supplier who is usually a nonresident manufacturer residing in the
country where the goods are to be bought An indentor may therefore be best described as one who, for
compensation, acts as a middleman in bringing about a purchase and sale of goods between a foreign
supplier and a local purchaser.

Sec. 69 of the Corporation Code finds no application to SCHMID and its officers and employees
relative to the transactions in the case at bar; When a foreign corporation does business through
such indentor, the foreign corporation is not deemed doing business in the Philippines.—finally, the
aforequoted penal provision in the Corporation Law finds no application to SCHMID and its officers and
employees relative to the transactions in the instant case. What the law seeks to prevent, through said
provision, is the circumvention by foreign corporations of licensing requirements through the device of
employing local representatives. An indentor, acting in his own name, is not, however, covered by the
abovequoted provision. In fact, the provision of the Rules and Regulations implementing the Omnibus
Investments Code quoted above, which was copied from the Rules implementing Republic Act No. 5455,
recognizes the distinct role of an indentor, such that when a foreign corporation does business through such
indentor, the foreign corporation is not deemed doing business in the Philippines.

26. Aetna Casualty vs. Pacific Star Line, 80 SCRA 635

Commercial Law; Insurance; Foreign Insurance Corporation although without license to transact
insurance business in the Philippines can file in Philippine courts collections/claims assigned to it by
the consignee of good against the shipper and arrastre operators; Filing of collection suits does not
make the foreign insurance corporation doing business in the Philippines. —Based on the rulings laid
down by the Supreme Court, it cannot be said that the Aetna Casualty & Surety Company is transacting
business of insurance in the Philippines for which it must have a license. The contract of insurance was
entered into in New York, U.S.A., and payment was made to the consignee in its New York branch. It
appears from the list of cases issued by the Clerk of Court of the Court of First Instance of Manila that all
the actions, except two (2) cases filed by Smith, Bell & Co., Inc. against the Aetna Casualty & Surety
Company, are claims against the shipper and the arrastre operators just like the case at bar. Consequently,
since the appellant Aetna Casualty & Surety Company is not engaged in the business of insurance in the
Philippines but is merely collecting a claim assigned to it by the consignee, it is not barred from filing the
instant case although it has not secured a license to transact insurance business in the Philippines.

28. Commissioner vs. KMK Gani, 182 SCRA 591

Corporation Law; Foreign Corporations; Foreign corporations not licensed to do business in the
Philippines cannot maintain nor intervene in any action or proceeding in any court or administrative
agency in the Philippines, but they may be proceeded against in Philippine courts or administrative
tribunals.—The law is clear: “No foreign corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws.”

Foreign corporations not engaged in business in the Philippines may bring actions in Philippine
courts for an isolated transaction. — However, the Court in a long line of cases has held that a foreign
corporation not engaged in business in the Philippines may not be denied the right to file an action in the
Philippine courts for an isolated transaction. Therefore, the issue on whether or not a foreign corporation
which does not have a license to engage in business in this country can seek redress in Philippine courts
boils down as to whether it is doing business or merely entered into an isolated transaction in the
Philippines. The fact that a foreign corporation is not doing business in the Philippines must be disclosed if
it desires to sue in Philippine courts under the “isolated transaction rule.” Without this disclosure, the court
may choose to deny it the right to sue.

30. Western Equipment vs. Reyes, 51 PHIL 115

WHEN AN UNLICENSED FOREIGN CORPORATION CAN MAINTAIN ACTION.—A foreign

corporation which has never done any business in the Philippine Islands and which is unlicensed and
unregistered to do business here, but is widely and favorably known in the Islands through the use therein
of its products bearing its corporate and trade name, has a legal right to maintain an action in the Islands to
restrain the residents and inhabitants thereof from organizing a corporation therein bearing the same name
as the foreign corporation, when it appears that they have personal knowledge of the existence of such a
foreign corporation, and it is apparent that the purpose of the proposed domestic corporation is to deal and
trade in the same goods as those of the foreign corporation.

WHEN UNLICENSED FOREIGN CORPORATION CAN MAINTAIN ACTION AGAINST AN

OFFICER OF THE GOVERNMENT.—An unregistered foreign corporation which has not personally
transacted business in the Philippine Islands, but which has acquired valuable goodwill and high reputation
therein through the sale by importers and the extensive use within the Islands of its products bearing either
its corporate name or trademark, has a legal right to restrain an officer of the Government, who has full
knowledge of those facts, from issuing a certificate of incorporation to residents of the Philippine Islands
who are attempting to organize a corporation for the purpose of pirating the corporate name of the foreign
corporation and of engaging in the same business, for the purpose of making the public believe that the
goods which it proposes to sell are the goods of the foreign corporation and of defrauding it and its local
dealers of their legitimate trade.

NATURE AND PURPOSE OF SUCH AN ACTION.—The purpose of such a suit is to protect its
reputation, corporate name and goodwill which have been established through the natural development of
its trade over a long period of years, in the doing of which it does not seek to enforce any legal or contract
rights arising from, or growing out of, any business which it has transacted in the Philippine Islands.

IT IS A RIGHT "IN REM."—Under such a state of facts, the, right to the use of the corporate and trade
name of a foreign corporation is a property right, a right in rem, which it may assert and protect in any of
the courts of the world even in countries where it does not personally transact any business.

IN SUCH A CASE, IT is THE TRADE WHICH is PROTECTED.—In such a case, it is the trade and
not the mark that is to be protected, and a trademark does not acknowledge any territorial boundaries, but
extends to every market where the trader's goods have become known and identified by the use of the mark.