Manila Gas Corporation vs CIR

Facts:
1961- Manila Banking Corp was incorporated. It engaged in the banking industry til 1987.
May 1987- Monetary Board of Bangko Sentral ng Pilipinas (BSP) issued Resolution # 505
{pursuant to the Central Bank Act (RA 265)} prohibiting Manila Bank from engaging in business by
reason of insolvency. So, Manila Bank ceased operations and its assets and liabilities were placed
under charge of a gov.- appointed receiver.
1998- Comprehensive Tax Reform Act (RA8424) imposed a minimum corporate income tax on
domestic and resident foreign corporations.
o Implementing law: Revenue Regulation # 9-98 stating that the law allows a 4year period from
the time the corporations were registered with the BIR during which the minimum corporate income
tax should not be imposed.
June 23, 1999- BSP authorized Manila Bank to operate as a thrift bank.
o NOTE: June 15, 1999 Revenue Regulation #4-95 (pursuant to Thrift Bank Act of 1995) provides
that the date of commencement of operations shall be understood to mean the date when the thrift
bank was registered with SEC or when Certificate of Authority to Operate was issued by the
Monetary Board, whichever comes LATER.
Dec 1999- Manila Bank wrote to BIR requesting a ruling on whether it is entitled to the 4 year grace
period under RR 9-98.
April 2000- Manila bank filed with BIR annual income tax return for taxable year 1999 and paid
33M.
Feb 2001- BIR issued BIR Ruling 7-2001 stating that Manila Bank is entitled to the 4year grace
period. Since it reopened in 1999, the min. corporate income tax may be imposed not earlier than
2002. It stressed that although it had been registered with the BIR before 1994, but it ceased
operations 1987-1999 due to involuntary closure.
o Manila Bank, then, filed with BIR for the refund. Due to the inaction of BIR on the claim, it filed
with CTA for a petition for review, which was denied and found that Manila Banks payment of 33M is
correct, since its operations were merely interrupted during 1987-1999. CA affirmed CTA.

Issue: Whether or not Manila Bank is entitled to a refund

of its minimum corporate income tax paid to BIR for 1999.

Held: Yes.
CIRs contensions are without merit. He contended that based on RR# 9-98, Manila Bank should
pay the min. corporate income tax beg. 1998 as it did not close its operations in 1987 but merely
suspended it. Even if placed under suspended receivership, its corporate existence was never
affected. Thus falling under the category of a existing corporation recommencing its banking
business operations
** Sec. 27 E of the Tax Code provides the Minimum Corporate Income Tax (mcit) on Domestic
Corporations.

o (1) Imposition of Tax- MCIT of 2% of gross income as of the end of the taxable year, as defined
here in, is hereby imposed on a corporation taxable under this title, beginning on the 4th taxable
year immediately following the year in which such corp commenced its business operations, when
the mcit is greater than the tax computed under Subsec. A of this section for the taxable year.

o (2) Any excess in the mcit over the normal income tax shall be carried forward and credited
against the normal income tax for the 3 succeeding taxable years.

Let it be stressed that RR 9-98 imposed the mcit on corps, the date when business operations
commence is the year in which the domestic corporation registered with the BIR. But under RR 4-95,
the date of commencement of operations of thrift banks, is the date of issuance of certificate by
Monetary Board or registration with SEC, whichever comes later. Clearly then, RR 4-95 applies to
Manila banks, being a thrift bank. 4-year period= counted from June 1999.

Corporate Law Case Digest: Stockholders Of F. Guanzon And Sons, Inc V. Register Of Deeds
Of Manila (1962)
G.R. No. L-18216 October 30, 1962
Lessons Applicable: Strong Juridical Personality (Corporate Law)

FACTS:
Sept 19, 1960: 5 stockholders of the F. Guanzon and Sons, Inc. executed a certificate of
liquidation of the assets of the corporation, dissolution and distribution among themselves in
proportion to their shareholdings, as liquidating dividends, corporate assets, including real
properties

Register of Deeds of Manila denied the registration of the certificate of liquidation:

1. The number of parcels not certified to in the acknowledgment;

2. P430.50 Reg. fees need be paid;

3. P940.45 documentary stamps need be attached to the document;

4. The judgment of the Court approving the dissolution and directing the disposition of the
assets of the corporation need be presented

Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3,
5 and 6.

Stockholders appealed

contend that the certificate of liquidation is not a conveyance or transfer but merely a distribution
of the assets of the corporation which has ceased to exist for having been dissolved

ISSUE: W/N certificate merely involves a distribution of the corporation's assets (or should be
considered a transfer or conveyance)

HELD: NO. affirm the resolution appealed from

Corporation - juridical person distinct from the members composing it.
 Properties registered in the name of the corporation are owned by it as an entity separate and
distinct from its members.

While shares of stock constitute personal property they do not represent property of the
corporation.

A share of stock only typifies an aliquot part of the corporation's property, or the right to share in
its proceeds to that extent when distributed according to law and equity but its holder is NOT the
owner of any part of the capital of the corporation nor entitled to possession

The stockholder is not a co-owner or tenant in common of the corporate property

Magsaysay-Labrador vs CA Case Digest

Magsaysay-Labrador, et. al. vs. Court of Appeals
[GR 58168, 19 December 1989]

Facts: On 9 February 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the
estate of the late Senator Genaro Magsaysay, brought before the then Court of First Instance of
Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas
Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales, for the annulment of
the Deed of Assignment executed by the late Senator in favor of SUBIC (as a result of which TCT
3258 was cancelled and TCT 22431 issued in the name of SUBIC), for the annulment of the Deed of
Mortgage executed by SUBIC in favor of FILMANBANK (dated 28 April 1977 in the amount of P
2,700,000.00), and cancellation of TCT 22431 by the Register of Deeds, and for the latter to issue a
new title in her favor. On 7 March 1979, Concepcion Magsaysay-Labrador, Soledad Magsaysay-
Cabrera, Luisa Magsaysay-Corpuz, Felicidad Magsaysay, and Mercedes Magsaysay-Diaz, sisters of
the late senator, filed a motion for intervention on the ground that on 20 June 1978, their brother
conveyed to them 1/2 of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees
of around 41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and
legal interest in the subject matter of litigation and that they have a legal interest in the success of the
suit with respect to SUBIC. On 26 July 1979, the trial court denied the motion for intervention, and
ruled that petitioners have no legal interest whatsoever in the matter in litigation and their being alleged
assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because
SUBIC has a personality separate and distinct from its stockholders.

On appeal, the Court of Appeals found no factual or legal justification to disturb the findings of the
lower court. The appellate court further stated that whatever claims the Magsaysay sisters have
against the late Senator or against SUBIC for that matter can be ventilated in a separate proceeding.
The motion for reconsideration of the Magsaysay sisters was denied. Hence, the petition for review
on certiorari.

Issue: Whether the Magsaysay sister, allegedly stockholders of SUBIC, are interested parties in a
case where corporate properties are in dispute.

Held: Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the Magsaysay sisters
have no legal interest in the subject matter in litigation so as to entitle them to intervene in the
proceedings. To be permitted to intervene in a pending action, the party must have a legal interest in
the matter in litigation, or in the success of either of the parties or an interest against both, or he must
be so situated as to be adversely affected by a distribution or other disposition of the property in the
custody of the court or an officer thereof . Here, the interest, if it exists at all, of the Magsaysay sisters
is indirect, contingent, remote, conjectural, consequential and collateral. At the very least, their interest
is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share
in the profits thereof and in the properties and assets thereof on dissolution, after payment of the
corporate debts and obligations. 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.

JARDINE DAVIES, INC vs JRB REALTY

- JRB Realty ordered the installation of two aircons from Aircon and Refrigeration Industries,
Inc. The aircons were delivered and installed but they could not deliver the desired temperature.
The aircon company undertook to replace the aircons but it did not specify a date when. - JRB
later learned that there was a new company that was licensed to manufacture, distribute and
install the same brand of aircons that were installed in their building. The name of the coporation
was Maxim Industrial and Merchandising Corp. The president of JRB requested Maxim to honor
the obligation as regards the aircon but Maxim refused. Subsequently, Maxim was impleaded as
a subsidiary of the first aircon company, which had ceased operations.
.- RTC and CA decided in favor of JRB.
- SC said: 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. - While it is true that Aircon is a subsidiary of the petitioner, it does not
necessarily follow that
Aircons corporate legal existence can just be disregarded. In
Velarde v. Lopez, Inc., 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 plaintiffs 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 Aircons 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.

San Juan Structural and Steel Fabricators vs CA Case Digest

San Juan Structural and Steel Fabricators vs Court of Appleals
G.R. No. 129459 September 29, 1998

Facts: On 14 February 1989, San Juan Structural and Steel Fabricators, Inc. (SJSSFI) entered into
an agreement with Motorich Sales Corporation (MSC) for the transfer to it of a parcel of land identified
as Lot 30, Block 1 of the Acropolis Greens Subdivision located in the District of Murphy, Quezon City,
Metro Manila, containing an area of 414 square meters, covered by TCT (362909) 2876 (the lot was
still registered in the name of ACL Development Corporation [ADC] at that time). As stipulated in the
Agreement of 14 February 1989, SJSSFI paid the downpayment in the sum of P100,000.00, the
balance to be paid on or before 2 March 1989. On 1 March 1989, Mr. Andres T. Co, SJSSFI president,
wrote a letter to MSC requesting for a computation of the balance to be paid. Said letter was coursed
through MSC's broker, Linda Aduca, who wrote the computation of the balance. On 2 March 1989,
SJSSFI was ready with the amount corresponding to the balance, covered by Metrobank Cashier's
Check 004223, payable to MSC. SJSSFI and MSC were supposed to meet in the office of SJSSFI but
MSC's treasurer, Nenita Lee Gruenberg, did not appear. MSC, despite repeated demands and in utter
disregard of its commitments had refused to execute the Transfer of Rights/Deed of Assignment which
is necessary to transfer the certificate of title.

On 6 April 1989, ADC and MSC entered into a Deed of Absolute Sale whereby the former transferred
to the latter the subject property. By reason of said transfer, the Registry of Deeds of Quezon City
issued a new title in the name of MSC, represented by Nenita Lee Gruenberg and Reynaldo L
Gruenberg, under Transfer Certificate of Title 3571. SJSSFI filed the complaint for damages against
MSC, and Nenita Lee Gruenberg, as a result of the latters alleged bad faith in refusing to execute a
formal Transfer of Rights/Deed of Assignment. It impleaded ADC and JNM Realty & Development
Corp. (JRDC) as necessary parties, since Transfer Certificate of Title (362909) 2876 was in the name
of ADC, and that JRDC is the transferor of right in favor of MDC. In its answer, MSC and Nenita Lee
Gruenberg interposed as affirmative defense that the President and Chairman of Motorich did not sign
the agreement adverted to; that Mrs. Gruenberg's signature on the agreement is inadequate to bind
MSC as the other signature, that of Mr. Reynaldo Gruenberg, President and Chairman of MSC, is
required; that SJSSFI knew this from the very beginning as it was presented a copy of the Transfer of
Rights at the time the Agreement was signed; that SJSSFI itself drafted the Agreement and insisted
that Mrs. Gruenberg accept the P100,000.00 as earnest money; that granting, without admitting, the
enforceability of the agreement, SJSSFI nonetheless failed to pay in legal tender within the stipulated
period (up to 2 March 1989); that it was the understanding between Mrs. Gruenberg and SJSSFI that
the Transfer of Rights/Deed of Assignment will be signed only upon receipt of cash payment; thus they
agreed that if the payment be in check, they will meet at a bank designated by SJSSFI where they will
encash the check and sign the Transfer of Rights/Deed, but that SJSSFI informed Mrs. Gruenberg of
the alleged availability of the check, by phone, only after banking hours.

On the basis of the evidence, and on 18 June 1994, the Regional Trial Court of Makati, Metro Manila,
Branch 63 (Civil Case 89-3511) rendered judgment, dismissing SJSSFI's complaint, finding that Nenita
Lee Gutenberg was not authorized by the corporation to dispose of the property as such disposition is
governed by the requirements of Section 40, Corporation Code; and that Nenita Lee Gutenberg did
not in anyway misrepresent herself to be authorized by the corporation to sell the property to SJSSFI.
The trial court also dismissed the counterclaim. SJSSFI appealed. On 18 March 1997, the Court of
Appeals (CA GR CV 46801) modified the decision of the trial court by ordering Nenita Lee Gutenberg
to refund or return to SJSSFI the downpayment of P100,000.00 which she received from the latter.
SJSSFI moved for reconsideration, which was denied by the appellate court on 10 June 1997. SJSSFI
filed the Petition for Review on Certiorari. SJSSFI argues, among others, that the veil of corporate
fiction of MSC should be pierced, because the latter is a close corporation. Since "Spouses Reynaldo
L. Gruenberg and Nenita R. Gruenberg owned all or almost all or 99.866% to be accurate, of the
subscribed capital stock" 25 of Motorich, petitioner argues that Gruenberg needed no authorization
from the board to enter into the subject contract. It adds that, being solely owned by the Spouses
Gruenberg the company can be treated as a close corporation which can be bound by the acts of its
principal stockholder who needs no specific authority.

Issue: Whether MSC is a close corporation, based on the fact that almost all of the shares of stock of
the corporation are owned by said treasurer and her husband.

Held: Section 96 of the Corporation Code defines a close corporation provides that "A close
corporation, within the meaning of this Code, is one whose articles of incorporation provide that: (1)
All of the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record
by not more than a specified number of persons, not exceeding twenty (20); (2) All of the issued stock
of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title;
and (3) The corporation shall not list in any stock exchange or make any public offering of any of its
stock of any class. Notwithstanding the foregoing, a corporation shall be deemed not a close
corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by
another corporation which is not a close corporation within the meaning of this Code." The articles of
incorporation of MSC does not contain any provision stating that (1) the number of stockholders shall
not exceed 20, or (2) a preemption of shares is restricted in favor of any stockholder or of the
corporation, or (3) listing its stocks in any stock exchange or making a public offering of such stocks
is prohibited. From its articles, it is clear that MSC is not a close corporation. MSC does not become
one either, just because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed
capital stock. The mere ownership by a single stockholder or by another corporation of all or nearly all
of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate
corporate personalities. So, too, a narrow distribution of ownership does not, by itself, make a close
corporation.

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.

FACTS

Sometime in March 1998, Kukan, Inc. conducted a bidding worth Php 5M (reduced to PhP 3,388,502) for
the supply and installation of signages in a building being constructed in Makati City which was won by
Morales.

Despite his compliance, 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.

Morales filed a Complaint with the RTC against Kukan, Inc. for a sum of money. However, starting
November 2000, Kukan, Inc. no longer appeared and participated in the proceedings before the trial
court, prompting the RTC to declare Kukan, Inc. in default and paving the way for Morales to present his
evidence ex parte.

On November 28, 2002, the RTC rendered a Decision finding for Morales and against Kukan, Inc.

After the above decision became final and executory, Morales moved for and secured a writ of
execution against Kukan, Inc. The sheriff then levied upon various personal properties found at what
was supposed to be Kukan, Inc.s office at Unit 2205, 88 Corporate Center, Salcedo Village, 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. Notably, KIC was
incorporated in August 2000, or shortly after Kukan, Inc. had stopped participating in Civil Case No. 99-
93173.

In reaction to KICs claim, Morales interposed an Omnibus Motion dated April 30, 2003, praying, and
applying the principle of piercing the veil of corporate fiction, that an order be issued for the satisfaction
of the judgment debt of Kukan, Inc. with the properties under the name or in the possession of KIC, it
being alleged that both corporations are but one and the same entity. KIC opposed Morales motion.
The court denied the omibus motion.

In a bid to establish the link between KIC and Kukan, Inc., Morales filed a Motion for Examination of
Judgment Debtors dated May 4, 2005 which sought that subponae be issued against the primary
stockholders of Kukan, Inc., among them Michael Chan, a.k.a. Chan Kai Kit. This too was denied by the
court.

Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who eventually
granted the motion. The case was re-raffled to Branch 21, presided by public respondent Judge Amor
Reyes.

Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of Corporate Fiction to
declare KIC as having no existence separate from Kukan, Inc. This time around, the RTC, by Order dated
March 12, 2007, granted the motion. From the above order, KIC moved but was denied reconsideration
in another Order dated June 7, 2007.

KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and June 7, 2007 RTC
Orders but on January 23, 2008, the CA denied the petition and affirmed the assailed Orders. The CA
later denied KICs MR in the assailed resolution.

Hence, the instant petition for review.

ISSUES

A. whether the trial court can, after the judgment against Kukan, Inc. has attained finality, execute it
against the property of KIC;

B. whether the trial court acquired jurisdiction over KIC;

C. whether the trial and appellate courts correctly applied, under the premises, the principle of piercing
the veil of corporate fiction.
DECISION

A. No.

In Carpio v. Doroja,[13] the Court ruled that the deciding court has supervisory control over the
execution of its judgment:

A case in which an execution has been issued is regarded as still pending so that all proceedings on the
execution are proceedings in the suit. There is no question that the court which rendered the judgment
has a general supervisory control over its process of execution, and this power carries with it the right to
determine every question of fact and law which may be involved in the execution.

The courts supervisory control does not, however, extend as to authorize the alteration or amendment
of a final and executory decision, save for certain recognized exceptions, among which is the correction
of clerical errors. Else, the court violates the principle of finality of judgment and immutability.

As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay the
aforementioned awards to Morales. Thus, making KIC, thru the medium of a writ of execution,
answerable for the above judgment liability is a clear case of altering a decision, an instance of granting
relief not contemplated in the decision sought to be executed. And the change does not fall under any
of the recognized exceptions to the doctrine of finality and immutability of judgment. It is a settled rule
that a writ of execution must conform to the fallo of the judgment; as an inevitable corollary, a writ
beyond the terms of the judgment is a nullity.

Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an examination of
the other issues raised by KIC would be proper.

B. No.

In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173. Even if it is
conceded that it raised affirmative defenses through its aforementioned pleadings, KIC never
abandoned its challenge, however implicit, to the RTCs jurisdiction over its person. The challenge was
subsumed in KICs primary assertion that it was not the same entity as Kukan, Inc. Pertinently, in its
Comment and Opposition to Plaintiffs Omnibus Motion dated May 20, 2003, KIC entered its special but
not voluntary appearance alleging therein that it was a different entity and has a separate legal
personality from Kukan, Inc. And KIC would consistently reiterate this assertion in all its pleadings, thus
effectively resisting all along the RTCs jurisdiction of its person. It cannot be overemphasized that KIC
could not file before the RTC a motion to dismiss and its attachments in Civil Case No. 99-93173,
precisely because KIC was neither impleaded nor served with summons. Consequently, KIC could only
assert and claim through its affidavits, comments, and motions filed by special appearance before the
RTC that it is separate and distinct from Kukan, Inc.

Following La Naval Drug Corporation, KIC cannot be deemed to have waived its objection to the
courts lack of jurisdiction over its person. It would defy logic to say that KIC unequivocally submitted
itself to the jurisdiction of the RTC when it strongly asserted that it and Kukan, Inc. are different entities.
In the scheme of things obtaining, KIC had no other option but to insist on its separate identity and
plead for relief consistent with that position.

C. No.
The principle of piercing the veil of corporate fiction, and the resulting treatment of two related
corporations as one and the same juridical person with respect to a given transaction, is basically
applied only to determine established liability;[34] it is not available to confer on the court a jurisdiction
it has not acquired, in the first place, over a party not impleaded in a case. Elsewise put, a corporation
not impleaded in a suit cannot be subject to the courts process of piercing the veil of its corporate
fiction. In that situation, the court has not acquired jurisdiction over the corporation and, hence, any
proceedings taken against that corporation and its property would infringe on its right to due process.
Aguedo Agbayani, a recognized authority on Commercial Law, stated as much:

23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x

This is so because the doctrine of piercing the veil of corporate fiction comes to play only during the trial
of the case after the court has already acquired jurisdiction over the corporation. Hence, before this
doctrine can be applied, based on the evidence presented, it is imperative that the court must first have
jurisdiction over the corporation.[35] x x x (Emphasis supplied.)

The implication of the above comment is twofold: (1) the court must first acquire jurisdiction over the
corporation or corporations involved before its or their separate personalities are disregarded; and (2)
the doctrine of piercing the veil of corporate entity can only be raised during a full-blown trial over a
cause of action duly commenced involving parties duly brought under the authority of the court by way
of service of summons or what passes as such service.

In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear and convincing
proof that the separate and distinct personality of the corporation was purposefully employed to evade
a legitimate and binding commitment and perpetuate a fraud or like wrongdoings. To be sure, the Court
has, on numerous occasions, applied the principle where a corporation is dissolved and its assets are
transferred to another to avoid a financial liability of the first corporation with the result that the second
corporation should be considered a continuation and successor of the first entity.

In those instances when the Court pierced the veil of corporate fiction of two corporations, there was a
confluence of the following factors:

1. A first corporation is dissolved;

2. The assets of the first corporation is transferred to a second corporation to avoid a financial
liability of the first corporation; and

3. Both corporations are owned and controlled by the same persons such that the second
corporation should be considered as a continuation and successor of the first corporation.

In the instant case, however, the second and third factors are conspicuously absent. There is, therefore,
no compelling justification for disregarding the fiction of corporate entity separating Kukan, Inc. from
KIC. In applying the principle, both the RTC and the CA miserably failed to identify the presence of the
abovementioned factors.

It bears reiterating that piercing the veil of corporate fiction is frowned upon. Accordingly, those who
seek to pierce the veil must clearly establish that the separate and distinct personalities of the
corporations are set up to justify a wrong, protect fraud, or perpetrate a deception. In the concrete and
on the assumption that the RTC has validly acquired jurisdiction over the party concerned, Morales
ought to have proved by convincing evidence that Kukan, Inc. was collapsed and thereafter KIC
purposely formed and operated to defraud him. Morales has not to us discharged his burden.

WHEREFORE, the petition is hereby GRANTED. The CAs January 23, 2008 Decision and April 16, 2008
Resolution in CA-G.R. SP No. 100152 are hereby REVERSED and SET ASIDE. The levy placed upon the
personal properties of Kukan International Corporation is hereby ordered lifted and the personal
properties ordered returned to Kukan International Corporation. The RTC of Manila, Branch 21 is
hereby directed to execute the RTC Decision dated November 28, 2002 against Kukan, Inc. with
reasonable dispatch.

Facts: Francisco, an 18 year old 3rd year physical therapy student was riding a motorcycle. A
sand and gravel truck was traveling behind the motorcycle, which in turn was being tailed by the
Isuzu truck driven by Secosa. The Isuzu cargo truck was owned by Dassad Warehousing and
Port Services, Inc.. The three vehicles were traversing the southbound lane at a fairly high
speed. 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. Secosa left his truck and fled the scene of the collision.

The parents of Francisco, respondents herein, filed an action for damages against 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; thus petitioners appealed
the decision to the Court of Appeals, which unfortunately affirmed the appealed decision in toto.
Hence, the present petition.

Issues:
(1) Whether or not Dassad Warehousing and Port Services, Inc. exercised the diligence of a
good father of a family in the selection and supervision of its employees; hence it cannot be held
solidary liable with the negligence of its employee.

(2) Whether or not Dassads president, El Buenasucenso Sy, can be held solidary liable with co-
petitioners.
Held:
(1) No. Dassad Warehousing and Port Services, Inc. did not exercise the required diligence of a
good father of a family in the selection and supervision of its employees. Hence, it cannot be
held solidary liable with the negligence of its employee.

Article 2176 of the Civil Code provides:

Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.

On the other hand, Article 2180, in pertinent part, states:

The obligation imposed by article 2176 is demandable not only for ones own acts or omissions,
but also for those of persons for whom one is responsible x x x.

Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in any
business or industry x x x.

The responsibility treated of in this article shall cease when the persons herein mentioned prove
that they observed all the diligence of a good father of a family to prevent damage.

Based on the foregoing provisions, when an injury is caused by the negligence of an employee,
there instantly arises a presumption that there was negligence on the part of the employer,
which however, may be rebutted by a clear evidence showing on the part of the employer that it
exercised the care and diligence of a good father of a family in the selection and supervision of
his employee.

In the selection of prospective employees, employers are required to examine them as to their
qualifications, experience, and service records. On the other hand, with respect to the
supervision of employees, employers should formulate standard operating procedures, monitor
their implementation, and impose disciplinary measures for breaches thereof. To establish these
factors in a trial involving the issue of explicit liability, employers must submit concrete proof,
including documentary evidence. The reason for this is to obviate the biased nature of the
employers testimony or that of his witnesses.
In the case at bar, Dassad Warehousing and Port Services, Inc. failed to conclusively prove that
it had exercised the requisite diligence of a good father of a family in the selection and
supervision of its employees. Dassad Warehousing and Port Services, Inc. failed to support the
testimony of its lone witness, Edilberto Duerme, with documentary evidence which would have
strengthened its claim of due diligence in the selection and supervision of its employees. Such
an omission is fatal on account of which, Dassad can be rightfully held solidarily liable with its
co-petitioner Secosa for the damages suffered by the heirs of Francisco.

(2) No. Sy cannot be held solidarily liable with his co-petitioners. While it may be true that Sy is
the president of 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.

A corporation has a personality separate from that of its stockholders or members. The doctrine
of veil of corporation treats as separate and distinct the affairs of a corporation and its officers
and stockholders. As a 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. Also, the corporate entity may be disregarded in the interest of
justice in such cases as fraud that may work inequities among members of the corporation
internally, involving no rights of the public or third persons. In both instances, there must have
been fraud and proof of it.

The records of the case does not point toward the presence of any grounds enumerated above
that will justify the piercing of the veil of corporate entity such as to hold Sy, the president of
Dassad Warehousing and Port Services, Inc., solidarily liable with it.

Furthermore, the Isuzu cargo truck which ran over Francisco was registered in the name of
Dassad and not in the name of Sy. Secosa is an employee of Dassad and not of Sy. These
facts showed Sys exclusion from liability for damages arising from the death of Francisco.