PNB v COURT OF APPEALS Facts:Rita Gueco Tapnio had an export sugar quota of 1,000 picu ls for the agricultural

year 1956-1957. Since, she did not need it, she agreed to allow Mr. Jacobo Tuazon to use the said quotafor consideration of 2,500. Her sugar cannot be exported without sugar quota allotments. Sometimes, however a planter harvests less sugar than her quota so her excess quota is usedby her mother who pays for it. This is her arrangement with Mr. Tuazon. At the time of theagreement, she was indebted to PNB of San Fernando, Pampanga. Her indebtedness was known as a crop loan and was secured by her sugar crop, and since her quota was mortgagedto PNB, her arrangement with Mr. Tuazon had to be approved by the bank. Upon presentmentof the lease arrangement, the PNB branch manager revised it by increasing the lease amount to P2.80 per picul for a total of P2,800. Such increase was agreed to by both Rita and Jacobo.However, when it was presented to the Board of Directors for approval, they further increasedthe amount to P3.00 per picul. Jacobo asked for the reconsideration but he was denied the same. The matter stood as it was until Jacobo informed Rita and PNB that he had lost interestin pursuing the deal. In the meantime, the debt of Rita with the PNB matured. Since she had asurety agreement with the Philippine American General Insurance Co. Inc. (Philamgen), thelatter paid her outstanding debt. Philamgen in turn demanded from Rita the amount whichthey paid the bank. Instead of paying the bank, Rita claimed that she told Philamgen that shed i d n o t c o n s i d e r h e r s e l f i n d e b t e d t o t h e b a n k s i n c e s h e h a d a n a g r e e m e n t w i t h J a c o b o Tuazon. When such was discontinued, she failed to realized the income with which she couldh a v e p a i d h e r c r e d i t o r s . Philamgen filed a complaint for the collection of sum of m o n e y against Rita. Rita implicated PNB as a third party defendant claiming that her failure to pay was due to the fault or negligence of PNB. Issue: WON PNB is liable for the damage caused to Rita. Held: T h e r e i s n o q u e s t i o n t h a t R i t a s f a i l u r e t o u t i l i z e h e r s u g a r q u o t a w a s d u e t o t h e disapproval of the lease by the Board of Directors of the petitioner, thus PNB should be held liable. The Board justified the increase to P 3.00 per picul by saying that it was the prevalent rateat that time. However, there was no proof that any other person was willing to lease thesugar quota allotment of Rita for a price higher than P2.80 per picul. Just because thereare isolated transactions where the lease price was P3.00 per picul does not mean thatthere are always ready takers. While PNB had the ultimate authority of approving or disapproving the proposed leases i n c e t h e q u o t a w a s m o r t g a g e d t o t h e b a n k , t h e l a t t e r c e r t a i n l y c a n n o t e s c a p e i t s responsibility of observing precaution and vigilance which the circumstances of the case justly demanded in approving or disapproving the lease of said sugar quota. According to Art. 19 of the Civil Code, [e]very person must in the exercise of his rightsand the performance of his duties, act with j ustice, give everyone his due and observe honesty and good faith. This the petitioner failed to do. As a consequence, Art. 21 states,[a]ny person who willfully causes loss or injury to another in a manner that is contrary tomorals, good customs or public policy shall compensate the latter for the damage. On the liability of the corporation, the court ruled that, [a] corporation is civilly liable inthe same manner as natural persons for torts, because generally speaking, the rulesgoverning the liability of a principal or master for a tort committed by an agent or servantare the same whether the principal or master be a natural person or artificial person. All of the authorities agree that a principal or master is liable for every tort which he expresslydirects or authorizes, and this is just as true of a corporation as of a natural person. Acorporation, is liable therefore, whenever a tortuous act is committed by an officer or agent under express direction or authority from the stockholders or members acting as abody, or generally, from the directors as the governing body. NOTE: CLV tells us that it is clear from the ruling of the Court in t h i s c a s e t h a t n o t e v e r y tortuous act committed by an officer can be ascribed to the corporation as its liability, for it isreasonable to presume that in the granting of authority by the corporation to its agent, such agrant did not include a direction to commit tortuous acts against third parties. Only when thecorporation has expressly directed the commission of such tortuous act, would the damagesresulting therefrom be ascribable to the corporation. And such a direction by the corporation,is manifested either by its board adopting a resolution to such effect, as in this case, or having taken advantage of such a tortuous act the corporation, through its board, expresslyor impliedly ratifies such an act or is estopped from impugning such an act.Our jurisprudence is wanting as to the definite scope of corporate tort. Essentially,tort consists in the violation of a right given or the omission of a duty imposed by law; abreach of a legal duty. The failure of the corporate employer to comply with the lawimposedd u t y u n d e r t h e L a b o r C o d e t o g r a n t s e p a r a t i o n p a y t o e m p l o y e e s i n c a s e o f c e s s a t i o n o f operations constitutes tort and its stockholder who was actively engaged in the managementor operation of the business should be held personally liable. Q: When is a corporation liable for tort? A: A corporation is liable for tort when: (a) the act is committed by an officer or agent (2) underexpress direction of authority from the stockholders or members acting as a body or through theBoard of Directors.

Q: How can authority given to the agent of the corporation be determined? A: Either by: (a) such direction by the corporation is manifested, by its board a d o p t i n g a resolution to such effect (b) by having takien advantage of such a tortious act, the corporation through its board, has expressly or impliedly ratified such an act or estopped from impugning thesame. Q: What is a derivative suit? A: Since, the act of the board is essentially that of the corporation and therefore corporate assetsc a n n o t e s c a p e e n f o r c e m e n t o f t h e a w a r d o f d a m a g e t o t h e t o r t v i c t i m . A s a r e m e d y , t h e stockholders may institute a derivative suit against the responsible board members and officersfor the damages suffered by the corporation as a result of the tort suit.

G.R. No. L-41337 June 30, 1988TAN BOON BEE & CO., INC., petitioner,vs. THE HONORABLE HILARION U. JARENCIO, PRESIDING JUDGE OF BRANCHXVIII of the Court of First Instance of Manila, GRAPHIC PUBLISHING, INC., andPHILIPPINE AMERICAN CAN DRUG COMPANY, respondents. PARAS, J.: Petitioner herein, doing business under the name and style of Anchor Supply Co., soldon credit to herein private respondent Graphic Publishing, Inc. (GRAPHIC for short)paper products. For failure of GRAPHIC to pay any installment, as agagreed on thecontract of sale, petitioner filed with the then Court of First Instance of Manila for sum ofMoney. The trial court ordered GRAPHIC to pay the petitioner. On motion of petitioner,a writ of execution was issued and the executing sheriff levied upon one (1) unit printingmachine Identified as "Original Heidelberg Cylinder Press" Type H 222, NR 78048,found in the premises of GRAPHIC but herein private respondent, Philippine AmericanDrug Company (PADCO for short) had informed the sheriff that the printing machine isits property and not that of GRAPHIC however the sheriff proceeded with the scheduledauction sale, sold the property to the petitioner. PADCO filed an "Affidavit of Third PartyClaim" with the Office of the City Sheriff. Thereafter, PADCO filed with the Court of FirstInstance of Manila, a Motion to Nullify Sale on Execution (With Injunction) which wasopposed by the petitioner. Respondent judge ruled in favor of PADCO hence the instantpetition. Plaintiff contends that the controlling stockholders of the Philippine AmericanDrug Co. are also the same controlling stockholders of the Graphic Publishing, Inc. and,therefore, the levy upon the said machinery which was found in the premises occupiedby the Graphic Publishing, Inc. should be upheld.ISSUE: Whether or not there is need to pierce the corporate veil.HELD:It is true that a corporation, upon coming into being, is invested by law with a personalityseparate and distinct from that of the persons composing it as well as from any otherlegal entity to which it may be related. As a matter of fact, the doctrine that a

corporationis a legal entity distinct and separate from the members and stockholders who composeit is recognized and respected in all cases which are within reason and the law.However, this separate and distinct personality is merely a fiction created by law forconvenience and to promote justice. Accordingly, this separate personality of thecorporation may be disregarded, or the veil of corporate fiction pierced, in cases whereit is used as a cloak or cover for fraud or illegality, or to work an injustice, or wherenecessary to achieve equity or when necessary for the protection of creditors. Likewise,this is true when the corporation is merely an adjunct, business conduit or alter ego ofanother corporation. In such case, the fiction of separate and distinct corporationentities should be disregarded. In the instant case, petitioner's evidence established that PADCO was never engaged inthe printing business; that the board of directors and the officers of GRAPHIC andPADCO were the same; and that PADCO holds 50% share of stock of GRAPHIC.Petitioner likewise stressed that PADCO's own evidence shows that the printingmachine in question had been in the premises of GRAPHIC since May, 1965, longbefore PADCO even acquired its alleged title on July 11, 1966 from Capitol Publishing.That the said machine was allegedly leased by PADCO to GRAPHIC on January 24,1966, even before PADCO purchased it from Capital Publishing on July 11, 1966, onlyserves to show that PADCO's claim of ownership over the printing machine is not onlyfarce and sham but also unbelievable.Considering the principles and circumstances mentioned, respondent judge shouldhave pierced PADCO's veil of corporate Identity.PREMISES CONSIDERED, Order of the then Court of First Instance of Manila, isANNULLED and SET ASIDE, and the Temporary Restraining Order issued is herebymade permanent.
Lidell Co. v. Collector of Internal Revenue Facts: The case is an appeal from the decision of the Court of Tax Appeals imposing a tax deficiency liability of P1,317,629.61 on Liddell & Co., Inc. The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic corporation establish in the Philippines on February 1, 1946. From 1946 until November 22, 1948 when the purpose clause of the Articles of Incorporation of Liddell & Co. Inc., was amended so as to limit its business activities to importations of automobiles and trucks, Liddell & Co. was engaged in business as an importer and at the same time retailer of Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet trucks. On December 20, 1948, the Liddell Motors, Inc. was organized and registered with the Securities and Exchange Commission with an authorized capital stock of P100,000 of which P20,000 was subscribed and paid for as follows: Irene Liddell wife of Frank Liddell 19,996 shares and Messrs. Marcial P. Lichauco, E. K. Bromwell, V. E. del Rosario and Esmenia Silva, 1 share each. Beginning January, 1949, Liddell & Co. stopped retailing cars and trucks; it conveyed them instead to Liddell Motors, Inc. which in turn sold the vehicles to the public with a steep mark-up. Since then, Liddell & Co. paid sales taxes on the basis of its sales to Liddell Motors Inc. considering said sales as its original sales.

The Collector of Internal Revenue argued that the Lidell Motors, Inc. was but an alter ego of Liddell & Co. and concluded that for sales tax purposes, those sales made by Liddell Motors, Inc. to the public were considered as the original sales of Liddell & Co. hence the imposition of tax deficiency. Issue: Whether or not Lidell Motors, Inc. is an alter ego of Lidell& Co. making it liable for the said tax deficiency? Held: The Court held that Lidell Motors, Inc. is an alter ego of Lidell& Co. hence makin it liable for tax deficiency based on the principle that to allow a taxpayer to deny tax liability on the ground that the sales were made through an other and distinct corporation when it is proved that the latter is virtually owned by the former or that they are practically one and the same is to sanction a circumvention of our tax laws which is consistent with the view of the US Supreme Court stating in one case that "a taxpayer may gain advantage of doing business thru a corporation if he pleases, but the revenue officers in proper cases, may disregard the separate corporate entity where it serves but as a shield for tax evasion and treat the person who actually may take the benefits of the transactions as the person accordingly taxable." The bulk of the business of Liddell & Co. was channeled through Liddell Motors, Inc. On the other hand, Liddell Motors, Inc. pursued no activities except to secure cars, trucks, and spare parts from Liddell & Co. Inc. and then sell them to the general public. These sales of vehicles by Liddell & Co. to Liddell Motors, Inc. for the most part were shown to have taken place on the same day that Liddell Motors, Inc. sold such vehicles to the public. We may even say that the cars and trucks merely touched the hands of Liddell Motors, Inc. as a matter of formality. The mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned and controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the separate corporate identity of one from the other. There is, however, in this instant case, a peculiar consequence of the organization and activities of Liddell Motors, Inc. Under the law in force at the time of its incorporation the sales tax on original sales of cars (sections 184, 185 and 186 of the National Internal Revenue Code), was progressive, i.e. 10% of the selling price of the car if it did not exceed P5000, and 15% of the price if more than P5000 but not more than P7000, etc. This progressive rate of the sales tax naturally would tempt the taxpayer to employ a way of reducing the price of the first sale. And Liddell Motors, Inc. was the medium created by Liddell & Co. to reduce the price and the tax liability. In Lidell& Co.: (1) Frank Liddell had the authority to designate in the future the employee who could receive earnings of the corporation; to apportion among the stock holders the share in the profits;

(2) that all certificates of stock in the names of the employees should be deposited with Frank Liddell duly indorsed in blank by the employees concerned; (3) that each employee was required to sign an agreement with the corporation to the effect that, upon his death or upon his retirement or separation for any cause whatsoever from the corporation, the said corporation should, within a period of sixty days therefor, have the absolute and exclusive option to purchase and acquire the whole of the stock interest of the employees so dying, resigning, retiring or separating. As to Liddell Motors, Inc Frank Lidell also owned it. He supplied the original capital funds. It is not proven that his wife Irene, ostensibly the sole incorporator of Liddell Motors, Inc. had money of her own to pay for her P20,000 initial subscription. Her income in the United States in the years 1943 and 1944 and the savings therefrom could not be enough to cover the amount of subscription, much less to operate an expensive trade like the retail of motor vehicles. The alleged sale of her property in Oregon might have been true, but the money received therefrom was never shown to have been saved or deposited so as to be still available at the time of the organization of the Liddell Motors, Inc. The evidence at hand also shows that Irene Liddell had scant participation in the affairs of Liddell Motors, Inc. She could hardly be said to possess business experience. The income tax forms record no independent income of her own. As a matter of fact, the checks that represented her salary and bonus from Liddell Motors, Inc. found their way into the personal account of Frank Liddell. Her frequent absences from the country negate any active participation in the affairs of the Motors company. Case Digest on Azcor Manufacturing vs. NLRC (303 SCRA 26) July 27, 2010 Azcor Manufacturing Inc. vs. NLRC [303 SCRA 26 (Feb 11 1999)] Piercing the Veil of Corporate Fiction to prevent evasion of obligations or confuse the legitimate issues Facts: Capulso filed with the Labor Arbiter a complaint for constructive illegal dismissal. He alleged that he worked for Azcor as ceramics worker for more than 2 years. Then, due to asthma, he filed a leave of absence. Upon returning to work, he was not permitted to do so. He later on amended his complaint and impleaded Filipinas Paso as additional respondent. On the other hand, Azcor contends that Capulso validly resigned from the company, as evidenced by a letter of resignation, for which Capulso then sought employment from Filipinas Paso, from which he also resigned. The Labor Arbiter dismissed the case. On appeal to the NLRC, it adjudged in favor of Capulso holding Filipinas Paso and Azcor solidarily liable. Hence, this petition with the SC.

Issue: Whether or not Filipinas Paso may be held jointly and severally liable with Azcor for back wages of Capulso. Held: Yes. The doctrine that a corporation is a legal entity or a person in law distinct from the persons composing it is merely a legal fiction for purposes of convenience and to subserve the ends of justice. This fiction cannot be extended to a point beyond its reason and policy. Where, as in this case, the corporate fiction was used as a means to perpetrate a social injustice or as a vehicle to evade obligations or confuse the legitimate issues, it would be discarded and the 2 corporations would be merged as one, the first being merely considered as the instrumentality, agency, conduit, or adjunct of the other. In the case at bar, there was much confusion as to the identity of Capulsos employer, but, for sure, it was Filipinas Paso and Azcors own making. First, Capulso had no knowledge that he was already working under Filipinas Paso since he continued to retain his Azcor ID. Second, his pay slips contained the name of Azcor giving the impression that Azcor was paying his salary. Third, he was paid the same salary and he performed the same kind of job, in the same work area, in the same location, using the same tools and under the same supervisor.

Products, Inc., and making it appear that said Romulo F. Sugay acted as an agent of the Pacific Products, Inc., and as such, the latter should be made answerable to the compensation due to the claimants. Issue: Should the Doctrine of Piercing the Veil of Corporate Fiction be employed to connect the relationship of Romulo Sugay to R.F. Sugay and Co., Inc.? Held: The Court agreed with the Commission that "the dual roles of Romulo F. Sugay should not be allowed to confuse the facts relating to employer-employee relationship." It is a legal truism that when the veil of corporate fiction is made as a shield to perpetrate a fraud and/or confuse legitimate issues (here, the relation of employer-employee), the same should be pierced. Verily the R. F. Sugay & Co., Inc. is a business conduit of R. F. Sugay.

R.F. Sugay & Co., Inc., vs. Reyes Post under case digests, Commercial Law at Thursday, February 23, 2012 Posted by Schizophrenic Mind
Facts: Pablo C. Reyes and Cesar Curata were employees of R.F. Sugay and Co., Inc. who were assigned to a painting job on the building of Pacific Products, Inc. In January 13, 1961, Reyes and Curata suffered burn injuries from a fire in the vicinity of Pacific Products resulting from temporary disability from work. Because of this, Reyes and Curata filed a claim for disability and medical expenses against R.F. Sugay and Co., Inc., Romulo Sugay and Pacific Products. R.F. Sugay & Co. claimed that it is not the employer of Reyes and Curata, but it is the Pacific Products. The Hearing Officer of the Workmens Compensation Commission dismissed the case against Sugay and R.F. Sugay & Co. and found Pacific Product to be liable. Pacific Products appealed to the Commission which reversed the order of the hearing officer and found that R.F. Sugay & Co., Inc. is the statutory employer of Reyes and Curata. The Commission en banc, on September 19, 1962, denied the motion for reconsideration of R. F. Sugay & Co.. Thus, this Petition. In forwarding the argument that Pacific Products is the employer and not R.F. Sugay & Co, the latter alleged that Romulo Sugay, its President, was the one who entered into a contract of administration and supervision for the painting of the factory of the Pacific

G.R. No. L-2294

May 25, 1951

FILIPINAS COMPAIA DE SEGUROS, petitioner, vs. CHRISTERN, HUENEFELD and CO., INC., respondent. Ramirez and Ortigas for petitioner. Ewald Huenefeld for respondent. PARAS, C.J.: On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of corresponding premium, obtained from the petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of P1000,000, covering merchandise contained in a building located at No. 711 Roman Street, Binondo Manila. On February 27, 1942, or during the Japanese military occupation, the building and insured merchandise were burned. In due time the respondent submitted to the petitioner its claim under the policy. The salvage goods were sold at public auction and, after deducting their value, the total loss suffered by the respondent was fixed at P92,650. 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 was issued on October 1, 1941. The petitioner, however, in pursuance of the order of the Director of Bureau of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the respondent the sum of P92,650 on April 19, 1943. The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose of recovering from the respondent the sum of P92,650 above mentioned. The theory of the petitioner is that the insured merchandise were burned up after the policy issued in 1941 in favor of the respondent corporation has ceased to be effective because of the outbreak of the war between the United States and Germany on December 10, 1941, and that the payment made by the petitioner to the respondent corporation during the Japanese military occupation was under pressure. After trial, the Court of First Instance of Manila dismissed the action without pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the Court of First Instance of Manila was affirmed, with costs. The case is now before us on appeal by certiorari from the decision of the Court of Appeals. 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 controls test has been adopted. In "Enemy Corporation" by Martin Domke, a paper presented to the Second International Conference of the Legal Profession held at the Hague (Netherlands) in August. 1948 the following enlightening passages appear: Since World War I, the determination of enemy nationality of corporations has been discussion in many countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by enemies, namely managed under the influence of individuals or corporations, themselves considered as enemies. It was the English courts which first the Daimler case applied this new concept of "piercing the corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established after the First World War. The United States of America did not adopt the control test during the First World War. Courts refused to recognized the concept whereby American-registered corporations could be considered as enemies and thus subject to domestic legislation and administrative measures regarding enemy property. World War II revived the problem again. It was known that German and other enemy interests were cloaked by domestic corporation structure. It was not only by legal ownership of shares that a material influence could be exercised on the management of the corporation but also by long term loans and other factual situations. For that reason, legislation on enemy property enacted in various countries during World War II adopted by statutory provisions to the control test and determined, to various degrees, the incidents of control. Court decisions were rendered on the basis of such newly enacted statutory provisions in determining enemy character of domestic corporation. The United States did not, in the amendments of the Trading with the Enemy Act during the last war, include as did other legislations the applications of the control test and again, as in World War I, courts refused to apply this concept whereby the enemy character of an American or neutral-registered corporation is determined by the enemy nationality of the controlling stockholders. Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice in the treatment of foreign-owned property in the United States allowed to large degree the determination of enemy interest in domestic corporations and thus the application of the control test. Court decisions sanctioned such administrative practice enacted under the First War Powers Act of 1941, and more recently, on December 8, 1947, the Supreme Court of the United States definitely approved of the control theory. In Clark vs. Uebersee Finanz

Korporation, A. G., dealing with a Swiss corporation allegedly controlled by German interest, the Court: "The property of all foreign interest was placed within the reach of the vesting power (of the Alien Property Custodian) not to appropriate friendly or neutral assets but to reach enemy interest which masqueraded under those innocent fronts. . . . The power of seizure and vesting was extended to all property of any foreign country or national so that no innocent appearing device could become a Trojan horse." It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed decision. However, we may add that, in Haw Pia vs. China Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held that China Banking Corporation came within the meaning of the word "enemy" as used in the Trading with the Enemy Acts of civilized countries not only because it was incorporated under the laws of an enemy country but because it was controlled by enemies. The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a public enemy may be insured." It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy. Effect of war, generally. All intercourse between citizens of belligerent powers which is inconsistent with a state of war is prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or trading with the enemy; all acts which will increase, or tend to increase, its income or resources; all acts of voluntary submission to it; or receiving its protection; also all acts concerning the transmission of money or goods; and all contracts relating thereto are thereby nullified. It further prohibits insurance upon trade with or by the enemy, upon the life or lives of aliens engaged in service with the enemy; this for the reason that the subjects of one country cannot be permitted to lend their assistance to protect by insurance the commerce or property of belligerent, alien subjects, or to do anything detrimental too their country's interest. The purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent that one country should destroy its enemy's property and repay in insurance the value of what has been so destroyed, or that it should in such manner increase the resources of the enemy, or render it aid, and the commencement of war determines, for like reasons, all trading intercourse with the enemy, which prior thereto may have been lawful. All individuals therefore, who compose the belligerent powers, exist, as to each other, in a state of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.) In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified term it is plain that when the parties become alien enemies, the contractual tie is broken and the contractual rights of the parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p. 112.) The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforcible, and since the insured goods were

burned after December 10, 1941, and during the war, the respondent was not entitled to any indemnity under said policy from the petitioner. However, elementary rules of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by the respondent for the period covered by its policy from December 11, 1941, should be returned by the petitioner. The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the policy in question became null and void upon the declaration of war between the United States and Germany on December 10, 1941, and its judgment in favor of the respondent corporation was predicated on its conclusion that the policy did not cease to be in force. The Court of Appeals necessarily assumed that, even if the payment by the petitioner to the respondent was involuntary, its action is not tenable in view of the ruling on the validity of the policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted to by the appellee was not unjust but the exercise of its lawful right to claim for and received the payment of the insurance policy," and that the ruling of the Bureau of Financing to the effect that "the appellee was entitled to payment from the appellant was, well founded." Factually, there can be no doubt that the Director of the Bureau of Financing, in ordering the petitioner to pay the claim of the respondent, merely obeyed the instruction of the Japanese Military Administration, as may be seen from the following: "In view of the findings and conclusion of this office contained in its decision on Administrative Case dated February 9, 1943 copy of which was sent to your office and the concurrence therein of the Financial Department of the Japanese Military Administration, and following the instruction of said authority, you are hereby ordered to pay the claim of Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be made by means of crossed check." (Emphasis supplied.) It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on this case. However, the petitioner will be entitled to recover only the equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in accordance with the rate fixed in the Ballantyne scale. Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to the petitioner the sum of P77,208.33, Philippine currency, less the amount of the premium, in Philippine currency, that should be returned by the petitioner for the unexpired term of the policy in question, beginning December 11, 1941. Without costs. So ordered.

Indino vs. NLRC

Facts:The petitioner, Benjamin G. Indino, joined the Philippine National Construction Corporation(PNCC) as a project personnel officer on December 12, 1974. On January 6, 1981, he wastransferred to private respondent DISC, a sister corporation of PNCC, which assigned him to itsPhilphos Project in Isabel, Leyte.On July 27, 1983, while the petitioner was on a paid vacation leave, he received a "letter-memorandum" from Roman B. Lopez, DISC personnel manager, informing him that his serviceswere no longer needed at the Philphos Project in Leyte. The memorandum letter stated that the significant business reverses being experienced by the company makes (sic) it imperative to take drastic measures to reduce both its work force and operating costs. The petitioner filed with the NLRC a complaint for illegal dismissal against private respondentDISC. The case, however, was prematurely terminated upon a joint motion to dismiss drawn byboth parties agreeing that the petitioner will go back to work for the respondent with back wages.Barely two months after his reinstatement, however, the petitioner received another "letter-memorandum" from respondent DISC, again terminating his services.The petitioner received from DISC the amount of P20,458.52 as separation benefits. He however,refused to accept his termination, instead, he filed a complaint for illegal dismissal, unpaidwages, moral and exemplary damages, and attorney's fees against respondent DISC and later onimpleaded the Philippine National Construction Corporation (PNCC) as additional respondent.Labor Arbiter Ricardo C. Nora, to whom the case was assigned, dismissed the petitioner'scomplaint for lack of merit. The petitioner appealed to the respondent NLRC which affirmed Labor Arbiters decision. The petitioner then filed for a motion for reco nsideration which wasalso denied. The case then was brought before the Supreme Court.The petitioner insists that his removal was unjustified and illegal and was carried out tocircumvent the compromise agreement he had earlier entered into with respondent DISC whichprovided, among others, his reinstatement in any of the offices or projects of respondent DISC.The aforementioned compromise agreement, he avers, precludes his separation or dismissal. .Moreover, the petitioner points out, the reason for his separation in the "letter-memorandum" of December 14, 1983 is but a rehash of that in the first "letter-memorandum" of July 27, 1983. Thepetitioner concludes that the later move by DISC at ostensible retrenchment had been made inbad faith and manifested its thinly-veiled desire to dismiss him.Issues:1. Whether or not DISC is justified in dismissing the respondent2. Whether or not PNCCs inclusion as respondent in the case is justified Issue no.1 No. While business reverses can be a just cause for terminating employees, 13

they must besufficiently proven by the employer. 14 This is precisely mandated under par. (b) of Article 277(formerly 278) of the Labor Code.Another point that makes the respondent DISC's cause suspect is that, as correctly pointed out bythe petitioner, the reason it gave in its "letter-memorandum" dated December 14, 1983terminating his services was simply a rehash of its (DISC'S) "letter-memorandum" dated July 27,1983, which ultimately produced the compromise agreement between the parties. It will be notedthat on July 27, 1983, the event (Ninoy Aquino's assassination) that led to the near collapse of the national economy, had not yet taken place. Respondent DISC's use of basically the samereason thus shows its all-too-apparent effort to remove the petitioner from its payroll. Taken inthe light of the then just recently concluded compromise agreement between the parties, the actof DISC in subsequently dismissing the petitioner just two monthsand-a-half after hisreinstatement appears as having been made in bad faith. Issue No. 2: Yes. Considering that the petitioner started his employment originally with the PhilippineNational Construction Company (PNCC) but was only transferred later to its sister company, therespondent DISC, the inclusion of the former as party respondent in this action is justified andproper. The so-called separate and distinct personality of PNCC could be validly ignored inasmuch as it would unjustly prejudice the petitioner vis-a-vis whatever benefits he may receive by reason of his illegal dismissal. This has been demonstrated by the amount of the separation pay given to the petitioner by respondent DISC which appears to correspond only to the period inwhich the former was in the employ of the latter. The period when the petitioner was still in theemploy of PNCC was apparently ignored. This omission should not be allowed inasmuch asthere is no showing that PNCC gave the petitioner separation benefits before he was transferredto DISC. It should always be borne in mind that the fiction of law that a corporation, as a juridical entity, has a distinct and separate personality, was envisaged for convenience and to serve justice; therefore, it should not be used as a subterfuge to commit injustice and circumvent labor laws

LYCEUM OF THE PHILS. V. CA 219 SCRA 610 FACTS: 1. Petitioner had sometime commenced before in the SEC a complaint against Lyceum of Baguio, to require it to change its corporate name and to adopt another name not similar or identical with that of petitioner. SEC decided in favor of petitioner. Lyceum of Baguio filed petition for certiorari but was denied for lack of merit. 2. Armed with the resolution of the Court, petitioner instituted before the SEC to compel private respondents, which are also educational institutions, to delete word Lyceum from their corporate names and permanently to enjoin them from using such as part of their respective names. 3. Hearing officer sustained the claim of petitioner and held that the word Lyceum was capable of appropriation and that petitioner had acquired an enforceable right to the use of that word. 4. In an appeal, the decision was reversed by the SEC En Banc. They held that the word Lyceum to have become identified with petitioner as to render use thereof of other institutions as productive of consfusion about the identity of the schools concerned in the mind of the general public. 5. Petitioner went to appeal with the CA but the latter just affirmed the decision of the SEC En Banc. HELD: Under the corporation code, no corporate name may be allowed by the SEC if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws. The policy behind this provision is to avoid fraud upon the public, which would have the occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over corporations. The corporate names of private respondents are not identical or deceptively or confusingly similar to that of petitioners. Confusion and deception has been precluded by the appending of geographic names to the word Lyceum.

Furthermore, the word Lyceum has become associated in time with schools and other institutions providing public lectures, concerts, and public discussions. Thus, it generally refers to a school or an institution of learning. Petitioner claims that the word has acquired a secondary meaning in relation to petitioner with the result that the word, although originally generic, has become appropriable by petitioner to the exclusion of other institutions. The doctrine of secondary meaning is a principle used in trademark law but has been extended to corporate names since the right to use a corporate name to the exclusion of others is based upon the same principle, which underlies the right to use a particular trademark or tradename. Under this doctrine, a word or phrase originally incapable of exclusive appropriation with reference to an article in the market, because geographical or otherwise descriptive might nevertheless have been used for so long and so exclusively by one producer with reference to this article that, in that trade and to that group of purchasing public, the word or phrase has come to mean that the article was his produce. The doctrine cannot be made to apply where the evidence didn't prove that the business has continued for so long a time that it has become of consequence and acquired good will of considerable value such that its articles and produce have acquired a well known reputation, and confusion will result by the use of the disputed name. Petitioner didn't present evidence, which provided that the word Lyceum acquired secondary meaning. The petitioner failed to adduce evidence that it had exclusive use of the word. Even if petitioner used the word for a long period of time, it hadnt acquired any secondary meaning in its favor because the appellant failed to prove that it had been using the same word all by itself to the exclusion of others. PHILIPS EXPORT VS. COURT OF APPEALS- Corporate Trade Name

A corporations right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect against the whole world.

FACTS: Philips Export B.V. (PEBV) filed with the SEC for the cancellation of the word Philips the corporate name of Standard Philips Corporation in view of its prior registration with the Bureau of Patents and the SEC. However, Standard Philips refused to amend its Articles of Incorporation so PEBV filed with the SEC a

petition for the issuance of a Writ of Preliminary Injunction, however this was denied ruling that it can only be done when the corporate names are identical and they have at least 2 words different. This was affirmed by the SEC en banc and the Court of Appeals thus the case at bar.

Philips primary purposes are to buy, sell trade x x x electrical wiring devices, electrical component, electrical supplies. Given these, there is nothing to prevent Standard Philips from dealing in the same line of business of electrical devices. The use of Philips by Standard Philips tends to show its intention to ride on the popularity and established goodwill of PEBV. Universal Mills Corporation vs. Universal Textile Mills 78 SCRA 62 (1977)

ISSUE: Whether or not Standard Philips can be enjoined from using Philips in its corporate name

FACTS: This is an appeal from the order of the Securities and Exchange Commission granting a petition by the respondent to have the petitioners corporate name be changed as it is confusingly and deceptively similar to that of the former. On January 8, 1954, respondent Universal Textile Mills was issued a certificate of Corporation as a textile manufacturing firm. On the other hand, petitioner, which deals in the production of hosieries and apparels, acquired its current name by amending its articles of incorporation, changing its name from Universal Hosiery mills Corporation to Universal Mills corporation. ISSUE:

RULING: YES A corporations right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect against the whole world. According to Sec. 18 of the Corporation Code, no corporate name may be allowed if the proposed name is identical or deceptively confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing law.

For the prohibition to apply, 2 requisites must be present: (1) the complainant corporation must have acquired a prior right over the use of such corporate name and (2) the proposed name is either identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or patently deceptive, confusing or contrary to existing law.

Whether or not petioners trade name is confusingly similar with that of respondents. HELD: Yes. The corporate names in question are not identical, but they are indisputably so similar that even under the test of reasonable care and observation as the public generally are capable of using and may be expected to exercise invoked by appellant. We are apprehensive confusion will usually arise, considering that x x x appellant included among its primary purposes the manufacturing, dyeing, finishing and selling of fabrics of all kinds which respondent had been engaged for more than a decade ahead of petitioner.

With regard to the 1st requisite, PEBV adopted the name Philips part of its name 26 years before Standard Philips. As regards the 2nd, the test for the existence of confusing similarity is whether the similarity is such as to mislead a person using ordinary care and discrimination. Standard Philips only contains one word, Standard, different from that of PEBV. The 2 companies products are also the same, or cover the same line of products. Although PEBV primarily deals with electrical products, it has also shipped to its subsidiaries machines and parts which fall under the classification of chains, rollers, belts, bearings and cutting saw, the goods which Standard Philips also produce. Also, among Standard

ARMCO STEEL CORPORATION (OF THE PHILIPPINES), petitioner, vs. SECURITIES AND EXCHANGE COMMISSION, ARMCO STEEL CORPORATION (of Ohio, U.S.A.) and ARMCO MARSTEEL ALLOY CORPORATION, respondents.

GANCAYCO, J.: On July 1, 1965 ARMCO Steel Corporation, a corporation organized in Ohio, U.S.A., hereinafter called ARMCO-OHIO, obtained from the Philippine Patent Office, Certificate of Registration No. 11750 for its trademark consisting of the word "ARMCO" and a triangular device for "ferrous metals and ferrous metal castings and forgings." On April 14, 1971, pursuant to trademark rules, the petitioner filed with the said patent office an "Affidavit of Use" for said trademark, which was subsequently accepted and for which the Patent Office issued the corresponding notice of acceptance of "Affidavit of Use." ARMCO Marsteel-Alloy Corporation was also incorporated on July 11, 1972 under its original name Marsteel Alloy Company, Inc. but on March 28, 1973 its name was changed to ARMCO-Marsteel Alloy Corporation hereinafter called ARMCO-Marsteel, by amendment of its Articles of Incorporation after the ARMCO-Ohio purchased 40% of its capital stock. Both said corporations are engaged in the manufacture of steel products. Its article of incorporation in part reads as follows as to its purposes: "to manufacture, process ... and deal in all kinds, form, and combinations of iron, steel or other metals and all or any products or articles particularly consisting of iron, steel or other metals .... . On the other hand ARMCO Steel Corporation was incorporated in the Philippines on April 25, 1973, hereinafter called ARMCO-Philippines. A pertinent portion of its articles of incorporation provides as among its purposes: "to contract, fabricate ... manufacture ... regarding pipelines, steel frames ... ." ARMCO-Ohio and ARMCO-Marsteel then filed a petition in the Securities and Exchange Commission (SEC) to compel ARMCO-Philippines to change its corporate name on the ground that it is very similar, if not exactly the same as the name of one of the petitioners, which is docketed as SEC Case No. 1187. In due course an order was issued by the SEC on February 14, 1975 granting the petition, the dispositive part of which reads as follows: In view of the foregoing, the respondent, ARMCO STEEL CORPORATION, is hereby ordered to take out 'ARMCO' and substitute another word in lieu thereof in its corporate name by amending the articles of incorporation to that effect, within thirty (30) days from date of receipt of a copy of this Order; after which, three (3) copies of the amended articles of incorporation, duly certified by a majority of the board of directors and countersigned by the president and secretary of the corporation, shall be submitted to this Commission, together with the corresponding filing fees, as required by law. 1

A motion for reconsideration of the said order was filed by said respondent on March 6. 1975 but this was denied in, an order of April 16, 1965 as the motion was filed out of time, a copy of the questioned order having been received by respondent on February 18, 1975 so that said order had become final and executory. 2 A motion for reconsideration filed by respondent to set aside said order of April 16, 1965 was also denied by the SEC on June 23, 1975. 3 An appeal was interposed by respondent to the Court of Appeals which was docketed as CA G.R. No. 04448-R but the appeal was dismissed in a resolution of January 13, 1976, on the ground that the appeal was perfected beyond the reglementary period allowed by law. On March 22, 1976 said respondent amended its articles of incorporation by changing its name to "ARMCO structures, Inc." which was filed with and approved by the SEC. Nevertheless, in an order of January 6, 1977, the SEC issued an order requiring respondent, its directors and officers to comply with the aforesaid order of the Commission of February 14, 1975 within ten (10) days from notice thereof. 5 A manifestation and motion was filed by respondent informing SEC that it had already changed its corporate name with the approval of the SEC to ARMCO Structures, Inc. in substantial compliance with the said order or in the alternative prayed for a hearing to determine if there is a confusing similarity between the names of the petitioners on one hand and the ARMCO Structures, Inc. on the other. Petitioners then filed a comment to said manifestation alleging that the change of name of said respondent was not done in good faith and is not in accordance with the order of the Commission of February 14, 1975 so that drastic action should be taken against the respondent and its officers. Subsequently, petitioners filed a motion to cite said respondent, its directors and officers in contempt for disobeying the orders of February 14, 1975 and January 6, 1977. In an order of August 31, 1977, the SEC finding that the respondent, its directors, and officers have not complied with the final order of February 14, 1975 required them to appeal before the Commission on September 22, 1977 at 10:00 o'clock in the morning to show cause why they should not be punished for contempt by the Commission. 6 After the hearing the parties submitted their respective memoranda. In another order of January 17, 1979, the SEC finding that the respondent did not make the proper disclosure of the circumstances when it amended its articles of incorporation and submitted the same for the approval of the SEC thus said respondent, its directors, and officers were ordered within ten (10) days from notice to comply with the order of February 14, 1975. An appeal was interposed by the respondent to the SEC en banc. The Commission en banc in an order of December 14, 1979 dismissed the appeal for lack of merit. 7 Hence, the herein petition for review filed by ARMCO-Philippines wherein it seeks the reversal of the orders of the SEC of December 14, 1979 and August 6, 1980 and that the order of February 14, 1975 be declared functus oficio for having been substantially complied with by the petitioner. The grounds of the petition are as follows:

I THE SECURITIES AND EXCHANGE COMMISSION ERRED WHEN IT DID NOT CONSIDER ITS ORDER DATED FEBRUARY 14,1975 FUNCTUS OFFICIO PURSUANT TO THE LEGAL MAXIM CESSANTE LEGIS RATIONE CESSAT ET IPSA LEX' AFTER PETITIONER HAD SUBSTANTIALLY COMPLIED IN GOOD FAITH WITH SAID ORDER AND SAID COMPLIANCE HAD ACHIEVED THE PURPOSE OF THE ORDER, BY CHANGING ITS CORPORATE NAME WITH THE APPROVAL OF SAID COMMISSION. II THE COMMISSION ERRED WHEN IT DID NOT FIND THAT ITS APPROVAL OF PETITIONER'S AMENDED ARTICLES OF INCORPORATION CHANGING PETITIONER'S CORPORATE NAME FROM "ARMCO STEEL CORPORATION" TO "ARMCO STRUCTURES, INCORPORATED" WAS REGULAR AND LEGAL. III THE COMMISSION ERRED WHEN IT DID NOT FIND THAT PRIVATE RESPONDENTS WERE NO LONGER ENTITLED TO THE RELIEF AWARDED BY THE ORDER DATED FEBRUARY 14,1975 CONSIDERING THAT SAID ORDER HAD BECOME FUNCTUS OFFICIO AND FURTHER ENFORCEMENT THEREOF WILL BE INEQUITABLE AS IT WILL DEPRIVE PETITIONER OF EQUAL PROTECTION OF LAWS. IV THE COMMISSION ERRED WHEN, THERE BEING A DISPUTE AS TO WHETHER OR NOT THE PURPOSE OF THE ORDER DATED FEBRUARY 14,1975 HAD BEEN COMPLIED WITH AND WHETHER THERE WAS STILL CONFUSING SIMILARITY BETWEEN THE CORPORATE NAMES OF RESPONDENTS AND THE NEW NAME OF PETITIONER, IT DID NOT GRANT PETITIONER'S PRAYER THAT A HEART NG BE HELD TO THRESH THE ISSUE." The Court finds no merit in the petition. The order of the public respondent SEC of February 14, 1975 which has long become final and executory clearly spells out that petitioner must "take out ARMCO and substitute another word in lieu thereof in its corporate name by amending the articles of incorporation to that effect, ... ." Far from complying with said order petitioner amended its corporate name into ARMCO Structures, Inc., and secured its approval by the SEC on March 22, 1976. That this amendment was made by petitioner without the knowledge of the proper authorities of the SEC is home by the fact that thereafter on January 6, 1977 an order was issued by the SEC requiring petitioner, its board of directors, and officers to

comply with the order of the Commission of February 14, 1975. When the attention of the SEC was called by petitioner that the change of corporate name had been undertaken by it to ARMCO Structures, Inc. and asked that it be considered as a substantial compliance with the order of February 14, 1975, the SEC in its order of January 17, 1979 speaking through its hearing officer Antonio R. Manabat ruled as follows: The Order of February 14, 1975, cannot but be clearer than what it purports to require or demand from respondent. Under in no distinct terms, it enjoins the removal or deletion of the word 'Armco' from respondent's corporate name, which was not so complied with. The Commission, therefore, cannot give its imprimatur to the new corporate name because there was no compliance at all. The fact that the Securities and Exchange Commission issued its certificate of filing of amended articles of incorporation on March 22, 1976, is nothing but an illusory approval of the change of corporate name and a selfinduced protection from the Commission to further exact compliance of the Order of February 14, 1975. Craftily, the Securities and Exchange Commission and/or its administrative personnel were made to issue such certificate during its unguarded moment. Verily, the certificate could not have been issued were it not for such lapses or had respondent been in good faith by making the proper disclosures of the circumstances which led it to amend its articles of incorporation. Correctly pointed out by petitioners, a 'new determination as to whether or not there is confusing similarity between petitioners' names and that of 'Armco Structures, Incorporated,' cannot be ordered without transgression on the rule of, or the decisional law on, finality of judgment. 8 The Court finds that the said amendment in the corporate name of petitioner is not in substantial compliance with the order of February 14, 1975. Indeed it is in contravention therewith. To repeat, the order was for the removal of the word "ARMCO" from the corporate name of the petitioner which it failed to do. And even if this change of corporate name was erroneously accepted and approved in the SEC it cannot thereby legalize nor change what is clearly unauthorized if not contemptuous act of petitioner in securing the registration of a new corporate name against the very order of the SEC of February 14, 1975. Certainly the said order of February 14, 1975 is not rendered functus oficio thereby. Had petitioner revealed at the time of the registration of its amended corporate name that there was the said order, the registration of the amended corporate name could not have been accepted and approved by the persons in-charge of the registration. The actuations in this respect of petitioner are far from regular much less in good faith. The arguments of the petitioner that the SEC had approved the registration of several other entities with one principal word common to all as "ARMCO," and that there is no confusing similarity between the corporate names of respondents and the new name of petitioner, would indeed in effect be reopening the final and executory order of the SEC of

February 14, 1975 which had already foreclosed the issue. Indeed, in said final order the SEC made the following findings which are conclusive and well-taken: The only question for resolution in this case is whether therespondent's name ARMCO STEEL CORPORATION is similar, if not Identical with that of petitioner, ARMCO STEEL CORPORATION (of Ohio, U.S.A.) and of petitioner, ARMCO-MARSTEEL ALLOY CORPORATION, as to create uncertainty and confusion in the minds of the public. By mere looking at the names it is clear that the name of petitioner, ARMCO STEEL CORPORATION (of Ohio, U.S.A.), and that of the respondent, ARMCO STEEL CORPORATION, are not only similar but Identical and the words "of Ohio, U.S.A.," are being used only to Identify petitioner ARMCO STEEL-OHIO as a U.S. corporation. It is indisputable that ARMCO-STEEL-OHIO, having patented the term 'Armco' as part of its trademark on its steel products, is entitled to protection in the use thereof in the Philippines. The term "Armco" is now being used on the products being manufactured and sold in this country by Armco-Marsteel by virtue of its tie-up with ARMCO-STEEL-OHIO. Clearly, the two companies have the right to the exclusive use and enjoyment of said term. ARMCO STEEL-PHILIPPINES, has not only an Identical name but also a similar line of business, as shown above, as that of ARMCO STEEL- OHIO. People who are buying and using products bearing the trademark "Armco" might be led to believe that such products are manufactured by the respondent, when in fact, they might actually be produced by the petitioners. Thus, the goodwill that should grow and inure to the benefit of petitioners could be impaired and prejudiced by the continued use of the same term by the respondent. Obviously, the petition for review is designed to further delay if not simply evade compliance with the said final and executory SEC order. Petitioner also seeks a review of the orders of execution of the SEC of the said February 14, 1975 order. An order or resolution granting execution of the final judgment cannot be appealed 9 otherwise there will be no end to the litigation. 10 WHEREFORE, the petition is DISMISSED for lack of merit with costs against petitioner. This decision is immediately executory. SO ORDERED. Republic Planters Bank vs. Agana Case Digest Republic Planters Bank vs. Agana [GR 51765, 3 March 1997]

Facts: On 18 September 1961, the Robes-Francisco Realty & Development Corporation (RFRDC) secured a loan from the Republic Planters Bank in the amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were issued to RFRDC through its officers then, Adalia F. Robes and one Carlos F. Robes. In other words, instead of giving the legal tender totaling to the full amount of the loan, which is P120,000.00, the Bank lent such amount partially in the form of money and partially in the form of stock certificates numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the name of Adalia F. Robes and Carlos F. Robes, who subsequently, however, endorsed his shares in favor of Adalia F. Robes.

Said certificates of stock bear the following terms and conditions: "The Preferred Stock shall have the following rights, preferences, qualifications and limitations, to wit: 1. Of the right to receive a quarterly dividend of 1%, cumulative and participating. xxx 2. That such preferred shares may be redeemed, by the system of drawing lots, at any time after 2 years from the date of issue at the option of the Corporation." On 31 January 1979, RFRDC and Robes proceeded against the Bank and filed a complaint anchored on their alleged rights to collect dividends under the preferred shares in question and to have the bank redeem the same under the terms and conditions of the stock certificates. The bank filed a Motion to Dismiss 3 private respondents' Complaint on the following grounds: (1) that the trial court had no jurisdiction over the subject-matter of the action; (2) that the action was unenforceable under substantive law; and (3) that the action was barred by the statute of limitations and/or laches. The bank's Motion to Dismiss was denied by the trial court in an order dated 16 March 1979. The bank then filed its Answer on 2 May 1979. Thereafter, the trial court gave the parties 10 days from 30 July 1979 to submit their respective memoranda after the submission of which the case would be deemed submitted for resolution. On 7 September 1979, the trial court rendered the decision in favor of RFRDC and Robes; ordering the bank to pay RFRDC and Robes the face value of the stock certificates as redemption price, plus 1% quarterly interest thereon until full payment. The bank filed the petition for certiorari with the Supreme Court, essentially on pure questions of law.

Issue: 1. Whether the bank can be compelled to redeem the preferred shares issued to RFRDC and Robes. 2. Whether RFRDC and Robes are entitled to the payment of certain rate of interest on the stocks as a matter of right without necessity of a prior declaration of dividend. Held:

ignoring both the terms and conditions specified in the stock certificate, as well as the clear mandate of the law. SAMAHAN NG OPTOMETRISTS SA PILIPINAS, ILOCOS SUR-ABRA CHAPTER, EDUARDO MA. GUIRNALDA, DANTE G. PACQUING and OCTAVIO A. DE PERALTA, petitioners, vs. ACEBEDO INTERNATIONAL CORPORATION and the HON. COURT OF APPEALS, respondents. DECISION HERMOSISIMA, JR., J.: Before us is a petition seeking the review and ultimately the reversal of the decisioni[1] of the Court of Appealsii[2] which rejected what petitioners vehemently claim to be a prohibition, under Republic Act (RA.) No. 1998, popularly known as the old Optometry Law, against the employment by corporations, usually optical shops and eyeware stores, of optometrists, such practice, according to petitioners, being an indirect violation of the rule against corporations exercising professions reserved only to natural persons. Petitioners understandably did not welcome the herein assailed decision because they have, earlier, obtained a decisioniii[3] favorable to them from the Regional Trial Court of Candon, Ilocos Sur, Branch 23, presided over by Judge Gabino Balbin, Jr. The said judge had, in the main, ruled that the operations of private respondent Acebedo International Corporation involves the practice of optometry which is precluded by RA. No. 1998. The undisputed facts of the case, as found by the respondent Court of Appeals and quoted by petitioners, are as follows: "On February 22, 1991, x x x [private respondent] filed an application with the Office of the Mayor of Candon, Ilocos Sur, for the issuance of a permit for the opening and operation of a branch of the Acebedo Optical in that municipality. The application was opposed by the x x x [petitioner] Samahan ng Optometrists sa Pilipinas (SOP) which contended that x x x [private respondent] is a juridical entity not qualified to practice optometry. On March 6, 1991, x x x [private respondent] filed its answer, arguing it is not the corporation, but the optometrists employed by it, who would be practicing optometry. On April 17, 1991, the Mayor of Candon created a committee, composed of "public respondents Eduardo Ma. Guirnalda, Dante G. Pacquing and Octavio de Peralta, to pass on [private respondent's] application. On September 26, 1991 the committee rendered a decision denying [private respondent's] application for a mayor's permit to operate a branch in Candon and ordering x x x [private respondent] to close its establishment within fifteen (15) days from receipt of the decision. Acebedo moved for a reconsideration but its motion was denied on November 14, 1991. x

1. While the stock certificate does allow redemption, the option to do so was clearly vested in the bank. The redemption therefore is clearly the type known as "optional". Thus, except as otherwise provided in the stock certificate, the redemption rests entirely with the corporation and the stockholder is without right to either compel or refuse the redemption of its stock. Furthermore, the terms and conditions set forth therein use the word "may". It is a settled doctrine in statutory construction that the word "may" denotes discretion, and cannot be construed as having a mandatory effect. The redemption of said shares cannot be allowed. The Central Bank made a finding that the Bank has been suffering from chronic reserve deficiency, and that such finding resulted in a directive, issued on 31 January 1973 by then Gov. G. S. Licaros of the Central Bank, to the President and Acting Chairman of the Board of the bank prohibiting the latter from redeeming any preferred share, on the ground that said redemption would reduce the assets of the Bank to the prejudice of its depositors and creditors. Redemption of preferred shares was prohibited for a just and valid reason. The directive issued by the Central Bank Governor was obviously meant to preserve the status quo, and to prevent the financial ruin of a banking institution that would have resulted in adverse repercussions, not only to its depositors and creditors, but also to the banking industry as a whole. The directive, in limiting the exercise of a right granted by law to a corporate entity, may thus be considered as an exercise of police power.

2. Both Section 16 of the Corporation Law and Section 43 of the present Corporation Code prohibit the issuance of any stock dividend without the approval of stockholders, representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. These provisions underscore the fact that payment of dividends to a stockholder is not a matter of right but a matter of consensus. Furthermore, "interest bearing stocks", on which the corporation agrees absolutely to pay interest before dividends are paid to common stockholders, is legal only when construed as requiring payment of interest as dividends from net earnings or surplus only. In compelling the bank to redeem the shares and to pay the corresponding dividends, the Trial committed grave abuse of discretion amounting to lack or excess of jurisdiction in

x x [Private respondent] was ordered to close its establishment within ten (10) days from receipt of the order. On December 9, 1991, x x x [private respondent] filed with the Court of Appeals a petition for certiorari (CA G.R SP No. 26782), questioning the decision of respondent committee. Its petition, however, was referred to the court a quo, which on December 16, 1992, dismissed Acebedo's petition. Hence, x x x [the] appeal [to the respondent Court of Appeals]."iv[4] The singular issue, admittedly extensively debated and intensely contested not only by the members of the optometry profession and the players in the business of selling optical ware, supplies, substances and instruments but also by the members of the Senate during the deliberations respecting R A. 8050, otherwise known as Revised New Optometry Law, is this: May corporations, engaged in the business of selling optical wares, supplies, substances and instruments which, as an incident to and in the ordinary course of the business hire optometrists, be said to be practicing the profession of optometry which, by legal mandate, may only be engaged in by natural persons possessed of specific legal qualifications? The trial court resolved this issue in the affirmative. In so finding, it explained, thus: "The denial of the application of Acebedo rested on the grounds that it is operating an optical shop and it is practicing optometry where its charter does not grant to it authority to practice the former. Acebedo submits that the findings of the Commission have no basis both in law and in fact. It argues that the hiring of optometrists by the petitioner is merely incidental to its main business which is the sale of optical products. Acebedo contends further that its employees have a personality separate and distinct from that of Acebedo which is a juridical entity, and it cannot therefore be considered as engaged in optometry. The Court disagrees. Quoted for the enlightenment of both parties is a portion of the contested Decision, to wit: 'The visit revealed the following: 1. The establishment was manned by three personnel: Dr. Salvador Pagarigan, optometrist; Miss Lilibeth Begonia, receptionist; and a laboratory technician, who refused to give his name; 2. There were several shelves containing eyeglasses;

5.

An optical laboratory.'

The Court is very much aware of the existence of several shops owned by Acebedo. They are operating up to the present. But the Court has to rely in this case on the findings of the Commission created by the Mayor of Candon in the absence of proof that the same was arrived at hastily and without regard for the rights of the parties. In fact, the contested Decision was issued only after an ocular inspection was conducted and the parties have submitted their respective memorandum. The findings of the Commission reveal that the operation of Acebedo's local shop involves the practice of optometry. If indeed Acebedo is engaged in the sale of optical products, the absence of sales clerks more than demonstrate its real business. In the contested Decision, the floor plan of the shop was even commented on as that of an optical shop. As noted by the members of the Commission, there was also a banner in front of the shop prominently display advertising free consultations (libreng consulta sa mata). These facts, taken together, denote that Acebedo was operating in Candon an optical shop contrary to law. While it is also true that a corporation has a personality separate and distinct from that of its personnel, the veil of corporate fiction cannot be used for the purpose of some illegal activity. The veil of corporate fiction can be pierced, as in this case, and the acts of the personnel of the corporation will be considered as those of the corporation. Acebedo then is engaged in the practice of optometry."v[5] Disagreeing with the foregoing decision of the trial court, private respondent appealed therefrom and asked the respondent Court of Appeals to reverse the same on the ground that the court a quo erred in concluding that private respondent was engaged in the practice of optometry by operating an optical shop. Respondent appellate court found that private respondent's contentions merited the reversal of the court a quo's decision. The respondent court, speaking through Court of Appeals Presiding Justice, now Supreme Court Associate Justice Vicente V. Mendoza, ratiocinated in this wise: "First. x x x [Private respondent] maintains that it is not practicing optometry nor is it operating an optical clinic. The contention has merit. The amended Articles of Incorporation of x x x [private respondent] in part states: PRIMARY PURPOSES 1. To own, maintain, conduct, operate and carry on the business of dispensing opticians and optical establishments, and in the course of the business, to buy, sell, ship, store and otherwise use, deal in, acquire and dispose of every kind of optical, ophthalmic and scientific instrument, glass, lens, optical solutions or equipment necessary or convenient to the operation and conduct of the general business of dispensing opticians.

3. There were benches where, according to Miss Begonia, would-be clients can sit while waiting for their turn to be examined; 4. An examination room complete with an optical chair and optical charts; and,

SECONDARY PURPOSES .... 3. To do all and everything necessary, suitable or proper for the accomplishment of any of the purposes, the attainment of any of the objects, or in the exercise of any of the powers herein set forth, either alone or in conjunction with other corporations, firms or individuals and either as principal or agents and to do every other act or acts, thing or things, incidental or appurtenant to or growing out of or connected with the abovementioned objects, purposes or powers. Clearly, the corporation is not an optical clinic. Nor is it but rather the optometrists employed by it who are engaged in the practice of optometry. Petitioner-appellant simply dispenses optical and ophthalmic instruments and supplies. Indeed, the Optometry Law (Rep. Act No. 1998), which x x x [petitioners] cite, does not prohibit corporations, like x x x [private respondent; from employing licensed optometrists. What it prohibits is the practice of the profession without license by those engaged in it. This is clear from Sec. 2 of the law which provides: No person shall practice or attempt to practice optometry as defined in this Act, without holding a valid certificate of registration as optometrist issued to him by the Board of Examiners in Optometry herein created and in accordance with the provisions hereof: Provided, that valid certificates of registration as optometrists shall be issued to optometrists of good moral character now registered in accordance with the provisions of chapter thirty-three of the Revised Administrative Code, who shall, by application within a period of one year from the effectivity of this Act, be exempt from the provisions of sections eleven, twelve and twenty-three of this Act. . . . The prohibition is thus addressed to natural persons who are required to have a valid certificate of registration as optometrist' and who must be of 'good moral character'. The prohibition can have no application to x x x [private respondent] which is not itself engaged in the practice of optometry. As the Professional Regulation Commission said, "Acebedo Optical, Acebedo Optical Clinic, Acebedo Optical Co., Inc. and Acebedo International, Inc. are not natural persons who can take the Optometrist licensure examinations. They are not, and cannot be registered as Optometrist under RA 1998 [The Optometry Law].'"vi[6] Petitioners filed a Motion for Reconsideration of the aforegoing decision. It was, however, denied by respondent appellate court. Hence, this petition anchored on the following sole ground: "ISSUE

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT PRIVATE RESPONDENT ACEBEDO INTERNATIONAL CORPORATION DOES NOT VIOLATE THE OPTOMETRY LAW (R. A. NO. 1998) WHEN IT EMPLOYS OPTOMETRISTS TO ENGAGE IN THE PRACTICE OF OPTOMETRY UNDER ITS NAME AND FOR ITS BEHALF The herein petitioner most respectfully submits that the private respondent Acebedo International Corporation flagrantly violates R. A. No. 1998 and the Corporation Code of the Philippines when it employs optometrists to engage in the practice of optometry under its name and for its behalf."vii[7] We hold that the petition lacks merit. Private respondent does not deny that it employs optometrists whose role in the operations of its optical shops is to administer the proper eye examination in order to determine the correct type and grade of lenses to prescribe to persons purchasing the same from private respondent's optical shops. Petitioners vehemently insist that in so employing said optometrists, private respondent is in effect itself practicing optometry. Such practice, petitioners conclude, is in violation of RA. No. 1998, which, it must be noted at this juncture, has been repealed and superseded by RA. 8050. Petitioners' contentions are, however, untenable. The fact that private respondent hires optometrists who practice their profession in the course of their employment in private respondent's optical shops, does not translate into a practice of optometry by private respondent itself. Private respondent is a corporation created and organized for the purpose of conducting the business of selling optical lenses or eyeglasses, among others. The clientele of private respondent understably, would largely be composed of persons with defective vision and thus need the proper lenses to correct the same and enable them to gain normal vision. The determination of the proper lenses to sell to private respondent's clientele entails the employment of optometrists who have been precisely trained for that purpose. Private respondent's business is not the determination itself of the proper lenses needed by persons with defective vision. Private respondent's business, rather, is the buying and importing of eyeglasses and lenses and other similar or allied instruments from suppliers thereof and selling the same to consumers. For petitioners' argument to hold water, there need be clear showing that RA. No. 1998 prohibits a corporation from hiring optometrists, for only then would it be undeniably evident that the intention of the legislature is to preclude the formation of the so-called optometry corporations because such is tantamount to the practice of the profession of optometry which is legally exercisable only by natural persons and professional partnerships. We have carefully reviewed RA. No. 1998 however, and we find nothing therein that supports petitioner's insistent claims.viii[8] It is significant to note that even under RA. No. 8050, known as the Revised Optometry Law,ix[9] we find no prohibition against the hiring by corporations of optometrists. The pertinent provisions of RA. No. 8050, regarding the practice of optometry, are reproduced below for ready reference:

"THE PRACTICE OF OPTOMETRY SEC. 4. Acts Constituting the practice of Optometry. Any of the following acts constitute the practice of optometry: a) The examination of the human eye through the employment of subjective and objective procedures, including the use of specific topical diagnostic pharmaceutical agents or drugs and instruments, tools, equipment, implements, visual aids, apparatuses, machines, ocular exercises and related devices, for the purpose of determining the condition and acuity of human vision to correct and improve the same in accordance with subsections (b), (c) and (d) hereof; vision to correct and improve the same in accordance with subsections (b), (c) and (d) hereof; b) The prescription and dispensing of ophthalmic lenses, prisms, contact lenses and their accessories and solutions, frames and their accessories, and supplies for the purpose of correcting and treating defects, deficiencies and abnormalities of vision. c) The conduct of ocular exercises and vision training, the provision of orthoptics and other devices and procedures to aid and correct abnormalities of human vision, and the installation of prosthetic devices; d) The counseling of patients with regard to vision and eye care and hygiene; All told, there is no law that prohibits the hiring by corporations of optometrists or considers the hiring by corporations of optometrists as a practice by the corporation itself of the profession of optometry. WHEREFORE, the instant petition is hereby DISMISSED. Costs against the petitioners. SO ORDERED.

e) The establishment of offices, clinics, and similar places where optometric services are offered; and f) The collection of professional fees for the performance of any of the acts mentioned in paragraphs (a), (b), (c) and (d) of this section. SEC. 5. Prohibition Against the Unauthorized Practice of Optometry. - No person shall practice optometry as defined in Section 3 of this Act nor perform any of the acts, constituting the practice of optometry as setforth in Section 4 hereof, without having been first admitted to the practice of this profession under the provisions of this Act and its implementing rules and regulations: Provided, That this prohibition shall not apply to regularly licensed and duly registered physicians who have received post-graduate training in the diagnosis and treatment of eye diseases: Provided, however, That the examination of the human eye by duly registered physicians in connection with the physical examination of patients shall not be considered as practice of optometry: Provided, further, That public health workers trained and involved in the government's blindness prevention program may conduct only visual acuity test and visual screening. SEC. 6 Disclosure of Authority to Practice. An optometrist shall be required to indicate his professional license number and the date of its expiration in the documents he issues or signs in connection with the practice of his profession. He shall also display his certificate of registration in a conspicuous area of his clinic or office."