R & E Transport Inc. v.

Latag, 422 SCRA 698 (2004)

(No Digest Yet)

Slain Enterprises, Inc. v. Cupertino Realty Corp., 590 SCRA 435 (2009)

(No Digest yet)

UMALI vs CA

FACTS:

> Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo.
The Castillo family are the owners of a parcel of land was given as security for a loan
from the Development Bank of the Philippines.

> For their failure to pay the amortization, foreclosure of the said property was about to
be initiated. This problem was made known to Santiago Rivera, who proposed to them
the conversion into subdivision of the four (4) parcels of land adjacent to the mortgaged
property to raise the necessary fund. The Idea was accepted by the Castillo family and
to carry out the project, a Memorandum of Agreement was executed by and between
Slobec Realty and Development, Inc., represented by its President Santiago Rivera
and the Castillo family.

> In this agreement, Santiago Rivera obliged himself to pay the Castillo family the sum
of P70,000.00 immediately after the execution of the agreement and to pay the
additional amount of P400,000.00 after the property has been converted into a
subdivision. Rivera, armed with the agreement, approached Mr. Modesto Cervantes,
President of defendant Bormaheco, and proposed to purchase from Bormaheco two
(2) tractors.

> Slobec, through Rivera, executed in favor of Bormaheco a Chattel Mortgage over the
said equipment as security for the payment of the aforesaid balance.

> As further security of the aforementioned unpaid balance, Slobec obtained from
Insurance Corporation of the Phil. a Surety Bond, with ICP (Insurance Corporation of
the Phil.) as surety and Slobec as principal, in favor of Bormaheco.
> The aforesaid surety bond was in turn secured by an Agreement of
Counter-Guaranty with Real Estate Mortgage executed by Rivera as president of
Slobec and the Catillos.

> For violation of the terms and conditions of the Counter-Guaranty Agreement, the
properties of the Castillos were foreclosed by ICP As the highest bidder.

> Insurance Corporation of the Phil. ICP sold to Phil. Machinery Parts Manufacturing
Co. (PM Parts) the four (4) parcels of land and by virtue of said conveyance, PM Parts
transferred unto itself the titles over the lots in dispute so that said parcels of land.

> PM Parts, through its President, Mr. Modesto Cervantes, sent a letter addressed to
plaintiff Mrs. Mauricia Meer Castillo requesting her and her children to vacate the
subject property but the Castillo refused to comply with the demands.

> The heirs of the late Felipe Castillo, particularly plaintiff Buenaflor M. Castillo Umali
as the appointed administratrix of the properties in question filed an action for
annulment of title for being void and entered into in fraud and without the consent and
approval.

> Judgment is hereby rendered in favor of the plaintiffs and against the defendants, but
was reversed by CA.

ISSUE:

Whether or not the veil of corporate entity must be pierced?

RULING:

NO. Neither will an allegation of fraud prosper in this case where petitioners failed to
show that they were induced to enter into a contract through the insidious words and
machinations of private respondents without which the former would not have executed
such contract. To set aside a document solemnly executed and voluntarily delivered,
the proof of fraud must be clear and convincing. We are not persuaded that such
quantum of proof exists in the case at bar.

Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore
exist, the legal fiction that a corporation is an entity with a juridical personality separate
and distinct from its members or stockholders may be disregarded. In such cases, the
corporation will be considered as a mere association of persons. The members or
stockholders of the corporation will be considered as the corporation, that is, liability
will attach directly to the officers and stockholders. The doctrine applies when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, or when it is made as a shield to confuse the legitimate issues or where
a corporation is the 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 case at bar, petitioners seek to pierce the V621 Of corporate entity of
Bormaheco, ICP and PM Parts, alleging that these corporations employed fraud in
causing the foreclosure and subsequent sale of the real properties belonging to
petitioners While we do not discount the possibility of the existence of fraud in the
foreclosure proceeding, neither are we inclined to apply the doctrine invoked by
petitioners in granting the relief sought. It is our considered opinion that piercing the
veil of corporate entity is not the proper remedy in order that the foreclosure
proceeding may be declared a nullity under the circumstances obtaining in the legal
case at bar.

In the first place, the legal corporate entity is disregarded only if it is sought to hold the
officers and stockholders directly liable for a corporate debt or obligation. In the instant
case, petitioners do not seek to impose a claim against the individual members of the
three corporations involved; on the contrary, it is these corporations which desire to
enforce an alleged right against petitioners. Assuming that petitioners were indeed
defrauded by private respondents in the foreclosure of the mortgaged properties, this
fact alone is not, under the circumstances, sufficient to justify the piercing of the
corporate fiction, since petitioners do not intend to hold the officers and/or members of
respondent corporations personally liable therefor. Petitioners are merely seeking the
declaration of the nullity of the foreclosure sale, which relief may be obtained without
having to disregard the aforesaid corporate fiction attaching to respondent
corporations. Secondly, petitioners failed to establish by clear and convincing evidence
that private respondents were purposely formed and operated, and thereafter
transacted with petitioners, with the sole intention of defrauding the latter.

The mere fact, therefore, that the businesses of two or more corporations are
interrelated is not a justification for disregarding their separate personalities, absent
sufficient showing that the corporate entity was purposely used as a shield to defraud
creditors and third persons of their rights.

We have stated earlier that the doctrine of piercing the veil of corporate fiction is not
applicable in this case. However, its inapplicability has no bearing on the good faith or
bad faith of private respondent PM Parts. It must be noted that Modesto N. Cervantes
served as Vice-President of Bormaheco and, later, as President of PM Parts. On this
fact alone, it cannot be said that PM Parts had no knowledge of the aforesaid several
transactions executed between Bormaheco and petitioners. In addition, Atty. Martin de
Guzman, who is the Executive Vice-President of Bormaheco, was also the legal
counsel of ICP and PM Parts. These facts were admitted without qualification in the
stipulation of facts submitted by the parties before the trial court. Hence, the defense of
good faith may not be resorted to by private respondent PM Parts which is charged
with knowledge of the true relations existing between Bormaheco, ICP and herein
petitioners. Accordingly, the transfer certificates of title issued in its name, as well as
the certificate of sale, must be declared null and void since they cannot be considered
altogether free of the taint of bad faith.

INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO vs CALICA

FACTS:

> Petitioner Indophil Textile Mill Workers Union-PTGWO is a legitimate labor

organization duly registered with the Department of Labor and Employment and the
exclusive bargaining agent of all the rank-and-file employees of Indophil Textile Mills,
Incorporated. Respondent Teodorico P. Calica is impleaded in his official capacity as
the Voluntary Arbitrator. Private respondent Indophil Textile Mills, Inc. is a corporation
engaged in the manufacture, sale and export of yarns of various counts and kinds and
of materials of kindred character. Petitioner Indophil Textile Mill Workers
Union-PTGWO and private respondent Indophil Textile Mills, Inc. executed a collective
bargaining agreement. Indophil Acrylic Manufacturing Corporation was formed and
registered with the SEC, became operational and hired workers according to its own
criteria and standards. The workers of Acrylic unionized and a duly certified collective
bargaining agreement was executed. A year after the workers of Acrylic have been
unionized and a CBA executed, the petitioner union claimed that the plant facilities built
and set up by Acrylic should be considered as an extension or expansion of the
facilities of private respondent Company. Calica (VA) ruled that CBA do not extend to
the employees of Acrylic as an extension or expansion of Indophil Textile Mills, Inc.
Petitioner stresses that the articles of incorporation of the two corporations establish
that the two entities are engaged in the same kind of business, which is the
manufacture and sale of yarns of various counts and kinds and of other materials of
kindred character or nature.

ISSUE:

Whether or not Acrylic is a separate and distinct entity from Indophil for purposes
of union representation? WON the operations in Acrylic are an extension or expansion
of Indophil?

RULING:

NO. Under the doctrine of piercing the veil of corporate entity, when valid grounds
therefore exist, the legal fiction that a corporation is an entity with a juridical personality
separate and distinct from its members or stockholders may be disregarded. In such
cases, the corporation will be considered as a mere association of persons. The
members or stockholders of the corporation will be considered as the corporation, that
is liability will attach directly to the officers and stockholders. The doctrine applies when
the corporate fiction is used to defeat public convenience, justify wrong, protect fraud,
or defend crime, or when it is made as a shield to confuse the legitimate issues, or
where a corporation is the 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 case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic,
alleging that the creation of the corporation is a devise to evade the application of the
CBA between petitioner Union and private respondent Company. While we do not
discount the possibility of the similarities of the businesses of private respondent and
Acrylic, neither are we inclined to apply the doctrine invoked by petitioner in granting
the relief sought. The fact that the businesses of private respondent and Acrylic are
related, that some of the employees of the private respondent are the same persons
manning and providing for auxiliary services to the units of Acrylic, and that the
physical plants, offices and facilities are situated in the same compound, it is our
considered opinion that these facts are not sufficient to justify the piercing of the
corporate veil of Acrylic.

In the same case of Umali, et al. v. Court of Appeals, We already emphasized that "the
legal corporate entity is disregarded only if it is sought to hold the officers and
stockholders directly liable for a corporate debt or obligation." In the instant case,
petitioner does not seek to impose a claim against the members of the Acrylic.

ROBLEDO vs NLRC

FACTS:

> Petitioners were former employees of Bacani Security and Protective Agency
(BSPA). They were employed as security guards.

> BSPA was a single proprietorship owned, managed and operated by the late Felipe
Bacani.

> On December 31, 1989, Felipe Bacani retired the business name and BSPA ceased
to operate and at that time, respondent Alicia Bacani, daughter of Felipe Bacani, was
BSPA's Executive Directress.

> Earlier, on October 26, 1989, respondent Bacani Security and Allied Services Co.,
Inc. (BASEC) had been organized and registered as a corporation with the Securities
and Exchange Commission with Felipe Bacani, his daughter.. et.al. as incorporators
which primary purpose of the corporation was to "engage in the business of providing
security" to persons and entities. This was the same line of business that BSPA was
engaged in. Most of the petitioners, after losing their jobs in BSPA, were employed in
BASEC.

> some of the petitioners filed a complaint with the DOLE for underpayment of wages
and nonpayment of overtime pay, legal holiday pay, separation pay and/or
retirement/resignation benefits… BSPA and BASEC were made respondents.

> Labor Arbiter rendered a decision upholding the right of the petitioners. NLRC
reversed.
ISSUE:

Whether or not the corporate fiction must be disregarded in this case?

RULING:

NO. Petitioners contend that public respondent erred in setting aside the Labor
Arbiter's judgment on the ground that BASEC is the same entity as BSPA the latter
being owned and controlled by one and the same family, namely the Bacani family. For
this reason they urge that the corporate fiction should be disregarded and BASEC
should be held liable for the obligations of the defunct BSPA.

As correctly found by the NLRC, BASEC is an entity separate and distinct from that of
BSPA. BSPA is a single proprietorship owned and operated by Felipe Bacani. Hence
its debts and obligations were the personal obligations of its owner. Petitioners' claim
which are based on these debts and personal obligations, did not survive the death of
Felipe Bacani on January 15, 1990 and should have been filed instead in the intestate
proceedings involving his estate.

Indeed, the rule is settled that unless expressly assumed labor contracts are not
enforceable against the transferee of an enterprise. The reason for this is that labor
contracts are in personam. Consequently, it has been held that claims for backwages
earned from the former employer cannot be filed against the new owners of an
enterprise. Nor is the new operator of a business liable for claims for retirement pay of
employees.

Petitioners claim, however, that BSPA was intentionally retired in order to allow
expansion of its business and even perhaps an increase in its capitalization for credit
purpose. According to them, the Bacani family merely continued the operation of BSPA
by creating BASEC in order to avoid the obligations of the former. Petitioners anchor
their claim on the fact that Felipe Bacani, after having ceased to operate BSPA,
became an incorporator of BASEC together with his wife and daughter. Petitioners
urge piercing the veil of corporate entity in order to hold BASEC liable for BSPA's
obligations.

The doctrine of piercing the veil of corporate entity is used whenever a court finds that
the corporate fiction is being used to defeat public convenience, justify wrong, protect
fraud, or defend crime, or to confuse legitimate issues, or that a corporation is the 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. It is apparent, therefore, that the
doctrine has no application to this case where the purpose is not to hold the individual
stockholders liable for the obligations of the corporation but, on the contrary, to hold the
corporation liable for the obligations of a stockholder or stockholders. Piercing the veil
of corporate entity means looking through the corporate form to the individual
stockholders composing it. Here there is no reason to pierce the veil of corporate entity
because there is no question that petitioners' claims, assuming them to be valid, are
the personal liability of the late Felipe Bacani. It is immaterial that he was also a
stockholder of BASEC.

Indeed, the doctrine is stood on its head when what is sought is to make a corporation
liable for the obligations of a stockholder. But there are several reasons why BASEC is
not liable for the personal obligations of Felipe Bacani. For one, BASEC came into
existence before BSPA was retired as a business concern. BASEC was incorporated
on October 26, 1989 and its license to operate was released on May 28, 1990, while
BSPA ceased to operate on December 31, 1989. Before, BSPA was retired, BASEC
was already existing. It is, therefore, not true that BASEC is a mere continuity of BSPA.

Second, Felipe Bacani was only one of the five (5) incorporators of BASEC. He owned
the least number of shares in BASEC, which included among its incorporators persons
who are not members of his family. That his wife Lydia and daughter Alicia were also
incorporators of the same company is not sufficient to warrant the conclusion that they
hold their shares in his behalf.

Third, there is no evidence to show that the assets of BSPA were transferred to
BASEC. If BASEC was a mere continuation of BSPA, all or at least a substantial part of
the latter's assets should have found their way to BASEC.

Neither can respondent Alicia Bacani be held liable for BSPA's obligations. Although
she was Executive Directress of BSPA, she was merely an employee of the BSPA,
which was a single proprietorship.

Now, the claims of petitioners are actually money claims against the estate of Felipe
Bacani. They must be filed against his estate in accordance with Sec. 5 of Rule 86 of
ROC.
 FRANCISCO MOTORS CORPORATION vs CA

FACTS:

> Petitioner filed a complaint against private respondents to recover sum of money
representing the balance of the jeep body purchased by the Manuels from petitioner.

> In their answer, private respondents interposed a counterclaim for unpaid legal
services by Gregorio Manuel which was not paid by the incorporators, directors and
officers of the petitioner.

> The trial court decided the case in favor of petitioner in regard to the petitioners claim
for money, but also allowed the counter-claim of private respondents.

> CA ruled that evidence shows that the plaintiff-appellant Francisco Motors
Corporation is composed of the heirs of the late Benita Trinidad as directors and
incorporators for whom defendant Gregorio Manuel rendered legal services in the
intestate estate case of their deceased mother. Equity and justice demands
plaintiff-appellants veil of corporate identity should be pierced and the defendant be
compensated for legal services rendered to the heirs, who are directors of the
plaintiff-appellant corporation.

ISSUE:

Whether or not CA erred in piercing the corporate veil?

RULING:

NO. Petitioner submits that respondent court should not have resorted to piercing the
veil of corporate fiction because the transaction concerned only respondent Gregorio
Manuel and the heirs of the late Benita Trinidad. According to petitioner, there was no
cause of action by said respondent against petitioner; personal concerns of the heirs
should be distinguished from those involving corporate affairs. Petitioner further
contends that the present case does not fall among the instances wherein the courts
may look beyond the distinct personality of a corporation. According to petitioner, the
services for which respondent Gregorio Manuel seeks to collect fees from petitioner
are personal in nature. Hence, it avers the heirs should have been sued in their
personal capacity, and not involve the corporation.

Basic in corporation law is the principle that a corporation has a separate personality
distinct from its stockholders and from other corporations to which it may be connected.
However, under the doctrine of piercing the veil of corporate entity, the corporations
separate juridical personality may be disregarded, for example, when the corporate
identity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime. Also, where the corporation 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, then its distinct personality may be ignored. In these circumstances, the
courts will treat the corporation as a mere aggrupation of persons and the liability will
directly attach to them. The legal fiction of a separate corporate personality in those
cited instances, for reasons of public policy and in the interest of justice, will be
justifiably set aside.

In our view, however, given the facts and circumstances of this case, the doctrine of
piercing the corporate veil has no relevant application here. Respondent court erred in
permitting the trial courts resort to this doctrine. The rationale behind piercing a
corporation’s identity in a given case is to remove the barrier between the corporation
from the persons comprising it to thwart the fraudulent and illegal schemes of those
who use the corporate personality as a shield for undertaking certain proscribed
activities. However, in the case at bar, instead of holding certain individuals or persons
responsible for an alleged corporate act, the situation has been reversed. It is the
petitioner as a corporation which is being ordered to answer for the personal liability of
certain individual directors, officers and incorporators concerned. Hence, it appears to
us that the doctrine has been turned upside down because of its erroneous invocation.
Note that according to private respondent Gregorio Manuel his services were solicited
as counsel for members of the Francisco family to represent them in the intestate
proceedings over Benita Trinidads estate. These estate proceedings did not involve
any business of petitioner.

The personality of the corporation and those of its incorporators, directors and officers
in their personal capacities ought to be kept separate in this case. The claim for legal
fees against the concerned individual incorporators, officers and directors could not be
properly directed against the corporation without violating basic principles governing
corporations.
 LUXURIA HOMES INC VS CA (1999)

FACTS:

Aida Posadas was the owner of a 1.6 hectare land in Sucat, Muntinlupa. In 1989, she
entered into an agreement with Jaime Bravo for the latter to draft a development and
architectural design for the said property. The contract price was P450,000.00.
Posadas gave a down payment of P25,000.00. Later, Posadas assigned her property
to Luxuria Homes, Inc. One of the witnesses to the deed of assignment and articles of
incorporation was Jaime Bravo.

In 1992, Bravo finished the architectural design so he proposed that he and his
company manage the development of the property. But Posadas turned down the
proposal and thereafter the business relationship between the two went sour. Bravo
then demanded Posadas to pay them the balance of their agreement as regards the
architectural design (P425k). Bravo also demanded payment for some other expenses
and fees he incurred i.e., negotiating and relocating the informal settlers then
occupying the land of Posadas. Posadas refused to make payment. Bravo then filed a
complaint for specific performance against Posadas but he included Luxuria Homes as
a co-defendant as he alleged that Luxuria Homes was a mere conduit of Posadas; that
the said corporation was created in order to defraud Bravo and avoid the payment of
debt.

ISSUE:

Whether or not Luxuria Homes should be impleaded.

HELD:

No. It was Posadas who entered into a contract with Bravo in her personal capacity.
Bravo was not able to prove that Luxuria Homes was a mere conduit of Posadas.
Posadas owns just 33% of Luxuria Homes. Further, when Luxuria Homes was created,
Bravo was there as a witness. So how can he claim that the creation of said
corporation was to defraud him. The eventual transfer of Posadas’ property to Luxuria
was with the full knowledge of Bravo. The agreement between Posadas and Bravo was
entered into even before Luxuria existed hence Luxuria was never a party thereto.
Whatever liability Posadas incurred arising from said agreement must be borne by her
solely and not in solidum with Luxuria. To disregard the separate juridical personality of
a corporation, the wrongdoing must be clearly and convincingly established. It cannot
be presumed.

MARUBENI CORPORATION, RYOICHI TANAKA, RYOHEI KIMURA and SHOICHI

ONE, petitioners, vs. FELIX LIRAG, respondent.

Facts:

Petitioner Marubeni Corporation (hereafter, Marubeni) is a foreign corporation

organized and existing under the laws of Japan, doing business in the Philippines
through its duly licensed, wholly owned subsidiary, Marubeni Philippines Corporation.
Petitioners Ryoichi Tanaka, Ryohei Kimura and Shoichi One were officers of Marubeni
assigned to its Philippine branch.2

January 27, 1989: Felix Lirag filed with the Regional Trial Court, Makati a complaint3
for specific performance and damages claiming that petitioners owed him the sum of
P6,000,000.00 representing commission pursuant to an oral consultancy agreement
with Marubeni.

Lirag claimed that Kimura hired his consultancy group for the purpose of obtaining
government contracts of various projects. Petitioners promised to pay him six percent
(6%) consultancy fee based on the total costs of the projects obtained.

The consultancy agreement was not reduced into writing because of the mutual trust
between Marubeni and the Lirag family.

In compliance with the agreement, respondent Lirag made several projects with the
government

One of the projects handled by respondent Lirag, the Bureau of Post project,
amounting to P100,000,000.00 was awarded to the "Marubeni-Sanritsu tandem."8
Despite respondent's repeated formal verbal demands for payment of the agreed
consultancy fee, petitioners did not pay.

Petitioners denied the consultancy agreement. Petitioner Kimura did not have the
authority to enter into such agreement in behalf of Marubeni. Only Mr. Morihiko
Maruyama, the general manager, upon issuance of a special power of attorney by the
principal office in Tokyo, Japan, could enter into any contract in behalf of the
corporation.

Mr. Maruyama did not discuss with respondent Lirag any of the matters alleged in the
complaint, nor agreed to the payment of commission. Moreover, Marubeni did not
participate in the bidding for the Bureau of Post project, nor benefited from the
supposed project. Thus, petitioners moved for the dismissal of the complaint.

On April 29, 1993, the trial court promulgated a decision and ruled that respondent is
entitled to a commission. Respondent was led to believe that there existed an oral
consultancy agreement. Hence, he performed his part of the agreement and helped
petitioners get the project.

On May 26, 1993, petitioners interposed an appeal from the decision to the Court of
Appeals. After due proceedings, on October 9, 1997, the Court of Appeals promulgated
a decision affirming the decision of the trial court. The Court of Appeals ruled that
preponderance of evidence favored the existence of a consultancy agreement between
the parties. The Court of Appeals relied on the doctrine of admission by silence in
upholding the existence of a consultancy agreement, noting that petitioner Tanaka's
reaction to respondent's September 26, 1988 demand letter was not consistent with
their claim that there was no consultancy agreement. On the contrary, it lent credence
to respondent's claim that they had an existing consultancy agreement.

ISSUE:

WHETHER OR NOT THE TWO CORPORATIONS THE SEPARATE PERSONALITY

OF THE CORPORATION CAN BE DISREGARDED.

RULING:

Assuming for the sake of argument that an oral consultancy agreement has been
perfected between the parties, respondent Lirag could not still claim fees on the project
that has not been awarded to Marubeni.

Respondent tried to justify his commission of roughly about P6,000,000.00 in the guise
that Marubeni and Sanritsu are sister corporations, thereby implying the need to pierce
the veil of corporate fiction. Respondent claimed that Marubeni as the supplier and real
contractor of the project hired and sub-contracted the project to Sanritsu.

We believe that this line of reasoning is too far-fetched. Not because two foreign
companies came from the same country and closely worked together on certain
projects would the conclusion arise that one was the conduit of the other, thus piercing
the veil of corporate fiction.

To disregard the separate juridical personality of a corporation, the wrongdoing must

be clearly and convincingly established. It cannot be presumed. The separate
personality of the corporation may be disregarded only when the To disregard the
separate juridical personality of a corporation, the wrongdoing must be clearly and
convincingly established. It cannot be presumed. corporation is used as a cloak or
cover for fraud or illegality, or to work injustice, or where necessary for the protection of
creditors.30 We could not just rely on respondent's testimony regarding the existence
of the "Marubeni-Sanritsu tandem" to justify his claim for payment of commission. This
conclusion is too conjectural to be believed.

Aside from the self-serving testimony of respondent regarding the existence of a close
working relationship between Marubeni and Sanritsu, there was nothing that would
support the conclusion that Sanritsu was an agent of Marubeni. Contrary to the trial
court's finding that petitioners led respondent to believe that they hired respondent's
services as consultant, the evidence proved otherwise. Petitioner Shoichi One, one of
the officers of Marubeni Phils., testified that at the onset, Marubeni Phils. informed
respondent that it had no authority to commit to anything, as it all depended on the
decision of the principal headquarters in Tokyo, Japan. However, respondent Lirag
insisted on providing assistance to Marubeni to get coveted government contracts
because Marubeni might encounter difficulties due to discrimination from the
government.32 Despite such knowledge, respondent said that "it's alright" with him as
he "believes Marubeni was an old time friend so he wanted to work for those
projects."33 Hence, how could petitioners be guilty of misleading respondent on the
acceptance of the latter's offer of consultancy service?

BOYER – ROXAS VS. COURT OF APPEALS

FACTS OF THE CASE

When Eugenia V. Roxas died, her heirs formed a corporation under the name and style
of Heirs of Eugenia V. Roxas, Inc. using her estate as the capital of the corporation, the
private respondent herein. It was primarily engaged in agriculture business, however it
amended its purpose to enable it to engage in resort and restaurant business.
Petitioners are stockholders of the corporation and two of the heirs of Eugenia. By
tolerance, they were allowed to occupy some of the properties of the corporation as
their residence. However, the board of directors of the corporation passed a resolution
evicting the petitioners from the property of the corporation because the same will be
needed for expansion.

At the RTC, private respondent presented its evidence averring that the subject
premises are owned by the corporation. Petitioners failed to present their evidence due
to alleged negligence of their counsel. RTC handed a decision in favor of private
respondent.

Petitioners appealed to the Court of Appeals but the latter denied the petition and
affirmed the ruling of the RTC. Hence, they appealed to the Supreme Court. In their
appeal, petitioners argues that the CA made a mistake in upholding the decision of the
RTC, and that their occupancy of the subject premises should be respected because
they own an aliquot part of the corporation as stockholders, and that the veil of
corporate fiction must be pierced by virtue thereof.

ISSUE

1. Whether petitioner’s contention were correct as regards the piercing of the corporate
veil.

2. Whether petitioners were correct in their contention that they should be respected as
regards their occupancy since they own an aliquot part of the corporation.

RULING

1.Petitioner’s contention to pierce the veil of corporate fiction is untenable. As aptly

held by the court: “..The separate personality of a corporation may ONLY be
disregarded when the corporation is used as a cloak or cover for fraud or illegality, or to
work injustice, or when necessary to achieve equity or when necessary for the
protection of creditors.”

2. As regards petitioners contention that they should be respected on their occupancy

by virtue of an aliquot part they own on the corporation as stockholders, it also fails to
hold water. The court held that “properties owned by a corporation are owned by it as
an entity separate and distinct from its members. While shares of stocks are personal
property, they do not represent property of the corporation. A share of stock only
typifies an aliquot part of the corporation’s property, or the right to share in its proceeds
to that extent when distributed according to law and equity, but its holder is not the
owner of any part of the capital of the corporation. Nor is he entitled to the possession
of any definite portion of its property or assets. The holder is not a co-owner or a tenant
in common of the corporate property.”

UNION BANK OF THE PHILIPPINES vs. COURT OF APPEALS,

FACTS:

Private respondents bid to salvage their collapsing business by seeking suspension of

payments a statutory device allowing distressed debtors to defer payment of their
debts now faces a major hindrance as petitioner challenges their recourse to said
remedy.

September 16, 1997: Private respondents EYCO Group of Companies

(EYCO),[1] Eulogio O. Yutingco, Caroline Yutingco-Yao, and Theresa T. Lao (the
Yutingcos), all of whom are controlling stockholders of the aforementioned
corporations, jointly filed with the SEC a Petition for the Declaration of Suspension of
Payment[s], Formation and Appointment of Rehabilitation Receiver/Committee,
Approval of Rehabilitation Plan with Alternative Prayer for Liquidation and Dissolution
of Corporations[2] alleging, that, the present combined financial condition of the
petitioners clearly indicates that their assets are more than enough to pay off the
credits but that due to factors beyond control and anticipation of the management xxx
the inability of the EYCO Group of Companies to meet the obligations as they fall due
on the schedule agreed with the [creditors] has now become a stark reality.[3]

Yutingcos justified their inclusion as co-petitioners before the SEC on the ground
that they had personally bound themselves to EYCOs creditor under a J.S.S. Clause
(Joint Several Solidary Guaranty).

the SEC Hearing Panel directed the suspension of all actions, claims and
proceedings against private respondents pending before any court, tribunal, office,
board and/or commission.
 Meanwhile, some of private respondents creditor, composed mainly of
twenty-two (22) domestic banks (the consortium)[6] including herein petitioner Union
Bank of the Philippines,[7] also convened on September 19, 1997 for the purpose of
deciding their options in the event that private respondents invoke the provisions of
Presidential Decree No. 902-A, as amended.

Without notifying the members of the consortium, petitioner,decided to break

away from the group by suing private respondents in the regular courts.

Aside from commencing suits in the regular courts, petitioner also vehemently
opposed private respondents petition for suspension of payments in the SEC by filing a
Motion to Dismiss. It contended that the SEC was bereft of jurisdiction over such
petition on the ground that the inclusion of the Yutingcos in the petition cannot be
allowed since the authority and power of the Commission under the (sic) virtue of [the]
law applies only to corporations, partnership[s] and other forms of associations, and
not to individual petitioners who are not clearly covered by P.D. 902-A as amended.
According to petitioner, what should have been applied instead was the provision on
suspension of payments under Act No. 1956, otherwise known as the Insolvency Law,
which mandated the filing of the petition in the Regional Trial Court and not in the SEC.

Issue:

Whether the SEC can validly acquire jurisdiction over a petition for suspension of
payments filed pursuant to Section 5(d) of P.D. No. 902 A, as amended, when such
petition joins as co-petitioners the petitioning corporate entities AND individual
stockholders thereof; and

Ruling:

As state earlier, it is precisely on the basis of above provision that petitioner now avers
that the SEC cannot validly entertain private respondents petition for suspension of
payments. Its reason is that the law vesting jurisdiction upon the SEC to hear petitions
of this kind limits itself to petitions filed only by corporations, partnerships or
associations. Petitioner thus asserts that the petition filed by private respondents with
the SEC should have been dismissed because it was not such a kind of petition filed
solely by corporations when it impleaded as co-petitioners the Yutingcos who are
individual persons upon whom said body cannot acquire jurisdiction.
We fully agree with petitioner in contending that the SECs jurisdiction on matters of
suspension of payments is confined only to those initiated by corporations,
partnerships or associations.

Very recently, we reiterated said pronouncements in Modern Paper Products, Inc. et

al., v. Court of Appeals, et al.,[33] viz.:

The Court of Appeal was correct in concluding that the SEC lacked or exceeded its
jurisdiction when it included the Co spouses under a state of suspension of payments
together with MPPI. x x x

It is axiomatic that jurisdiction is conferred by the Constitution or by law. It is indubitably

clear from the aforequoted Section 5 (d) that only corporations, partnerships, and
associations --- NOT private individuals --- can file with the SEC petitions to be
declared in a state of suspension of payments. It logically follows that the SEC does
not have jurisdiction to entertain petitions for suspension of payments filed by parties
other than corporations, partnerships or associations. x x x [Underscoring supplied].

Notwithstanding the foregoing conclusions, this Court, however, does not subscribe to
the theory espoused by petitioner that the case filed by private respondents should be
dismissed outright in its entirety. The reason is that while it is true that the SEC cannot
acquire jurisdiction over an individual filing a petition for suspension of payments
together with a corporate entity, a closer scrutiny of Chung Ka Bio and MPPI does not
in any manner suggest, even tangentially, that a petition as the one at bar must be
dismissed likewise with respect to the corporate co-petitioner. What Chung Ka Bio and
MPPI respectively declared was that Alfredo Ching, as a mere individual, cannot be
allowed as a co-petitioner in SEC Case No. 2250 and respondent Court of Appeals
was correct in ordering the dismissal of the petition for suspension of payments insofar
as the Co spouses were concerned. [Underscoring supplied]

That the Court never dismissed a petition for suspension of payments as the cases
involved in Chung Ka Bio and MPPI is not without legal basis.

We are, of course, aware of the argument advanced by petitioner that the petition
should be entirely dismissed and taken out of the SECs jurisdiction on account of the
alleged insolvency of private respondents. In this regard, petitioner theorizes that
private respondents have already become insolvent when they allegedly disposed of a
substantial portion of their properties in fraud of creditors, hence, suspension of
payments with the SEC is not the proper remedy.
 The doctrine of piercing the veil of corporate fiction heavily relied upon by the
petitioner is entirely misplaced, as said doctrine only applies when such corporate
fiction is used to defeat public convenience, justify wrong, protect fraud or defend
crime.

GREGORIO ARANETA, INC., vs. PAZ TUASON DE PATERNO and JOSE VIDAL

Facts:

Paz Tuason de Paterno is the registered owner of the aforesaid land, which was
subdivided into city lots. Most of these lots were occupied by lessees who had
contracts of lease and carried a stipulation that in the event the owner and lessor
should decide to sell the property the lessees were to be given priority over other
buyers if they should desire to buy their leaseholds. Smaller lots were occupied by
tenants without formal contract.

In 1940 and 1941 Paz Tuason obtained from Jose Vidal several loans and constituted
a first mortgage on the aforesaid property to secure the debt.

There was, besides, a separate written agreement entitled "Penalidad del Documento
de Novacion de Esta Fecha" which, unlike the principal contracts, was not registered.
The tenor of this separate agreement, all copies, of which were alleged to have been
destroyed or lost, was in dispute and became the subject of conflicting evidence.

In 1943 Paz Tuason decided to sell the entire property and entered into negotiations
with Gregorio Araneta, Inc. for this purpose. The result of the negotiations was the
execution of a contract called "Promesa de Compra y Venta". This contract provided
that subject to the preferred right of the lessees and that of Jose Vidal as mortgagee,
Paz Tuason would sell to Gregorio Araneta, Inc. and the latter would buy the entire
estate under these terms.

In furtherance of this promise to buy and sell, letters were sent to the lessees, an
option to buy the lots. Most of the tenants who held contracts of lease took advantage
of the opportunity. These sales have been respected by the seller.
With the elimination of the lots sold or be sold to the tenants there remained
unencumbered, except for the mortgage to Jose Vidal, Paz Tuason and Gregorio
Araneta, Inc. executed with regard to these lots an absolute deed of sale.

Before the execution of the deed, Paz Tuason had offered to Vidal the check in full
settlement of her mortgage obligation, but the mortgagee had refused to receive that
check or to cancel the mortgage, contending that by the separate agreement before
mentioned payment of the mortgage was not to be effected totally or partially before
the end of four years from April, 1943.

This failure of the suit for the cancellation of Vidal's mortgage, coupled with the
destruction of the checks tendered to the mortgagee, the nullification of the bank
deposit on which those checks had been drawn, and the tremendous rise of real estate
value following the termination of the war, gave occasion to the breaking off the
schemes outlined; Paz Tuason after liberation repudiated them for the reasons to be
hereafter set forth. The instant action was the offshoot, begun by Gregorio Araneta,
Inc. to compel Paz Tuason to deliver to the plaintiff a clear title to the lots free from all
liens and encumbrances, and a deed of cancellation of the mortgage to Vidal.

Ruling:

However, the trial court hypothetically admitting the existence of the relation of principal
and agent between Paz Tuason and Jose Araneta, pointed out that not Jose Araneta
but Gregorio Araneta, Inc. was the purchaser, and cited the well-known distinction
between the corporation and its stockholders. In other words, the court opined that the
sale to Gregorio Araneta, Inc. was not a sale to Jose Araneta the agent or broker.

The defendant would have the court ignore this distinction and apply to this case the
other well-known principle which is thus stated in 18 C.J.S. 380: "The courts, at law
and in equity, will disregard the fiction of corporate entity apart from the members of
the corporation when it is attempted to be used as a means of accomplishing a fraud or
an illegal act.".

It will at once be noted that this principle does not fit in with the facts of the case at bar.
Gregorio Araneta, Inc. had long been organized and engaged in real estate business.
The corporate entity was not used to circumvent the law or perpetrate deception. There
is no denying that Gregorio Araneta, Inc. entered into the contract for itself and for its
benefit as a corporation. The contract and the roles of the parties who participated
therein were exactly as they purported to be and were fully revealed to the seller.
There is no pretense, nor is there reason to suppose, that if Paz Tuason had known
Jose Araneta to Gregorio Araneta, Inc's president, which she knew, she would not
have gone ahead with the deal. From her point of view and from the point of view of
public interest, it would have made no difference, except for the brokerage fee, whether
Gregorio Araneta, Inc. or Jose Araneta was the purchaser. Under these circumstances
the result of the suggested disregard of a technicality would be, not to stop the
commission of deceit by the purchaser but to pave the way for the evasion of a
legitimate and binding commitment buy the seller. The principle invoked by the
defendant is resorted to by the courts as a measure or protection against deceit and
not to open the door to deceit. "The courts," it has been said, "will not ignore the
corporate entity in order to further the perpetration of a fraud." (18 C.J.S. 381.)

The corporate theory aside, and granting for the nonce that Jose Araneta and Gregorio
Araneta, Inc. were identical and that the acts of one where the acts of the other, the
relation between the defendant and Jose Araneta did not fall within the purview of
article 1459 of the Spanish Civil Code.1

VILLANUEVA vs. ADRE

Facts:

The case began from a complaint, dated January 6, 1977, for recovery of unpaid
thirteenth-month pay filed by the Sarangani Marine and General Workers Union-ALU
with the Department of Labor (Regional Office No. XI, General Santos City) against the
South Cotabato Integrated Port Services, Inc. (SCIPSI), a Philippine corporation. Later,
thirty-seven SCIPSI employees, non-union members apparently, filed their own
complaint. The labor arbiter consolidated the twin complaints and after hearing,
ordered a dismissal on December 29, 1977. On appeal, however, the National Labor
Relations Commission, on June 9, 1981, reversed and accordingly, ordered the private
respondents, SCIPSI and its president and general, Lucio Velayo, to pay the
thirteenth-month pays demanded. The private respondents' motion for reconsideration
was denied, and the decision has since attained finality.
On October 24, 1986, the corporate auditing examiner submitted an accounting and
found the private respondents liable in the total sum of Pl,134,000.00. Thereupon, the
private respondents interposed an objection and prayed for a revision. It appears,
however, that the private respondents never pursued their exceptions On February 14,
1987, both SCIPSI and Velayo petitioned this Court 2 on certiorari with injunction on
the ground, fundamentally that the Department of Labor's examiner erred in her
determination of the private respondents pecuniary liabilities.

On February 16,1987, Velayo alone filed a petition with the respondent court (Special
Case No. 227) on a cause of action based on an alleged irregular execution, on the
ground that he "was never a party to the labor case" 3 and that "a corporation (that is,
SCIPSI has a separate and distinct personality from this incorporators, stockholders
and officers."

Meanwhile, on April 27,1988, the parties (in G.R. Nos. 7730001) submitted a
Compromise Agreement whereby the private respondents agreed to pay, in
installments, the reduced sum of P637,400.00 to the workers. On May 11, 1988, we
issued a Resolution approving the Compromise Agreement, and considering the cases
(G.R. Nos. 77300-01) closed and terminated.

On whether or not this case has become moot and academic in view of the
compromise reached in G.R. Nos. 77300-01, the Court rules in the affirmative.

Nevertheless, because of the ethical implications of the acts of the private

respondents, the Court is constrained to render its judgment if only to forestall future
similar acts and for the guidance of the bench and the bar.

Issue:

w/n respondent velayo is liable to pay the 13th month pay?

Held:

Yes, In A.C. Ransom Labor Union-CCLU v. NLRC 12 we held that in case of

corporations. It is the president who responds personally for violation of the labor pay
laws. We quote:

Article 273 of the Code provides that:

Any person violating any of the provisions of Article 265 of this Code shall be punished
by a fine of not exceeding five hundred pesos and/or imprisonment for not less than
one (1) day nor more than six (6) months.

(b) How can the foregoing provisions be implemented when the employer is a
corporation? The answer is found in Article 212 (c) of the Labor Code which provides:

(c) 'Employer' of the Labor Code which provides: which 'Employer' includes any person
acting in the interest of an employer, directly or indirectly. The term shall not include
any labor organization or any of its officers or agents except when acting as employer.

The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. 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. The
corporation, only in the technical sense, is the employer.

The responsible officer of an employer corporation can be held personally, not to say
even criminally, liable for non-payment of back wages. That is the policy of the law. In
the Minimum Wage Law, Section 15(b) provided:

(b) If any violation of this Act is committed by a corporation, trust,

partnership or association, the manager or in his default, the person acting as
such when the violation took place, shall be responsible..

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.

(c) If the policy of the law were otherwise, the corporation employer can have devious
ways for evading payment of back wages. In the instant case, it would appear that
RANSOM, in 1969, foreesing 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. RANSOM actually ceased
operations on May 1, 1973 after the December 19, 1972 Decision of the Court of
Industrial Relations was promulgated against RANSOM.

(d) 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, we behave it should be presumed that the responsible
officer is the President of the corporation who can be deemed the chief operation
officer thereof. Thus, in RA 602, criminal responsibility is with the "Manager or in his
default, the person acting as such." In RANSOM, the President appears to be the
Manager.

Accordingly, Velayo cannot be excused from payment of SCIPSI's liability by mere

reason of SCIPSI's separate corporate existence. The theory of corporate entity, in the
first place, was not meant to promote unfair objectives or otherwise, to shield them.
This Court has not hesitated in penetrating the veil of corporate fiction when it would
defeat the ends envisaged by law, 14 not to mention the clear decree of the Labor
Code.

UMALI vs CA

FACTS:

> Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo.
The Castillo family are the owners of a parcel of land was given as security for a loan
from the Development Bank of the Philippines.

> For their failure to pay the amortization, foreclosure of the said property was about to
be initiated. This problem was made known to Santiago Rivera, who proposed to them
the conversion into subdivision of the four (4) parcels of land adjacent to the mortgaged
property to raise the necessary fund. The Idea was accepted by the Castillo family and
to carry out the project, a Memorandum of Agreement was executed by and between
Slobec Realty and Development, Inc., represented by its President Santiago Rivera
and the Castillo family.

> In this agreement, Santiago Rivera obliged himself to pay the Castillo family the sum
of P70,000.00 immediately after the execution of the agreement and to pay the
additional amount of P400,000.00 after the property has been converted into a
subdivision. Rivera, armed with the agreement, approached Mr. Modesto Cervantes,
President of defendant Bormaheco, and proposed to purchase from Bormaheco two
(2) tractors.
> Slobec, through Rivera, executed in favor of Bormaheco a Chattel Mortgage over the
said equipment as security for the payment of the aforesaid balance.

> As further security of the aforementioned unpaid balance, Slobec obtained from
Insurance Corporation of the Phil. a Surety Bond, with ICP (Insurance Corporation of
the Phil.) as surety and Slobec as principal, in favor of Bormaheco.

> The aforesaid surety bond was in turn secured by an Agreement of

Counter-Guaranty with Real Estate Mortgage executed by Rivera as president of
Slobec and the Catillos.

> For violation of the terms and conditions of the Counter-Guaranty Agreement, the
properties of the Castillos were foreclosed by ICP As the highest bidder.

> Insurance Corporation of the Phil. ICP sold to Phil. Machinery Parts Manufacturing
Co. (PM Parts) the four (4) parcels of land and by virtue of said conveyance, PM Parts
transferred unto itself the titles over the lots in dispute so that said parcels of land.

> PM Parts, through its President, Mr. Modesto Cervantes, sent a letter addressed to
plaintiff Mrs. Mauricia Meer Castillo requesting her and her children to vacate the
subject property but the Castillo refused to comply with the demands.

> The heirs of the late Felipe Castillo, particularly plaintiff Buenaflor M. Castillo Umali
as the appointed administratrix of the properties in question filed an action for
annulment of title for being void and entered into in fraud and without the consent and
approval.

> Judgment is hereby rendered in favor of the plaintiffs and against the defendants, but
was reversed by CA.

ISSUE:

Whether or not the veil of corporate entity must be pierced?

RULING:

NO. Neither will an allegation of fraud prosper in this case where petitioners failed to
show that they were induced to enter into a contract through the insidious words and
machinations of private respondents without which the former would not have executed
such contract. To set aside a document solemnly executed and voluntarily delivered,
the proof of fraud must be clear and convincing. We are not persuaded that such
quantum of proof exists in the case at bar.

Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore
exist, the legal fiction that a corporation is an entity with a juridical personality separate
and distinct from its members or stockholders may be disregarded. In such cases, the
corporation will be considered as a mere association of persons. The members or
stockholders of the corporation will be considered as the corporation, that is, liability
will attach directly to the officers and stockholders. The doctrine applies when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, or when it is made as a shield to confuse the legitimate issues or where
a corporation is the 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 case at bar, petitioners seek to pierce the V621 Of corporate entity of
Bormaheco, ICP and PM Parts, alleging that these corporations employed fraud in
causing the foreclosure and subsequent sale of the real properties belonging to
petitioners While we do not discount the possibility of the existence of fraud in the
foreclosure proceeding, neither are we inclined to apply the doctrine invoked by
petitioners in granting the relief sought. It is our considered opinion that piercing the
veil of corporate entity is not the proper remedy in order that the foreclosure
proceeding may be declared a nullity under the circumstances obtaining in the legal
case at bar.

In the first place, the legal corporate entity is disregarded only if it is sought to hold the
officers and stockholders directly liable for a corporate debt or obligation. In the instant
case, petitioners do not seek to impose a claim against the individual members of the
three corporations involved; on the contrary, it is these corporations which desire to
enforce an alleged right against petitioners. Assuming that petitioners were indeed
defrauded by private respondents in the foreclosure of the mortgaged properties, this
fact alone is not, under the circumstances, sufficient to justify the piercing of the
corporate fiction, since petitioners do not intend to hold the officers and/or members of
respondent corporations personally liable therefor. Petitioners are merely seeking the
declaration of the nullity of the foreclosure sale, which relief may be obtained without
having to disregard the aforesaid corporate fiction attaching to respondent
corporations. Secondly, petitioners failed to establish by clear and convincing evidence
that private respondents were purposely formed and operated, and thereafter
transacted with petitioners, with the sole intention of defrauding the latter.

The mere fact, therefore, that the businesses of two or more corporations are
interrelated is not a justification for disregarding their separate personalities, absent
sufficient showing that the corporate entity was purposely used as a shield to defraud
creditors and third persons of their rights.

We have stated earlier that the doctrine of piercing the veil of corporate fiction is not
applicable in this case. However, its inapplicability has no bearing on the good faith or
bad faith of private respondent PM Parts. It must be noted that Modesto N. Cervantes
served as Vice-President of Bormaheco and, later, as President of PM Parts. On this
fact alone, it cannot be said that PM Parts had no knowledge of the aforesaid several
transactions executed between Bormaheco and petitioners. In addition, Atty. Martin de
Guzman, who is the Executive Vice-President of Bormaheco, was also the legal
counsel of ICP and PM Parts. These facts were admitted without qualification in the
stipulation of facts submitted by the parties before the trial court. Hence, the defense of
good faith may not be resorted to by private respondent PM Parts which is charged
with knowledge of the true relations existing between Bormaheco, ICP and herein
petitioners. Accordingly, the transfer certificates of title issued in its name, as well as
the certificate of sale, must be declared null and void since they cannot be considered
altogether free of the taint of bad faith.

PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT

CORPORATION vs. ANDRADA ELECTRIC & ENGINEERING COMPANY

Doctrine: 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 of the Philippines
(DBP), will not make PNB liable for the PASUMIL’s contractual debts to respondent.

Facts:

1. PASUMIL (Pampanga Sugar Mills) engaged the services of Andrada Electric for
electrical rewinding, repair, the construction of a power house building, installation of
turbines, transformers, among others. Most of the services were partially paid by
PASUMIL, leaving several unpaid accounts.

2. On August 1975, PNB, a semi-government corporation, acquired the assets of

PASUMIL—assets that were earlier foreclosed by the DBP.

3. On September 1975, PNB organized NASUDECO (National Sugar Development

Corporation), under LOI No. 311 to take ownership and possession of the assets and
ultimately, to nationalize and consolidate its interest in other PNB controlled sugar
mills. NASUDECO is a semi-government corporation and the sugar arm of the PNB.

4. Andrada Electric alleges that PNB and NASUDECO should be liable for
PASUMIL’s unpaid obligation amounting to 500K php, damages, and attorney’s fees,
having owned and possessed the assets of PASUMIL.

Issue:

Whether PNB and NASUDECO may be held liable for PASUMIL’s liability to Andrada
Electric and Engineering Company.

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 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 domination² 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 entityor
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.

There was NO merger or consolidation with respect to PASUMIL and PNB.

Respondent further claims that petitioners should be held liable for the unpaid
obligations of PASUMIL by virtue of LOI Nos. 189-A and 311, which expressly
authorized PASUMIL and PNB to merge or consolidate (allegedly).

On the other hand, petitioners contend that their takeover of the operations of
PASUMIL did not involve any corporate merger or consolidation, because the latter
had never lost its separate identity as a corporation.

A consolidation is the union of two or more existing entities to form a new entity called
the consolidated corporation. A merger, on the other hand, is a union whereby one or
more existing corporations are absorbed by another corporation that survives and
continues the combined business.
The merger, however, does not become effective upon the mere agreement of the
constituent corporations. Since a merger or consolidation involves fundamental
changes in the corporation, as well as in the rights of stockholders and creditors, there
must be an express provision of law authorizing them.

For a valid merger or consolidation, the approval by the SEC of the articles of merger
or consolidation is required. These articles must likewise be duly approved by a
majority of the respective stockholders of the constituent corporations.

In the case at bar, there is no merger or consolidation with respect to PASUMIL and
PNB. The procedure prescribed under Title IX of the Corporation Code was not
followed.

In fact, PASUMIL’s corporate existence, as correctly found by the CA, had not been
legally extinguished or terminated. Further, prior to PNB’s acquisition of the foreclosed
assets, PASUMIL had previously made partial payments to respondent for the former’s
obligation in the amount of P777,263.80. As of June 27, 1973, PASUMIL had paid
P250,000 to respondent and, from January 5, 1974 to May 23, 1974, another P14,000.

Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL to
respondent. LOI No. 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 respondent’s insistence to
the contrary.

TANTONGCOv. KAISAHAN NG MGA MANGGAGAWA SA LA CAMPANA (KKM)

The present case is a petition for Certiorari and prohibition with prayer for the issuance
of a writ of preliminary injunction to prohibit the respondent Court of Industrial Relations
from proceeding with the hearing of the contempt proceedings.

FACTS:

La Campana Starch Factory and La Campana Coffee Factory (La Campana for
Brevity) are two separate entities run by a single management under the leadership of
Ramon Tantongco. Kaisahan ng mga Manggagawa sa La Campana (Kaisahan for
brevity), on the other hand, is a labor union with members from the two companies.
Sometime in June, 1951, representatives of Kaisahan approached the management of
La Campana to demand higher wages and more benefits. A deadlock ensued since
none of the parties is willing to give concessions. The dispute was certified to the Court
of Industrial Relations (CIR). La Campana filed a motion to dismiss before the CIR
claiming that the CIR has no jurisdiction because only those from the coffee factory
were presenting the demands there were only 14 employees in said factory. This was
done in light of the requirement that at least 31 employees should present the
demands. The motion was denied by the CIR. According to the CIR, the Kaisahan was
the one that presented the demands and not just the workers in the coffee factory. The
Supreme Court (GR No. L-5677) affirmed the order of the CIR citing that although the
two entities are separate, there is only one management. The entire membership of the
Kaisahan is therefore to be counted and not simply those employed in the coffee
factory. La Campana Gaugau Packing and La Campana Coffee Factory Co. Inc., are
operating under one single management, that is, one business though with two trade
names. True, the coffee factory is a corporation , and, by legal fiction, an entity existing
separate and part from the persons composing it, that is, Tan Tong and his family. But
is settled this fiction of law, which has been introduced as a matter of convenience and
to subserve the ends of justice cannot be invoke to further an end subversive of that
purpose.

The attempt to make the two factories appear as two separate business, when in
reality, they are but one is but a device to defeat the ends of the law (the Act governing
capital and labor relations) and should not be permitted to prevail.

Upon the return of the case to the Court of Industrial Relations, the latter proceeded
with the hearing. In the meantime incidental cases involving the same parties came up
and were filed before the Court of Industrial Relations . Additional incidental cases
were filed by Kaisahan before the CIR including a petition for the reinstatement of
some employees.

Ramon Tantongco died some time in 1956. The administrator of the estate of Ramon
Tantongco, herein petitioner Ricardo Tantongco, was ordered included as respondent
in the cases pending before the CIR. The CIR rendered a decision on the incidental
cases and ordered the reinstatement of the dismissed employees. When the
employees reported to work, the management refused them admittance. Kaisahan
then filed a petition to cite the management in contempt before the CIR. Hence this
petition.

CONTENTIONS Petitioner: The two companies ceased to exist upon the death of
Ramon Tantongco. The Supreme Court held in GR No. L-5677 that La Campana and
Ramon Tantongco are one based on the doctrine of piercing the veil of corporate
existence. Therefore, the death of Ramon Tantongco meant the death of La Campana.
Since La Campana already ceased to exist, the CIR no longer has jurisdiction over it.
The claims should have been filed with the probate court.

Defendant: La Campana continues to exist despite the death of Ramon Tantongco.

The CIR therefore has jurisdiction when it rendered its decision on the incidental cases.
The non-compliance by La Campana therefore amounted to contempt of court.

Issue:

WON the Doctrine of Piercing the Veil of Corporate Existence applies to the present
case?

Ruling:

The Supreme Court DENIED the Petition for Certiorari and Prohibition. It ruled that La
Camapana continued to exist despite the death of Ramon Tantongco. It further ruled
that the Doctrine of Piercing the Veil of Corporate Existence is not applicable in the
present case. Finally, it allowed the CIR to proceed with the contempt hearing.

The death of Ramon Tantongco did not end the existence of La Campana. The
Supreme Court applied the Doctrine of Piercing the Veil of Corporate Existence in GR
no. L-5677 to avoid the use of technicality to defeat the jurisdiction of the CIR. In the
said case, the Court determined that although La Campana are two separate
companies, they are being managed by only one management. Furthermore, the
workers of both factories were interchangeably assigned.

In the present case, however, the Court ruled that despite the obvious fact that La
Campana was run by the same people, they still are two different companies with
separate personalities from Ramon Tantongco. La Campana was owned not only by
Ramon but others as well including Ricardo Tantongco. Lastly, the Court ruled that
petitioner is under estoppel and cannot claim that La Campana and Ramon are one
and the same since he has represented La Campana as separate entities in numerous
dealings. Ricardo Tantongco should still face the contempt proceedings because under
Section 6 of Commonwealth Act No. 143, “In case the employer (or landlord)
committing any such violation or contempt is an association or corporation, the
manager or the person who has the charge of the management of the business of the
association or corporation and the officers of directors thereof who have ordered or
authorized the violation of contempt shall be liable. . . .” Since Tantongco is the
General Manager of La Campana, he is still obliged to appear at the contempt
proceedings.

R.F. Sugay & Co. vs Reyes

Facts:

Pablo C. Reyes and Cesar Curata were employees of R.F. Sugay and Co., Inc. who
were assigned to a painting job on the building of Pacific Products, Inc. In January 13,
1961, Reyes and Curata suffered burn injuries from a fire in the vicinity of Pacific
Products resulting from temporary disability from work. Because of this, Reyes and
Curata filed a claim for disability and medical expenses against R.F. Sugay and Co.,
Inc., Romulo Sugay andPacific Products.

R.F. Sugay & Co. claimed that it is not the employer of Reyes and Curata, but it is the
Pacific Products.

The Hearing Officer of the Workmen’s Compensation Commission dismissed the case
against Sugay and R.F. Sugay & Co. and found Pacific Product to be liable.

Pacific Products appealed to the Commission which reversed the order of the hearing
officer and found that R.F. Sugay & Co., Inc. is the statutory employer of Reyes and
Curata.

The Commission en banc, on September 19, 1962, denied the motion for
reconsideration of R. F. Sugay & Co.. Thus, this Petition.

In forwarding the argument that Pacific Products is the employer and not R.F. Sugay &
Co, the latter alleged that Romulo Sugay, its President, was the one who entered into a
contract of administration and supervision for the painting of the factory of the Pacific
Products, Inc., and making it appear that said Romulo F. Sugay acted as an agent of
the Pacific Products, Inc., and as such, the latter should be made answerable to the
compensation due to the claimants.

Issue:

Should the Doctrine of Piercing the Veil of Corporate Fiction be employed to connect
the relationship of Romulo Sugay to R.F. Sugay and Co., Inc.?

Held:

The Court agreed with the Commission that "the dual roles of Romulo F. Sugay should
not be allowed to confuse the facts relating to employer-employee relationship." It is a
legal truism that when the veil of corporate fiction is made as a shield to perpetrate a
fraud and/or confuse legitimate issues (here, the relation of employer-employee), the
same should be pierced. Verily the R. F. Sugay & Co., Inc. is a business conduit of R.
F. Sugay.

Commissioner of Internal Revenue v. Menguito, 565 SCRA 461 (2008)

( no Digest Yet)

NASECO Guards Assn. v. National Service Corp., 629 SCRA 90 (2010) (No Digest
Yet)

Mendoza v. Blanco Real Dev. Bank, 470 SCRA 86 (2005)

(No Digest yet)

Francisco vs Mejia

Piercing the Veil of Corporate Fiction – Fraud Test vs Alter Ego Test

Facts: ​Adalia Francisco was the Treasurer of Cardale Financing and Realty
Corporation (Cardale). Cardale, through Francisco, contracted with Andrea Gutierrez
for the latter to execute a deed of sale over certain parcels of land in favor of Cardale.
It was agreed that Gutierrez shall hand over the titles to Cardale but Cardale shall only
give a downpayment, and later on full payment in installment. As security, Gutierrez
shall retain a lien over the properties by way of mortgage. Nonetheless, Cardale
defaulted in its payment. Gutierrez then filed a petition with the trial court to have the
Deed rescinded.

While the case was pending, Gutierrez died, and Rita Mejia, being the executrix of the
will of Gutierrez took over the affairs of the estate.

The case dragged on for 14 years because Francisco lost interest in presenting
evidence. And while the case was pending, Cardale failed to pay real estate taxes over
the properties in litigation hence, the local government subjected said properties to an
auction sale to satisfy the tax arrears. The highest bidder in the auction sale was
Merryland Development Corporation (Merryland).

Apparently, Merryland is a corporation in which Francisco was the President and

majority stockholder. Mejia then sought to nullify the auction sale on the ground that
Francisco used the two corporations as dummies to defraud the estate of Gutierrez
especially so that these circumstances are present:

1. Francisco did not inform the lower court that the properties were delinquent in
taxes;

2. That there was notice for an auction sale and Francisco did not inform the
Gutierrez estate and as such, the estate was not able to perform appropriate acts to
remedy the same;

3. That without knowledge of the auction, the Gutierrez estate cannot exercise their
right of redemption;

4. That Francisco failed to inform the court that the highest bidder in the auction
sale was Merryland, her other company;

5. That thereafter, Cardale was dissolved and the subject properties were divided
and sold to other people.

Issue: ​Whether or not Merryland and Francisco shall be held solidarily liable.

Held: ​No. Only Francisco shall be held liable to pay the indebtedness to the Gutierrez
estate. What was only proven was that Francisco defrauded the Gutierrez estate as
clearly shown by the dubious circumstances which caused the encumbered properties
to be auctioned. By not disclosing the tax delinquency, Francisco left Gutierrez in the
dark. She obviously acted in bad faith. Francisco’s elaborate act of defaulting payment,
disregarding the case, not paying realty taxes (since as treasurer of Cardale, she’s
responsible for paying the real estate taxes for Cardale), and failure to advise Gutierrez
of the tax delinquencies all constitute bad faith. The attendant fraud and bad faith on
the part of Francisco necessitates the piercing of the veil of corporate fiction in so far
as Cardale and Francisco are concerned. Cardale and Francisco cannot escape
liability now that Cardale has been dissolved. Francisco shall then pay Guttierez estate
the outstanding balance with interest (total of P4.3 + million).

As regards Merryland however, there was no proof that it is merely an alter ego or a
business conduit of Francisco. Merryland merely bought the properties from the
auction sale and such per se is not a wrongful act or a fraudulent act. Time and again it
has been reiterated that 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. Hence, Merryland
can’t be held solidarily liable with Francisco.

National Marketing Corporation vs Associated Finance Company, Inc.

Piercing the Veil of Corporate Fiction – Fraud Case

Facts:

In 1958, National Marketing Corporation (NAMARCO) entered into an agreement with

Associated Finance Company, Inc. (AFCI). NAMARCO was represented by its general
manager Benjamin Estrella. AFCI was represented by its president Francisco Sycip.
The agreement was that NAMARCO will deliver raw sugar to AFCI. In exchange, AFCI
will deliver refined sugar to NAMARCO. NAMARCO delivered the raw sugar but AFCI
failed to comply with its obligation. NAMARCO then demanded AFCI to comply or if not
pay the amount of the raw sugar delivered which was at P403,514.28. AFCI was not
able to do either hence NAMARCO sued AFCI and Sycip was impleaded.

Issue:
Whether or not Sycip should be held jointly and severally liable with Associated
Finance Company, Inc.

Held:

Yes. In this case, it is proper to pierce the veil of corporate fiction. It was proven that
during the time of the agreement, AFCI was already insolvent. Such fact was already
known to Sycip. He knew that AFCI was not in a position to transact with NAMARCO
because it could not possibly comply with its obligations. Sycip’s assurances that AFCI
can deliver said refined sugar products is obviously fashioned to defraud NAMARCO
into delivering the raw sugar to AFCI. Consequently, Sycip cannot now seek refuge
behind the general principle that a corporation has a personality distinct and separate
from that of its stockholders and that the latter are not personally liable for the
corporate obligations. He is therefore liable jointly and severally with AFCI to pay the
amount claim for the raw sugar delivered plus other damages claimed by NAMARCO
with interest.

Palacio vs Fely Transport Co. (5 SCRA 1011)

Facts:

Alfredo Carillo, a jeepney driver was convicted of a crime due to a vehicular

mishap. The operator of the jeepney was Isabelo Calingasan. Under the
law, in case of conviction of the driver, the operator of a public utility vehicle is
subsidiarily liable to the offended party with respect to civil damages. After the
conviction, Isabelo Calingasan, his wife, and his three (3) children formed a
corporation named Fely Transport. Co. Thereupon, the jeepney was sold to Fely
Transport Co. Isabelo Calingasan refused to pay the civil damages
(subsidiary civil liability) on the ground that the jeepney was owned by Fely Transport
Co. which had a personality distinct and separate from him. Fely Transport Co,
likewise disowned subsidiary liability on the ground that its personality was
separate from that of Isabelo Calingasan.

Issue:
Whether or not the fiction of Corporate Entity of Fely Transport Corp.
should be disregarded so as to hold Fely Transport Corp. subsidiarily liable?

Held:

Yes. It was found that an incorporator's main purpose in forming the corporation was to
do fraud and to evade subsidiary civil liability. The corporation should be made
liable for such subsidiary liability. In determining the attempt to defraud,
the Court took into consideration the fact that the only property of the corporation
was the jeepney owned by the main stockholder Isabelo Calingasan, being held
accountable because of the accident.

Villa Rey Transit v. CA

Facts:

On March 17, 1960, Policronio Quintos, Jr. was riding the petitioner’s bus, when the
said bus frontally hit the rear side of a bullcart filled with hay. The protruding end of the
bamboo pole at the rear of the cart penetrated the windshield of the bus and landed at
Policronio’s face. He died of traumatic shock due to cerebral injuries. Private
respondents are sisters and surviving heirs of the deceased. They brought this action
against Villa Rey Transit for breach of contract of carriage. The trial court found that the
death was caused by the negligence of the bus driver, for whom petitioner was liable
under the contract of carriage with the deceased.

Issues:

(1) The number of years to be used as basis of computation

(2) The rate at which the losses sustained by respondents should be fixed

Held:

(1) The determination of the indemnity to be awarded to the heirs of a deceased

person has no fixed basis. Much is left to the discretion of the court considering the
moral and material damages involved, and so it has been said that "(t)here can be no
exact or uniform rule for measuring the value of a human life and the measure of
damages cannot be arrived at by precise mathematical calculation, but the amount
recoverable depends on the particular facts and circumstances of each case. The life
expectancy of the deceased or of the beneficiary, whichever is shorter, is an important
factor.' Other factors that are usually considered are: (1) pecuniary loss to plaintiff or
beneficiary; (2) loss of support; (3) loss of service; (4) loss of society; (5) mental
suffering of beneficiaries; and (6) medical and funeral expenses."

Thus, life expectancy is, not only relevant, but, also, an important element in fixing the
amount recoverable by private respondents herein. Although it is not the sole element
determinative of said amount, no cogent reason has been given to warrant its
disregard and the adoption, in the case at bar, of a purely arbitrary standard, such as a
four-year rule. In short, the Court of Appeals has not erred in basing the computation of
petitioner's liability upon the life expectancy of Policronio Quintos, Jr.

(2) With respect to the rate at which the damages shall be computed, petitioner
impugns the decision appealed from upon the ground that the damages awarded
therein will have to be paid now, whereas most of those sought to be indemnified will
be suffered years later. This argument is basically true, and this is, perhaps, one of the
reasons why the Alcantara case points out the absence of a "fixed basis" for the
ascertainment of the damages recoverable in litigations like the one at bar. Just the
same, the force of the said argument of petitioner herein is offset by the fact that,
although payment of the award in the case at bar will have to take place upon the
finality of the decision therein, the liability of petitioner herein had been fixed at the rate
only of P2,184.00 a year, which is the annual salary of Policronio Quintos, Jr. at the
time of his death, as a young "training assistant" in the Bacnotan Cement Industries,
Inc. In other words, unlike the Alcantara case, on which petitioner relies, the lower
courts did not consider, in the present case, Policronio's potentiality and capacity to
increase his future income. Indeed, upon the conclusion of his training period, he was
supposed to have a better job and be promoted from time to time, and, hence, to earn
more, if not considering the growing importance of trade, commerce and industry and
the concomitant rise in the income level of officers and employees therein much more.

Damages consist, not of the full amount of his earnings, but of the support, they
received or would have received from him had he not died in consequence of the
negligence of petitioner's agent. In fixing the amount of that support, We must reckon
with the "necessary expenses of his own living", which should be deducted from his
earnings. Only net earnings, not gross earning, are to be considered that is, the total of
the earnings less expenses necessary in the creation of such earnings or income and
less living and other incidental expenses.

All things considered, We are of the opinion that it is fair and reasonable to fix the
deductible living and other expenses of the deceased at the sum of P1,184.00 a year,
or about P100.00 a month, and that, consequently, the loss sustained by his sisters
may be roughly estimated at P1,000.00 a year or P33,333.33 for the 33-1/3 years of
his life expectancy. To this sum of P33,333.33, the following should be added: (a)
P12,000.00, pursuant to Arts. 104 and 107 of the Revised Penal Code, in relation to
Article 2206 of our Civil Code, as construed and applied by this Court; (b) P1,727.95,
actually spent by private respondents for medical and burial expenses; and (c)
attorney's fee, which was fixed by the trial court, at P500.00, but which, in view of the
appeal taken by petitioner herein, first to the Court of Appeals and later to this
Supreme Court, should be increased to P2,500.00. In other words, the amount
adjudged in the decision appealed from should be reduced to the aggregate sum of
P49,561.28, with interest thereon, at the legal rate, from December 29, 1961, date of
the promulgation of the decision of the trial court.

CIR VS NORTON AND HARRISON

FACTS:

Norton and Harrison is a corporation organized to buy and sell at wholesale and retail
all kinds of goods and merchandise. Jackbilt is also a corporation organized on for
producing concrete blocks. On 1948, the corporations entered into an agreement
whereby Norton was made the sole and exclusive distributor of concrete blocks
manufactured by Jackbilt.

On 1949, Norton purchased all the outstanding shares of stock of Jackbilt. This
prompted the

CIR to investigate and eventually asses Norton and Harrison for deficiency sales tax
and surcharges.

ISSUE:
Whether Norton and Harrison is liable for the deficiency sales tax and surcharges.

RULING:

YES. The Court ruled that Norton and Jackbilt should be considered as one. Jackbilt's
outstanding stocks, board of directors, finance of operations, employees, and
compensation are all controlled by Norton and Harrison. Jackbilt is merely an adjunct,
business conduit or alter ego, of Norton and Harrison and that the fiction of corporate
entities, separate and distinct from each, should be disregarded. This is a case where
the doctrine of piercing the veil of corporate fiction, should be made to apply.

By being separate entities, the corporations would have to pay lesser income tax. The
combined taxable Norton-Jackbilt income would subject Norton to a higher tax.

Tomas Lao Construction v NLRC, 278 SCRA 716 [1997]

(No Digest Yet)

MR HOLDINGS, LTD., vs. SHERIFF CARLOS P. BAJAR, SHERIFF FERDINAND M.

JANDUSAY, SOLIDBANK CORPORATION, AND MARCOPPER MINING
CORPORATION G.R. No. 138104 April 11, 2002 SANDOVAL-GUTIERREZ, J .:

FACTS:

Asian Development Bank (ADB), a multilateral development finance institution, agreed

to extend to respondent Marcopper Mining Corporation (Marcopper) a loan in the
aggregate amount of US$40,000,000.00 to finance the latter's mining project at Sta.
Cruz, Marinduque. To secure the loan, Marcopper executed in favor of ADB a "Deed of
Real Estate and Chattel Mortgage" covering substantially all of its (Marcopper's)
properties and assets in Marinduque. When Marcopper defaulted in the payment of its
loan obligation, petitioner MR Holdings, Ltd., assumed Marcopper's obligation to ADB
in the amount of US$18,453,450.02. Consequently, in an "Assignment Agreement",
ADB assigned to petitioner all its rights, interests and obligations under the principal
and complementary loan agreements. Respondent Marcopper likewise executed a
"Deed of Assignment" in favor of petitioner. In the meantime, respondent Solidbank
Corporation obtained a Partial Judgment against Marcopper from the RTC, Branch 26,
Manila, in Civil Case No. 96-80083 entitled "Solidbank Corporation vs. Marcopper
Mining Corporation, John E. Loney, Jose E. Reyes and Teodulo C. Gabor, Jr.," Having
learned of the scheduled auction sale, petitioner filed an "Affidavit of ThirdParty Claim"
asserting its ownership over all Marcopper's mining properties, equipment and facilities
by virtue of the "Deed of Assignment." Upon the denial of its "Affidavit of Third-Party
Claim" by the RTC of Manila, petitioner commenced with the RTC of Boac,
Marinduque, a complaint for reivindication of properties, etc., with prayer for preliminary
injunction and temporary restraining order against respondents Solidbank, Marcopper,
and the sheriffs assigned in implementing the writ of execution. The trial court denied
petitioner's application for a writ of preliminary injunction on the ground that petitioner
has no legal capacity to sue, it being a foreign corporation doing business in the
Philippines without license. Unsatisfied, petitioner elevated the matter to the Court of
Appeals on a Petition for Certiorari, Prohibition and Mandamus. The Court of Appeals
affirmed the ruling of the trial court that petitioner has no legal capacity to sue in the
Philippine courts because it is a foreign corporation doing business here without
license. Hence, the present petition. Petitioner alleged that it is not "doing business" in
the Philippines and characterized its participation in the assignment contracts (whereby
Marcopper's assets were transferred to it) as mere isolated acts that cannot foreclose
its right to sue in local courts.

ISSUE:

Whether or not petitioner has no legal capacity to sue in the Philippine courts because
it is a foreign corporation doing business here without license

HELD:

The Supreme Court ruled in favor of petitioner and granted the petition. The Court
ruled that a foreign corporation, which becomes the assignee of mining properties,
facilities and equipment, cannot be automatically considered as doing business, nor
presumed to have the intention of engaging in mining business. According to the Court,
petitioner was engaged only in isolated acts or transactions. Single or isolated acts,
contracts, or transactions of foreign corporations are not regarded as a doing or
carrying on of business. Typical examples are the making of a single contract, sale,
sale with the taking of a note and mortgage in the state to secure payment therefor,
purchase, or note, or the mere commission of a tort. In the said instances, there is no
purpose to do any other business within the country. The Court further ruled that the
Court of Appeals' holding that petitioner was determined to be "doing business" in the
Philippines is based mainly on conjectures and speculation. No effort was exerted by
the appellate court to establish the nexus between petitioner's business and the acts
supposed to constitute "doing business." Thus, whether the assignment contracts were
incidental to petitioner's business or were continuation thereof is beyond determination.

HEIRS OF DURANO SR VS UY (344 SCRA 238) Heirs of Durano Sr. vs Spouses

Uy 344 SCRA 238 [GR No. 136456 October 24, 2000]

Facts:

As far back as August 1970, a 128 hectare of land located in the barrios of Dunga and
Cahumayhumayan, Danao City. On December 27, 1973, the late Congressman
Ramon Durano Sr. together with his son Ramon Durano III, and the latter’s wide
Elizabeth Hotchkins-Durano, instituted an action for damages against spouses Angeles
Sepulveda Uy and Emigdio Beng Sing Uy, Spouses Faustino Alatan and Valeriana
Garro, Spouses Rufino Lavador and Aurelia Mata, Silvestre Ramos, Hermogenes Tito,
Teotimo Gonzales, Primitiva Garro, Julian Garro, Ismael Garro, Bienvido Castro,
Glicerio Alcala, Felemon Lavador, Candelario Lumantao, Garino Quimbo, Justino Tito,
Marcelino Gonzales, Salvador Duyday, Venancia Repaso, Leodegracia Gonzales,
Jose dela Calzada, Restituta Gonzales, and Cosme Ramos before branch XVII of the
then Court of First Instance of Cebu, Danao City.. Herein respondents are the
possessors of the subject parcel of land which they are cultivating, it was used to be
owned by CEPCO who later sold the same to Durano & Co. On September 15, 1990,
Durano & Co sold the disputed property to petitioner Ramon Durano III, who procured
the registration of these lands in his name under TCT no. T-103 and T-104. The
different parts of the entire land was bulldozed by the petitioner’s company resulting to
the destruction of plants and other products that were placed by the respondents.
Hence, a claim for damages was lodged against herein petitioner. The respondents
presented tax declaration covering the different areas of the parcel of land that is titled
in each of them as proof that they are entitled for the said damages.

Issue:

Whether or not the doctrine of piercing the veil of corporate entity can be applied in
order to make Durano & Co liable for damages.
Held:

Yes. The court of appeals applied the well-recognized principle of piercing the
corporate veil, i.e. the law will regard the act of the corporation as the ac of its
individual stockholders, when it is shown that the corporation was used merely as an
alter ego by those persons in the commission of fraud or other illegal acts. That the test
in determining the applicability of the doctrine of piercing the veil of corporate fiction is
as follows: 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. Such control must, have been used by
the defendant to commit fraud or wrong, to perpetrate the violation of statutory or other
positive legal duty, on dishonest and unjust acts in contravention of plaintiff’s legal
right; and 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 the
piercing the corporate veil. In applying the instrumentality or alter ego doctrine, the
courts are concerned with reality not form, with how the corporation operated and the
individual defendants relationship to that operation.

Concept Builders vs NLRC GR 108734; 29 May 1996

Facts:

Petitioner Concept Builders, Inc., a domestic corporation engaged in the construction

business. Private respondents were employed by said company as laborers,
carpenters and riggers. However, they were illegally dismissed. Aggrieved, private
respondents filed a complaint for illegal dismissal. The Labor Arbiter rendered
judgment ordering petitioner to reinstate private respondents and to pay them back
wages. It became final and executory. The alias Writ of Execution cannot be enforced
by the sheriff because all the employees inside petitioner’s premises at 355 Maysan
Road, Valenzuela, Metro Manila, claimed that they were employees of Hydro Pipes
Philippines, Inc. (HPPI) and not by petitioner. Thus, NLRC issued a break-open order
against Concept Builders and HPPI.

Issue:

Whether the piercing the veil of corporate entity is proper.

Held:

Yes. It is a fundamental principle of corporation law that a corporation is an entity

separate and distinct from its stockholders and from other corporations to which it may
be connected. But, this separate and distinct personality of a corporation is merely a
fiction created by law for convenience and to promote justice. So, when the notion of
separate juridical personality is used to defeat public convenience, justify wrong,
protect fraud or defend crime, or is used as a device to defeat the labor laws, this
separate personality of the corporation may be disregarded or the veil of corporate
fiction pierced. This is true likewise when the corporation is merely an adjunct, a
business conduit or an alter ego of another corporation. The conditions under which
the juridical entity may be disregarded vary according to the peculiar facts and
circumstances of each case. No hard and fast rule can be accurately laid down, but
certainly, there are some probative factors of identity that will justify the application of
the doctrine of piercing the corporate veil, to wit: Stock ownership by one or common
ownership of both corporations. Identity of directors and officers. The manner of
keeping corporate books and records. Methods of conducting the business. The SEC
en banc explained the “instrumentality rule” which the courts have applied in
disregarding the separate juridical personality of corporations as follows: Where one
corporation is so organized and controlled and its affairs are conducted so that it is, in
fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of
the “instrumentality” may be disregarded. The control necessary to invoke the rule is
not majority or even complete stock control but such domination of instances, policies
and practices that the controlled corporation has, so to speak, no separate mind, will or
existence of its own, and is but a conduit for its principal. It must be kept in mind that
the control must be shown to have been exercised at the time the acts complained of
took place. Moreover, the control and breach of duty must proximately cause the injury
or unjust loss for which the complaint is made. The test in determining the applicability
of the doctrine of piercing the veil of corporate fiction is as follows: 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; 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 plaintiff’s legal rights; and 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. Clearly, petitioner ceased its business operations in order
to evade the payment to private respondents of back wages and to bar their
reinstatement to their former positions. HPPI is obviously a business conduit of
petitioner corporation and its emergence was skillfully orchestrated to avoid the
financial liability that already attached to petitioner corporation.

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. CA

FACTS:

Marinduque Mining Industrial Corporation (Marinduque Mining), a corporation engaged

in the manufacture of pure and refined nickel, nickel and cobalt in mixed sulfides,
copper ore/concentrates, cement and pyrite conc., obtained from the Philippine
National Bank (PNB) various loan accommodations. To secure the loans, Marinduque
Mining executed on October 9, 1978 a Deed of Real Estate Mortgage and Chattel
Mortgage in favor of PNB. The mortgage covered all of Marinduque Minings real
properties, including the improvements thereon. Apparently, Marinduque Mining had
also obtained loans totaling P2 Billion from DBP, exclusive of interest and charges.
For failure of Marinduque Mining to settle its loan obligations, PNB and DBP instituted
sometime on July and August 1984 extrajudicial foreclosure proceedings over the
mortgaged properties.

Finally, at the public auction sale conducted on September 18, 1984 on the foreclosed
personal properties of MMIC, the same were sold to PNB and DBP as the highest
bidder in the sum of P678,772,000.00. PNB and DBP thereafter thru a Deed of
Transfer dated August 31, 1984, purposely, in order to ensure the continued operation
of the Nickel refinery plant and to prevent the deterioration of the assets foreclosed,
assigned and transferred to Nonoc Mining and Industrial Corporation all their rights,
interest and participation over the foreclosed properties of MMIC located at Nonoc
Island, Surigao del Norte.
On February 27, 1987, PNB and DBP, pursuant to Proclamation No. 50 as
amended,again assigned, transferred and conveyed to the National Government thru
[sic] the Asset Privatization Trust (APT) all its existing rights and interest over the
assets of MMIC, earlier assigned to Nonoc Mining and Industrial Corporation,
Maricalum Mining Corporation and Island Cement Corporation

PIERCING THE VEIL OF CORPORATE FICTION: Source of Incantation:

ISSUE:

WON THE ACT OF PNB AND DBP OF transferring and conveying tp National
Government thry Asset Privatation Trust is considered “piercing the veil of corporate
fiction?

RULING:

NO. To reiterate, the doctrine of piercing the veil of corporate fiction applies only when
such corporate fiction is used to defeat public convenience, justify wrong, protect fraud
or defend crime. To disregard the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established. It cannot be presumed. In
this case, the Court finds that Remington failed to discharge its burden of proving bad
faith on the part of Marinduque Mining and its transferees in themortgage and
foreclosure of the subject properties to the piercing of the corporate veil.

However, 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 or in case of two corporations, merge them into one.

Thus, PNB and DBP did not only have a right, but the duty under said law, to
foreclose upon the subject properties. The banks had no choice but to obey the
statutory command.

We also concede that x x x directors of insolvent corporation, who are creditors of

the company, can not secure to themselves any preference or advantage over other
creditors in the payment of their claims. It is not good morals or good law. The
governing body of officers thereof are charged with the duty of conducting its affairs
strictly in the interest of its existing creditors, and it would be a breach of such trust for
them to undertake to give any one of its members any advantage over any other
creditors in securing the payment of his debts in preference to all others.

Arnold v. Willets and Patterson, Ltd., 44 Phil. 634 (1923)

(a) Where the stock of a corporation is owned by one person.

Facts:

In 1916, the Firm Willits & Patterson in San Francisco entered into a contract with
Arnold whereby Arnold was to be employed for a period of five years as the agent of
the firm here in the PI to operate an oil mill for which he was to receive a minimum
salary of $200/mth, a 1% brokerage fee from all purchases and sales of merchandise,
and half of the profits of the oil business and other businesses. provided if the business
was at a loss, Arnold would receive $400/mth. Later, Patterson retired and Willits
acquired all interests of the business. Willits organized a new Corp in San Francisco
which took over and acquired all assets of the Firm Willits & Patterson. Willits was the
owner of all the capital stock. New corp had the same name. After, Willits, organized a
new Corporation here in the PI to take over all the business and assets of the firm here
in the PI. Willits was the owner of all the capital stock. Later, there was dispute with
regard to the construction of the contract as a result, a new contract in the form of a
letter was entered into. Willits signed this. The statements of account showed that
106K was due and owing to Arnold. W&P Corp was in financial trouble and all assets
were turned over to a creditor’s committee.

In 1922, Arnold filed this complaint to recover 106K from W&P. W&P argues that the
2nd contract was signed without authority. And as counterclaim alleged that Arnold
took 30K from the Corp but only 19.1K was due to him thus he owed 10.1K to W&P.
CFI ordered Arnold to return the 10.1K.

Issue:

Is the CFI correct?

Held:

No. The SC reverses. Arnold entitled to 68K plus half of 75K, representing PNs.
Both Corp’s organized by Willits were a One Man Corporation. After the 2nd contract
was signed it was recognized by Willits that Arnold’s services were to be performed by
its terms and there never was any dispute between Arnold and Willits.

Although a new corp was created, the new corp dealt with and treated Arnold as its
agent in the same manner as the previous corp had, thus the new corp is bound by
the contract which the old firm made. In fact, the 2nd contract protected Willits from a
larger claim, which the accountant said, would be over 160K.

Where a stock of a corporation is owned by one person whereby the corp functions
only for the benefit of such individual owner, the corp and the individual should be
deemed to be the same. Thus the corp is bound by the contract.

Tan Boon Bee & Co. vs Hilarion Jarencio

In 1972, Anchor Supply Co. (ASC), through Tan Boon Bee, entered into a contract of
sale with Graphic Publishing Inc. (GPI) whereby ASC shall deliver paper products to
GPI. GPI paid a down payment but defaulted in paying the rest despite demand from
ASC. ASC sued GPI and ASC won. To satisfy the indebtedness, the trial court,
presided by Judge Hilarion Jarencio, ordered that one of the printing machines of GPI
be auctioned. But before the auction can be had, Philippine American Drug Company
(PADCO) notified the sheriff that PADCO is the actual owner of said printing machine.
Notwithstanding, the sheriff still went on with the auction sale where Tan Boon Bee
was the highest bidder.

Later, PADCO filed with the same court a motion to nullify the sale on execution. The
trial court ruled in favor of PADCO and it nullified said auction sale. Tan Boon Bee
assailed the order of the trial court. Tan Boon Bee averred that PADCO holds 50% of
GPI; that the board of directors of PADCO and GPI is the same; that the veil of
corporate fiction should be pierced based on the premises. PADCO on the other hand
asserts ownership over the said printing machine; that it is merely leasing it to GPI.

ISSUE:

Whether or not the veil of corporate fiction should be pierced.

HELD:
Yes. PADCO, as its name suggests, is a drug company not engaged in the printing
business. So it is dubious that it really owns the said printing machine regardless of
PADCO’s title over it. Further, the printing machine, as shown by evidence, has been in
GPI’s premises even before the date when PADCO alleged that it acquired ownership
thereof. Premises considered, the veil of corporate fiction should be pierced; PADCO
and GPI should be considered as one. When a corporation is merely an adjunct,
business conduit or alter ego of another corporation the fiction of separate and distinct
corporation entities should be disregarded.

First Philippine International Bank v. Court of Appeals, 252 SCRA 259 (1996).

Producers Bank (now called First Philippine International Bank), which has been under
conservatorship since 1984, is the owner of 6 parcels of land. The Bank had an
agreement with Demetrio Demetria and Jose Janolo for the two to purchase the
parcels of land for a purchase price of P5.5 million pesos. The said agreement was
made by Demetria and Janolo with the Bank’s manager, Mercurio Rivera. Later
however, the Bank, through its conservator, Leonida Encarnacion, sought the
repudiation of the agreement as it alleged that Rivera was not authorized to enter into
such an agreement, hence there was no valid contract of sale. Subsequently, Demetria
and Janolo sued Producers Bank. The regional trial court ruled in favor of Demetria et
al. The Bank filed an appeal with the Court of Appeals.

Meanwhile, Henry Co, who holds 80% shares of stocks with the said Bank, filed a
motion for intervention with the trial court. The trial court denied the motion since the
trial has been concluded already and the case is now pending appeal. Subsequently,
Co, assisted by ACCRA law office, filed a separate civil case against Demetria and
Janolo seeking to have the purported contract of sale be declared unenforceable
against the Bank. Demetria et al argued that the second case constitutes forum
shopping.

ISSUES:

WON The corporate veil can be used to shield an otherwise blatant violation of the
prohibition against forum-shopping.
HELD:

NO, The corporate veil cannot be used to shield an otherwise blatant violation of the
prohibition against forum-shopping.

In the instant case before us, there is also identity of parties, or at least, of interests
represented. Although the plaintiffs in the Second Case (Henry L. Co. et al.) are not
name parties in the First Case, they represent the same interest and entity, namely,
petitioner Bank, because:

Firstly, they are not suing in their personal capacities, for they have no direct personal
interest in the matter in controversy. They are not principally or even subsidiarily liable;
much less are they direct parties in the assailed contract of sale; and

Secondly, the allegations of the complaint in the Second Case show that the
stockholders are bringing a "derivative suit". In the caption itself, petitioners claim to
have brought suit "for and in behalf of the Producers Bank of the Philippines" 24 .
Indeed, this is the very essence of a derivative suit:

An individual stockholder is permitted to institute a derivative suit on behalf of the

corporation wherein he holds stock 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 the control of the corporation. In such actions, the suing stockholder is regarded
as a nominal party, with the corporation as the real party in interest. (Gamboa v.
Victoriano, 90 SCRA 40, 47 [1979]; emphasis supplied).

Petitioner also tried to seek refuge in the corporate fiction that the personality Of the
Bank is separate and distinct from its shareholders. But the rulings of this Court are
consistent: "When the fiction is urged as a means of perpetrating a fraud or an illegal
act or as a vehicle for the evasion of an existing obligation, the circumvention of
statutes, the achievement or perfection of a monopoly or generally the perpetration of
knavery or crime, the veil with which the law covers and isolates the corporation from
the members or stockholders who compose it will be lifted to allow for its consideration
merely as an aggregation of individuals." 25

In addition to the many cases 26 where the corporate fiction has been disregarded, we
now add the instant case, and declare herewith that the corporate veil cannot be used
to shield an otherwise blatant violation of the prohibition against forum-shopping.
Shareholders, whether suing as the majority in direct actions or as the minority in a
derivative suit, cannot be allowed to trifle with court processes, particularly where, as in
this case, the corporation itself has not been remiss in vigorously prosecuting or
defending corporate causes and in using and applying remedies available to it. To rule
otherwise would be to encourage corporate litigants to use their shareholders as fronts
to circumvent the stringent rules against forum shopping.

LA CAMPANA COFFEE FACTORY v KAISAHAN NG MANGGAGAWA

Employment of same workers; single place of business, etc., may indicate alter ego
situation.

Where the corporate fiction was used as a means to perpetrate a social injustice or as
a vehicle to evade obligations or confuse the legitimate issues. Azcor Manufacturing,
Inc. v. NLRC, 303 SCRA 26 (1999)

Facts:

Tan Tong since 1932 has been engaged in the buying and selling gawgaw under the
trade name La Campana Gawgaw Packing. In 1950, Tan Tong and members of his
family organized the family corporation. La Campana Coffee Factory with its principal
office located in Gawgaw Packing. Prior to said information, Tan Tong entered into a
CBA with the labor union of La Campana Gawgaw. Later on, his employees formed
Kaisahan ng mga Manggagawa ng La Campana with an authorization from the DOLE
to become an affiliate of the larger union.

Kaisahan with 66 members presented a demand for higher wages and more privileges
to La

Campana Starch and Coffee Factory. The demand was not granted and the DOLE
certified the issue to the CIR. La Campana filed a motion to dismiss alleging that the
action was directed against two different entities with distinct personalities. This was
denied, hence this petition.

Issue:

WON Employment of same workers; single place of business, etc., may indicate alter
ego situation?
WON corporate fiction was used as a means to perpetrate a social injustice or as a
vehicle to evade obligations or confuse the legitimate issues?

Held:

YES. La Compana Gawgaw and La Campana Factory are operating under one single
management or as one business though with two trade names. The coffee factory is a
corporation and by legal fiction, an entity separate and apart from the persons
composing it namely, Tan Tong and his family. However, the concept of separate
corporate personality cannot be extended to a point beyond reason and policy when
invoked in support of an end subversive of this policy and will be disregarded by the
courts.

A subsidiary company which is created merely as an agent for the latter may
sometimes be regarded as identical with the parent corporation especially if the
stockholders or officers of the two corporations are substantially the same or their
systems of operation unified. The facts showed that they had one management, one
payroll prepared by the same person, laborers were interchangeable, there is only one
entity as shown by the signboard ad in trucks, packages and delivery forms and the
same place of business.The attempt to make the two factories appear as two separate
businesses when in reality they are but one, is but a device to defeat the ends of the
law and should not be permitted to prevail.

WHY PIERCE? So that La Campana cannot evade the jurisdiction of CIR since La
Campana Gawgaw has only 14 employees and only 5 are members of Kaisahan.

AZCOR MANUFACTURING INC vs. NLRC AND CANDIDO CAPULSO

FACTS:

Candido Capluso has been working for petitioner for more than 12 years as a ceramics
worker. On February 1991, Capulso requested to go on sick leave, it appearing that his
illness was directly caused by his occupation. Upon recovering, Capulso was not
allowed to resume work and was not reinstated after having tried five times. He filed a
complaint for constructive illegal dismissal and illegal deduction against AZCOR and
Arturo Zuluaga.
AZCOR moved to dismiss the complaint alleging that no employer- employee
relationship existed. Petitioner further added that Capulso became an employee of Fil
Paso on March 1990 but voluntarily resigned after a year as evidenced by a letter of
resignation allegedly tendered by Capulso.

The Labor Arbiter dismissed the complaint for lack of merit and ordered AZCOR to
refund the deducted salaries. On Appeal, the NLRC ruled that the Contract of
Employment stated that the work to be done by Capulso was with Fil Paso and added
the fact that the latter denied having executed and signed the said resignation letters.
Pending the trial of AZCOR’s petition for Certiorari, Capulso succumbed to asthma and
heart disease.

ISSUE:

Whether the petitioners are jointly liable for backwages in favor of the heirs being
separate and distinct entities.?

RULING:

YES. Capulso was led into believing that while he was working with Filipinas Paso, his
real employer was AZCOR. Petitioners never dealt with him openly and in good faith,
nor was he informed of the developments within the company, i.e., his alleged transfer
to Filipinas Paso and the closure of AZCOR's manufacturing operations beginning 1
March 1990. AZCOR manifested for the first time before the Court that it had already
ceased its business operations. Understandably, Capulso sued AZCOR alone and
was constrained to implead Filipinas Paso as additional respondent only when it
became apparent that the latter also appeared to be his employer.

In the case, the corporate fiction was used as a means to perpetrate a social injustice
or as a vehicle to evade obligations or confuse the legitimate issues. Such corporate
fiction would be discarded and the two (2) corporations would be merged as one, the
first being merely considered as the instrumentality, agency, conduit or adjunct of the
other.