Held: 1.

The right of exclusive management conferred upon Tan Sin An, being
premised upon trust and confidence, was a mere personal right that terminated
upon Tans demise. The provision in the articles of partnership stating that the
deceased partner shall be Concept Builders Inc. vs. National Labor Relations Commission (NLRC, First
Division)
[GR 108734, 29 May 1996]First Division, Hermosisima Jr. (J): 4 concur
Facts:
Concept Builders, Inc., (CBI) a domestic corporation, with principal office at 355 Maysan
Road,Valenzuela, Metro Manila, is engaged in the construction business while Norberto Marabe; Rodolfo
Raquel,Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador,
Rogelio Salut,Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo
Guarino, RomeoGalve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand
Torres, FelipeBasilan, and Ruben Robalos were employed by said company as laborers, carpenters and
riggers. OnNovember 1981, Marabe, et. al. were served individual written notices of termination of
employment by CBI,effective on 30 November 1981. It was stated in the individual notices that their
contracts of employment hadexpired and the project in which they were hired had been completed. The
National Labor RelationsCommission (NLRC) found it to be, the fact, however, that at the time of the
termination of Marabe, et.al.'semployment, the project in which they were hired had not yet been finished
and completed. CBI had toengage the services of sub-contractors whose workers performed the functions
of Marabe, et. al. Aggrieved,Marabe, et. al. filed a complaint for illegal dismissal, unfair labor practice
and non-payment of their legalholiday pay, overtime pay and thirteenth-month pay against CBI. On 19
December 1984, the Labor Arbiter rendered judgment ordering CBI to reinstate Marabe et. al. and to pay
them back wages equivalent to 1 year or 300 working days. On 27 November 1985, the NLRC dismissed
the motion for reconsideration filed byCBI on the ground that the said decision had already become final
and executory.On 16 October 1986, the NLRC Research and Information Department made the finding
that Marabe, et. al.'sback wages amounted to P199,800.00. On 29 October 1986, the Labor Arbiter issued
a writ of executiondirecting the sheriff to execute the Decision, dated 19 December 1984. The writ was
partially satisfied throughgarnishment of sums from CBI's debtor, the Metropolitan Waterworks and
Sewerage Authority, in the amountof P81,385.34. Said amount was turned over to the cashier of the
NLRC. On 1 February 1989, an Alias Writof Execution was issued by the Labor Arbiter directing the
sheriff to collect from CBI the sum of P117,414.76, representing the balance of the judgment award, and
to reinstate Marabe, et. al. to their former positions. On 13 July 1989, the sheriff issued a report stating
that he tried to serve the alias writ of executionon petitioner through the security guard on duty but the
service was refused on the ground that CBI no longer occupied the premises. On 26 September 1986,
upon motion of Marabe, et. al., the Labor Arbiter issued asecond alias writ of execution. The said writ had
not been enforced by the special sheriff because, as stated inhis progress report dated 2 November 1989,
that all the employees inside CBI's premises claimed that theywere employees of Hydro Pipes
Philippines, Inc. (HPPI) and not by CBI; that levy was made upon personalproperties he found in the
premises; and that security guards with high-powered guns prevented him fromremoving the properties he
had levied upon. The said special sheriff recommended that a "break-open order"be issued to enable him
to enter CBI's premises so that he could proceed with the public auction sale of theaforesaid personal
properties on 7 November 1989. On 6 November 1989, a certain Dennis Cuyegkeng filed athird-party
claim with the Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were
owned by HPPI, of which he is the Vice-President. On 23 November 1989, Marabe, et. al. filed a"Motion
for Issuance of a Break-Open Order," alleging that HPPI and CBI were owned by the
sameincorporator/stockholders. They also alleged that petitioner temporarily suspended its business
operations inorder to evade its legal obligations to them and that Marabe, et. al. were willing to post an
indemnity bond toanswer for any damages which CBI and HPPI may suffer because of the issuance of the
break-open order. On2 March 1990, the Labor Arbiter issued an Order which denied Marabe, et. al.'s
motion for break-open order.Marabe, et. al. then appealed to the NLRC. On 23 April 1992, the NLRC set
aside the order of the Labor Arbiter, issued a break-open order and directed Marabe, et. al. 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. CBI moved for reconsideration but the motion was
denied by the NLRC in a Resolution, dated 3December 1992. Hence, the petition.
Issue:
Whether the NLRC was correct in issuing the break-open order to levy the HPPI properties located
atCBI amd/or HPPIs premises at 355 Maysan Road, Valenzuela, Metro Manila.
Held:
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct fromits
stockholders and from other corporations to which it may be connected. But, this separate and
distinctpersonality 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

10
fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of
thecorporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when
thecorporation is merely an adjunct, a business conduit or an alter ego of another corporation. The
conditionsunder 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) Themanner of keeping corporate books and records; and (4) Methods of
conducting the business. The SEC enbanc explained the "instrumentality rule" which the courts have
applied in disregarding the separate juridicalpersonality of corporations as "Where one corporation is so
organized and controlled and its affairs areconducted so that it is, in fact, a mere instrumentality or
adjunct of the other, the fiction of the corporate entityof the "instrumentality" may be disregarded. The
control necessary to invoke the rule is not majority or evencomplete stock control but such domination of
instances, policies and practices that the controlled corporationhas, so to speak, no separate mind, will or
existence of its own, and is but a conduit for its principal. It must bekept 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 thecomplaint is made." The test
in determining the applicability of the doctrine of piercing the veil of corporatefiction is as (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 asto this transaction
had at the time no separate mind, will or existence of its own; (2) Such control must havebeen used by the
defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty
or dishonest and unjust act in contravention of plaintiff's legal rights; and (3) The aforesaidcontrol and
breach of duty must proximately cause the injury or unjust loss complained of. The absence of anyone 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
theindividual defendant's relationship to that operation. 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. Here,
while CBI claimedthat it ceased its business operations on 29 April 1986, it filed an Information Sheet
with the Securities andExchange Commission on 15 May 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. Further,both information sheets were filed by the same Virgilio O. Casio as
the corporate secretary of bothcorporations. Both corporations had the same president, the same board of
directors, the same corporateofficers, and substantially the same subscribers. From the foregoing, it

appears that, among other things, theCBI and the HPPI shared the same address and/or premises. Under
these circumstances, it cannot be said thatthe property levied upon by the sheriff were not of CBI's.
Clearly, CBI ceased its business operations in order to evade the payment to Marabe, et. al. of back wages
and to bar their reinstatement to their former positions.HPPI is obviously a business conduit of CBI and
its emergence was skillfully orchestrated to avoid thefinancial liability that already attached to CBI.

11
Villa Rey Transit vs. Ferrer
[GR L-23893, 29 October 1968]En Banc, Angeles (J): 6 concur, 2 took no part, 1 on leave
Facts:
[preceding case] Prior to 1959, Jose M. Villarama was an operator of a bus transportation, under
thebusiness name of Villa Rey Transit, pursuant to certificates of public convenience granted him by the
PublicService Commission (PSC) in Cases 44213 and 104651, which authorized him to operate a total of
32 units onvarious routes or lines from Pangasinan to Manila, and vice-versa. On 8 January 1959, he sold
the twocertificates of public convenience to the Pangasinan Transportation Company, Inc. (Pantranco),
for P350,000.00 with the condition, among others, that the seller (Villarama) "shall not for a period of 10
yearsfrom the date of this sale, apply for any TPU service identical or competing with the buyer." Barely
3 monthsthereafter, or on 6 March 1959: a corporation called Villa Rey Transit, Inc. (the Corporation) was
organizedwith a capital stock of P500,000.00 divided into 5,000 shares of the par value of P100.00 each;
P200,000.00was the subscribed stock; Natividad R. Villarama (wife of Jose M. Villarama) was one of the
incorporators,and she subscribed for P1,000.00; the balance of P199,000.00 was subscribed by the brother
and sister-in-lawof Jose M. Villarama; of the subscribed capital stock, P105,000.00 was paid to the
treasurer of thecorporation, who was Natividad R. Villarama. In less than a month after its registration
with the Securities andExchange Commission (10 March 1959), the Corporation, on 7 April 1959, bought
5 certificates of publicconvenience, 49 buses, tools and equipment from one Valentin Fernando, for the
sum of P249,000.00, of which P100,000.00 was paid upon the signing of the contract; P50,000.00 was
payable upon the final approvalof the sale by the PSC; P49,500.00 one year after the final approval of the
sale; and the balance of P50,000.00"shall be paid by the BUYER to the different suppliers of the
SELLER." The very same day that the contractof sale was executed, the parties thereto immediately
applied with the PSC for its approval, with a prayer for the issuance of a provisional authority in favor of
the vendee Corporation to operate the service thereininvolved. On 19 May 1959, the PSC granted the
provisional permit prayed for, upon the condition that "it maybe modified or revoked by the Commission
at any time, shall be subject to whatever action that may be takenon the basic application and shall be
valid only during the pendency of said application." Before the PSCcould take final action on said
application for approval of sale, however, the Sheriff of Manila, on 7 July1959, levied on 2 of the five
certificates of public convenience involved therein, namely, those issued under PSC cases 59494 and
63780, pursuant to a writ of execution issued by the Court of First Instance of Pangasinan in Civil Case
13798, in favor of Eusebio E. Ferrer against Valentin Fernando. The Sheriff madeand entered the levy in
the records of the PSC. On 16 July 1959, a public sale was conducted by the Sheriff of the said two
certificates of public convenience. Ferrer was the highest bidder, and a certificate of sale wasissued in his
name. Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and
jointlysubmitted for approval their corresponding contract of sale to the PSC. Pantranco therein prayed
that it beauthorized provisionally to operate the service involved in the said two certificates. The
applications for approval of sale, filed before the PSC, by Fernando and the Corporation, Case 124057,
and that of Ferrer andPantranco, Case 126278, were scheduled for a joint hearing. In the meantime, to
wit, on 22 July 1959, thePSC issued an order disposing that during the pendency of the cases and before a
final resolution on theaforesaid applications, the Pantranco shall be the one to operate provisionally the
service under the twocertificates embraced in the contract between Ferrer and Pantranco. The Corporation
took issue with thisparticular ruling of the PSC and elevated the matter to the Supreme Court, which

decreed, after deliberation,that until the issue on the ownership of the disputed certificates shall have been
finally settled by the proper court, the Corporation should be the one to operate the lines provisionally.
[present case] On 4 November 1959, the Corporation filed in the Court of First Instance of Manila,
acomplaint for the annulment of the sheriff's sale of the aforesaid two certificates of public convenience
(PSCCases 59494 and 63780) in favor of Ferrer, and the subsequent sale thereof by the latter to
Pantranco, againstFerrer, Pantranco and the PSC. The Corporation prayed therein that all the orders of the
PSC relative to theparties' dispute over the said certificates be annulled. The CFI of Manila declared the
sheriff's sale of twocertificates of public convenience in favor of Ferrer and the subsequent sale thereof by
the latter to Pantranconull and void; declared the Corporation to be the lawful owner of the said
certificates of public convenience;and ordered Ferrer and Pantranco, jointly and severally, to pay the
Corporation, the sum of P5,000.00 as andfor attorney's fees. The case against the PSC was dismissed. All
parties appealed.
Issue:
Whether the stipulation, "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE OF
THISSALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING WITH THE BUYER" in
thecontract between Villarama and Pantranco, binds the Corporation (the Villa Rey Transit, Inc.).

12
Held:
Villarama supplied the organization expenses and the assets of the Corporation, such as trucks
andequipment; there was no actual payment by the original subscribers of the amounts of P95,000.00
andP100,000.00 as appearing in the books; Villarama made use of the money of the Corporation and
depositedthem to his private accounts; and the Corporation paid his personal accounts. Villarama himself
admitted thathe mingled the corporate funds with his own money. These circumstances are strong
persuasive evidenceshowing that Villarama has been too much involved in the affairs of the Corporation
to altogether negative theclaim that he was only a part-time general manager. They show beyond doubt
that the Corporation is his alter ego. The interference of Villarama in the complex affairs of the
corporation, and particularly its finances, aremuch too inconsistent with the ends and purposes of the
Corporation law, which, precisely, seeks to separatepersonal responsibilities from corporate undertakings.
It is the very essence of incorporation that the acts andconduct of the corporation be carried out in its own
corporate name because it has its own personality. Thedoctrine that a corporation is a legal entity distinct
and separate from the members and stockholders whocompose it is recognized and respected in all cases
which are within reason and the law. When the fiction isurged as a means of perpetrating a fraud or an
illegal act or as a vehicle for the evasion of an existingobligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally theperpetration of knavery or crime, the veil with
which the law covers and isolates the corporation from themembers or stockholders who compose it will
be lifted to allow for its consideration merely as an aggregationof individuals. Hence, the Villa Rey
Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictiveclause in the contract entered into
by the latter and Pantranco is also enforceable and binding against the saidCorporation. For the rule is that
a seller or promisor may not make use of a corporate entity as a means of evading the obligation of his
covenant. Where the Corporation is substantially the alter ego of the covenantor to the restrictive
agreement, it can be enjoined from competing with the covenantee.
represented by his heirs could not have referred to the managerial rights given to
Tan Sin An but it more appropriately relates to the succession in the propriety
interest of each partner (heir becomes limited partner only).