SYLLABI/SYNOPSIS

SECOND DIVISION

[G.R. No. 100812. June 25, 1999]

FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES GREGORIO and
LIBRADA MANUEL, respondents.

DECISION

QUISUMBING, J.:

This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the decision[1]
of the Court of Appeals in C.A. G.R. CV No. 10014 affirming the decision rendered by Branch 135,
Regional Trial Court of Makati, Metro Manila. The procedural antecedents of this petition are as follows:

On January 23, 1985, petitioner filed a complaint[2] against private respondents to recover three
thousand four hundred twelve and six centavos (P3,412.06), representing the balance of the jeep body
purchased by the Manuels from petitioner; an additional sum of twenty thousand four hundred fifty-
four and eighty centavos (P20,454.80) representing the unpaid balance on the cost of repair of the
vehicle; and six thousand pesos (P6,000.00) for cost of suit and attorneys fees.[3] To the original balance
on the price of jeep body were added the costs of repair.[4] In their answer, private respondents
interposed a counterclaim for unpaid legal services by Gregorio Manuel in the amount of fifty thousand
pesos (P50,000) which was not paid by the incorporators, directors and officers of the petitioner. The
trial court decided the case on June 26, 1985, in favor of petitioner in regard to the petitioners claim for
money, but also allowed the counter-claim of private respondents. Both parties appealed. On April 15,
1991, the Court of Appeals sustained the trial courts decision.[5] Hence, the present petition.

For our review in particular is the propriety of the permissive counterclaim which private respondents
filed together with their answer to petitioners complaint for a sum of money. Private respondent
Gregorio Manuel alleged as an affirmative defense that, while he was petitioners Assistant Legal Officer,
he represented members of the Francisco family in the intestate estate proceedings of the late Benita
Trinidad. However, even after the termination of the proceedings, his services were not paid. Said family
members, he said, were also incorporators, directors and officers of petitioner. Hence to counter
petitioners collection suit, he filed a permissive counterclaim for the unpaid attorneys fees.[6]

For failure of petitioner to answer the counterclaim, the trial court declared petitioner in default on this
score, and evidence ex-parte was presented on the counterclaim. The trial court ruled in favor of private
respondents and found that Gregorio Manuel indeed rendered legal services to the Francisco family in
Special Proceedings Number 7803- In the Matter of Intestate Estate of Benita Trinidad. Said court also
found that his legal services were not compensated despite repeated demands, and thus ordered
petitioner to pay him the amount of fifty thousand (P50,000.00) pesos.[7]

Dissatisfied with the trial courts order, petitioner elevated the matter to the Court of Appeals, posing
the following issues:

I.

WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND VOID AS IT NEVER
ACQUIRED JURISDICTION OVER THE PERSON OF THE DEFENDANT.

II.

WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGED PERMISSIVE
COUNTERCLAIM SHOULD BE HELD LIABLE TO THE CLAIM OF DEFENDANT-APPELLEES.

III.

WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO ANSWER THE ALLEGED
PERMISSIVE COUNTERCLAIM.[8]

Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was
validly served on it together with the copy of the answer containing the permissive counterclaim.
Further, petitioner questions the propriety of its being made party to the case because it was not the
real party in interest but the individual members of the Francisco family concerned with the intestate
case.
In its assailed decision now before us for review, respondent Court of Appeals held that a counterclaim
must be answered in ten (10) days, pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere
does it state in the Rules that a party still needed to be summoned anew if a counterclaim was set up
against him. Failure to serve summons, said respondent court, did not effectively negate trial courts
jurisdiction over petitioner in the matter of the counterclaim. It likewise pointed out that there was no
reason for petitioner to be excused from answering the counterclaim. Court records showed that its
former counsel, Nicanor G. Alvarez, received the copy of the answer with counterclaim two (2) days
prior to his withdrawal as counsel for petitioner. Moreover when petitioners new counsel, Jose N.
Aquino, entered his appearance, three (3) days still remained within the period to file an answer to the
counterclaim. Having failed to answer, petitioner was correctly considered in default by the trial
court.[9] Even assuming that the trial court acquired no jurisdiction over petitioner, respondent court
also said, but having filed a motion for reconsideration seeking relief from the said order of default,
petitioner was estopped from further questioning the trial courts jurisdiction.[10]

On the question of its liability for attorneys fees owing to private respondent Gregorio Manuel,
petitioner argued that being a corporation, it should not be held liable therefor because these fees were
owed by the incorporators, directors and officers of the corporation in their personal capacity as heirs of
Benita Trinidad. Petitioner stressed that the personality of the corporation, vis--vis the individual
persons who hired the services of private respondent, is separate and distinct,[11] hence, the liability of
said individuals did not become an obligation chargeable against petitioner.

Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:

However, this distinct and separate personality is merely a fiction created by law for convenience and to
promote justice. Accordingly, this separate personality of the corporation may be disregarded, or the
veil of corporate fiction pierced, in cases where it is used as a cloak or cover for found (sic) illegality, or
to work an injustice, or where necessary to achieve equity or when necessary for the protection of
creditors. (Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations are composed of natural
persons and the legal fiction of a separate corporate personality is not a shield for the commission of
injustice and inequity. (Chemplex Philippines, Inc. vs. Pamatian, 57 SCRA 408)

In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is
composed of the heirs of the late Benita Trinidad as directors and incorporators for whom defendant
Gregorio Manuel rendered legal services in the intestate estate case of their deceased mother.
Considering the aforestated principles and circumstances established in this case, equity and justice
demands plaintiff-appellants veil of corporate identity should be pierced and the defendant be
compensated for legal services rendered to the heirs, who are directors of the plaintiff-appellant
corporation.[12]
Now before us, petitioner assigns the following errors:

I.

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE
ENTITY.

II.

THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER PETITIONER WITH
RESPECT TO THE COUNTERCLAIM.[13]

Petitioner submits that respondent court should not have resorted to piercing the veil of corporate
fiction because the transaction concerned only respondent Gregorio Manuel and the heirs of the late
Benita Trinidad. According to petitioner, there was no cause of action by said respondent against
petitioner; personal concerns of the heirs should be distinguished from those involving corporate affairs.
Petitioner further contends that the present case does not fall among the instances wherein the courts
may look beyond the distinct personality of a corporation. According to petitioner, the services for
which respondent Gregorio Manuel seeks to collect fees from petitioner are personal in nature. Hence,
it avers the heirs should have been sued in their personal capacity, and not involve the corporation.[14]

With regard to the permissive counterclaim, petitioner also insists that there was no proper service of
the answer containing the permissive counterclaim. It claims that the counterclaim is a separate case
which can only be properly served upon the opposing party through summons. Further petitioner states
that by nature, a permissive counterclaim is one which does not arise out of nor is necessarily connected
with the subject of the opposing partys claim. Petitioner avers that since there was no service of
summons upon it with regard to the counterclaim, then the court did not acquire jurisdiction over
petitioner. Since a counterclaim is considered an action independent from the answer, according to
petitioner, then in effect there should be two simultaneous actions between the same parties: each
party is at the same time both plaintiff and defendant with respect to the other,[15] requiring in each
case separate summonses.

In their Comment, private respondents focus on the two questions raised by petitioner. They defend the
propriety of piercing the veil of corporate fiction, but deny the necessity of serving separate summonses
on petitioner in regard to their permissive counterclaim contained in the answer.
Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel
was employed as assistant legal officer of petitioner corporation, and that his services were solicited by
the incorporators, directors and members to handle and represent them in Special Proceedings No.
7803, concerning the Intestate Estate of the late Benita Trinidad. They assert that the members of
petitioner corporation took advantage of their positions by not compensating respondent Gregorio
Manuel after the termination of the estate proceedings despite his repeated demands for payment of
his services. They cite findings of the appellate court that support piercing the veil of corporate identity
in this particular case. They assert that the corporate veil may be disregarded when it is used to defeat
public convenience, justify wrong, protect fraud, and defend crime. It may also be pierced, according to
them, where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole
benefit of the stockholders or of another corporate entity. In these instances, they aver, the corporation
should be treated merely as an association of individual persons.[16]

Private respondents dispute petitioners claim that its right to due process was violated when
respondents counterclaim was granted due course, although no summons was served upon it. They
claim that no provision in the Rules of Court requires service of summons upon a defendant in a
counterclaim. Private respondents argue that when the petitioner filed its complaint before the trial
court it voluntarily submitted itself to the jurisdiction of the court. As a consequence, the issuance of
summons on it was no longer necessary. Private respondents say they served a copy of their answer
with affirmative defenses and counterclaim on petitioners former counsel, Nicanor G. Alvarez. While
petitioner would have the Court believe that respondents served said copy upon Alvarez after he had
withdrawn his appearance as counsel for the petitioner, private respondents assert that this contention
is utterly baseless. Records disclose that the answer was received two (2) days before the former
counsel for petitioner withdrew his appearance, according to private respondents. They maintain that
the present petition is but a form of dilatory appeal, to set off petitioners obligations to the respondents
by running up more interest it could recover from them. Private respondents therefore claim damages
against petitioner.[17]

To resolve the issues in this case, we must first determine the propriety of piercing the veil of corporate
fiction.

Basic in corporation law is the principle that a corporation has a separate personality distinct from its
stockholders and from other corporations to which it may be connected.[18] However, under the
doctrine of piercing the veil of corporate entity, the corporations separate juridical personality may be
disregarded, for example, when the corporate identity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime. Also, where the corporation is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation,
then its distinct personality may be ignored.[19] In these circumstances, the courts will treat the
corporation as a mere aggrupation of persons and the liability will directly attach to them. The legal
fiction of a separate corporate personality in those cited instances, for reasons of public policy and in
the interest of justice, will be justifiably set aside.

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

Note also that he sought to collect legal fees not just from certain Francisco family members but also
from petitioner corporation on the claims that its management had requested his services and he
acceded thereto as an employee of petitioner from whom it could be deduced he was also receiving a
salary. His move to recover unpaid legal fees through a counterclaim against Francisco Motors
Corporation, to offset the unpaid balance of the purchase and repair of a jeep body could only result
from an obvious misapprehension that petitioners corporate assets could be used to answer for the
liabilities of its individual directors, officers, and incorporators. Such result if permitted could easily
prejudice the corporation, its own creditors, and even other stockholders; hence, clearly inequitous to
petitioner.

Furthermore, considering the nature of the legal services involved, whatever obligation said
incorporators, directors and officers of the corporation had incurred, it was incurred in their personal
capacity. When directors and officers of a corporation are unable to compensate a party for a personal
obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice,
and be thereby held liable therefor by piercing its corporate veil. While there are no hard and fast rules
on disregarding separate corporate identity, we must always be mindful of its function and purpose. A
court should be careful in assessing the milieu where the doctrine of piercing the corporate veil may be
applied. Otherwise an injustice, although unintended, may result from its erroneous application.

The personality of the corporation and those of its incorporators, directors and officers in their personal
capacities ought to be kept separate in this case. The claim for legal fees against the concerned
individual incorporators, officers and directors could not be properly directed against the corporation
without violating basic principles governing corporations. Moreover, every action including a
counterclaim must be prosecuted or defended in the name of the real party in interest.[20] It is plainly
an error to lay the claim for legal fees of private respondent Gregorio Manuel at the door of petitioner
(FMC) rather than individual members of the Francisco family.

However, with regard to the procedural issue raised by petitioners allegation, that it needed to be
summoned anew in order for the court to acquire jurisdiction over it, we agree with respondent courts
view to the contrary. Section 4, Rule 11 of the Rules of Court provides that a counterclaim or cross-claim
must be answered within ten (10) days from service. Nothing in the Rules of Court says that summons
should first be served on the defendant before an answer to counterclaim must be made. The purpose
of a summons is to enable the court to acquire jurisdiction over the person of the defendant. Although a
counterclaim is treated as an entirely distinct and independent action, the defendant in the
counterclaim, being the plaintiff in the original complaint, has already submitted to the jurisdiction of
the court. Following Rule 9, Section 3 of the 1997 Rules of Civil Procedure,[21] if a defendant (herein
petitioner) fails to answer the counterclaim, then upon motion of plaintiff, the defendant may be
declared in default. This is what happened to petitioner in this case, and this Court finds no procedural
error in the disposition of the appellate court on this particular issue. Moreover, as noted by the
respondent court, when petitioner filed its motion seeking to set aside the order of default, in effect it
submitted itself to the jurisdiction of the court. As well said by respondent court:

Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that upon its
request, plaintiff-appellant was granted time to file a motion for reconsideration of the disputed
decision. Plaintiff-appellant did file its motion for reconsideration to set aside the order of default and
the judgment rendered on the counterclaim.

Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as it
vigorously insists, plaintiff-appellant is considered to have submitted to the courts jurisdiction when it
filed the motion for reconsideration seeking relief from the court. (Soriano vs. Palacio, 12 SCRA 447). A
party is estopped from assailing the jurisdiction of a court after voluntarily submitting himself to its
jurisdiction. (Tejones vs. Gironella, 159 SCRA 100). Estoppel is a bar against any claims of lack of
jurisdiction. (Balais vs. Balais, 159 SCRA 37).[22]

WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED insofar only
as it held Francisco Motors Corporation liable for the legal obligation owing to private respondent
Gregorio Manuel; but this decision is without prejudice to his filing the proper suit against the
concerned members of the Francisco family in their personal capacity. No pronouncement as to costs.

SO ORDERED.
Bellosillo, (Chairman), Puno, Mendoza, and Buena, JJ., concur.

[1] Dated April 15, 1991. Rollo, pp. 31 - 35. Reconsideration thereof was denied on July 1, 1991. Rollo,
pp. 28-29.

[2] Civil Case No. 9542. Records, RTC, pp. 1-3.

[3] Rollo, p. 31.

[4] Id. at 9.

[5] Id. at 11.

[6] Supra, note 4.

[7] Supra note 5.

[8] Rollo, pp. 32-33.

[9] Id. at 32.

[10] Id. at 34.

[11] Ibid.

[12] Rollo, pp. 34-35.

[13] Id. at 12.

[14] Id. at 12 - 16.

[15] Id. at 18 - 21; See also Golden Ribbon Lumber Co., Inc. vs. Salvador S. Santos and Rafaela M. Santos,
C.A. - G. R. No. 12935 November 15, 1955.

[16] Id. at 47 - 51.

[17] Id. at 52- 60.

[18] Concept Builderss Inc. vs. NLRC 257 SCRA 149, 157 (1996); See also Emilio Cano Enterprises, Inc. vs.
CIR, 13 SCRA 290 (1965) and Yutivo Sons Hardware Co. vs. CTA, 1 SCRA 160 (1961).

[19] Indophil Textile Mill Workers Union vs. Calica, 205 SCRA 697, 704 (1992); See also Umali et al vs. C
C.A, 189 SCRA 529,542 (1990).

[20] Section 2, Rule 3 of the RULES OF COURT; See also, De Leon vs. Court of Appeals, 277 SCRA 478, 486
(1997).

[21] In the Court of Appeals Decision, Section 3 of Rule 9 was still under Section 1 of Rule 18 of the Rules
of Court.

[22] Rollo, p. 34.

THE STUDENT AND THE LAW

Francisco Motors Corporation v. CA and Sps. Manuel (G.R. No. 100812)

jaicdn

3 years ago

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Facts:

Petitioner Francisco Motors Corp filed a complaint to recover from respondent spouses Manuel the
unpaid balance of the jeepney bought by the latter from them. As their answer, respondent spouses
interposed a counterclaim for unpaid legal services by Gregorio Manuel which was not paid by
petitioner corporation’s directors and officers. Respondent Manuel alleges that he represented
members of the Francisco family who were directors and officers of herein petitioner corporation in an
intestate estate proceeding but even after its termination, his services were not paid. The trial court
ruled in favor of petitioner but also allowed respondent spouses’ counterclaim. CA affirmed.

Issue:

Whether or not petitioner corporation may be held liable for the liability incurred by its directors and
officers in their personal capacity.

Ruling: NO.

In our view, however, given the facts and circumstances of this case, the doctrine of piercing the
corporate veil has no relevant application here. Respondent court erred in permitting the trial court’s
resort to this doctrine.

In the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate
act, the situation has been reversed. It is the petitioner as a corporation which is being ordered to
answer for the personal liability of certain individual directors, officers and incorporators concerned.
Hence, it appears to us that the doctrine has been turned upside down because of its erroneous
invocation. Note that according to private respondent Gregorio Manuel his services were solicited as
counsel for members of the Francisco family to represent them in the intestate proceedings over Benita
Trinidad’s estate. These estate proceedings did not involve any business of petitioner.

Furthermore, considering the nature of the legal services involved, whatever obligation said
incorporators, directors and officers of the corporation had incurred, it was incurred in their personal
capacity. When directors and officers of a corporation are unable to compensate a party for a personal
obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice,
and be thereby held liable therefore by piercing its corporate veil.
Republic of the Philippines

Supreme Court

Manila

FIRST DIVISION

GOLD LINE TOURS, INC.,

Petitioner,

-versus-
HEIRS OF MARIA CONCEPCION LACSA,

Respondents.

G.R. No. 159108

Present:

LEONARDO-DE CASTRO,

Acting Chairperson,

BERSAMIN,

DEL CASTILLO,

VILLARAMA, JR., and

PERLAS-BERNABE, JJ.
Promulgated:

June 18, 2012

x-----------------------------------------------------------------------------------------x

DECISION

BERSAMIN, J.:

The veil of corporate existence of a corporation is a fiction of law that should not defeat the ends of
justice.

Petitioner seeks to reverse the decision promulgated on October 30, 2002[1] and the resolution
promulgated on June 25, 2003,[2] whereby the Court of Appeals (CA) upheld the orders issued on
August 2, 2001[3] and October 22, 2001[4] by the Regional Trial Court (RTC), Branch 51, in Sorsogon in
Civil Case No. 93-5917 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. (defendant in Civil Case No. 93-5917).
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. in Civil Case No. 93-5917[5] was
valid even if petitioner had not been impleaded as a party.

Antecedents

On August 2, 1993, Ma. Concepcion Lacsa (Concepcion) and her sister, Miriam Lacsa (Miriam), boarded a
Goldline passenger bus with Plate No. NXM-105 owned and operated by Travel &Tours Advisers, Inc.
They were enroute from Sorsogon to Cubao, Quezon City.[6] At the time, Concepcion, having just
obtained her degree of Bachelor of Science in Nursing at the Ago Medical and Educational Center, was
proceeding to Manila to take the nursing licensure board examination.[7] Upon reaching the highway at
Barangay San Agustin in Pili, Camarines Sur, the Goldline bus, driven by Rene Abania (Abania), collided
with a passenger jeepney with Plate No. EAV-313 coming from the opposite direction and driven by
Alejandro Belbis.[8] As a result, a metal part of the jeepney was detached and struck Concepcion in the
chest, causing her instant death.[9]

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.[10] The complaint, docketed as Civil Case No. 93-5917 and entitled Heirs of Concepcion Lacsa,
represented by Teodoro Lacsa v. Travel & Tours Advisers, Inc. (Goldline) and Rene Abania, alleged that
the collision was due to the reckless and imprudent manner by which Abania had driven the Goldline
bus.[11]
In support of the complaint, Miriam testified that Abania had been occasionally looking up at the video
monitor installed in the front portion of the Goldline bus despite driving his bus at a fast speed;[12] that
in Barangay San Agustin, the Goldline bus had collided with a service jeepney coming from the opposite
direction while in the process of overtaking another bus;[13] that the impact had caused the angle bar
of the jeepney to detach and to go through the windshield of the bus directly into the chest of
Concepcion who had then been seated behind the drivers seat;[14] that concerned bystanders had
hailed another bus to rush Concepcion to the Ago Foundation Hospital in Naga City because the Goldline
bus employees and her co-passengers had ignored Miriams cries for help;[15] and that Concepcion was
pronounced dead upon arrival at the hospital.[16]

To refute the plaintiffs allegations, the defendants presented SPO1 Pedro Corporal of the Philippine
National Police Station in Pili, Camarines Sur, and William Cheng, the operator of the Goldline bus.[17]
SPO1 Corporal opined that based on his investigation report, the driver of the jeepney had been at fault
for failing to observe precautionary measures to avoid the collision;[18] and suggested that criminal and
civil charges should be brought against the operator and driver of the jeepney.[19] On his part, Cheng
attested that he had exercised the required diligence in the selection and supervision of his employees;
and that he had been engaged in the transportation business since 1980 with the use of a total of 60
units of Goldline buses, employing about 100 employees (including drivers, conductors, maintenance
personnel, and mechanics);[20] that as a condition for regular employment, applicant drivers had
undergone a one-month training period and a six-month probationary period during which they had
gotten acquainted with Goldlines driving practices and demeanor;[21] that the employees had come
under constant supervision, rendering improbable the claim that Abania, who was a regular employee,
had been glancing at the video monitor while driving the bus;[22] that the incident causing Concepcions
death was the first serious incident his (Cheng) transportation business had encountered, because the
rest had been only minor traffic accidents;[23] and that immediately upon being informed of the
accident, he had instructed his personnel to contact the family of Concepcion.[24]

The defendants blamed the death of Concepcion to the recklessness of Bilbes as the driver of the
jeepney, and of its operator, Salvador Romano;[25] and that they had consequently brought a third-
party complaint against the latter.[26]
After trial, the RTC rendered its decision dated June 30, 1997, disposing:

ACCORDINGLY, judgment is hereby rendered:

(1) Finding the plaintiffs entitled to damages for the death of Ma. Concepcion Lacsa in violation of the
contract of carriage;

(2) Ordering defendant Travel & Tours Advisers, Inc. (Goldline) to pay plaintiffs:

a. P30,000.00 expenses for the wake;

b. P 6,000.00 funeral expenses;

c. P50,000.00 for the death of Ma. Concepcion Lacsa;

d. P150,000.00 for moral damages;

e. P20,000.00 for exemplary damages;

f. P8,000.00 for attorneys fees;

g. P2,000.00 for litigation expenses;

h. Costs of suit.

(3) Ordering the dismissal of the case against Rene Abania;

(4) Ordering the dismissal of the third-party complaint.

SO ORDERED.[27]
The RTC found that a contract of carriage had been forged between Travel & Tours Advisers, Inc. and
Concepcion as soon as she had boarded the Goldline bus as a paying passenger; that Travel & Tours
Advisers, Inc. had then become duty-bound to safely transport her as its passenger to her destination;
that due to Travel & Tours Advisers, Inc.s inability to perform its duty, Article 1786 of the Civil Code
created against it the disputable presumption that it had been at fault or had been negligent in the
performance of its obligations towards the passenger; that Travel & Tours Advisers, Inc. failed to
disprove the presumption of negligence; and that a rigid selection of employees was not sufficient to
exempt Travel & Tours Advisers, Inc. from the obligation of exercising extraordinary diligence to ensure
that its passenger was carried safely to her destination.

Aggrieved, the defendants appealed to the CA.

On June 11, 1998,[28] the CA dismissed the appeal for failure of the defendants to pay the docket and
other lawful fees within the required period as provided in Rule 41, Section 4 of the Rules of Court
(1997). The dismissal became final, and entry of judgment was made on July 17, 1998.[29]

Thereafter, the plaintiffs moved for the issuance of a writ of execution to implement the decision dated
June 30, 1997.[30] The RTC granted their motion on January 31, 2000,[31] and issued the writ of
execution on February 24, 2000.[32]
On May 10, 2000, the sheriff implementing the writ of execution rendered a Sheriffs Partial Return,[33]
certifying that the writ of execution had been personally served and a copy of it had been duly tendered
to Travel & Tours Advisers, Inc. or William Cheng, through his secretary, Grace Miranda, and that Cheng
had failed to settle the judgment amount despite promising to do so. Accordingly, a tourist bus bearing
Plate No. NWW-883 was levied pursuant to the writ of execution.

The plaintiffs moved to cite Cheng in contempt of court for failure to obey a lawful writ of the RTC.[34]
Cheng filed his opposition.[35] Acting on the motion to cite Cheng in contempt of court, the RTC
directed the plaintiffs to file a verified petition for indirect contempt on February 19, 2001.[36]

On April 20, 2001, petitioner submitted a so-called verified third party claim,[37] claiming that the
tourist bus bearing Plate No. NWW-883 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., the defendant in Civil Case No. 93-5917.

It is notable that petitioners Articles of Incorporation was amended on November 8, 1993,[38] shortly
after the filing of Civil Case No. 93-5917 against Travel & Tours Advisers, Inc.

Respondents opposed petitioners verified third-party claim on the following grounds, namely: (a) the
third-party claim did not comply with the required notice of hearing as required by Rule 15, Sections 4
and 5 of the Rules of Court; (b) Travel & Tours Advisers, Inc. and petitioner were identical entities and
were both operated and managed by the same person, William Cheng; and (c) petitioner was
attempting to defraud its creditors respondents herein hence, the doctrine of piercing the veil of
corporate entity was squarely applicable.[39]
On August 2, 2001, 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.[40]

Petitioner moved for reconsideration,[41] but the RTC denied the motion on October 22, 2001.[42]

Thence, petitioner initiated a special civil action for certiorari in the CA,[43] asserting:

THE RESPONDENT HONORABLE RTC JUDGE HAD ACTED WITHOUT JURISDICTION OR COMMITTED GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN ISSUING THE: (A) ORDER DATED 2
AUGUST 2001, COPY OF WHICH IS HERETO ATTACHED AS ANNEX A, DISMISSING HEREIN PETITIONERS
THIRD PARTY CLAIM; AND (B) ORDER DATED 22 OCTOBER 2001, COPY OF WHICH IS HERETO ATTACHED
AS ANNEX B DENYING SAID PETITIONERS MOTION FOR RECONSIDERATION; AND THAT THERE IS NO
APPEAL, OR ANY PLAIN, SPEEDY AND ADEQUATE REMEDY AVAILABLE TO SAID PETITIONER.

On October 30, 2002, the CA promulgated its decision dismissing the petition for certiorari,[44] holding
as follows:
The petition lacks merit.

As stated in the decision supra, William Ching disclosed during the trial of the case that defendant Travel
& Tours Advisers, Inc. (Goldline), of which he is an officer, is operating sixty (60) units of Goldline buses.
That the Goldline buses are used in the operations of defendant company is obvious from Mr. Chengs
admission. The Amended Articles of Incorporation of Gold Line Tours, Inc. disclose that the following
persons are the original incorporators thereof: Antonio O. Ching, Maribel Lim Ching, witness William
Ching, Anita Dy Ching and Zosimo Ching. (Rollo, pp. 105-106) We see no reason why defendant company
would be using Goldline buses in its operations unless the two companies are actually one and the
same.

Moreover, the name Goldline was added to defendants name in the Complaint. There was no objection
from William Ching who could have raised the defense that Gold Line Tours, Inc. was in no way liable or
involved. Indeed, it appears to this Court that rather than Travel & Tours Advisers, Inc., it is Gold Line
Tours, Inc., which should have been named party defendant.

Be that as it may, We concur in the trial courts finding that the two companies are actually one and the
same, hence the levy of the bus in question was proper.

WHEREFORE, for lack of merit, the petition is DISMISSED and the assailed Orders are AFFIRMED.

SO ORDERED.
Petitioner filed a motion for reconsideration,[45] which the CA denied on June 25, 2003.[46]

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., the
defendant in Civil Case No. 5917, were one and same entity, and for sustaining the propriety of the levy
of the tourist bus with Plate No. NWW-883 in satisfaction of the writ of execution. [47]

In the meantime, respondents filed in the RTC a motion to direct the sheriff to implement the writ of
execution in view of the non-issuance of any restraining order either by this Court or the CA.[48] On
February 23, 2007, the RTC granted the motion and directed the sheriff to sell the Goldline tourist bus
with Plate No. NWW-883 through a public auction.[49]

Issue

Did the CA rightly find and conclude that the RTC did not gravely abuse its discretion in denying
petitioners verified third-party claim?

Ruling
We find no reason to reverse the assailed CA decision.

In the order dated August 2, 2001, the RTC rendered its justification for rejecting the third-party claim of
petitioner in the following manner:

xxx

The main contention of Third Party Claimant is that it is the owner of the Bus and therefore, it should
not be seized by the sheriff because the same does not belong to the defendant Travel & Tours Advises,
Inc. (GOLDLINE) as the third party claimant and defendant are two separate corporation with separate
juridical personalities. Upon the other hand, this Court had scrutinized the documents submitted by the
Third party Claimant and found out that William Ching who claimed to be the operator of the Travel &
Tours Advisers, Inc. (GOLDLINE) is also the President/Manager and incorporator of the Third Party
Claimant Goldline Tours Inc. and he is joined by his co-incorporators who are Ching and Dy thereby this
Court could only say that these two corporations are one and the same corporations. This is of judicial
knowledge that since Travel & Tours Advisers, Inc. came to Sorsogon it has been known as GOLDLINE.

This Court is not persuaded by the proposition of the third party claimant that a corporation has an
existence separate and/or distinct from its members insofar as this case at bar is concerned, for the
reason that whenever necessary for the interest of the public or for the protection of

enforcement of their rights, the notion of legal entity should not and is not to be used to defeat public
convenience, justify wrong, protect fraud or defend crime.
Apposite to the case at bar is the case of Palacio vs. Fely Transportation Co., L-15121, May 31, 1962, 5
SCRA 1011 where the Supreme Court held:

Where the main purpose in forming the corporation was to evade ones subsidiary liability for damages
in a criminal case, the corporation may not be heard to say that it has a personality separate and distinct
from its members, because to allow it to do so would be to sanction the use of fiction of corporate
entity as a shield to further an end subversive of justice (La Campana Coffee Factory, et al. v. Kaisahan
ng mga Manggagawa, etc., et al., L-5677, May 25, 1953). The Supreme Court can even substitute the real
party in interest in place of the defendant corporation in order to avoid multiplicity of suits and thereby
save the parties unnecessary expenses and delay. (Alfonso vs. Villamor, 16 Phil. 315).

This is what the third party claimant wants to do including the defendant in this case, to use the
separate and distinct personality of the two corporation as a shield to further an end subversive of
justice by avoiding the execution of a final judgment of the court.[50]

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 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. On its part, the CA cogently observed:
As stated in the (RTC) decision supra, William Ching disclosed during the trial of the case that defendant
Travel & Tours Advisers, Inc. (Goldline), of which he is an officer, is operating sixty (60) units of Goldline
buses. That the Goldline buses are used in the operations of

defendant company is obvious from Mr. Chengs admission. The Amended Articles of Incorporation of
Gold Line Tours, Inc. disclose that the following persons are the original incorporators thereof: Antonio
O. Ching, Maribel Lim Ching, witness William Ching, Anita Dy Ching and Zosimo Ching. (Rollo, pp. 105-
108) We see no reason why defendant company would be using Goldline buses in its operations unless
the two companies are actually one and the same.

Moreover, the name Goldline was added to defendants name in the Complaint. There was no objection
from William Ching who could have raised the defense that Gold Line Tours, Inc. was in no way liable or
involved. Indeed it appears to this Court that rather than Travel & Tours Advisers, Inc. it is Gold Line
Tours, Inc., which should have been named party defendant.

Be that as it may, We concur in the trial courts finding that the two companies are actually one and the
same, hence the levy of the bus in question was proper.[51]

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.[52] 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.[53] The term grave abuse of discretion is defined as a capricious
and whimsical exercise of judgment so patent and gross as to amount to an evasion of a positive duty or
a virtual refusal to perform a duty enjoined by law, as where the power is exercised in an arbitrary and
despotic manner because of passion or hostility.[54] Mere abuse of discretion is not enough; it must be
grave.[55] Yet, here, petitioner did not discharge its burden because it failed to demonstrate that the CA
erred in holding that the RTC had not committed grave abuse of discretion. A review of the records
shows, indeed, that the RTC correctly rejected petitioners third-party claim. Hence, the rejection did not
come within the domain of the writ of certioraris limiting requirement of excess or lack of
jurisdiction.[56]

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.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

Acting Chairperson, First Division

MARIANO C. DEL CASTILLO MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

ESTELA PERLAS-BERNABE

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice
Acting Chairperson, First Division

CERTIFICATION

Pursuant to Section 13, Article VII of the Constitution and the Division Acting Chairpersons Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Senior Associate Justice

(Per Section 12, R.A. 296,

The Judiciary Act of 1948, as amended)

[1] Rollo, pp. 23-26; penned by Associate Justice Portia Alio-Hormachuelos (retired) and concurred in by
Associate Justice Eliezer R. Delos Santos (deceased) and Associate Justice Amelita G. Tolentino.

[2] Id., pp. 27-28.

[3] Id., pp. 53-54.

[4] Id., p. 55.

[5] Id., pp. 38-43.

[6] Records, pp. 1-2.

[7] Id., p. 2.

[8] Id.

[9] Id.
[10] Id., pp. 1-4.

[11] Id., p. 2.

[12] Id., p. 168

[13] Id.

[14] Id.

[15] Id.

[16] Id.

[17] Id., pp. 168-169.

[18] Id., p. 169.

[19] Id.

[20] Id.

[21] Id.

[22] Id.

[23] Id.
[24] Id., p. 170.

[25] Id., pp. 21-22.

[26] Id., pp. 31-34.

[27] Rollo, pp. 42-43.

[28] Records, p. 177.

[29] Id., p. 178.

[30] Id., p. 182.

[31] Id., p. 184.

[32] Id., pp. 185-186.

[33] Id., p. 189.

[34] Id., pp. 190-191.

[35] Id., pp. 192-194.

[36] Id., p. 204.

[37] Id., pp. 205-207.

[38] Id., pp. 214-217.

[39] Id., pp. 218-220.

[40] Id., pp. 254-255.

[41] Id., pp. 256-258.

[42] Id., p. 261.

[43] Rollo, p. 14.

[44] Id., pp. 23-26.

[45] Id., pp. 56-61.

[46] Id., pp. 27-28.

[47] Id., p. 25.

[48] Records, pp. 266-268.

[49] Id., p. 271.

[50] Id., pp. 53-54.

[51] Rollo, pp. 25-26.

[52] Romys Freight Service v. Castro, G.R. No. 141637, June 8, 2006, 490 SCRA 160, 166; Cruz v. People,
G.R. No. 134090, July 2, 1999, 309 SCRA 714.
[53] Tan v. Antazo, G.R. No. 187208, February 23, 2011, 644 SCRA 337, 342.

[54] Office of the Ombudsman v. Magno, G.R. No. 178923, November 27, 2008, 572 SCRA 272, 287 citing
Microsoft Corporation v. Best Deal Computer Center Corporation, G.R. No. 148029, September 24, 2002,
389 SCRA 615, 619-620; Suliguin v. Commission on Elections, G.R. No. 166046, March 23, 2006, 485
SCRA 219, 233; Natalia Realty, Inc. v. Court of Appeals, G.R. No. 126462, November 12, 2002, 370 SCRA
371, 384; Philippine Rabbit Bus Lines, Inc. v. Goimco, Sr., G.R. No. 135507, November 29, 2005, 476
SCRA 361, 366 citing Land Bank of the Philippines v. Court of Appeals, 456 Phil. 755, 786 (2003); Duero v.
Court of Appeals, G.R. No. 131282, January 4, 2002, 373 SCRA 11, 17 citing Cuison v. Court of Appeals,
G.R. No. 128540, 15 April 1998, 289 SCRA 159, 171.

[55] Tan v. Antazo. supra, note 53.

[56] De Vera v. De Vera, G.R. No. 172832, April 7, 2009, 584 SCRA 506, 515.

G.R. No. 159108 June 18, 2012

GOLD LINE TOURS, INC.,

Petitioner,vs.

HEIRS OF MARIA CONCEPCION LACSA, Respondents.FACTS:

Ma. Concepcion Lacsa (Concepcion) boarded a Goldline passenger bus owned and operated by
Travel&Tours Advisers, Inc. Before reaching their destination, the Goldline bus collided with a passenger
jeepneys and as a result, a metal part of the jeepney was detached and struck Concepcion in the chest,

causing her instant death. Then, Concepcion’s heirs, r

epresented by Teodoro Lacsa, instituted in theRTC a suit against Travel & Tours Advisers Inc. to recover
damages arising from breach of contract of carriage. The RTC ruled in favor of the heirs of Concepcion
and thereafter, Gold Line appealed thedecision to the CA but the CA dismissed the appeal for failure of
the defendants to pay the docket andother lawful fees within the required period as provided in Rule
41, Section 4 of the Rules of Court. Thedismissal became final.Thereafter, the heirs of concepcion moved
for the issuance of a writ of execution to implement thedecision and RTC granted their motion.
Petitioner submitted a verified third party claim, claiming thatthe tourist bus be returned to petitioner
because it was the and that petitioner was a corporation entirelydifferent from Travel & Tours Advisers,
Inc.
then RTC dismissed petitioner’s 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. They(Goldline) appealed the decision to CA but CA dismissed their petition and
affirmed the decision of RTC. Hence this appeal to the Supreme Court where petitioner seeks to reverse
the decision of CA.

ISSUE:

Whether or not the proposition of the third party claimant by the petitioner where Travel & Tours
Advises, Inc. has an existence separate and/or distinct from Gold Line Tours, Inc.

RULING:

The Supreme Court the DENIED the petition for review on certiorari, and AFFIRMED the
decisionpromulgated by the Court of Appeals.The two corporations are liable to the death of Ma.
Concepcion Lacsa.The Court was not persuaded by the proposition of the third party claimant that a
corporation has anexistence separate and/or distinct from its members insofar as this case at bar is
concerned, for thereason that whenever necessary for the interest of the public or for the protection of
enforcement of their rights,

the notion of legal entity should not and is not to be used to defeat publicconvenience, justify wrong,
protect fraud or defend crime.

In the case of

Palacio vs. Fely Transportation Co.

, the Supreme Court held that:

"Where the main purpose in forming the corporation was to evade one’s subsidiary liability for damages

in a criminal case, the corporation may not be heard to say that it has a personality separate anddistinct
from its members, because to allow it to do so would be

to sanction the use of fiction of corporate entity

as a shield to further an end subversive of justice (La Campana Coffee Factory, et al.v. Kaisahan ng mga
Manggagawa, etc., et al., L-5677, May 25, 1953).This is what the third party claimant wants to do
including the defendant in this case, to use theseparate and distinct personality of the two corporation

as a shield to further an end subversive of justice by avoiding the execution of a final judgment of the
court.

The RTC thus rightly ruled that petitioner might not be shielded from liability under the final
judgmentthrough the use of the doctrine of separate corporate identity. Truly,

this fiction of law could not beemployed to defeat the ends of justice.
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China Banking Corp. vs. Dyne-Sem etc.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 149237 June 11, 2006

CHINA BANKING CORPORATION, petitioner,

vs.

DYNE-SEM ELECTRONICS CORPORATION, respondent.

DECISION

CORONA, J.:

On June 19 and 26, 1985, Dynetics, Inc. (Dynetics) and Elpidio O. Lim borrowed a total of P8,939,000
from petitioner China Banking Corporation. The loan was evidenced by six promissory notes.1

The borrowers failed to pay when the obligations became due. Petitioner consequently instituted a
complaint for sum of money2 on June 25, 1987 against them. The complaint sought payment of the
unpaid promissory notes plus interest and penalties.

Summons was not served on Dynetics, however, because it had already closed down. Lim, on the other
hand, filed his answer on December 15, 1987 denying that "he promised to pay [the obligations] jointly
and severally to [petitioner]."3
On January 7, 1988, the case was scheduled for pre-trial with respect to Lim. The case against Dynetics
was archived.

On September 23, 1988, an amended complaint4 was filed by petitioner impleading respondent Dyne-
Sem Electronics Corporation (Dyne-Sem) and its stockholders Vicente Chuidian, Antonio Garcia and
Jacob Ratinoff. According to petitioner, respondent was formed and organized to be Dynetics’ alter ego
as established by the following circumstances:

· Dynetics, Inc. and respondent are both engaged in the same line of business of manufacturing,
producing, assembling, processing, importing, exporting, buying, distributing, marketing and testing
integrated circuits and semiconductor devices;

· [t]he principal office and factory site of Dynetics, Inc. located at Avocado Road, FTI Complex, Taguig,
Metro Manila, were used by respondent as its principal office and factory site;

· [r]espondent acquired some of the machineries and equipment of Dynetics, Inc. from banks which
acquired the same through foreclosure;

· [r]espondent retained some of the officers of Dynetics, Inc.5

xxx xxx xxx

On December 28, 1988, respondent filed its answer, alleging that:

5.1 [t]he incorporators as well as present stockholders of [respondent] are totally different from those
of Dynetics, Inc., and not one of them has ever been a stockholder or officer of the latter;

5.2 [n]ot one of the directors of [respondent] is, or has ever been, a director, officer, or stockholder of
Dynetics, Inc.;

5.3 [t]he various facilities, machineries and equipment being used by [respondent] in its business
operations were legitimately and validly acquired, under arms-length transactions, from various
corporations which had become absolute owners thereof at the time of said transactions; these were
not just "taken over" nor "acquired from Dynetics" by [respondent], contrary to what plaintiff falsely
and maliciously alleges;

5.4 [respondent] acquired most of its present machineries and equipment as second-hand items to keep
costs down;

5.5 [t]he present plant site is under lease from Food Terminal, Inc., a government-controlled
corporation, and is located inside the FTI Complex in Taguig, Metro Manila, where a number of other
firms organized in 1986 and also engaged in the same or similar business have likewise established their
factories; practical convenience, and nothing else, was behind [respondent’s] choice of plant site;

5.6 [respondent] operates its own bonded warehouse under authority from the Bureau of Customs
which has the sole and absolute prerogative to authorize and assign customs bonded warehouses;
again, practical convenience played its role here since the warehouse in question was virtually lying idle
and unused when said Bureau decided to assign it to [respondent] in June 1986.6

On February 28, 1989, the trial court issued an order archiving the case as to Chuidian, Garcia and
Ratinoff since summons had remained unserved.

After hearing, the court a quo rendered a decision on December 27, 1991 which read:

xxx [T]he Court rules that Dyne-Sem Electronics Corporation is not an alter ego of Dynetics, Inc. Thus,
Dyne-Sem Electronics Corporation is not liable under the promissory notes.

xxx xxx xxx

WHEREFORE, judgment is hereby rendered ordering Dynetics, Inc. and Elpidio O. Lim, jointly and
severally, to pay plaintiff.

xxx xxx xxx

Anent the complaint against Dyne-Sem and the latter’s counterclaim, both are hereby dismissed,
without costs.

SO ORDERED.7

From this adverse decision, petitioner appealed to the Court of Appeals8 but the appellate court
dismissed the appeal and affirmed the trial court’s decision.9 It found that respondent was indeed not
an alter ego of Dynetics. The two corporations had different articles of incorporation. Contrary to
petitioner’s claim, no merger or absorption took place between the two. What transpired was a mere
sale of the assets of Dynetics to respondent. The appellate court denied petitioner’s motion for
reconsideration.10

Hence, this petition for review11 with the following assigned errors:

VI.

Issues

What is the quantum of evidence needed for the trial court to determine if the veil of corporat[e] fiction
should be pierced?

[W]hether or not the Regional Trial Court of Manila Branch 15 in its Decision dated December 27, 1991
and the Court of Appeals in its Decision dated February 28, 2001 and Resolution dated July 27, 2001,
which affirmed en toto [Branch 15, Manila Regional Trial Court’s decision,] have ruled in accordance
with law and/or applicable [jurisprudence] to the extent that the Doctrine of Piercing the Veil of
Corporat[e] Fiction is not applicable in the case at bar?12

We find no merit in the petition.

The question of whether one corporation is merely an alter ego of another is purely one of fact. So is the
question of whether a corporation is a paper company, a sham or subterfuge or whether petitioner
adduced the requisite quantum of evidence warranting the piercing of the veil of respondent’s
corporate entity. This Court is not a trier of facts. Findings of fact of the Court of Appeals, affirming
those of the trial court, are final and conclusive. The jurisdiction of this Court in a petition for review on
certiorari is limited to reviewing only errors of law, not of fact, unless it is shown, inter alia, that: (a) the
conclusion is grounded entirely on speculations, surmises and conjectures; (b) the inference is
manifestly mistaken, absurd and impossible; (c) there is grave abuse of discretion; (d) the judgment is
based on a misapplication of facts; (e) the findings of fact of the trial court and the appellate court are
contradicted by the evidence on record and (f) the Court of Appeals went beyond the issues of the case
and its findings are contrary to the admissions of both parties.13

We have reviewed the records and found that the factual findings of the trial and appellate courts and
consequently their conclusions were supported by the evidence on record.

The general rule is that a corporation has a personality separate and distinct from that of its
stockholders and other corporations to which it may be connected.14 This is a fiction created by law for
convenience and to prevent injustice.15

Nevertheless, being a mere fiction of law, peculiar situations or valid grounds may exist to warrant the
disregard of its independent being and the piercing of the corporate veil.16 In Martinez v. Court of
Appeals,17 we held:

The veil of separate corporate personality may be lifted when such personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime; or used as a shield to confuse the legitimate
issues; or when the corporation is merely an adjunct, a business conduit or an alter ego of another
corporation 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; or when the
corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to
achieve equity or for the protection of the creditors. In such cases, the corporation will be considered as
a mere association of persons. The liability will directly attach to the stockholders or to the other
corporation.

To disregard the separate juridical personality of a corporation, the wrongdoing must be proven clearly
and convincingly.18

In this case, petitioner failed to prove that Dyne-Sem was organized and controlled, and its affairs
conducted, in a manner that made it merely an instrumentality, agency, conduit or adjunct of Dynetics,
or that it was established to defraud Dynetics’ creditors, including petitioner.

The similarity of business of the two corporations did not warrant a conclusion that respondent was but
a conduit of Dynetics. As we held in Umali v. Court of Appeals,19 "the mere fact that the businesses of
two or more corporations are interrelated is not a justification for disregarding their separate
personalities, absent sufficient showing that the corporate entity was purposely used as a shield to
defraud creditors and third persons of their rights."

Likewise, respondent’s acquisition of some of the machineries and equipment of Dynetics was not proof
that respondent was formed to defraud petitioner. As the Court of Appeals found, no merger20 took
place between Dynetics and respondent Dyne-Sem. What took place was a sale of the assets21 of the
former to the latter. Merger is legally distinct from a sale of assets.22 Thus, where one corporation sells
or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone,
liable for the debts and liabilities of the transferor.

Petitioner itself admits that respondent acquired the machineries and equipment not directly from
Dynetics but from the various corporations which successfully bidded for them in an auction sale. The
contracts of sale executed between the winning bidders and respondent showed that the assets were
sold for considerable amounts.23 The Court of Appeals thus correctly ruled that the assets were not
"diverted" to respondent as an alter ego of Dynetics.24 The machineries and equipment were
transferred and disposed of by the winning bidders in their capacity as owners. The sales were therefore
valid and the transfers of the properties to respondent legal and not in any way in contravention of
petitioner’s rights as Dynetics’ creditor.

Finally, it may be true that respondent later hired Dynetics’ former Vice-President Luvinia Maglaya and
Assistant Corporate Counsel Virgilio Gesmundo. From this, however, we cannot conclude that
respondent was an alter ego of Dynetics. In fact, even the overlapping of incorporators and stockholders
of two or more corporations will not necessarily lead to such inference and justify the piercing of the veil
of corporate fiction.25 Much more has to be proven.

Premises considered, no factual and legal basis exists to hold respondent Dyne-Sem liable for the
obligations of Dynetics to petitioner.

WHEREFORE, the petition is hereby DENIED.The assailed Court of Appeals’ decision and resolution in CA-
G.R. CV No. 40672 are hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.
Puno, Chairperson, Sandoval-Gutierrez, Azcuna, Garcia, J.J., concur.

Footnotes

1 The promissory notes and their corresponding amounts were as follows: (1) PN No. BD-77698 for
P39,000; (2) PN No. T-77701 for P900,000; (3) PN No. T-77702 for P900,000; (4)PN No. T-77703 for
P1,000,000; (5) PN No. T-77834 for P4,100,000 and (6) PN No. T-77835 for P2,000,000; rollo, pp. 72-77.

2 Id., pp. 64-71.

3 Id., pp. 78-85.

4 Id., pp. 86-95.

5 Id., pp. 19-20.

6 Id., pp. 104-109.

7 Penned by Judge Benjamin P. Martinez of Branch 15, Regional Trial Court, Manila; id., pp. 48-63.

8 Docketed as CA-G.R. CV No. 40672; id., pp. 110-111.

9 Penned by Associate Justice Andres B. Reyes, Jr. and concurred in by Associate Justices B.A. Adefuin-de
la Cruz and Rebecca de Guia-Salvador of the 16th Division of the Court of Appeals; February 28, 2001;
id., pp. 29-44.

10 July 27, 2001; id., p. 46.

11 Under Rule 45 of the Rules of Court; id., pp. 15-27.

12 Id., p. 20.

13Ladanga v. Aseneta, G.R. No. 145874, 30 September 2005.

14Corporation v. Court of Appeals, 368 Phil. 374 (1999).

15Concept Builders, Inc. v. NLRC, G.R. No. 108734, 29 May 1996, 257 SCRA 149.

16Santos v. NLRC, G.R. No. 101699, 13 March 1996, 254 SCRA 673.

17G.R. No. 131673, 10 September 2004, 438 SCRA 130.

18Complex Electronics Employees Association v. NLRC, G.R. Nos. 121315 and 122136, 19 July 1999, 310
SCRA 403.

19G.R. No. 89561, 13 September 1990, 189 SCRA 529.

20 Merger is a union whereby one or more existing corporations are absorbed by another corporation
which survives and continues the combined business. (Villanueva, Philippine Corporate Law, 1998
Edition, p. 464.)

21 In sale of assets, the purchaser is only interested in the raw assets of the selling corporation perhaps
to be used to establish his own business enterprise or as an addition to his on-going business enterprise.
(Id., at p. 444.)

22 The Court of Appeals differentiated merger from sale of assets in this wise: (1) In merger, a sale of
assets is always involved, while in the latter, the former is not always involved; (2) In the former, there is
automatic assumption by the surviving corporation of the liabilities of the constituent corporations,
while in the latter, the purchasing corporation is not generally liable for the debts and liabilities of the
selling corporation; (3) In the former, there is a continuance of the enterprise and of the stockholders
therein though in the altered form, while in the latter, the selling corporation ordinarily contemplates
liquidation of the enterprise; (4) In the former, the title to the assets of the constituent corporations is
by operation of law transferred to the new corporation, while in the latter, the transfer of title is by
virtue of contract; and (5) In the former, the constituent corporations are automatically dissolved, while
in the latter, the selling corporation is not dissolved by the mere transfer of all its property. (citing de
Leon, The Corporation Code of the Philippines Annotated, 1989 Edition, pp. 509-510.)

23 The total purchases made by respondent from Elders Pica Limited was for the amount of
US$1,158,977.77; from Piso Development Bank, P19,950,000 plus the peso equivalent of US$280,000
and from Private Development Corporation of the Philippines, P11,956,134.44 plus the peso equivalent
of US$1,616,324.17; rollo, p. 132.

24 Id., pp. 43-44.

25Supra at note 19.

Short Title

China Banking Corp. vs. Dyne-Sem etc.

G.R. Number

G.R. No. 149237

Date of Promulgation

July 11, 2006

Share:

26. CHINA BANKING CORPORATION, vs DYNE-SEM ELECTRONICS CORPORATION

Facts:

- On June 19 and 26, 1985, Dynetics, Inc. and Elpidio O. Lim borrowed a total of P8,939,000 from
petitioner China Banking Corporation.

- The loan was evidenced by six promissory notes.

- The borrowers failed to pay when the obligations became due.

- Petitioner consequently instituted a complaint for sum of money on June 25, 1987 against them.

- Summons was not served on Dynetics, however, because it had already closed down.

- Lim, on the other hand, filed his answer on December 15, 1987 denying that “he promised to
pay [the obligations] jointly and severally to [petitioner].”

- On January 7, 1988, the case was scheduled for pre-trial with respect to Lim. The case against
Dynetics was archived.

- On September 23, 1988, an amended complaint was filed by petitioner impleading respondent
Dyne-Sem Electronics Corporation (Dyne-Sem) and its stockholders Vicente Chuidian, Antonio Garcia
and Jacob Ratinoff.

- According to petitioner, respondent was formed and organized to be Dynetics’ as its alter ego.

- The trial court favored Dyne Sem.

- Petitioner appealed to CA.

Issue: Whether or not TC was correct? Yes.

Held:

A corporation could not be made a party defendant to a collection case simply because summons could
not be served on the debtor corporation on the mere grounds that the businesses of the two
corporations are interrelated and they have common directors absent sufficient showing that the
corporate entity was purposely used as a shield to defraud creditors and third persons of their rights.

Likewise, respondent’s acquisition of some of the machineries and equipment of Dynetics was not proof
that respondent was formed to defraud petitioner. As the Court of Appeals found, no merger took place
between Dynetics and respondent Dyne-Sem. What took place was a sale of the assets of the former to
the latter. Merger is legally distinct from a sale of assets. Thus, where one corporation sells or otherwise
transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the
debts and liabilities of the transferor.

29. RYUICHI YAMAMOTO, vs. NISHINO LEATHER INDUSTRIES, INC.

Facts:
- Petitioner, Ryuichi Yamamoto, a Japanese national, organized under Philippine laws Wako
Enterprises Manila, Incorporated (WAKO), a corporation engaged principally in leather tanning, now
known as Nishino Leather Industries, Inc. (NLII), one of herein respondents.

- Yamamoto and the other respondent, Ikuo Nishino (Nishino), also a Japanese national, forged a
Memorandum of Agreement under which they agreed to enter into a joint venture wherein Nishino
would acquire such number of shares of stock equivalent to 70% of the authorized capital stock of
WAKO.

- Eventually, Nishino and his brother Yoshinobu Nishino (Yoshinobu) acquired more than 70% of
the authorized capital stock of WAKO, reducing Yamamoto’s investment therein to, by his claim, 10%,
less than 10% according to Nishino.

- The corporate name of WAKO was later changed to, as reflected earlier, its current name NLII.

- Negotiations subsequently ensued in light of a planned takeover of NLII by Nishino who would
buy-out the shares of stock of Yamamoto.

- In the course of the negotiations, Yoshinobu and Nishino’s counsel Atty. Emmanuel G. Doce
(Atty. Doce) advised Yamamoto by letter that he could obtain possession of certain corporate properties
by way of return for his equity investment.

- On the basis of such letter, Yamamoto attempted to recover the machineries and equipment
which were, by Yamamoto’s admission, part of his investment in the corporation, but he was frustrated
by respondents, drawing Yamamoto to file on January 15, 1992 before the Regional Trial Court (RTC) of
Makati a complaint against them for replevin.

- RTC favored Yamamoto which was reversed by CA.

- Hence, this petition.

Held:

Where the lawyer of the controlling stockholder of the corporation advised another stockholder that he
could obtain possession of certain corporate properties by way of return for his equity investment but
the lawyer acted without board approval, the advice is not binding on the corporation even though it
had the approval of the controlling stockholder. The doctrine of piercing the corporate veil can not be
invoked on the sole ground that the presence of other stockholders in the corporation was only for the
purpose of complying with the statutory minimum requirements on number of directors.

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Jardine Davies, Inc. vs. JRB Realty, Inc.

Republic of the Philippines

SUPREME COURT

SECOND DIVISION

G.R. No. 151438 July 15, 2005

JARDINE DAVIES, INC., Petitioners,

vs.

JRB REALTY, INC., Respondent.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 54201
affirming in toto that of the Regional Trial Court (RTC) in Civil Case No. 90-237 for specific performance;
and the Resolution dated January 11, 2002 denying the motion for reconsideration thereof.

The facts are as follows:

In 1979-1980, respondent JRB Realty, Inc. built a nine-storey building, named Blanco Center, on its
parcel of land located at 119 Alfaro St., Salcedo Village, Makati City. An air conditioning system was
needed for the Blanco Law Firm housed at the second floor of the building. On March 13, 1980, the
respondent’s Executive Vice-President, Jose R. Blanco, accepted the contract quotation of Mr. A.G.
Morrison, President of Aircon and Refrigeration Industries, Inc. (Aircon), for two (2) sets of Fedders
Adaptomatic 30,000 kcal (Code: 10-TR) air conditioning equipment with a net total selling price of
P99,586.00.2 Thereafter, two (2) brand new packaged air conditioners of 10 tons capacity each to
deliver 30,000 kcal or 120,000 BTUH3 were installed by Aircon. When the units with rotary compressors
were installed, they could not deliver the desired cooling temperature. Despite several adjustments and
corrective measures, the respondent conceded that Fedders Air Conditioning USA’s technology for
rotary compressors for big capacity conditioners like those installed at the Blanco Center had not yet
been perfected. The parties thereby agreed to replace the units with reciprocating/semi-hermetic
compressors instead. In a Letter dated March 26, 1981,4 Aircon stated that it would be replacing the
units currently installed with new ones using rotary compressors, at the earliest possible time.
Regrettably, however, it could not specify a date when delivery could be effected.

TempControl Systems, Inc. (a subsidiary of Aircon until 1987) undertook the maintenance of the units,
inclusive of parts and services. In October 1987, the respondent learned, through newspaper ads,5 that
Maxim Industrial and Merchandising Corporation (Maxim, for short) was the new and exclusive licensee
of Fedders Air Conditioning USA in the Philippines for the manufacture, distribution, sale, installation
and maintenance of Fedders air conditioners. The respondent requested that Maxim honor the
obligation of Aircon, but the latter refused. Considering that the ten-year period of prescription was fast
approaching, to expire on March 13, 1990, the respondent then instituted, on January 29, 1990, an
action for specific performance with damages against Aircon & Refrigeration Industries, Inc., Fedders Air
Conditioning USA, Inc., Maxim Industrial & Merchandising Corporation and petitioner Jardine Davies,
Inc.6 The latter was impleaded as defendant, considering that Aircon was a subsidiary of the petitioner.
The respondent prayed that judgment be rendered, as follows:

1. Ordering the defendants to jointly and severally at their account and expense deliver, install and place
in operation two

brand new units of each 10-tons capacity Fedders unitary packaged air conditioners with Fedders USA’s
technology perfected rotary compressors to always deliver 30,000 kcal or 120,000 BTUH to the second
floor of the Blanco Center building at 119 Alfaro St., Salcedo Village, Makati, Metro Manila;

2. Ordering defendants to jointly and severally reimburse plaintiff not only the sums of P415,118.95 for
unsaved electricity from 21st October 1981 to 7th January 1990 and P99,287.77 for repair costs of the
two service units from 7th March 1987 to 11th January 1990, with legal interest thereon from the filing
of this Complaint until fully reimbursed, but also like unsaved electricity costs and like repair costs
therefrom until Prayer No. 1 above shall have been complied with;

3. Ordering defendants to jointly and severally pay plaintiff’s P150,000.00 attorney’s fees and other
costs of litigation, as well as exemplary damages in an amount not less than or equal to Prayer 2 above;
and

4. Granting plaintiff such other and further relief as shall be just and equitable in the premises.7
Of the four defendants, only the petitioner filed its Answer. The court did not acquire jurisdiction over
Aircon because the latter ceased operations, as its corporate life ended on December 31, 1986.8 Upon
motion, defendants Fedders Air Conditioning USA and Maxim were declared in default.9

On May 17, 1996, the RTC rendered its Decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering defendants Jardine Davies, Inc., Fedders Air
Conditioning USA, Inc. and Maxim Industrial and Merchandising Corporation, jointly and severally:

1. To deliver, install and place into operation the two (2) brand new units of Fedders unitary packaged
airconditioning units each of 10 tons capacity with rotary compressors to deliver 30,000 kcal or 120,000
BTUH to the second floor of the Blanco Center building, or to pay plaintiff the current price for two such
units;

2. To reimburse plaintiff the amount of P556,551.55 as and for the unsaved electricity bills from October
21, 1981 up to April 30, 1995; and another amount of P185,951.67 as and for repair costs;

3. To pay plaintiff P50,000.00 as and for attorney’s fees; and

4. Cost of suit.10

The petitioner filed its notice of appeal with the CA, alleging that the trial court erred in holding it liable
because it was not a party to the contract between JRB Realty, Inc. and Aircon, and that it had a
personality separate and distinct from that of Aircon.

On March 23, 2000, the CA affirmed the trial court’s ruling in toto; hence, this petition.

The petitioner raises the following assignment of errors:

I.
THE COURT OF APPEALS ERRED IN HOLDING JARDINE LIABLE FOR THE ALLEGED CONTRACTUAL BREACH
OF AIRCON SOLELY BECAUSE THE LATTER WAS FORMERLY JARDINE’S SUBSIDIARY.

II.

ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS JARDINE’S MERE ALTER EGO, THE COURT
OF APPEALS ERRED IN NOT DECLARING AIRCON’S OBLIGATION TO DELIVER THE TWO (2)
AIRCONDITIONING UNITS TO JRB AS HAVING BEEN SUBSTANTIALLY COMPLIED WITH IN GOOD FAITH.

III.

ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS JARDINE’S MERE ALTER EGO, THE COURT
OF APPEALS ERRED IN NOT DECLARING JRB’S CAUSES OF ACTION AS HAVING BEEN BARRED BY LACHES.

IV.

ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS JARDINE’S MERE ALTER EGO, THE COURT
OF APPEALS ERRED IN FINDING JRB ENTITLED TO RECOVER ALLEGED UNSAVED ELECTRICITY EXPENSES.

V.

THE COURT OF APPEALS ERRED IN HOLDING JARDINE LIABLE TO PAY ATTORNEY’S FEES.

VI.

THE COURT OF APPEALS ERRED IN NOT HOLDING JRB LIABLE TO JARDINE FOR DAMAGES.11

It is the well-settled rule that factual findings of the trial court, as affirmed by the CA, are accorded high
respect, even finality at times. However, considering that the factual findings of the CA and the RTC
were based on speculation and conjectures, unsupported by substantial evidence, the Court finds that
the instant case falls under one of the excepted instances. There is, thus, a need to correct the error.
The trial court ruled that Aircon was a subsidiary of the petitioner, and concluded, thus:

Plaintiff’s documentary evidence shows that at the time it contracted with Aircon on March 13, 1980
(Exhibit "D") and on the date the revised agreement was reached on March 26, 1981, Aircon was a
subsidiary of Jardine. The phrase "A subsidiary of Jardine Davies, Inc." was printed on Aircon’s letterhead
of its March 13, 1980 contract with plaintiff (Exhibit "D-1"), as well as the Aircon’s letterhead of Jardine’s
Director and Senior Vice-President A.G. Morrison and Aircon’s President in his March 26, 1981 letter to
plaintiff (Exhibit "J-2") confirming the revised agreement. Aircon’s newspaper ads of April 12 and 26,
1981 and a press release on August 30, 1982 (Exhibits "E," "F" and "L") also show that defendant Jardine
publicly represented Aircon to be its subsidiary.

Records from the Securities and Exchange Commission (SEC) also reveal that as per Jardine’s December
31, 1986 and 1985 Financial Statements that "The company acts as general manager of its subsidiaries"
(Exhibit "P"). Jardine’s Consolidated Balance Sheet as of December 31, 1979 filed with the SEC listed
Aircon as its subsidiary by owning 94.35% of Aircon (Exhibit "P-1"). Also, Aircon’s reportorial General
Information Sheet as of April 1980 and April 1981 filed with the SEC show that Jardine was 94.34%
owner of Aircon (Exhibits "Q" and "R") and that out of seven members of the Board of Directors of
Aircon, four (4) are also of Jardine.

Defendant Jardine’s witness, Atty. Fe delos Santos-Quiaoit admitted that defendant Aircon, renamed
Aircon & Refrigeration Industries, Inc. "is one of the subsidiaries of Jardine Davies" (TSN, September 22,
1995, p. 12). She also testified that Jardine nominated, elected, and appointed the controlling majority
of the Board of Directors and the highest officers of Aircon (Ibid, pp. 10,13-14).

The foregoing circumstances provide justifiable basis for this Court to disregard the fiction of corporate
entity and treat defendant Aircon as part of the instrumentality of co-defendant Jardine.12

The respondent court arrived at the same conclusion basing its ruling on the following documents, to
wit:

(a) Contract/Quotation #78-No. 80-1639 dated March 03, 1980 (Exh. D-1);

(b) Newspaper Advertisements (Exhs. E-1 and F-1);

(c) Letter dated March 26, 1981 of A.G. Morrison, President of Aircon, to Atty. J.R. Blanco (Exh. J);
(d) News items of Bulletin Today dated August 30, 1982 (Exh. L);

(e) Balance Sheet of Jardine Davies, Inc. as of December 31, 1979 listing Aircon as one of its subsidiaries
(Exh. P);

(f) Financial Statement of Aircon as of December 31, 1982 and 1981 (Exh. S);

(g) Financial Statement of Aircon as of December 31, 1981 (Exh. S-1).13

Applying the doctrine of piercing the veil of corporate fiction, both the respondent and trial courts
conveniently held the petitioner liable for the alleged omissions of Aircon, considering that the latter
was its instrumentality or corporate alter ego. The petitioner is now before us, reiterating its defense of
separateness, and the fact that it is not a party to the contract.

We find merit in the petition.

It is an elementary and fundamental principle of corporation law that a corporation is an artificial being
invested by law with a personality separate and distinct from its stockholders and from other
corporations to which it may be connected. While a corporation is allowed to exist solely for a lawful
purpose, the law will regard it as an association of persons or in case of two corporations, merge them
into one, when this corporate legal entity is used as a cloak for fraud or illegality.14 This is the doctrine
of piercing the veil of corporate

fiction which applies only when such corporate fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime.15 The rationale behind piercing a corporation’s identity is to
remove the barrier between the corporation from the persons comprising it to thwart the fraudulent
and illegal schemes of those who use the corporate personality as a shield for undertaking certain
proscribed activities.16

While it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow that Aircon’s
corporate legal existence can just be disregarded. In Velarde v. Lopez, Inc.,17 the Court categorically
held that a subsidiary has an independent and separate juridical personality, distinct from that of its
parent company; hence, any claim or suit against the latter does not bind the former, and vice versa. In
applying the doctrine, the following requisites must be established: (1) control, not merely majority or
complete stock control; (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 acts 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.18

The records bear out that Aircon is a subsidiary of the petitioner only because the latter acquired
Aircon’s majority of capital stock. It, however, does not exercise complete control over Aircon; nowhere
can it be gathered that the petitioner manages the business affairs of Aircon. Indeed, no management
agreement exists between the petitioner and Aircon, and the latter is an entirely different entity from
the petitioner.19

Jardine Davies, Inc., incorporated as early as June 28, 1946,20 is primarily a financial and trading
company. Its Articles of Incorporation states among many others that the purposes for which the said
corporation was formed, are as follows:

(a) To carry on the business of merchants, commission merchants, brokers, factors, manufacturers, and
agents;

(b) Upon complying with the requirements of law applicable thereto, to act as agents of companies and
underwriters doing and engaging in any and all kinds of insurance business.21

On the other hand, Aircon, incorporated on December 27, 1952,22 is a manufacturing firm. Its Articles of
Incorporation states that its purpose is mainly -

To carry on the business of manufacturers of commercial and household appliances and accessories of
any form, particularly to manufacture, purchase, sell or deal in air conditioning and refrigeration
products of every class and description as well as accessories and parts thereof, or other kindred
articles; and to erect, or buy, lease, manage, or otherwise acquire manufactories, warehouses, and
depots for manufacturing, assemblage, repair and storing, buying, selling, and dealing in the aforesaid
appliances, accessories and products. …23

The existence of interlocking directors, corporate officers and shareholders, which the respondent court
considered, is not enough justification to pierce the veil of corporate fiction, in the absence of fraud or
other public policy considerations.24 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.25 To warrant resort to this
extraordinary remedy, there must be proof that the corporation is being used as a cloak or cover for
fraud or illegality, or to work injustice.26 Any piercing of the corporate veil has to be done with
caution.27 The wrongdoing must be clearly and convincingly established. It cannot just be presumed.28

In the instant case, there is no evidence that Aircon was formed or utilized with the intention of
defrauding its creditors or evading its contracts and obligations. There was nothing fraudulent in the
acts of Aircon in this case. Aircon, as a manufacturing firm of air

conditioners, complied with its obligation of providing two air conditioning units for the second floor of
the Blanco Center in good faith, pursuant to its contract with the respondent. Unfortunately, the
performance of the air conditioning units did not satisfy the respondent despite several adjustments
and corrective measures. In a Letter29 dated October 22, 1980, the respondent even conceded that
Fedders Air Conditioning USA has not yet perhaps perfected its technology of rotary compressors, and
agreed to change the compressors with the semi-hermetic type. Thus, Aircon substituted the units with
serviceable ones which delivered the cooling temperature needed for the law office. After enjoying ten
(10) years of its cooling power, respondent cannot now complain about the performance of these units,
nor can it demand a replacement thereof.

Moreover, it was reversible error to award the respondent the amount of P556,551.55 representing the
alleged 30% unsaved electricity costs and P185,951.67 as maintenance cost without showing any basis
for such award. To justify a grant of actual or compensatory damages, it is necessary to prove with a
reasonable degree of certainty, premised upon competent proof and on the best evidence obtainable by
the injured party, the actual amount of loss.30 The respondent merely based its cause of action on
Aircon’s alleged representation that Fedders air conditioners with rotary compressors can save as much
as 30% on electricity compared to other brands. Offered in evidence were newspaper advertisements
published on April 12 and 26, 1981. The respondent then recorded its electricity consumption from
October 21, 1981 up to April 3, 1995 and computed 30% thereof, which amounted to P556,551.55. The
Court rules that this amount is highly speculative and merely hypothetical, and for which the petitioner
can not be held accountable.

First. The respondent merely relied on the newspaper advertisements showing the Fedders window-
type air conditioners, which are far different from the big capacity air conditioning units installed at
Blanco Center.

Second. After such print advertisements, the respondent informed Aircon that it was going to install an
electric meter to register its electric consumption so as to determine the electric costs not saved by the
presently installed units with semi-hermetic compressors. Contrary to the allegations of the respondent
that this was in pursuance to their Revised Agreement, no proof was adduced that Aircon agreed to the
respondent’s proposition. It was a unilateral act on the part of the respondent, which Aircon did not
oblige or commit itself to pay.
Third. Needless to state, the amounts computed are mere estimates representing the respondent’s self-
serving claim of unsaved electricity cost, which is too speculative and conjectural to merit consideration.
No other proofs, reports or bases of comparison showing that Fedders Air Conditioning USA could
indeed cut down electricity cost by 30% were adduced.

Likewise, there is no basis for the award of P185,951.67 representing maintenance cost. The respondent
merely submitted a schedule31 prepared by the respondent’s accountant, listing the alleged repair costs
from March 1987 up to June 1994. Such evidence is self-serving and can not also be given probative
weight, considering that there are no proofs of receipts, vouchers, etc., which would substantiate the
amounts paid for such services. Absent any more convincing proof, the Court finds that the respondent’s
claims are without basis, and cannot, therefore, be awarded.

We sustain the petitioner’s separateness from that of Aircon in this case. It bears stressing that the
petitioner was never a party to the contract. Privity of contracts take effect only between parties, their
successors-in-interest, heirs and assigns.32 The petitioner, which has a

separate and distinct legal personality from that of Aircon, cannot, therefore, be held liable.

IN VIEW OF THE FOREGOING, the petition is GRANTED. The assailed decision of the Court of Appeals,
affirming the decision of the Regional Trial Court is REVERSED and SET ASIDE. The complaint of the
respondent is DISMISSED. Costs against the respondent.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice

WE CONCUR:

REYNATO S. PUNO

Associate Justice

Chairman
MA. ALICIA AUSTRIA-MARTINEZ DANTE O. TINGA

Associate Justice

MINITA V. CHICO-NAZARIO

Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO

Associate Justice

Chairman, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairman’s Attestation, it is
hereby certified that the conclusions in the above decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

HILARIO G. DAVIDE, JR.

Chief Justice

Footnotes
1 Penned by Associate Justice Demetrio G. Demetria, with Associate Justices Ramon A. Mabutas, Jr.
(retired) and Jose L. Sabio, Jr., concurring.

2 Exhibit "D," Records, p. 223.

3 (Kcal) kilocalories, (BTUH) British Thermal Units, TSN, 26 July 1995, p. 13.

4 Exhibit "J," Records, p. 233.

5 Exhibit "V," Records, p. 321.

6 Records, p. 1.

7 Records, pp. 8-9.

8 Exhibit "T," Records, p. 318.

9 Records, p. 77.

10 Records, p. 536.

11Rollo, p. 17.

12 Records, pp. 534-535.

13Rollo, p. 39.
14Development Bank of the Philippines v. Court of Appeals, G.R. No. 126200, 16 August 2001, 363 SCRA,
307, citing Yutivo Sons Hardware v. Court of Tax Appeals, 1 SCRA 160 (1961).

15Id. at 319.

16Velarde v. Lopez, Inc., G.R. No. 153886, 14 January 2004, 419 SCRA 422.

17Ibid.

18Id. at 431.

19 TSN, 22 September 1995, p. 13.

20 Exhibit "6," Records, p. 391.

21 Exhibit "6-A," Records, p. 402.

22 Records, p. 420.

23 Exhibit "7-B," Records, p. 414.

24Velarde v. Lopez, Inc. supra.

25Reynoso IV v. Court of Appeals, G.R. Nos. 116124-25, 22 November 2000, 345 SCRA 335.

26Gala vs. Ellice Agro-Industrial Corporation, G.R. No. 156819, 11 December 2003, 418 SCRA 431.

27Reynoso IV v. Court of Appeals, supra.

28DBP v. CA, supra.

29 Exhibit "G." Records, pp. 229-230.

30Integrated Packaging Corporation v. Court of Appeals, G.R. No. 115117, 8 June 2000, 333 SCRA 170.

31 Exhibit "U," Records, p. 319.

32Josefa v. Zhandong Trading Corporation, G.R. No. 150903, 8 December 2003, 417 SCRA 269.

Short Title

Jardine Davies, Inc. vs. JRB Realty, Inc.

G.R. Number

G.R. No. 151438

Date of Promulgation

July 15, 2005

Share:

Jardine Davies, Inc. v. JRB Realty, Inc.,

G.R. No. 151438, July15, 2005

FACTS:

In 1979-1980, respondent JRB Realty, Inc. built a nine-storey building, named Blanco Center, on its
parcel of land

located Makati City. An air conditioningsystem was needed for the Blanco Law Firm housed at the
secondfloor of the

building.

On March 13, 1980, the respondent s Executive ‟ Vice-President, Jose R. Blanco, accepted the contract
quotation
of Mr. A.G. Morrison, President of Aircon and Refrigeration Industries,Inc. (Aircon), for two (2) sets of
Fedders

Adaptomatic air conditioning equipment. Thereafter, two (2) brand new packaged air conditioners were
installed by Aircon

but they could not deliver the desired cooling temperature. With this, the parties agreed to replace the
units.

In a Letter, Aircon stated that it would be replacing the units currently installed with new ones using
rotary

compressors, at the earliest possible time. Regrettably, however, it could not specify a date when
delivery could be

effected. TempControl Systems, Inc. (a subsidiary of Aircon until1987) undertook the maintenance of
the units, inclusive of

parts and services.

In October 1987, the respondent learned, through newspaper ads, that Maxim Industrial and
Merchandising

Corporation (Maxim, for short) was the new and exclusive licensee of Fedders Air Conditioning USA in
the Philippines for

the manufacture, distribution, sale, installation and maintenance of Fedders air conditioners. The
respondent requested

that Maxim honor the obligation of Aircon, but the latter refused. Hence, the respondent then instituted
an action for

specific performance with damages against Aircon, Fedders Air Conditioning USA, Inc., Maxim and
petitioner Jardine

Davies, Inc. Petitioner Jardine Davies, Inc. was impleaded as defendant, considering that Aircon was a
subsidiary of the

petitioner.

Petitioner contends that was not a party to the contract between JRB Realty, Inc.and Aircon, and that it
had

a personality separate and distinct fromthat of Aircon.

RTC ordered defendants Jardine Davies, Inc., Fedders Air Conditioning USA, Inc. and Maxim Industrial
and

MerchandisingCorporation, jointly and severally liable which was affirmed by the CA.

ISSUE

WHETHER OR NOT PETITIONER JARDINE MAY BE HELD LIABLE SOLELY BECAUSE AIRCON WAS FORMERLY
JARDINE'S INSTRUMENTALITY OR ALTER EGO?

HELD: NO.

It is an elementary and fundamental principle of corporation law that a corporation is an artificial being
invested by

law with a personality separate and distinct from its stockholders and from other corporations to which
it may be

connected. While a corporation is allowed to exist solely for a lawful purpose, the law will regard it as an
association of

persons or in case of two corporations, merge them into one, when this corporate legal entity is used as
a cloak for fraud

or illegality. This is the doctrine of piercing the veil of corporate fiction which applies only when such
corporate fiction

isused to defeat public convenience, justify wrong, protect fraud or defend crime.

While it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow that Aircon s
corporate ‟

legal existence can just be disregarded. A subsidiary has an independent and separate juridical
personality, distinct from

that of its parent company;hence, any claim or suit against the latter does not bind the former,and vice
versa.

In applying the doctrine, the following requisites mustbe established:(1) control, not merely majority or
complete

stock control;(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 acts 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 records bear out that Aircon is a subsidiary of the petitioner only because the latter acquired
Aircon's majority

of capital stock. It, however, does not exercise complete control over Aircon;nowhere can it be gathered
that the petitioner

manages the business affairs of Aircon. Indeed, no management agreement exists between the
petitioner and Aircon, and

the latter is an entirely different entityfrom the petitioner. 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 policyconsiderations. 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.

To warrant resort to this extraordinary remedy, there must be proof that the corporation is being used
as a cloak or

cover for fraud or illegality, or to work injustice. Any piercing of the corporate veil has to be done with
caution. The

wrongdoing must be clearly and convincingly established. It cannot just be presumed. In the instant
case, there is no

evidence that Aircon was formed or utilized with the intention of defrauding its creditors or evading its
contracts and

obligations. There was nothing fraudulent in the acts of Aircon in this case.

FIRST DIVISION

[G.R. No. 108734. May 29, 1996]

CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, (First
Division); and Norberto Marabe, Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos,
Pedro Aboigar, Norberto Comendador, Rogello Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea,
Aifredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana,
Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.

DECISION

HERMOSISIMA, JR., J.:

The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but
the alter ego of a person or of another corporation. Where badges of fraud exist; where public
convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the
notion of legal entity should come to naught. The law in these instances will regard the corporation as a
mere association of persons and, in case of two corporations, merge them into one.

Thus, where a sister corporation is used as a shield to evade a corporations subsidiary liability for
damages, the corporation may not be heard to say that it has a personality separate and distinct from
the other corporation. The piercing of the corporate veil comes into play.

This special civil action ostensibly raises the question of whether the National Labor Relations
Commission committed grave abuse of discretion when it issued a break-open order to the sheriff to be
enforced against personal property found in the premises of petitioners sister company.

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.

On November, 1981, 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
respondents 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.

On December 19, 1984, the Labor Arbiter rendered judgment1 ordering petitioner to reinstate private
respondents and to pay them back wages equivalent to one year or three hundred working days.
On November 27, 1985, 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.2

On October 16, 1986, the NLRC Research and Information Department made the finding that private
respondents backwages amounted to P199,800.00.3

On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the
Decision, dated December 19, 1984. The writ was partially satisfied through garnishment of sums from
petitioners 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.

On February 1, 1989, 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.

On July 13, 1989, 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.

On September 26, 1986, 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, as stated in his progress report,
dated November 2, 1989:

1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela, Metro Manila,
claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent;

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.4
The said special sheriff recommended that a break-open order be issued to enable him to enter
petitioners premises so that he could proceed with the public auction sale of the aforesaid personal
properties on November 7, 1989.

On November 6, 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.

On November 23, 1989, 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 and
Exchange Commission (SEC) and the General Information Sheet, dated May 15, 1987, submitted by HPPI
to the Securities and Exchange Commission.

The General Information Sheet submitted by the petitioner1 revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

HPPI P6,999,500.00

Antonio W. Lim 2,900,000.00

Dennis S. Cuyegkeng 300.00

Elisa C. Lim 100,000.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Dennis S. Cuyegkeng Member

Elisa C. Lim Member

Teodulo R. Dino Member

Virgilio O. Casino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa 0. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road

Valenzuela, Metro Manila.5

On the other hand, the General Information Sheet of HPPI revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

Antonio W. Lim P400,000.00

Elisa C. Lim 57,700.00

AWL Trading 455,000.00

Dennis S. Cuyegkeng 40,100.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Elisa C. Lim Member

Dennis S. Cuyegkeng Member

Virgilio O. Casino Member

Teodulo R. Dino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa O. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road, Valenzuela, Metro Manila.6

On February 1, 1990, 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.

On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents motion for
break-open order.

Private respondents then appealed to the NLRC. On April 23, 1992, 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.
Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated
December 3, 1992.

Hence, the resort to the present petition.

Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of
its decision despite a third-party claim on the levied property. Petitioner further contends, that the
doctrine of piercing the corporate veil should not have been applied, in this case, in the absence of any
showing that it created HPPI in order to evade its liability to private respondents. It also contends that
HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a business which is
distinct and separate from petitioners construction business. Hence, it is of no consequence that
petitioner and HPPI shared the same premises, the same President and the same set of officers and
subscribers.7

We find petitioners contention to be unmeritorious.

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.9 So, when the notion of separate juridical personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws,10 this
separate personality of the corporation may be disregarded or the veil of corporate fiction pierced.11
This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of
another corporation.12

The conditions under which the juridical entity may be disregarded vary according to the peculiar facts
and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there
are some probative factors of identity that will justify the application of the doctrine of piercing the
corporate veil, to wit:

1. Stock ownership by one or common ownership of both corporations.

2. Identity of directors and officers.

3. The manner of keeping corporate books and records.

4. Methods of conducting the business.13

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 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 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
plaintiffs legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained
of.

The absence of any one of these elements prevents piercing the corporate veil. in applying the
instrumentality or alter ego doctrine, the courts are concerned with reality and not form, with how the
corporation operated and the individual defendants relationship to that operation. 14

Thus, the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a
sham or a subterfuge is purely one of fact.15
In 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. Casino 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

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents
of backwages 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.

The facts in this case are analogous to Claparols v. Court of Industrial Relations17 where we had the
occasion to rule:

Respondent courts findings that indeed the Claparols Steel and Nail Plant, which ceased operation of
June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957,
up to December 7, 1962, when the latter finally ceased to operate, were not disputed by petitioner. it is
very clear that the latter corporation was a continuation and successor of the first entity x x x. Both
predecessors and successor were owned and controlled by petitioner Eduardo Claparols and there was
no break in the succession and continuity of the same business. This avoiding-the-liability scheme is very
patent, considering that 90% of the subscribed shares of stock of the Claparols Steel Corporation (the
second corporation) was owned by respondent x x x Claparols himself, and all the assets of the dissolved
Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel Corporation.
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.

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. This is in consonance with Section
3, Rule VII of the NLRC Manual of Execution of Judgment which provides that:

Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative
entry to the place where the property subject of execution is located or kept, the judgment creditor may
apply to the Commission or Labor Arbiter concerned for a break-open order.

Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing
were complied with. Petitioner and the third-party claimant were given the opportunity to submit
evidence in support of their claim.

Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order
issued by the Labor Arbiter.

Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies
supported by substantial evidence are binding on this Court and are entitled to great respect, in the
absence of showing of grave abuse of a discretion.18

WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992
and December 3, 1992, are AFFIRMED.

SO ORDERED.

Padilla (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.

1 Rollo, pp. 11-12.

2 Id., at 12.

3 Ibid.

4 Rollo, p. 14.

5 Rollo, pp. 16-17.

6 Id., at 17-18.

7 Rollo, pp. 7-8.

8 Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 (1965); Yutivo Sons
Hardware Company v. Court of Tax Appeals, 1 SCRA 160(1961).

9 Laguna Transportation Company, Inc. v. Social Security System, 107 SCRA 833 (1960).

10 La Campana Coffee Factory, Inc. vs. Kaisahan Ng Mga Manggagawa sa La Campana (KMM), 93 Phil.
160 (1953).

11 Sulo ng Bayan, Inc. v. Araneta, 72 SCRA 347 (1976).

12 Tan Boon Bee and Co. v. Jarencio, 163 SCRA 205 (1988).

13 4 Minn L. Rev, pp. 2 19-227; cited in R. Lopez, The Corporation Code of the Philippines, Annotated p.
19 (1994).

14 1 Fletcher Cyc. Corp., p. 490; Avelina G. Ramoso et al. v. General Credit Corporation et al., SEC AC No.
295, October 6, 1992.
15 Phoenix Safety Inc. Co. v. James, 28 Ariz 514, 237, p. 958.

16 Rollo, pp. 19-20.

17 65 SCRA 613 (1975).

18 Maya Farms Employees Organization v. National Labor Relations Commission, 239 SCRA 508 (1994);
Capitol Industrial Construction Groups v. National Labor Relations Commission, 221 SCRA 469 (1993);
Sunset View Condominium Corporation v. National Labor Relations Commission, 228 SCRA 466 (1993).

case digests

Concept Builders vs NLRC DIGEST

vbdiaz

2 years ago

Concept Builders vs NLRC

GR 108734; 29 May 1996

Facts:

Petitioner Concept Builders, Inc., a domestic corporation engaged in the construction business. Private
respondents were employed by said company as laborers, carpenters and riggers. However, they were
illegally dismissed.

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

Issue: Whether the piercing the veil of corporate entity is proper.

Held: Yes.

It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from
its stockholders and from other corporations to which it may be connected. But, this separate and
distinct personality of a corporation is merely a fiction created by law for convenience and to promote
justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify
wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate
personality of the corporation may be disregarded or the veil of corporate fiction pierced. This is true
likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another
corporation.

The conditions under which the juridical entity may be disregarded vary according to the peculiar facts
and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there
are some probative factors of identity that will justify the application of the doctrine of piercing the
corporate veil, to wit:

Stock ownership by one or common ownership of both corporations.

Identity of directors and officers.

The manner of keeping corporate books and records.

Methods of conducting the business.

The SEC en banc explained the “instrumentality rule” which the courts have applied in disregarding the
separate juridical personality of corporations as follows:

Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a
mere instrumentality or adjunct of the other, the fiction of the corporate entity of the “instrumentality”
may be disregarded. The control necessary to invoke the rule is not majority or even complete stock
control but such domination of instances, policies and practices that the controlled corporation has, so
to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be
kept in mind that the control must be shown to have been exercised at the time the acts complained of
took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss
for which the complaint is made.

The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as
follows:

Control, not mere majority or complete stock control, but complete domination, not only of finances but
of policy and business practice in respect to the transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will or existence of its own;

Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of
plaintiff’s legal rights; and

The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents “piercing the corporate veil.” In applying the
“instrumentality” or “alter ego” doctrine, the courts are concerned with reality and not form, with how
the corporation operated and the individual defendant’s relationship to that operation.

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents
of back wages and to bar their reinstatement to their former positions. HPPI is obviously a business
conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial
liability that already attached to petitioner corporation.

Categories: SPECIAL COMMERCIAL LAWS

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