CORPO

CASE DIGESTS 2016

1. PANTRANCO EMPLOYEES ASSOC. vs NLRC
Facts:
PNEI and Macris Relaty were owned by the Gonzales family. Later, the said family incurred
financial losses and consequently the ownership over PNEI and Macris Realty were transferred
to NIDC, subsidiary of PNB. Macris merged with another corporation and became PNB
Madecor. The latter owned four valuable pieces of real estate were PNEIs properties stood
especially its terminal. PNEI implemented a cost saving measure to save its existence and along
with that there were several actions filed against it one of which was a labor case instituted by
the PANTRANCO EMPLOYEES ASSOC. NLRC rendered a decision in favor of the said group of
employees and a writ of execution commanding the sheriff to levy the assets of PNEI and the
sheriff was also instructed to proceed against the PNB, PNB Madecor, and Mega Prime. PNB is
sought to be held liable because it acquired PNEI through NIDC at the time when PNEI was
suffering financial reverses. PNB-Madecor is being made to answer for unions labor claims as
the owner of the subject Pantranco properties and as a subsidiary of PNB. Mega Prime is also
included for having acquired PNBs shares over PNB-Madecor.
Levy was made on the four real properties registered under the name of PNB Madecor. PNB,
PNB Madecor and Mega Prime (as owner of the PNB Madecor) asked for the nullification of the
writ on the grounds that they were not parties to the labor case filed against PNEI and that they
have separate personalities distinct from that of PNEI.
Issue:
WON PNB, PNB-Madecor, Mega Prime may be held liable.
Held:
NO. The subject property is not owned by the judgment debtor, that is, PNEI. Nowhere in the
records was it shown that PNEI owned the Pantranco properties. Petitioners, in fact, never
alleged in any of their pleadings the fact of such ownership.
The general rule is that a corporation has a personality separate and distinct from those of its
stockholders and other corporations to which it may be connected. This is a fiction created by
law for convenience and to prevent injustice, however it admits of certain exceptions, to wit:
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 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.


Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI are corporations with their own
personalities. They must show that PNB was using PNEI as a mere adjunct or instrumentality or
has exploited or misused the corporate privilege of PNEI but unfortunately they failed to
discharge such burden.
Also, neither can we merge the personality of PNEI with PNB simply because the latter acquired
the former and that fact alone is not sufficient to hold PNB liable for the debts of PNEI.
2. SEAOIL vs AUTOCORP
Facts:
Seaoil purchased an excavator Autocorp Group. Seaoil issued 12 checks as payment therefor;
however 10 checks were not honored by the bank since Seaoil requested that payment be
stopped. Autocorp filed a complaint for recovery of the excavator with the RTC.
Seaoil claims that Seaoil and Autocorp were only utilized as conduits to settle the obligation of
one foreign entity named Uniline in favor of another foreign entity, Focus. The real transaction
is that Uniline, through Rodriguez who is also a director of AUTOCORP, owed money to Focus.
In lieu of payment, Uniline instead agreed to convey the excavator to Focus and payment shall
be made by Roriguez through the issuance of the post-dated checks, however this was rejected
by Atutocorp because it is in their policy that it cannot accept check duly issued by its directors.
To remedy the situation, it was Yu, the director of Seaoil, who issued checks in favor of
Autocorp but subject to reimbursement by Rodriguez.
Seaoil amended its complaint and impleaded Rodriguez in the case.
Issue:
WON a stockholder and director may be held personally liable for the debts of the corporation.
Held:
NO. Rodriguez is a person separate and independent from Autocorp. Whatever obligations
Rodriguez contracted cannot be attributed to Autocorp and vice versa. Rodriguez, as
stockholder and director of Uniline, cannot be held personally liable for the debts of the
corporation, which has a separate legal personality of its own. While Section 31 of the
Corporation Code lays down the exceptions to the rule, the same does not apply in this case.
Section 31 makes a director personally liable for corporate debts if he willfully and knowingly
votes for or assents to patently unlawful acts of the corporation. Section 31 also makes a
director personally liable if he is guilty of gross negligence or bad faith in directing the affairs of
the corporation. The bad faith or wrongdoing of the director must be established clearly and
convincingly. Bad faith is never presumed. The burden of proving bad faith or wrongdoing on
the part of Rodriguez was, on petitioner, a burden which it failed to discharge. Thus, it was
proper for the trial court to have dismissed the third-party complaint against Rodriguez on the
ground that he was not a party to the sale of the excavator.


It is settled that a corporation has a personality separate and distinct from its individual
stockholders or members, and is not affected by the personal rights, obligations and
transactions of the latter. The corporation may not be held liable for the obligations of the
persons composing it, and neither can its stockholders be held liable for its obligation unless it
is being used to defeat public convenience, justify wrong, protect fraud, or defend crime.
In fact, the obligation that Seaoil proffers as its defense under the Lease Purchase Agreement
was not even incurred by Rodriguez or by Autocorp but by Uniline. The transaction under
consideration is separate and distinct from that under the Lease Purchase Agreement. In the
former, it is Seaoil that owes Autocorp, while in the latter, Uniline incurred obligations to
Focus.
3. CHINA BANKING CORPORATION vs DYNE-SEM ELECTRONICS CORPORATION
Facts:
The parties to this case are petitioners China Bank and respondents Dyne-Sem.
What happened in this case was there was this corporation Dynetics, and a certain Mr. Lim who
borrowed money from Chinabank evidenced by a promisorry note. What happened was that
they failed to pay so Chinabank executed an action for collection of sum of money against Mr.
Lim and Dynetics. However, the case was amended impleading Dyne-Sem because according to
Chinabank, Dyne-Sem is merely an alter ego of Dynetics. Among the facts alleged were that
they shared the same office, same directors, closely related business and some of the
equipment of Dyne-Sem was actually acquired from Dynetics.
Issue:
WON Dyne-Sem may be held liable.
Held:
NO. The general rule is that a corporation has a personality separate and distinct from that of
its stockholders and other corporations to which it may be connected. This is a fiction created
by law for convenience and to prevent injustice.
1) Inter-locking directors, closely related business and other indicators that they are one

and the samethese alone are not enough to show that there is intention to defraud/
should not be enough to pierce the veil of corporate entity. The degree or intention to
defraud must clearly and convincingly proven.

2) Acquisition of propertiesthe fact that a related corporation acquired the assets of the

other corporation and the latter corporation was the debtor of a third party; the fact
that there was transfer of assets does not enough to establish that there is fraud. Fraud
is bot presumed, it must be clearly established.

No merger but only sale of assetsthe obligation of one does not automatically
becomes the obligation of the other.

Piercing of the veil of corporate fiction was not justified.

4. PASRICHA vs DON LUIS DISON REALTY, INC.
Facts:
There were 2 lease contract between petitioner Pasricha (lessee) and respondent Don Luis
Dison Realty Inc. (lessor). For 3 years rents were religiously paid but it stopped due to the
confusion (internal squabble) as to who is authorized to receive the payments (rents)the
former General Manager, Pacheco, was replaced by Bautista. Since Pasricha refuse to pay its
obligation despite repeated demands, Don Luis filed an ejectment suit against the former thru
Ms. Bautista on December 15, 1993. SEC suspended and eventually revoked the certificate of
registration of respondents on February 16, 1995.
Petitioner move to dismiss the ejectment suit because Ms. Bautista lack authority to represent
the corporation absent any board resolution to the effect.
Issue:
1. WON respondent company has standing to sue.
2. WON Ms. Bautista has capacity to sue in behalf of the company.
Held:
1. YES. Although the SEC suspended and eventually revoked respondents certificate of
registration on February 16, 1995, records show that it instituted the action for ejectment on
December 15, 1993. Accordingly, when the case wasc ommenced, its registration was not yet
revoked. Besides, the SEC later set aside its earlier orders of suspensionand revocation of
respondents certificate, rendering the issue moot and academic.
2. YES. A corporation has no powers except those expressly conferred on it by the Corporation
Code and those that areimplied from or are incidental to its existence. In turn, a corporation
exercises said powers through its board of directors and/or its duly authorized officers and
agents. Physical acts, like the signing of documents, can be performed only by natural persons
duly authorized for the purpose by corporate by-laws or by a specific act of theboard of
directors. Thus, any person suing on behalf of the corporation should present proof of such
authority.
Although Ms. Bautista initially failed to show that she had the capacity to sign the verification
and institute theejectment case on behalf of the company, when confronted with such
question, she immediately presented the Secretarys Certificate confirming her authority to


represent the company. There is ample jurisprudence holding that subsequent and substantial
compliance may call for the relaxation of the rules of procedure in the interest of justice.
In Novelty Phils., Inc. v. Court of Appeals, the Court faulted the appellate court for dismissing a
petition solely on petitioners failure to timely submit proof of authority to sue on behalf of the
corporation. In Pfizer, Inc. v. Galan, we upheld the sufficiency of a petition verified by an
employment specialist despite the total absence of a board resolution authorizing her to act for
and on behalf of the corporation. Lastly, in China Banking Corporation v. Mondragon
International Philippines, Inc, we relaxed the rules of procedure because the corporation
ratified the managers status as an authorized signatory.
In all of the above cases, we brushed aside technicalities in the interest of justice. This
relaxation of the rules applies only to highly meritorious cases, and when there is substantial
compliance.
Ms. Bautistas lack of authority was cured after subsequent board resolution issued to her
favor.

5. AC Ransom Labor Union v. NLRC (1986)

Doctrine: Since a corporate employer is an artificial person, it must have an officer who can be
presumed to be the employer, being the person acting in the interest of the employer.

Facts:

On June 6, 1961, employees of AC Ransom, most being members of the AC Ransom Labor
Union, went on strike. The said strike was lifted on June 21 with most of the strikers being
allowed to resume their work. However, twenty-two strikers were refused reinstatement.
During 1969, the Hernandez family (owners of AC RANSOM) organized another corporation
under the name of Rosario Industrial Corporation. The said company dealt in the same type of
business as AC Ransom. The issue of back wages was brought before the Court of Industrial
Relations which rendered a decision on December 19, 1972 ordering the twenty two strikers to
be reinstated with back wages.

On April 2, 1973, RANSOM filed an application for clearance to close or cease operations. The
same was granted by the Ministry of Labor and Employment. Although it has stopped
operations, RANSOM has continued its personality as a corporation. For practical purposes,
reinstatement of the 22 strikers has been precluded. As a matter of fact, reinstatement is not
an issue in this case. A motion of execution was filed by the Union against AC Ransom but the
former was unable to collect due to the inability to find leviable assets of the company. The
Union subsequently asked the officers of Ransom to be personally liable for payment of the
back wages. The motion was granted by the Labor Arbiter but was subsequently reversed bythe
NLRC.



Issues:

1. W/N ROSARIO Company should be held liable for the claims of AC Ransom Labor Union.


2. W/N the officers of the corporation should be held personally liable to pay for the back
wages.

Held:

1. YES. Rosario Company is held liable because the organization of a "run-away corporation,"
ROSARIO, in 1969 at the time the unfair labor practice case was pending before the CIR by the
same persons who were the officers and stockholders of RANSOM, engaged in the same line of
business as RANSOM, producing the same line of products, occupying the same compound,
using the same machineries, buildings, laboratory, bodega and sales and accounts departments
used by RANSOM, and which is still in existence. Both corporations were closed corporations
owned and managed by members of the same family. Its organization proved to
be a convenient instrument to avoid payment of backwages and the reinstatement of the 22
workers. This is another instance where the fiction of separate and distinct corporate entities
should be disregarded.

It is very obvious that the second corporation seeks the protective shield of a corporate fiction
whose veil in the present case could, and should, be pierced as it was deliberately and
maliciously designed to evade its financial obligation to its employees. When a notion of legal
entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the
law will regard the corporation as an association or persons, or, in the case of two corporations,
will merge them into one.

2. YES. Under Article 212 (c) of the Labor Code, Employee includes any person acting in the
interest of an employer, directly or indirectly. Since Ransom is an artificial person, it must have
an officer who can be presumed to be the employer, being the person acting in the interest of
the employer (Ransom).In PD 525, where a corporation fails to pay the emergency allowance
therein provided, the prescribed penalty shall be imposed upon the guilty officer or officers
of the corporation. In the instant case, RANSOM, in foreseeing the possibility or probability of
payment of back wages to the 22 strikers, organized ROSARIO to replace RANSOM, with the
latter to be eventually phased out if the 22 strikers win their case.

The record does not clearly identify the officer or officers of RANSOM directly responsible for
failure to pay the back wages of the 22 strikers. In the absence of definite proof in that regard,
it should be presumed that the responsible officer is the President of the corporation who can
be deemed the chief operation officer thereof.

6. Carag v. NLRC (2007)



Facts:

National Federation of Labor Unions and Mariveles Apparel Corporation Labor Union
(collectively, complainants), on behalf of all of Mariveles Apparel Corporations rank and file
employees, filed a complaint against Mariveles Apparel Corporation (MAC) for illegal dismissal
brought about by its illegal closure of business. In their position paper dated 3 January 1994,
NAFLU and MACLU moved to implead Atty. Antonio Carag and Armando David, being owners of
the MAC Corporation, to guarantee the satisfaction of any judgment award on the basis of
Article 212(c) of the Philippine Labor Code. Atty. Joshua Pastores, as counsel for respondents,
submitted a position paper dated 21 February 1994 and stated that complainants should not
have impleaded Carag and David because MAC is actually owned by a consortium of banks.
Carag and David own shares in MAC only to qualify them to serve as MAC's officers. Without
any further proceedings, Arbiter Ortiguerra rendered her Decision dated 17 June 1994 granting
the motion to implead Carag and David. In the same Decision, Arbiter Ortiguerra declared Carag
and David solidarily liable with MAC ruling that corporate officers who dismissed employees in
bad faith or wantonly violate labor standard laws or when the company had already ceased
operations and there is no way by which a judgment in favor of employees could be satisfied,
corporate officers can be held jointly and severally liable with the company. Carag, through a
separate counsel, filed an appeal dated 30 August 1994 before the NLRC. He also filed a motion
to reduce bond. In a Resolution promulgated on 5 January 1995, the NLRC Third Division denied
the motion to reduce bond. The NLRC stated that to grant a reduction of bond on the ground
that the appeal is meritorious would be tantamount to ruling on the merits of the appeal. On
February 13, 1995, Carag filed his petition for certiorari before CA. The CA affirmed the decision
of Arbiter Ortiguerra and the resolution of NLRC. Motion for reconsideration was likewise
denied. Hence this petition for review on certiorari.

Issue:

W/N Antonio Carag shall be held personally liable for the payment of illegally dismissed
employees.

Held:

NO. Section 31 makes a director personally liable for corporate debts if he wilfully and
knowingly votes for or assents to patently unlawful acts of the corporation. Section 31 also
makes a director personally liable if he is guilty of gross negligence or bad faith in directing the
affairs of the corporation.

To hold a director personally liable for debts of the corporation, and thus pierce the veil of
corporate fiction, the bad faith or wrongdoing of the director must be established clearly and
convincingly. Bad faith is never presumed. Bad faith does not connote bad judgment or
negligence. Bad faith imports a dishonest purpose. Bad faith means breach of a known duty
through some ill motive or interest. Bad faith partakes of the nature of fraud. Neither does bad


faith arise automatically just because a corporation fails to comply with the notice requirement
of labor laws on company closure or dismissal of employees. The failure to give notice is not an
unlawful act because the law does not define such failure as unlawful. Such failure to give
notice is a violation of procedural due process but does not amount to an unlawful or criminal
act. Such procedural defect is called illegal dismissal because it fails to comply with mandatory
procedural requirements, but it is not illegal in the sense that it constitutes an unlawful or
criminal act.

For a wrongdoing to make a director personally liable for debts of the corporation, the
wrongdoing approved or assented to by the director must be a patently unlawful act. Mere
failure to comply with the notice requirement of labor laws on company closure or dismissal of
employees does not amount to a patently unlawful act. Patently unlawful acts are those
declared unlawful by law which imposes penalties for commission of such unlawful acts. There
must be a law declaring the act unlawful and penalizing the act.

In this case, Article 283 of the Labor Code, requiring a one-month prior notice to employees and
the Department of Labor and Employment before any permanent closure of a company, does
not state that non-compliance with the notice is an unlawful act punishable under the Code.
There is no provision in any other Article of the Labor Code declaring failure to give such notice
an unlawful act and providing for its penalty. Complainants did not allege or prove, and Arbiter
Ortiguerra did not make any finding, that Carag approved or assented to any patently unlawful
act to which the law attaches a penalty for its commission. On this score alone, Carag cannot be
held personally liable for the separation pay of complainants.

7. Sian Enterprises v. Cupertino Realty (2009)

Facts:

On April 10, 1995, petitioner Siain obtained a loan of P37,000,000.00 from respondent
Cupertino covered with a promissory note signed by both petitioner's and respondent's
respective presidents, Cua Le Leng and Wilfredo Lua. The promissory note authorizes
Cupertino, as the creditor, to place in escrow the loan proceeds of 37M with Metrobank to pay
off petitioner's loan obligation with Development Bank of the Philippines. To secure the loan,
petitioner, on the same date, executed a real estate mortgage over two parcels of land and
other immovables, such as equipments and machineries. Two days later, the promissory note
was amended to include a 17% interest per annum on the note. This was again signed by each
of the presidents of the parties.

On August 12, 1995, Cua Le Leng, signed a second promissory note - as maker, on behalf of
petitioner, and as co-maker, in her personal capacity - in favor of Cupertino for P160,000,000.
On the same date, the parties executed an amendment on the real estate mortgage. It now
indicated that the total loan to be secured by the mortgage is P197, 000,000.00.


Curiously, on March 11, 1996, petitioner, through counsel, sent a letter to respondent
demanding the release of the P160,000,000 loan. Petitioner alleges that respondent had yet to
release the proceeds of the loan. Cupertino refuted the accusations and maintained that Siain
had long obtained the proceeds.

Cupertino declared petitioner's demand as made to abscond from a just and valid obligation,
a mere afterthought, following Cupertino's letter demanding payment of the P37,000,000 loan
covered by the first promissory note which became overdue on March 5, 1996.

Not surprisingly, Cupertino instituted extrajudicial foreclosure proceedings over the properties
subject of the amended real estate mortgage. The auction sale was scheduled on October 11,
1996 with respondent Notary Public Edwin R. Catacutan commissioned to conduct the same.
This prompted petitioner to file a complaint with a prayer for a restraining order to enjoin
Notary Public Catacutan from proceeding with the public auction on the grounds that the real
estate mortgage was void for lack of consideration.

During the pre-trial conference, the parties failed to arrive at an amicable settlement. Hence,
trial on the merits ensued. RTC upheld the validity of the real estate mortgage. CA affirmed.

In this regard, the lower courts applied the doctrine of piercing the veil of corporate fiction to
preclude petitioner from disavowing receipt of the P160,000,000.00 and paying its obligation
under the amended real estate mortgage.

Issue:

W/N the doctrine of "Piercing the Veil of Corporate Fiction" should be applied in the case at
bar.

Held:

YES. As a general rule, a corporation will be deemed a separate legal entity until sufficient
reason to the contrary appears.

But the rule is not absolute. A corporations separate and distinct legal personality may be
disregarded and the veil of corporate fiction pierced when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime. In this case, Cupertino
presented overwhelming evidence that petitioner and its affiliate corporations had received the
proceeds of the P160,000,000.00 loan increase which was then made the consideration for the
Amended Real Estate Mortgage. The facts established in the case at bar has convinced the
Court of the propriety to apply the principle by virtue of which, the juridical personalities of the
various corporations involved are disregarded and the ensuing liability of the corporation to
attach directly to its responsible officers and stockholders

These are as follows:



1. That the checks, debit memos and the pledges of the jewelries, condominium units and
trucks were constituted not exclusively in the name of [petitioner] but also either in the name
of Yuyek Manufacturing Corporation, Siain Transport, Inc., Cua Leleng and Alberto Lim is of no
moment.
2. Siain and Yuyek have [a] common set of [incorporators], stockholders and board of directors;
3.They have the same internal bookkeeper and accountant in the person of Rosemarie
Ragodon;
4. They have the same office address at 306 Jose Rizal St., Mandaluyong City;
5. They have the same majority stockholder and president in the person of Cua Le Leng; and
6. In relation to Siain Transport, Cua Le Leng had the unlimited authority by and on herself,
without authority from the Board of Directors, to use the funds of Siain Trucking to pay the
obligation incurred by the petitionercorporation.
7. As such, petitioner corporation is now estopped from denying the above apparent
authorities of Cua Le Leng who holds herself to the public as possessing the power to do those
acts, against any person who dealt in good faith as in the case of Cupertino.

8. General Credit Corp v. Alsons Dev. and Investment Corp (2007)


Facts:

Petitioner General Credit Corporation (GCC), then known as Commercial Credit Corporation
(CCC), established CCC franchise companies in different urban centers of the country. In
furtherance of its business, GCC was able to secure license from Central Bank (CB) and SEC to
engage also in quasibanking activities. On the other hand, respondent CCC Equity Corporation
(EQUITY) was organized in by GCC for the purpose of, among other things, taking over the
operations and management of the various franchise companies. At a time material hereto,
respondent Alsons Development and Investment Corporation (ALSONS) and the Alcantara
family, each owned, just like GCC, shares in the aforesaid GCC franchise companies, e.g., CCC
Davao and CCC Cebu. ALSONS and the Alcantara family, for a consideration of P2M, sold their
shareholdings (101,953 shares), in the CCC franchise companies to EQUITY. EQUITY issued
ALSONS et al., a "bearer" promissory note for P2M with a one-year maturity date. 4 years later,
the Alcantara family assigned its rights and interests over the bearer note to ALSONS which
became the holder thereof. But even before the execution of the assignment deal aforestated,
letters of demand for interest payment were already sent to EQUITY. EQUITY no longer then
having assets or property to settle its obligation nor being extended financial support by GCC,
pleaded inability to pay. ALSONS, having failed to collect on the bearer note aforementioned,
filed a complaint for a sum of money against EQUITY and GCC. GCC is being impleaded as partydefendant for any judgment ALSONS might secure against EQUITY and, under the doctrine of
piercing the veil of corporate fiction, against GCC, EQUITY having been organized as a tool and
mere conduit of GCC. According to EQUITY (cross-claim against GCC): it acted merely as
intermediary or bridge for loan transactions and other dealings of GCC to its franchises and the
investing public; and is solely dependent upon GCC for its funding requirements. Hence, GCC is

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solely and directly liable to ALSONS, the former having failed to provide EQUITY the necessary
funds to meet its obligations to ALSONS. GCC filed its ANSWER to Cross-claim, stressing that it is
a distinct and separate entity from EQUITY. RTC, finding that EQUITY was but an instrumentality
or adjunct of GCC and considering the legal consequences and implications of such relationship,
rendered judgment for Alson. CA affirmed.

Issue:

W/N the doctrine of "Piercing the Veil of Corporate Fiction" should be applied in the case at
bar.

Held:

YES. The notion of separate personality, however, may be disregarded under the doctrine
"piercing the veil of corporate fiction" as in fact the court will often look at the corporation as
a mere collection of individuals or an aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the corporation unifying the group. Another
formulation of this doctrine is that when two (2) business enterprises are owned, conducted
and controlled by the same parties, both law and equity will, when necessary to protect the
rights of third parties, disregard the legal fiction that two corporations are distinct entities and
treat them as identical or one and the same.

Authorities are agreed on at least three (3) basic areas where piercing the veil, with which the
law covers and isolates the corporation from any other legal entity to which it may be related,
is allowed. These are: 1) defeat of public convenience, as when the corporate fiction is used as
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.

The Court agrees with the disposition of the CA on the application of the piercing doctrine to
the transaction subject of this case. Per the Courts count, the trial court enumerated no less
than 20 documented circumstances and transactions, which, taken as a package, indeed
strongly supported the conclusion that respondent EQUITY was but an adjunct, an
instrumentality or business conduit of petitioner GCC. This relation, in turn, provides a justifying
ground to pierce petitioners corporate existence as to ALSONS claim in question. Foremost of
what the trial court referred to as "certain circumstances" are the commonality of directors,
officers and stockholders and even sharing of office between petitioner GCC and respondent
EQUITY; certain financing and management arrangements between the two, allowing the
petitioner to handle the funds of the latter; the virtual domination if not control wielded by the
petitioner over the finances, business policies and practices of respondent EQUITY; and the
establishment of respondent EQUITY by the petitioner to circumvent CB rules. Verily, indeed, as
the relationships binding herein [respondent EQUITY and petitioner GCC] have been that of

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"parent-subsidiary corporations" the foregoing principles and doctrines find suitable
applicability in the case at bar; and, it having been satisfactorily and indubitably shown that the
said relationships had been used to perform certain functions not characterized with
legitimacy, this Court feels amply justified to "pierce the veil of corporate entity" and disregard
the separate existence of the parent and subsidiary the latter having been so controlled by the
parent that its separate identity is hardly discernible thus becoming a mere instrumentality or
alter ego of the former.

9. Yamamoto v. Nishino (2008)

Doctrine: While the veil of separate corporate personality may be pierced when the
corporation is merely an adjunct, a business conduit, or alter ego of a person, the mere
ownership by a single stockholder of even all or nearly all of the capital stocks of a corporation
is not by itself a sufficient ground to disregard the separate corporate personality.

Facts:

Yamamoto organized WAKO Enterprises which engaged in leather tanning who then changed
their name to Nishino Leather Industries Inc. (NLII). Yamamoto and Ikuo forged a Memorandum
of Agreement (MOA) where they agreed to enter a joint venture where Ikuo would acquire
shares amounting to 70% of the authorized capital stock of WAKO. Ikuo and his brother
Yoshinobu acquired more than 70% of the authorized capital stock reducing Yamamotos
investment to less than 10%.

Negotiations then arose wherein Ikuo would take over and buy-out the shares of stock of
Yamamoto. During the negotiation, the counsel of the brothers Nishino advised Yamamoto in a
letter stating that Yamamoto may take 5 machineries which he contributed to the company if
he wanted, provided that the value of such is deducted from his and WAKOs capital
contributions and that Yamamoto was asked to give his comments concerning the letter. On
the basis of the letter, Yamamoto tried to recover such machineries which were refused by
Nishino.

Yamamoto then filed with the RTC for a writ of replevin which was then issued. Nishino claimed
that the equipment form part of Yamamotos capital contribution and should be treated as
corporate property and that the letter by their attorney was just a mere proposal conditioned
on the sell-out of Yamamoto which proposal was to be authorized by stockholders and board of
directors.

On appeal, CA reversed RTC and claimed that Machineries and equipment claimed by
Yamamoto are corporate property of NLII and cannot be retrieved without the authority if the
NLII Board of Directors and that petitioners contention that Nishino and Yamamoto cannot
hide between the shield of corporate fiction does not lie, nor does Yamamotos invocation of
the doctrine of promissory estoppel.

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Issues:

1. WON the advice in the letter where Yamamoto may retrieve the equipment which were part
of his investment, bind the corporation.

2. WON the court may pierce the veil of corporate fiction.

Held:

1. NO. Without a Board Resolution authorizing Nishino to act for and in behalf of the
corporation, he cannot bind the corporation. Under Corporation Law, unless otherwise
provided, corporate powers are exercised by the Board.

2. NO. Yamamoto argues so as to pierce the veil of corporate fiction. Nishino brothers and
Yamamoto were the owners of the corporation, the presence of the other stockholders being
only for the purpose of complying with the minimum requirements of the law. Course of action
the corporation will do depends on what the brothers decide and that the company. That the
fact that parties started at 70-30 ration and 10% left to Yamamoto, doesnt mean that the 20%
went to others. It went to Ikuo. Yoshinobu has no say in the business. There were no other
members of the Board who have not given their approval.

While the veil of separate corporate personality may be pierced when the corporation is merely
an adjunct, a business conduit, or alter ego of a person, the mere ownership by a single
stockholder of even all or nearly all of the capital stocks of a corporation is not by itself a
sufficient ground to disregard the separatecorporate personality.

The elements of the doctrine of piercing the veil of corporate fiction follow:

1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;

2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act
in contravention of the plaintiff's legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.

The absence of any one of these elements prevents "piercing the corporate veil." In applying
the `instrumentality' or `alter ego' doctrine, the courts are concerned with reality and not form,
with how the corporation operated and the individual defendant's relationship to that
operation." In relation to the second element, to disregard the separate juridical personality of

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a corporation, the wrongdoing or unjust act in contravention of a plaintiff's legal rights must be
clearly and convincingly established; it cannot be presumed. Without a demonstration that any
of the evils sought to be prevented by the doctrineis present, it does not apply. In the case at
bar, there is no showing that Nishino used the separate personality of NLII to unjustly act or do
wrong to Yamamoto in contravention of his legal rights. Wherefore, petition is DENIED.

10. HI-YIELD REALTY vs CA
Facts:

On July 31, 2003, Roberto H. Torres (Roberto), for and on behalf of Honorio Torres & Sons, Inc.
(HTSI), filed a Petition for Annulment of Real Estate Mortgage and Foreclosure Sale over two
parcels of land located in Marikina and Quezon City. The suit was filed against Leonora, Ma.
Theresa, Glenn and Stephanie, all surnamed Torres, the Register of Deeds of Marikina and
Quezon City, and petitioner Hi-Yield Realty, Inc. (Hi-Yield).

Petitioner moved to dismiss the petition on grounds of improper venue and payment of
insufficient docket fees. The RTC denied said motion in an Order dated January 22, 2004. The
trial court held that the case was, in nature, a real action in the form of a derivative suit
cognizable by a special commercial court pursuant to Administrative Matter No. 00-11-03-SC.
Petitioner sought reconsideration, but its motion was denied.

Issue:
WON the action to annul the real estate mortgage and foreclosure sale is a mere incident of the
derivative suit.

Held:

YES. Both the RTC and Court of Appeals ruled that the action is in the form of a derivative suit
although captioned as a petition for annulment of real estate mortgage and foreclosure sale.

A derivative action is a suit by a shareholder to enforce a corporate cause of action. Under the
Corporation Code, where a corporation is an injured party, its power to sue is lodged with its
board of directors or trustees. But an individual stockholder may be permitted to institute a
derivative suit on behalf of the corporation in order to protect or vindicate corporate rights
whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold
control of the corporation. In such actions, the corporation is the real party-in-interest while
the suing stockholder, on behalf of the corporation, is only a nominal party.

Requisites before a stockholder can file a derivative suit:
a) the party bringing suit should be a shareholder as of the time of the act or transaction
complained of, the number of his shares not being material;

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b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of
directors for the appropriate relief but the latter has failed or refused to heed his plea; and
c) the cause of action actually devolves on the corporation, the wrongdoing or harm having
been, or being caused to the corporation and not to the particular stockholder bringing the suit.
For a derivative suit to prosper, the minority stockholder suing for and on behalf of the
corporation must allege in his complaint that he is suing on a derivative cause of action on
behalf of the corporation and all other stockholders similarly situated who may wish to join him
in the suit; that earnest efforts were made to reach a compromise among family
members/stockholders before he filed the case. The Court finds that Roberto had satisfied
these requirements.

While it is true that the complaining stockholder must satisfactorily show that he has exhausted
all means to redress his grievances within the corporation; such remedy is no longer necessary
where the corporation itself is under the complete control of the person against whom the suit
is being filed. The reason is obvious: a demand upon the board to institute an action and
prosecute the same effectively would have been useless and an exercise in futility.

Here, Roberto alleged in his petition that earnest efforts were made to reach a compromise
among family members/stockholders before he filed the case. He also maintained that Leonora
Torres held 55% of the outstanding shares while Ma. Theresa, Glenn and Stephanie excluded
him from the affairs of the corporation. Even more glaring was the fact that from June 10, 1992,
when the first mortgage deed was executed until July 23, 2002, when the properties mortgaged
were foreclosed, the Board of Directors of HTSI did nothing to rectify the alleged unauthorized
transactions of Leonora. Clearly, Roberto could not expect relief from the board.

11. Philippine National Bank vs. Andrada Electric & Engineering Co. (2002)
Facts:
On 26 August 1975, the Philippine national Bank (PNB) acquired the assets of the Pampanga
Sugar Mills (PASUMIL) that were earlier foreclosed by the Development Bank of the Philippines
(DBP) under LOI 311. The PNB organized the National Sugar Development Corporation
(NASUDECO) in September 1975, to take ownership and possession of the assets and ultimately
to nationalize and consolidate its interest in other PNB controlled sugar mills.
Prior to 29 October 1971, PASUMIL engaged the services of the Andrada Electric & Engineering
Company (AEEC) for electrical rewinding and repair, most of which were partially paid by
PASUMIL, leaving several unpaid accounts with AEEC. On 29 October 1971, AEEC and PASUMIL
entered into a contract for AEEC to perform the Construction of a power house building;
reinforced concrete foundation for 3 units 350 KW diesel engine generating sets, reinforced
concrete foundation for the 5,000 KW and 1,250 KW turbo generator sets, among others. Aside

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from the work contract, PASUMIL required AEEC to perform extra work, and provide electrical
equipment and spare parts. Out of the total obligation of P777,263.80, PASUMIL had paid only
P250,000.00, leaving an unpaid balance, as of 27 June 1973, amounting to P527,263.80. Out of
said unpaid balance of P527,263.80, PASUMIL made a partial payment to AEEC of P14,000.00,
in broken amounts, covering the period from 5 January 1974 up to 23 May 1974, leaving an
unpaid balance of P513,263.80.
PASUMIL and PNB, and now NASUDECO, allegedly failed and refused to pay AEEC their just,
valid and demandable obligation. The President of the NASUDECO is also the Vice-President of
the PNB. AEEC besought said official to pay the outstanding obligation of PASUMIL, inasmuch as
PNB and NASUDECO now owned and possessed the assets of PASUMIL, and these defendants
all benefited from the works, and the electrical, as well as the engineering and repairs,
performed by AEEC.
Because of the failure and refusal of PNB, PASUMIL and/or NASUDECO to pay their obligations,
AEEC allegedly suffered actual damages in the total amount of P513,263.80; and that in order
to recover these sums, AEEC was compelled to engage the professional services of counsel, to
whom AEEC agreed to pay a sum equivalent to 25% of the amount of the obligation due by way
of attorney's fees.
PNB and NASUDECO filed a joint motion to dismiss on the ground that the complaint failed to
state sufficient allegations to establish a cause of action against PNB and NASUDECO, inasmuch
as there is lack or want of privity of contract between the them and AEEC. Said motion was
denied by the trial court in its 27 November order, and ordered PNB nad NASUDECO to file their
answers within 15 days. After due proceedings, the Trial Court rendered judgment in favor of
AEEC and against PNB, NASUDECO and PASUMIL; the latter being ordered to pay jointly and
severally the former (1) the sum of P513,623.80 plus interest thereon at the rate of 14% per
annum as claimed from 25 September 1980 until fully paid; (2) the sum of P102,724.76 as
attorney's fees; and, (3) Costs. PNB and NASUDECO appealed. The Court of Appeals affirmed
the decision of the trial court in its decision of 17 April 2000. PNB and NASUDECO filed the
petition for review.
Issue:
WON PNB and NASUDECO may be held liable for PASUMILs liability to AEEC.
Held:
NO. Basic is the rule that a corporation has a legal personality distinct and separate from the
persons and entities owning it. The corporate veil may be lifted only if it has been used to shield
fraud, defend crime, justify a wrong, defeat public convenience, insulate bad faith or
perpetuate injustice. Thus, the mere fact that the Philippine National Bank (PNB) acquired
ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL), which had
earlier been foreclosed and purchased at the resulting public auction by the Development Bank

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of the Philippines (DBP), will not make PNB liable for the PASUMIL's contractual debts to
Andrada Electric & Engineering Company (AEEC).
Piercing the veil of corporate fiction may be allowed only if the following elements concur:
(1) control not mere stock control, but complete domination not only of finances, but of
policy and business practice in respect to the transaction attacked, must have been such that
the corporate entity as to this transaction had at the time no separate mind, will or existence of
its own; (2) such control must have been used by the defendant to commit a fraud or a wrong
to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an
unjust act in contravention of plaintiff's legal right; and (3) the said control and breach of duty
must have proximately caused the injury or unjust loss complained of.
The absence of the foregoing elements in the present case precludes the piercing of the
corporate veil. First, other than the fact that PNB and NASUDECO acquired the assets of
PASUMIL, there is no showing that their control over it warrants the disregard of corporate
personalities. Second, there is no evidence that their juridical personality was used to commit a
fraud or to do a wrong; or that the separate corporate entity was farcically used as a mere alter
ego, business conduit or instrumentality of another entity or person. Third, AEEC was not
defrauded or injured when PNB and NASUDECO acquired the assets of PASUMIL.
Hence, although the assets of NASUDECO can be easily traced to PASUMIL, the transfer of the
latter's assets to PNB and NASUDECO was not fraudulently entered into in order to escape
liability for its debt to AEEC. Neither was there any merger or consolidation with respect to
PASUMIL and PNB. The procedure prescribed under Title IX of the Corporation Code 59 was not
followed. In fact, PASUMIL's corporate existence had not been legally extinguished or
terminated. Further, prior to PNB's acquisition of the foreclosed assets, PASUMIL had
previously made partial payments to AEEC for the former's obligation in the amount of
P777,263.80. As of 27 June 1973, PASUMIL had paid P250,000 to AEEC and, from 5 January
1974 to 23 May 1974, another P14,000. Neither did PNB expressly or impliedly agree to assume
the debt of PASUMIL to AEEC. LOI 11 explicitly provides that PNB shall study and submit
recommendations on the claims of PASUMIL's creditors. Clearly, the corporate separateness
between PASUMIL and PNB remains, despite AEEC's insistence to the contrary.
12. Reyes v. RTC of Makati (2008)

Facts:

Petitioner and private respondent were siblings together with two others, namely Pedro and
Anastacia, in a family business established as Zenith Insurance Corporation (Zenith), from which
they owned shares of stocks. Pedro and Anastacia subsequently died. The former had his estate
judicially partitioned among his heirs, but the latter had not made the same in her shareholding
in Zenith.

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Zenith and Rodrigo filed a complaint with the Securities and Exchange Commission (SEC) against
petitioner (1) a derivative suit to obtain accounting of funds and assets of Zenith, and (2) to
determine the shares of stock of deceased Pedro and Anastacia that were arbitrarily and
fraudulently appropriated [by Oscar, and were unaccounted for]. In his answer with
counterclaim, petitioner denied the illegality of the acquisition of shares of Anastacia and
questioned the jurisdiction of SEC to entertain the complaint because it pertains to settlement
of [Anastacias] estate. The case was transferred to. Petitioner filed Motion to Declare
Complaint as Nuisance or Harassment Suit and must be dismissed. RTC denied the motion. The
motion was elevated to the Court of Appeals by way of petition for certiorari, prohibition and
mandamus, but was again denied.

Issues:

1. WON Rodrigo may be considered a stockholder of Zenith with respect to the shareholdings
originally belonging to Anastacia.
2. WON there is an intra-corporate relationship between the parties that would characterize
the case as an intra-corporate dispute.
3. WON the complaint is a derivative suit within the jurisdiction of the RTC acting as a special
commercial court.

Held:

1. NO. Rodrigo must, hurdle two obstacles before he can be considered a stockholder of Zenith
with respect to the shareholdings originally belonging to Anastacia. First, he must prove that
there are shareholdings that will be left to him and his co-heirs, and this can be determined
only in a settlement of the decedents estate. No such proceeding has been commenced to
date. Second, he must register the transfer of the shares allotted to him to make it binding
against the corporation. He cannot demand that this be done unless and until he has
established his specific allotment (and prima facie ownership) of the shares. Without the
settlement of Anastacias estate, there can be no definite partition and distribution of the
estate to the heirs. Without the partition and distribution, there can be no registration of the
transfer. And without the registration, we cannot consider the transferee-heir a stockholder
who may invoke the existence of an intra-corporate relationship as premise for an intracorporate controversy within the jurisdiction of a special commercial court. The subject shares
of stock (i.e., Anastacias shares) are concerned Rodrigo cannot be considered a stockholder
of Zenith.

2. NO. Court cannot declare that an intra-corporate relationship exists that would serve as basis
to bring this case within the special commercial courts jurisdiction under Section 5(b) of PD
902-A, as amended because Rodrigos complaint failed the relationship test above.

3. NO. The allegations of the present complaint do not amount to a derivative suit. First, as
already discussed above, Rodrigo is not a shareholder with respect to the shareholdings
originally belonging to Anastacia; he only stands as a transferee-heir whose rights to the share

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are inchoate and unrecorded. Second, in order that a stockholder may show a right to sue on
behalf of the corporation, he must allege with some particularity in his complaint that he has
exhausted his remedies within the corporation by making a sufficient demand upon the
directors or other officers for appropriate relief with the expressed intent to sue if relief is
denied. Lastly, Court found no injury, actual or threatened, alleged to have been done to the
corporation due to Oscars acts. If indeed he illegally and fraudulently transferred Anastacias
shares in his own name, then the damage is not to the corporation but to his co-heirs; the
wrongful transfer did not affect the capital stock or the assets of Zenith.

In summary, whether as an individual or as a derivative suit, the RTC sitting as special
commercial court has no jurisdiction to hear Rodrigos complaint since what is involved is the
determination and distribution of successional rights to the shareholdings of Anastacia
Reyes. Rodrigos proper remedy, under the circumstances, is to institute a special proceeding
for the settlement of the estate of the deceased Anastacia Reyes, a move that is not foreclosed
by the dismissal of his present complaint.

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