G.R. No. 191616 April 18, 2016
G.R. No. 191616 April 18, 2016
Mentholantum Co., Inc vs Mangaliman
G.R. No. L-47701 June 27, 1941
Facts: On October 1, 1935, the Mentholatum Co., Inc., and the Philippine-American Drug Co., Inc. instituted an action in the Court of First Instance of Manila, civil case No. 48855, against Anacleto Mangaliman, Florencio Mangaliman and the Director of the Bureau of Commerce for infringement of trade mark and unfair competition. Plaintiffs prayed for the issuance of an order restraining Anacleto and Florencio Mangaliman from selling their product “Mentholiman,” and directing them to render an accounting of their sales and profits and to pay damages. The complaint stated, among other particulars, that the Mentholatum Co., Inc., is a Kansas corporation which manufactures Mentholatum,” a medicament and salve adapted for the treatment of colds, nasal irritations, chapped skin, insect bites, rectal irritation and other external ailments of the body; that the Philippine-American Drug co., Inc., is its exclusive distributing agent in the Philippines authorized by it to look after and protect its interests; that on June 26, 1919 and on January 21, 1921, the Mentholatum Co., Inc., registered with the Bureau of Commerce and Industry the word, “Mentholatum,” as trade mark for its products; that the Mangaliman brothers prepared a medicament and salve named “Mentholiman” which they sold to the public packed in a container of the same size, color and shape as “Mentholatum”; and that, as a consequence of these acts of the defendants, plaintiffs suffered damages from the dimunition of their sales and the loss of goodwill and reputation of their product in the market.
Issue: Whether or not the petitioner has the right to maintain the action for infringement of trademark and unfair competition.
Held: No. Section 69 of Act No. 1459 reads:
SEC. 69. No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippine Islands shall be permitted to transact business in the Philippine Islands or maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in the section immediately preceding. Any officer, or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shall be punished by imprisonment for not less than six months nor more than two years or by a fine of not less than two hundred pesos nor more than one thousand pesos, or by both such imprisonment and fine, in the discretion of the court.
In the present case, no dispute exists as to facts: (1) that the plaintiff, the Mentholatum Co., Inc., is a foreign corporation; (2) that it is not licensed to do business in the Philippines. The controversy, in reality, hinges on the question of whether the said corporation is or is not transacting business in the Philippines.
No general rule or governing principle can be laid down as to what constitutes “doing” or “engaging in” or “transacting” business. Indeed, each case must be judged in the light of its peculiar environmental circumstances. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. (Traction Cos. v. Collectors of Int. Revenue [C. C. A. Ohio], 223 F. 984, 987.) The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization. (Griffin v. Implement Dealers’ Mut. Fire Ins. Co., 241 N. W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P. 851, 852, 118 Okl. 111; Automotive Material Co. v. American Standard Metal Products Corp., 158 N. E. 698, 703, 327 III. 367.)
MORAN, J., dissenting:
Section 69 of the Corporation Law provides that, without license no foreign corporation may maintain by itself or assignee any suit in the Philippine courts for the recovery of any debt, claim or demand whatever. But this provision, as we have held in Western Equipment & Supply Company vs. Reyes (51 Phil., 115), does not apply to suits for infringement of trade marks and unfair competition, the theory being that “the right to the use of the corporate and trade name of a foreign corporation is a property right, a right in rem, which it may assert and protect in any of the courts of the world even in countries where it does not personally transact any business,” and that “trade mark does not acknowledge any territorial boundaries but extends to every mark where the traders’ goods have become known and identified by the use of the mark.”
Lozada vs Magtanggol
G.R. No. 196134, October 12, 2016
Facts: On October 13, 1997, the Magtanggol Mendoza was employed as a technician by VSL Service Center, a single proprietorship owned and managed by Valentin Lozada. Sometime in August 2003, the VSL Service Center was incorporated and changed its business name to LB&C Services Corporation. Subsequently, Magtanggol was asked by respondent Lozada to sign a new employment contract. The petitioner did not accede because the respondent company did not consider the number of years of service that he had rendered to VSL Service Center. From then on, the his work schedule was reduced to one to three days a week. In December 2003, He was given his regular working schedule by the company. However, on January 12, 2004, Magtanggol was advised by the respondent company’s Executive Officer, Angeline Aguilar, not to report for work and just wait for a call from the respondent company regarding his work schedule. Due to the continued failure of respondent company to give work schedule to Magtanggol, the latter filed a complaint against the respondent company on January 21, 2004 for illegal dismissal with a prayer for the payment of his 13th month pay, service incentive leave pay, holiday pay and separation pay and with a claim for moral and exemplary damages, and attorney’s fees. The case was docketed as NLRC NCR Case No. 00-01-00968-2004. On February 23, 2005, the Labor Arbiter declared the dismissal of the petitioner from employment as illegal. LB&C Services Corporation appealed, but the NLRC dismissed the appeal for non-perfection thereof due to failure to deposit the required cash or surety bond. Thus, the Labor Arbiter’s decision attained finality on August 4, 2006, and the entry of judgment was issued by the NLRC on August 16, 2006. The respondent moved for the issuance of the writ of execution, which the Labor Arbiter granted on November 21, 2006.
Issue: Whether or not the petitioner may be held liable for the monetary awards granted to the respondent despite the absence of a pronouncement of his being solidarily liable with LB&C Services Corporation.
Held: No. A corporation, as a juridical entity, may act only through its directors, officers and employees. Obligations incurred as a result of the acts of the directors and officers as the corporate agents are not their personal liability but the direct responsibility of the corporation they represent. As a general rule, corporate officers are not held solidarily liable with the corporation for separation pay because the corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.
To hold a director or officer personally liable for corporate obligations, two requisites must concur, to wit: (1) the complaint must allege that the director or officer assented to the patently unlawful acts of the corporation, or that the director or officer was guilty of gross negligence or bad faith; and (2) there must be proof that the director or officer acted in bad faith.
Clearly, what can be inferred from the earlier cases is that the doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities.
The records of this case do not warrant the application of the exception. The rule, which requires malice or bad faith on the part of the directors or officers of the corporation, must still prevail. The petitioner might have acted in behalf of LB&C Services Corporation but the corporation’s failure to operate could not be hastily equated to bad faith on his part. Verily, the closure of a business can be caused by a host of reasons, including mismanagement, bankruptcy, lack of demand, negligence, or lack of business foresight. Unless the closure is clearly demonstrated to be deliberate, malicious and in bad faith, the general rule that a corporation has, by law, a personality separate and distinct from that of its owners should hold sway. In view of the dearth of evidence indicating that the petitioner had acted deliberately, maliciously or in bad faith in handling the affairs of LB&C Services Corporation, and such acts had eventually resulted in the closure of its business, he could not be validly held to be jointly and solidarily liable with LB&C Services Corporation.
Gamboa vs Teves
G.R. No. 176579 June 28, 2011
Facts: On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right to engage in telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an American company and a major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares, which represent about 46.125 percent of the outstanding capital stock of PTIC, were later declared by this Court to be owned by the Republic of the Philippines. Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT. With the sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the common shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40 percent.
Issue: Whether or not the term capital in Section 11, Article XII of the Constitution refers to the common shares of PLDT, a public utility.
Held: Yes. Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. (Emphasis supplied)
Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be granted authority to operate a public utility, at least 60 percent of its capital must be owned by Filipino citizens.
Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the controlling interest.
Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of record of shares will not suffice but it must be shown that the legal and beneficial ownership rests in the hands of Filipino citizens. Consequently, in the case of petitioner PLDT, since it is already admitted that the voting interests of foreigners which would gain entry to petitioner PLDT by the acquisition of SMART shares through the Questioned Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign principals and the Filipino owners is likewise admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution.
Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the corporation. This is exercised through his vote in the election of directors because it is the board of directors that controls or manages the corporation. In the absence of provisions in the articles of incorporation denying voting rights to preferred shares, preferred shares have the same voting rights as common shares. However, preferred shareholders are often excluded from any control, that is, deprived of the right to vote in the election of directors and on other matters, on the theory that the preferred shareholders are merely investors in the corporation for income in the same manner as bondholders. In fact, under the Corporation Code only preferred or redeemable shares can be deprived of the right to vote. Common shares cannot be deprived of the right to vote in any corporate meeting, and any provision in the articles of incorporation restricting the right of common shareholders to vote is invalid.
Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no voting rights, the term capital in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term capital shall include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. In short, the term capital in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors.
This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens the control and management of public utilities.
As shown in PLDTs 2010 GIS, as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares constitute only 22.15%.62 This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility.
Lokin Jr. vs Commission on Elections
GR No. 179431-32
Facts: The Citizen’s Battle Against Corruption (CIBAC) was one of the organized groups duly registered under the partylist system of representation that manifested their intention to participate in the May 14, 2007 synchronized national and local elections. Together with its manifestation of intent to participate, CIBAC, through its President Emmanuel Joel J. Villanueva, submitted a list of 5 nominees from which its representatives would be chosen should CIBAC obtain the required number of qualifying votes. The nominees in order that their names appeared in the certificate of nomination dated March 29, 2007, were: 1.) Emmanuel Joel J. Villanueva; 2.) herein petitioner Luis K. Lokin Jr.; 3.) Cinchora C. Cruz-Gonzales; 4.) Sherwin Tugma; and 5.) Emil L. Galang. The nominees certificate of acceptance were attached to the certificate of nomination filed by CIBAC. The list of nominees was later published in two newspaper of general circulation. Prior to elections, however, CIBAC still through Villanueva filed a certificate of nomination, substitution and amendment of the list of nominees dated May 7, 2007, hereby it withdrew the nominations of Lokin, Tugma and Galang and substituted Armi Jane R. Borje as one of the nominees.
Issue: Whether or not the substitution is valid.
Held: No. The legislative power of the government is vested exclusively in accordance with the doctrine of separation of power. As a general rule, the legislative cannot surrender pr abdicate its legislative power for doing so will be unconstitutional. Although the power to make laws cannot be delegated by the legislative to any other authority, a power that is not legislative in character may be delegated.
Under certain circumstances, the legislature can delegate to executive officers and administrative boards the authority to adopt and promulgate IRRs. To render such delegation lawful, the legislature must declare the policy of the law and fix the legal principles that are to control in given cases. The legislature should set a definite or primary standard to guide those empowered to execute the law. For as long as the policy is laid down and a proper standard is established by statute, there can be no unconstitutional delegation of legislative power when the legislature leaves to selected instrumentalities the duty of making subordinate rules within the prescribed limits, although there is conferred upon the executive officer or administrative board a large measure of discretion. There is a distinction between the delegation of power to make a law and the conferment of an authority or a discretion to be exercised under and in pursuance of the law, for the power to make laws necessarily involves a discretion as to what it shall be.
To be valid, therefore, the administrative IRRs must comply with the following requisites to be valid:
The COMELEC, despite the role as implementing arm of the government in the enforcement and administration of all laws and regulations relative to the conduct of an election, has neither the authority nor the license to expand, extend, or add anything to the law it seeks to implement. The IRRs the COMELEC issues for that purpose should always accord with the law to be implemented, and should not be override, supplant or modify the law. It is basic that the IRRs should remain consistent with the law they intend to carry out.
Republic of the Philippines vs Drugmaker’s Laboratories Inc.
GR No. 190837 March 5, 2014
Facts: The FDA was created pursuant to RA 3720, otherwise known as the “Food, Drug and Cosmetics Act” primarily in order to establish safety or efficacy standards and quality measure of foods, drugs and devices and cosmetics products. On March 15, 1989, the Department of Health, thru then Secretary Alfredo RA Bengzon issued AO 67 s. 1989, entitled Revised Rules and Regulations on Registration of Pharmaceutical products. Among others, it required drug manufacturers to register certain drug and medicine products with FDA before they may release the same to the market for sale. In this relation, a satisfactory bioavailability/bioequivalence (BA/BE) test is needed for a manufacturer to secure a CPR for these products. However, the implementation of the BA/BE testing requirement was put on hold because there was no local facility capable of conducting the same. The issuance of circulars no. 1 s. of 1997 resumed the FDA’s implementation of the BA/BE testing requirement with the establishment of BA/BE testing facilities in the country. Thereafter, the FDA issued circular no. 8 s. of 1997 which provided additional implementation details concerning the BA/BE testing requirement on drug products.
Issue: Whether or not the circular issued by FDA are valid.
Held: Yes. Administrative agencies may exercise quasi-legislative or rule-making power only if there exist a law which delegates these powers to them. Accordingly, the rules so promulgated must be within the confines of the granting statutes and must not involve discretion as to what the law shall be, but merely the authority to fix the details in the execution or enforcement of the policy set out in the law itself, so as to conform with the doctrine of separation of powers and as an adjunct, the doctrine of non-delegability of legislative powers.
An administrative regulation may be classified as a legislative rule, an interpretative rule or a contingent rule. Legislative rules are in the nature of subordinate legislation a d designed to implement a primary legislation by providing the details thereof. They usually implement existing law, imposing general, extra-statutory obligations pursuant to authority properly delegated by the congress amd effect a change in existing law or policy which affect individual rights and obligations. Meanwhile, interpretative rules are intended to interpret, clarify or explain existing statutory regulations under which the administrative body operates. Their purpose or objective is merely to construe the statue being administered and purpory to do no more than interpret the statute. Simply, they try to say what the statute means and refer to no single person or party in particular but concern all those belonging to the same class which may be covered by the said rules. Finally, contingent rules are those issued by an administrative authority based on the existence of certain facts or things upon which the enforcement of the law depends.
In general, an administrative regulation needs to comply with the requirements laid down by EO 292 s. of 1988 otherwise known as the administrative code of 1987 on prior notice, hearing and publication in order to be valid and binding except when the same is merely an interpretative rule. This is because when an administrative rule is merely intepretative in nature its applicability needs nothing further than its bare issuance, for it gives no real consequence more than what the law itself has already prescribed. When, on the other hand, the administrative rule goes beyond merely providing for the means that ca facilitate or render least cumbersome the implementation of the law but substantially increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed before that new issuance is given the force and effect of law.
A careful scrutiny of the foregoing issuances would reveal that A0 67 is actually the rule that originally introduced the BA/BE testing requirement as a component of applications for the issuamce of CPR covering certain pharmaceutical products as such, it is considered an administrative regulation – a legislative rule to be exact – issued by the Secretary of Health in consonance with the express authority granted to him by RA 3720 to implement the statutory mandate that all drugs and devices should first be registered with the FDA prior to their manufacture and sale. Considering that neither party contested the validity of its issuance, the court deems that AO 67 complied with the requirements of prior hearing, notice and publication pursuant to the presumption of regularity accorded tl the govt in the exercise of its official duties.
On the other hand, circulars no. 1 and 8 s. of 1997 cannot be considered as administrative regulations because they do not: a.) implement a primary legislation by providing the details thereof; b.) Interpret, clarify or explain existing statutory regulation under which FDA operates and/or; c.) Ascertain the existence of certain facts or things upon which the enforcement of RA 3720 depends. In fact, the only purpose of these is for FDA to administer and supervise the implementation of the provisions of AO 67 s. of 1989 including those covering the BA/BE testing requirement consistent with and pursuant to RA 3720. Therefore, the FDA has sufficient authority to issue the said circulars and since theu would not affect the substantive rights of the parties that they seek to govern – as they are not, strictly speaking, administrative regulations in the first place – no prior hearing, consultation and publication are needed for their validity.