THIRD DIVISION G.R. No.

58168 December 19, 1989 CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA MAGSAYSAY-CORPUZ, assisted be her husband, Dr. Jose Corpuz, FELICIDAD P. MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners, vs. THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special Administratrix of the Estate of the late Genaro F. Magsaysay respondents .

A deed of assignment was executed by the late Sen. Genaro Magsaysay in favor of SUBIC and was issued a new TCT in the latters name. SUBIC later mortgaged the said property in favour of FILMANBANK. Contending that the Deed of Assignment was void because it was secured by mistake, violence and intimidation, and that the property is a conjugal property and her marital consent was not obtained, Adelaida filed for the annulment of Deed of Assignment and the Deed of Mortgage and cancellation of the TCT issued in favour of SUBIC and issuance of a new TCT in her favour. Petitioners, the sisters of the late senator, filed for a motion for intervention alleging that they have a legal interest in the subject matter and in the success of the suit since their brother conveyed to them half of the total outstanding shares of stocks of SUBIC. The trial court denied the motion because SUBIC has a personality separate and distinct from its shareholders thus petitioners cannot claim they can legally intervene. The CA, as well, denied their motion on appeal stating that the claims of the petitioners against the senator can be ventilated in a separate proceeding. A MR was likewise denied hence this recourse before the SC. ISSUE: WON the denial of the motion to intervene by the petitioners is correct. RULING: Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co. petitioners strongly argue that their ownership of 41.66% of the entire outstanding capital stock of SUBIC entitles them to a significant vote in the corporate affairs that it appears that they are more vitally interested in the outcome of the case than SUBIC.

To allow intervention, [a] it must be shown that the movant has legal interest in the matter in litigation, or otherwise qualified; and [b] consideration must be given as to whether the adjudication of the rights of the original parties may be delayed or prejudiced, or whether the intervenor's rights may be protected in a separate proceeding or not. Both requirements must concur as the first is not more important than the second. Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote, conjectural, consequential and collateral, and att the very least, their interest is purely inchoate. While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person. The petitioners cannot claim the right to intervene on the strength of the transfer of shares allegedly executed by the late Senator. The corporation did not keep books and records. 11 Perforce, no transfer was ever recorded, much less effected as to prejudice third parties. The transfer must be registered in the books of the corporation to affect third persons. The law on corporations is explicit. Section 63 of the Corporation Code provides, thus: "No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred." And even assuming arguendo that there was a valid transfer, petitioners are nonetheless barred from intervening inasmuch as their rights can be ventilated and amply protected in another proceeding.WHEREFORE, the instant petition is hereby DENIED. Costs against petitioners.SO ORDERED.

SECOND DIVISION A.M. No. P-01-1464 March 13, 2001 (Formerly OCA IPI. No. 99-730-P) SALVADOR O. BOOC, complainant, vs. MALAYO B. BANTUAS, SHERIFF IV, RTC, BRANCH 3, ILIGAN CITY, respondent.

Pursuant to a Writ of Execution issued in a civil case, respondent Bantuas filed a Notice of Levy with the Registrar of Deeds of Iligan City. Petitioner opposed the levy as the property is owned by the corporation which is not a party to the case. The corporation filed a complaint before the OCA and demanded the sheriff to cancel the notice of levy as it is the true owner of the property. However, respondent did not heed the corporations demand, a Notice of Sale on execution of Real Property was issued and scheduled the public auction. Thus the corporation filed an action for Quieting of Title with the RTC. Respondent, in his answer, said that he filed a Notice of Levy with the Register of Deeds on the share, rights, interest and participation of Booc in the parcel of land owned by the corporation since Booc is an owner of around 200 shares of stocks in the said corp. RULING: OCA found respondent liable stating that respondent acted in bad faith when he overstepped his authority when he disregarded the distinct and separate personality of the corporation from that of Booc as a stockholder and officer of the corporation. It is settled that a corporation is clothed with a personality separate and distinct from that of its stockholders. It may not be held liable for the personal indebtedness of its stockholders. In the case of Del Rosaio v. Bascar, the SC reiterated the principle that the mere fact that one is a president of the corporation does not render the property he owns or possesses the property of the corporation since the president, as an individual, and the corporation are separate entities. Based on the foregoing, respondent Sheriff Bantuas has clearly acted beyond his authority when he levied the property of Five Star Marketing Corporation.

PHILIPPINE NATIONAL BANK CORPORATION, petitioners, vs.

&

NATIONAL

SUGAR

DEVELOPMENT

ANDRADA ELECTRIC & ENGINEERING COMPANY, respondent. The case is a Petition for Review assailing the decision of the CA. FACTS: PASUMIL engaged the services of herein defendant for electrical rewinding and repair, most of which were partially paid by the PASUMIL, leaving several unpaid accounts with the defendant. On October 29, 1971, PASUMIL and the defendant entered into a contract for the defendant for several constructions as well as supply of electrical equipment. Out of 700K+ only P250,000 was paid by PASUMIL. Defendant demanded the President of PNB, who is also the VP of NASUDECO because PNB and NASUDECO now owned and possessed the assets of the defendant PASUMIL, and that both benefited from the works, and the electrical, engineering and repairs performed by the defendant. PNB and NASUDECO filed a joint motion to dismiss the complaint on the ground that the complaint failed to state sufficient allegations to establish a cause of action against both defendants citing Article 1311 of the New Civil Code, and the case law ruling in Salonga v. Warner Barnes & Co. The motion to dismiss was by the court a quo denied and directed the defendants to file their answer to the complaint within 15 days. The trial court rendered its judgment in favor of the defendant and held PNB, NASUDECO and PASUMIL jointly and severally liable. The CA affirmed the decision of the trial court holding that it was offensive to the basic tenets of justice and equity for a corporation to take over and operate the business of another corporation, while disavowing or repudiating any responsibility, obligation or liability arising therefrom. ISSUE: WON PNB is liable for the unpaid debts of PASUMIL to respondent. RULING: The petition is meritorious. As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in

good faith and paid adequate consideration for such assets, except when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the transaction amounts to a consolidation or merger of the corporations, (3) where the purchasing corporation is merely a continuation of the selling corporation, and (4) where the transaction is fraudulently entered into in order to escape liability for those debts. Piercing the Corporate Veil Not Warranted A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers, attributes, and properties expressly authorized by law or incident to its existence.[12] It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related.[13] This is basic. Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation.[14] For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled[15] only when it becomes a shield for fraud, illegality or inequity committed against third persons. Piercing the veil of corporate fiction may be allowed only if the following elements concur: (1) control -- not mere stock control, but complete domination -- not only of finances, but of policy and business practice in respect to the transaction attacked, must have been such that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) such control must have been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiffs legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of. In the absence of the foregoing elements in the present case precludes the piercing of the corporate veil. First, there is no showing that their control over it warrants the disregard of corporate personalities. Second, there is no evidence that their juridical personality was used to commit a fraud or to do a wrong. Third, respondent was not defrauded or injured when petitioners acquired the assets of PASUMIL. In the instant case, the CA erred in affirming the trial courts lifting of the corporate mask. No Merger or Consolidation

The merger, however, does not become effective upon the mere agreement of the constituent corporations. Since a merger or consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders and creditors, there must be an express provision of law authorizing them. For a valid merger or consolidation, the approval by the Securities and Exchange Commission (SEC) of the articles of merger or consolidation is required. These articles must likewise be duly approved by a majority of the respective stockholders of the constituent corporations. WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET ASIDE.

JARDINE DAVIES, INC., Vs. JRB REALTY, INC., Respondent JRB Realty, Inc. built a nine-storey building, named Blanco Center, on its parcel of land in Makati City. Respondent entered into a contract with Mr. A.G. Morrison, Pres of Aircon and Refrigeration Industries, INC. (AIRCON) for the installation of 2 aircon system at Blanco Law Firm. When the units were installed, they could not deliver the desired temperature. AIRCON agreed to replace the defective unit at the soonest possible time but it could not specify a date when delivery could be effected. Tempcontrol, a subsidiary of AIRCON, undertook the maintenance of the aircon units. Later, respondent learned that MAXIM was the new and exclusive licensee of FEDDERS in the Philippines for the manufacture, distribution, sale, installation and maintenance of FEDDERS aircons. MAXIM refused to honor the obligation of AIRCON when requested by the respondent. The respondent thus instituted 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. The latter was impleaded as defendant, considering that Aircon was a subsidiary of the petitioner. Of the four defendants, only the petitioner filed its Answer. The court did not acquire jurisdiction over Aircon because the latter ceased operations. RTC RULING: defendants Jardine Davies, Inc., Fedders Air Conditioning USA, Inc. and Maxim Industrial and Merchandising Corporation are jointly and severally liable. CA RULING: the CA affirmed the trial courts ruling in toto; hence, this petition. ISSUE: WON JArdine be held jointly and solidarily liable with the other 2 defendants. 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. 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. The rationale behind piercing a corporations 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. Note that AIRCON is a subsidiary of petitioner and 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. So that the corporations cloak may be lifted the ff. must concur: 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 plaintiffs legal rights; and 3. the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of 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 It bears stressing that the petitioner was never a party to the contract. Privity of contracts take effect only between parties, their successors-ininterest, heirs and assigns.[32] The petitioner, which has a separate and distinct legal personality from that of Aircon, cannot, therefore, be held liable

G.R. No. 154975

January 29, 2007 (now PENTA CAPITAL FINANCE

GENERAL CREDIT CORPORATION CORPORATION), Petitioner, vs.

ALSONS DEVELOPMENT and INVESTMENT CORPORATION and CCC EQUITY CORPORATION, Respondents.

Shortly after its incorporation in 1957 as a finance and investment company, petitioner General Credit Corporation (GCC, for short), then known as Commercial Credit Corporation (CCC), established CCC franchise companies in different urban centers of the country. It later on engaged in quasi-banking as well. Respondent CCC Equity Corporation (EQUITY, for brevity) was organized for the purpose of taking over the operations and management of the various franchise companies. Respondent ALSONS and ALCANTARA FAMILY each owned, just like GCC, shares in the aforesaid GCC franchise companies. ALSONS and the Alcantara family, for a consideration of P2,000,000.00 Pesos, sold their shareholdings in the CCC franchise companies to EQUITY. EQUITY issued ALSONS et al., a "bearer" promissory note for P2,000,000.00 with a one-year maturity date, at 18% interest per annum, with provisions for damages and litigation costs in case of default. the Alcantara family assigned its rights and interests over the bearer note to ALSONS. But even before the execution of the assignment deal letters of demand for interest payment were already sent to EQUITY, through its President, Wilfredo Labayen, who pleaded inability to pay the stipulated interest, EQUITY no longer then having assets or property to settle its obligation nor being extended financial support by GCC. ALSONS, having failed to collect on the bearer note aforementioned, filed a complaint for a sum of money8 against EQUITY and GCC.

TRIAL COURT: the trial court, on its finding that EQUITY was but an instrumentality or adjunct of GCC and considering the legal consequences and implications of such relationship, came out with its decision on November 8, 1990, rendering judgment for ALSONS, and made EQUITY and GCC jointly and severally liable. The CA affirmed the trial courts decision. ISSUE: WON there is absolutely no basis for piercing GCCs veil of corporate identity.

RULING: A corporation is an artificial being vested by law with a personality distinct and separate from those of the persons composing it as well as from that of any other entity to which it may be related. The first consequence of the doctrine of legal entity of the separate personality of the corporation is that a corporation may not be made to answer for acts and liabilities of its stockholders or those of legal entities to which it may be connected or vice versa. The notion of separate personality, however, may be disregarded under the doctrine "piercing the veil of corporate fiction" Another formulation of this doctrine is that when two (2) business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or one and the same. at least three (3) basic areas where piercing the veilis allowed.These are: 1. defeat of public convenience, as when the corporate fiction is used as vehicle for the evasion of an existing obligation; 2. fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime or 3. alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. The Court agrees with the disposition of the appellate court on the application of the piercing doctrine to the transaction subject of this case thus provides a justifying ground to pierce petitioners corporate existence as to ALSONS claim in question. The trial court enumerated no less than 20 documented circumstances and transactions, which, taken as a package, indeed strongly supported the conclusion that respondent EQUITY was but an adjunct, an instrumentality or business conduit of petitioner GCC. Further, EQUITY and GCC had common directors and/or officers as well as stockholders. Thus the doctrine of piercing the veil of corporate fiction is applicable in this case.

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G.R. No. 182729

September 29, 2010

KUKAN INTERNATIONAL CORPORATION, Petitioner, vs. HON. AMOR REYES, in her capacity as Presiding Judge of the Regional Trial Court of Manila, Branch 21, and ROMEO M. MORALES, doing business under the name and style "RM Morales Trophies and Plaques," Respondents. Kukan, Inc. conducted a bidding for the supply and installation of signages in a building being constructed in Makati City. Morales was awarded the P5M contract but the contract was later reduced to P3M+ due to the exclusions of some of the items in the contract. Morales was only paid the amount of PhP 1,976,371.07, leaving a balance of PhP 1,412,130.93, which Kukan, Inc. refused to pay despite demands Thus Morales filed a complaint against Kukan for sum of money. The trial court held in favor of Morales and ordered Kukan, Inc. to pay the balance with 12% interest, plus moral damages, attorneys fees and litigation expenses. After the decision became final and executor, and after a writ of execution had been issued against Kukan Inc., the sheriff levied various personal properties found at Kukans office in Makati City. Alleging that it owned the properties thus levied and that it was a different corporation from Kukan, Inc., Kukan International Corporation (KIC) filed an Affidavit of Third-Party Claim. Morales contended in an omnibus motion filed that the principle of piercing the veil of corporate fiction must be applied so that an order be issued for the satisfaction of the judgment debt of Kukan, Inc. with the property owned and possessed by KIC since both corporation are one and the same entity. BUT the motion was denied by the court. Morales filed a Motion to Pierce the Veil of Corporate Fiction to declare KIC as having no existence separate from Kukan, Inc. which this time was granted by the RTC and declared KUKAN, INC and KIC one and the same corporation and the levy valid, thus making KIC and Chan jointly and severally liable. CA affirmed the RTCs decision.

ISSUE: WON CA correctly applied the principle of piercing the veil of corporate fiction. RULING: Morales contention is untenable. The principle of piercing the veil of corporate fiction, and the resulting treatment of two related corporations as one and the same juridical

11

person with respect to a given transaction, is basically applied only to determine established liability; it is not available to confer on the court a jurisdiction it has not acquired over a party not impleaded in a case. The trial court did not acquire jurisdiction over KIC as it was never impleaded as a party defendant in the civil suit for sum of money filed by Morales. A corporation not impleaded in a suit cannot be subject to the courts process of piercing the veil of its corporate fiction. The doctrine of piercing the veil of corporate fiction comes to play only during the trial of the case after the court has already acquired jurisdiction over the corporation. Hence, before this doctrine can be applied, based on the evidence presented, it is imperative that the court must first have jurisdiction over the corporation. The implication of the above comment is twofold: (1) the court must first acquire jurisdiction over the corporation or corporations involved before its or their separate personalities are disregarded; and (2) the doctrine of piercing the veil of corporate entity can only be raised during a full-blown trial over a cause of action duly commenced involving parties duly brought under the authority of the court by way of service of summons or what passes as such service. The principle of piercing the veil of corporate fiction finds no application to the instant case. Morales adverted motion to pierce the veil of corporate stated a new cause of action which should be properly ventilated in another complaint and subsequent trial where the doctrine of piercing the corporate veil can, if appropriate, be applied, based on the evidence adduced. Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. To justify the piercing of the veil of corporate fiction, it must be shown by clear and convincing proof that the separate and distinct personality of the corporation was purposefully employed to evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings. Factors when the Court pierced the veil of corporate fiction of two corporations: 1. A first corporation is dissolved; 2. The assets of the first corporation is transferred to a second corporation to avoid a financial liability of the first corporation; and 3. Both corporations are owned and controlled by the same persons such that the second corporation should be considered as a continuation and successor of the first corporation. The second and third factors are conspicuously absent. While it is true that a corporation has a separate and distinct personality from its stockholder, director and officers, the law expressly provides for an exception. Having been guilty of bad faith in the management of

12

corporate matters the corporate trustee, director or officer may be held personally liable. The RTC brushed aside the separate corporate existence of Kukan, Inc. and KIC on the main argument that Michael Chan owns 40% of the common shares of both corporations, obviously oblivious that overlapping stock ownership is a common business phenomenon. Mere ownership by a single stockholder or by another corporation of a substantial block of shares of a corporation does not, standing alone, provide sufficient justification for disregarding the separate corporate personality. Those who seek to pierce the veil must clearly establish that the separate and distinct personalities of the corporations are set up to justify a wrong, protect fraud, or perpetrate a deception. In the concrete and on the assumption that the RTC has validly acquired jurisdiction over the party concerned, Morales ought to have proved by convincing evidence that Kukan, Inc. was collapsed and thereafter KIC purposely formed and operated to defraud him. Morales has not to us discharged his burden.

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RAYMUNDO ODANI SECOSA, EL BUENASENSO SY and WAREHOUSING and PORT SERVICES, INCORPORATED, petitioners, vs. HEIRS OF ERWIN SUAREZ FRANCISCO, respondents.

DASSAD

Francisco was riding a motorcycle along Radial 10 Avenue, Manila City. Behind the motorcycle driven by Francisco was a sand and gravel truck which was also tailed by an Isuzu truck driven by Secosa. When Secosa overtook the sand and gravel truck, he bumped the motorcycle causing Francisco to fall. The rear wheels of the Isuzu truck then ran over Francisco, which resulted in his instantaneous death. Fearing for his life, petitioner Secosa left his truck and fled the scene of the collision. Respondents, the parents of Erwin Francisco, thus filed an action for damages against Raymond Odani Secosa, Dassad Warehousing and Port Services, Inc. and Dassads president, El Buenasucenso Sy. The court a quo rendered a decision in favor of herein respondents and made the herein petitioners jointly and severally liable. The CA affirmed the trial courts ruling.

ISSUE: WON EL BUENASENSO SY IS SOLIDARILY LIABLE WITH PETITIONERS DASSAD AND SECOSA. RULING: we find that petitioner El Buenasenso Sy cannot be held solidarily liable with his co-petitioners. While it may be true that Sy is the president of petitioner Dassad Warehousing and Port Services, Inc., such fact is not by itself sufficient to hold him solidarily liable for the liabilities adjudged against his co-petitioners. It is a settled precept in this jurisdiction that a corporation is invested by law with a personality separate from that of its stockholders or members. It has a personality separate and distinct from those of the persons composing it as well as from that of any other entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not in itself sufficient ground for disregarding the separate corporate personality. A corporations authority to act and its liability for its actions are separate and apart from the individuals who own it. As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason to the contrary appears. When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons.

14

The records of this case are bereft of any evidence tending to show the presence of any grounds enumerated above that will justify the piercing of the veil of corporate fiction such as to hold the president of Dassad Warehousing and Port Services, Inc. solidarily liable with it. The Isuzu cargo truck which ran over Erwin Francisco was registered in the name of Dassad Warehousing and Port Services, Inc., and not in the name of El Buenasenso Sy. Raymundo Secosa is an employee of Dassad Warehousing and Port Services, Inc. and not of El Buenasenso Sy. All these things, when taken collectively, point toward El Buenasenso Sys exclusion from liability for damages arising from the death of Erwin Francisco.

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G.R. No. 142616

July 31, 2001

PHILIPPINE NATIONAL BANK, petitioner, vs. RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL MERCHANDISE,respondents. PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized and doing business in Hong Kong, extended a letter of credit in favor of the respondents. As of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. PNB-IFL, through its attorney-in-fact PNB, notified the respondents of the foreclosure of all the real estate mortgages and that the properties subject thereof were to be sold at a public auction at the Makati City Hall. Respondents filed a complaint for injunction with prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order. Petitioner filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of any privity between the petitioner and respondents. The motion to dismiss was denied by the trial court judge for lack of merit, hence this petition for certiorari and prohibition before the SC assailing the issuance of the writ of preliminary injuction. respondents argue that even assuming arguendo that petitioner and PNB-IFL are two separate entities, petitioner is still the party-ininterest in the application for preliminary injunction because it is tasked to commit acts of foreclosing respondents' properties. respondents justified the act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate Identity" by stating that petitioner is merely an alter ego or a business conduit of PNB-IFL. The petition is impressed with merit. The contract questioned is one entered into between respondent and PNB-IFL, not PNB.. Respondents admit that petitioner is a mere attorney-in-fact for the PNB-IFL with full power and authority to foreclose on the properties mortgaged to secure their loan obligations with PNB-IFL. Yet, despite the recognition that petitioner is a mere agent, the respondents prayed that the petitioner PNB be ordered to recompute the rescheduling of the interest to be paid by them in accordance with the terms and conditions in the documents evidencing the credit facilities, and crediting the amount previously paid to PNB by herein respondents. The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and the party to the loan contracts, and the respondents.

16

Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set forth in the contract. Respondents, therefore, do not have any cause of action against petitioner. The general rule is that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members, and is not affected by the personal rights, obligations and transactions of the latter. The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary's separate existence may be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business. In the case at bar, respondents fail to show any cogent reason why the separate entities of the PNB and PNB-IFL should be disregarded. the circumstances which may be useful in the determination of whether the subsidiary is but a mere instrumentality of the parent-corporation: a. The parent corporation owns all or most of the capital stock of the subsidiary. b. The parent and subsidiary corporations have common directors or officers. c. The parent corporation finances the subsidiary. d. The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation. e. The subsidiary has grossly inadequate capital. f. The parent corporation pays the salaries and other expenses or losses of the subsidiary. g. The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation. h. In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own. i. The parent corporation uses the property of the subsidiary as its own. j. The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation. k. The formal legal requirements of the subsidiary are not observed. the test in determining the applicability of the doctrine of piercing the veil of corporate fiction are: a. the test in determining the applicability of the doctrine of piercing the veil of corporate fiction b. Control, not mere majority or complete control, but complete domination,

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c.

The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. d. 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. Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative factors that the former corporation is a mere instrumentality of the latter are present. Neither is there a demonstration that any of the evils sought to be prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at bar. the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case since the petitioner was not sued because it is the parent company of PNBIFL. A suit against an agent cannot without compelling reasons be considered a suit against the principal. the petition is hereby GRANTED. Respondents do not have a cause of action against the petitioner as the latter is not privy to the contract the provisions of which respondents seek to declare void. Accordingly, the case before the Regional Trial Court must be dismissed and the preliminary injunction issued in connection therewith, must be lifted.

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CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, 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 petitioner's sister company. Concept Builders, Inc., a domestic corporation, is engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers. Private respondents dismissed the services of the private respondents and sub-contract the functions performed by said private respondents. 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. LA ruled in favor or private respondents and ordered their reinstatement. the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration filed by petitioner on the ground that the said decision had already become final and executory. the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration filed by petitioner, order had become final and executor. the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision. Since the writ was only partially served and LA issued an alias writ of execution. A break open order was issued, upon appeal, by sheriff to enter the petitioners premises. 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 VicePresident. Petitioners alleged that HPPI and petitioner corporation were owned by the same incorporator/stockholders. In support of their claim against HPPI, private respondents presented duly certified copies of the General Informations Sheet submitted by petitioner to the Securities Exchange Commission (SEC) and the General Information Sheet, submitted by HPPI to the Securities and Exchange Commission.

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LA dismissed the 3 Party claim. MR was likewise denied by the NLRC, hence this petition. RULING: Petitioner 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. We find petitioner's 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. But, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice. 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. probative factors of identity that will justify the application of the doctrine of piercing the corporate veil: 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. SEC explained instrumentality rule: Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality" may be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such domination of instances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other

rd

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positive legal duty or dishonest and unjust act in contravention of plaintiff's legal rights; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant's relationship to that operation. the NLRC noted that, while petitioner claimed that it ceased its business operations, it filed an Information Sheet with the Securities and Exchange Commission 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. Both information sheets were filed by the same Virgilio O. Casio as the corporate secretary of both corporations. It would also not be amiss to note that both corporations had the same president, thesame board of directors, the same corporate officers, and substantially the same subscribers. Under this circumstances, it cannot be said that the property levied upon by the sheriff were not of respondents. Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of back wages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation. In 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. Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the Labor Arbiter. WHEREFORE, the petition is DISMISSED

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KOPPEL (PHILIPPINES), INC., plaintiff-appellant, vs. ALFREDO L. YATCO, Collector of Internal Revenue, defendant-appellee. Plaintiff Koppel, Phils. is a corporation duly organized and existing under and by virtue of the laws of the Philippines, whose capital stock was divided into 1,000 shares. 995 of which is owned by Koppel Industrial Car and Equipment Co., a foreign corp organized and existing under the laws of Pen., USA, not engaged to do business in the Phils. And the remaining five (5) shares only were and are owned one each by officers of the plaintiff corporation. Plaintiff is duly licensed to engage in business as a merchant and commercial broker was and is the holder of the corresponding merchant's and commercial broker's privilege tax receipts. Sometime in February, 1929, Miguel J. Ossorio, of Manila, Philippines, placed an option with Koppel Industrial Car and Equipment Company, through plaintiff, to purchase within three months a pair of Atlas-Diesel Marine Engines. Koppel Industrial purchased said diesel engines for $16,508.32. Mr. Miguel J. Ossorio, called the deal off, and as Koppel Industrial Car and Equipment Company could not ship to or draw on said it in turn drew another draft on plaintiff for the same amount at six months sight, with the understanding that Koppel Industrial Car and Equipment Company would reimburse plaintiff when said engines were disposed of. Plaintiff honored the draft and debited the said sum of $16,508.32 to merchandise account. A new local buyer, Mr. Cesar Barrios, of Iloilo, Philippines, was found and the same engines were sold to him for $21,000. A draft for $21,000 was drawn by Koppel Industrial Car and Equipment Company on Mr. Cesar Barrios. After the draft was fully paid by Mr. Barrios, Koppel Industrial Car and Equipment Company reimbursed plaintiff with cost price of $16,508.32 and credited it with $1,152.95 as its share of the profit on the transaction. Defendant demanded of the plaintiff the sum of P64,122.51 as the merchants' sales tax of 1% per cent on the amount of P3,772,403.82, representing the total gross value of the sales including the 25 per cent surcharge for the late payment of the said tax, which tax and surcharge were determined after the amount of P5,288.05 mentioned in paragraph VI hereof was deducted. Plaintiff, on October 30, 1936, paid under protest said sum of P64,122.51 in order to avoid further penalties, levy and distraint proceedings. Defendant overruled plaintiff's protest, and defendant fails and refuses, notwithstanding demands by plaintiff, to return to the plaintiff said sum of P64,122.51 or any part thereof. The lower court found and held that Koppel (Philippines), Inc. is a mere dummy or brach ("hechura") of Koppel industrial Car and Equipment

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Company. The lower court did not deny legal personality to Koppel (Philippines), Inc. for any and all purposes, but in effect its conclusion was that, in the transactions involved herein, the public interest and convenience would be defeated and what would amount to a tax evasion perpetrated, unless resort is had to the doctrine of "disregard of the corporate fiction." RULING: Appellant submits that the trial court erred in not holding that it is a domestic corporation distinct and separate from and not a mere branch of Koppel Industrial Car and Equipment Company. It contends that its corporate existence as Philippine corporation can not be collaterally attacked and that the Government is estopped from so doing. The lower court is correct in holding that in the interest of the public and convenience, it is correct to resort to the doctrine of disregard of the corporate fiction so as to avoid tax evasion. In other words, in the particular transactionsinvolved in the case the court did so in order to prevent the contravention of the local internal revenue laws, and the perpetration of what would amount to a tax evasion, that appellant Koppel (Philippines), Inc. was a mere branch or agency or dummy ("hechura") of Koppel Industrial Car and Equipment Co. The court did not hold that the corporate personality of Koppel (Philippines), Inc., would also be disregarded in other cases or for other purposes. It would have had no power to so hold. The courts' action in this regard must be confined to the transactions involved in the case at bar "for the purpose of adjudging the rights and liabilities of the parties in the case. They have no jurisdiction to do more." SC find that, in so far as the sales involved herein are concerned, Koppel (Philippines), Inc., and Koppel Industrial Car and Equipment company are to all intents and purposes one and the same; or, to use another mode of expression, that, as regards those transactions, the former corporation is a mere branch, subsidiary or agency of the latter

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G.R. No. 127181

September 4, 2001

LAND BANK OF THE PHILIPPINES, petitioner, vs. THE COURT OF APPEALS, ECO MANAGEMENT CORPORATION and EMMANUEL C. OATE, respondents. appellant LBP extended a series of credit accommodations to appellee ECO, using the trust funds of the Philippine Virginia Tobacco Administration (PVTA) in amount of P26,109,000.00. The proceeds of the credit accommodations were received on behalf of ECO by appellee Oate. When the loan falls due, ECO failed to pay the amount despite repeated demands. A Plan of Payment was submitted by ECO to LBP where the former would set up a financing company which would absorb the loan obligations and LBP would participate in the scheme through the conversion of P9,000,000.00 which was part of the total loan, into equity. LBP advised Eco that they may proceed with the plan but LBP shall not participate in the undertaking in any manner whatsoever. The Trust Committee however rejected the Plan of Payment. LBP then sent a letter to the PVTA for the latters comments which also states that if LBP did not hear from PVTA within five (5) days from the latters receipt of the letter, such silence would be construed to be an approval of LBPs intention to file suit against ECO and its corporate officers. PVTA did not respond to the letter. Landbank filed a complaint for Collection of Sum of Money against ECO and Emmanuel C. Oate before the Regional Trial Court of Manila which rendered a judgment in favor of LBP but absolved Onate from the liability due to insufficiency of funds. Both parties filed their respective MRs.

ISSUE: (1) whether or not the corporate veil of ECO Management Corporation should be pierced; and (2) whether or not Emmanuel C. Oate should be held jointly and severally liable with ECO Management Corporation for the loans incurred from Land Bank. RULING: A corporation, upon coming into existence, is invested by law with a personality separate and distinct from those persons composing it as well as from any other legal entity to which it may be related. By this

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attribute, a stockholder may not, generally, be made to answer for acts or liabilities of the said corporation, and vice versa. This separate and distinct personality is, however, merely a fiction created by law for convenience and to promote the ends of justice. It may not be used when the fiction is used to defeat public convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues, perpetrate deception or otherwise circumvent the law. This is likewise true 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 all these cases, the notion of corporate entity will be pierced or disregarded with reference to the particular transaction involved. The mere fact that Oate owned the majority of the shares of ECO is not a ground to conclude that Oate and ECO is one and the same. Mere ownership by a single stockholder of all or nearly all of the capital stock of a corporation is not by itself sufficient reason for disregarding the fiction of separate corporate personalities. That respondent corporation in this case was being used as a mere alter ego of Oate to obtain the loans had not been shown. Bad faith or fraud on the part of ECO and Oate was not also shown. Oate volunteered to pay a portion of the corporations debt.26 This offer demonstrated good faith on his part to ease the debt of the corporation of which he was a part. the petition is DENIED for lack of merit.

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G. C. ARNOLD, plaintiff-appellant, vs. WILLITS & PATTERSON, LTD., defendant-appellee. -, the plaintiff was in the employ of the International Banking Corporation of Manila, and it is conceded that he is a competent and experienced business man. - C. D. Willits and I. L. Patterson were partners doing business in San Francisco, California, under the name of Willits & Patterson - The plaintiff was then in San Francisco, and as a result of negotiations the plaintiff and the firm entered into a written contract by which the plaintiff was employed as the agent of the firm in the Philippine Islands for certain purposes for the period of five years - A dispute arose between the plaintiff and the firm as to the amount which plaintiff should receive for his services. - Meanwhile Patterson retired from the firm and Willits became the sole owner of its assets. For convenience of operation and to serve his own purpose, Willits organized a corporation under the laws of California with its principal office at San Francisco, in and by which he subscribed for, and became the exclusive owner of all the capital stock except a few shares for organization purposes only, and the name of the firm was used as the name of the corporation. - A short time after that Willits came to Manila and organized a corporation here known as Willits & Patterson, Ltd., in and to which he again subscribed for all of the capital stock except the nominal shares necessary to qualify the directors. - . In legal effect, the San Francisco corporation took over and acquired all of the assets and liabilities of the Manila corporation.

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YUTIVO SONS HARDWARE CO vs CTA - Yutivo is a domestic corporation engaged in importation and sale of hardware supplies and equipment. After the liberation in 1946, resumed its business and until 1946 bought a number of cards and trucks from General Motors, an American Corp doing business in the Phil. As importer, GM paid sales tax prescribed by the Tax Code on the basis of its selling price to Yutivo. Yutivo paid no further sales tax on its sales to the public - In June 1946, Southern Motors organized to engage in the business of selling cars, trucks and spare parts. One of its major subcribers is Yu Tiong Yee, a founder of Yutivo. After the incorporation of SM and until the withdrawal of GM from the Phil, the cars and trucks were purchased by Yutivo from GM then sold to SM and then SM sold these to the public - The same way that GM used to pay taxes on the basis of its sales to Yutivo, Yutivo paid taxes on the basis of its sales to SM. SM paid no taxes on its sales to public - CIR made an assessment and charged YUtivo 1.8M deficiency tax plus surcharge. Petitioner contested it before CTA. CTA ruled that SM is a mere subsidiary or instrumentality of Yutivo, hence, its separate corporate existence must be disregarded DECISION of the SC - It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporation petitions to which it may be connected. However, "when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime," the law will regard the corporation as an association of persons, or in the case of two corporations merge them into one. - After going over the voluminous record of the present case, we are inclined to rule that the Court of Tax Appeals was not justified in finding that SM was organized for no other purpose than to defraud the Government of its lawful revenues. In the first place, this corporation was organized in June, 1946 when it could not have caused Yutivo any tax savings. From that date up to June 30, 1947, or a period of more than one year, GM was the importer of the cars and trucks sold to Yutivo, which, in turn resold them to SM. During that period, it is not disputed that GM as importer, was the one solely liable for sales taxes. Neither Yutivo or SM was subject to the sales taxes on their sales of cars and trucks. The sales tax liability of Yutivo did not arise until July 1, 1947 when it became the importer and simply continued its practice of selling to SM. The decision, therefore, of the Tax Court that SM was organized purposely as a tax evasion device runs counter to the fact that there was no tax to evade.

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- At this juncture, it should be stated that the intention to minimize taxes, when used in the context of fraud, must be proved to exist by clear and convincing evidence amounting to more than mere preponderance, and cannot be justified by a mere speculation. This is because fraud is never lightly to be presumed. - We are, however, inclined to agree with the court below that SM was actually owned and controlled by petitioner as to make it a mere subsidiary or branch of the latter created for the purpose of selling the vehicles at retail and maintaining stores for spare parts as well as service repair shops. It is not disputed that the petitioner, which is engaged principally in hardware supplies and equipment, is completely controlled by the Yutivo, Young or Yu family. - Briefly stated, Yutivo financed principally, if not wholly, the business of SM and actually extended all the credit to the latter not only in the form of starting capital but also in the form of credits extended for the cars and vehicles allegedly sold by Yutivo to SM as well as advances or loans for the expenses of the latter when the capital had been exhausted. - SM being a mere instrumentality or adjunct of Yutivo, the CTA correctly disregarded the technical defense of separate corporate entity in order to arrive at the true tax liability of Yutivo.

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LIDDELL vs CIR corporate entity was used to evade the payment of higher taxes The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic corporation. Out of the 200 authorized stocks, 196 were owned by Frank Liddell wile the other 4 shares were subscribed and paid by Charles Kurz, EJ Darras, Angel Manzano and Julian Serrano at one share each. The company is engaged in the importing and retailing of Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet trucks. The purpose clause of the Articles of Incorporation of Liddell & Co. Inc., was then amended so as to limit its business activities to importations of automobiles and trucks. Later, Liddell Motors, Inc. was organized where Frank Liddells wife owned 19,996 shares out of the 20,000 capital stocks and Messrs. Marcial P. Lichauco, E. K. Bromwell, V. E. del Rosario and Esmenia Silva, 1 share each. Beginning January, 1949, Liddell & Co. stopped retailing cars and trucks; it conveyed them instead to Liddell Motors, Inc. which in turn sold the vehicles to the public with a steep mark-up. Since then, Liddell & Co. paid sales taxes on the basis of its sales to Liddell Motors Inc. considering said sales as its original sales. Upon review of the transactions between Liddell & Co. and Liddell Motors, Inc. the Collector of Internal Revenue determined that the latter was but an alter ego of Liddell & Co. Wherefore, he concluded, that for sales tax purposes, those sales made by Liddell Motors, Inc. to the public were considered as the original sales of Liddell & Co. The Collector of Internal Revenue assessed against Liddell & Co. a sales tax deficiency, including surcharges, in the amount of P1,317,629.61. The Court of Tax Appeals upheld the position taken by the Collector of Internal Revenue. ISSUE: whether or not Liddell Motors, Inc. is the alter ego of Liddell & Co. Inc. RULING: The court found as regards to Liddell and Co. that: (1) that Frank Liddell had the authority to designate in the future the employee who could receive

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earnings of the corporation; to apportion among the stock holders the share in the profits; (2) that all certificates of stock in the names of the employees should be deposited with Frank Liddell duly indorsed in blank by the employees concerned; (3) that each employee was required to sign an agreement with the corporation to the effect that, upon his death or upon his retirement or separation for any cause whatsoever from the corporation, the said corporation should, within a period of sixty days therefor, have the absolute and exclusive option to purchase and acquire the whole of the stock interest of the employees so dying, resigning, retiring or separating. As to Liddell Motors, Inc. The SC is fully persuaded that Frank Liddell also owned it. He supplied the original capital funds. It is not proven that his wife Irene, ostensibly the sole incorporator of Liddell Motors, Inc. had money of her own to pay for her P20,000 initial subscription. Her income in the and the savings therefrom could not be enough to cover the amount of subscription, much less to operate an expensive trade like the retail of motor vehicles. Thus SC said that to allow a taxpayer to deny tax liability on the ground that the sales were made through another and distinct corporation when it is proved that the latter is virtually owned by the former or that they are practically one and the same is to sanction a circumvention of our tax laws. Wherefore in filing its return on the basis of its sales to Liddell Motors, Inc. and not on those by the latter to the public, it cannot be held that the Liddell & Co., Inc. deliberately made a false return for the purpose of defrauding the government of its revenue, and should suffer a 50% surcharge. But instead pay a penalty of 25% for late payment. The decision appealed from is hereby modified: Liddell & Co., Inc. is declared liable only for the amount of P426,811.67 with 25% surcharge for late payment and 6% interest thereon from the time the judgment becomes final.

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MARIANO vs PETRON CORPO - ESSO Standard Eastern, Inc., (ESSO Eastern), a foreign corporation doing business in the country through its subsidiary ESSO Standard Philippines, Inc. (ESSO Philippines) leased a parcel of land located in Tagaytay City for 90 years owned by the AURE Group - The lease contract (Contract) contained an assignment veto clause barring the parties from assigning the lease without prior consent of the other. Excluded from the prohibition were certain corporations to whom ESSO Eastern may unilaterally assign its leasehold right.8 - ESSO Eastern sold ESSO Philippines to the Philippine National Oil Corporation (PNOC). - AUre group was not informed of such sale - ESSO Philippines, whose corporate name was successively changed to Petrophil Corporation then to Petron Corporation (Petron), took possession of said property. - Romeo D. Mariano (petitioner) bought the Property from the Aure Group and obtained title to the Property issued in his name bearing an annotation of ESSO Easterns lease - Five years after he bought the property, petitioner sent Petron a notice to vacate the property but the latter remained in the property - Petitioner sued Petron to rescind the contrat and recovery of possession - In its Answer, Petron countered that the Contract was not breached because PNOC merely acquired ESSO Easterns shares in ESSO Philippines, a separate corporate entity. - RTC ordered the rescission of contract and for petron to vacate the property - CA found merit in petron's appeal, set aside the trial court's ruling - The Court of Appeals found no reason to pierce ESSO Philippines corporate veil, treating PNOCs buy-out of ESSO Philippines as mere change in ESSO Philippines stockholding. DECISION of the SC

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- SC sustained the ruling of the CA - PNOCs buy-out of ESSO Philippines was total and unconditional, leaving no residual rights to ESSO Eastern. Logically, this change of ownership carried with it the transfer to PNOC of any proprietary interest ESSO Eastern may hold through ESSO Philippines, including ESSO Easterns lease over the Property. - As the Aure Group gave no prior consent to the transaction between ESSO Eastern and PNOC, ESSO Eastern violated the Contracts assignment veto clause. - Petrons objection to this conclusion, sustained by the Court of Appeals, is rooted on its reliance on its separate corporate personality and on the unstated assumption that ESSO Philippines (not ESSO Eastern) initially held the leasehold right over the Property. Petron is wrong on both counts. - Courts are loathe to pierce the fictive veil of corporate personality, cognizant of the core doctrine in corporation law vesting on corporations legal personality distinct from their shareholders (individual or corporate) thus facilitating the conduct of corporate business. However, fiction gives way to reality when the corporate personality is foisted to justify wrong, protect fraud, or defend crime, thwarting the ends of justice.21 The fiction even holds lesser sway for subsidiary corporations whose shares are wholly if not almost wholly owned by its parent company. The structural and systems overlap inherent in parent and subsidiary relations often render the subsidiary as mere local branch, agency or adjunct of the foreign parent corporation - Here, the facts compel the conclusion that ESSO Philippines was a mere branch of ESSO Eastern in the execution and breach of the Contract. - The breach of contract notwithstanding, we hold that the Contract subsists. - the continued receipt of lease payments by the Aure Group (and later by petitioner) despite the contractual breach amounted to a waiver of their option to eject the lessee.

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