Excellent Quality Apparel vs Win Multi-Rich (GR No. 175048 February 10, 2009)

Excellent Quality Apparel vs Win Multi-Rich Builders Inc.
GR No. 175048 February 10, 2009

Facts: On March 26, 1996, petitioner Excellent Quality Apparel, Inc. then represented by Max L.F. Ying, vice-president for productions, and Alfredo R. Orden, treasurer, entered into a contract with Multi-Rich Builders represented by Wilson G. Chua, its president and general manager, for the construction of a garment factory within the Cavite Philippine Economic Zone Authority (CPEZ). The duration of the project was for a maximum period of 5 months or 150 consecutive calendar days. An arbitration clause was included in the contract. The construction of the factory building was completed on November 27, 1996. Respondent Win Multi-Rich Builders Inc. was incorporated with the Securities and Exchange Commission (SEC) on February 26, 2004, Win filed a complaint for a sum of money against petitioner and Mr. Yung amounting to P8,634,448.20. It also prayed for the issuance of a writ of attachment claiming that Mr. Yung was about to abscond and that petitioner was about to close. Win obtained a surety bond issued by Visayan Surety & Insurance Corporation. On February 10, 2004, the RTC issued the writ of attachment against the properties of petitioner.

Issue: Whether or not respondent have the legal personality to institute the herein action.

Held: No. Under section 2 of rule 3 of the Rules of Court, a real party in interest is the party who stands to be benefited or injured by the judgement in the suit, or the party entitled to the avails of the suit.

Win admitted that the contract was executed between Multi-Rich Builders and petitioner. It further admitted that Multi-Rich was a sole proprietorship with a business permit issued by the office of the mayor of Manila. A sole proprietorship is the oldest, simplest, and most prevalent form of business enterprise. It is an unorganized business owned by one person. The sole proprietor is personally liable for all the debts and obligations of the business.

A sole proprietorship does not possess a juridical personality separate and distinct from the personality of the owner of the enterprise. The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single individual and requires its proprietor or owner to secure licenses and permits, register its business name, and pay taxes to the national government. The law does not vest a separate legal personality on the sole proprietorship or empower it to file or defend an action in court.

The original petition was instituted by Win, which is a SEC-registered corporation. It filed a collection of sum of money suit which involved a construction contract entered into by petitioner and Multi-Rich, a sole proprietorship. The counsel of Win wanted to change the name of the plaintiff in the suit to Multi-Rich. The change cannot be countenanced. The plaintiff in the collection suit is a corporation. The name cannot be changed to that of a sole proprietorship. Again, a sole proprietorship is not vested with juridical personality to file or defend an action.

Where an individual or sole trader organizes a corporation to take over his business and all his assets and it becomes in effect merely an alter ego of the incorporation, the corporation, either on the grounds of implied assumption of the debts or on the grounds that business is the same and is merely being conducted under a new guise, is liable for the incorporator’s pre-existing debts and liabilities. Clearly, where the corporation assumes or accepts the debt of its predecessor in business it is liable and if the transfer of assets in fraud of creditors it will be liable to the extend of the assets transferred. The corporation is not liable on an implied assumption of debts from the receipt of assets where the incorporator retains sufficient assets to pay the indebtedness, or where none of his assets are transferred to the corporation, or where, although all the assets of the incorporator have been transferred, there is a change in the persons carrying on the business and the corporation is not merely an alter ego of the person whose business it succeeded.

In order for a corporation to be able to file suit and claim the receivables of its predecessor in business, in this case a sole proprietorship, it must show proof that the corporation had acquired the assets and liabilities of the sole proprietorship. Win could have easily presented or attached any document e.g. deed of assignment which which will show whether the assets, liabilities and receivables of Multi-Rich were acquired by Win. Having been given the opportunity to rebut the allegations made by petitioner, Win failed to use the opportunity. Thus, we cannot presume that Multi-Rich is the predecessor-in business of Win and hold that the latter has standing to institute the collection suit.

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