Compilation 22 42 PDF

I.
SHORT TITLE: TANTONGCO VS KAISAHAN NG MGA MANGGAGAWA

SA LA CAMPAN (KKM) AND THE HONORABLE COURT OF INDUSTRIAL
RELATIONS
II. FULL TITLE: RICARDO TANTONGCO, petitioner, vs. KAISAHAN NG MGA

MANGGAGAWA SA LA CAMPAN (KKM) AND THE HONORABLE COURT OF
INDUSTRIAL RELATIONS, respondents. – GR No. L-13119, September 22, 1959, J.
Montemayor
III. TOPIC: Piercing the Veil of Corporate Fiction
IV. STATEMENT OF FACTS

Members of the Kaisahan ng mga Manggagawa sa La Campana, a labor union to which were
affiliated workers in the La Campana Starch Factory and La Campana Coffee Factory, two separate
entities but under the one management, presented demands for higher wages, and more privileges
and benefits in connection with their work. When the management failed and refused to grant the
demands, the Department of Labor intervened; but failing to settle the controversy, it certified the
dispute to the Court of Industrial Relations.
On the theory that the laborers presenting the demands were only the ones working in the coffee
factory, said company filed through the management a motion to dismiss claiming that inasmuch
as there were only 14 of them in coffee factory, the Court of Industrial Relations had no jurisdiction
to entertain and decide the case. The motion was denied by the Court of Industrial Relations, which
said that there was only one management for the business of gawgaw and coffee with whom the
laborers are dealing regarding their work.
The order of denial was appealed to this Tribunal through certiorari under G.R. No. L-5677. In
disposing of the case, we held:
As to the first ground, petitioners obviously do not question the fact that the number of
employees of the La Campana Gaugau Packing involved in the case is more than the
jurisdictional number (31) required by law, but they contend that the industrial court has
no jurisdiction to try case against La Campana Coffee Factory Co. Inc. because the latter
has allegedly only 14 laborers and only five of these are members of respondent Kaisahan.
This contention loses force when it is noted that, as found by the industrial court — and
this finding is conclusive upon us — 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.
1
... 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 including petition for contempt against the La Campana Starch
and Coffee Factory for having employed 21 new laborers and petition for reinstatement of some
employees.
Later, Ramon Tantongco supposed to be the owner and manager of the La Campana Starch Factory
and the person in charge of the La Campana Coffee Factory died on May 16, 1956. On motion of
the labor union, the Court of Industrial Relations order the inclusion as party respondent of the
administrator of the estate of Ramon Tantongco who was Ricardo Tantongco.
Ricardo Tantongco, as administrator, under a special appearance filed a motion to dismiss all the
cases including the main case, on the ground that said cases involved claims for sums of money
and consequently should be filed before the probate court having jurisdiction over the estate,
pursuant to the provisions the Rules of Court. The Court of Industrial Relations denied the motion
to dismiss and proceed to hear the incidental cases against the La Campana entities.
On June 12, 1956, a partial decision was rendered in the main case, which partial decision was
elevated to us and is still pending appeal. On February 18, 1957, the Court of Industrial Relations
issued an order in incidental Cases directing the "management of the respondent company and or
the administrator of the Estate of Ramon Tantongco", to reinstate the dismissed laborers mentioned
therein with back wages. This order of February 18, 1957, as well as the order directing the
inclusion of the administrator of the estate of Ramon Tantongco as additional respondent in the
incidental cases, and the order denying the petition of the administrator to dismiss said incidental
cases were appealed to this tribunal though certiorari. The appeal, however, was summarily
dismissed by this Court.
The CIR order of February 18, ,1957, in the incidental cases having become final and executory ,
the laborers involved reported for work but they were not admitted by the management.
Consequently, the union filed a petition before the CIR to hold respondents in said cases for
contempt. After hearing the CIR issued the order of September 30, 1957, subject of this petition,
ordering "the La Campana Starch and Coffee Factory or its manager or the person who has charge
of its management and the administrator of the estate of Ramon Tantongco" to "reinstate the
persons named in the order of February 18, 1957" and "to deposit the amount of P65,534.01." For
refusal or failure to comply with said order, petitioner Ricardo Tantongco was required to appear
before the attorney of the CIR in contempt proceedings. Petitioner now seeks to prohibit the CIR
from proceeding with the trial for contempt and to enjoin respondent CIR from enforcing its order
of September 30, 1957.
Petitioner contends that upon the death of Ramon Tantongco, the claims of the laborers should
have been dismissed and that said claims should have been filed with the probate court having
jurisdiction over the administration proceedings of the estate of Ramon Tantongco. Petitioner also
2
contends that in G.R. No. L-5677, we "pierced the veil of corporate existence", and held that the
La Campana Starch and Coffee Factory and its owner, Ramon Tantongco, were one; so that with
the death of Ramon, the La Campana entities ceased to exist, resulting in the loss of jurisdiction
of the CIR to enforce its order against said entities. Furthermore, he contends that after he ceased
to be the administrator of the estate of Ramon Tantongco, he may not now be compelled to comply
with the order of the court
V. STATEMENT OF THE CASE:
Ricardo Tantongco refuses to comply with the order of the CIR to reinstate employees with back
wages, the union filed a petition to cite him in contempt. Hence, Ricardo Tantangco filed this
petition for certiorari and prohibition with prayer for issuance of a writ of preliminary injunction
to prohibit respondent Court of Industrial Relations from proceeding with the hearing of the
contempt proceedings for which petitioner Ricardo Tantongco was cited to appear the present his
evidence. The contempt proceedings which petitioner seeks to stop are based on the order of the
Court of Industrial Relations, dated September 30, 1957.
VI. ISSUES:
1. W/N upon the death of Ramon Tantongco the claims of the laborers should have been
dismissed and that said claims should have been filed with the probate court
2. W/N La Campana ceased to exist upon the death of Ramon Tantongco
3. W/N the contempt of court proceedings should proceed
VII. RULING:
1. No.
As already stated this same question was raised by petitioner in G.R. No. L-12355, entitled "La
Campana Starch and Coffee Factory and Ricardo Tantongco, etc. vs. Kaisahan ng mga
Manggagawa sa La Campana (KKM)," which, as already stated, was summarily dismissed by this
Court in a resolution dated June 12, 1957. Consequently, said question may not again be raised in
the present case. Furthermore, it may be recalled that both in the main case in the incidental cases
No. 584-V to 584-V(6), Ramon Tantongco was never a party. The party there was the La Campana
Starch and Coffee Factory by which name it was sought to designate the two entities La Campana
Starch Packing and the La Campana Coffee Factory. Naturally, the claims contained in said cases
were not the claims contemplated by law to be submitted before the administrator. In other words
the death of Ramon Tantongco did not deprive the CIR of its jurisdiction over the cases
aforementioned. Moreover, the money claims of the laborers were merely incidental to their
demands for reinstatement for having been unjustly dismissed, and for better working conditions.
2. No.
Petitioner, however, contends that in G.R. No. L-5677, we "pierced the veil of corporate
existence", and held that the La Campana Starch and Coffee Factory and its owner, Ramon
Tantongco, were one; so that with the death of Ramon, the La Campana entities ceased to exist,
resulting in the loss of jurisdiction of the CIR to enforce its order against said entities.
3
The reason we applied the so-called "piercing the veil of corporate existence" in G.R. No. L-5677
was to avoid the technicality therein advanced in order to defeat the jurisdiction of the CIR. We
there found that although there were ostensibly two separate companies or entities, they were
managed by the same person or persons and the workers in both were used interchangeably so that
in order to determine whether or not the CIR had jurisdiction, the number of workers in both
entitles, not in only one, was to be considered.
However, we still believe that although the family of Ramon Tantongco was practically the owner
of both the coffee factory and the starch factory, nevertheless these entities are separate from the
personality of Ramon. The coffee factory is a stock corporation and the shares are owned not only
by Ramon but also by others, such as petitioner Ricardo who not only is a stockholder and director
and treasurer but also the management of the same Furthermore, petitioner is now estopped from
claiming that the two entities in question and Ramon are one. Thus in Annex 3-CIR (par. 1 thereof)
which is a complaint for injunction filed by La Campana Food Products, et al and La Campana
Starch Packing against the consolidated Labor Organization of the Philippines, in civil Case No.
P-25482 in the Court of First Instance of Rizal, petitioner admitted the existence and operation of
said entities; in Annex 4—CIR where petitioner appeared as General Manager representing the
two entities in its agreement with the La Campana Workers Union to resolve the dispute between
the two entities and the laborers in case Nos. 1072-V and 1371-ULP, the existence of the two
entities appears to have been admitted; and in Annex 5-A-CIR, an answer to the complaint of La
Campana Workers Union in case No. 1471-ULP (Annex 5-CIR), petitioner admitted the allegation
that said two factories were in existence and doing business with petitioner as manager of the same.
3. Yes.
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 hasthe 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. . . .”
In conclusion, we find and hold that the La Campana Starch and Food Products Company which
stands for the La Campana Starch and Coffee Factory are entities distinct from the personality of
Ramon Tantongco; that after the death of Ramon these two entities continued to exist and to
operate under the management of petitioner and that consequently he is the proper person and
official to which the orders of the CIR are addressed and who is in duty bound to comply with the
same. We further find that the CIR acted with in its jurisdiction in issuing its order of September
30, 1957 and in requiring petitioner to appear to give his evidence if any in relation with the
contempt proceedings instituted against him
VIII. DISPOSITIVE PORTION:
In view of the foregoing, the petition for certiorari is .hereby denied and the writ of preliminary
injunction dissolved, with costs.
4
I. SHORT TITLE: VILLA REY TRANSIT INC VS FERRER
II. FULL TITLE: VILLA REY TRANSIT, INC., plaintiff-appellant, vs. EUSEBIO
E. FERRER, PANGASINAN TRANSPORTATION CO., INC. and PUBLIC
SERVICE COMMISSION,defendants. EUSEBIO E. FERRER and PANGASINAN
TRANSPORTATION CO., INC., defendants-appellants.
PANGASINAN TRANSPORTATION CO., INC., third-party plaintiff-appellant, vs.

JOSE M. VILLARAMA, third-party defendant-appellee. G.R. No. L-23893, October
29, 1968, J. Angeles.

Prior to 1959, Jose M. Villarama was an operator of a bus transportation, under the business name
of Villa Rey Transit, pursuant to certificates of public convenience granted him by the Public
Service Commission (PSC, for short) in Cases Nos. 44213 and 104651, which authorized him to
operate a total of thirty-two (32) units on various routes or lines from Pangasinan to Manila, and
vice-versa. On January 8, 1959, he sold the aforementioned two certificates of public convenience
to the Pangasinan Transportation Company, Inc. (otherwise known as Pantranco), for P350,000.00
with the condition, among others, that the seller (Villarama) "shall not for a period of 10 years
from the date of this sale, apply for any TPU service identical or competing with the buyer."
Barely three months thereafter, or on March 6, 1959: a corporation called Villa Rey Transit, Inc.
(which shall be referred to hereafter as the Corporation) was organized with a capital stock of
P500,000.00 divided into 5,000 shares of the par value of P100.00 each; P200,000.00 was the
subscribed stock; Natividad R. Villarama (wife of Jose M. Villarama) was one of the incorporators,
and she subscribed for P1,000.00; the balance of P199,000.00 was subscribed by the brother and
sister-in-law of Jose M. Villarama; of the subscribed capital stock, P105,000.00 was paid to the
treasurer of the corporation, who was Natividad R. Villarama.
In less than a month after its registration with the Securities and Exchange Commission (March
10, 1959), the Corporation, on April 7, 1959, bought five certificates of public convenience, forty-
nine buses, tools and equipment from one Valentin Fernando, for the sum of P249,000.00, of which
P100,000.00 was paid upon the signing of the contract; P50,000.00 was payable upon the final
approval of the sale by the PSC; P49,500.00 one year after the final approval of the sale; and the
balance of P50,000.00 "shall be paid by the BUYER to the different suppliers of the SELLER."
The very same day that the aforementioned contract of sale was executed, the parties thereto
immediately applied with the PSC for its approval, with a prayer for the issuance of a provisional
authority in favor of the vendee Corporation to operate the service therein involved.1 On May 19,
1959, the PSC granted the provisional permit prayed for, upon the condition that "it may be
modified or revoked by the Commission at any time, shall be subject to whatever action that may
be taken on the basic application and shall be valid only during the pendency of said application."
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Before the PSC could take final action on said application for approval of sale, however, the Sheriff
of Manila, on July 7, 1959, levied on two of the five certificates of public convenience involved
therein, namely, those issued under PSC cases Nos. 59494 and 63780, pursuant to a writ of
execution issued by the Court of First Instance of Pangasinan in Civil Case No. 13798, in favor of
Eusebio Ferrer, plaintiff, judgment creditor, against Valentin Fernando, defendant, judgment
debtor. The Sheriff made and entered the levy in the records of the PSC. On July 16, 1959, a public
sale was conducted by the Sheriff of the said two certificates of public convenience. Ferrer was
the highest bidder, and a certificate of sale was issued in his name.
Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly
submitted for approval their corresponding contract of sale to the PSC.2 Pantranco therein prayed
that it be authorized provisionally to operate the service involved in the said two certificates.
The applications for approval of sale, filed before the PSC, by Fernando and the Corporation, Case
No. 124057, and that of Ferrer and Pantranco, Case No. 126278, were scheduled for a joint hearing.
In the meantime, to wit, on July 22, 1959, the PSC issued an order disposing that during the
pendency of the cases and before a final resolution on the aforesaid applications, the Pantranco
shall be the one to operate provisionally the service under the two certificates embraced in the
contract between Ferrer and Pantranco. The Corporation took issue with this particular ruling of
the PSC and elevated the matter to the Supreme Court,3 which decreed, after deliberation, that
until the issue on the ownership of the disputed certificates shall have been finally settled by the
proper court, the Corporation should be the one to operate the lines provisionally.
On November 4, 1959, the Corporation filed in the Court of First Instance of Manila, a complaint
for the annulment of the sheriff's sale of the aforesaid two certificates of public convenience (PSC
Cases Nos. 59494 and 63780) in favor of the defendant Ferrer, and the subsequent sale thereof by
the latter to Pantranco, against Ferrer, Pantranco and the PSC. The plaintiff Corporation prayed
therein that all the orders of the PSC relative to the parties' dispute over the said certificates be
annulled.
In separate answers, the defendants Ferrer and Pantranco averred that the plaintiff Corporation had
no valid title to the certificates in question because the contract pursuant to which it acquired them
from Fernando was subject to a suspensive condition — the approval of the PSC — which has not
yet been fulfilled, and, therefore, the Sheriff's levy and the consequent sale at public auction of the
certificates referred to, as well as the sale of the same by Ferrer to Pantranco, were valid and
regular, and vested unto Pantranco, a superior right thereto.
Pantranco, on its part, filed a third-party complaint against Jose M. Villarama, alleging that
Villarama and the Corporation, are one and the same; that Villarama and/or the Corporation was
disqualified from operating the two certificates in question by virtue of the aforementioned
agreement between said Villarama and Pantranco, which stipulated that Villarama "shall not for a
period of 10 years from the date of this sale, apply for any TPU service identical or competing
with the buyer."
Upon the joinder of the issues in both the complaint and third-party complaint, the case was tried,
and thereafter decision was rendered in the terms, as above stated.
6
As stated at the beginning, all the parties involved have appealed from the decision. They
submitted a joint record on appeal.
Pantranco disputes the correctness of the decision insofar as it holds that Villa Rey Transit, Inc.
(Corporation) is a distinct and separate entity from Jose M. Villarama; that the restriction clause
in the contract of January 8, 1959 between Pantranco and Villarama is null and void; that the
Sheriff's sale of July 16, 1959, is likewise null and void; and the failure to award damages in its
favor and against Villarama.
V. STATEMENT OF THE CASE

This is a tri-party appeal from the decision of the Court of First Instance of Manila, Civil Case No.
41845, declaring null and void the sheriff's sale of two certificates of public convenience in favor
of defendant Eusebio E. Ferrer and the subsequent sale thereof by the latter to defendant
Pangasinan Transportation Co., Inc.; declaring the plaintiff Villa Rey Transit, Inc., to be the lawful
owner of the said certificates of public convenience; and ordering the private defendants, jointly
and severally, to pay to the plaintiff, the sum of P5,000.00 as and for attorney's fees. The case
against the PSC was dismissed.
VI. ISSUES:
1. Does the stipulation or restrictive clause between Villarama and Pantranco, as contained in
the deed of sale, that the former "SHALL NOT FOR A PERIOD OF 10 YEARS FROM
THE DATE OF THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR
COMPETING WITH THE BUYER," apply to new lines only or does it include existing
lines?
2. Assuming that said stipulation covers all kinds of lines, is such stipulation valid and
enforceable
3. In the affirmative, that said stipulation is valid, did it bind the Corporation
VII. RULING:
1. It applies to existing and new lines.
It is evident from the context thereof that the intention of the parties was to eliminate the seller as
a competitor of the buyer for ten years along the lines of operation covered by the certificates of
public convenience subject of their transaction. The word "apply" as broadly used has for frame
of reference, a service by the seller on lines or routes that would compete with the buyer along the
routes acquired by the latter. In this jurisdiction, prior authorization is needed before anyone can
operate a TPU service,33whether the service consists in a new line or an old one acquired from a
previous operator. The clear intention of the parties was to prevent the seller from conducting any
competitive line for 10 years since, anyway, he has bound himself not to apply for authorization
to operate along such lines for the duration of such period.
7
If the prohibition is to be applied only to the acquisition of new certificates of public convenience
thru an application with the Public Service Commission, this would, in effect, allow the seller just
the same to compete with the buyer as long as his authority to operate is only acquired thru transfer
or sale from a previous operator, thus defeating the intention of the parties.
The evident intention behind the restriction was to eliminate the sellers as a competitor, and this
must be, considering such factors as the good will35 that the seller had already gained from the
riding public and his adeptness and proficiency in the trade.
2. Yes it is valid
Analyzing the characteristics of the questioned stipulation, We find that although it is in the nature
of an agreement suppressing competition, it is, however, merely ancillary or incidental to the main
agreement which is that of sale. The suppression or restraint is only partial or limited: first, in
scope, it refers only to application for TPU by the seller in competition with the lines sold to the
buyer; second, in duration, it is only for ten (10) years; and third, with respect to situs or territory,
the restraint is only along the lines covered by the certificates sold. In view of these limitations,
coupled with the consideration of P350,000.00 for just two certificates of public convenience, and
considering, furthermore, that the disputed stipulation is only incidental to a main agreement, the
same is reasonable and it is not harmful nor obnoxious to public service.38 It does not appear that
the ultimate result of the clause or stipulation would be to leave solely to Pantranco the right to
operate along the lines in question, thereby establishing monopoly or predominance approximating
thereto. We believe the main purpose of the restraint was to protect for a limited time the business
of the buyer.
Our conclusion is that the stipulation prohibiting Villarama for a period of 10 years to "apply" for
TPU service along the lines covered by the certificates of public convenience sold by him to
Pantranco is valid and reasonable. Having arrived at this conclusion, and considering that the
preponderance of the evidence have shown that Villa Rey Transit, Inc. is itself the alter ego of
Villarama, We hold, as prayed for in Pantranco's third party complaint, that the said Corporation
should, until the expiration of the 1-year period abovementioned, be enjoined from operating the
line subject of the prohibition.
To avoid any misunderstanding, it is here to be emphasized that the 10-year prohibition upon
Villarama is not against his application for, or purchase of, certificates of public convenience, but
merely the operation of TPU along the lines covered by the certificates sold by him to Pantranco.
Consequently, the sale between Fernando and the Corporation is valid, such that the rightful
ownership of the disputed certificates still belongs to the plaintiff being the prior purchaser in good
faith and for value thereof. In view of the ancient rule of caveat emptor prevailing in this
jurisdiction, what was acquired by Ferrer in the sheriff's sale was only the right which Fernando,
judgment debtor, had in the certificates of public convenience on the day of the sale
Accordingly, by the "Notice of Levy Upon Personalty" the Commissioner of Public Service was
notified that "by virtue of an Order of Execution issued by the Court of First Instance of
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Pangasinan, the rights, interests, or participation which the defendant, VALENTIN A.
FERNANDO — in the above entitled case may have in the following realty/personalty is attached
or levied upon, to wit: The rights, interests and participation on the Certificates of Public
Convenience issued to Valentin A. Fernando, in Cases Nos. 59494, etc. ... Lines — Manila to
Lingayen, Dagupan, etc. vice versa." Such notice of levy only shows that Ferrer, the vendee at
auction of said certificates, merely stepped into the shoes of the judgment debtor. Of the same
principle is the provision of Article 1544 of the Civil Code, that "If the same thing should have
been sold to different vendees, the ownership shall be transferred to the person who may have first
taken possession thereof in good faith, if it should be movable property.
3. Yes, the restrictive clause is enforceable and binding.
The evidence has disclosed that Villarama, albeit was not an incorporator or stockholder of the
Corporation, alleging that he did not become such, because he did not have sufficient funds to
invest, his wife, however, was an incorporator with the least subscribed number of shares, and was
elected treasurer of the Corporation. The finances of the Corporation which, under all concepts in
the law, are supposed to be under the control and administration of the treasurer keeping them as
trust fund for the Corporation, were, nonetheless, manipulated and disbursed as if they were the
private funds of Villarama, in such a way and extent that Villarama appeared to be the actual
owner-treasurer of the business without regard to the rights of the stockholders.
The evidence further shows that the initial cash capitalization of the corporation of P105,000.00
was mostly financed by Villarama. Another witness, Celso Rivera, accountant of the Corporation,
testified that while in the books of the corporation there appears an entry that the treasurer received
P95,000.00 as second installment of the paid-in subscriptions, and, subsequently, also P100,000.00
as the first installment of the offer for second subscriptions worth P200,000.00 from the original
subscribers, yet Villarama directed him (Rivera) to make vouchers liquidating the sums.7 Thus, it
was made to appear that the P95,000.00 was delivered to Villarama in payment for equipment
purchased from him, and the P100,000.00 was loaned as advances to the stockholders. The said
accountant, however, testified that he was not aware of any amount of money that had actually
passed hands among the parties involved,8 and actually the only money of the corporation was the
P105,000.00 covered by the deposit slip Exh. 23, of which as mentioned above, P85,000.00 was
paid by Villarama's personal check.
Further, the evidence shows that when the Corporation was in its initial months of operation,
Villarama purchased and paid with his personal checks Ford trucks for the Corporation.
Taking account of the foregoing evidence, together with Celso Rivera's testimony it would appear
that: Villarama supplied the organization expenses and the assets of the Corporation, such as trucks
and equipment;17 there was no actual payment by the original subscribers of the amounts of
P95,000.00 and P100,000.00 as appearing in the books; Villarama made use of the money of the
Corporation and deposited them to his private accounts; and the Corporation paid his personal
accounts.
Villarama himself admitted that he mingled the corporate funds with his own money.21 He also
admitted that gasoline purchases of the Corporation were made in his name22 because "he had
9
existing account with Stanvac which was properly secured and he wanted the Corporation to
benefit from the rebates that he received."
The foregoing circumstances are strong persuasive evidence showing that Villarama has been too
much involved in the affairs of the Corporation to altogether negative the claim that he was only a
part-time general manager. They show beyond doubt that the Corporation is his alter ego.
Indeed, while Villarama was not the Treasurer of the Corporation but was, allegedly, only a part-
time manager, he admitted not only having held the corporate money but that he advanced and lent
funds for the Corporation, and yet there was no Board Resolution allowing it.
Villarama's explanation on the matter of his involvement with the corporate affairs of the
Corporation only renders more credible Pantranco's claim that his control over the corporation,
especially in the management and disposition of its funds, was so extensive and intimate that it is
impossible to segregate and identify which money belonged to whom. The interference of
Villarama in the complex affairs of the corporation, and particularly its finances, are much too
inconsistent with the ends and purposes of the Corporation law, which, precisely, seeks to separate
personal responsibilities from corporate undertakings. It is the very essence of incorporation that
the acts and conduct of the corporation be carried out in its own corporate name because it has its
own personality.
The doctrine that a corporation is a legal entity distinct and separate from the members and
stockholders who compose it is recognized and respected in all cases which are within reason and
the law.29 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,30 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.
Upon the foregoing considerations, We are of the opinion, and so hold, that the preponderance of
evidence have shown that the Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that
the restrictive clause in the contract entered into by the latter and Pantranco is also enforceable and
binding against the said Corporation. For the rule is that a seller or promisor may not make use of
a corporate entity as a means of evading the obligation of his covenant. Where the Corporation is
substantially the alter ego of the covenantor to the restrictive agreement, it can be enjoined from
competing with the covenantee.
PREMISES CONSIDERED, the judgment appealed from is hereby modified as follows:
1. The sale of the two certificates of public convenience in question by Valentin Fernando to
Villa Rey Transit, Inc. is declared preferred over that made by the Sheriff at public auction of the
aforesaid certificate of public convenience in favor of Eusebio Ferrer;
2. Reversed, insofar as it dismisses the third-party complaint filed by Pangasinan
Transportation Co. against Jose M. Villarama, holding that Villa Rey Transit, Inc. is an entity
10
distinct and separate from the personality of Jose M. Villarama, and insofar as it awards the sum
of P5,000.00 as attorney's fees in favor of Villa Rey Transit, Inc.;
3. The case is remanded to the trial court for the reception of evidence in consonance with the
above findings as regards the amount of damages suffered by Pantranco; and
4. On equitable considerations, without costs. So ordered.
11
I. SHORT TITLE: A.C. RANSOM LABOR UNION-CCLU V. NLRC
II. FULL TITLE: A.C. Ransom Labor Union-CCLU v. NLRC- G.R. No. L-69494, May 29,
1987, MELENCIO-HERRERA, J.
IV. STATEMENT OF FACTS:
The petitioner was held guilty of unfair labor practice of interference and discrimination and was
ordered to reinstate its employees and pay backwages. The backwages due the 22 employees
having been computed at P 199,276.00 by the (CIR) Examiner, successive Motions for Execution
were filed by the UNION, all of which RANSOM opposed stressing its "precarious financial
position if immediate execution of the backwages would be ordered."
The records show that, upon application filed by RANSOM on April 2, 1973, it was granted
clearance by the Secretary of Labor on June 7, 1973 to cease operation and terminate employment
effective May 1, 1973, without prejudice to the right of subject employees to seek redress of
grievances under existing laws and decrees. The reasons given by RANSOM for the clearance
application were financial difficulties on account of obligations incurred prior to 1966.
The UNION filed another Motion for Execution alleging that although RANSOM had assumed a
posture of suffering from business reverse, its officers and principal stockholders had organized a
new corporation, the Rosario Industrial Corporation (thereinafter called ROSARIO), using the
same equipment, personnel, business stocks and the same place of business. For its part, RANSOM
declared that ROSARIO is a distinct and separate corporation, which was organized long before
these instant cases were decided adversely against RANSOM.
It appears that sometime in 1969, ROSARIO, a closed corporation, was, in fact, established. It was
engaged in the same line of business as RANSOM with the same Hernandez family as the owners,
the same officers, the same President, the same counsel and the same address at 555 Quirino
Avenue, Paranaque, Rizal. The compound, building, plant, equipment, machinery, laboratory and
bodega were the same as those occupied and used by RANSOM. The UNION claims that
ROSARIO thrives to this day.
Writs of execution were issued successively against RANSOM on June 23, 1976, and February
17, 1977, to no avail. On December 18, 1978, the UNION again filed an ex-parte Motion for Writ
of Execution and Garnishment praying that the Writ issue against the Officers/Agents of
RANSOM personally and or their estates, as the case may be, considering their success in hiding
or shielding the assets of said company. RANSOM countered that the CIR Decision, dated August
19, 1972, could no longer be enforced by mere Motion because more than five (5) years had
already lapsed.
LA held the respondent corporation liable. It appears that among the persons named in the
aforequoted Order, Ma. Rosario Hernandez died in 1971; Francisco Hernandez died in 1977: and
12
Celestino C. Hernandez passed away in 1979. And Maximo Hernandez who was named in the CIR
Decision, died in 1966. NLRC affirmed the decision of LA.
Both parties have moved for reconsideration. Private respondents point out that they were never
impleaded as parties in the Trial Court, and that their personal liabilities were never at issue; that
judgment holding Ruben Hernandez personally liable is tantamount to deprivation of property
without due process of law; and that he was not an officer of the corporation at the time the unfair
labor practices were committed. The UNION on the other hand, in its own Motion for
Reconsideration, prays that the veil of corporate fiction be pierced that the Decision be modified,
in that all the individual private respondents and not only the President, should be held jointly and
severally liable with RANSOM. On November 4, 1986, it further filed an Urgent Motion for
Preliminary Mandatory Injunction "directing private respondents to deposit the amount of P
199,276.00 or to put up a supersedeas bond of the same sum."
VI. ISSUE:
Whether or not the doctrine of piercing of corporate veil shall apply in this case.
VII. RULING:
YES. Incontrovertible is the fact that RANSOM was found guilty by the CIR, in its Decision of
August 19, 1972, of unfair labor practice; that its officers and agents were ordered to cease and
desist from further committing acts constitutive of the same, and to reinstate immediately the 22
union members to their respective positions with backwages from July 25, 1969 until actually
reinstated. The officers and agents listed in the Genilo Order except for those who have since
passed away, should, as affirmed by this Court, be held jointly and severally liable for the payment
of backwages to the 22 strikers.
This finding does not ignore the legal fiction that a corporation has a personality separate and
distinct from its stockholders and members, for, as this Court had held "where the incorporators
and directors belong to a single family, the corporation and its members can be considered as one
in order to avoid its being used as an instrument to commit injustice."
The alleged bankruptcy of RANSOM furnishes no justification for non-payment of backwages to
the employees concerned taking into consideration Article 110 of the Labor Code, The alleged
bankruptcy of RANSOM furnishes no justification for non-payment of backwages to the
employees concerned taking into consideration Article 110 of the Labor Code, which provides:
ART. 110. Worker preference in case of bankruptcy. - In the event of bankruptcy or liquidation of
an employer's business, his workers shall enjoy first preference as regards wages due them for
services rendered during the period prior to the bankruptcy or liquidation, any provision of law
to the contrary notwithstanding. Unpaid wages shag be paid in full before other creditors may
establish any claim to a share in the assets of the employer.
The term "wages" refers to all remunerations, earnings and other benefits in terms of money
accruing to the employees or workers for services rendered. They are to be paid in full before other
creditors may establish any claim to a share in the assets of the employer.
13
The Decision of the CIR was rendered on August 19, 1972. Clearance to RANSOM to cease
operations and terminate employment granted by the Secretary of Labor was made effective on
May 1, 1973. The right of the employees concerned to backwages awarded them, therefore, had
already vested at the time and even before clearance was granted. Note should also be taken of the
fact that the clearance was without prejudice to the right of subject employees to seek redress of
grievances under existing laws and decrees.
The worker preference applies even if the employer's properties are encumbered by means of a
mortgage contract, as in this case. So that, when machinery and equipment of RANSOM were sold
to Revelations Manufacturing Corporation for P 2M in 1975, the right of the 22 laborers to be paid
from the proceeds should have been recognized, even though it is claimed that those proceeds were
turned over to the Commercial Bank and Trust Company (Comtrust) in payment of RANSOM
obligations, since the workers' preference is over and above the claim of other creditors.
The contention, therefore, of the heirs of the late Maximo C. Hernandez, Sr. that since they paid
from their own personal funds the balance of the amount owing by RANSOM to Comtrust they
are the "preferential creditors" of RANSOM, is clearly without merit. Workers are to be paid in
full before other creditors may establish any claim to a share in the assets of the employer.
Aggravating RANSOM's clear evasion of payment of its financial obligations is the organization
of a "run-away corporation," ROSARIO, in 1969 at the time the unfair labor practice case was
pending before the CIR by the same persons who were the officers and stockholders of RANSOM,
engaged in the same line of business as RANSOM, producing the same line of products, occupying
the same compound, using the same machineries, buildings, laboratory, bodega and sales and
accounts departments used by RANSOM, and which is still in existence. Both corporations were
closed corporations owned and managed by members of the same family. Its organization proved
to be a convenient instrument to avoid payment of backwages and the reinstatement of the 22
workers. This is another instance where the fiction of separate and distinct corporate entities should
be disregarded.
It is very obvious that the second corporation seeks the protective shield of a corporate fiction
whose veil in the present case could, and should, be pierced as it was deliberately and maliciously
designed to evade its financial obligation to its employees.
The UNION's plea, therefore, for the reinstatement of the 22 strikers in ROSARIO should be
favorably heard. However, ROSARIO shall have the option to award them separation pay
equivalent to one-half month for every year of service actually rendered by the 22 strikers. The
plea of the UNION for the restoration of the original computation of P199,276.00 or to grant the
22 Union members three (3) years backwages is rejected. It is the amount of P164,984.00 as
backwages, which was the subject of the Writ of Execution issued by the Labor Arbiter pursuant
to the CIR Decision of 1972.
This decision is immediately executory. SO ORDERED.
14
I. SHORT TITLE: PHIL. VETERANS INVESTMENT DEVELOPMENT CORP. V. CA
II. FULL TITLE: PHILIPPINE VETERANS INVESTMENT DEVELOPMENT
CORPORATION vs. COURT OF APPEALS and VIOLETA
MONTELIBANO BORRES- G.R. No. 85266, January 30, 1990, CRUZ, J.

On May 25, 1979, petitioner Philippine Veterans Investment Development Corporation
(PHIVIDEC) sold all its rights and interests in the Phividec Railways, Inc. (PRI) to the Philippine
Sugar Commission (PHILSUCOM). Two days later, PHILSUCOM caused the creation of a
wholly-owned subsidiary, the Panay Railways, Inc., to operate the railway assets acquired from
PHIVIDEC. Borres filed a complaint for damages against PRI and Panay Railways Inc. (Panay),
whereupon the latter filed with leave of court a third-party complaint against the herein petitioner.
It alleged that upon the sale to PHILSUCOM of PRI, the corporate name of PRI was changed to
Panay Railways, Inc. It disclaimed liability on the ground that in the Agreement concluded
between PHIVIDEC and PHILSUCOM, it was provided that:
“PHIVIDEC hereby holds PHILSUCOM harmless from and against any action, claim or
liability that may arise out of or result from acts or omissions, contracts or transactions
prior to the turn-over.”
RTC held Phividec Railways, Inc. negligent and so liable to the plaintiff for damages. It also held
that as PRI was a wholly-owned subsidiary of PHIVIDEC, the latter should answer for PRI's
liability. The decision was affirmed on appeal by the respondent court, which is now faulted for
grave abuse of discretion in this petition. CA found that the separate corporate personality of
PHIVIDEC and PRI disappeared by virtue of the contract entered into by PHIVIDEC and
PHILSUCOM which held PHILSUCOM harmless from any claim or liability arising out of any
act or transaction “prior to the turn-over”. Since the accident happened prior to the turn over, it is
logical to hold PHIVIDEC solely liable.
VI. ISSUE:
Whether or not PHIVIDEC’s and PRI’s separate juridical personality should be pierced by virtue
of the contract entered into between PHIVIDEC and PHILSUCOM
VII. RULING:
YES. The rule is that where it appears that two 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 the legal fiction that two corporations are distinct entities, and treat them
as identical.
15
PHIVIDEC'S act of selling PRI to PHILSUCOM shows that PHVIDEC had complete control of
PRI's business.
It is clear from the evidence of record that by virtue of the agreement between PHIVIDEC and
PHILSUCOM, particularly the stipulation exempting the latter from any "claim or liability arising
out of any act or transaction" prior to the turn-over, PHIVIDEC had expressly assumed liability
for any claim against PRI. Since the accident happened before that agreement and PRI ceased to
exist after the turn-over, it should follow that PHIVIDEC cannot evade its liability for the injuries
sustained by the private respondent.
A contrary conclusion would leave the private respondent without any recourse for her legitimate
claim. In the interest of justice and equity, and to prevent the veil of corporate fiction from denying
her the reparation to which she is entitled, that veil must be pierced and PHIVIDEC and PRI
regarded as one and the same entity.

WHEREFORE, the challenged decision is AFFIRMED and the petition is DENIED, with costs
against the petitioner. It is so ordered.
16
I. SHORT TITLE: INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO V.
CALICA AND INDOPHIL TEXTILE MILLS, INC.
II. FULL TITLE: INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO vs.
VOLUNTARY ARBITRATOR TEODORICO P. CALICA and
INDOPHIL TEXTILE MILLS, INC- G.R. No. 96490, February 3, 1992,
MEDIALDEA, J.
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 of the National Conciliation
and Mediation Board of the Department of Labor and Employment, while 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 and has its plants at Barrio
Lambakin. Marilao, Bulacan.
Petitioner Indophil Textile Mill Workers Union-PTGWO and private respondent Indophil Textile
Mills, Inc. executed a collective bargaining agreement effective from April 1, 1987 to March 31,
1990.
Indophil Acrylic Manufacturing Corporation was formed and registered with the Securities and
Exchange Commission. Subsequently, Acrylic applied for registration with the Board of
Investments for incentives under the 1987 Omnibus Investments Code. The application was
approved on a preferred non-pioneer status. Sometime in July, 1989, 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 pursuant to Section 1(c), Article I of the
CBA. In other words, it is the petitioner's contention that Acrylic is part of the Indophil bargaining
unit.
The petitioner's contention was opposed by private respondent which submits that it is a juridical
entity separate and distinct from Acrylic.
The existing impasse led the petitioner and private respondent to enter into a submission agreement
on September 6, 1990. The parties jointly requested the public respondent to act as voluntary
arbitrator in the resolution of the pending labor dispute pertaining to the proper interpretation of
the CBA provision. The VA ruled that CBA provision do not extend to the employees of Acrylic
as an extension or expansion of Indophil Textile Mills, Inc.
17
Petitioner maintains that public respondent Arbitrator gravely erred in interpreting Section l(c),
Article I of the CBA in its literal meaning without taking cognizance of the facts adduced that the
creation of the aforesaid Indophil Acrylic is but a devise of respondent Company to evade the
application of the CBA between petitioner Union and respondent Company.
Furthermore, petitioner emphasizes that the two corporations have practically the same
incorporators, directors and officers. In fact, of the total stock subscription of Indophil Acrylic,
P1,749,970.00 which represents seventy percent (70%) of the total subscription of P2,500,000.00
was subscribed to by respondent Company.
The Solicitor General argues that the Indophil Acrylic Manufacturing Corporation is not an alter
ego or an adjunct or business conduit of private respondent because it has a separate legitimate
business purpose. The Solicitor General alleges that the primary purpose of private respondent is
to engage in the business of manufacturing yarns of various counts and kinds and textiles. On the
other hand, the primary purpose of Indophil Acrylic is to manufacture, buy, sell at wholesale basis,
barter, import, export and otherwise deal in yarns of various counts and kinds. Hence, unlike
private respondent, Indophil Acrylic cannot manufacture textiles while private respondent cannot
buy or import yarns.
VI. ISSUE:
Whether or not the operations in Indophil Acrylic Corporation are an extension or expansion of
private respondent Company.
VII. RULING:
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 auxilliary 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.
18
In the same case of Umali, et al. v. Court of Appeals (supra), 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.
Hence, the Acrylic not being an extension or expansion of private respondent, the rank-and-file
employees working at Acrylic should not be recognized as part of, and/or within the scope of the
petitioner, as the bargaining representative of private respondent.

ACCORDINGLY, the petition is DENIED and the award of the respondent Voluntary
Arbitrator are hereby AFFIRMED.
19
I. SHORT TITLE: CONCEPT BUILDERS, INC. VS. NLRC
II. FULL TITLE: Concept Builders, Inc. vs. NLRC- G.R. No. 108734, May 29, 1996,
HERMOSISIMA, JR., J.
Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan
Road, Valenzuela, Metro Manila, is engaged in the construction business. Private respondents
were employed by said company as laborers, carpenters and riggers.
Private respondents were served individual written notices of termination of employment by
petitioner, effective on November 30, 1981. It was stated in the individual notices that their
contracts of employment had expired and the project in which they were hired had been completed.
Public respondent found it to be, the fact, however, that at the time of the termination of private
respondent's employment, the project in which they were hired had not yet been finished and
completed. Petitioner had to engage the services of sub-contractors whose workers performed the
functions of private respondents. Aggrieved, private respondents filed a complaint for illegal
dismissal, unfair labor practice and non-payment of their legal holiday pay, overtime pay and
thirteenth-month pay against petitioner.
The Labor Arbiter rendered judgment ordering petitioner to reinstate private respondents and to
pay them back wages equivalent to one year or three hundred working days. The National Labor
Relations Commission (NLRC) dismissed the motion for reconsideration filed by petitioner on the
ground that the said decision had already become final and executory.
The Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision. The
writ was partially satisfied through garnishment of sums from petitioner's debtor, the Metropolitan
Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over
to the cashier of the NLRC. An Alias Writ of Execution was issued by the Labor Arbiter directing
the sheriff to collect from herein petitioner the sum of P117,414.76, representing the balance of
the judgment award, and to reinstate private respondents to their former positions.
The sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner
through the security guard on duty but the service was refused on the ground that petitioner no
longer occupied the premises. Upon motion of private respondents, the Labor Arbiter issued a
second alias writ of execution.
The said writ had not been enforced by the special sheriff because:
1. 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 respondent;
20
2. Levy was made upon personal properties he found in the premises;
3. Security guards with high-powered guns prevented him from removing the properties he
had levied upon.
The said special sheriff recommended that a "break-open order" be issued to enable him to enter
petitioner's premises so that he could proceed with the public auction sale of the aforesaid personal
properties on November 7, 1989.
A certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the
properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of
which he is the Vice-President.
Private respondents filed a "Motion for Issuance of a Break-Open Order," alleging that HPPI and
petitioner corporation were owned by the same incorporator/stockholders. They also alleged that
petitioner temporarily suspended its business operations in order to evade its legal obligations to
them and that private respondents were willing to post an indemnity bond to answer for any
damages which petitioner and HPPI may suffer because of the issuance of the break-open order.
In support of their claim against HPPI, private respondents presented duly certified copies of the
General Informations Sheet, dated May 15, 1987, submitted by petitioner to the Securities
Exchange Commission (SEC) and the General Information Sheet, dated May 25, 1987, submitted
by HPPI to the Securities and Exchange Commission.
HPPI filed an Opposition to private respondents' motion for issuance of a break-open order,
contending that HPPI is a corporation which is separate and distinct from petitioner. HPPI also
alleged that the two corporations are engaged in two different kinds of businesses, i.e., HPPI is a
manufacturing firm while petitioner was then engaged in construction.
LA issued order denying private respondents' motion for break-open order. the NLRC set aside
the order of the Labor Arbiter, issued a break-open order and directed private respondents to file a
bond. Thereafter, it directed the sheriff to proceed with the auction sale of the properties already
levied upon. It dismissed the third-party claim for lack of merit.
VI. ISSUE:
Whether or not NLRC erred in granting the motion for break-open order disregarding the separate
juridical personality between the petitioner and HPPI.
VII. RULING:
NO. The doctrine of piercing the corporate veil is correctly applied by NLRC.
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. 8 But, this separate
and distinct personality of a corporation is merely a fiction created by law for convenience and to
promote justice.
21
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:
1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of
plaintiff's legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In applying the
"instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with
how the corporation operated and the individual defendant's relationship to that operation.
This case, the NLRC noted that, while petitioner claimed that it ceased its business operations on
April 29, 1986, it filed an Information Sheet with the Securities and Exchange Commission on
May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila.
On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information
sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casiño as the corporate secretary of
both corporations. It would also not be amiss to note that both corporations had the same president,
the same board of directors, the same corporate officers, and substantially the same subscribers.
From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the
third-party claimant shared the same address and/or premises. Under this circumstances, (sic) it
cannot be said that the property levied upon by the sheriff were not of respondents. 16
22
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.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of
the execution, private respondents had no other recourse but to apply for a break-open order after
the third-party claim of HPPI was dismissed for lack of merit by the NLRC.
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April
23, 1992 and December 3, 1992, are AFFIRMED.
23
I. SHORT TITLE: LIPAT V. PACIFIC BANKING CORP.
II. FULL TITLE: Estelita Burgos Lipat and Alfredo Lipat versus Pacific Banking
Corporation, Register Of Deeds, RTC Ex-Officio Sheriff of Quezon City
and the Heirs of Eugenio D. Trinidad - G.R. No. 142435, April 30, 2003, J.
Quisumbing
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's Export Trading"
(BET), a single proprietorship. BET was engaged in the manufacture of garments for domestic and
foreign consumption. The Lipats also owned the "Mystical Fashions" in the United States, which
sells goods imported from the Philippines through BET. Mrs. Lipat designated her daughter,
Teresita B. Lipat, to manage BET in the Philippines while she was managing "Mystical Fashions"
in the United States.
Estelita Lipat executed a special power of attorney appointing Teresita Lipat as her attorney-in-
fact to obtain loans and other credit accommodations from respondent Pacific Banking
Corporation (Pacific Bank). She likewise authorized Teresita to execute mortgage contracts on
properties owned or co-owned by her as security for the obligations to be extended by Pacific Bank
including any extension or renewal thereof.
Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to secure
for and in behalf of her mother, Mrs. Lipat and BET, a loan from Pacific Bank amounting to
P583,854.00 to buy fabrics to be manufactured by BET and exported to "Mystical Fashions" in the
United States. As security therefor, the Lipat spouses, as represented by Teresita, executed a Real
Estate Mortgage over their property located at No. 814 Aurora Blvd., Cubao, Quezon City.
BET was incorporated into a family corporation named Bela's Export Corporation (BEC) in order
to facilitate the management of the business. BEC was engaged in the business of manufacturing
and exportation of all kinds of garments of whatever kind and description and utilized the same
machineries and equipment previously used by BET. Its incorporators and directors included the
Lipat spouses who owned a combined 300 shares out of the 420 shares subscribed, Teresita Lipat
who owned 20 shares, and other close relatives and friends of the Lipats. Estelita Lipat was named
president of BEC, while Teresita became the vice-president and general manager.
Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained
by BEC with the corresponding promissory notes duly executed by Teresita on behalf of the
corporation. A letter of credit was also opened by Pacific Bank in favor of A. O. Knitting
Manufacturing Co., Inc., upon the request of BEC after BEC executed the corresponding trust
receipt therefor. Export bills were also executed in favor of Pacific Bank for additional finances.
These transactions were all secured by the real estate mortgage over the Lipats' property.
The promissory notes, export bills, and trust receipt eventually became due and demandable.
Unfortunately, BEC defaulted in its payments. After receipt of Pacific Bank's demand letters,
24
Estelita Lipat went to the office of the bank's liquidator and asked for additional time to enable her
to personally settle BEC's obligations. The bank acceded to her request but Estelita failed to fulfill
her promise.
Consequently, the real estate mortgage was foreclosed and after compliance with the requirements
of the law the mortgaged property was sold at public auction. A certificate of sale was issued to
respondent Eugenio D. Trinidad as the highest bidder.

Spouses Lipat filed before the Quezon City RTC a complaint for annulment of the real estate
mortgage, extrajudicial foreclosure and the certificate of sale issued over the property against
Pacific Bank and Eugenio D. Trinidad.
The complaint, alleged that the promissory notes, trust receipt, and export bills were all ultra
vires acts of Teresita as they were executed without the requisite board resolution of the Board of
Directors of BEC. The Lipats also averred that assuming said acts were valid and binding on BEC,
the same were the corporation's sole obligation, it having a personality distinct and separate from
spouses Lipat. It was likewise pointed out that Teresita's authority to secure a loan from Pacific
Bank was specifically limited to Mrs. Lipat's sole use and benefit and that the real estate mortgage
was executed to secure the Lipats' and BET's P583,854.00 loan only.
Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot evade payments of the
value of the promissory notes, trust receipt, and export bills with their property because they and
the BEC are one and the same, the latter being a family corporation. Respondent Trinidad further
claimed that he was a buyer in good faith and for value and that petitioners are estopped from
denying BEC's existence after holding themselves out as a corporation.
RTC dismissed the complaint. The trial court ruled that there was convincing and conclusive
evidence proving that BEC was a family corporation of the Lipats. As such, it was a mere extension
of petitioners' personality and business and a mere alter ego or business conduit of the Lipats
established for their own benefit. Thus, the trial court pierced the veil of corporate fiction and held
that Bela's Export Corporation and petitioners (Lipats) are one and the same. Pacific Bank had
transacted business with both BET and BEC on the supposition that both are one and the same.
Hence, the Lipats were estopped from disclaiming any obligations on the theory of separate
personality of corporations, which is contrary to principles of reason and good faith. CA affirmed
the decision of RTC. Hence, this petition.
VI. ISSUE:
Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case.
VII. RULING:
Yes. Petitioners' contentions fail to persuade this Court. A careful reading of the judgment of the
RTC and the resolution of the appellate court show that in finding petitioners' mortgaged property
liable for the obligations of BEC, both courts below relied upon the alter ego doctrine or
25
instrumentality rule, rather than fraud in piercing the veil of corporate fiction. When the
corporation is the mere alter ego or business conduit of a person, the separate personality of the
corporation may be disregarded. This is commonly referred to as the "instrumentality rule" or
the alter ego doctrine, which the courts have applied in disregarding the separate juridical
personality of corporations.
As held in one case, 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 finances, 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.
We find that the evidence on record demolishes, rather than buttresses, petitioners' contention that
BET and BEC are separate business entities. Note that Estelita Lipat admitted that she and her
husband, Alfredo, were the owners of BET and were two of the incorporators and majority
stockholders of BEC. It is also undisputed that Estelita Lipat executed a special power of attorney
in favor of her daughter, Teresita, to obtain loans and credit lines from Pacific Bank on her
behalf. Incidentally, Teresita was designated as executive-vice president and general manager of
both BET and BEC, respectively.
We note further that: (1) Estelita and Alfredo Lipat are the owners and majority shareholders of
BET and BEC, respectively; (2) both firms were managed by their daughter, Teresita; (3) both
firms were engaged in the garment business, supplying products to "Mystical Fashion," a U.S. firm
established by Estelita Lipat; (4) both firms held office in the same building owned by the
Lipats; (5) BEC is a family corporation with the Lipats as its majority stockholders; (6) the
business operations of the BEC were so merged with those of Mrs. Lipat such that they were
practically indistinguishable; (7) the corporate funds were held by Estelita Lipat and the
corporation itself had no visible assets; (8) the board of directors of BEC was composed of the
Burgos and Lipat family members; (9) Estelita had full control over the activities of and decided
business matters of the corporation; and that (10) Estelita Lipat had benefited from the loans
secured from Pacific Bank to finance her business abroad and from the export bills secured by
BEC for the account of "Mystical Fashion."
It could not have been coincidental that BET and BEC are so intertwined with each other in terms
of ownership, business purpose, and management. Apparently, BET and BEC are one and the same
and the latter is a conduit of and merely succeeded the former. Petitioners' attempt to isolate
themselves from and hide behind the corporate personality of BEC so as to evade their liabilities
to Pacific Bank is precisely what the classical doctrine of piercing the veil of corporate entity seeks
to prevent and remedy.
BEC is a mere continuation and successor of BET, and petitioners cannot evade their obligations
in the mortgage contract secured under the name of BEC on the pretext that it was signed for the
benefit and under the name of BET. We are thus constrained to rule that the Court of Appeals did
not err when it applied the instrumentality doctrine in piercing the corporate veil of BEC.
26
WHEREFORE, the petition is DENIED. The Decision dated October 21, 1999 and the Resolution
dated February 23, 2000 of the Court of Appeals in CA-G.R. CV No. 41536 are AFFIRMED.
Costs against petitioners
27
I. SHORT TITLE: TIMES TRANSPORTATION COMPANY, INC. V. SOTELO, ET AL.
II. FULL TITLE: Times Transportation Company, Inc., Versus Santos Sotelo, Conrado B.
Salonga, Samson C. Soliven, Bienvenido F. Malana, Jr., Jovito V. Alcausin,
Efren A. Ramos, Rodrigo P. Cabusao, Jr., Edgar G. Ponce, Ronald Allan
Parinas, Rodel Palo, Reynaldo R. Ragucos, Mario T. Toledo, Bernardino
Padua, Domingo P. Bilan, Arnel Valledores, Ramon Retuta, Jr., Pantaleon
Tabangin, Alberto Pando, Virgilio E. Obar, Eulogio D. Diga, Sr., Daniel
Llado, Ronilo Baltazar, Marito Pando, Leopoldo Funtila, Gerry B. Carrido,
William A. Tabucol, Antonio L. Ramos, Sr., Pablo P. Padre, Henry B.
Ganir, Teotimo R. Requilman, Cipriano Ulpindo, Roger Babida, Samuel
Peralta, Bonifacio Tumalip, Edgar Ablog, Efren Abella, Rodrigo Raboy,
Renato Silva, George Peralta, Ronilo Barbosa, Julian Buenafe, Florencio
Cariño, Bernie Tumbaga, Rodrigo Cabañero, Elmer Tamo, Leopoldo Nana,
Nelie Bose, Demetrio Herrera, Rodolfo Abella, Alvin Elefante, Redentor
Garcia, Jerry Palacpac, Jose Paet, Arthur Ibea, Elizer Borja, Edmundo
Aspiras, Jose V. Pescador, William Garcia, Ernesto P. Mangulabnan,
Benjamin B. Blaza, Joselito P. Cacabelos, Leon R. Galanta, Jr., Mariano P.
Tejada, Pedrito C. Ortiz, Jr., Nestor E. Balcita, Flor Burbano, Hernando A.
Pimentel, Alex A. Gomez, Arnaldo P. Bose, Napoleon Balderas, Carlino V.
Rulloda, Jr., Randy R. Amodo, Cornelio R. Raguini, Robert Ceria, Juanito
U. Ugalde, Alberto Pajo, Alfredo Valoroso, Rufino Adriatico, Bartolome C.
Edrosolan, Jr., Reynante A. Alcain, Noelito Susa And Vicente Nava - G.R.
No. 163786, February 16, 2005, J. Ynares-Santiago
Petitioner Times Transportation Company, Inc. (Times) is a corporation engaged in the business
of land transportation. Prior to its closure in 1997, the Times Employees Union (TEU) was formed
and issued a certificate of union registration. Times challenged the legitimacy of TEU by filing a
petition for the cancellation of its union registration.
TEU held a strike in response to Times’ alleged attempt to form a rival union and its dismissal of
the employees identified to be active union members. Upon petition by Times, then Labor
Secretary, and now Associate Justice of this Court, Leonardo A. Quisumbing, assumed jurisdiction
over the case and referred the matter to the NLRC for compulsory arbitration. A return-to-work
order was likewise issued on March 10, 1997.
In a certification election, TEU was certified as the sole and exclusive collective bargaining agent
in Times. Consequently, TEU’s president wrote the management of Times and requested for
collective bargaining. Times refused on the ground that the decision of the Med-Arbiter upholding
the validity of the certification election was not yet final and executory.
28
TEU filed a Notice of Strike. Another conciliation/mediation proceeding was conducted for the
purpose of settling the brewing dispute. In the meantime, Times’ management implemented a
retrenchment program and notices of retrenchment were sent to some of its employees, including
the respondents herein, informing them of their retrenchment effective 30 days thereafter.
TEU held a strike vote on grounds of unfair labor practice on the part of Times. For alleged
participation in what it deemed was an illegal strike, Times terminated all the 123 striking
employees by virtue of two notices. While the strike was ended, the employees were no longer
admitted back to work.
In the meantime, by December 12, 1997, Mencorp Transport Systems, Inc. (Mencorp) had
acquired ownership over Times’ Certificates of Public Convenience and a number of its bus units
by virtue of several deeds of sale. Mencorp is controlled and operated by Mrs. Virginia Mendoza,
daughter of Santiago Rondaris, the majority stockholder of Times.
NLRC rendered a decision in the cases certified to it by the DOLE that the respondents’ first strike,
conducted is hereby declared legal; its second strike is hereby declared illegal. Consequently, those
23 persons who participated in the illegal strike are deemed to have lost their employment status
and were therefore validly dismissed from employment. The respondents’ Motion to Implead
Mencorp Transport Systems, Inc. and/or Virginia Mendoza and/or Santiago Rondaris is hereby
denied for lack of merit.
Times and TEU both appealed the decision of the NLRC, which the Court of Appeals affirmed.
Upon denial of its motion for reconsideration, Times filed a petition for review on certiorari, now
pending with the Third Division of this Court. TEU likewise appealed but its petition was denied
due course.
In 1998, and after the closure of Times, the retrenched employees, including practically all the
respondents herein, filed cases for illegal dismissal, money claims and unfair labor practices
against Times before the Regional Arbitration Branch in San Fernando City, La Union.
The dismissed employees did not interpose an appeal from said order. Instead, they withdrew their
complaints with leave of court and filed a new set of cases before the National Capital Region
Arbitration Branch. This time, they impleaded Mencorp and the Spouses Reynaldo and Virginia
Mendoza. Times sought the dismissal of these cases on the ground of litis pendencia and forum
shopping.
Labor Arbiter Renaldo O. Hernandez rendered a decision that the judgment is hereby entered
finding that the dismissals of complainants, excluding the expunged ones, by respondent Times
Transit Company, Inc. effected, participated in, authorized or ratified by respondent Santiago
Rondaris constituted the prohibited act of unfair labor practice under Article 248(a) and (e) of the
Labor Code, as amended and hence, illegal and that the sale of said respondent company to
respondents Mencorp Transport Systems Company Inc. and/or Virginia Mendoza and Reynaldo
Mendoza was simulated and/or effected in bad faith.
29
NLRC rendered its decision, stating that the decision appealed from is hereby vacated. The records
of these consolidated cases are hereby ordered remanded to the Arbitration Branch of origin for
disposition and for the conduct of appropriate proceedings for a decision to be rendered with
dispatch.
Reconsideration thereof was denied by the NLRC. Thus, the respondents appealed to the Court of
Appeals by way of a petition for certiorari, attributing grave abuse of discretion on the NLRC for:
(1) not dismissing the appeals of Times, Mencorp and the Spouses Mendoza despite their failure
to post the required bond; (2) remanding the case for further proceedings despite the sufficiency
of the evidence presented by the parties; (3) not sustaining the labor arbiter’s ruling that they were
illegally dismissed; (4) not affirming the labor arbiter’s ruling that there was no litis pendencia;
and (5) not ruling that Times and Mencorp are one and the same entity.
Court of Appeals rendered the decision the instant petition is hereby granted. The assailed Decision
and Resolution of the NLRC are hereby set aside. The Decision of the Labor Arbiter is hereby
reinstated.
Times, Mencorp and the Spouses Mendoza filed Motions for Reconsideration, which were denied.
Hence, this petition for review.
VI. ISSUE: Whether or not the doctrine of piercing the veil of corporate fiction was properly
applied.
VII. RULING:
Yes. We have held that piercing the corporate veil is warranted only in cases when the separate
legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime,
such that in the case of two corporations, the law will regard the corporations as merged into one. It
may be allowed only if the following elements concur: (1) control—not mere stock control, but
complete domination—not only of finances, but of policy and business practice in respect to the
transaction attacked; (2) such control must have been used 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 a legal right; and (3) the said control and breach of duty must have proximately
caused the injury or unjust loss complained of.
The following findings of the Labor Arbiter, which were cited and affirmed by the Court of
Appeals, have not been refuted by Times, to wit:
1. The sale was transferred to a corporation controlled by V. Mendoza, the daughter of

respondent S. Rondaris of [Times] where she is/was also a director, as proven by the
articles of incorporation of [Mencorp];
2. All of the stockholders/incorporators of [Mencorp]: Reynaldo M. Mendoza, Virginia R.

Mendoza, Vernon Gerard R. Mendoza, Vivian Charity R. Mendoza, Vevey Rosario R.
Mendoza are all relatives of respondent S. Rondaris;
30
3. The timing of the sale evidently was to negate the employees/complainants/members’
right to organization as it was effected when their union (TEU) was just
organized/requesting [Times] to bargain;
5. [Mencorp] never obtained a franchise since its supposed incorporation in 10 May 1994
but at present, all the buses of [Times] are already being run/operated by respondent
[Mencorp], the franchise of [Times] having been transferred to it.
We uphold the findings of the labor arbiter and the Court of Appeals. The sale of Times’ franchise
as well as most of its bus units to a company owned by Rondaris’ daughter and family members,
right in the middle of a labor dispute, is highly suspicious. It is evident that the transaction was
made in order to remove Times’ remaining assets from the reach of any judgment that may be
rendered in the unfair labor practice cases filed against it.

WHEREFORE, premises considered, the petition is DENIED. The decision of the Court of
Appeals in CA-G.R. SP No. 75291 dated January 30, 2004 and its resolution dated May 24, 2004,
are hereby AFFIRMED in toto
31
I. SHORT TITLE: REYNOSO VS. CA
II. FULL TITLE: Bibiano O. Reynoso, IV versus Hon. Court of Appeals and General Credit
Corporation - G.R. Nos. 116124-25, November 22, 2000, J. Ynares-
Santiago
Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter, "CCC"), a financing
and investment firm, decided to organize franchise companies in different parts of the country,
wherein it shall hold thirty percent (30%) equity. Petitioner Bibiano O. Reynoso, IV was
designated as the resident manager of the franchise company in Quezon City, known as the
Commercial Credit Corporation of Quezon City (hereinafter, "CCC-QC")
CCC-QC entered into an exclusive management contract with CCC whereby the latter was granted
the management and full control of the business activities of the former. Under the contract, CCC-
QC shall sell, discount and/or assign its receivables to CCC. Subsequently, however, this
discounting arrangement was discontinued pursuant to the so-called "DOSRI Rule", prohibiting
the lending of funds by corporations to its directors, officers, stockholders and other persons with
related interests therein.
On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI
Rule, CCC decided to form CCC Equity Corporation, (hereinafter, "CCC-Equity"), a wholly-
owned subsidiary, to which CCC transferred its thirty (30%) percent equity in CCC-QC, together
with two seats in the latter’s Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including petitioner
Reynoso, became employees of CCC-Equity. While petitioner continued to be the Resident
Manager of CCC-QC, he drew his salaries and allowances from CCC-Equity. Furthermore,
although an employee of CCC-Equity, petitioner, as well as all employees of CCC-QC, became
qualified members of the Commercial Credit Corporation Employees Pension Plan.
As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and supervised
its employees. The business activities of CCC-QC pertain to the acceptance of funds from
depositors who are issued interest-bearing promissory notes. The amounts deposited are then
loaned out to various borrowers. Petitioner, in order to boost the business activities of CCC-QC,
deposited his personal funds in the company. In return, CCC-QC issued to him its interest-bearing
promissory notes.
A complaint for sum of money with preliminary attachment was instituted in the then Court of
First Instance of Rizal by CCC-QC against petitioner, who had in the meantime been dismissed
from his employment by CCC-Equity. The complaint was subsequently amended in order to
include Hidelita Nuval, petitioner’s wife, as a party defendant. The complaint alleged that
petitioner embezzled the funds of CCC-QC amounting to P1,300,593.11. Out of this amount, at
32
least P630,000.00 was used for the purchase of a house and lot located at No. 12 Macopa Street,
Valle Verde I, Pasig City. The property was mortgaged to CCC, and was later foreclosed.
Petitioner denied having unlawfully used funds of CCC-QC and asserted that the sum of
P1,300,593.11 represented his money placements in CCC-QC, as shown by twenty-three (23)
checks which he issued to the said company.
RTC dismissed the complaint. By reason of said complaint, defendant Bibiano Reynoso IV
suffered degradation, humiliation and mental anguish. On the counterclaim, which the Court finds
to be meritorious, plaintiff corporation is hereby ordered to pay the defendant.
Both parties appealed to the then Intermediate Appellate Court. The appeal of Commercial Credit
Corporation of Quezon City was dismissed for failure to pay docket fees. Petitioner, on the other
hand, withdrew his appeal.
Hence, the decision became final and, accordingly, a Writ of Execution was issued. However, the
judgment remained unsatisfied, prompting petitioner to file a Motion for Alias Writ of Execution,
Examination of Judgment Debtor, and to Bring Financial Records for Examination to Court. CCC-
QC filed an Opposition to petitioner’s motion, alleging that the possession of its premises and
records had been taken over by CCC.
Meanwhile, in 1983, CCC became known as the General Credit Corporation.
First Case: Regional Trial Court of Quezon City issued an Order directing General Credit
Corporation to file its comment on petitioner’s motion for alias writ of execution. General Credit
Corporation alleged that it was not a party to the case, and therefore petitioner should direct his
claim against CCC-QC and not General Credit Corporation. Petitioner filed his reply, stating that
the CCC-QC is an adjunct instrumentality, conduit and agency of CCC. Furthermore, petitioner
invoked the decision of the Securities and Exchange Commission in SEC Case, entitled, "Avelina
G. Ramoso, et al., Petitioner versus General Credit Corp., et al., Respondents," where it was
declared that General Credit Corporation, CCC-Equity and other franchised companies including
CCC-QC were declared as one corporation. Regional Trial Court of Quezon City ordered the
issuance of an alias writ of execution.
Second Case: Previously, General Credit Corporation instituted a complaint before the Regional
Trial Court of Pasig against Bibiano Reynoso IV and Edgardo C. Tanangco, in his capacity as
Deputy Sheriff of Quezon City, praying that the levy on its parcel of land located in Pasig, Metro
Manila be declared null and void, and that defendant sheriff be enjoined from consolidating
ownership over the land and from further levying on other properties of General Credit
Corporation to answer for any liability under the decision in Civil Case No. Q-30583.
The Regional Trial Court of Pasig did not issue a temporary restraining order. Thus, General Credit
Corporation instituted two (2) petitions for certiorari with the Court of Appeals. These cases were
later consolidated. CA ruled in favor of GCC. Hence, this petition for review.
33
VI. ISSUE: Whether or not the doctrine of piercing the veil of corporate fiction is applicable in
this case.
VII. RULING:
Yes. The petition is impressed with merit. A corporation is an artificial being created by operation
of law, having the right of succession and the powers, attributes, and properties expressly
authorized by law or incident to its existence. It is an artificial being invested by law with a
personality separate and distinct from those of the persons composing it as well as from that of any
other legal entity to which it may be related. It was evolved to make possible the aggregation and
assembling of huge amounts of capital upon which big business depends. It also has the advantage
of non-dependence on the lives of those who compose it even as it enjoys certain rights and
conducts activities of natural persons.
Any piercing of the corporate veil has to be done with caution. However, the Court will not hesitate
to use its supervisory and adjudicative powers where the corporate fiction is used as an unfair
device to achieve an inequitable result, defraud creditors, evade contracts and obligations, or to
shield it from the effects of a court decision. The corporate fiction has to be disregarded when
necessary in the interest of justice.
The defense of separateness will be disregarded where the business affairs of a subsidiary
corporation are so controlled by the mother corporation to the extent that it becomes an instrument
or agent of its parent. But even when there is dominance over the affairs of the subsidiary, the
doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat
public convenience, justify wrong, protect fraud or defend crime.
It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was
intended to publicly identify it as a component of the CCC group of companies engaged in one
and the same business, i.e., investment and financing. Aside from CCC-Quezon City, other
franchise companies were organized such as CCC-North Manila and CCC-Cagayan Valley. The
organization of subsidiary corporations as what was done here is usually resorted to for the
aggrupation of capital, the ability to cover more territory and population, the decentralization of
activities best decentralized, and the securing of other legitimate advantages.
But when the mother corporation and its subsidiary cease to act in good faith and honest business
judgment, when the corporate device is used by the parent to avoid its liability for legitimate
obligations of the subsidiary, and when the corporate fiction is used to perpetrate fraud or promote
injustice, the law steps in to remedy the problem. When that happens, the corporate character is
not necessarily abrogated. It continues for legitimate objectives. However, it is pierced in order to
remedy injustice, such as that inflicted in this case.
Factually and legally, the CCC had dominant control of the business operations of CCC-QC. The
exclusive management contract insured that CCC-QC would be managed and controlled by CCC
and would not deviate from the commands of the mother corporation. In addition to the exclusive
management contract, CCC appointed its own employee, petitioner, as the resident manager of
CCC-QC.
34
Petitioner’s designation as "resident manager" implies that he was placed in CCC-QC by a superior
authority. In fact, even after his assignment to the subsidiary corporation, petitioner continued to
receive his salaries, allowances, and benefits from CCC, which later became respondent General
Credit Corporation. Not only that. Petitioner and the other permanent employees of CCC-QC were
qualified members and participants of the Employees Pension Plan of CCC.
There are other indications in the record which attest to the applicability of the identity rule in this
case, namely: the unity of interests, management, and control; the transfer of funds to suit their
individual corporate conveniences; and the dominance of policy and practice by the mother
corporation insure that CCC-QC was an instrumentality or agency of CCC.
A court judgment becomes useless and ineffective if the employer, in this case CCC as a mother
corporation, is placed beyond the legal reach of the judgment creditor who, after protracted
litigation, has been found entitled to positive relief. Courts have been organized to put an end to
controversy. This purpose should not be negated by an inapplicable and wrong use of the fiction
of the corporate veil.

WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and ASIDE. The
injunction against the holding of an auction sale for the execution of the decision in Civil Case No.
Q-30583 of properties of General Credit Corporation, and the levying upon and selling on
execution of other properties of General Credit Corporation, is LIFTED.
35
I. SHORT TITLE: GENERAL CREDIT CORP. V ALSONS
II. FULL TITLE: General Credit Corporation vs. Alsons Development and
Investment Corporation and CCC Equity Corporation- G.R. No. 154975, January 29,
2007, J. Garcia
III. TOPIC: Piercing the veil of corporate fiction
Shortly after its incorporation in 1957 as a finance and investment company, petitioner
General Credit Corporation (GCC, for short), then known as Commercial Credit Corporation
(CCC), established CCC franchise companies in different urban centers of the country. In
furtherance of its business, GCC had, as early as 1974, applied for and was able to secure license
from the then Central Bank (CB) of the Philippines and the Securities and Exchange Commission
(SEC) to engage also in quasi-banking activities. On the other hand, respondent CCC Equity
Corporation (EQUITY, for brevity) was organized in November 1994 by GCC for the purpose of,
among other things, taking over the operations and management of the various franchise
companies. At a time material hereto, respondent Alsons Development and Investment
Corporation (ALSONS, hereinafter) and the Alcantra family each owned, just like GCC, shares in
the aforesaid GCC franchise companies.
In December 1980, ALSONS and the Alcantara family, for a consideration of Two Million
Pesos, sold their shareholdings a total of 101,953 shares, more or less in the CCC franchise
companies to EQUITY. On January 2, 1981, EQUITY issued ALSONS et al., a bearer promissory
note for P2,000,000.00 with a one-year maturity date, at 18% interest per annum, with provisions
for damages and litigation costs in case of default.
Some four years later, the Alcantara family assigned its rights and interests over the bearer
note to ALSONS which thenceforth became the holder thereof. But even before the execution of
the assignment deal aforestated, letters of demand for interest payment were already sent to
EQUITY, through its President, Wilfredo Labayen, who pleaded inability to pay the stipulated
interest, EQUITY no longer then having assets or property to settle its obligation nor being
extended financial support by GCC.
ALSONS, having failed to collect on the bearer note aforementioned, filed a complaint for
a sum of money against EQUITY and GCC. GCC is being impleaded as party-
defendant forany judgment ALSONS might secure against EQUITY and, under the doctrine of
piercing the veil of corporate fiction,against GCC, EQUITY having been organized as a tool and
mere conduit of GCC. According to EQUITY (cross-claim against GCC): it acted merely as
36
intermediary or bridge for loan transactions and other dealings of GCC to its franchises and the
investing public; and is solely dependent upon GCC for its funding requirements. Hence, GCC
is solely and directly liable to ALSONS, the former having failed to provide EQUITY the
necessary funds to meet its obligations to ALSONS. GCC filed its ANSWER to the cross-claim,
stressing that it is a distinct and separate entity from EQUITY.
RTC, finding that EQUITY was but an instrumentality or adjunct of GCC and considering
the legal consequences and implications of such relationship, rendered judgment for Alson. CA
affirmed.
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner
General Credit Corporation, now known as Penta Capital Finance Corporation, seeks to annul and
set aside the Decision and Resolution dated April 11, 2002 and August 20, 2002, respectively, of
the Court of Appeals (CA), affirming the November 8, 1990 decision of the Regional Trial Court
(RTC) of Makati City in its Civil Case No. 12707, an action for a sum of money thereat instituted
by the herein respondent Alsons Development and Investment Corporation against the petitioner
and respondent CCC Equity Corporation.
VI. ISSUE:
Whether or not there is absolutely no basis for piercing GCCs veil of corporate identity.
VII. RULING:
No, there is basis for piercing GCCs veil of corporate identity.
A corporation is an artificial being vested by law with a personality distinct and separate
from those of the persons composing it as well as from that of any other entity to which it may be
related. The first consequence of the doctrine of legal entity of the separate personality of the
corporation is that a corporation may not be made to answer for acts and liabilities of its
stockholders or those of legal entities to which it may be connected or vice versa.
The notion of separate personality, however, may be disregarded under the doctrine
piercing the veil of corporate fiction as in fact the court will often look at the corporation as a mere
collection of individuals or an aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the corporation unifying the group. Another
formulation of this doctrine is that when two (2) business enterprises are owned, conducted and
37
controlled by the same parties, both law and equity will, when necessary to protect the rights of
third parties, disregard the legal fiction that two corporations are distinct entities and treat them as
identical or one and the same. .
Authorities are agreed on at least three (3) basic areas where piercing the veil, with which
the law covers and isolates the corporation from any other legal entity to which it may be related,
is allowed. These are: 1) defeat of public convenience, as when the corporate fiction is used as
vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used
to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is
merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation
is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.
The CA found valid grounds to pierce the corporate veil of petitioner GCC, there being
justifiable basis for such action. When the appellate court spoke of a justifying factor, the reference
was to what the trial court said in its decision, namely: the existence of certain
circumstances [which], taken together, gave rise to the ineluctable conclusion that [respondent]
EQUITY is but an instrumentality or adjunct of [petitioner] GCC.
The Court agrees with the disposition of the appellate court on the application of the
piercing doctrine to the transaction subject of this case. Per the Courts count, the trial court
enumerated no less than 20 documented circumstances and transactions, which, taken as a
package, indeed strongly supported the conclusion that respondent EQUITY was but an adjunct,
an instrumentality or business conduit of petitioner GCC. This relation, in turn, provides a
justifying ground to pierce petitioners corporate existence as to ALSONS claim in
question.Foremost of what the trial court referred to as certain circumstances are the commonality
of directors, officers and stockholders and even sharing of office between petitioner GCC and
respondent EQUITY; certain financing and management arrangements between the two, allowing
the petitioner to handle the funds of the latter; the virtual domination if not control wielded by the
petitioner over the finances, business policies and practices of respondent EQUITY; and the
establishment of respondent EQUITY by the petitioner to circumvent CB rules.
It bears to stress at this point that the facts and the inferences drawn therefrom, upon which
the two (2) courts below applied the piercing doctrine, stand, for the most part, undisputed. Among
these is, to reiterate, the matter of EQUITY having been incorporated to serve, as it did serve, as
an instrumentality or adjunct of GCC. With the view we take of this case, GCC did not adduce any
evidence, let alone rebut the testimonies and documents presented by ALSONS, to establish the
38
prevailing circumstances adverted to that provided the justifying occasion to pierce the veil of
corporate fiction between GCC and EQUITY. We quote the trial court:
Given the foregoing considerations, it behooves the petitioner, as a matter of law and
equity, to assume the legitimate financial obligation of a cash-strapped subsidiary corporation
which it virtually controlled to such a degree that the latter became its instrument or agent. The
facts, as found by the courts a quo, and the applicable law call for this kind of disposition. Or else,
the Court would be allowing the wrong use of the fiction of corporate veil.
WHEREFORE, the instant petition is DENIED and the appealed Decision and Resolution of
the Court of Appeals are accordingly AFFIRMED.
Costs against the petitioner.
SO ORDERED.
39
I. SHORT TITLE: KUKAN V. REYES
II. FULL TITLE: Golden KUKAN INTERNATIONAL CORPORATION VS. HON.
AMOR REYES, in her capacity as Presiding Judge of the Regional Trial Court of Manila,
Branch 21, and ROMEO M. MORALES, doing business under the name and style "RM
Morales Trophies and Plaques, G.R. No. 182729, September 29, 2010, J. VELASCO JR.
The veil of Sometime in March 1998, Kukan, Inc. conducted a bidding for the supply and
installation of signages in a building being constructed in Makati City. Morales tendered the
winning bid and was awarded the PhP 5 million contract. Some of the items in the project award
were later excluded resulting in the corresponding reduction of the contract price to PhP 3,388,502.
Despite his compliance with his contractual undertakings, Morales was only paid the amount of
PhP 1,976,371.07, leaving a balance of PhP 1,412,130.93, which Kukan, Inc. refused to pay
despite demands. Shortchanged, Morales filed a Complaint with the RTC against Kukan, Inc. for
a sum of money. Starting November 2000, Kukan, Inc. no longer appeared and participated in the
proceedings before the trial court, prompting the RTC to declare Kukan, Inc. in default and paving
the way for Morales to present his evidence ex parte. The case was dismissed.
After the decision became final and executory, Morales moved for and secured a writ of
execution against Kukan, Inc. The sheriff then levied upon various personal properties found at
what was supposed to be Kukan, Inc.’s office. Alleging that it owned the properties thus levied
and that it was a different corporation from Kukan, Inc., Kukan International Corporation (KIC)
filed an Affidavit of Third-Party Claim. Notably, KIC was incorporated in August 2000, or shortly
after Kukan, Inc. had stopped participating in the case.
In reaction to the third party claim, Morales interposed an Omnibus Motion. In it, Morales
prayed, applying the principle of piercing the veil of corporate fiction. In a bid to establish the link
between KIC and Kukan, Inc., and thus determine the true relationship between the two, Morales
filed a Motion for Examination of Judgment Debtors In this motion Morales sought that subpona
be issued against the primary stockholders of Kukan, Inc., among them Michael Chan, a.k.a. Chan
Kai Kit. This too was denied by the trial court.
40
This Petition for Review on Certiorari under Rule 45 seeks to nullify and reverse the
January 23, 2008 Decision and the April 16, 2008 Resolution rendered by the Court of Appeals
(CA) in CA-G.R. SP No. 100152.
The assailed CA decision affirmed the March 12, 2007 and June 7, 2007 Orders of the
Regional Trial Court (RTC) of Manila, Branch 21, in Civil Case No. 99-93173, entitled Romeo M.
Morales, doing business under the name and style RM Morales Trophies and Plaques v. Kukan,
Inc. In the said orders, the RTC disregarded the separate corporate identities of Kukan, Inc. and
Kukan International Corporation and declared them to be one and the same entity. Accordingly,
the RTC held Kukan International Corporation, albeit not impleaded in the underlying complaint
of Romeo M. Morales, liable for the judgment award decreed in a Decision dated November 28,
2002 in favor of Morales and against Kukan, Inc.
VI. ISSUE:
Whether or not the doctrine of piercing the veil of corporte fiction applies.
VII. RULING:
No, the doctrine of piercing the veil of corporte fiction does not apply.
The principle of piercing the veil of corporate fiction, and the resulting treatment of two
related corporations as one and the same juridical person with respect to a given transaction, is
basically applied only to determine established liability;[34] it is not available to confer on the
court a jurisdiction it has not acquired, in the first place, over a party not impleaded in a
case. Elsewise put, a corporation not impleaded in a suit cannot be subject to the court’s process
of piercing the veil of its corporate fiction. In that situation, the court has not acquired jurisdiction
over the corporation and, hence, any proceedings taken against that corporation and its property
would infringe on its right to due process. Aguedo Agbayani, a recognized authority on
Commercial Law, stated as much:
23. Piercing the veil of corporate entity applies to determination of liability not of
jurisdiction. x x x
41
This is so because the doctrine of piercing the veil of corporate fiction comes to play only during
the trial of the case after the court has already acquired jurisdiction over the corporation. Hence,
before this doctrine can be applied, based on the evidence presented, it is imperative that the court
must first have jurisdiction over the corporation.[35] x x x
The implication of the above comment is twofold: (1) the court must first acquire jurisdiction over
the corporation or corporations involved before its or their separate personalities are disregarded;
and (2) the doctrine of piercing the veil of corporate entity can only be raised during a full-blown
trial over a cause of action duly commenced involving parties duly brought under the authority of
the court by way of service of summons or what passes as such service.
In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear and
convincing proof that the separate and distinct personality of the corporation was purposefully
employed to evade a legitimate and binding commitment and perpetuate a fraud or like
wrongdoings. To be sure, the Court has, on numerous occasions, applied the principle where a
corporation is dissolved and its assets are transferred to another to avoid a financial liability of the
first corporation with the result that the second corporation should be considered a continuation
and successor of the first entity.
In those instances when the Court pierced the veil of corporate fiction of two corporations, there
was a confluence of the following factors:
1. A first corporation is dissolved;
2. The assets of the first corporation is transferred to a second corporation to avoid a financial
liability of the first corporation; and
3. Both corporations are owned and controlled by the same persons such that the second
corporation should be considered as a continuation and successor of the first corporation.
In the instant case, however, the second and third factors are conspicuously absent. There is,
therefore, no compelling justification for disregarding the fiction of corporate entity separating
Kukan, Inc. from KIC. In applying the principle, both the RTC and the CA miserably failed to
identify the presence of the abovementioned factors.
It bears reiterating that piercing the veil of corporate fiction is frowned upon. Accordingly,
those who seek to pierce the veil must clearly establish that the separate and distinct personalities
of the corporations are set up to justify a wrong, protect fraud, or perpetrate a deception. In the
concrete and on the assumption that the RTC has validly acquired jurisdiction over the party
concerned, Morales ought to have proved by convincing evidence that Kukan, Inc. was collapsed
42
and thereafter KIC purposely formed and operated to defraud him. Morales has not to us
discharged his burden.
WHEREFORE, the petition is hereby GRANTED. The CA’s January 23, 2008 Decision and
April 16, 2008 Resolution in CA-G.R. SP No. 100152 are hereby REVERSED and SET ASIDE.
The levy placed upon the personal properties of Kukan International Corporation is hereby ordered
lifted and the personal properties ordered returned to Kukan International Corporation. The RTC
of Manila, Branch 21 is hereby directed to execute the RTC Decision dated November 28, 2002
against Kukan, Inc. with reasonable dispatch.
No costs.
SO ORDERED.
43
I. SHORT TITLE: GOLD LINE TOURS V. LACSA
II. FULL TITLE: Gold Line, Inc. V. Heirs Of Maria Concepcion Lacsa- GR. No.
159108, June 18, 2012, J. Bersamin
The veil of corporate existence of a corporation is a fiction of law that should not defeat the
ends of justice.
On August 2, 1993, Ma. Concepcion Lacsa (Concepcion) and her sister, Miriam Lacsa
(Miriam), boarded a Goldline passenger bus owned and operated by Travel &Tours Advisers, Inc.
They were enroute from Sorsogon to Cubao, Quezon City. At the time, Concepcion, having just
obtained her degree of Bachelor of Science in Nursing was proceeding to Manila to take the
nursing licensure board examination. Upon reaching the highway at Barangay San Agustin the
Goldline bus, driven by Rene Abania (Abania), collided with a passenger jeepney coming from
the opposite direction and driven by Alejandro Belbis. As a result, a metal part of the jeepney was
detached and struck Concepcion in the chest, causing her instant death.
On August 23, 1993, Concepcions heirs, represented by Teodoro Lacsa, instituted in the
RTC a suit against Travel & Tours Advisers Inc. and Abania to recover damages arising from
breach of contract of carriage.
The defendants blamed the death of Concepcion to the recklessness of Bilbes as the driver
of the jeepney, and of its operator, Salvador Romano; and that they had consequently brought a
third-party complaint against the latter.
Both the RTC and the CA granted the ward for damages in favor of the heirs of Concepcion.
Thereafter, the heirs move for the issuance of a writ of execution.
On April 20, 2001, petitioner submitted a so-called verified third party claim, claiming that
the tourist bus be returned to petitioner because it was the owner; that petitioner had not been made
a party to Civil Case No. 93-5917 and that petitioner was a corporation entirely different from
Travel & Tours Advisers, Inc.,
Respondents opposed petitioners verified third-party claim and contended that Travel &
Tours Advisers, Inc. and petitioner were identical entities and were both operated and managed by
the same person, William Cheng; and that petitioner was attempting to defraud its creditors
respondents herein hence, the doctrine of piercing the veil of corporate entity was squarely
applicable.
44
The RTC dismissed petitioners verified third-party claim, observing that the identity of
Travel & Tours Adivsers, Inc. could not be divorced from that of petitioner considering that Cheng
had claimed to be the operator as well as the President/Manager/incorporator of both entities; and
that Travel & Tours Advisers, Inc. had been known in Sorsogon as Goldline.
The petitioner filed a petition for certiorari before the CA but it was dismissed.
Hence, this appeal, in which petitioner faults the CA for holding that the RTC did not act
without jurisdiction or grave abuse of discretion in finding that petitioner and Travel & Tours
Advisers, Inc were one and same entity.
Petitioner seeks to reverse the decision promulgated on October 30, 2002 and the resolution
promulgated on June 25, 2003, whereby the Court of Appeals (CA) upheld the orders issued by
the Regional Trial Court (RTC) entitled Heirs of Concepcion Lacsa, represented by Teodoro
Lacsa v. Travel & Tours Advisers, Inc., et al. authorizing the implementation of the writ of
execution against petitioner despite its protestation of being a separate and different corporate
personality from Travel & Tours Advisers, Inc.
In the orders assailed in the CA, the RTC declared petitioner and Travel & Tours Advisers,
Inc. to be one and the same entity, and ruled that the levy of petitioners property to satisfy the final
and executory decision rendered on June 30, 1997 against Travel & Tours Advisers, Inc. was valid
even if petitioner had not been impleaded as a party.
VI. ISSUE:
Whether or not the CA rightly find and conclude that the RTC did not gravely abuse its
discretion in denying petitioners verified third-party claim
VII. RULING:
Yes, the CA rightly find and conclude that the RTC did not gravely abuse its discretion in
denying petitioners verified third-party claim.
As we see it, the RTC had sufficient factual basis to find that petitioner and Travel and
Tours Advisers, Inc. were one and the same entity, specifically: (a) documents submitted by
petitioner in the RTC showing that William Cheng, who claimed to be the operator of Travel and
45
Tours Advisers, Inc., was also the President/Manager and an incorporator of the petitioner; and (b)
Travel and Tours Advisers, Inc. had been known in Sorsogon as Goldline.
The RTC thus rightly ruled that petitioner might not be shielded from liability under the
final judgment through the use of the doctrine of separate corporate identity. Truly, this fiction of
law could not be employed to defeat the ends of justice.
But petitioner continues to challenge the RTC orders by insisting that the evidence to
establish its identity with Travel and Tours Advisers, Inc. was insufficient.
We cannot agree with petitioner. As already stated, there was sufficient evidence that
petitioner and Travel and Tours Advisers, Inc. were one and the same entity. Moreover, we remind
that a petition for the writ of certiorari neither deals with errors of judgment nor extends to a
mistake in the appreciation of the contending parties evidence or in the evaluation of their relative
weight. It is timely to remind that the petitioner in a special civil action for certiorari commenced
against a trial court that has jurisdiction over the proceedings bears the burden to demonstrate not
merely reversible error, but grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of the respondent trial court in issuing the impugned order.
WHEREFORE, the Court DENIES the petition for review on certiorari, and AFFIRMS the
decision promulgated by the Court of Appeals on October 30, 2002. Costs of suit to be paid by
petitioner.
46
I.SHORT TITLE: PARK HOTEL V. SORIANO
II.FULL TITLE : PARK HOTEL, J's PLAYHOUSE BURGOS CORP., INC., and/or
GREGG HARBUTT, General Manager, ATTY. ROBERTO ENRIQUEZ,
President, and BILL PERCY, vs. MANOLO SORIANO, LESTER GONZALES,
and YOLANDA BADILLA
III.TOPIC: CORPORATION LAW-PIERCING THE VEIL OF CORPORATE

FICTION
IV.STATEMENT OF FACTS:
Park Hotel3 is a corporation engaged in the hotel business. Petitioners 4 (Harbutt) and 5 (Percy) are
the General Manager and owner, respectively. Percy, Harbutt and Atty. Roberto Enriquez are also
the officers and stockholders of Burgos Corporation (Burgos), 6 a sister company of Park Hotel.
Respondent (Soriano) was hired by Park Hotel as Maintenance Electrician, and then transferred to
Burgos. Respondent (Gonzales) was employed by Burgos as Doorman, and later promoted as
Supervisor. Respondent (Badilla) was a bartender of J's Playhouse operated by Burgos.
Soriano, Gonzales and Badilla7 were dismissed from work for allegedly stealing company
properties. As a result, respondents filed complaints for illegal dismissal, unfair labor practice, and
payment of moral and exemplary damages and attorney's fees, before the Labor Arbiter (LA). In
their complaints, respondents alleged that the real reason for their dismissal was that they were
organizing a union for the company's employees. Petitioners alleged that aside from the charge of
theft, Soriano and Gonzales have violated various company rules and regulations 8 contained in
several memoranda issued to them.
The three respondents averred that they never received the memoranda containing their alleged
violation of company rules and they argued that these memoranda were fabricated to give a
semblance of cause to their termination. Soriano and Gonzales further claimed that the complaint
filed against them was only an afterthought as the same was filed after petitioners learned that a
complaint for illegal dismissal was already instituted against them.
V.STATEMENT OF THE CASE:
LA Decision11 finding respondents illegally dismissed because the alleged violations they were
charged with were not reduced in writing and were not made known to them, thus, denying them
due process.
NLRC, rendered a Decision13 remanding the case to the arbitration branch of origin for further
proceedings.14
LA rendered a new Decision, petitioners herein are hereby ORDERED, jointly and severally: to
reinstate within ten (10) days herein three (3) complainants to their former positions without loss
of seniority rights with full backwages from actual dismissal to actual reinstatement.
47
NLRC affirmed the LA's decision and dismissed the appeal for lack of merit.17
Undaunted, Park Hotel, Percy, and Harbutt filed a petition for certiorari with the CA ascribing
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the NLRC in
holding Park Hotel, Harbutt and Percy jointly and severally liable to respondents.
CA affirmed the ruling of the NLRC. The CA ruled that petitioners failed to observe the mandatory
requirements provided by law in the conduct of terminating respondents. The CA also found that
petitioners' primary objective in terminating respondents' employment was to suppress their right
to self-organization.
VI.ISSUE:
Whether or not pursuant to the doctrine of piercing the veil of corporate fiction, Park Hotel, Percy
and Harbutt are jointly and severally liable with Burgos for the dismissal of respondents.
VII.RULING:
NO, Court rules that before a corporation can be held accountable for the corporate liabilities of
another, the veil of corporate fiction must first be pierced. 33 Thus, before Park Hotel can be held
answerable for the obligations of Burgos to its employees, it must be sufficiently established that
the two companies are actually a single corporate entity, such that the liability of one is the liability
of the other.34
35
While a corporation may exist for any lawful purpose, the law will regard it as an association of
persons or, in case of two corporations, merge them into one, when its corporate legal entity is
used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction.
The doctrine applies only when such 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. 36 To disregard the separate
juridical personality of a corporation, the wrongdoing must be established clearly and
convincingly. It cannot be presumed.37
In the case at bar, respondents utterly failed to prove by competent evidence that Park Hotel was
a mere instrumentality, agency, conduit or adjunct of Burgos, or that its separate corporate veil
had been used to cover any fraud or illegality committed by Burgos against the respondents.
Accordingly, Park Hotel and Burgos cannot be considered as one and the same entity, and Park
Hotel cannot be held solidary liable with Burgos.
Nonetheless, although the corporate veil between Park Hotel and Burgos cannot be pierced, it does
not necessarily mean that Percy and Harbutt are exempt from liability towards respondents. Verily,
a corporation, being a juridical entity, may act only through its directors, officers and employees.
Obligations incurred by them, while acting as corporate agents, are not their personal liability but
the direct accountability of the corporation they represent. 38 However, corporate officers may be
48
deemed solidarily liable with the corporation for the termination of employees if they acted with
malice or bad faith.39 In the present case, the lower tribunals unanimously found that Percy and
Harbutt, in their capacity as corporate officers of Burgos, acted maliciously in terminating the
services of respondents without any valid ground and in order to suppress their right to self-
organization.
Section 3140 of the Corporation Code makes a director personally liable for corporate debts if he
willfully and knowingly votes for or assents to patently unlawful acts of the corporation. It also
makes a director personally liable if he is guilty of gross negligence or bad faith in directing the
affairs of the corporation.1âwphi1 Thus, Percy and Harbutt, having acted in bad faith in directing
the affairs of Burgos, are jointly and severally liable with the latter for respondents' dismissal.
In the case at bar, the Court finds that it would be best to award separation pay instead of
reinstatement,42 the Court held that if reinstatement proves impracticable, and hardly in the best
interest of the parties, due to the lapse of time since the employee's dismissal, the latter should be
awarded separation pay in lieu of reinstatement.
VIII.DISPOSITIVE PORTION:
WHEREFORE, the Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 67766,
dated January 24, 2005 and January 13, 2006, respectively, are AFFIRMED with the
following MODIFICATIONS: (a) Petitioner Park Hotel is exonerated from any liability to
respondents; and (b) The award of reinstatement is deleted, and in lieu thereof, respondents are
awarded separation pay.
The case is REMANDED to the Labor Arbiter for the purpose of computing respondents' full
backwages, inclusive of allowances, and other benefits or their monetary equivalent, computed
from the date of their dismissal up to the finality of the decision, and separation pay in lieu of
reinstatement equivalent to one month salary for every year of service, computed from the time of
their engagement up to the finality of this Decision.
49
I.SHORT TITLE: HEIRS OF UY V. INTERNATIONAL ECHANGE BANK
II.FULL TITLE: Heirs of Fe Tan Uy vs. International Exchange Bank
III.TOPIC: CORPORATION LAW- Piercing the veil of corporate fiction.
On several occasions, International Exchange Bank (iBank), granted loans to Hammer Garments
Corporation (Hammer), covered by promissory notes and deeds of assignment. These were made
pursuant to the Letter-Agreement between iBank and Hammer, represented by its President and
General Manager, (Chua) a.k.a. Manuel Chua Uy Po Tiong, granting Hammer a P 25 Million-Peso
Omnibus Line.5 The loans were secured by a P 9 Million-Peso Real Estate Mortgage executed by
Goldkey Development Corporation (Goldkey) over several of its properties and a P 25 Million-
Peso Surety Agreement 7 signed by Chua and his wife, Fe Tan Uy (Uy),
Hammer had an outstanding obligation of ₱25,420,177.62 to iBank.8 Hammer defaulted in the

payment of its loans, prompting iBank to foreclose on Goldkey’s third-party Real Estate Mortgage.
The mortgaged properties were sold for P 12 million during the foreclosure sale, leaving an unpaid
balance of P 13,420,177.62.9 For failure of Hammer to pay the deficiency, iBank filed a
Complaint10 for sum of money against Hammer, Chua, Uy, and Goldkey before the Regional Trial
Court, Makati City
Despite service of summons, Chua and Hammer did not file their respective answers and were
declared in default. In her separate answer, Uy claimed that she was not liable to iBank because
she never executed a surety agreement in favor of iBank. Goldkey, on the other hand, also denies
liability, averring that it acted only as a third-party mortgagor and that it was a corporation separate
and distinct from Hammer.
V. STATEMNT OF THE CASE:
Meanwhile, iBank applied for the issuance of a writ of preliminary attachment which was granted
by the RTC. The Notice of Levy on Attachment of Real Properties covering the properties under
the name of Goldkey, was sent by the sheriff to the Registry of Deeds of Quezon City.14
The RTC, ruled in favor of iBank. It came to the conclusion, however, that Goldkey and Hammer
were one and the same entity for the following reasons: (1) both were family corporations of Chua
and Uy, with Chua as the President and Chief Operating Officer; (2) both corporations shared the
same office and transacted business from the same place, (3) the assets of Hammer and Goldkey
were co-mingled; and (4) when Chua absconded, both Hammer and Goldkey ceased to operate.
As such, the piercing of the veil of corporate fiction was warranted. Uy, as an officer and
50
stockholder of Hammer and Goldkey, was found liable to iBank together with Chua, Hammer and
Goldkey for the deficiency of ₱13,420,177.62.
Aggrieved, the heirs of Uy and Goldkey (petitioners) elevated the case to the CA. CA
promulgated its decision affirming the findings of the RTC. The CA found that iBank was not
negligent in evaluating the financial stability of Hammer. According to the appellate court, iBank
was induced to grant the loan because petitioners, with intent to defraud the bank, submitted a
falsified Financial Report for 1996 which incorrectly declared the assets and cashflow of
Hammer.16 Because petitioners acted maliciously and in bad faith and used the corporate fiction
to defraud iBank, they should be treated as one and the same as Hammer.
I. ISSUES:
(1) Whether or not Uy can be held liable to iBank for the loan obligation of Hammer as an officer
and stockholder of the said corporation; and
(2) Whether or not Goldkey can be held liable for the obligation of Hammer for being a mere alter
ego of the latter.
VII. RULING:
The petitions are partly meritorious.
(1)Uy is not liable; The piercing of the veil of corporate fiction is not justified.
Before a director or officer of a corporation can be held personally liable for corporate obligations,
however, the following requisites must concur: (1) the complainant must allege in the complaint
that the director or officer assented to patently unlawful acts of the corporation, or that the officer
was guilty of gross negligence or bad faith; and (2) the complainant must clearly and convincingly
prove such unlawful acts, negligence or bad faith. 27
In this case, petitioners are correct to argue that it was not alleged, much less proven, that Uy
committed an act as an officer of Hammer that would permit the piercing of the corporate veil. A
reading of the complaint reveals that with regard to Uy, iBank did not demand that she be held
liable for the obligations of Hammer because she was a corporate officer who committed bad faith
or gross negligence in the performance of her duties such that the lifting of the corporate mask
would be merited. What the complaint simply stated is that she, together with her errant husband
Chua, acted as surety of Hammer, as evidenced by her signature on the Surety Agreement which
was later found by the RTC to have been forged.
Considering that the only basis for holding Uy liable for the payment of the loan was proven to be
a falsified document, there was no sufficient justification for the RTC to have ruled that Uy should
be held jointly and severally liable to iBank for the unpaid loan of Hammer. The Court cannot give
51
credence to the simplistic declaration of the RTC that liability would attach directly to Uy for the
sole reason that she was an officer and stockholder of Hammer.
At most, Uy could have been charged with negligence in the performance of her duties as treasurer
of Hammer by allowing the company to contract a loan despite its precarious financial position.
Furthermore, if it was true, as petitioners claim, that she no longer performed the functions of a
treasurer, then she should have formally resigned as treasurer to isolate herself from any liability
that could result from her being an officer of the corporation. Nonetheless, these shortcomings of
Uy are not sufficient to justify the piercing of the corporate veil which requires that the negligence
of the officer must be so gross that it could amount to bad faith and must be established by clear
and convincing evidence.
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. 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. 33
(2) Goldkey is a mere alter ego of Hammer
To the Court’s mind, Goldkey’s argument, that iBank is barred from pursuing Goldkey for the
satisfaction of the unpaid obligation of Hammer because it had already limited its liability to the
real estate mortgage, is completely absurd. Goldkey needs to be reminded that it is being sued not
as a consequence of the real estate mortgage, but rather, because it acted as an alter ego of Hammer.
Accordingly, they must be treated as one and the same entity, making Goldkey accountable for the
debts of Hammer.
Under a variation of the doctrine of piercing the veil of corporate fiction, when two business
enterprises are owned, conducted and controlled by the same parties, both law and equity will,
when necessary to protect the rights of third parties, disregard the legal fiction that two
corporations are distinct entities and treat them as identical or one and the same. 39
These factors are unquestionably present in the case of Goldkey and Hammer:
(1)Stock ownership by one or common ownership of both corporations;
- Both corporations are family corporations of defendants Manuel Chua and his wife Fe
Tan Uy.
(2) Identity of directors and officers;
- Hammer Garments and Goldkey share the same office and practically transact their
business from the same place.
(3) The manner of keeping corporate books and records,
52
- Defendant Manuel Chua is the President and Chief Operating Officer of both
corporations. All business transactions of Goldkey and Hammer are done at the instance
of defendant Manuel Chua who is authorized to do so by the corporations.
(4) Methods of conducting the business
- The assets of Goldkey and Hammer are co-mingled. The real properties of Goldkey are
mortgaged to secure Hammer’s obligation with creditor banks.
(5). When defendant Manuel Chua "disappeared", the defendant Goldkey ceased to operate
despite the claim that the other "officers" and stockholders are still around and may be able to
continue the business of Goldkey, if it were different or distinct from Hammer which suffered
financial set back.42
Goldkey was merely an adjunct of Hammer and, as such, the legal fiction that it has a separate
personality from that of Hammer should be brushed aside as they are, undeniably, one and the
same.
VII.DISPOSITIVE PORTION:
WHEREFORE, the petition are PARTLY GRANTED. The August 16, 2004 Decision and the
December 2, 2004 Resolution of the Court of Appeals in CA-G.R. CV No. 69817, are hereby
MODIFIED. Fe Tan Uy is released from any liability arising from the debts incurred by Hammer
from iBank. Hammer Garments Corporation, Manuel Chua Uy Po Tiong and Goldkey
Development Corporation are jointly and severally liable to pay International Exchange Bank the
sum of ₱13,420,177.62 representing the unpaid loan obligation of Hammer as of December 12,
1997 plus interest. No costs.
53
I.SHORT TITLE: DE ROXAS V. OUR LADY’S FOUNDATION INC
II.FULL TITLE: MERCY VDA. DE ROXAS, represented by ARLENE C. ROXAS-CRUZ,
in her capacity as substitute appellant-petitioner, vs. OUR LADY'S
FOUNDATION, INC
III.TOPIC: CORPORATION LAW- Piercing the veil of corporate fiction
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, Sorsogon. According to her, Atty. (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.
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. 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.
Opposing the valuation of the subject property, OLFI filed a Motion to Quash the Sheriff’s Bill
and a Motion for Inhibition of the RTC judge. It insisted that it should reimburse Roxas only at
the rate of ₱40 per square meter, the same rate that Roxas paid when the latter first purchased the
property.
Eventually, the RTC denied both the Motion for Inhibition and the Motion to Quash the Sheriff’s
Bill. To collect the aforementioned amount, Notices of Garnishment 10 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 (Arcilla-Maullon), OLFI’s general
manager.
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.
54
VI. ISSUES:
Whether or not the issuing of the Notices of Garnishment against the bank accounts of Arcilla-
Maullon as OLFI’s general manager is proper.
VII. RULING:
NO, 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.
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.
Therefore, we refuse to allow the execution of a corporate judgment debt against the general
manager of the corporation, since in no legal sense is he the owner of the corporate
property.28 Consequently, this Court sustains the CA in nullifying the Notices of Garnishment
against his bank accounts.
VII.DISPOSITIVE PORTION:
IN VIEW THEREOF, the 25 September 2007 Decision and 11 March 2008 Resolution of the
Court of Appeals in CA-GR SP No. 88622 are AFFIRMED with MODIFICATION in that the
value of the 92-square-meter property for which respondent should reimburse petitioner, as
determined by the 2 December 2004 Order of the Regional Trial Court in Civil Case No. 5403, is
hereby reinstated at ₱1,800 per square meter.
55
I. SHORT TITLE: PNB VS. HYDRO RESOURCES CONTRACTORS
CORPORATION
II. FULL TITLE: PHILIPPINE NATIONAL BANK, Petitioner, vs. HYDRO RESOURCES
CONTRACTORS CORPORATION, Respondent G.R. No. 167530
LEONARDO-DE CASTRO, CRUZ, J.
ASSET PRIVATIZATION TRUST, Petitioner, vs HYDRO RESOURCES
CONTRACTORS CORPORATION, Respondent G.R. No. 167561
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner vs HYDRO
RESOURCES CONTRACTORS CORPORATION, Respondent G.R.
167603

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 Nonoc Mining and Industrial Corporation (NMIC).
DBP and PNB owned 57% and 43% of the shares of NMIC, respectively, except for five qualifying
shares. 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.11 The case was docketed as Civil Case No. 15375.
Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a merger.
Thereafter, on December 8, 1986, then President Corazon C. Aquino issued Proclamation No. 50
creating the APT for the expeditious disposition and privatization of certain government
corporations and/or the assets thereof. Pursuant to the said Proclamation, on February 27, 1987,
DBP and PNB executed their respective deeds of transfer in favor of the National Government
assigning, transferring and conveying certain assets and liabilities, including their respective stakes
in NMIC.13 In turn and on even date, the National Government transferred the said assets and
56
liabilities to the APT as trustee under a Trust Agreement. 14 Thus, the complaint was amended for
the second time to implead and include the APT as a defendant.
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. Moreover, the said
contract allegedly failed to comply with laws, rules and regulations concerning government
contracts. NMIC further claimed that the contract amount was manifestly excessive and grossly
disadvantageous to the government. NMIC made counterclaims for the amounts already paid to
Hercon, Inc. and attorney’s fees, as well as payment for equipment rental for four trucks,
replacement of parts and other services, and damage to some of NMIC’s properties. 16
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
APT set up the following defenses in its answer21: lack of cause of action against it, lack of privity
between Hercon, Inc. and APT, and the National Government’s preferred lien over the assets of
NMIC.22 The respective motions for reconsideration of DBP, PNB, and APT were denied.

RTC of Makati rendered decision in favor of HRCC, it pierced veil of NMIC and held DBP and
PNB solidarily liable with NMIC. It dismissed the complaint against ATP however as a trustee of
NMIC it directed ATP to ensure compliance with its decision. The Court of Appeals rendered the
Decision dated November 30, 2004, affirmed the piercing of the veil of the corporate personality
of NMIC and held DBP, PNB, and APT solidarily liable with NMIC. The respective motions for
reconsideration of DBP, PNB, and APT were denied. Hence they filed consolidated petitions to
the Supreme Court.
VI. ISSUE:
Whether or not there is sufficient ground to pierce the veil of corporate fiction?
VII. RULING:
No, there s no sufficient proof to pierce the veil of corporate fiction.
Although 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, where owned, conducted and controlled the business
of NMIC as shown by the following circumstances: NMIC was owned by DBP and PNB, the
officers of DBP and PNB were also the officers of NMIC, and DBP and PNB financed the
operations of NMIC. As it is well-settled that "where it appears that the business enterprises are
57
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).
CA then concluded that, "in keeping with the concept of justice and fair play," the corporate veil
of NMIC should be pierced.
For to treat NMIC as a separate legal entity from DBP and PNB for the purpose of securing
beneficial contracts, and then using such separate entity to evade the payment of a just debt, would
be the height of injustice and iniquity. Surely that could not have been the intendment of the law
with respect to corporations.
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. It has a personality separate and distinct from that of its stockholders and from that of
other corporations to which it may be connected. As a consequence of its status as a distinct legal
entity and as a result of a conscious policy decision to promote capital formation, a corporation
incurs its own liabilities and is legally responsible for payment of its obligations. 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.4
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.
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.
In this connection, case law lays down a three-pronged test to determine the application of the
alter ego theory, which is also known as the instrumentality theory, namely:
(1) Control, not mere majority or complete stock control, but complete domination, not
only of finances but of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no separate
mind, will or existence of its own;(Control Test)
58
(2) Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and
unjust act in contravention of plaintiff’s legal right; and (Fraud Test)
(3) The aforesaid control and breach of duty must have proximately caused the injury or
unjust loss complained of. (Harm Test)
For piercing the corporate veil based on the alter ego theory requires the concurrence of three
elements: control of the corporation by the stockholder or parent corporation, fraud or fundamental
unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by the fraudulent
or unfair act of the corporation. The absence of any of these elements prevents piercing the
corporate veil.
These are not present in this case.
Both the RTC and the Court of Appeals applied the alter ego theory and penetrated the corporate
cover of NMIC based on two factors: (1) the ownership by DBP and PNB of effectively all the
stocks of NMIC, and (2) the alleged interlocking directorates of DBP, PNB and
NMIC.65 Unfortunately, the conclusion of the trial and appellate courts that the DBP and PNB fit
the alter ego theory with respect to NMIC’s transaction with HRCC on the premise of complete
stock ownership and interlocking directorates involved a quantum leap in logic and law exposing
a gap in reason and fact.
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
59
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.73
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.
In reaching its conclusion of an alter ego relationship between DBP and PNB on the one hand and
NMIC on the other hand, the Court of Appeals invoked Sibagat Timber Corporation v.
Garcia,77 which it described as "a case under a similar factual milieu."78 However, in Sibagat
Timber Corporation, this Court took care to enumerate the circumstances which led to the piercing
of the corporate veil of Sibagat Timber Corporation for being the alter ego of Del Rosario & Sons
Logging Enterprises, Inc. Those circumstances were as follows: holding office in the same
building, practical identity of the officers and directors of the two corporations and assumption of
management and control of Sibagat Timber Corporation by the directors/officers of Del Rosario
& Sons Logging Enterprises, Inc.
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. Thus, what obtains in this case is a factual backdrop
different from, not similar to, Sibagat Timber Corporation.
In relation to the second element, to disregard the separate juridical personality of a corporation,
the wrongdoing or unjust act in contravention of a plaintiff’s legal rights must be clearly and
convincingly established; it cannot be presumed. Without a demonstration that any of the evils
sought to be prevented by the doctrine is present, it does not apply. 80
As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient
reason to the contrary appears. For the separate juridical personality of a corporation to be
disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed.
60
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. Thus, DBP and PNB may not be held solidarily liable with
NMIC, no contingent liability may be imputed to the APT as well. Only NMIC as a distinct and
separate legal entity is liable to pay its corporate obligation to HRCC in the amount of
₱8,370,934.74, with legal interest thereon from date of demand.

WHEREFORE, the petitions are hereby GRANTED.
The complaint as against Development Bank of the Philippines, the Philippine National Bank, and
the Asset Privatization Trust, now the Privatization and Management Office, is DISMISSED for
lack of merit. The Asset Privatization Trust, now the Privatization and Management Office, as
trustee of Nonoc Mining and Industrial Corporation, now the Philnico Processing Corporation, is
DIRECTED to ensure compliance by the Nonoc Mining and Industrial Corporation, now the
Philnico Processing Corporation, with this Decision.
SO ORDERED..
61
I. SHORT TITLE: POLYMER RUBBER CORPORATION AND ANG vs
SALAMUDING
II. FULL TITLE: POLYMER RUBBER CORPORATION AND JOSEPH ANG, Petitioners,
v. BAYOLO SALAMUDING, Respondent. G.R. No. 185160, July 24,
2013, REYES, J.

Salamuding (Salamuding), Mariano Gulanan and Rodolfo Raif were employees of petitioner
Polymer Rubber Corporation who were dismissed after allegedly committing certain irregularities
against Polymer. The 3 employees filed a complaint against Polymer and Ang for unfair labor
practice, illegal dismissal, non-payment of overtime services, violation of P.D. 851with prayer for
reinstatement and payment of backwages, atty’s fees, moral and exemplary damages.
Labor Arbiter dismissed the complaint for unfair labor practice and directed Polymer to reinstate
the Salamuding et. Al.with ful back wages. A writ of execution was subsequently issued to
implement said judgment.
Upon appeal of Polymer with the NLRC, the decision was affirmed but deleted only the award of
moral and exemplary damages. The case was elevated to SC deleting the award of overtime pay
and then later on Sept. 30, 1993 Polymer ceased its operations.
Upon motion, the Labor arbiter a quo issued a writ of execution but the same was returned
unsatisfied and on the latter part of 2004, Polymer was gutted by fire.
Labor arbiter issued a 5th alias writ of execution so that in its implementation, the shares of stocks
of Ang and USA Resources Corp. were levied.
Polymer and Ang moved to quash said 5th alias writ of execution and to lift notice of garnishment.
They alleged that Ang should not be held jointly and severally liable with Polymer since it was
only the latter which was held liable in the decision of the LA, NLRC and the Supreme Court. LA
granted the motion and the same was affirmed by the NLRC. Salamuding firle a petition for
certiorari with CA.
CA stated that there has to be a responsible person or persons working in the interest of Polymer
who may also be considered as the employer. Since Ang as the director of Polymer was considered
the highest ranking officer of Polymer, he was therefore properly impleaded and may be held
jointly and severally liable for the obligations of Polymer to its dismissed employees.
Aggrieved by the CA decision, the petitioners filed the instant petition in the Supreme Court.
62
VI. ISSUE:
Whether or not Ang as Officer of the Corporation cannot be personally held liable and be
made to pay the liability of the corporation?
VII. RULING:
Yes. Petition is GRANTED
"A corporation, as a juridical entity, may act only through its directors, officers and employees.
Obligations incurred as a result of the directors’ and officers’ acts as corporate agents, are not their
personal liability but the direct responsibility of the corporation they represent. As a rule, they are
only solidarily liable with the corporation for the illegal termination of services of employees if
they acted with malice or bad faith."
To hold a director or officer personally liable for corporate obligations:
1. It must be alleged in the complaint that the director or officer assented to patently unlawful acts
of the corporation or that the officer was guilty of gross negligence or bad faith;
2. There must be proof that the officer acted in bad faith.
In the instant case, the CA imputed bad faith on the part of the petitioners when Polymer ceased
its operations the day after the promulgation of the SC resolution in 1993 which was allegedly
meant to evade liability. It necessary to pierce the corporate fiction and pointed at Ang as the
responsible person to pay for Salamuding’s money claims. nothing in the records that show that
Ang was responsible for the acts complained of. we find that it will require a great stretch of
imagination to conclude that a corporation would cease its operations if only to evade the payment
of the adjudged monetary awards in favor of three (3) of its employees.
Ang is merely one of the incorporators of Polymer and to single him out and require him to
personally answer for the liabilities of Polymer is without basis. In the absence of a finding that he
acted with malice or bad faith, it was error for the CA to hold him responsible.
In labor cases, for instance, the Court has held corporate directors and officers solidarily liable
with the corporation for the termination of employment of employees done with malice or in bad
faith."
To hold Ang personally liable at this stage is quite unfair. The judgment of the LA, as affirmed by
the NLRC and later by the SC had already long become final and executory.
WHEREFORE, the petition is GRANTED. The Decision dated June 30, 2008 and the Resolution
dated November 5, 2008 of the Court of Appeals in CA-G.R. SP No. 98387 are SET ASIDE. The
Decision of the National Labor Relations Commission dated September 27, 2006 is
REINSTATED. Let the records of the case be remanded to the Labor Arbiter for proper
computation of the award in accordance with this decision. SO ORDERED.
63
I. SHORT TITLE: SAVERIO AND NS INTERNATIONAL INC. vs PUYAT
II. FULL TITLE: NUCCIO SAVERIO AND NS INTERNATIONAL, INC., Petitioners, v.

ALFONSO G. PUYAT, Respondent. G.R. No. 186433, November 27,
2013, BRION, J.

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 P500,000.00 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
P300,000.00 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 P600,000.00. However, as
of December 16, 1999, the petitioners allegedly had an outstanding balance of P460,505.86. 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.
The petitioners refuted the respondent’s allegation and insisted that they have already paid the
loan, evidenced by the respondent’s receipt for the amount of P600,000.00. They submitted that
their remaining obligation to pay the machineries’ value, if any, had long been extinguished by
their business’ failure to materialize. They posited that, even assuming without conceding that
they are liable, the amount being claimed is inaccurate, the penalty and the interest imposed are
unconscionable, and an independent accounting is needed to determine the exact amount of their
liability.

RTC found that aside from the cash loan, the petitioners’ obligation to the respondent also covered
the payment of the machineries’ value. The RTC also brushed aside the petitioners’ claim of
partnership. The RTC thus ruled that the payment of P600,000.00 did not completely extinguish
the petitioners’ obligation. 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. RTC ordered the petitioners,
64
jointly and severally, to pay the balance of P460,505.86, at 12% interest, and attorney’s fees
equivalent to 25% of the total amount due.
The petitioners appealed the RTC ruling to the CA. There, they argued that in view of the lack of
proper accounting and the respondent’s failure to substantiate his claims, the exact amount of their
indebtedness had not been proven. Nuccio also argued that by virtue of NSI’s separate and distinct
personality, he cannot be made solidarily liable with NSI. he CA rendered a decision7 declaring
the petitioners jointly and severally liable for the amount that the respondent sought.
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.
VI. ISSUE:
Whether the CA committed a reversible error in affirming the RTC’s decision holding the
petitioners jointly and severally liable for the amount claimed?
VII. RULING:
YES.
After a careful study of the records and the findings of both the RTC and the CA, we hold that
their conclusions, based on the given findings, are not supported by the evidence on record.
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.
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.
65
In Hi-Cement Corporation v. Insular Bank of Asia and America (later PCI-Bank, now Equitable
PCI-Bank),11 we refused to apply the piercing the veil doctrine on the ground that the corporation
was a mere alter ego because mere ownership by a stockholder of all or nearly all of the capital
stocks of a corporation does not, by itself, justify the disregard of the separate corporate
personality. In this cited case, we ruled that in order for the ground of corporate ownership to stand,
the following circumstances should also be established: (1) that the stockholders had control or
complete domination of the corporation’s finances and that the latter had no separate existence
with respect to the act complained of; (2) that they used such control to commit a wrong or fraud;
and (3) the control was the proximate cause of the loss or injury.
Applying these principles to the present case, we opine and so hold that the attendant circumstances
do not warrant the piercing of the veil of NSI’s corporate fiction.
Aside from the undisputed fact of Nuccio’s 40% shareholdings with NSI, the RTC applied the
piercing the veil doctrine based on the following reasons. First, there was no board resolution
authorizing Nuccio to enter into a contract of loan. Second, the petitioners were represented by
one and the same counsel. Third, NSI did not object to Nuccio’s act of contracting the loan. Fourth,
the control over NSI was used to commit a wrong or fraud. Fifth, Nuccio’s admission that “NS”
in the corporate name “NSI” means “Nuccio Saverio.”
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. 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.
66
WHEREFORE, the petition is GRANTED. The October 27, 2008 decision and the February 10,
2009 resolution of the Court of Appeals in CA-G.R. CV. No. 87879 are REVERSED AND SET
ASIDE. The case is REMANDED to the Regional Trial Court of Makati City, Branch 136, for
proper accounting and reception of such evidence as may be needed to determine the actual amount
of petitioner NS International, Inc.’s indebtedness, and to adjudicate respondent Alfonso G.
Puyat’s claims as such evidence may warrant.
SO ORDERED.
67
I. SHORT TITLE: LIVESEY V. BINSWANGER PHILIPPINES
II. FULL TITLE: ERIC GODFREY STANLEY LIVESEY, Petitioner, versus, INC.
and KEITH ELLIOT, Respondent-G.R. No. 177493, March 19, 20014, J. Brion.

Eric Godfrey Stanley Livesey alleged he was hired by CBB Philippines Strategic Property
Services, Inc. (CBB), a domestic corporation engaged in real estate brokerage, as Director and
Head of Business Space Development, with a monthly salary of US$5,000.00; shareholdings
in CBB’s offshore parent company; and other benefits. Later on, he was appointed as
Managing Director and his salary was increased to US$16,000.00 a month. Allegedly, despite
the several deals for CBB he drew up, CBB failed to pay him a significant portion of his salary.
For this reason, he was compelled to resign and he claimed CBB owed him US$23,000.00 in
unpaid salaries.
CBB denied liability. It alleged that it engaged Livesey as a corporate officer in April 2001: he
was elected Vice-President (with a salary of P75, 000.00/month), and thereafter, he became
President (at P1, 200,000.00/year). It claimed that Livesey was later designated as Managing
Director when it became an extension office of its principal in Hong Kong.
In December 2001, petitioner Livesey filed a complaint for illegal dismissal with money claims
against CBB and Paul Dwyer (President of CBB). Livesey demanded that CBB pay him
US$25,000.00 in unpaid salaries and, at the same time, tendered his resignation. CBB posited
that the labor arbiter (LA) had no jurisdiction as the complaint involved an intra-corporate
dispute.
In his decision, LA Jaime M. Reyno found that Livesey had been illegally dismissed. LA
Reyno ordered CBB to reinstate Livesey to his former position as Managing Director and to
pay him US$23,000.00 in accrued salaries (from July to December 2001), and US$5,000.00 a
month in back salaries from January 2002 until reinstatement; and 10% of the total award as
attorney’s fees.
Thereafter, the parties entered into a compromise agreement which was approved in an order.
Under the agreement, Livesey was to receive US$31,000.00 in full satisfaction of LA’s
decision, broken down into US$13,000.00 to be paid by CBB to Livesey or his authorized
representative upon the signing of the agreement; US$9,000.00 on or before June 30, 2003;
and US$9,000.00 on or before September 30, 2003. Further, the agreement provided that unless
and until the agreement is fully satisfied, CBB shall not: (1) sell, alienate, or otherwise dispose
of all or substantially all of its assets or business; (2) suspend, discontinue, or cease its entire,
or a substantial portion of its business operations; (3) substantially change the nature of its
business; and (4) declare bankruptcy or insolvency.
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CBB paid Livesey the initial amount of US$13,000.00, but not the next two installments as the
company ceased operations. In reaction, Livesey moved for the issuance of a writ of execution.
LA Eduardo G. Magno granted the writ, but it was not enforced. Livesey then filed a motion
for the issuance of an alias writ of execution, alleging that in the process of serving respondents
the writ; he learned "that respondents, in a clear and willful attempt to avoid their liabilities to
complainant have organized another corporation, Binswanger Philippines, Inc." He claimed
that there was evidence showing that CBB and Binswanger is one and the same corporation,
pointing out that CBB stands for Chesterton Blumenauer Binswanger. Invoking the doctrine
of piercing the veil of corporate fiction, Livesey prayed that an alias writ of execution be issued
against respondents Binswanger and Keith Elliot, CBB’s former President, and now
Binswanger’s President and Chief Executive Officer (CEO).
LA Laderas denied the motion for writ of alias execution holding that the doctrine of piercing
the corporate veil was inapplicable in the case. He explained that the stockholders of the two
corporations were not the same. Further, LA Laderas stressed that LA Reyno’s decision had
already become final and could no longer be altered or modified to include additional
respondents. Livesey appealed and NLRC reversed the decision of LA Laderas and declared
the respondents jointly and severally liable with CBB for LA Reyno’s decision in favor of
Livesey. The respondents moved for reconsideration but were denied. They filed a petition for
certiorari under Rule 65 of the Rules of Court before the CA. They maintained that Binswanger
is a separate and distinct corporation from CBB and that Elliot signed the compromise
agreement in CBB’s behalf, not in his personal capacity. It was error for the NLRC, they
argued, when it applied the doctrine of piercing the veil of corporate fiction to the case, despite
the absence of clear evidence in that respect.
The CA granted the petition. The CA disagreed with the NLRC finding that the respondents
are jointly and severally liable with CBB in the case. It emphasized that the mere fact that
Binswanger and CBB have the same President is not in itself sufficient to pierce the veil of
corporate fiction of the two entities, and that although Elliot was formerly CBB’s President,
this circumstance alone does not make him answerable for CBB’s liabilities, there being no
proof that he was motivated by malice or bad faith when he signed the compromise agreement
in CBB’s behalf; neither was there proof that Binswanger was formed, or that it was operated,
for the purpose of shielding fraudulent or illegal activities of its officers or stockholders or that
the corporate veil was used to conceal fraud, illegality or inequity at the expense of third
persons like Livesey. Livesey filed a motion for reconsideration but it was denied. Thus, this
appeal.
He insists that CBB and Binswanger is one and the same corporation as shown by the
"overwhelming evidence" he presented to the LA, the NLRC and the CA, as follows:
a. CBB stands for "Chesterton Blumenauer Binswanger."
b. After executing the compromise agreement with him, through Elliot, CBB ceased
operations following a transaction where a substantial amount of CBB shares changed
hands. Almost simultaneously with CBB’s closing Binswanger was established with
its headquarters set up beside CBB’s office.
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c. Key CBB officers and employees moved to Binswanger led by Elliot, former CBB
President who became Binswanger’s President and CEO;
d. The affidavit of Hazel de Guzman, another former CBB employee who also filed an
illegal dismissal case against the company, attested to the existence of Livesey’s
documentary evidence in his own case and who deposed that at one time, Elliot told
her of CBB’s plan to close the corporation and to organize another for the purpose of
evading CBB’s liabilities. The findings of facts of LA Veneranda C. Guerrero who
ruled in De Guzman’s favor that bolstered his own evidence in the present case.
VI. ISSUE:
Whether or not Binswanger’s corporate veil should be pierced and make the company and
Elliot liable, together with CBB, for the judgment awarded to Livesey?
VII. RULING:
YES. Shortly after Elliot forged the compromise agreement with Livesey, CBB ceased
operations, a corporate event that was not disputed by the respondents. Then Binswanger
suddenly appeared. It was established almost simultaneously with CBB’s closure, with no less
than Elliot as its President and CEO. Through the confluence of events surrounding CBB’s
closure and Binswanger’s sudden emergence, a reasonable mind would arrive at the conclusion
that Binswanger is CBB’s alter ego or that CBB and Binswanger are one and the same
corporation. There are also indications of badges of fraud in Binswanger’s incorporation. It
was a business strategy to evade CBB’s financial liabilities, including its outstanding
obligation to Livesey.
It has long been settled that the law vests a corporation with a personality distinct and separate
from its stockholders or members. In the same vein, a corporation, by legal fiction and
convenience, is an entity shielded by a protective mantle and imbued by law with a character
alien to the persons comprising it. Nonetheless, the shield is not at all times impenetrable and
cannot be extended to a point beyond its reason and policy. Circumstances might deny a claim
for corporate personality, under the "doctrine of piercing the veil of corporate fiction." Piercing
the veil of corporate fiction is an equitable doctrine developed to address situations where the
separate corporate personality of a corporation is abused or used for wrongful purposes. Under
the doctrine, the corporate existence may be disregarded where the entity is formed or used for
non-legitimate purposes, such as to evade a just and due obligation, or to justify a wrong, to
shield or perpetrate fraud or to carry out similar or inequitable considerations, other
unjustifiable aims or intentions, in which case, the fiction will be disregarded and the
individuals composing it and the two corporations will be treated as identical.
In the present case, we see an indubitable link between CBB’s closure and Binswanger’s
incorporation. CBB ceased to exist only in name; it re-emerged in the person of Binswanger
for an urgent purpose— to avoid payment by CBB of the last two installments of its monetary
obligation to Livesey, as well as its other financial liabilities. Freed of CBB’s liabilities,
especially that owing to Livesey, Binswanger can continue, as it did continue, CBB’s real
estate brokerage business. Livesey’s evidence, whose existence the respondents never denied,
70
converged to show this continuity of business operations from CBB to Binswanger. It was not
just coincidence that Binswanger is engaged in the same line of business CBB embarked on:
(1) it even holds office in the very same building and on the very same floor where CBB once
stood; (2) CBB’s key officers, Elliot, no less, and Catral moved over to Binswanger,
performing the tasks they were doing at CBB; (3) notwithstanding CBB’s closure,
Binswanger’s Web Editor (Young), in an e-mail correspondence, supplied the information that
Binswanger is "now known" as either CBB (Chesterton Blumenauer Binswanger or as
Chesterton Petty, Ltd., in the Philippines; (4) the use of Binswanger of CBB’s paraphernalia
(receiving stamp) in connection with a labor case where Binswanger was summoned by the
authorities, although Elliot claimed that he bought the item with his own money; and (5)
Binswanger’s takeover of CBB’s project with the PNB.
While the ostensible reason for Binswanger’s establishment is to continue CBB’s business
operations in the Philippines, which by itself is not illegal, the close proximity between CBB’s
disestablishment and Binswanger’s coming into existence points to an unstated but urgent
consideration which, as we earlier noted, was to evade CBB’s unfulfilled financial obligation
to Livesey under the compromise agreement.
What happened to CBB, we believe, supports Livesey's assertion that De Guzman, CBB's
former Associate Director, informed him that at one time Elliot told her of CBB’s plan to close
the corporation and organize another for the purpose of evading CBB’s liabilities to Livesey
and its other financial liabilities. This wrongful intent we cannot and must not condone, for it
will give a premium to an iniquitous business strategy where a corporation is formed or used
for a non-legitimate purpose, such as to evade a just and due obligation. We, therefore, find
Elliot as liable as Binswanger for CBB’s unfulfilled obligation to Livesey.
VIII. DIPOSITIVE PORTION:
WHEREFORE, premises considered, we hereby GRANT the petition. The decision dated
August 18, 2006 and the Resolution dated March 29, 2007 of the Court of Appeals are SET
ASIDE. Binswanger Philippines, Inc. and Keith Elliot (its President and CEO) are declared
jointly and severally liable for the second and third installments of CBB’s liability to Eric
Godfrey Stanley Livesey under the compromise agreement dated October 14, 2002. Let the
case record be remanded to the National Labor Relations Commission for execution of this
Decision.
71
I. SHORT TITLE: PACIFIC REHOUSE CORPORATION V. CA
II. FULL TITLE: Pacific Rehouse Corporation v. CA and Export and Industry Bank,
Inc.; Pacific Rehouse Corporation, et al. v. Export and Industry Bank, Inc.,- G.R. No.
199687, March 24, 2014, J. Reyes
This case began when Pacific Rehouse Corporation filed a case before the RTC Makati against
EIB Securities Inc., for the unathorized sale of 32,180,000 DMCI shares of private respondents
Pacific Rehouse Corporation, Pacific Concorde Corporation, Mizpah Holdings, Inc., Forum
Holdings Corporation, and East Asia Oil Company, Inc. In its decision, RTC ordered E-
Securities Inc. to return the plaintiffs’ [private respondents herein] 32,180,000 DMCI shares,
as of judicial demand. On the other hand, plaintiffs are directed to reimburse the defendant the
amount of [P] 10,942,200.00, representing the buyback price of the 60,790,000 KPP shares of
stocks at [P] 0.18 per share. The Resolution was ultimately affirmed by the Supreme Court and
attained finality.
When the Writ of Execution was returned unsatisfied, private respondents moved for the
issuance of an alias writ of execution to hold Export and Industry Bank, Inc. liable for the
judgment obligation as E-Securities is “a wholly-owned controlled and dominated subsidiary
of Export and Industry Bank, Inc., and thus, a mere alter ego and business conduit of the latter.
E-Securities opposed the motion, arguing that it has a corporate personality that is separate and
distinct from petitioner. Private respondents filed their Reply attaching for the first time a
sworn statement executed by Atty. Ramon F. Aviado, Jr., the former corporate secretary of
petitioner and E-Securities, to support their alter ego theory; and Ex-Parte Manifestation
alleging service of copies of the Writ of Execution and Motion for Alias Writ of Execution on
petitioner. RTC concluded that E-Securities is a mere business conduit or alter ego of
petitioner, the dominant parent corporation, which justifies piercing of the veil of corporate
fiction. The trial court ordered an Alias Writ of Execution to be issued directing defendant EIB
Securities, Inc., and/or Export and Industry Bank, Inc., to fully comply therewith. With this
development, petitioner filed an Omnibus Motion (Ex Abundanti Cautela) questioning the alias
writ because it was not impleaded as a party to the case.
The RTC denied the motion and directed the garnishment of P1, 465,799,000.00, the total
amount of the 32,180,000 DMCI shares at P45.55 per share, against petitioner and/or E-
Securities. The Regional Trial Court (RTC) ratiocinated that being one and the same entity in
the eyes of the law, the service of summons upon EIB Securities, Inc. (E-Securities) has
bestowed jurisdiction over both the parent and wholly-owned subsidiary. The RTC cited the
cases of Sps. Violago v. BA Finance Corp. et al.4 and Arcilla v. Court of Appeals where the
doctrine of piercing the veil of corporate fiction was applied notwithstanding that the affected
corporation was not brought to the court as a party.
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Export and Industry Bank, Inc. (Export Bank) filed before the CA a petition for certiorari with
prayer for the issuance of a TRO seeking the nullification of the RTC Order for having been
made with grave abuse of discretion amounting to lack or excess of jurisdiction. In its petition,
Export Bank made reference to several rulings of the Court upholding the separate and distinct
personality of a corporation. In a Resolution dated September 2, 2011, the CA issued a 60-day
TRO enjoining the execution of the Orders of the RTC dated July 29, 2011 and August 26,
2011, which granted the issuance of an alias writ of execution and ordered the garnishment of
the properties of E-Securities and/or Export Bank. The CA also set a hearing to determine the
necessity of issuing a writ of injunction.
Pacific Rehouse Corporation (Pacific Rehouse), Pacific Concorde Corporation, Mizpah
Holdings, Inc., Forum Holdings Corporation and East Asia Oil Company, Inc. (petitioners)
filed their Comment to Export Bank’s petition and proffered that the cases mentioned by
Export Bank are inapplicable owing to their clearly different factual antecedents. The
petitioners alleged that unlike the other cases, there are circumstances peculiar only to E-
Securities and Export Bank such as: 499,995 out of 500,000 outstanding shares of stocks of E-
Securities are owned by Export Bank; Export Bank had actual knowledge of the subject matter
of litigation as the lawyers who represented E-Securities are also lawyers of Export Bank. As
an alter ego, there is no need for a finding of fraud or illegality before the doctrine of piercing
the veil of corporate fiction can be applied. The CA granted the WPI. One of the petitioners
herein, Pacific Rehouse filed before the Court a petition for certiorari under Rule 65, docketed
as G.R. No. 199687, demonstrating its objection to the Resolutions.
CA ruled on the merit of the case and granted the petition of Export Bank and nullified the
Alias Writ of Execution issued by the RTC of Makati. The CA explained that the alter ego
theory cannot be sustained because ownership of a subsidiary by the parent company is not
enough justification to pierce the veil of corporate fiction. There must be proof, apart from
mere ownership, that Export Bank exploited or misused the corporate fiction of E-Securities.
The existence of interlocking incorporators, directors and officers between the two
corporations is not a conclusive indication that they are one and the same. The records also do
not show that Export Bank has complete control over the business policies, affairs and/or
transactions of E-Securities. It was solely E-Securities that contracted the obligation in
furtherance of its legitimate corporate purpose; thus, any fall out must be confined within its
limited liability. The petitioners, without filing a motion for reconsideration, filed a Petition
for Review under Rule 45 docketed as G.R. No. 201537, impugning the Decision dated April
26, 2012 of the CA. G.R. Nos. 199687 and 201537 were consolidated.
VI. ISSUE:
1. WHETHER OR NOT EXPORT BANK MAY BE HELD LIABLE FOR A FINAL AND
EXECUTORY JUDGMENT AGAINST E-SECURITIES IN AN ALIAS WRIT OF
EXECUTION BY PIERCING ITS VEIL OF CORPORATE FICTION?
2. WHETHER OR NOT THE ALTER EGO DOCTRINE IS APPLICABLE?
73
VII. RULING:
1. NO. The Court already ruled in Kukan International Corporation v. Reyes49 that
compliance with the recognized modes of acquisition of jurisdiction cannot be dispensed
with even in piercing the veil of corporate fiction, to wit: “The principle of piercing the
veil of corporate fiction, and the resulting treatment of two related corporations as one
and the same juridical person with respect to a given transaction, is basically applied only
to determine established liability; it is not available to confer on the court a jurisdiction it
has not acquired, in the first place, over a party not impleaded in a case. Elsewise put, a
corporation not impleaded in a suit cannot be subject to the court’s process of piercing the
veil of its corporate fiction. In that situation, the court has not acquired jurisdiction over
the corporation and, hence, any proceedings taken against that corporation and its
property would infringe on its right to due process.”
From the preceding, it is therefore correct to say that the court must first and foremost
acquire jurisdiction over the parties; and only then would the parties be allowed to present
evidence for and/or against piercing the veil of corporate fiction. If the court has no
jurisdiction over the corporation, it follows that the court has no business in piercing its
veil of corporate fiction because such action offends the corporation’s right to due process.
“Jurisdiction over the defendant is acquired either upon a valid service of summons or the
defendant’s voluntary appearance in court. When the defendant does not voluntarily submit
to the court’s jurisdiction or when there is no valid service of summons, ‘any judgment of
the court which has no jurisdiction over the person of the defendant is null and void. “The
defendant must be properly apprised of a pending action against him and assured of the
opportunity to present his defenses to the suit. Proper service of summons is used to protect
one’s right to due process.” As Export Bank was neither served with summons, nor has it
voluntarily appeared before the court, the judgment sought to be enforced against E-
Securities cannot be made against its parent company, Export Bank. In dispensing with the
requirement of service of summons or voluntary appearance of Export Bank, the RTC
applied the cases of Violago and Arcilla. The RTC concluded that in these cases, the Court
decided that the doctrine of piercing the veil of corporate personality can be applied even
when one of the affected parties has not been brought to the Court as a party. A closer
perusal on the rulings of this Court in Violago and Arcilla, however, reveals that the RTC
misinterpreted the doctrines on these cases. The disparity between the instant case and
those of Violago and Arcilla is that in said cases, although the corporations were not
impleaded as defendant, the persons made liable in the end were already parties thereto
since the inception of the main case. Consequently, it cannot be said that the Court had, in
the absence of fraud and/or bad faith, applied the doctrine of piercing the veil of corporate
fiction to make a non-party liable. In short, liabilities attached only to those who are parties.
2. NO. Alter Ego Doctrine is not applicable. “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 completes stock control
74
but such domination of finances, 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 Court
has laid down a three-pronged control test to establish when the alter ego doctrine should
be operative: (1) Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own; (2) Such control must have been used by the
defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal right;
and (3) The aforesaid control and breach of duty must [have] proximately caused 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. Hence, all three elements should concur for the
alter ego doctrine to be applicable.
Albeit the RTC bore emphasis on the alleged control exercised by Export Bank upon its
subsidiary E-Securities, “control, by itself, does not mean that the controlled corporation
is a mere instrumentality or a business conduit of the mother company. Even control over
the financial and operational concerns of a subsidiary company does not by itself call for
disregarding its corporate fiction. There must be a perpetuation of fraud behind the control
or at least a fraudulent or illegal purpose behind the control in order to justify piercing the
veil of corporate fiction. Such fraudulent intent is lacking in this case.” Moreover, there
was nothing on record demonstrative of Export Bank’s wrongful intent in setting up a
subsidiary, E-Securities. If used to perform legitimate functions, a subsidiary’s separate
existence shall be respected, and the liability of the parent corporation as well as the
subsidiary will be confined to those arising in their respective business. To justify treating
the sole stockholder or holding company as responsible, it is not enough that the subsidiary
is so organized and controlled as to make it “merely an instrumentality, conduit or adjunct”
of its stockholders. It must further appear that to recognize their separate entities would aid
in the consummation of a wrong.
As established in the main case and reiterated by the CA, the subject 32,180,000 DMCI
shares which E-Securities is obliged to return to the petitioners were originally bought at
an average price of P0.38 per share and were sold for an average price of P0.24 per share.
The proceeds were then used to buy back 61,100,000 KPP shares earlier sold by E-
Securities. Quite unexpectedly however, the total amount of these DMCI shares ballooned
to P1,465,799,000.00.74 It must be taken into account that this unexpected turnabout did
not inure to the benefit of E-Securities, much less Export Bank. Furthermore, ownership
75
by Export Bank of a great majority or all of stocks of E-Securities and the existence of
interlocking directorates may serve as badges of control, but ownership of another
corporation, per se, without proof of actuality of the other conditions are insufficient to
establish an alter ego relationship or connection between the two corporations, which will
justify the setting aside of the cover of corporate fiction. The 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.” The 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.”
WHEREFORE, the petition in G.R. No. 199687 is hereby DISMISSED for having been
rendered moot and academic. The petition in G.R. No. 201537, meanwhile, is hereby DENIED
for lack of merit. Consequently, the Decision dated April 26, 2012 of the Court of Appeals in
CA-G.R. SP No. 120979 is AFFIRMED.
76
I. SHORT TITLE: ARCO PULP AND PAPER CO., INC. V. LIM
II. FULL TITLE: Arco Pulp and Paper Co., Inc. and Santos v. Lim, doing business
under the name and style of Quality Papers & Plastic Products Enterprises, G.R. No.
206806, June 25, 2014, J. Leonen
Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw materials,
under the name Quality Paper and Plastic Products, Enterprises, to factories engaged in the
paper mill business. From February 2007 to March 2007, he delivered scrap papers worth P7,
220, 968.31 to Arco Pulp and Paper Company, Inc. (Arco Pulp and Paper) through its Chief
Executive Officer and President, Candida A. Santos. The parties allegedly agreed that Arco
Pulp and Paper would either pay Dan T. Lim the value of the raw materials or deliver to him
their finished products of equivalent value. Dan T. Lim alleged that when he delivered the raw
materials, Arco Pulp and Paper issued a post-dated check dated April 18, 20077 in the amount
of P1, 487, 766.68 as partial payment, with the assurance that the check would not bounce.
When he deposited the check, it was dishonored for being drawn against a closed account. On
the same day, Arco Pulp and Paper and a certain Eric Sy executed a memorandum of agreement
where Arco Pulp and Paper bound themselves to deliver their finished products to Megapack
Container Corporation, owned by Eric Sy, for his account. According to the memorandum, the
raw materials would be supplied by Dan T. Lim, through his company, Quality Paper and
Plastic Products.
Dan T. Lim sent a letter to Arco Pulp and Paper demanding payment but no payment was made
to him.
Lim filed a complaint for collection of sum of money with prayer for attachment before the
RTC. He was allowed to submit evidence ex-parte due to the failure of the defendant’s
representative to attend the pre-trial hearing. The trial court rendered a judgment in favor of
Arco Pulp and Paper and dismissed the complaint, holding that when Arco Pulp and Paper and
Eric Sy entered into the memorandum of agreement, novation took place, which extinguished
Arco Pulp and Paper’s obligation to Dan T. Lim.
Dan T. Lim filed an appeal before the Court of Appeals. According to him, novation did not
take place since the memorandum of agreement between Arco Pulp and Paper and Eric Sy was
an exclusive and private agreement between them. He argued that if his name was mentioned
in the contract, it was only for supplying the parties their required scrap papers, where his
conformity through a separate contract was indispensable. CA reversed the decision and
ordered Arco Pulp and Paper and Candida A. Santos to jointly and severally pay Dan T. Lim.
The appellate court ruled that the facts and circumstances in this case clearly showed the
existence of an alternative obligation. Arco Pulp and Paper filed a MR but it was denied. Thus,
this present petition for certiorari before the SC.
77
Before the SC, the petitioners argue that the execution of the memorandum of agreement
constituted a novation of the original obligation since Eric Sy became the new debtor of
respondent. They also argue that there is no legal basis to hold petitioner Candida A. Santos
personally liable for the transaction that petitioner corporation entered into with respondent.
Respondent, on the other hand, argues that the Court of Appeals was correct in ruling that there
was no proper novation in this case. He argues that the Court of Appeals was correct in ordering
the payment of 7,220,968.31 with damages since the debt of petitioners remains unpaid. He
also argues that the Court of Appeals was correct in holding petitioners’ solidarily liable since
petitioner Candida A. Santos was “the prime mover for such outstanding corporate liability.
VI. ISSUE:
1. Whether or not the obligation between the parties was alternative?
2. Whether or not the MOA between the petitioners and Eric Sy novated the contract between
the petitioners and the private respondent?
3. Whether or not Candida Santos should be held solidary liable with Arco Pulp and Paper?
VII. RULING:
1. YES. “In an alternative obligation, there is more than one object, and the fulfillment of one
is sufficient, determined by the choice of the debtor who generally has the right of
election.”
The appellate court, therefore, correctly identified the obligation between the parties as an
alternative obligation, whereby petitioner Arco Pulp and Paper, after receiving the raw
materials from respondent, would either pay him the price of the raw materials or, in the
alternative, deliver to him the finished products of equivalent value.
When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment
for the scrap papers, they exercised their option to pay the price. Respondent’s receipt of
the check and his subsequent act of depositing it constituted his notice of petitioner Arco
Pulp and Paper’s option to pay. This choice was also shown by the terms of the
memorandum of agreement, which was executed on the same day. The memorandum
declared in clear terms that the delivery of petitioner Arco Pulp and Paper’s finished
products would be to a third person, thereby extinguishing the option to deliver the finished
products of equivalent value to respondent.
2. NO. There is nothing in the memorandum of agreement that states that with its execution,
the obligation of petitioner Arco Pulp and Paper to respondent would be extinguished. It
also does not state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as
respondent’s debtor. It merely shows that petitioner Arco Pulp and Paper opted to deliver
the finished products to a third person instead. The consent of the creditor must also be
secured for the novation to be valid. In this case, respondent was not privy to the
memorandum of agreement, thus, his conformity to the contract need not be secured. Since
there was no novation, petitioner Arco Pulp and Paper’s obligation to respondent remains
valid and existing. Petitioner Arco Pulp and Paper, therefore, must still pay respondent the
full amount of P7, 220,968.31.
78
Petitioners are also liable for damages because the breach of contract was attended with
bad faith. Here, the injury suffered by respondent is the loss of P7, 220,968.31 from his
business. This has remained unpaid since 2007. This injury undoubtedly was caused by
petitioner Arco Pulp and Paper’s act of refusing to pay its obligations. When the obligation
became due and demandable, petitioner Arco Pulp and Paper not only issued an unfunded
check but also entered into a contract with a third person in an effort to evade its liability.
3. YES. Petitioners argue that the finding of solidary liability was erroneous since no evidence
was adduced to prove that the transaction was also a personal undertaking of petitioner
Santos. Basic is the rule in corporation law that a corporation is a juridical entity which is
vested with a legal personality separate and distinct from those acting for and in its behalf
and, in general, from the people comprising it. Following this principle, obligations
incurred by the corporation, acting through its directors, officers and employees, are its
sole liabilities. A director, officer or employee of a corporation is generally not held
personally liable for obligations incurred by the corporation. Nevertheless, this legal fiction
may be disregarded if it is used as a means to perpetrate fraud or an illegal act, or as a
vehicle for the evasion of an existing obligation, the circumvention of statutes, or to
confuse legitimate issues. Before a director or officer of a corporation can be held
personally liable for corporate obligations, however, the following requisites must concur:
(1) the complainant must allege in the complaint that the director or officer assented to
patently unlawful acts of the corporation, or that the officer was guilty of gross negligence
or bad faith; and (2) the complainant must clearly and convincingly prove such unlawful
acts, negligence or bad faith.
As a general rule, directors, officers, or employees of a corporation cannot be held

personally liable for obligations incurred by the corporation. However, this veil of
corporate fiction may be pierced if complainant is able to prove, as in this case, that (1) the
officer is guilty of negligence or bad faith, and (2) such negligence or bad faith was clearly
and convincingly proven.
Here, petitioner Santos entered into a contract with respondent in her capacity as the
President and Chief Executive Officer of Arco Pulp and Paper. She also issued the check
in partial payment of petitioner corporation’s obligations to respondent on behalf of
petitioner Arco Pulp and Paper. This is clear on the face of the check bearing the account
name, “Arco Pulp & Paper, Co., Inc.” Any obligation arising from these acts would not,
ordinarily, be petitioner Santos’ personal undertaking for which she would be solidarily
liable with petitioner Arco Pulp and Paper.
We find, however, that the corporate veil must be pierced. In Livesey v. Binswanger
Philippines: “Piercing the veil of corporate fiction is an equitable doctrine developed to
address situations where the separate corporate personality of a corporation is abused or
used for wrongful purposes. Under the doctrine, the corporate existence may be
79
disregarded where the entity is formed or used for non-legitimate purposes, such as to
evade a just and due obligation, or to justify a wrong, to shield or perpetrate fraud or to
carry out similar or inequitable considerations, other unjustifiable aims or intentions, in
which case, the fiction will be disregarded and the individuals composing it and the two
corporations will be treated as identical.”
According to the Court of Appeals, petitioner Santos was solidarily liable with petitioner Arco
Pulp and Paper, stating that:
“In the present case, we find bad faith on the part of the [petitioners] when they unjustifiably
refused to honor their undertaking in favor of the [respondent]. After the check in the amount
of P1, 487,766.68 issued by [petitioner] Santos was dishonored for being drawn against a
closed account; [petitioner] corporation denied any privity with [respondent]. These acts
prompted the [respondent] to avail of the remedies provided by law in order to protect his
rights.”
We agree with the Court of Appeals. Petitioner Santos cannot be allowed to hide behind the
corporate veil. When petitioner Arco Pulp and Paper’s obligation to respondent became due
and demandable, she not only issued an unfunded check but also contracted with a third party
in an effort to shift petitioner Arco Pulp and Paper’s liability. She unjustifiably refused to honor
petitioner corporation’s obligations to respondent. These acts clearly amount to bad faith. In
this instance, the corporate veil may be pierced, and petitioner Santos may be held solidarily
liable with petitioner Arco Pulp and Paper.
VIII. DIPOSITIVE PORTION:
WHEREFORE, the petition is DENIED in part. The decision in CA-G.R. CV No. 95709 is
AFFIRMED. Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are hereby
ordered solidarily to pay respondent Dan T. Lim the amount of P7,220, 968.31 with interest of
6% per annum at the time of demand until finality of judgment and its full satisfaction, with
moral damages in the amount of P50,000.00, exemplary damages in the amount of P50,000.00,
and attorney’s fees in the amount of P50,000.00.
80

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I.

SHORT TITLE: TANTONGCO VS KAISAHAN NG MGA MANGGAGAWA

II. FULL TITLE: RICARDO TANTONGCO, petitioner, vs. KAISAHAN NG MGA

III. TOPIC: Piercing the Veil of Corporate Fiction

IV. STATEMENT OF FACTS

PANGASINAN TRANSPORTATION CO., INC., third-party plaintiff-appellant, vs.

III. TOPIC: Piercing the Veil of Corporate Fiction

IV. STATEMENT OF FACTS

V. STATEMENT OF THE CASE

IV. STATEMENT OF FACTS:

VIII. DISPOSITIVE PORTION:

VIII. DISPOSITIVE PORTION:

V. STATEMENT OF THE CASE:

V. STATEMENT OF THE CASE:

1. The sale was transferred to a corporation controlled by V. Mendoza, the daughter of

2. All of the stockholders/incorporators of [Mencorp]: Reynaldo M. Mendoza, Virginia R.

VIII. DISPOSITIVE PORTION:

Meanwhile, in 1983, CCC became known as the General Credit Corporation.

VIII. DISPOSITIVE PORTION:

V. STATEMENT OF THE CASE:

No, there is basis for piercing GCCs veil of corporate identity.

VIII. DISPOSITIVE PORTION:

1. A first corporation is dissolved;

VIII. DISPOSITIVE PORTION:

V. STATEMENT OF THE CASE:

VIII. DISPOSITIVE PORTION:

III.TOPIC: CORPORATION LAW-PIERCING THE VEIL OF CORPORATE

V.STATEMENT OF THE CASE:

II.FULL TITLE: Heirs of Fe Tan Uy vs. International Exchange Bank

III.TOPIC: CORPORATION LAW- Piercing the veil of corporate fiction.

Hammer had an outstanding obligation of ₱25,420,177.62 to iBank.8 Hammer defaulted in the

V. STATEMNT OF THE CASE:

The petitions are partly meritorious.

(2) Goldkey is a mere alter ego of Hammer

V. STATEMENT OF THE CASE:

IV. STATEMENT OF FACTS:

V. STATEMENT OF THE CASE:

VIII. DISPOSITIVE PORTION:

IV. STATEMENT OF FACTS:

II. FULL TITLE: NUCCIO SAVERIO AND NS INTERNATIONAL, INC., Petitioners, v.

IV. STATEMENT OF FACTS:

V. STATEMENT OF THE CASE:

III. TOPIC: Piercing the Veil of Corporate Fiction

As a general rule, directors, officers, or employees of a corporation cannot be held

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