Excellent Quality Apparel, Inc. vs. Win Multi Rich Builders, Inc.
G.R. No. 175048, February 10, 2009
TINGA, J.:
FACTS:
On 26 March 1996 Multi-Rich Builders (Multi-Rich) represented by Mr. Chua entered into a contract with Excellent Quality Apparel, Inc. (Excellent) represented by Mr. Ying, 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 five (5) months or 150 consecutive calendar days.
The construction of the factory building was completed on 27 November 1996.
Win Multi-Rich Builders, Inc. (Win) was incorporated with the Securities and Exchange Commission (SEC) on 20 February 1997 with Chua as its President and General Manager. On 26 January 2004, Win filed a complaint for sum of money against Excellent and Mr. Ying amounting to P8,634, 448.20.
In the hearing held on 10 February 2004, the counsel of Win moved that its name in the case be changed from “Win Multi-Rich Builders, Inc.” to “Multi-Rich Builders, Inc.” It was only then that Excellent apparently became aware of the variance in the name of the plaintiff. Excellent moved to dismiss the case since Win was not the contractor and neither a party to the contract, thus it cannot institute the case. Excellent obtained a Certificate of Non- Registration of Corporation/Partnership from the SEC which certified that the latter did not have any records of a “Multi-Rich Builders, Inc.”
ISSUE:
Does Win have a legal personality to institute the case?
RULING:
No.
A suit may only be instituted by the real party in interest. Section 2, Rule 3 of the Rules of Court defines “parties in interest” in this manner:
A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or defended in the name of the real party in interest.
Win is not a real party in interest.
Win admitted that the contract was executed between Multi-Rich and Excellent. 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.
The Court in the case of Mangila vs. Court of Appeals, 435 Phil 870, 886 (2002), held:
Xxx In fact, there is no law authorizing sole proprietorships to file a suit in court.
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 Excellent 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.
Excellent had continuously contested the legal personality of Win to institute the case. Win was given ample opportunity to adduce evidence to show that it had legal personality. It failed to do so. Corpus Juris Secundum notes:
Xxx 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 incorporator, the corporation, either on the grounds of implied assumption of the debts or on the grounds that the business is the same and is merly being conducted under a new guise, is liable for the incorporator’s preexisting 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 is in fraud of creditors it will be liable to the extent 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 person carrying on the business and the corporation is not merely an alter ego of the person to 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 easil presented or attached any document e.g., deed of assignment 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 Excellent, Win failed to use that 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.
DISPOSITION:
The Decision of the Court of Appeals was Modified. The Civil Case was Dismissed. Win was ordered to return the garnished amount of P8,634,448.40
