Corporate Law

Week 2
Sta. Monica Industrial & Development Corporation
vs
DAR Regional Director for Region 3
Topic: Application of the Piercing Doctrine
Facts:
Trinidad is the owner of five parcels of land with a total area of 4.69 hectares in Iba
Este, Calumpit, Bulacan. Private respondent Basilio De Guzman is the agricultural
leasehold tenant of Trinidad. De Guzman wanted to be emancipated in accordance with
the Agrarian Reform program, so he filed for an emancipation patent over the land
which he actually tilled.
Subsequently, the DAR approved De Guzmans petition, directing the MARO of
Calumpit, Bulacan and the PARO of Baliuag, Bulacan to effect the issuance of the
emancipation patent.
A year later, petitioner corporation Sta. Monica filed a petition for certiorari and
prohibition with the CA, assailing the said order. In its petition, Sta. Monica claimed that
while it is true that Asuncion Trinidad was the former registered owner of a parcel of
land with an area of 83,689 square meters, the said landholding was sold on January
27, 1986. Petitioner further asserted that he was denied due process, as it was not
furnished a notice of coverage under the CARP law.
Issue:
Whether or not there was valid sale and notice to petitioner
Ruling:
The sale is not valid, but there was constructive notice to Sta. Monica. On the first point,
the sale is prohibited by P.D. No. 27 (emancipation patent rule) which forbids the
transfer or alienation of covered agricultural lands except to the tenant-beneficiary.
On the second point, the Supreme Court notes that buyer Sta. Monica is owned and
controlled by Trinidad and her family. Records show that Trinidad, her husband and two
sons own more than 98% of the outstanding capital stock of Sta. Monica. They are all
officers of the corporation. There are only two non-related incorporators who own less
than one percent of the outstanding capital stock of Sta. Monica and who are not
officers of the corporation. To be sure, Trinidad and her family exercise absolute control
of the corporate affairs of Sta. Monica. As owners of 98% of the outstanding capital
stock, they are the beneficial owners of all the assets of the company, including the
agricultural land sold by Trinidad to Sta. Monica.
The dubious use of seemingly legal means to sidestep the CARP law persists.
Corporate law is resorted to by way of circling around the agrarian law. As this case
illustrates, agricultural lands are being transferred, simulated or otherwise, to
corporations which are fully or at least predominantly controlled by former landowners,
now called stockholders. Through this strategy, it is anticipated that the corporation, by
virtue of its corporate fiction, will shield the landowners from agricultural claims of
tenant-farmers.

Ruben Martinez, substituted by his heirs Mena Constantino Martinez, et al

vs
Court of Appeals and BPI International Finance
Topic: Application of the Piercing Doctrine
Facts:
Cintas Largas, Ltd. (CLL) was engaged in the business of importing molasses from the
Philippines, usually from the Mar Tierra Corporation (the latter also sold molasses to
local customers) for resale in the international market. Business operations of both
companies were run by Wilfrido Martinez and Blamar Gonzales.
About 42% of the capital stock of Mar Tierra Corporation was owned by RJL Martinez
Fishing Corporation (RJL), of which herein petitioner Ruben Martinez was the President
and a member of the board of directors. The majority stockholders of RJL were Ruben
Martinez and his brothers, Jose and Luis Martinez. Sixty-eight (68) percent of the total
assets of Ruben Martinez were in the RJL.
In 1979, respondent BPI International Finance (then AIFL) granted CLL a letter of credit
in the amount of US$3,000,000. Wilfrido Martinez signed the letter agreement with the
respondent for the CLL. When the debt was not paid as agreed upon, respondent filed a
complaint against CLL, Wilfrido Martinez, Lacson, and Ruben Martinez, with a plea for a
writ of preliminary attachment. Petitioner is questioning the propriety of holding him
jointly liable with CLL.
The petitioner asserts that the trial and appellate courts erred when they held him liable
for the reimbursement of US$340,000 to the respondent. He contends that he is not in
actuality a stockholder of Mar Tierra Corporation, nor a stockholder of the CLL. He was
not involved in any way in the operations of the said corporations. He added that while
he may have signed the signature cards of MMP Nos. 063 and 084 in blank, he never
had any involvement in the management and disposition of the said accounts, nor of
any deposits in or withdrawals from either or both accounts.
Issue:
Whether or not petitioner is obliged to reimburse to respondent the amount of
uncollected debt
Ruling:
No. The general rule is that a corporation is clothed with a personality separate and
distinct from the persons composing it. Nevertheless, being a mere fiction of law,
peculiar situations or valid grounds can exist to warrant, albeit sparingly, the disregard
of its independent being and the piercing of the corporate veil.
However, mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stocks of a corporation is not by itself a sufficient ground to
disregard the separate corporate personality. The substantial identity of the
incorporators of two or more corporations does not warrantly imply that there was fraud
so as to justify the piercing of the writ of corporate fiction.
The test in determining the application of the instrumentality or alter ego doctrine is as
follows:
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 plaintiffs 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 defendants
relationship to that operation.
In this case, the respondent failed to adduce the quantum of evidence necessary to
prove any valid ground for the piercing of the veil of corporate entity of Mar Tierra
Corporation, or of RJL for that matter, and render the petitioner liable for the
respondents claim, jointly and severally, with Wilfrido Martinez and Lacson. The mere
fact that the majority stockholder of Mar Tierra Corporation is the RJL, and that the
petitioner, along with Jose and Luis Martinez, owned about 42% of the capital stock of
RJL, do not constitute sufficient evidence that the latter corporation, and/or the
petitioner and his brothers, had complete domination of Mar Tierra Corporation. It does
not automatically follow that the said corporation was used by the petitioner for the
purpose of committing fraud or wrong, or to perpetrate an injustice on the respondent.

Raymundo O. Secosa, El Buenasenso Sy and Dassad Warehousing

vs
Heirs of Erwin Suarez Francisco
Topic: Locus Standi on the Piercing Doctrine
Facts:
Erwin Suarez Francisco met his untimely death when a road accident caused the Isuzu
cargo truck driven by herein petitioner Raymundo Secosa to bump the motorcycle the
former was driving, causing Francisco to fall and get run over by the rear wheels of the
Isuzu truck.
Respondents, the parents of Erwin Francisco, thus filed an action for damages against
Raymond Odani Secosa, Dassad Warehousing and Port Services, Inc. and Dassads
president, El Buenasucenso Sy. The court subsequently rendered a decision in favor of
herein respondents, ordering the Secosa, Sy, and Dassad Warehousing to pay a certain
amount in damages.
Issue:
Whether or not the court erred in holding Sy solidarily liable with his co-petitioners
Ruling:
Yes. According to the Supreme Court, while it may be true that Sy is the president of
petitioner Dassad Warehousing and Port Services, Inc., such fact is not by itself
sufficient to hold him solidarily liable for the liabilities adjudged against his copetitioners.
It is a settled precept in this jurisdiction that a corporation is invested by law with a
personality separate from that of its stockholders or members. However, ownership by a
single stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not in itself sufficient ground for disregarding the separate corporate
personality. A corporations authority to act and its liability for its actions are separate
and apart from the individuals who own it.
The so-called veil of corporation fiction treats as separate and distinct the affairs of a
corporation and its officers and stockholders. As a general rule, a corporation will be
looked upon as a legal entity, unless and until sufficient reason to the contrary appears.
When the 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 of
persons.
The records of this case are bereft of any evidence tending to show the presence of any
grounds enumerated above that will justify the piercing of the veil of corporate fiction
such as to hold the president of Dassad Warehousing and Port Services, Inc. solidarily
liable with it.
The Isuzu cargo truck which ran over Erwin Francisco was registered in the name of
Dassad Warehousing and Port Services, Inc., and not in the name of El Buenasenso
Sy. Raymundo Secosa is an employee of Dassad Warehousing and Port Services, Inc.
and not of El Buenasenso Sy. All these things, when taken collectively, point toward El
Buenasenso Sys exclusion from liability for damages arising from the death of Erwin
Francisco.

Alicia E. Gala, Guia G. Domingo, and Rita G. Benson

vs
Ellice Agro-Industrial Corporation, Margo Management and Development
Corporation, Raul E. Gala, et al.
Topic: Application of the Piercing Doctrine Tax Avoidance vs Tax Evasion
Facts:
The spouses Manuel and Alicia Gala and their children Guia Domingo, Ofelia Gala,
Raul Gala and Rita Benson, and their encargados (rough translation; representatives)
VirgilioGaleon and Julian Jader, formed and organized Ellice Agro Industrial Corporation
(Ellice). As payment for their subscriptions the Spouses Gala transferred several parcles
of land to Ellice. Subsequently, the children and the encargados formed and organized
another corporation, Margo Management and Development Corporation (Margo). The
father, Manuel Gala, sold his shares in Ellice to Margo. Subsequently, Alicia transferred
her shares to Margo.
In 1990, a special stockholders meeting of Margo was held where a new board of
directors was elected. Raul Gala was elected as chairman, president, and general
manager. During the meeting, the board approved the commencement of proceeding to
annul the dispositions of Margoss property made by Alicia Gala. Similarity, a special
stockholders meeting was held in Ellice. A new board was elected and Raul Gala also
became chairman, president and GM of Ellice, Raul Gala along with the respondents
filed a case against the petitiones in the SEC for accounting and restitution for alleged
mismanagement of funds of Ellice. In turn the petitioners filed in the SEC a petition for
the nullification of the election of directors of officers of both Margo and Ellice.
Essentially, petitioners sought to disregard the separate juridical personalities of two
corporations, namely, Ellice Agro-Industrial Corporation and Margo Management and
Development Corporation, for the purpose of treating all property purportedly owned by
said corporations as properly solely owned by the Gala Spouses. Among their
arguments were: (1) said corporations were organized for purpose of exempting the
property the property of the Gala Spouses from the coverage of land reform laws, and
(2) the two corporations were meant to be used as mere tools for the avoidance of
estate taxes.
Issue:
Whether or not the corporate veil may be pierced on the ground that they were used to
avoid land reform and estate tax laws
Ruling:
No. A perusal of the Articles of Incorporation of Ellice and Margo shows no signs of the
allegedly illegal purposes that petitioners are complaining of. It is well to note that, if a
corporations purpose, as stated in the Articles of Incorporation, is lawful, then the SEC
has no authority to inquire whether the corporation has purposes other than those
stated, and mandamus will lie to compel it to issue the certificate of incorporation.
With regard to their claim that Ellice and Margo were meant to be used as mere tools for
the avoidance of estate taxes, suffice it say that the legal right of a taxpayer to reduce
the amount of what otherwise could be his taxes or altogether avoid them, by means
which the law permits, cannot be doubted.

R&E Transport, Inc., and Honorio Enriquez

vs
Avelina P. Latag, representing Pedro M. Latag, deceased
Topic: Application of the Piercing Doctrine Retirement Benefits
Facts:
Pedro Latag was a regular employee of La Mallorca Taxi for 23 years, and when La
Mallorca ceased its business operations, he transferred to herein petitioner R&E
Transport, which was likewise also owned and operated by Honorio Enriquez.
Latag got sick in January 1995 and was forced to apply for partial disability with the
SSS, which was granted. When he recovered, he reported for work in September 1998
but was no longer allowed to continue working on account of his old age.
Latag thus asked Felix Fabros, the administrative officer of [petitioners], for his
retirement pay pursuant to Republic Act 7641 but he was ignored. Thus, on December
21, 1998, Latag filed a case for payment of his retirement pay before the NLRC.
One of the main bones of contention in this case is the question of identifying correctly
the number of creditable years of service for retirement benefits. On the one hand, we
have the findings of the labor arbiter, which the CA affirmed. According to those findings,
the 23 years of employment of Pedro with La Mallorca Taxi must be added to his 14
years with R & E Transport, Inc., for a total of 37 years. On the other, we also have the
findings of the NLRC that Pedro must be credited only with his service to R & E
Transport, Inc., because the evidence shows that the aforementioned companies are
two different entities.
Issue:
Whether or not the corporate veil may be pierced on the ground that both taxi
companies are one and the same
Ruling:
No. A perusal of the Articles of Incorporation of Ellice and Margo shows no signs of the
allegedly illegal purposes that petitioners are complaining of. It is well to note that, if a
corporations purpose, as stated in the Articles of Incorporation, is lawful, then the SEC
has no authority to inquire whether the corporation has purposes other than those
stated, and mandamus will lie to compel it to issue the certificate of incorporation.
With regard to their claim that Ellice and Margo were meant to be used as mere tools for
the avoidance of estate taxes, suffice it say that the legal right of a taxpayer to reduce
the amount of what otherwise could be his taxes or altogether avoid them, by means
which the law permits, cannot be doubted.
After a careful and painstaking review of the evidence on record, we support the NLRCs
findings. The labor arbiters conclusion -- that Mallorca Taxi and R & E Transport, Inc.,
are one and the same entity -- is negated by the documentary evidence presented by
petitioners. Their evidence sufficiently shows the following facts: 1) R & E Transport,
Inc., was established only in 1978; 2) Honorio Enriquez, its president, was not a
stockholder of La Mallorca Taxi; and 3) none of the stockholders of the latter company
hold stocks in the former.
Furthermore, basic is the rule that the corporate veil may be pierced only if it becomes a
shield for fraud, illegality or inequity committed against a third person.

Enriquez Security Services, Inc.

vs
Victor A. Cabotaje
Topic: Application of the Piercing Doctrine Retirement Benefits
Facts:
Victor A. Cabotaje was employed as a security guard for Enriquez Security and
Investigation Agency (ESIA). He continued working for the agency even after it was
incorporated on November 1985. Upon reaching the age of 60 in 1997, he applied for
retirement.
Petitioner acknowledged that respondent was entitled to retirement benefits but
opposed his claim that the computation of such benefits must be reckoned from January
1979 when he started working for ESIA. It claimed that the benefits must be computed
only from November 13, 1985 when ESSI was incorporated.
The NLRC disagreed, contending that the computation for benefits should cover the
entire period of his employment from January 1979 up to July 16, 1997 based on his
latest monthly salary.
Issue:
Whether or not the NLRC erred in ruling in favor of Cabotaje
Ruling:
No. While herein petitioners are claiming that the ESSI was merely registered with the
DOTC on November 13,1985, they did not deny however that complainant was an
employee of the then ESIA, and that complainants services with the said security
agency up to the present respondent corporation was uninterrupted. The obligation of
the new company involves not only to absorb the workers of the dissolved company, but
also to include the length of service earned by the absorbed employee with their former
employer as well. To rule otherwise would be manifestly less than fair, certainly less
than just and equitable.
The attempt to make the security agencies appear as two separate entities, when in
reality they were but one, was a devise to defeat the law and should not be permitted.
Although respect for corporate personality is the general rule, there are exceptions. In
appropriate cases, the veil of corporate fiction may be pierced as when it is used as a
means to perpetrate a social injustice or as a vehicle to evade obligations. Petitioner
was thus correctly ordered to pay respondents retirement under RA 7641, computed
from January 1979 up to the time he applied for retirement in July 1997.

ASJ Corporation and Antonio San Juan

vs
Spouses Efren and Maura Evangelista
Topic: Test to Determine Applicability of Piercing Doctrine
Facts:
Respondent spouses are in the business of buying broiler eggs, hatching them, and
selling their hatchlings and egg by-products. For the incubation and hatching of these
eggs, respondents availed of the hatchery services of ASJ Corp., a corporation duly
registered in the name of San Juan and his family.
After years of doing business with ASJ, the respondents delayed payments for the
services of ASJ, prompting the owner San Juan to refuse the release of the hatchlings
and the egg by-products. The parties tried to settle amicably their differences before
police authorities, but to no avail. Thus, respondents filed with the RTC an action for
damages based on petitioners retention of the chicks and by-products.
On July 8, 1996, the RTC ruled in favor of respondents, and disregarded the corporate
fiction of ASJ Corp., holding both the company and San Juan solidarily liable to
respondents.
Issue:
Whether or not the contention of the RTC is correct
Ruling:
Yes. Although no hard and fast rule can be accurately laid down under which the
juridical personality of a corporate entity may be disregarded, the following probative
factors of identity justify the application of the doctrine of piercing the veil of corporate
fiction in this case:
(1) San Juan and his wife own the bulk of shares of ASJ Corp
(2) The lot where the hatchery plant is located is owned by the San Juan spouses
(3) ASJ Corp. had no other properties or assets, except for the hatchery plant and the
lot where it is located
(4) San Juan is in complete control of the corporation
(5) There is no bona fide intention to treat ASJ Corp. as a different entity from San Juan;
and
(6) The corporate fiction of ASJ Corp. was used by San Juan to insulate himself from
the legitimate claims of respondents, defeat public convenience, justify wrong, defend
crime, and evade a corporations subsidiary liability for damages.

Manuel M. Mendoza and Edgardo A. Yotoko

vs
Banco Real Development Bank
Topic: Fraud in Piercing Cases
Facts:
Mendoza and Yotoko, on authority of the Board of Directors of TVI, obtained a loan on
its behalf with Banco Real. As security, herein petitioners mortgaged the companys
video machines.
On October 3, 1986, TVI and two other video firms, Fox Video and Galactica Video,
organized a new corporation named FGT Video Network Inc. (FGT). It was registered
with the Securities and Exchange Commission. Petitioner Mendoza was the concurrent
President of FGT and Operating General Manager of TVI. Thus, the office of TVI had to
be transferred to the building of FGT for easier monitoring of the distribution and
marketing aspects of the business. Likewise, the mortgaged machines were also
transferred.
When the bank sought to foreclose on the machines, Mendoza and Yotoko feigned
ignorance of its whereabouts.
Issue:
Whether or not Mendoza and Yotoko may be held individually liable for the missing
chattel
Ruling:
Yes. For one, the act of a mortgagor in transferring the location of a chattel under
mortgage is illegal and punishable under the Revised Penal Code. While the general
rule remains that obligations incurred by a corporation, acting through its directors,
officers or employees are its sole liability, the fact remains that the veil with which the
law covers and isolates the corporation from its directors, officers or employees will be
lifted when the corporation is used by any of them as a cloak or cover for fraud or
illegality or injustice.
Here, the fraud was committed by petitioners to the prejudice of respondent bank. It
bears emphasis that as reported by the sheriff, TVI is no longer doing business at its
given address and its whereabouts cannot be established as yet.
Both the trial court and the Court of Appeals thus concluded that petitioners succeeded
to hide the chattels, preventing the sheriff to foreclose the mortgage. Obviously, they
acted in bad faith to defraud respondent bank.

Lafarge Cement Philippines, Inc.

vs
Continental Cement Corporation
Topic: Fraud in Piercing Cases
Facts:
Petitioner Lafarge Cement Philippines, Inc. (Lafarge) -- on behalf of its affiliates and
other qualified entities, including Petitioner Luzon Continental Land Corporation (LCLC)
-- agreed to purchase the cement business of Respondent Continental Cement
Corporation (CCC). On October 21, 1998, both parties entered into a Sale and
Purchase Agreement (SPA). At the time of the foregoing transactions, petitioners were
well aware that CCC had a case pending with the Supreme Court. In anticipation of the
possible liability arising from the SCs decision, the parties, under Clause 2 (c) of the
SPA, allegedly agreed to retain from the purchase price a portion of the contract price in
the amount of P117,020,846.84 -- the equivalent of US$2,799,140.
However, petitioners allegedly refused to apply the sum to the payment to APT, despite
the subsequent finality of the Decision in GR No. 119712 in favor of the latter and the
repeated instructions of Respondent CCC. Fearful that nonpayment to APT would result
in the foreclosure, not just of its properties covered by the SPA with Lafarge but of
several other properties as well, CCC filed before the Regional Trial Court of Quezon
City on June 20, 2000, a Complaint with Application for Preliminary Attachment against
petitioners.
In the meantime, to avoid being in default and without prejudice to the outcome of their
appeal, petitioners filed their Answer and Compulsory Counterclaims ad Cautelam
before the trial court in Civil Case No. Q-00-41103. In their Answer, they denied the
allegations in the Complaint. They prayed -- by way of compulsory counterclaims
against Respondent CCC, its majority stockholder and president Gregory T. Lim, and its
corporate secretary Anthony A. Mariano -- for the sums of (a) P2,700,000 each as
actual damages, (b) P100,000,000 each as exemplary damages, (c) P100,000,000
each as moral damages, and (d) P5,000,000 each as attorneys fees plus costs of suit.
Petitioners alleged that CCC, through Lim and Mariano, had filed the baseless
Complaint in Civil Case No. Q-00-41103 and procured the Writ of Attachment in bad
faith. Relying on this Courts pronouncement in Sapugay v. CA, petitioners prayed that
both Lim and Mariano be held jointly and solidarily liable with Respondent CCC.
Issue:
Whether or not Lim and Mariano, albeit not being originally included in the complaint,
may be brought in to answer for the debt of the corporation
Ruling:
Yes. The inclusion of a corporate officer or stockholder is not premised on the
assumption that the plaintiff corporation does not have the financial ability to answer for
damages, such that it has to share its liability with individual defendants. Rather, such
inclusion is based on the allegations of fraud and bad faith on the part of the corporate
officer or stockholder. These allegations may warrant the piercing of the veil of corporate
fiction, so that the said individual may not seek refuge therein, but may be held
individually and personally liable for his or her actions.

PCGG, Oceanic Wireless Network, Inc.,

vs
Sandiganbayan, Jose L. Africa, Manuel H. Nieto, et al.
Topic: The Piercing Doctrine and Due Process
Facts:
On September 17, 1990, the Presidential Commission on Good Governance
sequestered Class A shareholdings of Oceanic Wireless Network, Inc. amounting to
63,573 of the 105,955 total outstanding capital stocks. In doing so, PCGG also
nominated its officers into the board of directors of OWNI and electing Commissioner
Maximo Maceren as chairman of the board. This is by virtue of the fact that some of the
board members including Jose Africa and Manuel Nieto, Jr. had been included in the list
of the owners of ill-gotten wealth which the PCGG is tasked with persecuting.
On October 9, 1990, Corporate Secretary Victor Africa questioned the SEC regarding
the election of PCGG nominees as directors of the board even though they were not
stockholders. On January 27, 1991, Africa held a special stockholders meeting whereby
a new board was elected, to which Manuel H. Nieto was chairman. Nieto subsequently
informed the PCGG officers about the new set of directors and requested for the
turnover of the management of OWNI. In response, PCGG filed a case for injunction
with damages against Africa and Nieto before the Sandiganbayan.
The Sandiganbayan issued an order declaring null and void the sequestration orders of
the PCGG on the ground that the said writs were automatically lifted for failure of the
PCGG to commence with the necessary judicial actions against said corporation within
the required six-month period prescribed by the constitution.
When the issue was raised before the Supreme Court, the petitioners contend that the
Sandiganbayan should not have nullified the writs of sequestration because there was
no need to file a separate action against OWNI.
Issue:
Whether or not the contention of PCGG is correct
Ruling:
No. The Supreme Court found the petition without merit, contending that a suit in a civil
case against the individual shareholders in OWNI is not a suit against OWNI itself. The
Court has held that failure to implead these corporations as defendants and merely
annexing a list of such corporations to the complaints is a violation of their right to due
process, for it would in fact be disregarding their distinct and separate personality
without the benefit of a hearing.

J.G. Summit Holdings, Inc.

vs
Court of Appeals, Committee on Privatization
Topic: Nationality of Corporation Exploitation of Natural Resources
Facts:
On September 17, 1990, the Presidential Commission on Good Governance
sequestered Class A shareholdings of Oceanic Wireless Network, Inc. amounting to
63,573 of the 105,955 total outstanding capital stocks. In doing so, PCGG also
nominated its officers into the board of directors of OWNI and electing Commissioner
Maximo Maceren as chairman of the board. This is by virtue of the fact that some of the
board members including Jose Africa and Manuel Nieto, Jr. had been included in the list
of the owners of ill-gotten wealth which the PCGG is tasked with persecuting.
On October 9, 1990, Corporate Secretary Victor Africa questioned the SEC regarding
the election of PCGG nominees as directors of the board even though they were not
stockholders. On January 27, 1991, Africa held a special stockholders meeting whereby
a new board was elected, to which Manuel H. Nieto was chairman. Nieto subsequently
informed the PCGG officers about the new set of directors and requested for the
turnover of the management of OWNI. In response, PCGG filed a case for injunction
with damages against Africa and Nieto before the Sandiganbayan.
The Sandiganbayan issued an order declaring null and void the sequestration orders of
the PCGG on the ground that the said writs were automatically lifted for failure of the
PCGG to commence with the necessary judicial actions against said corporation within
the required six-month period prescribed by the constitution.
When the issue was raised before the Supreme Court, the petitioners contend that the
Sandiganbayan should not have nullified the writs of sequestration because there was
no need to file a separate action against OWNI.
Issue:
Whether or not the contention of PCGG is correct
Ruling:
No. The Supreme Court found the petition without merit, contending that a suit in a civil
case against the individual shareholders in OWNI is not a suit against OWNI itself. The
Court has held that failure to implead these corporations as defendants and merely
annexing a list of such corporations to the complaints is a violation of their right to due
process, for it would in fact be disregarding their distinct and separate personality
without the benefit of a hearing.