Corp.

Case Digests 1

Silverio v. FBC

Acquisition of a certain percentage of shares of stock does not mean ownership over corporate properties

FACTS: FBCI took possession of the Calatagan Property after the RTC Balayan rendered a judgment by default in
FBCI’s favor. The judgment by default was nullified after the RTC Balayan found out that the service of summons on
Silverio, Jr., Esses and Tri-Star was procured fraudulently. The RTC Balayan thus recalled the writ of possession it had
issued to FBCI. Silverio, Jr., Esses and Tri-Star were served anew with summons. The RTC Balayan restored possession
of the Calatagan Property to Silverio, Jr., Esses and Tri-Star as restitution resulting from the annulment of the judgment
by default. The order restoring possession of the Calatagan Property to Silverio, Jr., Esses and Tri-Star has attained
finality. This case then proceeded to pre-trial.

FBCI has resisted the enforcement of the writ of possession by barricading the Calatagan Property and threatening
violence if its possession of the property is taken away from it. To avoid bloodshed, as FBCI also claimed that Silverio,
Jr. had armed civilians threatening to shoot FBCI’s representatives,16 the RTC Balayan momentarily suspended the
execution of the writ. The RTC Balayan also had to rule on FBCI’s claim of a supervening event that would allegedly
make the execution of the writ absurd,17 as FBCI alleges it now owns the controlling interest in Esses and Tri-Star. The
RTC Balayan lifted the suspension of the writ but it cancelled the hearings on the supervening event to give way to the
Court of Appeals’ action on this issue.

ISSUE: Whether FBC who has an aliquot part of Esse and Tri-star can demand the disputed property be given
to it

RULING: NO, the corporation has a separate and distinct personality from its shareholders

FBCI’s acquisition of the "substantial and controlling shares of stocks"25 of Esses and Tri-Star does not create a
substantial change in the rights or relations of the parties that would entitle FBCI to possession of the Calatagan
Property, a corporate property of Esses and Tri-Star. Esses and Tri-Star, just like FBCI, are corporations. A corporation
has a personality distinct from that of its stockholders. As early as the case of Stockholders of F. Guanzon and Sons,
Inc. v. Register of Deeds of Manila,26 the Court explained the principle of separate juridical personality in this wise:

A corporation is a juridical person distinct from the members composing it. Properties registered in the name of the
corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute
personal property, they do not represent property of the corporation. The corporation has property of its own which
consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743).
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 (Hall & Faley v. Alabama Terminal, 173 Ala 398, 56 So., 235), but
its holder is not the owner of any part of the capital of the corporation (Bradley v. Bauder, 36 Ohio St., 28). Nor is he
entitled to the possession of any definite portion of its property or assets (Gottfried v. Miller, 104 U.S., 521; Jones v.
Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in common of the corporate property (Harton v.
Hohnston, 166 Ala., 317, 51 So., 992).

Thus, FBCI’s alleged controlling shareholdings in Esses and Tri-Star merely represent a proportionate or aliquot interest
in the properties of the two corporations. Such controlling shareholdings do not vest FBCI with any legal right or title to
any of Esses and Tri-Star’s corporate properties. As a stockholder, FBCI has an interest in Esses and Tri-Star’s corporate
properties that is only equitable or beneficial in nature. Even assuming that FBCI is the controlling shareholder of Esses
and Tri-Star, it does not legally make it the owner of the Calatagan Property, which is legally owned by Esses and Tri-
Star as distinct juridical persons. As such, FBCI is not entitled to the possession of any definite portion of the Calatagan
Property or any of Esses and Tri-Star’s properties or assets. FBCI is not a co-owner or tenant in common of the
Calatagan Property or any of Esses and Tri-Star’s corporate properties.
 Stronghold v. Cuenca

Real party in interest for damages sustained on the corporate property

FACTS: On January 19, 1998, Marañon filed a complaint in the RTC against the Cuencas for the collection of a sum of
money and damages. His complaint, docketed as Civil Case No. 98-023, included an application for the issuance of a
writ of preliminary attachment.3 On January 26, 1998, the RTC granted the application for the issuance of the writ of
preliminary attachment conditioned upon the posting of a bond of ₱1,000,000.00 executed in favor of the Cuencas. Less
than a month later, Marañon amended the complaint to implead Tayactac as a defendant.4

On February 11, 1998, Marañon posted SICI Bond No. 68427 JCL (4) No. 02370 in the amount of ₱1,000,000.00 issued
by Stronghold Insurance. Two days later, the RTC issued the writ of preliminary attachment.5 The sheriff served the
writ, the summons and a copy of the complaint on the Cuencas on the same day. The service of the writ, summons and
copy of the complaint were made on Tayactac on February 16, 1998

Enforcing the writ of preliminary attachment on February 16 and February 17, 1998, the sheriff levied upon the
equipment, supplies, materials and various other personal property belonging to Arc Cuisine, Inc. that were found in the
leased corporate office-cum-commissary or kitchen of the corporation.7 On February 19, 1998, the sheriff submitted a
report on his proceedings,8 and filed an ex parte motion seeking the transfer of the levied properties to a safe place. The
RTC granted the ex parte motion on February 23, 1998.

On February 25, 1998, the Cuencas and Tayactac presented in the RTC a Motion to Dismiss and to Quash Writ of
Preliminary Attachment. On August 10, 1998, the RTC denied the Motion to Dismiss and to Quash Writ of Preliminary
Attachment, stating that the action, being one for the recovery of a sum of money and damages, was within its
jurisdiction. Hence, the sheriff levied the properties of Arc Cuisine, causing damage thereto. However, upon appeal to
CA, it reversed the decision and remanded the case back to RTC for proper trial.

After trial, the RTC rendered its judgment on April 28, 2003, holding Marañon and Stronghold Insurance jointly and
solidarily liable for damages to the Cuencas and Tayactac

ISSUE: Whether Cuencas and Tayactac can file the case for damages sustained by the properties of Arc
Cuisine

RULING: NO, the damages sustained by the wrongful execution of the writ was Arc Cuisine.

There is no dispute that the properties subject to the levy on attachment belonged to Arc Cuisine, Inc. alone, not to the
Cuencas and Tayactac in their own right. They were only stockholders of Arc Cuisine, Inc., which had a personality
distinct and separate from that of any or all of them.42 The damages occasioned to the properties by the levy on
attachment, wrongful or not, prejudiced Arc Cuisine, Inc., not them. As such, only Arc Cuisine, Inc. had the right under
the substantive law to claim and recover such damages. This right could not also be asserted by the Cuencas and
Tayactac unless they did so in the name of the corporation itself. But that did not happen herein, because Arc Cuisine,
Inc. was not even joined in the action either as an original party or as an intervenor.

The Cuencas and Tayactac were clearly not vested with any direct interest in the personal properties coming under the
levy on attachment by virtue alone of their being stockholders in Arc Cuisine, Inc. Their stockholdings represented only
their proportionate or aliquot interest in the properties of the corporation, but did not vest in them any legal right or title
to any specific properties of the corporation. Without doubt, Arc Cuisine, Inc. remained the owner as a distinct legal
person.43

Given the separate and distinct legal personality of Arc Cuisine, Inc., the Cuencas and Tayactac lacked the legal
personality to claim the damages sustained from the levy of the former’s properties. According to Asset Privatization
Trust v. Court of Appeals,44 even when the foreclosure on the assets of the corporation was wrongful and done in bad
faith the stockholders had no standing to recover for themselves moral damages; otherwise, they would be appropriating
and distributing part of the corporation’s assets prior to the dissolution of the corporation and the liquidation of its
debts and liabilities

Torres v. Rural Bank of San Juan

Solidary liability of officers over the corporation’s act of illegal dismissal to its officers

FACTS: On September 27, 1996, Jacinto requested the petitioner to sign a standard employment clearance pertaining to
his accountabilities with RBSJI. When the petitioner declined his request, Jacinto threw a fit and shouted foul invectives.
To pacify him, the petitioner bargained to issue a clearance but only for Jacinto’s paid cash advances and salary loan.

About seven months later or on April 17, 1997, respondent Jesus issued a memorandum to the petitioner requiring him
to explain why no administrative action should be imposed on him for his unauthorized issuance of a clearance to
Jacinto whose accountabilities were yet to be audited.

The petitioner submitted his explanation on the same day clarifying that the clearance was limited only to Jacinto’s paid
cash advances and salary loan based on the receipts presented by Lily Aguilar (Lily), the cashier of N. Domingo branch.
He emphasized that he had no foreknowledge nor was he forewarned of Jacinto’s unliquidated cash advances and
questionable transactions and that the clearance did not extend to those matters.

After conducting an investigation, RBSJI’s Human Resources Department recommended the petitioner’s termination
from employment On May 19, 1997, RBSJI’s Board of Directors adopted the above recommendation and issued
Resolution No. 97-102 terminating the petitioner from employment, the import of which was communicated to him in a
Memorandum dated May 30, 1997.

LA ruling: sustained the claims of the petitioner as against the factually unsubstantiated allegation of loss of trust and
confidence propounded by the respondents. The LA observed that the petitioner’s selfless dedication to his job and
efforts to achieve RBSJI’s stability, which the respondents failed to dispute, negate any finding of bad faith on his part
when he issued a clearance of accountabilities in favor of Jacinto. As such, the said act cannot serve as a valid and
justifiable ground for the respondents to lose trust and confidence in him.

NLRC ruling: NLRC disagreed with the LA’s conclusion and opined that it was anchored on irrelevant matters such as
the petitioner’s performance and the preferential treatment given to relatives of RBSJI’s stockholders. The NLRC held
that the legality of the petitioner’s dismissal must be based on an appreciation of the facts and the proof directly related
to the offense charged, which NLRC found to have weighed heavily in favor of the respondents. The NLRC remarked
that the petitioner was indisputably not authorized to issue the clearance. This was reversed by NLRC

CA: Affirmed the ruling, held that dismissal was illegal and that the corporate officers should be solidarily liable

ISSUE: Whether corporate officers are liable to pay for damages

RULING: NO, they should not be held liable for damages for the illegal dismissal conducted by the
corporation

In the same vein, the individual respondents cannot be made solidarily liable with RBSJI for the illegal dismissal. Time
and again, the Court has held that a corporation has its own legal personality separate and distinct from those of its
stockholders, directors or officers. Hence, absent any evidence that they have exceeded their authority, corporate
officers are not personally liable for their official acts. Corporate directors and officers may be held solidarily liable with
the corporation for the termination of employment only if done with malice or in bad faith.51 As discussed above, the
acts imputed to the respondents do not support a finding of bad faith.
In addition, the lack of a valid cause for the dismissal of an employee does not ipso facto mean that the corporate
officers acted with malice or bad faith. There must be an independent proof of malice or bad faith,52 which is absent in
the case at bar.

De Roxas v. Our Lady’s Foundation

Personal liability of the corporate officer to the judgment credit against the corporation

FACTS: On 1 September 1988, Salve Dealca Latosa filed before the RTC a Complaint for the recovery of ownership of
a portion of her residential land located at Our Lady’s Village, Bibincahan, Sorsogon, Sorsogon, docketed as Civil Case
No. 5403. According to her, Atty. Henry Amado Roxas (Roxas), represented by petitioner herein, encroached on a
quarter of her property by arbitrarily extending his concrete fence beyond the correct limits.

In his Answer, Roxas imputed the blame to respondent Our Lady’s Village Foundation, Inc., now Our Lady’s
Foundation, Inc. (OLFI). He then filed a Third-Party Complaint against respondent and claimed that he only occupied
the adjoining portion in order to get the equivalent area of what he had lost when OLFI trimmed his property for the
subdivision road. The RTC admitted the Third-Party Complaint and proceeded to trial on the merits.

After considering the evidence of all the parties, the trial court held that Latosa had established her claim of
encroachment by a preponderance of evidence. It found that Roxas occupied a total of 112 square meters of Latosa’s
lots, and that, in turn, OLFI trimmed his property by 92 square meters.

Subsequently, Roxas appealed to the CA, which later denied the appeal. Since the Decision had become final, the RTC
issued a Writ of Execution6 to implement the ruling ordering OLFI to reimburse Roxas for the value of the 92-square-
meter property plus legal interest to be reckoned from the time the amount was paid to the third-party defendant. The
trial court then approved the Sheriff’s Bill,7 which valued the subject property at ₱2,500 per square meter or a total of
₱230,000. Adding the legal interest of 12% per annum for 10 years, respondent’s judgment obligations totaled ₱506,000

RTC denied the motion, To collect the aforementioned amount, Notices of Garnishment10 were then issued by the
sheriff to the managers of the Development Bank of the Philippines and the United Coconut Planters Bank for them to
garnish the account of Bishop Robert Arcilla-Maullon (Arcilla-Maullon), OLFI’s general manager.

CA decision: CA nullified the Notices of Garnishment issued against the bank accounts of Arcilla-Maullon. It noted that
since the general manager of OLFI was not impleaded in the proceedings, he could not be held personally liable for the
obligation of the corporation.

ISSUE: Whether the general manager’s account should satisfy the judgment credit

RULING: NO, it should not satisfy the judgment credit

Given this finding, this Court holds that since OLFI’s general manager was not a party to the case, the CA correctly
ruled that Arcilla-Maullon cannot be held personally liable for the obligation of the corporation. In Santos v. NLRC,21
this Court upholds the doctrine of separate juridical personality of corporate entities. The case emphasizes that a
corporation is a juridical entity with a legal personality separate and distinct from those acting for and on its behalf and,
in general, of the people comprising it.22 Hence, the obligations incurred by the corporation, acting through its officers
such as in this case, are its sole liabilities.23

To hold the general manager of OLFI liable, petitioner claims that it is a mere business conduit of Arcilla-Maullon,
hence, the corporation does not maintain a bank account separate and distinct from the bank accounts of its members.
In support of this claim, petitioner submits that because OLFI did not rebut the attack on its legal personality, as alleged
in petitioner’s Opposition and Comments on the Motion to Quash Notice/Writ of Garnishment dated 15 March
2005,24 respondent effectively admitted by its silence that it was a mere dummy corporation.
This argument does not persuade us, for any piercing of the corporate veil has to be done with caution.25 Save for its
rhetoric, petitioner fails to adduce any evidence that would prove OLFI's status as a dummy corporation. In this regard,
we recently explained in Sarona v. NLRC26 as follows:

A court should be mindful of the milieu where it is to be applied.1âwphi1 It must be certain that the corporate fiction
was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of rights. The
wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never
unintended may result from an erroneous application. (Citation omitted)

In any event, in order for us to hold Arcilla-Maullon personally liable alone for the debts of the corporation and thus
pierce the veil of corporate fiction, we have required that the bad faith of the officer must first be established clearly and
convincingly.27 Petitioner, however, has failed to include any submission pertaining to any wrongdoing of the general
manager. Necessarily, it would be unjust to hold the latter personally liable.

Development Bank of PH v. Hyrdro Resources Contractors

Piercing the veil of corporate fiction under the alter ego rule

FACTS: Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages made on the properties of
Marinduque Mining and Industrial Corporation (MMIC). As a result of the foreclosure, DBP and PNB acquired
substantially all the assets of MMIC and resumed the business operations of the defunct MMIC by organizing NMIC.7
DBP and PNB owned 57% and 43% of the shares of NMIC, respectively, except for five qualifying shares.8 As of
September 1984, the members of the Board of Directors of NMIC, namely, Jose Tengco, Jr., Rolando Zosa, Ruben
Ancheta, Geraldo Agulto, and Faustino Agbada, were either from DBP or PNB.

Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping and Road Construction Program
in 1985 for a total contract price of ₱35,770,120. After computing the payments already made by NMIC under the
program and crediting the NMIC’s receivables from

Hercon, Inc., the latter found that NMIC still has an unpaid balance of ₱8,370,934.74.10 Hercon, Inc. made several
demands on NMIC, including a letter of final demand dated August 12, 1986, and when these were not heeded, a
complaint for sum of money was filed in the RTC of Makati, Branch 136 seeking to hold petitioners NMIC, DBP, and
PNB solidarily liable for the amount owing Hercon, Inc

In its answer,15 NMIC claimed that HRCC had no cause of action. It also asserted that its contract with HRCC was
entered into by its then President without any authority

For its part, DBP’s answer17 raised the defense that HRCC had no cause of action against it because DBP was not privy
to HRCC’s contract with NMIC. Moreover, NMIC’s juridical personality is separate from that of DBP. DBP further
interposed a counterclaim for attorney’s fees.18

PNB’s answer19 also invoked lack of cause of action against it. It also raised estoppel on HRCC’s part and laches as
defenses, claiming that the inclusion of PNB in the complaint was the first time a demand for payment was made on it
by HRCC. PNB also invoked the separate juridical personality of NMIC and made counterclaims for moral damages and
attorney’s fees.

RTC ruling: In this jurisdiction, it is well-settled that "where it appears that the business enterprises are owned, conducted
and controlled by the same parties, both law and equity will, when necessary to protect the rights of third persons,
disregard legal fiction that two (2) corporations are distinct entities, and treat them as identical." (Phil. Veterans
Investment Development Corp. vs. CA, 181 SCRA 669).
From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego of both DBP and PNB. Thus,
the DBP and PNB are jointly and severally liable with NMIC for the latter’s unpaid obligations to plaintiff.

CA Decision: affirmed the ruling of RTC

ISSUE: Whether DBP and PNB controls NMIC hence the latter is merely an alter ego of the former

RULING: NO, it is not an alter ego

A corporation is an artificial entity created by operation of law. It possesses the right of succession and such powers,
attributes, and properties expressly authorized by law or incident to its existence.37 It has a personality separate and
distinct from that of its stockholders and from that of other corporations to which it may be connected.38 As a
consequence of its status as a distinct legal entity and as a result of a conscious policy decision to promote capital
formation,39 a corporation incurs its own liabilities and is legally responsible for payment of its obligations.40 In other
words, by virtue of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or
credit of the stockholder.41 This protection from liability for shareholders is the principle of limited liability.42

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the
corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of
justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity
committed against third persons.

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be
mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an
extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be
clearly and convincingly established; it cannot be presumed.

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience
as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the
corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is
merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.

The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be completely under the
control and domination of the parent.51 It examines the parent corporation’s relationship with the subsidiary.52 It
inquires whether a subsidiary corporation is so organized and controlled and its affairs are so conducted as to make it a
mere instrumentality or agent of the parent corporation such that its separate existence as a distinct corporate entity will
be ignored.53 It seeks to establish whether the subsidiary corporation has no autonomy and the parent corporation,
though acting through the subsidiary in form and appearance, "is operating the business directly for itself."54

The second prong is the "fraud" test. This test requires that the parent corporation’s conduct in using the subsidiary
corporation be unjust, fraudulent or wrongful.55 It examines the relationship of the plaintiff to the corporation.56 It
recognizes that piercing is appropriate only if the parent corporation uses the subsidiary in a way that harms the plaintiff
creditor.57 As such, it requires a showing of "an element of injustice or fundamental unfairness."58

The third prong is the "harm" test. This test requires the plaintiff to show that the defendant’s control, exerted in a
fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered.59 A causal connection between the
fraudulent conduct committed through the instrumentality of the subsidiary and the injury suffered or the damage
incurred by the plaintiff should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will
have been treated unjustly by the defendant’s exercise of control and improper use of the corporate form and, thereby,
suffer damages.
While ownership by one corporation of all or a great majority of stocks of another corporation and their interlocking
directorates may serve as indicia of control, by themselves and without more, however, these circumstances are
insufficient to establish an alter ego relationship or connection between DBP and PNB on the one hand and NMIC on
the other hand, that will justify the puncturing of the latter’s corporate cover. This Court has declared 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."66 This Court has likewise ruled that
the "existence of interlocking directors, corporate officers and shareholders is not enough justification to pierce the veil
of corporate fiction in the absence of fraud or other public policy considerations."

In this case, nothing in the records shows that the corporate finances, policies and practices of NMIC were dominated
by DBP and PNB in such a way that NMIC could be considered to have no separate mind, will or existence of its own
but a mere conduit for DBP and PNB. On the contrary, the evidence establishes that HRCC knew and acted on the
knowledge that it was dealing with NMIC, not with NMIC’s stockholders. The letter proposal of Hercon, Inc., HRCC’s
predecessor-in-interest, regarding the contract for NMIC’s mine stripping and road construction program was addressed
to and accepted by NMIC.71 The various billing reports, progress reports, statements of accounts and communications
of Hercon, Inc./HRCC regarding NMIC’s mine stripping and road construction program in 1985 concerned NMIC and
NMIC’s officers, without any indication of or reference to the control exercised by DBP and/or PNB over NMIC’s
affairs, policies and practices.72

HRCC has presented nothing to show that DBP and PNB had a hand in the act complained of, the alleged undue
disregard by NMIC of the demands of HRCC to satisfy the unpaid claims for services rendered by HRCC in connection
with NMIC’s mine stripping and road construction program in 1985. On the contrary, the overall picture painted by the
evidence offered by HRCC is one where HRCC was dealing with NMIC as a distinct juridical person acting through its
own corporate officers

Moreover, the finding that the respective boards of directors of NMIC, DBP, and PNB were interlocking has no basis.
HRCC’s Exhibit "I-5,"74 the initial General Information Sheet submitted by NMIC to the Securities and Exchange
Commission, relied upon by the trial court and the Court of Appeals may have proven that DBP and PNB owned the
stocks of NMIC to the extent of 57% and 43%, respectively. However, nothing in it supports a finding that NMIC,
DBP, and PNB had interlocking directors as it only indicates that, of the five members of NMIC’s board of directors,
four were nominees of either DBP or PNB and only one was a nominee of both DBP and PNB.75 Only two members
of the board of directors of NMIC, Jose Tengco, Jr. and Rolando Zosa, were established to be members of the board of
governors of DBP and none was proved to be a member of the board of directors of PNB.76 No director of NMIC was
shown to be also sitting simultaneously in the board of governors/directors of both DBP and PNB.

Here, DBP and PNB maintain an address different from that of NMIC.79 As already discussed, there was insufficient
proof of interlocking directorates. There was not even an allegation of similarity of corporate officers. Instead of
evidence that DBP and PNB assumed and controlled the management of NMIC, HRCC’s evidence shows that NMIC
operated as a distinct entity endowed with its own legal personality.

Such a declaration clearly negates the possibility that DBP and PNB exercised control over NMIC which DBP and PNB
used "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." It is a recognition that, even assuming that DBP and PNB
exercised control over NMIC, there is no evidence that the juridical personality of NMIC was used by DBP and PNB to
commit a fraud or to do a wrong against HRCC.

There being a total absence of evidence pointing to a fraudulent, illegal or unfair act committed against HRCC by DBP
and PNB under the guise of NMIC, there is no basis to hold that NMIC was a mere alter ego of DBP and PNB.
unfairness perpetuated by DBP and PNB through the corporate cover of NMIC, no harm could be said to have been
proximately caused by DBP and PNB on HRCC for which HRCC could hold DBP and PNB solidarily liable with
NMIC.

Considering that, under the deeds of transfer executed by DBP and PNB, the liability of the APT as transferee of the
rights, titles and interests of DBP and PNB in NMIC will attach only if DBP and PNB are held liable, the APT incurs no
liability for the judgment indebtedness of NMIC. Even HRCC recognizes that "as assignee of DBP and PNB 's loan
receivables," the APT simply "stepped into the shoes of DBP and PNB with respect to the latter's rights and
obligations" in NMIC.83 As such assignee, therefore, the APT incurs no liability with respect to NMIC other than
whatever liabilities may be imputable to its assignors, DBP and PNB.

Saverio and NS International Inc. v. Puyat

Improper piercing the veil of corporate fiction

FACTS: On July 22, 1996, the respondent granted a loan to NSI. The loan was made pursuant to the Memorandum of
Agreement and Promissory Note (MOA)5 between the respondent and NSI, represented by Nuccio. It was agreed that
the respondent would extend a credit line with a limit of ₱500,000.00 to NSI, to be paid within thirty (30) days from the
time of the signing of the document. The loan carried an interest rate of 17% per annum, or at an adjusted rate of 25%
per annum if payment is beyond the stipulated period. The petitioners received a total amount of ₱300,000.00 and
certain machineries intended for their fertilizer processing plant business (business). The proposed business, however,
failed to materialize.

On several occasions, Nuccio made personal payments amounting to ₱600,000.00. However, as of December 16, 1999,
the petitioners allegedly had an outstanding balance of ₱460,505.86. When the petitioners defaulted in the payment of
the loan, the respondent filed a collection suit with the RTC, alleging mainly that the petitioners still owe him the value
of the machineries as shown by the Breakdown of Account6 he presented.

In their answer, they alleged that the loan has already been extinguished via payment of the 600kphp and/or that the
business failed to materialize

RTC ruling: The RTC also found merit in the respondent’s contention that the petitioners are one and the same. Based
on Nuccio’s act of entering a loan with the respondent for purposes of financing NSI’s proposed business and his own
admission during cross-examination that the word "NS" in NSI’s name stands for "Nuccio Saverio," the RTC found that
the application of the doctrine of piercing the veil of corporate fiction was proper.

CA ruling: The CA also affirmed the RTC ruling that petitioners are one and the same for the following reasons: (1)
Nuccio owned forty percent (40%) of NSI; (2) Nuccio personally entered into the loan contract with the respondent
because there was no board resolution from NSI; (3) the petitioners were represented by the same counsel; (4) the failure
of NSI to object to Nuccio’s acts shows the latter’s control over the corporation; and (5) Nuccio’s control over NSI was
used to commit a wrong or fraud. It further adopted the RTC’s findings of bad faith and willful breach of obligation on
the petitioners’ part, and affirmed its award of attorney’s fees.

ISSUE: Whether both courts erred in piercing the veil of corporate fiction

RULING: YES, they were erroneous in their decision

The rule is settled that a corporation is vested by law with a personality separate and distinct from the persons
composing it. Following this principle, a stockholder, generally, is not answerable for the acts or liabilities of the
corporation, and vice versa. The obligations incurred by the corporate officers, or other persons acting as corporate
agents, are the direct accountabilities of the corporation they represent, and not theirs. A director, officer or employee of
a corporation is generally not held personally liable for obligations incurred by the corporation9 and while there may be
instances where solidary liabilities may arise, these circumstances are exceptional.10

Incidentally, we have ruled that mere ownership by a single stockholder or by another corporation of all or nearly all of
the capital stocks of the corporation is not, by itself, a sufficient ground for disregarding the separate corporate
personality. Other than mere ownership of capital stocks, circumstances showing that the corporation is being used to
commit fraud or proof of existence of absolute control over the corporation have to be proven. In short, before the
corporate fiction can be disregarded, alter-ego elements must first be sufficiently established.

We are not convinced of the sufficiency of these cited reasons. In our view, the RTC failed to provide a clear and
convincing explanation why the doctrine was applied. It merely declared that its application of the doctrine of piercing
the veil of corporate fiction has a basis, specifying for this purpose the act of Nuccio’s entering into a contract of loan
with the respondent and the reasons stated above.

The records of the case, however, do not show that Nuccio had control or domination over NSI’s finances.1âwphi1 The
mere fact that it was Nuccio who, in behalf of the corporation, signed the MOA is not sufficient to prove that he
exercised control over the corporation’s finances. Neither the absence of a board resolution authorizing him to contract
the loan nor NSI’s failure to object thereto supports this conclusion. These may be indicators that, among others, may
point the proof required to justify the piercing the veil of corporate fiction, but by themselves, they do not rise to the
level of proof required to support the desired conclusion. It should be noted in this regard that while Nuccio was the
signatory of the loan and the money was delivered to him, the proceeds of the loan were unquestionably intended for
NSI’s proposed business plan. That the business did not materialize is not also sufficient proof to justify a piercing, in
the absence of proof that the business plan was a fraudulent scheme geared to secure funds from the respondent for the
petitioners’ undisclosed goals.

Considering that the basis for holding Nuccio liable for the payment of the loan has been proven to be insufficient, we
find no justification for the RTC to hold him jointly and solidarily liable for NSI’s unpaid loan. Similarly, we find that the
CA ruling is wanting in sufficient explanation to justify the doctrine’s application and affirmation of the RTC’s ruling.
With these points firmly in mind, we hold that NSI’s liability should not attach to Nuccio.

Liability for Torts and Crime

PNB v. CA and PHILAMGEN

Liability of the corporation under Art. 21

FACTS: Philamgen guaranteed the loan executed by PNB in favour of Rita Gueco. Upon being default, Philamgen
forwarded the deficiency and asked Gueco for reimbursement.

Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however, when demand was made upon her
by plaintiff for her to pay her debt to the Bank, that she told the Plaintiff that she did not consider herself to be indebted
to the Bank at all because she had an agreement with one Jacobo-Nazon whereby she had leased to the latter her unused
export sugar quota for the 1956-1957 agricultural year, consisting of 1,000 piculs at the rate of P2.80 per picul, or for a
total of P2,800.00, which was already in excess of her obligation guaranteed by plaintiff's bond, Exh. A. This lease
agreement, according to her, was with the knowledge of the bank. But the Bank has placed obstacles to the
consummation of the lease, and the delay caused by said obstacles forced 'Nazon to rescind the lease contract. Thus,
Rita Gueco Tapnio filed her third-party complaint against the Bank to recover from the latter any and all sums of money
which may be adjudged against her and in favor of the plaitiff plus moral damages, attorney's fees and costs.

The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio and Jacobo C. Tuazon was
executed on April 17, 1956. This contract was submitted to the Branch Manager of the Philippine National Bank at San
Fernando, Pampanga. This arrangement was necessary because Tapnio's indebtedness to petitioner was secured by a
mortgage on her standing crop including her sugar quota allocation for the agricultural year corresponding to said
standing crop. The latter required the parties to raise the consideration to P2.80 per picul, the minimum lease rental
acceptable to the Bank, or a total of P2,800.00. Tuazon informed the Branch Manager, thru a letter dated August 10,
1956, that he was agreeable to raising the consideration to P2.80 per picul. He further informed the manager that he was
ready to pay the said sum of P2,800.00 as the funds were in his folder which was kept in the said Bank. This referred to
the approved loan of Tuazon from the Bank which he intended to use in paying for the use of the sugar quota. The
Branch Manager submitted the contract of lease of sugar quota allocation to the Head Office on September 7, 1956,
with a recommendation for approval, which recommendation was concurred in by the Vice-President of the Bank, Mr. J.
V. Buenaventura. This notwithstanding, the Board of Directors of petitioner required that the consideration be raised to
P3.00 per picul.

Tuazon, after being informed of the action of the Board of Directors, asked for a reconsideration thereof. On
November 19, 1956, the Branch Manager submitted the request for reconsideration and again recommended the
approval of the lease at P2.80 per picul, but the Board returned the recommendation unacted, stating that the current
price prevailing at that time was P3.00 per picul.

On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer interested in continuing the
lease of sugar quota allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota,
resulting in her loss in the sum of P2,800.00 which she should have received had the lease in favor of Tuazon been
implemented.

ISSUE: Whether the bank should be liable for damages

RULING: YES, it is liable for the damages due to the non-approval of its board of directors

As observed by the trial court, time is of the essence in the approval of the lease of sugar quota allotments, since the
same must be utilized during the milling season, because any allotment which is not filled during such milling season
may be reallocated by the Sugar Quota Administration to other holders of allotments. 3 There was no proof that there
was any other person at that time willing to lease the sugar quota allotment of private respondents for a price higher than
P2.80 per picul. "The fact that there were isolated transactions wherein the consideration for the lease was P3.00 a
picul", according to the trial court, "does not necessarily mean that there are always ready takers of said price. " The
unreasonableness of the position adopted by the petitioner's Board of Directors is shown by the fact that the difference
between the amount of P2.80 per picul offered by Tuazon and the P3.00 per picul demanded by the Board amounted
only to a total sum of P200.00. Considering that all the accounts of Rita Gueco Tapnio with the Bank were secured by
chattel mortgage on standing crops, assignment of leasehold rights and interests on her properties, and surety bonds and
that she had apparently "the means to pay her obligation to the Bank, as shown by the fact that she has been granted
several sugar crop loans of the total value of almost P80,000.00 for the agricultural years from 1952 to 1956", there was
no reasonable basis for the Board of Directors of petitioner to have rejected the lease agreement because of a measly
sum of P200.00.

While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was
mortgaged to the Bank, the latter certainly cannot escape its responsibility of observing, for the protection of the interest
of private respondents, that degree of care, precaution and vigilance which the circumstances justly demand in approving
or disapproving the lease of said sugar quota. The law makes it imperative that every person "must in the exercise of his
rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith, 4
This petitioner failed to do. Certainly, it knew that the agricultural year was about to expire, that by its disapproval of the
lease private respondents would be unable to utilize the sugar quota in question. In failing to observe the reasonable
degree of care and vigilance which the surrounding circumstances reasonably impose, petitioner is consequently liable
for the damages caused on private respondents. Under Article 21 of the New Civil Code, "any person who wilfully
causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate
the latter for the damage." The afore-cited provisions on human relations were intended to expand the concept of torts
in this jurisdiction by granting adequate legal remedy for the untold number of moral wrongs which is impossible for
human foresight to specifically provide in the statutes. 5

A corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the rules
governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the
principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial
person. All of the authorities agree that a principal or master is liable for every tort which he expressly directs or
authorizes, and this is just as true of a corporation as of a natural person, A corporation is liable, therefore, whenever a
tortious act is committed by an officer or agent under express direction or authority from the stockholders or members
acting as a body, or, generally, from the directors as the governing body."