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Corporation Law Cases (Sec.

1-9)

Good Earth Emporium Inc. vs Court of Appeals A lease contract was entered into between ROCES ISSUE:
Doctrine: and Good Earth Emporium (GEE). A five-storey W/N there was full satisfaction of the judgment debt
A corporation has a personality distinct and separate building was the subject of the said contract, which in favor of respondent corporation.
from its individual stockholders or members. upon failure of the latter to pay its rentals, ROCES RULING:
Payment made to an officer of a corporation is not filed an ejectment case against the petitioner. The No. Under article 1240 of the civil code of the
deemed payment to the corporation especially if the MTC of Manila rendered a decision ordering GEE Philippines – Payment shall be made to the person in
officer denied being in possession of authority to and all persons under him to vacate the premises whose favor the obligation has been constituted, on
receive payment for the respondent corporation and and surrender the same to ROCES and pay the his successor in interest or any person authorized to
received payment in individual capacities without any plaintiffs the rental. receive it.
reference to the judgment obligation in favor of GEE filed a motion to quash the writ of execution but In the case at bar, the supposed payments were not
corporation. the same was denied by the MTC for lack of merit. In made to Roces-Reyes Realty Inc. or to its
1987, the RTC of Manila reversed the decision of the successors in interest nor is there positive evidence
MTC finding that the amount of P1 million evidenced that payment was made to a person authorized to
by Exhibit “1” and another P1 million evidenced by receive it. No such proof was submitted but merely
the pacto de retro sale instrument were in full inferred by the RTC from Marcos Roces having
satisfaction of the judgment obligation. signed the lease contract as President which was
On further appeal, the CA reversed the decision of witnessed by Jesus Marcos Roces. The later,
the RTC and reinstated the Resolution of the MTC of however, was no longer President or even an officer
Manila. GEE’s m/r was denied, hence this petition. of the Roces-Realty Inc at the time he received the
money and signed the sale with pacto de retro. He, in
fact denied being in possession of authority to
receive payment for the respondent corporation nor
does the receipt show that he signed in the same
capacity as he did in the lease contract at a time
when he was President for respondent corporation.
Cruz vs Dalisay In 1984, the National Labor Relations Commission ISSUE: Whether or not the action of Dalisay is
Doctrine: issued an order against Qualitrans Limousine correct.
A corporation has a personality distinct and separate Service, Inc. (QLSI) ordering the latter to reinstate HELD: NO. What Dalisay did is tantamount to
from its individual stockholders or members. The the employees it terminated and to pay them piercing the veil of corporate fiction. He actually
mere fact that one is president of a corporation does backwages. Quiterio Dalisay, Deputy Sheriff of the usurped the power of the court. He also overstepped
not render the property he owns or possesses the court, to satisfy the backwages, then garnished the his duty as a deputy sheriff. His duty is merely
property of the corporation, since the president, as bank account of Adelio Cruz. Dalisay justified his act ministerial and it is incumbent upon him to execute
individual, and the corporation are separate entities. by averring that Cruz was the owner and president of the decision of the court according to its tenor and
QLSI. Further, he claimed that the counsel for the only against the persons obliged to comply. In this
discharged employees advised him to garnish the case, the person judicially named to comply was
account of Cruz. QLSI and not Cruz. It is a well-settled doctrine both in
law and in equity that as a legal entity, a corporation
has a personality distinct and separate from its
individual stockholders or members. The mere fact
that one is president of a corporation does not render
the property he owns or possesses the property of
the corporation, since the president, as individual,
and the corporation are separate entities.
Bank of America vs CA Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua ISSUE:
Doctrine: (Litonjuas) were engaged in the shipping business 1. W/N there is grounds of forum non conveniens
Private respondents while they are mere owning 2 vessels: Don Aurelio and El Champion 2. W/N there is litis pendentia
stockholders of the corporation and that the Because their business where doing well, Bank of HELD: Denied
corporate entities have juridical personalities America (BA) offered them to take a loan for them to 1. NO. The doctrine of forum non-conveniens,
separate and distinct from those of the private increase their ships. BA acquired through them as literally meaning 'the forum is inconvenient', emerged
respondents have capacity to sue since the borrowers four more ships: (a) El Carrier; (b) El in private international law to deter the practice of
corporations are wholly owned by them and prior to General; (c) El Challenger; and (d) El Conqueror. global forum shopping. Under this doctrine, a court,
the incorporation of such entities, they were clients of The registration, operation, income, funds, in conflicts of law cases, may refuse impositions on
petitioners which induced them to acquire loans from possession of the vessel belonged to the corporation. its jurisdiction where it is not the most "convenient" or
said petitioners to invest on the additional ships. May 10, 1993: Litonjuas filed a complaint to the RTC available forum and the parties are not precluded
- On forum non conveniens – Pasig claming that during its operations and the from seeking remedies elsewhere. Whether a suit
Requisites. foreclosure sale, BA as trutees failed to fully render should be entertained or dismissed on the basis of
(1) that the Philippine Court is one to which the an account of the income. They lost all their 6 said doctrine depends largely upon the facts of the
parties may conveniently resort to; vessels and 10% of their personal funds and they still particular case and is addressed to the sound
(2) that the Philippine Court is in a position to make have an unpaid balance of their loans. BA NT&SA, discretion of the trial court.
an intelligent decision as to the law and the facts; and BA international filed a Motion to Dismiss on Philippine Court may assume jurisdiction over the
and, grounds of forum non conveniens and lack of cause case if it chooses to do so; provided, that the
(3) that the Philippine Court has or is likely to have of action against them RTC and CA: Dismissed following requisites are met:
power to enforce its decision. (1) that the Philippine Court is one to which the
parties may conveniently resort to; - present
(2) that the Philippine Court is in a position to make
an intelligent decision as to the law and the facts;
and, - present
(3) that the Philippine Court has or is likely to have
power to enforce its decision – present

2. NO.
Litis pendentia to be a ground for the dismissal of an
action there must be:
(a) identity of the parties or at least such as to
represent the same interest in both actions -present
(b) identity of rights asserted and relief prayed for,
the relief being founded on the same acts - not
shown
(c) the identity in the two cases should be such that
the judgment which may be rendered in one would,
regardless of which party is successful, amount to
res judicata in the other - not shown It merely
mentioned that civil cases were filed in Hongkong
and England
Avon Dale Garments vs NLRC FACTS: ISSUE: Whether or not the petitioner is a separate
Doctrine: Private respondents were employees of petitioner and distinct entity and therefore not liable for private
The two entities cannot be deemed as separate and Avon Dale Garments, Inc. and its predecessor-in- respondents' separation pay from Avon Dale Shirt
distinct where there is a showing that one is merely interest, Avon Dale Shirt Factory. Following a dispute Factory?
the continuation of the other where in fact merely brought about by the rotation of workers, a RULING:
continued the operations of the latter under the same compromise agreement was entered into between No. The two entities cannot be deemed as separate
owners, the same business venture, at same petitioner and private respondents wherein the latter and distinct where there is a showing that one is
address and even continued to hire the same were terminated from service and given their merely the continuation of the other. In fact, even a
employees. Even a change in the corporate name corresponding separation pay. However, upon change in the corporate name does not make a new
does not make a new corporation, whether effected refusal of the petitioner to include in the computation corporation, whether effected by a special act or
by a special act or under a general law, it has no of private respondents' separation pay the period under a general law, it has no effect on the identity of
effect on the identity of the corporation, or on its during which the latter were employed by Avon Dale the corporation, or on its property, rights, or liabilities.
property, rights, or liabilities Shirt Factory, private respondents filed a complaint The mere filing of the Articles of Dissolution with the
with the labor arbiter claiming a deficiency in their Securities and Exchange Commission, without more,
separation pay. According to private respondents, is not enough to support the conclusion that actual
their previous employment with petitioner's dissolution of an entity in fact took place. On the
predecessor-in-interest, Avon Dale Shirt Factory, contrary, the prevailing circumstances in this case
should be credited in computing their separation pay indicated that petitioner is not distinct from its
considering that Avon Dale Shirt factory was not predecessor Avon Dale Shirt Factory, but in fact
dissolved and they were not in turn hired as new merely continued the operations of the latter under
employees by Avon Dale Garments, Inc. the same owners, the same business venture, at
same address, and even continued to hire the same
employees (herein private respondents).
Concept Builders Inc vs NLRC FACTS: ISSUE: Whether or not the doctrine of piercing the
Doctrine: Private respondents filed a complaint for illegal corporate fiction should be applied?
The corporate mask may be lifted and the corporate dismissal, unfair labor practice and non-payment of RULING: Yes, because the elements to pierce the
veil may be pierced when a corporation is just but the their legal holiday pay, overtime pay and thirteenth- veil of corporate fiction is present in the case at bar.
alter ego of a person or of another corporation. month pay against petitioner. The Labor Arbiter The test in determining the applicability of the
Where badges of fraud exist; where public rendered judgment ordering petitioner to reinstate doctrine of piercing the veil of corporate fiction is as
convenience is defeated; where a wrong is sought to private respondents and to pay them back wages. follows: 1. Control; 2. Such control must have been
be justified thereby, the corporate fiction or the notion The Labor Arbiter issued a writ of execution directing used by the defendant to commit fraud or wrong, to
of legal entity should come to naught. The law in the sheriff to execute the Decision. The writ was perpetuate the violation of a statutory or other
these instances will regard the corporation as a mere partially satisfied through garnishment of sums from positive legal duty or dishonest and unjust act in
association of persons and, in case of two petitioner's debtor. An Alias Writ of Execution was contravention of plaintiff's legal rights; and 3. The
corporations, merge them into one. Thus, where a issued by the Labor Arbiter directing the sheriff to aforesaid control and breach of duty must
sister corporation is used as a shield to evade a collect from herein petitioner the balance of the proximately cause the injury or unjust loss
corporations subsidiary liability for damages, the judgment award, and to reinstate private respondents complained of. In the case at bar, the two
corporation may not be heard to say that it has a to their former positions. A certain Dennis corporations has the same address and occupy the
personality separate and distinct from the other Cuyegkeng filed a third-party claim with the Labor same premises. Furthermore both corporations had
corporation. The piercing of the corporate veil comes Arbiter alleging that the properties sought to be the same president, the same board of directors, the
into play. levied upon by the sheriff were owned by Hydro same corporate officers, and substantially the same
Phils., Inc. (HPPI) of which he is the Vice-President. subscribers. Petitioner ceased its business
Private respondents filed a "Motion for Issuance of a operations in order to evade the payment to private
Break-Open Order," alleging that HPPI and petitioner respondents of back wages and to bar their
corporation were owned by the same reinstatement to their former positions. HPPI is
incorporator/stockholders. obviously a business conduit of petitioner and its
emergence was skillfully orchestrated to avoid the
financial liability that already attached to petitioner.
First Phil. International Bank vs CA Producers Bank (now called First Philippine ISSUES:
Doctrine: International Bank), which has been under 1. Whether or not there is forum shopping.
Petitioner cannot seek refuge in the corporate fiction conservatorship since 1984, is the owner of 6 parcels 2. Whether or not there is a perfected contract of
that the personality of the Bank is separate and of land. The Bank had an agreement with Demetrio sale.
distinct from its shareholders because when the Demetria and Jose Janolo for the two to purchase RULING:
fiction is urged as a means of perpetrating a fraud or the parcels of land for a purchase price of P5.5 1.Yes. There is forum shopping because there is
an illegal act or as a vehicle for the evasion of an million pesos. The said agreement was made by identity of interest and parties between the first case
existing obligation, the circumvention of statutes, the Demetria and Janolo with the Bank’s manager, and the second case. There is identity of interest
veil with which the law covers and isolates the Mercurio Rivera. Later however, the Bank, through because both cases sought to have the agreement,
corporation from the members or stockholders who its conservator, Leonida Encarnacion, sought the which involves the same property, be declared
compose it will be lifted to allow for its consideration repudiation of the agreement as it alleged that Rivera unenforceable as against the Bank. There is identity
merely as an aggregation of individuals. The was not authorized to enter into such an agreement, of parties even though the first case is in the name of
corporate veil cannot be used to shield an otherwise hence there was no valid contract of sale. the bank as defendant, and the second case is in the
blatant violation of the prohibition against forum- Subsequently, Demetria and Janolo sued Producers name of Henry Co as plaintiff. There is still forum
shopping. Shareholders, whether suing as the Bank. The regional trial court ruled in favor of shopping here because Henry Co essentially
majority in direct actions or as the minority in a Demetria et al. The Bank filed an appeal with the represents the bank. Both cases aim to have the
derivative suit, cannot be allowed to trifle with court Court of Appeals. Meanwhile, Henry Co, who holds bank escape liability from the agreement it entered
processes, particularly where, as in this case, the 80% shares of stocks with the said Bank, filed a into with Demetria et al. The Supreme Court did not
corporation itself has not been remiss in vigorously motion for intervention with the trial court. The trial lay down any disciplinary action against the ACCRA
prosecuting or defending corporate causes and in court denied the motion since the trial has been lawyers but they were warned that a repetition will be
using and applying remedies available to it. To rule concluded already and the case is now pending dealt with more severely.
otherwise would be to encourage corporate litigants appeal. Subsequently, Co, assisted by ACCRA law 2. Yes. There is a perfected contract of sale because
to use their shareholders as fronts to circumvent the office, filed a separate civil case against Demetria the bank manager, Rivera, entered into the
stringent rules against forum shopping. and Janolo seeking to have the purported contract of agreement with apparent authority. This apparent
sale be declared unenforceable against the Bank. authority has been duly proved by the evidence
Demetria et al argued that the second case presented which showed that in all the dealings and
constitutes forum shopping. transactions, Rivera participated actively without the
opposition of the conservator. In fact, in the
advertisements and announcements of the bank,
Rivera was designated as the go-to guy in relation to
the disposition of the Bank’s assets.
Francisco Motors Corp. vs CA In 1985, Francisco Motors Corporation (FMC) sued ISSUE: Whether or not the doctrine of piercing the
Doctrine: Atty. Gregorio Manuel to recover from a him a sum of veil of corporate fiction was properly used by the
The rationale behind piercing a corporation’s identity money in the amount of P23,000.00+. Said amount Court of Appeals.
in a given case is to remove the barrier between the was allegedly owed to them by Manuel for the HELD: No. In the first place, the doctrine is to be
corporation from the persons comprising it to thwart purchase of a jeep body plus repairs thereto. Manuel used in disregarding corporate fiction and making the
the fraudulent and illegal schemes of those who use filed a counterclaim in the amount of P50,000.00. In incorporators liable in appropriate circumstances. In
the corporate personality as a shield for undertaking his counterclaim, Manuel alleged that he was the the case at bar, the doctrine is applied upside down
certain proscribed activities. However, in the case at Assistant Legal Officer for FMC; that the Francisco where the corporation is held liable for the personal
bar, instead of holding certain individuals or persons Family, owners of FMC, engaged his services for the obligations of the incorporators – such was uncalled
responsible for an alleged corporate act, the situation intestate estate proceedings of one Benita Trinidad; for and erroneous. It must be noted that that Atty.
has been reversed. It is the petitioner as a that he was not paid for his legal services; that he is Manuel’s legal services were secured by the
corporation which is being ordered to answer for the filing the counterclaim against FMC because said Francisco Family to represent them in the intestate
personal liability of certain individual directors, corporation was merely a conduit of the Francisco proceedings over Benita Trinidad’s estate. The
officers and incorporators concerned. Hence, it Family. The trial court as well as the Court of indebtedness was incurred by the Francisco Family
appears to us that the doctrine has been turned Appeals granted Manuel’s counterclaim on the in their separate and personal capacity. These estate
upside down because of its erroneous invocation. ground that the legal fees were owed by the proceedings did not involve any business of FMC.
incorporators of FMC (an application of the doctrine The proper remedy is for Manuel to sue the
of piercing the veil of corporation fiction in a reversed concerned members of the Francisco Family in their
manner). individual capacity.
Bibiano Raynoso vs CA Reynoso was the branch manager of Commercial ISSUE: Whether or not GCC is correct.
Doctrine: Credit Corporation – Quezon City (CCC-QC), a RULING: No. The veil of corporate fiction must be
The defense of separateness will be disregarded branch of Commercial Credit Corporation (CCC). It pierced. It is obvious that CCC’s change of name to
where the business affairs of a subsidiary corporation was alleged that Reynoso was opposed to certain GCC was made in order to avoid liability. CCC-QC
are so controlled by the mother corporation to the questionable commercial practices being facilitated willingly closed down and transferred its assets to
extent that it becomes an instrument or agent of its by CCC which caused its branches, like CCC-QC, to CCC and thereafter changed its name to GCC in
parent. But even when there is dominance over the rack up debts. Eventually, Reynoso withdrew his own order to avoid its responsibilities from its creditors.
affairs of the subsidiary, the doctrine of piercing the funds from CCC-QC. This prompted CCC-QC to file GCC and CCC are one and the same; they are
veil of corporate fiction applies only when such fiction criminal cases for estafa and qualified theft against engaged in the same line of business and single
is used to defeat public convenience, justify wrong, Reynoso. The criminal cases were dismissed and transaction process, i.e. finance and investment.
protect fraud or defend crime. Reynoso was exonerated and at the same time When the mother corporation and its subsidiary
CCC-QC was ordered to pay Reynoso’s cease to act in good faith and honest business
counterclaims which amounted to millions. A writ of judgment, when the corporate device is used by the
execution was issued against CCC-QC. The writ was parent to avoid its liability for legitimate obligations of
opposed by CCC-QC as it now claims that it has the subsidiary, and when the corporate fiction is used
already closed and that its assets were taken over by to perpetrate fraud or promote injustice, the law steps
the mother company, CCC. Meanwhile, CCC in to remedy the problem. When that happens, the
changed its name to General Credit Corporation corporate character is not necessarily abrogated. It
(GCC). Reynoso then filed a petition for an alias writ continues for legitimate objectives. However, it is
of execution. GCC opposed the writ as it argued that pierced in order to remedy injustice, such as that
it is a separate and distinct corporation from CCC inflicted in this case.
and CCC-QC, in short, it raises the defense of
corporate fiction.
Simeon De Leon vs NLRC