INCORPORATION AND ORGANIZATION

Corporate Name
20. De La Salle Montessori International of Malolos, Inc. v. De La Salle Brothers,
Inc., et. al., G.R. No. 205548, February 7, 2018
Jardeleza, J.

Facts:
Respondents De La Salle Brothers, Inc., De La Salle University, Inc., La Salle Academy, Inc.,
De La Salle-Santiago Zobel School, Inc. (formerly De La Salle-South, Inc.), and De La Salle
Canlubang, Inc. (formerly De La Salle University-Canlubang, Inc.) filed a petition with the
SEC seeking to compel petitioner to change its corporate name, claiming that petitioner's
corporate name is misleading or confusingly similar to that which respondents have
acquired a prior right to use, and that respondents' consent to use such name was not
obtained. Accordingly, petitioner's use of the dominant phrases "La Salle" and "De La Salle"
gives an erroneous impression that De La Salle Montessori International of Malolos, Inc. is
part of the "La Salle" group, which violates Section 18 of the Corporation Code of the
Philippines. Moreover, being the prior registrant, respondents have acquired the use of said
phrases as part of their corporate names and have freedom from infringement of the same.

Then, the SEC OGC ordered petitioner to change its corporate name. It held, among others,
that respondents have acquired the right to the exclusive use of the name "La Salle" with
freedom from infringement by priority of adoption. Furthermore, the name "La Salle" is not
generic in that it does not particularly refer to the basic or inherent nature of the services
provided by respondents. Neither is it descriptive in the sense that it does not forthwith
and clearly convey an immediate idea of what respondents' services are. The SEC OGC
disagreed with petitioner's argument that the case of Lyceum of the Philippines, Inc. v. Court
of Appeals applies since the word "lyceum" is clearly descriptive of the very being and
defining purpose of an educational corporation, unlike the term "De La Salle" or "La Salle."

Issue:
Can the petitioner continue using “De La Salle” or “La Salle” in its corporate name without
violating Section 18 of the Corporation Code?

Held: 
No, petitioner cannot use “De La Salle” or “La Salle” in its corporate name.

The Court in Philips Export B.V. v. Court of Appeals, held that to fall within the prohibition of
Section 18 of the Corporation Code of the Philippines, two requisites must be proven, to
wit: (1) that the complainant corporation acquired a prior right over the use of such
corporate name; and (2) the proposed name is either: (a) identical, or (b) deceptively or
confusingly similar to that of any existing corporation or to any other name already
protected by law; or (c) patently deceptive, confusing or contrary to existing law.

With respect to the first requisite, the Court has held that the right to the exclusive use of a
corporate name with freedom from infringement by similarity is determined by priority of
adoption. In this case, respondents are the prior registrants, they certainly have acquired
the right to use the words "De La Salle" or "La Salle" as part of their corporate names.

The second requisite is likewise satisfied since there is a confusing similarity between
petitioner's and respondents' corporate names. While these corporate names are not
identical, it is evident that the phrase "De La Salle" is the dominant phrase used. Here, the
phrase "De La Salle" is not generic in relation to respondents. It is not descriptive of
respondent's business as institutes of learning, unlike the meaning ascribed to "Lyceum."
Moreover, respondent De La Salle Brothers, Inc. was registered in 1961 and the De La Salle
group had been using the name decades before petitioner's corporate registration. In
contrast, there was no evidence of the Lyceum of the Philippines, Inc.'s exclusive use of the
word "Lyceum," as in fact another educational institution had used the word 17 years
before the former registered its corporate name with the SEC. Also, at least nine other
educational institutions included the word in their corporate names. There is thus no
similarity between the Lyceum of the Philippines case and this case that would call for a
similar ruling.

Clearly, petitioner's use of the phrase "De La Salle" in its corporate name is patently similar
to that of respondents that even with reasonable care and observation, confusion is
probable or likely to occur given that there is not only the similarity in the parties' names,
but also in the business that they are engaged in. Thus, it gives the impression that it is a
branch or affiliate of respondents. 

With all these considered, petitioner should heed to the order of the SEC and change its
corporate name.

STOCKS AND STOCKHOLDERS

43. Ong Yong v. Tiu, G.R. No. 144476, April 8, 2003
Corona, J.

Facts:
In 1994, the construction of the Masagana Citimall in Pasay City was threatened with
stoppage and incompletion when its owner, the First Landlink Asia Development
Corporation (FLADC), which was owned by the Tius, encountered dire financial difficulties.
It was heavily indebted to the Philippine National Bank (PNB) for P190 million. The Tius,
then, the Ongs, to invest in FLADC.

Accordingly, the Ongs paid P100 million in cash for their subscription to 1,000,000 shares
of stock while the Tius committed to contribute to FLADC a four-storey building and two
parcels of land respectively valued at P20 million (for 200,000 shares), P30 million (for
300,000 shares) and P49.8 million (for 49,800 shares) to cover their additional 549,800
stock subscription therein. The Ongs paid in another P70 million to FLADC and P20 million
to the Tius over and above their P100 million investment, the total sum of which (P190
million) was used to settle the P190 million mortgage indebtedness of FLADC to PNB.
However, the business harmony between the Ongs and the Tius in FLADC, however, was
short-lived because the Tius, on February 23, 1996, rescinded the Pre-Subscription
Agreement. According to the Tius, the agreement was for David S. Tiu and Cely S. Tiu to
assume the positions and perform the duties of Vice-President and Treasurer, respectively,
but the Ongs prevented them from doing so. Furthermore, the Ongs refused to provide
them the space for their executive offices as Vice-President and Treasurer. Finally, and
most serious of all, the Ongs refused to give them the shares corresponding to their
property contributions of a four-story building, a 1,902.30 square-meter lot and a 151
square-meter lot. Hence, they felt they were justified in setting aside their Pre-Subscription
Agreement with the Ongs who allegedly refused to comply with their undertakings.

Issue:
Can the Tius legally rescind the Pre-Subscription Agreement?

Held:
No, the Tius cannot rescind the agreement.

Section 60 of the Corporation Code provides that any contract for the acquisition
of unissued stock in an existing corporation or a corporation still to be formed shall be
deemed a subscription within the meaning of this Title, notwithstanding the fact that
the parties refer to it as a purchase or some other contract. Thus, the agreement involved
was in fact a subscription contract and not merely a pre-subscription agreement.

Here, FLADC was originally incorporated with an authorized capital stock of 500,000
shares with the Tius owning 450,200 shares representing the paid-up capital. When the
Tius invited the Ongs to invest in FLADC as stockholders, an increase of the authorized
capital stock became necessary to give each group equal (50-50) shareholdings as agreed
upon in the Pre-Subscription Agreement. The authorized capital stock was thus increased
from 500,000 shares to 2,000,000 shares with a par value of P100 each, with the Ongs
subscribing to 1,000,000 shares and the Tius to 549,800 more shares in addition to their
450,200 shares to complete 1,000,000 shares. Thus, the subject matter of the contract was
the 1,000,000 unissued shares of FLADC stock allocated to the Ongs. Since these shares
were unissued ones, the parties' Pre-Subscription Agreement was in fact a subscription
contract.

It shall be noted that a subscription contract necessarily involves the corporation as one of
the contracting parties since the subject matter of the transaction, its shares of stock, is
property owned by the corporation. With that, the Tius although were adversely affected
by the Ongs' unwillingness to let them assume their positions, rescission due to breach of
contract is definitely the wrong remedy for their personal grievances. The Corporation
Code, SEC rules and even the Rules of Court provide for appropriate and adequate intra-
corporate remedies, other than rescission, in situations like this and rescission is certainly
not one of them, especially if the party asking for it has no legal personality to do so and the
requirements of the law therefor have not been met. The Tius, in their personal capacities,
therefore, cannot seek the ultimate and extraordinary remedy of rescission of the subject
agreement based on a less than substantial breach of subscription contract. Not only are
they not parties to the subscription contract between the Ongs and FLADC; they also have
other available and effective remedies under the law.

Assuming arguendo that the Tius possess the legal standing to sue for rescission based on
breach of contract, said action will nevertheless still not prosper since rescission will
violate the Trust Fund Doctrine and the procedures for the valid distribution of assets and
property under the Corporation Code. The Trust Fund Doctrine, as first enunciated by the
Court in the Philippine Trust Co. vs. Rivera, provides that subscriptions to the capital stock
of a corporation constitute a fund to which the creditors have a right to look for the
satisfaction of their claims. This doctrine is the underlying principle in the procedure for
the distribution of capital assets, embodied in the Corporation Code, which allows the
distribution of corporate capital only in three instances: (1) amendment of the Articles of
Incorporation to reduce the authorized capital stock, (2) purchase of redeemable shares by
the corporation, regardless of the existence of unrestricted retained earnings, and (3)
dissolution and eventual liquidation of the corporation. Furthermore, the doctrine is
articulated in Section 41 on the power of a corporation to acquire its own shares and in
Section 122 on the prohibition against the distribution of corporate assets and property
unless the stringent requirements therefore are complied with.

In the instant case, the rescission of the “Pre-Subscription Agreement” will effectively result
in the unauthorized distribution of the capital assets and property of the corporation,
thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission of a
subscription agreement is not one of the instances when distribution of capital assets and
property of the corporation is allowed.

Therefore, the Tius cannot be allowed to rescind the subject subscription agreement given
that the Ongs' shortcomings were far from serious and certainly less than substantial; and
were in fact remediable and correctable under the law.

MERGER AND CONSOLIDATION

66. Sumifro (Philippines) Corporation v. Baya, G.R. No. 188269, April 17, 2017
Perlas-Bernabe. J.

Facts: 
Baya filed a complaint for illegal/constructive dismissal against AMSFC and DFC before the
NLRC. Baya alleged that he had been employed by AMSFC since February 5, 1985, and from
then on, worked his way to a supervisory rank on September 1, 1997. As a supervisor, Baya
joined the union of supervisors, and eventually, formed AMS Kapalong Agrarian Reform
Beneficiaries Multipurpose Cooperative (AMSKARBEMCO), the basic agrarian reform
organization of the regular employees of AMSFC. In June 1999, Baya was reassigned to a
series of supervisory positions in AMSFC’s sister company, DFC, where he also became a
member of the latter’s supervisory union while at the same time, remaining active at
AMSKARBEMCO. Later on and upon AMSKARBEMCO’s petition before the DAR, some 220
hectares of AMSFC’s 513-hectare banana plantation were covered by the Comprehensive
Agrarian Reform Law. Eventually, said portion was transferred to AMSFC’s regular
employees as Agrarian Reform Beneficiaries (ARBs), including Baya. Thereafter, the ARBs
explored a possible agribusiness venture agreement with AMSFC, but the talks broke down,
prompting the Provincial Agrarian Reform Officer to terminate negotiations and,
consequently, give AMSKARBEMCO freedom to enter into similar agreement with other
parties. In October 2001, the ARBs held a referendum in order to choose as to which group
between AMSKARBEMCO or SAFFPAI, an association of pro-company beneficiaries, they
wanted to belong. 280 went to AMSKARBEMCO while 85 joined SAFFPAI.

In their defense, AMSFC and DFC maintained that they did not illegally/constructively
dismiss Baya, considering that his termination from employment was the direct result of
the ARBs’ takeover of AMSFC’s banana plantation through the government’s agrarian
reform program. They even shifted the blame to Baya himself, arguing that he was the one
who formed AMSKARBEMCO and, eventually, caused the ARBs’ aforesaid takeover.

Meanwhile and during the pendency of the case before the CA, petitioner Sumifru
(Philippines) Corporation (Sumifru) acquired DFC via merger sometime in 2008. According
to Sumifru, it only learned of the pendency of the CA proceedings on June 15, 2009, or after
the issuance of the CA's Resolution dated May 20, 2009. Thus, Sumifru was the one who
filed the instant petition on behalf of DFC.

Issue: 
Is Sumifru only liable for the period when Baya stayed with DFC as it only merged with the
latter and not with AMSFC?

Held: 
No, Sumifru is not only liable for the period when Baya stayed with DFC.

Section 80 of the Corporation Code of the Philippines clearly states that one of the effects of
a merger is that the surviving company shall inherit not only the assets, but also the
liabilities of the corporation it merged with, to wit:
Section 80. Effects of merger or consolidation. — The merger or consolidation shall have the
following effects:
1. The constituent corporations shall become a single corporation which, in case of
merger, shall be the surviving corporation designated in the plan of merger; and, in
case of consolidation, shall be the consolidated corporation designated in the plan of
consolidation;
2. The separate existence of the constituent corporations shall cease, except that of the
surviving or the consolidated corporation;
3. The surviving or the consolidated corporation shall possess all the rights, privileges,
immunities and powers and shall be subject to all the duties and liabilities of a
corporation organized under this Code;
4. The surviving or the consolidated corporation shall thereupon and thereafter
possess all the rights, privileges, immunities and franchises of each of the
constituent corporations; and all property, real or personal, and all receivables due
on whatever account, including subscriptions to shares and other choses in action,
 and all and every other interest of, or belonging to, or due to each constituent
corporation, shall be deemed transferred to and vested in such surviving or
consolidated corporation without further act or deed; and
5. The surviving or consolidated corporation shall be responsible and liable for all the
liabilities and obligations of each of the constituent corporations in the same
manner as if such surviving or consolidated corporation had itself incurred such
liabilities or obligations; and any pending claim, action or proceeding brought by or
against any of such constituent corporations may be prosecuted by or against the
surviving or consolidated corporation. The rights of creditors or liens upon the
property of any of such constituent corporations shall not be impaired by such
merger or consolidation.

In this case, it is worthy to stress that both AMSFC and DFC are guilty of acts constitutive of
constructive dismissal performed against Baya. As such, they should be deemed as
solidarily liable for the monetary awards in favor of Baya. Meanwhile, Sumifru, as the
surviving entity in its merger with DFC, must be held answerable for the latter’s liabilities,
including its solidary liability with AMSFC arising herein. Verily, jurisprudence states that
“in the merger of two existing corporations, one of the corporations survives and continues
the business, while the other is dissolved and all its rights, properties and liabilities are
acquired by the surviving corporation,” as in this case.

Therefore, Sumifru should be held solidarily liable for the awards that arose from the labor
dispute with AMSFC despite having only merged with DFC.