Vous êtes sur la page 1sur 30

Lim Tong Lim v. Phil. Fishing Gear Industries Inc.

Doctrine:
The liability for a contract entered into on behalf of an unincorporated association or ostensible corporation may lie
in a person who may not have directly transacted on its behalf, but reaped benefits from that contract. [Corporation by
estpopel]
Facts:
This is a petition for review on certiorari in which Lim Tong Lim (petitioner) assails the decision of the CA by
granting Philippine Fishing Gear Industries’ (respondent) writ of attachment. Thus, making petitioner, Antonio Chua,
and Peter Yao liable for the purchase and use of the fishing nets and floats from respondent due to nonpayment
By virtue of a contract, Chua and Yao purchased fishing nets from respondent on behalf of Ocean Quest Fishing
Corporation. According to Chua and Yao, they are in a business venture with petitioner, however he was not part of the
signatory in the contract. When the buyers failed to pay respondent, a writ of preliminary attachment was filed against
Chua, Yao, and Lim. During the proceedings, it was found out that Ocean Quest fishing Corporation was a nonexistent
corporation. It is in this light that petitioner asked the court to exclude him from any liability since he was not part of
the contract between Chua and Yao, and respondent. Petitioner argued that under the doctrine of corporation by
estoppel, liability can be imputed only Chua and Yao, and not to him.
Issue: Whether or not petitioner should be jointly liable with Chua and Yao.
Held:
Yes, petitioner is jointly liable with Chua and Yao. Technically, it is true that petitioner did not directly act on
behalf of the corporation. However, having reaped the benefits of the contract entered into by persons with whom he previously had
an existing relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by
estoppel.

Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result
thereof: Provided however, That when any such ostensible corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate
personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the
ground that there was in fact no corporation - a party may be estopped from denying its corporate existence. The reason
behind this doctrine is obvious - an unincorporated association has no personality and would be incompetent to act and
appropriate for itself the power and attributes of a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so
without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent
without authority or without a principal is himself regarded as the principal, possessed of all the right and subject to all
the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts
performed as such agent.

The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first
instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying its
corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege
lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received
advantages and benefits. On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated
it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the
alleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of.

National Development Company v. Phil. Veterans Bank


Doctrine:
The Congress shall not, except by general law, provide for the formation, organization, or regulation of private
corporations, unless such corporations are owned or controlled by the Government or any subdivision of
instrumentality thereof. [Creation of Private Corporation; Private Corporations cannot be created by specific
Legislative Act]

Facts:
The case involves the constitutionality of a presidential decree issued by Marcos.

P.D. 1717 ordered for the rehabilitation of the Agix Group of Companies to be administered mainly by the
National Development Company. However, Agix is entirely private and so should have been organized under the
Corporation Law.

Issue: Whether or not Congress can interfere with the affairs of a private corporation.

Held:
No, the Congress cannot. Section 4 of Article 14 of the 1973 Constitution provides that: “The Batasang
Pambansa shall not, except by general law, provide for the formation, organization, or regulation of private
corporations, unless such corporations are owned or controlled by the Government or any subdivision or
instrumentality thereof. Moreover, the new corporation, being neither owned nor controlled by the Government, should
have been created only by general and not special law.

PD 1717, which created the "NEW AGRIX, INC." violated Sec. 4, Art. XIV of 1973 Constitution which
prohibits the formation of a private corporation by special legislative act, since the new corporation was neither owned
nor controlled by the government, and that National Development Corporation (NDC) was merely required to extend a
loan to the new corporation, and the new stocks of the corporation were to be issued to the old stockholders of the
insolvent Agrix upon proof of their claims against the abolished corporation.

Magsaysay Labrador v. CA 180 SCRA 266 (1962)


Doctrine:
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. [Strong Separate Juridical Personality]

Facts:
This is a petition for review on certiorari in which petitioners, siblings of the late Senator Genaro Magsaysay,
assails the CA’s decision in denying their motion to intervene in an annulment suit filed by the Senator’s wife, Adelaida
Rodriguez-Magsaysay (respondent).

Respondent and her husband acquired, thru conjugal funds, a parcel of land known as the Pequena Island. Later,
it found out that the documents pertaining to the land was bought the late Senator’s separate capital, and such was
transferred in favor of Subic Land Corporation (SUBIC), among others, without respondent’s consent and knowledge.
Thus, she filed for the annulment of such instruments.

However, the late Senator’s siblings intervened with the annulment proceedings. They argued that, as their
brother assigned to them shareholdings in SUBIC, they have substantial and legal interest in the subject matter of
litigation. They further contended that, since they own 41.66% of the entire outstanding capital stock of SUBIC, they
are affected by the action of the widow of their late brother for it concerns the only tangible asset of the corporation and
that it appears that they are more vitally interested in the outcome of the case than SUBIC.

Issue: Whether or not petitioners can intervene with the annulment

Held:
No, petitioners cannot intervene. Petitioner’s interest 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. Moreover, 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. 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."

Trimica V. Polaris Marketing Corp; G.R. No. L-29887; October 28, 1974
Doctrine:
Where the appearance in court of the president of a corporation was in the capacity of counsel of another
corporation and not as representative or counsel of the first corporation, such appearance cannot be construed as a
voluntary submission of said corporation to the court's jurisdiction. The personality of the president of a corporation is
distinct from that of the corporation itself. In the absence of summons on the corporation, a judgment against it is void
for lack of jurisdiction and lack of due process. [Separate Personality of Corporation]

Facts:
Trimica (petitioner) filed a special civil action of certiorari to set aside the lower court’s order to pay Polaris
Marketing (respondent).

Respondent sued the House of Fine Furnitures, Inc. in the municipal court of Makati for the recovery of the
price of foam products. Fine Furnitures, through its counsel, Francisco Capistrano, denied that it purchased foam
products from respondent. During the trial de novo, after respondent had offered its evidence, Fine Furnitures
presented as witnesses Capistrano and Constantino Torre, the storekeeper of petitioner. Torre testified that the foam
products were actually received and utilized by petitioner. Capistrano, testifying on self-interrogation, revealed that he
was the secretary of Fine Furnitures and at the same time the president of Trimica, Inc. and that the two companies had
offices in his residence at 1831 Otis Street, Paco, Manila.

Due to such disclosure, respondent was ordered to amend its complaint in order to implead Trimica, Inc. Later
on, the judge absolved Fine Furnitures from any liability, and ordered petitioner to pay respondent’s claim. Petitioner
argued that such decision of the court was void due to lack of due process since petitioner was never summoned. The
lower court reasoned that petitioner had been given its day in court through Capistrano, its president, and that to retry
the case would just be a waste of time because of Capistrano's admission that petitioner had used the foam
products. Petitioner contended that Capistrano's personality is distinct from that of the petitioner. It was necessary to
summon petitioner in order that jurisdiction could have been acquired over it.

Issue: Whether or not the court acquired jurisdiction over petitioner.

Held:
No, it did not. The Court rules that no jurisdiction was acquired over Trimica, Inc. because it was never
summoned. The appearance in court of its president, Capistrano, was in the capacity of counsel for Fine Furnitures and
not as representative or counsel of Trimica, Inc. Hence, such appearance cannot be construed as a voluntary submission
of Trimica, Inc. to the court's jurisdiction. The fact that Capistrano, the president of Trimica, Inc., appeared in court as
counsel for Fine Furnitures and was aware of the joinder of Trimica, Inc. as a defendant, was not a valid excuse for
dispensing with the rudimentary requirements that Trimica, Inc. should be summoned, that a copy of the amended
complaint should be served upon it in due course, that it should be afforded an opportunity to file an answer with
defenses and that a trial should be held to determine its liability.

Francisco Motors Corp v. CA; G.R. No. 100812; June 25, 1999
Doctrine:
Under the doctrine of piercing the veil of corporate entity, the corporations separate juridical personality may be
disregarded, for example, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud,
or defend crime. Also, where the corporation is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation, then its distinct personality may be ignored. [Doctrine of Piercing
the Veil of Corporate Fiction]

Facts:
Francisco Motors Corporation (petitioner) sued Spouses Manuels (private respondents) to recover the unpaid
balance due to petitioner. Private respondents interposed a counterclaim for the unpaid legal services by Gregorio
Manuel, which was not paid by the incorporators, directors and officers of the petitioner. The lower court ruled in favor
of private respondents based on the doctrine of piercing the veil of corporate fiction, which was affirmed by the CA.

Petitioner argued that the CA should not have resorted to piercing the veil of corporate fiction because the
transaction concerned only respondent Gregorio Manuel and the heirs of the late Benita Trinidad. It further contends
that the present case does not fall among the instances wherein the courts may look beyond the distinct personality of a
corporation. Hence, it avers the heirs should have been sued in their personal capacity, and not involve the corporation.

Issue: Whether or not private respondent can claim against petitioner.

Held:
No, private respondent cannot. Basic in corporation law is the principle that a corporation has a separate
personality distinct from its stockholders and from other corporations to which it may be connected. However, under
the doctrine of piercing the veil of corporate entity, the corporations separate juridical personality may be disregarded,
for example, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime. Also, where the corporation is a mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation, then its distinct personality may be ignored. In these circumstances, the courts will treat
the corporation as a mere aggrupation of persons and the liability will directly attach to them. The legal fiction of a
separate corporate personality in those cited instances, for reasons of public policy and in the interest of justice, will be
justifiably set aside.

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

Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators,
directors and officers of the corporation had incurred, it was incurred in their personal capacity. When directors and
officers of a corporation are unable to compensate a party for a personal obligation, it is far-fetched to allege that the
corporation is perpetuating fraud or promoting injustice, and be thereby held liable therefor by piercing its corporate
veil. While there are no hard and fast rules on disregarding separate corporate identity, we must always be mindful of
its function and purpose.

Sulo ng bayan v. Gregorio Araneta; G.R. No. L-31061; August 17, 1976
Doctrine:
A corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or
members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or
members. The property of the corporation is its property and not that of the stockholders, as owners, although they
have equities in it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct
from its members. [Separate Juridical Personality]

Facts:
Sulo ng Bayan, Inc. (petitioner) filed an accion de revindicacion against respondents. According to the
petitioner, its members pioneered the cultivation of a certain tract of land, which the respondents took it away from its
members. Petitioner’s members found out, thereafter, that respondents’ (Gregorio Araneta, Inc.) name was included in
the OCT. Petitioner prayed that its members be declared as absolute owners. Respondents contended that petitioner’s
complaint states no cause of action, among others. The trial court dismissed the petitioner’s action for lack of cause of
action due to lack of personality of petitioner. According to the trial court, since petitioner claimed that its members
were deprived of and not the corporation itself, petitioner’s members should have been named as the real-party-in-
interest as what is required by the law.

Issue: Whether or not petitioner lacks personality to go to court.

Held:
Yes, it is. The Supreme Court affirmed the trial court’s decision. According to them, the people whose rights
were alleged to have been violated by being deprived and dispossessed of their land are the members of the corporation
and not the corporation itself. The corporation has a separate and distinct personality from its members, and this is not
a mere technicality but a matter of substantive law. There is no allegation that the members have assigned their rights
to the corporation or any showing that the corporation has in any way or manner succeeded to such rights. The
corporation evidently did not have any rights violated by the defendants for which it could seek redress. Neither can
such reliefs be awarded to the members allegedly deprived of their land, since they are not parties to the suit. It
appearing clearly that the action has not been filed in the names of the real parties in interest, the complaint must be
dismissed on the ground of lack of cause of action.

A corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the
corporation, "even in the case of a one-man corporation. The mere fact that one is president of a corporation does not
render the property which he owns or possesses the property of the corporation, since the president, as individual, and
the corporation are separate similarities. Similarly, stockholders in a corporation engaged in buying and dealing in real
estate whose certificates of stock entitled the holder thereof to an allotment in the distribution of the land of the
corporation upon surrender of their stock certificates were considered not to have such legal or equitable title or interest
in the land, as would support a suit for title, especially against parties other than the corporation.

The juridical personality of the corporation, as separate and distinct from the persons composing it, is but a
legal fiction introduced for the purpose of convenience and to subserve the ends of justice. This separate personality of
the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover
for fraud or illegality, or to work -an injustice, or where necessary to achieve equity. Thus, 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, the one being merely
regarded as part or instrumentality of the other. The same is true where a corporation is a dummy and serves no
business purpose and is intended only as a blind, or an alter ego or business conduit for the sole benefit of the
stockholders. This doctrine of disregarding the distinct personality of the corporation has been applied by the courts in
those cases when the corporate entity is used for the evasion of taxes or when the veil of corporate fiction is used to
confuse legitimate issue of employer-employee relationship, or when necessary for the protection of creditors, in which
case the veil of corporate fiction may be pierced and the funds of the corporation may be garnished to satisfy the debts of
a principal stockholder. The courts resort to the aforecited principle as a measure protection for third parties to prevent
fraud, illegality or injustice.

It has not been claimed that the members have assigned or transferred whatever rights they may have on the
land in question to the plaintiff corporation. Absent any showing of interest, therefore, a corporation, like plaintiff-
appellant herein, has no personality to bring an action for and in behalf of its stockholders or members for the purpose of
recovering property which belongs to said stockholders or members in their personal capacities.

Professional Services Inc. v. Agana; G.R. No. 126297; January 31, 2007
Doctrine:
The doctrine of corporate negligence as the judicial answer to the problem of allocating hospital’s liability for
the negligent acts of health practitioners, absent facts to support the application of respondeat superior or apparent
authority. Its formulation proceeds from the judiciary’s acknowledgment that in these modern times, the duty of
providing quality medical service is no longer the sole prerogative and responsibility of the physician. The modern
hospitals have changed structure. Hospitals now tend to organize a highly professional medical staff whose competence
and performance need to be monitored by the hospitals commensurate with their inherent responsibility to provide
quality medical care. [Doctrine of corporate negligence; Liability]

Facts:
This case is about the negligence of two doctors working in Medical City Hospital. Due to the damage done,
respondents also sued Professional Services, Inc. (petitioner) as owner of the hospital. Petitioner argued that it cannot be
solidarily liable with the Dr. Ampil, Dr. Fuentes(did not acquire jurisdiction), since he is only a mere consultant of
petitioner and not an employee.

Issue: Whether or not petitioner should be held liable.

Held:
Yes, it should. Petitioner is liable under the doctrine of corporate negligence. The doctrine has its genesis in
Darling v. Charleston Community Hospital. There, the Supreme Court of Illinois held that "the jury could have found a
hospital negligent, inter alia, in failing to have a sufficient number of trained nurses attending the patient; failing to
require a consultation with or examination by members of the hospital staff; and failing to review the treatment
rendered to the patient." On the basis of Darling, other jurisdictions held that a hospital’s corporate negligence extends
to permitting a physician known to be incompetent to practice at the hospital. With the passage of time, more duties
were expected from hospitals, among them: (1) the use of reasonable care in the maintenance of safe and adequate
facilities and equipment; (2) the selection and retention of competent physicians; (3) the overseeing or supervision of all
persons who practice medicine within its walls; and (4) the formulation, adoption and enforcement of adequate rules and
policies that ensure quality care for its patients. Thus, in Tucson Medical Center, Inc. v. Misevich, it was held that a
hospital, following the doctrine of corporate responsibility, has the duty to see that it meets the standards of
responsibilities for the care of patients. Such duty includes the proper supervision of the members of its medical staff.
And in Bost v. Riley, the court concluded that a patient who enters a hospital does so with the reasonable expectation
that it will attempt to cure him. The hospital accordingly has the duty to make a reasonable effort to monitor and
oversee the treatment prescribed and administered by the physicians practicing in its premises.

In the present case, it was duly established that PSI operates the Medical City Hospital for the purpose and
under the concept of providing comprehensive medical services to the public. Accordingly, it has the duty to exercise
reasonable care to protect from harm all patients admitted into its facility for medical treatment. Unfortunately, PSI
failed to perform such duty.

PNB v. Hydro Resources; G.R. No. 167530; March 13, 2013


Doctrine:
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public
convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or
when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a
corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation. [Piercing the Corporate Veil; Alter-Ego Cases]

Facts:
DBP and PNB foreclosed most of the properties of Marinduque Mining and Industrial Corporation (MMIC).
Due to the foreclosure DBP and PNB resumed MMIC’s business operations by organizing Nonoc Mining and Industrial
Corporation, NMIC. NMIC engaged the services of Hercon, Inc., which was acquired by HRCC in a merger, for NMIC’s
Mine Stripping and Road Construction Program in 1985. Unfortunately, NMIC failed to fully pay Heron. Given this,
HRCC sued NMIC, DBP, and PNB for the unpaid balances. NMIC, DBP, and PNB claimed that HRCC had no cause of
action. The lower court pierced through the corporate veil of NMIC and made NMIC, DBP, and PNB solidarily liable.

Issue: Whether or not there is sufficient ground to pierce the veil of corporate fiction.

Held:
No, there is none. It is well-settled that "where it appears that the business enterprises are owned, conducted
and controlled by the same parties, both law and equity will, when necessary to protect the rights of third persons,
disregard legal fiction that two (2) corporations are distinct entities, and treat them as identical." A corporation is an
artificial entity created by operation of law. It possesses the right of succession and such powers, attributes, and
properties expressly authorized by law or incident to its existence. 37 It has a personality separate and distinct from that
of its stockholders and from that of other corporations to which it may be connected. 38 As a consequence of its status as
a distinct legal entity and as a result of a conscious policy decision to promote capital formation, 39 a corporation incurs
its own liabilities and is legally responsible for payment of its obligations. 40 In other words, by virtue of the separate
juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder. 41 This
protection from liability for shareholders is the principle of limited liability.
Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when
the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest
of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity
committed against third persons.

In this case, the courts used the alter ego theory when they disregarded the separate corporate personality of
NMIC. In this connection, case law lays down a three-pronged test to determine the application of the alter ego theory,
which is also known as the instrumentality theory, namely:
(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of
policy and business practice in respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of
a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal right; and
(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained
of.

The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be completely
under the control and domination of the parent.51 It examines the parent corporation’s relationship with the
subsidiary.52 It inquires whether a subsidiary corporation is so organized and controlled and its affairs are so conducted
as to make it a mere instrumentality or agent of the parent corporation such that its separate existence as a distinct
corporate entity will be ignored.53 It seeks to establish whether the subsidiary corporation has no autonomy and the
parent corporation, though acting through the subsidiary in form and appearance, "is operating the business directly for
itself."5
Commented [FT1]: In relation to the second element, to
disregard the separate juridical personality
The second prong is the "fraud" test. This test requires that the parent corporation’s conduct in using the of a corporation, the wrongdoing or unjust act in
subsidiary corporation be unjust, fraudulent or wrongful.55 It examines the relationship of the plaintiff to the contravention of a plaintiff's
corporation.56 It recognizes that piercing is appropriate only if the parent corporation uses the subsidiary in a way that legal rights must be clearly and convincingly established; it
harms the plaintiff creditor.57 As such, it requires a showing of "an element of injustice or fundamental unfairness."58 cannot be presumed.
Without a demonstration that any of the evils sought to be
prevented by the
The third prong is the "harm" test. This test requires the plaintiff to show that the defendant’s control, exerted
doctrine is present, it does not apply.
in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered. 59 A causal connection between
the fraudulent conduct committed through the instrumentality of the subsidiary and the injury suffered or the damage There being a total absence of evidence pointing to a
incurred by the plaintiff should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will fraudulent, illegal or unfair
have been treated unjustly by the defendant’s exercise of control and improper use of the corporate form and, thereby, act committed against HRCC by DBP and PNB under the
suffer damages.60 guise of NMIC, there is
no basis to hold that NMIC was a mere alter ego of DBP and
To summarize, piercing the corporate veil based on the alter ego theory requires the concurrence of three PNB.
elements: control of the corporation by the stockholder or parent corporation, fraud or fundamental unfairness imposed Commented [FT2]: Ramoso v. Court of Appeals:
on the plaintiff, and harm or damage caused to the plaintiff by the fraudulent or unfair act of the corporation. The As a general rule, a corporation will be looked upon as a
absence of any of these elements prevents piercing the corporate veil. 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,
In applying the alter ego doctrine, the courts are concerned with reality and not form, with how the corporation protect fraud, or defend crime, the law will regard the
operated and the individual defendant's relationship to that operation. With respect to the control element, it refers not corporation as an association of persons. Also, the
to paper or formal control by majority or even complete stock control but actual control which amounts to "such corporate entity may be disregarded in the interest of
domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or justice in such cases as fraud that may work inequities
existence of its own, and is but a conduit for its principal." In addition, the control must be shown to have been exercised among members of the corporation internally, involving no
at the time the acts complained of took place. rights of the public or third persons. In both instances, there
must have been fraud, and proof of it. For the separate
While ownership by one corporation of all or a great majority of stocks of another corporation and their interlocking juridical personality of a corporation to be disregarded, the
wrongdoing must be clearly and convincingly established. It
directorates may serve as indicia of control, by themselves and without more, however, these circumstances are
cannot be presumed.
insufficient to establish an alter ego relationship or connection between DBP and PNB on the one hand and NMIC on the
other hand, that will justify the puncturing of the latter's corporate cover. This Court has declared that "mere ownership Commented [FT3]: As regards the third element, in the
by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself absence of both control by DBP and PNB of NMIC and fraud
sufficient ground for disregarding the separate corporate personality." This Court has likewise ruled that the "existence or fundamental unfairness perpetuated by DBP and PNB
through the corporate cover of NMIC, no harm could be said
of interlocking directors, corporate officers and shareholders is not enough justification to pierce the veil of corporate
to have been proximately caused by DBP and PNB on HRCC
fiction in the absence of fraud or other public policy considerations." for which HRCC could hold DBP and PNB solidarily liable
with NMIC.
Gamboa v. Teves; G.R. No. 176579; June 28, 2011
Doctrine:
The term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in Commented [FT4]: The 1987 Constitution "provides
the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital for
stock comprising both common and non-voting preferred shares. [Nationality Requirement on certain corporation] the Filipinization of public utilities by requiring that any
form of authorization for the operation of public utilities
should be granted only to 'citizens of the Philippines or
Facts:
to corporations or associations organized under the
Wilson Gamboa was a stockholder of PLDT. According to him, General Telephone and Electronics laws of the Philippines at least sixty per centum of
Corporation (GTE), an American company and a major PLDT stockholder, sold 26% of the Outstanding Common whose capital is owned by such citizens.'
Shares of PLDT to Philippine Telecommunications Investment Corporation (PTIC). Later on, 46.125% of the
Outstanding Capital Stock of PTIC were owned by the Philippines Government. The remaining 54 % of the The provision is [an express] recognition of the
outstanding capital stock of PTIC was acquired by First Pacific, a Bermuda-registered, Hong Kong-based investment sensitive and vital position of public utilities
both in the national economy and for national security."
firm. Thereafter, First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement The evident purpose of the citizenship
of the 46.125 percent of the outstanding capital stock of PTIC, with the Philippine Government. Since PTIC is a requirement is to prevent aliens from assuming control
stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is actually an indirect of public utilities, which may be inimical to the national
sale of about 6.3 percent of the outstanding common shares of PLDT. With the sale, First Pacific's common interest. This specific provision explicitly reserves to
shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the common shareholdings of Filipino citizens control of public utilities, pursuant to an
overriding economic goal of the 1987 Constitution: to
foreigners in PLDT to about 81.47 percent. This violates Section 11, Article XII of the 1987 Philippine Constitution "conserve and develop our patrimony" and ensure "a
which limits foreign ownership of the capital of a public utility to not more than 40 percent. self-reliant and independent national economy
effectively controlled by Filipinos."
On the other hand, respondents argued that First Pacific's intended acquisition of the government's 111,415
PTIC shares resulting in First Pacific's 100% ownership of PTIC will not violate the 40 percent constitutional limit on
foreign ownership of a public utility since PTIC holds only 13.847 percent of the total outstanding common shares of
PLDT.

Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to
common shares because such shares are entitled to vote and it is through voting that control over a corporation is
exercised.

Issue: whether the sale of common shares to foreigners in excess of 40 percent of the entire subscribed common capital
stock violates the constitutional limit on foreign ownership of a public utility.

Held:
Yes. One of the rights of a stockholder is the right to participate in the control or management of the
corporation. This is exercised through his vote in the election of directors because it is the board of directors that
controls or manages the corporation. In the absence of provisions in the articles of incorporation denying voting rights
to preferred shares, preferred shares have the same voting rights as common shares. However, preferred shareholders
are often excluded from any control, that is, deprived of the right to vote in the election of directors and on other
matters, on the theory that the preferred shareholders are merely investors in the corporation for income in the same
manner as bondholders. In fact, under the Corporation Code only preferred or redeemable shares can be deprived of the Commented [FT5]: IRR of FIA
right to vote. Common shares cannot be deprived of the right to vote in any corporate meeting, and any provision in the
articles of incorporation restricting the right of common shareholders to vote is invalid. “a corporation organized under the laws of the
Philippines of which at least sixty percent [60%] of the
capital stock outstanding and entitled to vote is owned
Considering that common shares have voting rights which translate to control, as opposed to preferred shares and held by citizens of the Philippines.”
which usually have no voting rights, the term "capital" in Section 11, Article XII of the Constitution refers only to
common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term Compliance with the required Filipino ownership of a
"capital" shall include such preferred shares because the right to participate in the control or management of the corporation shall be determined on the basis of
corporation is exercised through the right to vote in the election of directors. In short, the term "capital" in Section 11, outstanding capital stock whether fully paid or not, but
only such stocks which are generally entitled to vote
Article XII of the Constitution refers only to shares of stock that can vote in the election of directors. Thus, 60 percent
are considered. For stocks to be deemed owned and
of the "capital" assumes, or should result in, "controlling interest" in the corporation. Reinforcing this interpretation of held by Philippine citizens or Philippine nationals, mere
the term "capital," as referring to controlling interest or shares entitled to vote, is the definition of a "Philippine legal title is not enough to meet the required Filipino
national" in the Foreign Investments Act of 1991. equity. Full beneficial ownership of the stocks, coupled
with appropriate voting rights is essential. Thus, stocks,
Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution. Full the voting rights of which have been assigned or
transferred to aliens cannot be considered held by
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is Philippine citizens or Philippine nationals. Individuals or
required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of juridical entities not meeting the aforementioned
qualifications are considered as non-Philippine
nationals.
Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is "considered as non-
Philippine national[s]."

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDT's
Articles of Incorporation expressly state that "the holders of Serial Preferred Stock shall not be entitled to vote at any
meeting of the stockholders for the election of directors or for any other purpose or otherwise participate in any action
taken by the corporation or its stockholders, or to receive notice of any meeting of stockholders."

On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors.
PLDT's Articles of Incorporation state that "each holder of Common Capital Stock shall have one vote in respect of each
share of such stock held by him on all matters voted upon by the stockholders, and the holders of Common Capital Stock
shall have the exclusive right to vote for the election of directors and for all other purposes." In short, only holders of
common shares can vote in the election of directors, meaning only common shareholders exercise control over PLDT.
Conversely, holders of preferred shares, who have no voting rights in the election of directors, do not have any control
over PLDT. In fact, under PLDT's Articles of Incorporation, holders of common shares have voting rights for all
purposes, while holders of preferred shares have no voting right for any purpose whatsoever.

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of
PLDT. In fact, based on PLDT's 2010 General Information Sheet (GIS), which is a document required to be submitted
annually to the Securities and Exchange Commission, foreigners hold 120,046,690 common shares of PLDT whereas
Filipinos hold only 66,750,622 common shares. In other words, foreigners hold 64.27% of the total number of PLDT's
common shares, while Filipinos hold only 35.73%. Since holding a majority of the common shares equates to control, it
is clear that foreigners
exercise control over PLDT. Such amount of control unmistakably exceeds the allowable 40 percent limit on foreign
ownership of public utilities expressly mandated in Section 11, Article XII of the Constitution. In other words, preferred
shares have twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of
common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a
minuscule 0.56% of the preferred shares. Worse, preferred shares constitute 77.85% of the authorized capital stock of
PLDT while common shares constitute only 22.15%. This undeniably shows that beneficial interest in PLDT is not
with the non-voting preferred shares but with the common shares, blatantly violating the constitutional requirement of
60 percent Filipino control and Filipino beneficial ownership in a public utility.

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of
Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding
capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the State's grant of authority
to operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-
voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the constitutional
requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends,
of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that "[n]o
franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to . . .
corporations . . . organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such
citizens . . . ."

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole
right to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDT's
common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred
shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that
common shares earn; (5) preferred shares have twice the par value of common shares; and (6) preferred shares constitute
77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership and control of
a public utility is a mockery of the Constitution. Incidentally, the fact that PLDT common shares with a par value of
P5.00 have a current stock market value of P2,328.00 per share, while PLDT preferred shares with a par value of P10.00
per share have a current stock market value ranging from only P10.92 to P11.06 per share, is a glaring confirmation by
the market that control and beneficial ownership of PLDT rest with the common shares, not with the preferred shares.

Gamboa v. Teves; G.R. No. 176579; October 9, 2012


Doctrine:
On the concept of capital in Setion 11, Article XII of the Constitution, What is at stake here is whether Filipinos
or foreigners will have effective control of the Philippine national economy. [Voting Control and Beneficial Ownership
Test]

Facts:
Petitioners filed a Motion for Reconsideration from the June Decision. However, the Court reiterated its
decision, adding another discussion as to the capitalization requirement in stock corporations.

Held:
The 60-40 ownership requirement in favor of Filipino citizens in the Constitution is not complied with unless
the corporation "satisfies the criterion of beneficial ownership" and that in applying the same "the primordial Commented [FT6]: Mere legal title is insuffcient to meet
consideration is situs of control. One of the tests to determine whether a corporation is a Philippine national is the the 60 percent Filipino-owned "capital" required in the
Voting Control Test. That is, using only the voting stock to determine whether a corporation is a Philippine national. In Constitution. Full beneficial ownership of 60 percent of the
this test, for a corporation to be deemed as a Philippine national, it shall be able to present the following conditions: 1) outstanding capital stock, coupled with 60 percent of the
voting rights, is required. The legal and beneficial ownership
sixty percent (60%) of their respective outstanding capital stock entitled to vote is owned by the a Philippine national; of 60 percent of the outstanding capital stock must rest in the
and 2) at least 60% of their respective board of directors are Filipino citizens. Both the Voting Control Test and the hands of Filipino nationals in accordance with the
Bene􀀾cial Ownership Test must be applied to determine whether a corporation is a "Philippine national." Therefore, the constitutional mandate. Otherwise, the corporation is
Rule interpreting the constitutional provision should not diminish that right through the legal fiction of corporate "considered as non-Philippine national[s]."
ownership and control. Another test is the Grandfather Rule. In cases that the results from the Voting Control Test and Commented [FT7]: 60 percent of the "capital" assumes, or
Beneficial Ownership Test is in doubt, the Grandfather Rule is to be used. The said rule is applied to accurately should result in, a "controlling interest" in the corporation.
determine the actual participation, both direct and indirect, of foreigners in a corporation engaged in a nationalized
activity or business. Commented [FT8]: Compliance with the constitutional
limitation(s) on engaging in nationalized activities must be
determined by ascertaining if 60% of the investing
Moreover, if a corporation, engaged in a partially nationalized industry, issues a mixture of common and corporation's outstanding capital stock is owned by "Filipino
preferred non-voting shares, at least 60 percent of the common shares and at least 60 percent of the preferred non- citizens", or as interpreted, by natural or individual Filipino
voting shares must be owned by Filipinos. This is so because preferred shares, denied the right to vote in the election of citizens. If such investing corporation is in turn owned to
directors, are anyway still entitled to vote on the eight specific corporate matters mentioned above. In short, the 60-40 some extent by another investing corporation, the same
process must be observed. One must not stop until the
ownership requirement in favor of Filipino citizens must apply separately to each class of shares, whether common, citizenships of the individual or natural stockholders of layer
preferred non-voting, preferred voting or any other class of shares. To construe broadly the term "capital" as the total after layer of investing corporations have been established,
outstanding capital stock, treated as a single class regardless of the actual classification of shares, grossly contravenes the very essence of the Grandfather Rule.
the intent and letter of the Constitution that the "State shall develop a self-reliant and independent national economy
effectively controlled by Filipinos." Therefore, Full beneficial ownership of the stocks, coupled with appropriate voting
rights is essential."

Narra Nickel Mining and Development Corporation v. Redmont Consolidated Mines Corp.; G.R. 195580; April
21, 2014
Doctrine:
Grandfather Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt. [Grandfather
Rule]

Facts:
Respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized and existing
under Philippine laws, took interest in mining and exploring certain areas of the province of Palawan. After inquiring
with the Department of Environment and Natural Resources (DENR), it learned that the areas where it wanted to
undertake exploration and mining activities where already covered by Mineral Production Sharing Agreement (MPSA)
applications of petitioners Narra, Tesoro and McArthur. Consequently, Redmont filed a petition to deny Narra, Tesoro
and McArthur’s application.

Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled
by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a considerable
stockholder of petitioners, it was the driving force behind petitioners' filing of the MPSAs over the areas covered by
applications since it knows that it can only participate in mining activities through corporations which are deemed
Filipino citizens. Redmont argued that given that petitioners' capital stocks were mostly owned by MBMI, they were
likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino citizens

Collectively, petitioners averred that they claimed that the issue on nationality should not be raised since
McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their capital is owned by citizens of the
Philippines. They asserted that though MBMI owns 40% of the shares of PLMC (which owns 5,997 shares of Narra),
40% of the shares of MMC (which owns 5,997 shares of McArthur) and 40% of the shares of SLMC (which, in turn,
owns 5,997 shares of Tesoro), the shares of MBMI will not make it the owner of at least 60% of the capital stock of each
of petitioners. They added that the best tool used in determining the nationality of a corporation is the "control test,"
embodied in Sec. 3 of RA 7042 or the Foreign Investments Act of 1991.

Issue: Whether or not Petitioners are Philippine National in compliance for nationalized industry such as mining.

Held:
Yes. Using the grandfather rule, the CA discovered that MBMI in effect owned majority of the common stocks
of the petitioners as well as at least 60% equity interest of other majority shareholders of petitioners through joint
venture agreements. The CA found that through a "web of corporate layering, it is clear that one common controlling
investor inall mining corporations involved . . . is MBMI." 25 Thus, it concluded that petitioners McArthur, Tesoro and
Narra are also in partnership with, or privies-in-interest of, MBMI. "Corporate layering" is admittedly allowed by the
FIA; but if it is used to circumvent the Constitution and pertinent laws, then it becomes illegal.

In this case, petitioners’ are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their
equity interests. Such conclusion is derived from grandfathering petitioners' corporate owners, namely: MMI, SMMI
and PLMDC.

Narra Nickel Mining and Development Corporation v. Redmont Consolidated Mines Corp.; G.R. 195580;
January 28, 2015
Doctrine:

Facts:
Petitioners filed a Motion for Reconsideration on the Court’s Decision last April 2014. It was denied.

Held:
"Control test" is still the prevailing mode of determining whether or not a corporation is a Filipino corporation,
within the ambit of Sec. 2, Art. XII of the 1987 Constitution, entitled to undertake the exploration, development and
utilization of the natural resources of the Philippines. When in the mind of the Court, there is doubt, based on the
attendant facts and circumstances of the case, in the 60-40 Filipino equity ownership in the corporation, then it may
apply the "grandfather rule." The Grandfather Rule is " the method by which the percentage of Filipino equity in a
corporation engaged in nationalized and/or partly nationalized areas of activities, provided for under the Constitution
and other nationalization laws, is computed, in cases where corporate shareholders are present, by attributing the
nationality of the second or even subsequent tier of ownership to determine the nationality of the corporate
shareholder." 4 Thus, to arrive at the actual Filipino ownership and control in a corporation, both the direct and indirect
shareholdings in the corporation are determined.

The Grandfather Rule, standing alone, should not be used to determine the Filipino ownership and control in a
corporation, as it could result in an otherwise foreign corporation rendered qualified to perform nationalized or partly
nationalized activities. Hence, it is only when the Control Test is first complied with that the Grandfather Rule may be
applied. Put in another manner, if the subject corporation's Filipino equity falls below the threshold 60%, the
corporation is immediately considered foreign-owned, in which case, the need to resort to the Grandfather Rule
disappears.

On the other hand, a corporation that complies with the 60-40 Filipino to foreign equity requirement can be
considered a Filipino corporation if there is no doubt as to who has the "beneficial ownership" and "control" of the
corporation. In that instance, there is no need for a dissection or further inquiry on the ownership of the corporate
shareholders in both the investing and investee corporation or the application of the Grandfather Rule. As a corollary
rule, even if the 60-40 Filipino to foreign equity ratio is apparently met by the subject or investee corporation, a resort
to the Grandfather Rule is necessary if doubt exists as to the locus of the "beneficial ownership" and "control." In this
case, a further investigation as to the nationality of the personalities with the beneficial ownership and control of the Commented [FT9]: In example:
corporate shareholders in both the investing and investee corporations is necessary. The "doubt" that demands the 1. That the foreign investors provide practically all the funds
application of the Grandfather Rule in addition to or in tandem with the Control Test is not confined to, or more for the joint investment undertaken by these Filipino
bluntly, does not refer to the fact that the apparent Filipino ownership of the corporation's equity falls below the 60% businessmen and their foreign partner;
2. That the foreign investors undertake to provide practically
threshold. Rather, "doubt" refers to various indicia that the "beneficial ownership" and "control" of the corporation do all the technological support for the joint venture;
not in fact reside in Filipino shareholders but in foreign stakeholders. 3. That the foreign investors, while being minority
stockholders, manage the company and prepare all economic
viability studies.
In the case at hand, even if at first glance the petitioners comply with the 60-40 Filipino to foreign equity ratio,
doubt exists in the present case that gives rise to a reasonable suspicion that the Filipino shareholders do not actually
have the requisite number of control and beneficial ownership in petitioners Narra, Tesoro, and McArthur. Hence, a
further investigation and dissection of the extent of the ownership of the corporate shareholders through the
Grandfather Rule is justified. Commented [FT10]: Check Corpo notes for the basic
computation.

A.C. Ransom Labor Union-CCLU v. NLRC; G.R. No. L-69494; June 10, 1986
Doctrine:
Since RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being
the "person acting in the interest of (the) employer" RANSOM. The corporation, only in the technical sense, is the
employer. The responsible officer of an employer corporation can be held personally, not to say even criminally, liable
for non-payment of back wages. That is the policy of the law. [Separate Juridical Personality; Liability; Special laws:
Labor]

Facts:
Employees of Ransom went on strike and established a picket line which, however, was lifted later on with most
of the strikers returning and being allowed to resume their work by RANSOM. Unfortunately, twenty-two (22) strikers
were refused reinstatement by the Company. Due to an ULP case favorable to the strikers, Ransom was ordered to
reinstate the strikers with payment of back wages. On execution of the NLRC’s order, implementation could not be had
since before the Order was given to Ransom, its business operations have ceased. Given this, petitioners asked the Court
to make Ransom’s officers and agents of RANSOM be held personally liable for payment of the back wages.

Issue: Whether or not the officers and agents of Ransom may be held liable for the judgment against Ransom.

Held:
Yes. As a general rule, officers of the corporation are not liable personally for the official acts unless they have
exceeded the scope of their authority. However, in implementing liability of an employer Corporation under the Labor
Code, Article 212(c) of the Labor Code is in place. Since RANSOM is an artificial person, it must have an officer who can Commented [FT11]: "(c) 'Employer' includes any person
be presumed to be the employer, being the "person acting in the interest of (the) employer" RANSOM. The corporation, acting in the interest of an employer,
only in the technical sense, is the employer. The responsible officer of an employer corporation can be held personally, directly or indirectly. The term shall not include any labor
not to say even criminally, liable for non-payment of back wages. That is the policy of the law. In the Minimum Wage organization or
any of its officers or agents except when acting as
Law, Section 15(b) provided: "(b) If any violation of this Act is committed by a corporation, trust, partnership or employer."
association, the manager or in his default, the person acting as such when the violation took place, shall be responsible.
In the case of a government corporation, the managing head shall be made responsible, except when shown that the
violation was due to an act or commission of some other person, over whom he has no control, in which case the latter
shall be held responsible."

If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of
back wages. In the instant case, it would appear that RANSOM, in 1969, foreseeing the possibility or probability of
payment of back wages to the 22 strikers, organized ROSARIO to replace
RANSOM, with the latter to be eventually phased out if the 22 strikers win their case. RANSOM actually ceased
operations on May 1, 1973, after the December
19, 1972 Decision of the Court of Industrial Relations was promulgated against
RANSOM.
The record does not clearly identify "the officer or officers" of RANSOM directly responsible for failure to pay
the back wages of the 22 strikers. In the absence of definite proof in that regard, we believe it should be presumed that
the responsible officer is the President of the corporation who can be deemed the chief operation officer thereof. Thus, in
RA 602, criminal responsibility is with the "Manager or in his default, the person acting as such." In RANSOM, the
President appears to be the Manager. Considering that non-payment of the back wages of the 22 strikers has been a
continuing situation, it is our opinion that the personal liability of the RANSOM President, at the time the back wages
were ordered to be paid should also be a continuing joint and several personal liabilities of all who may have thereafter
succeeded to the office of president; otherwise, the 22 strikers may be deprived of their rights by the election of a
president without leviable assets.

Baluyot v. Holganza; G.R. No. 136374; February 9, 2000


Doctrine:
The test to determine whether a corporation is government-owned or -controlled, or private in nature, is if a
corporation is created by its own charter for the exercise of a public function, or by incorporation under the general
corporation law. [Private Corporation]

Facts:
Philippine National Red Cross had a ash shortage and Francisca Baluyot, as chapter administrator, was held
accountable. Respondent as member of the board of director charged petitioner of malversation before the Office of the
Ombudsman. Petitioner contends that the Ombudsman has no jurisdiction over the subject matter of the controversy
since the PNRC is allegedly a private voluntary organization. The following circumstances, she insists, are indicative of
the private character of the organization: (1) the PNRC does not receive any budgetary support from the government,
and that all money given to it by the latter and its instrumentalities become private funds of the organization; (2) funds
for the payment of personnel's salaries and other emoluments come from yearly fund campaigns, private contributions
and rentals from its properties; and (3) it is not audited by the Commission on Audit.

Issue: Whether or not Philippine National Red Cross is private corporation.

Held:
No. Philippine National Red Cross (PNRC) is a government owned and controlled corporation, with an original
charter under Republic Act No. 95, as amended. The test to determine whether a corporation is government owned or
controlled, or private in nature is simple. Is it created by its own charter for the exercise of a public function, or by
incorporation under the general corporation law? Those with special charters are government corporations subject to
its provisions, and its employees are under the jurisdiction of the Civil Service Commission, and are compulsory
members of the Government Service Insurance System.

Bank of Commerce v. Nite; G.R. No. 211535; July 22, 2015


Doctrine:
A corporation is invested by law with a personality separate and distinct from that of the persons composing it,
or from any other legal entity that it may be related to. The obligations of a corporation, acting through its directors,
officers, and employees, are its own sole liabilities. Therefore, the corporation's directors, officers, or employees are
generally not personally liable for the obligations of the corporation.

Facts:
Marilyn Nite (Nite) was charged with criminal liabilities. Nite, as President of Bancapital Development
Corporation (Bancap), violated Section 19 of BP Blg. 178 when Bancap sold P250 million worth of treasury bills to Bank
of Commerce (Bancom) without being registered as broker, dealer, or salesman of securities. More, Nite defrauded
Bancom by falsely pretending to possess and own P250 million worth of treasury bills that Bancap supposedly sold to
Bancom when none of the treasury bills described in the Confirmation of Sale and Letter of Undertaking issued by
Bancap were ever delivered to Bancom. Fortunately, Nite was acquitted of her criminal liabilities. Hence, the only issue
here is Nite's civil liability after her acquittal.

Bancom asserts that the Court of Appeals erred in ruling that the civil liability it is claiming pertains to Bancap's
and not to Nite's. Bancom alleges that since Nite actively participated in the commission of a patently unlawful act, she
is personally liable to Bancom for the amount of treasury bills undelivered by Bancap. Bancom alleges that this case falls
under the exception to the general rule and that Nite should be held personally liable for Bancap's obligation.
Bancom alleges that Nite signed the Confirmation of Sale knowing that Bancap did not have the treasury bills, and thus,
the sale was illegal.

Issue: Whether or not Nite is liable for Bancap’s civil liabilities.

Held:
No. To hold a director or officer personally liable for corporate obligations, two requisites must concur: (1)
complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the
corporation, or that the officer was guilty of gross negligence or bad faith; and (2) complainant must clearly and
convincingly prove such unlawful acts, negligence or bad faith. To hold a director personally liable for debts of the
corporation, and thus pierce the veil of corporate fiction, the bad faith or wrongdoing of the director must be established
clearly and convincingly. Nite, as Bancap's President, cannot be held personally liable for Bancap's obligation unless it
can be shown that she acted fraudulently. However, the issue of fraud had been resolved with finality when the trial
court acquitted Nite of estafa on the ground that the element of deceit is non-existent in the case. The acquittal had long
become final and the finding is conclusive on this Court. The prosecution failed to show that Nite acted in bad faith. It is
no longer open for review. Nite's act of signing the Confirmation of Sale, by itself, does not make the corporate liability
her personal liability.

Camporedondo v. NLRC; G.R. No. 129049; August 6, 1999


Doctrine:
Philippine National Red Cross (PNRC) is a government owned and controlled corporation, with an original
charter under Republic Act No. 95, as amended. The test to determine whether a corporation is government owned or
controlled, or private in nature is simple. Is it created by its own charter for the exercise of a public function, or by
incorporation under the general corporation law? Those with special charters are government corporations subject to
its provisions, and its employees are under the jurisdiction of the Civil Service Commission, and are compulsory
members of the Government Service Insurance System. The PNRC was not "impliedly converted to a private
corporation" simply because its charter was amended to vest in it the authority to secure loans, be exempted from
payment of all duties, taxes, fees and other charges of all kinds on all importations and purchases for its exclusive use, on
donations for its disaster relief work and other services and in its benefits and fund raising drives, and be allotted one
lottery draw a year by the Philippine Charity Sweepstakes Office for the support of its disaster relief operation in
addition to its existing lottery draws for blood program.

This is somehow similar to the case of Baluyot v. Holganza.

Filipinas Broadcasting Network Inc v. Amec-bccm; G.R. No. 141994; January 17, 2005
Doctrine:
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.
Nevertheless, a educational corporation's claim for moral damages arising from libel falls under Article 2219(7) of the
Civil Code, which expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of
defamation, and does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person can
validly complain for libel or any other form of defamation and claim for moral damages.

Facts:
"Exposé" is a radio documentary program hosted by Carmelo 'Mel' Rima ("Rima") and Hermogenes ‘Jun' Alegre
("Alegre"). Exposé is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc.
("FBNI"). "Exposé" is heard over Legazpi City, the Albay municipalities and other Bicol areas. In the morning of 14 and
15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and parents against
Ago Medical and Educational Center-Bicol Christian College of Medicine ("AMEC") and its administrators. Claiming
that the broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as Dean of AMEC's College of Medicine, filed a
complaint for damages against FBNI, Rima and Alegre on 27 February 1990.

The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposés, FBNI,
Rima and Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs' (AMEC and Ago) reputation."
AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the selection and
supervision of its employees, particularly Rima and Alegre. FBNI contends that AMEC is not entitled to moral damages
because it is a corporation.

Issue: Whether or not respondent is entitled for moral damages.

Held:
Yes. The Court ruled a juridical person is generally not entitled to moral damages because, unlike a natural
person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish
or moral shock. The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al. to justify the award of moral damages.
However, the Court's statement in Mambulao that "a corporation may have a good reputation which, if besmirched, may
also be a ground for the award of moral damages" is an obiter dictum.

Nevertheless, AMEC's claim for moral damages falls under item 7 of Article 2219 of the Civil Code. This
provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation.
Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such
as a corporation can validly complain for libel or any other form of defamation and claim for moral damages.

Moreover, where the broadcast is libelous per se, the law implies damages. In such a case, evidence of an honest
mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. Neither in such a
case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the recovery of some
damages. In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.

Guillermo v. Uson; G.R. No. 198967; March 7, 2016


Doctrine:
The common thread running among the aforementioned cases, however, is that the veil of corporate action can
be pierced, and responsible corporate directors and officers or even a separate but related corporation, may be impleaded
and held answerable solidarily in a labor case, even after final judgment and on execution, so long as it is established
that such persons have deliberately used the corporate vehicle to unjustly evade the judgment obligation, or have
resorted to fraud, bad faith or malice in doing so. [Piercing the Corporate Veil]
Facts:
On March 11, 1996, respondent Crisanto P. Uson (Uson) began his employment with Royal Class Venture
Phils., Inc. (Royal Class Venture) as an accounting clerk. Eventually, he was promoted to the position of accounting
supervisor, with a salary of Php13,000.00 a month, until he was allegedly dismissed from employment on December 20,
2000. Uson filed an illegal dismissal case against Royal and eventually won. However, the execution of the NLRC’s
order remained unsatisfied. Thus, Uson filed Motion for Alias Writ of Execution and to Hold Directors and Officers of
Royal Liable for Satisfaction of the Decision.

The Labor Arbiter granted the motion filed by Uson. The order held that officers of a corporation are jointly
and severally liable for the obligations of the corporation to the employees and there is no denial of due process in
holding them so even if the said officers were not parties to the case when the judgment in favor of the employees was
rendered. Thus, the Labor Arbiter pierced the veil of corporate fiction of Royal Class Venture and held herein petitioner
Jose Emmanuel Guillermo (Guillermo), in his personal capacity, jointly and severally liable with the corporation for the
enforcement of the claims of Uson.

Guillermo assails the so-called "piercing the veil" of corporate fiction which allegedly discriminated against him
when he alone was belatedly impleaded despite the existence of other directors and officers in Royal Class Venture. He
also claims that the Labor Arbiter has no jurisdiction because the case is one of an intra-corporate controversy, with the
complainant Uson also claiming to be a stockholder and director of Royal Class Venture.

Issue: whether an officer of a corporation may be included as judgment obligor in a labor case for the first time only
after the decision of the Labor Arbiter had become final and executory, and whether the twin doctrines of "piercing the
veil of corporate fiction" and personal liability of company officers in labor cases apply.

Held:
Yes. In the earlier labor cases of Claparols v. Court of Industrial Relations and A.C. Ransom Labor Union-
CCLU v. NLRC, persons who were not originally impleaded in the case were, even during execution, held to be
solidarily liable with the employer corporation for the latter's unpaid obligations to complainant-employees. These
included a newly-formed corporation which was considered a mere conduit or alter ego of the originally impleaded
corporation, and/or the officers or stockholders of the latter corporation. Liability attached, especially to the responsible
officers, even after final judgment and during execution, when there was a failure to collect from the employer
corporation the judgment debt awarded to its workers. In Naguiat v. NLRC, the president of the corporation was found,
for the first time on appeal, to be solidarily liable to the dismissed employees. Then, in Reynoso v. Court of Appeals, the
veil of corporate fiction was pierced at the stage of execution, against a corporation not previously impleaded, when it
was established that such corporation had dominant control of the original party corporation, which was a smaller
company, in such a manner that the latter's closure was done by the former in order to defraud its creditors, including a
former worker.

The rulings of this Court in A.C. Ransom, Naguiat, and Reynoso, however, have since been tempered, at least in
the aspects of the lifting of the corporate veil and the assignment of personal liability to directors, trustees and officers
in labor cases. The subsequent cases of McLeod v. NLRC, Spouses Santos v. NLRC and Carag v. NLRC, have all
established, save for certain exceptions, the primacy of Section 31 of the Corporation Code in the matter of assigning
such liability for a corporation's debts, including judgment obligations in labor cases. According to these cases, a
corporation is still an artificial being invested by law with a personality separate and distinct from that of its
stockholders and from that of other corporations to which it may be connected. It is not in every instance of inability to
collect from a corporation that the veil of corporate fiction is pierced, and the responsible officials are made liable.
Personal liability attaches only when, as enumerated by the said Section 31 of the Corporation Code, there is a wilfull
and knowing assent to patently unlawful acts of the corporation, there is gross negligence or bad faith in directing the
affairs of the corporation, or there is a conflict of interest resulting in damages to the corporation. Further, in another
labor case, Pantranco Employees Association (PEA-PTGWO), et al. v. NLRC, et al., the doctrine of piercing the
corporate veil is held to apply only in three (3) basic areas, namely: (1) defeat of public convenience as when the
corporate action is used as a vehicle for the evasion of an existing obligation; (2) fraud cases or when the corporate
entity is used to justify a wrong, protect fraud, or defend a crime; or (3) alter ego cases, where a corporation is merely a
farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation. In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such
corporate officer cannot be made personally liable for corporate liabilities. Indeed, in Reahs Corporation v. NLRC, the
conferment of liability on officers for a corporation's obligations to labor is held to be an exception to the general
doctrine of separate personality of a corporation.

It also bears emphasis that in cases where personal liability attaches, not even all officers are made accountable.
Rather, only the "responsible officer," i.e., the person directly responsible for and who "acted in bad faith" in committing
the illegal dismissal or any act violative of the Labor Code, is held solidarily liable, in cases wherein the corporate veil is
pierced. In other instances, such as cases of so-called corporate tort of a close corporation, it is the person "actively
engaged" in the management of the corporation who is held liable. In the absence of a clearly identifiable officer(s)
directly responsible for the legal infraction, the Court considers the president of the corporation as such officer.

The common thread running among the aforementioned cases, however, is that the veil of corporate action can
be pierced, and responsible corporate directors and officers or even a separate but related corporation, may be impleaded
and held answerable solidarily in a labor case, even after final judgment and on execution, so long as it is established
that such persons have deliberately used the corporate vehicle to unjustly evade the judgment obligation, or have
resorted to fraud, bad faith or malice in doing so. When the shield of a separate corporate identity is used to commit
wrongdoing and opprobriously elude responsibility, the courts and the legal authorities in a labor case have not
hesitated to step in and shatter the said shield and deny the usual protections to the offending party, even after final
judgment. The key element is the presence of fraud, malice or bad faith. Bad faith, in this instance, does not connote bad
judgment or negligence but imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it
means breach of a known duty through some motive or interest or ill will; it partakes of the nature of fraud.

As the foregoing implies, there is no hard and fast rule on when corporate action may be disregarded; instead,
each case must be evaluated according to its peculiar circumstances. For the case at bar, applying the above criteria, a
finding of personal and solidary liability against a corporate officer like Guillermo must be rooted on a satisfactory
showing of fraud, bad faith or malice, or the presence of any of the justifications for disregarding the corporate action.
As stated in McLeod, bad faith is a question of fact and is evidentiary, so that the records must first bear evidence of
malice before a finding of such may be made.

NOTE:

Although Uson is also a stockholder and director of Royal Class Venture, it is settled in jurisprudence that not all
conflicts between a stockholder and the corporation are intra-corporate; an examination of the complaint must be made
on whether the complainant is involved in his capacity as a stockholder or director, or as an employee. If the latter is
found and the dispute does not meet the test of what qualifies as an intra-corporate controversy, then the case is a labor
case cognizable by the NLRC and is not within the jurisdiction of any other tribunal. In the case at bar, Uson's
allegation was that he was maliciously and illegally dismissed as an Accounting Supervisor by Guillermo, the Company
President and General Manager, an allegation that was not even disputed by the latter nor by Royal
Class Venture. It raised no intra-corporate relationship issues between him and the corporation or Guillermo; neither
did it raise any issue regarding the regulation of the corporation.

Lozada v. Mendoza; G.R. No. 196134; October 12, 2016


Doctrine:
To hold a director or officer personally liable for corporate obligations, two requisites must concur, to wit: (1)
the complaint must allege that the director or officer assented to the patently unlawful acts of the corporation, or that
the director or officer was guilty of gross negligence or bad faith; and (2) there must be proof that the director or officer
acted in bad faith.

Facts:
Mendoza filed an illegal dismissal against VSL Service Center, which was later on change its business name to
LB&C Services Corporation. NLRC favored Mendoza, thus LB&C was ordered to pay back wages, among others, to
Mendoza. However, The petitioner and LB&C Services Corporation filed a motion to quash the writ of execution,
alleging that there was no employer-employee relationship between the petitioner and the respondent; and that LB&C
Services Corporation "has been closed and no longer in operation due to irreversible financial losses.” Unfortunately,
this motion was denied by the LA. During the execution, obligations still remained unsatisfied. Given this, the sheriff
proceeded to levy Lozada’s real property.

LB&C Services Corporation moved for the lifting of the levy because the real property levied upon had been
constituted by the petitioner as the family home; and that the decision of the Labor Arbiter did not adjudge the
petitioner as jointly and solidarily liable for the obligation in favor of the respondent.

Issue: Whether or not Lozada is liable for the monetary awards granted to the respondent despite the absence of a
pronouncement of his being solidarily liable with LB&C Services Corporation.

Held:
No. The Court ruled that a corporation, as a juridical entity, may act only through its directors, officers and
employees. Obligations incurred as a result of the acts of the directors and officers as the corporate agents are not their
personal liability but the direct responsibility of the corporation they represent. As a general rule, corporate officers are
not held solidarily liable with the corporation for separation pay because the corporation is invested by law with a
personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to
which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.

A perusal of the respondent's position paper and other submissions indicates that he neither ascribed gross
negligence or bad faith to the petitioner nor alleged that the petitioner had assented to patently unlawful acts of the
corporation. The respondent only maintained that the petitioner had asked him to sign a new employment contract, but
that he had refused to do the petitioner's bidding. The respondent did not thereby clearly and convincingly prove that
the petitioner had acted in bad faith. Indeed, there was no evidence whatsoever to corroborate the petitioner's
participation in the respondent's illegal dismissal. Accordingly, the twin requisites of allegation and proof of bad faith
necessary to hold the petitioner personally liable for the monetary awards in favor of the respondent were lacking.

In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate
officer cannot be made personally liable for corporate liabilities. The records of this case do not warrant the application
of the exception. The rule, which requires malice or bad faith on the part of the directors or officers of the corporation,
must still prevail. The petitioner might have acted in behalf of LB&C Services Corporation but the corporation's failure
to operate could not be hastily equated to bad faith on his part. Verily, the closure of a business can be caused by a host
of reasons, including mismanagement, bankruptcy, lack of demand, negligence, or lack of business foresight. Unless the
closure is clearly demonstrated to be deliberate, malicious and in bad faith, the general rule that a corporation has, by
law, a personality separate and distinct from that of its owners should hold sway. In view of the dearth of evidence
indicating that the petitioner had acted deliberately, maliciously or in bad faith in handling the affairs of LB&C Services
Corporation, and such acts had eventually resulted in the closure of its business, he could not be validly held to be
jointly and solidarily liable with LB&C Services Corporation.

NOTE:
In Restaurante Las Conchas v. Llego , where the Court held that when the employer corporation was no longer
existing and the judgment rendered in favor of the employees could not be satisfied, the officers of the corporation
should be held liable for acting on behalf of the corporation.

A close scrutiny of Restaurante Las Conchas shows that the pronouncement applied the exception instead of the
general rule. The Court opined therein that, as a rule, the officers and members of the corporation were not personally
liable for acts done in the performance of their duties; but that the exception instead of the general rule should apply
because of the peculiar circumstances of the case. The Court observed that if the general rule were to be applied, the
employees would end up with an empty victory inasmuch as the restaurant had been closed for lack of venue, and there
would be no one to pay its liability because the respondents thereat claimed that the restaurant had been owned by a
different entity that had not been made a party in the case.

Mambulao Lumber Co v. PNB: G.R. No. L-22973; January 30, 1968


Doctrine:
An artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish,
fright, serious anxiety, wounded feelings, moral shock or social humiliation which are the basis of moral damages. A
corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages.
[Award of Damages to Corporations]

Facts:
The case arose from breached contract of loan between petitioner and respondent. Respondent claims, among
others, moral damages from the troubles it had experience from the unsatisfied loan.

Issue: Whether or not petitioner may be awarded of moral damages.

Held:
No. Appellant’s claim for moral damages, however, seems to have no legal or factual basis. Obviously, an
artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious
anxiety, wounded feelings, moral shock or social humiliation which are the basis of moral damages. A corporation may
have a good reputation which, if besmirched, may also be a ground for the award of moral damages. The same cannot be
considered under the facts of this case, however, not only because it is admitted that herein appellant had already ceased
in its business operation at the time of the foreclosure sale of the chattels, but also for the reason that whatever adverse
effect the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedly be the
same whether the sale was conducted at Jose Panganiban. Camarines Norte, or in Manila which is the place agreed upon
by the parties in the mortgage contract.

Manila Gas Corp v. CIR; G.R. 42780; January 17, 1936


Doctrine:
Tax privileges enjoyed by a corporation do not extend to its stockholders. "A corporation has a personality
distinct from that of its stockholders, enabling the taxing power to reach the latter when they receive dividends from the
corporation. It must be considered as settled in this jurisdiction that dividends of a domestic corporation which are paid
and delivered in cash to foreign corporations as stockholders are subject to the payment of the income tax, the
exemption clause to the charter [of the domestic corporation] notwithstanding."

Facts:
The plaintiff is a corporation organized under the laws of the Philippine Islands. It operates a gas plant in the
City of Manila and furnishes gas service to the people of the metropolis and surrounding municipalities by virtue of a
franchise granted to it by the Philippine
Government.

For the years 1930, 1931, and 1932, dividends in the sum of
P1,348,847.50 were paid by the plaintiff to the Islands Gas and Electric
Company in the capacity of stockholders upon which withholding income taxes were paid to the defendant totalling
P40,460.03. For the same years interest on bonds in the sum of P411,600 was paid by the plaintiff to the Islands Gas and
Electric Company upon which withholding income taxes were paid to the defendant totalling P12,348. Finally for the
stated time period, interest on other indebtedness in the sum of P131,644.90 was paid by the plaintiff to the Islands Gas
and Electric Company and the General Finance
Company respectively upon which withholding income taxes were paid to the defendant totalling P3,949.34.

Issue: Whether or not a corporation should be taxed.


Held:
The approved doctrine is that no state may tax anything not within its jurisdiction without violating the due
process clause of the constitution. The taxing power of a state does not extend beyond its territorial limits, but within
such limits it may tax persons, property, income, or business. If an interest inproperty is taxed, the situs of either the
property or interest must be found within the state. If an income is taxed, the recipient thereof must have a domicile
within the state or the property or business out of which the income issues must be situated within the state so that the
income may be said to have a situs therein. Personal property may be separated from its owner and e may be taxed on its
account at the place where the property is although iti s not a citizen or resident of the state which imposes tax. But
debts owing by corporations are obligations of the debtors, and only possess value in the hands of the creditors. Pushing
to one side that portion of Act No. 3761 which permits taxation of interest on bonds and other indebtedness paid
without the Philippine Islands, the question is if the income was derived from sources within the Philippine Islands.

In the judgment of the majority of the court, the question should be answered in the affirmative. The Manila
Gas Corporation operates its business entirely within the Philippines. Its earnings, therefore, come from local sources.
The place of material delivery of the interest to the foreign corporations paid out of the revenue of the domestic
corporation is of no particular moment. The place of payment even if conceded to be outside of the country cannot alter
the fact that the income was derived from the Philippines. The word "source" conveys only one idea, that of origin, and
the origin of the income was the Philippines.

In synthesis, therefore, we hold that conditions have not been provided which justify the court in passing on the
constitutional question suggested; that the facts while somewhat obscure differ from the facts to be found in the cases
relied upon, and that the Collector of Internal Revenue was justified in withholding income taxes on interest on bonds
and other indebtedness paid to non-resident corporations because this income was received from sources within the
Philippine Islands as authorized by the Income Tax Law.

Mcleod v. NLRC; G.R. No. 146667; January 23, 2007


Doctrine:
A corporation is an artificial being invested by law with a personality separate and distinct from that of its
stockholders and from that of other corporations to which it may be connected.
Facts:
A labor case in which petitioner was retiring however such payment was not complete.
Issue:
Held:
While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in
case of two corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or illegality.
This is the doctrine of piercing the veil of corporate action. The doctrine applies only when such corporate action is used
to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the
legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation
is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit
or adjunct of another corporation. To disregard the separate juridical personality of a corporation, the wrongdoing must
be established clearly and convincingly. It cannot be presumed. Here, we do not find any of the evils sought to be
prevented by the doctrine of piercing the corporate veil. Respondent corporations may be engaged in the same business
as that of PMI, but this fact alone is not enough reason to pierce the veil of corporate fiction.

A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its
behalf and, in general, from the people comprising it. The rule is that obligations incurred by the corporation, acting
through its directors, officers, and employees, are its sole liabilities.

Personal liability of corporate directors, trustees or officers attaches only when (1) they assent to a patently
unlawful act of the corporation, or when they are guilty of bad faith or gross negligence in directing its affairs, or when
there is a conflict of interest resulting in damages to the corporation, its stockholders or other persons; (2) they consent
to the issuance of watered down stocks or when, having knowledge of such issuance, do not forthwith file with the
corporate secretary their written objection; (3) they agree to hold themselves personally and solidarily liable with the
corporation; or (4) they are made by specific provision of law personally answerable for their corporate action.
Considering that McLeod failed to prove any of the foregoing exceptions in the present case, McLeod cannot hold
Patricio solidarily liable with PMI. The records are bereft of any evidence that Patricio acted with malice or bad faith.
Bad faith is a question of fact and is evidentiary. Bad faith does not connote bad judgment or negligence. It imports a
dishonest purpose or some moral obliquity and conscious wrongdoing. It means breach of a known duty through some
ill motive or interest. It partakes of the nature of fraud.

In the present case, there is nothing substantial on record to show that Patricio acted in bad faith in terminating
McLeod's services to warrant Patricio's personal liability. PMI had no other choice but to stop plant operations. The
work stoppage therefore was by necessity. The company could no longer continue with its plant operations because of
the serious business losses that it had suffered. The mere fact that Patricio was president and director of PMI is not a
ground to conclude that he should be held solidarily liable with PMI for McLeod's money claims.
Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate action is
used to defeat public convenience, justify wrong, protect fraud, or defend crime. In the absence of malice, bad faith, or a
specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for
corporate liabilities. Neither Article 212 (c) nor Article 273 (now 272) of the Labor Code expressly makes any corporate
officer personally liable for the debts of the corporation.

Philippine Geothermal Inc. Employees Union v. Chevron; G.R. No. 190187; September 28, 2016
Doctrine:
The merger of Unocal Corporation with Blue Merger and Chevron does not result in an implied termination of
the employment of petitioner's members. Assuming respondent is a party to the merger, its employment contracts are
deemed to subsist and continue by "the combined operation of the Corporation Code and the Labor Code under the
backdrop of the labor and social justice provisions of the Constitution." [Personality of Corporation Upon Merger]

Facts:
The case involves a labor case resulting from failure to bargain between the parties in consequence of the
merger Unocal and Chevron. As Unocal Philippines and the Union were unable to agree, they decided to submit the
matter to the Department of Labor and Employment's Administrative Intervention for Dispute Avoidance Program.
However, they were unable to arrive at "a mutually acceptable agreement."
Unocal Philippines claimed that the Union was not entitled to separation benefits given that Unocal Philippines
was not a party to the merger, that it never closed nor ceased its business, and that it did not terminate its employees
after the merger. It asserted that its operations continued in the same manner, and with the same manpower
complement.

The CA held that Unocal Philippines has a separate and distinct juridical personality from its parent company,
Unocal Corporation, which was the party that entered into the Merger Agreement. The Court of Appeals ruled that
Unocal Philippines remained undissolved and its employees were unaffected by the merger. It found that this was Commented [FT12]: The merger or
evidenced by the Union's assumption of its role as the duly recognized bargaining representative of all rank-and-file consolidation, as provided in the preceding sections shall
employees a few months after the merger. have the following effects:
1. The constituent corporations shall become a single
Issue: Whether or not there is an implied dismissal of its employees as a consequence of the merger. corporation which, in case of merger, shall be the surviving
corporation designated in the plan of merger; and, in case of
consolidation, shall be the consolidated corporation
Held: designated in the plan of consolidation;
A merger is a consolidation of two or more corporations, which results in one or more corporations being 2. The separate existence of the constituent corporations
absorbed into one surviving corporation. The separate existence of the absorbed corporation ceases, and the surviving shall cease, except that of the surviving or the consolidated
corporation "retains its identity and takes over the rights, privileges, franchises, properties, claims, liabilities and corporation;
3. The surviving or the consolidated corporation shall
obligations of the absorbed corporation(s)." If respondent is a subsidiary of Unocal California, which, in turn, is a
possess all the rights, privileges, immunities and powers and
subsidiary of shall be subject to all the duties and liabilities of a
Unocal Corporation, then the merger of Unocal Corporation with Blue Merger and corporation organized under this Code;
Chevron does not affect respondent or any of its employees. Respondent has a separate and distinct personality from its 4. The surviving or the consolidated corporation shall
parent corporation. Nonetheless, if respondent is indeed a party to the merger, the merger still does not result in the thereupon and thereafter possess all the rights, privileges,
dismissal of its employees. immunities and franchises of each of the constituent
corporations; and all property, real or personal, and all
receivables due on whatever account, including subscriptions
Although this provision does not explicitly state the merger's effect on the employees of the absorbed to shares and other choses in action, and all and every other
corporation, Bank of the Philippine Islands v. BPI interest of, or belonging to, or due to each constituent
Employees Union-Davao Chapter-Federation of Unions in BPI Unibank has ruled that the surviving corporation corporation, shall be taken and deemed to be transferred
automatically assumes the employment contracts of the absorbed corporation, such that the absorbed corporation's to and vested in such surviving or consolidated corporation
without further act or deed; and
employees become part of the manpower complement of the surviving corporation.
5. The surviving or the consolidated corporation shall be
responsible and liable for all the liabilities and obligations of
Section 80 of the Corporation Code provides that the surviving corporation shall possess all the rights, each of the constituent corporations in the same manner as if
privileges, properties, and receivables due of the absorbed corporation. Moreover, all interests of, belonging to, or due to such surviving or consolidated corporation had itself
the absorbed corporation "shall be taken and deemed to be transferred to and vested in such surviving or consolidated incurred such liabilities or obligations; and any claim, action
corporation without further act or deed." The surviving corporation likewise acquires all the liabilities and obligations or proceeding pending by or against any of such constituent
corporations may be prosecuted by or against the surviving
of the absorbed corporation as if it had itself incurred these liabilities or obligations. This acquisition of all assets, or consolidated corporation, as the case may be. Neither the
interests, and liabilities of the absorbed corporation necessarily includes the rights and obligations of the absorbed rights of creditors nor any lien upon the property of any of
corporation under its employment contracts. Consequently, the surviving corporation becomes bound by the such constituent corporations shall be impaired by such
merger or consolidation.
employment contracts entered into by the absorbed corporation. These employment contracts are not terminated. They
subsist unless their termination is allowed by law.

The merger of Unocal Corporation with Blue Merger and Chevron does not result in an implied termination of
the employment of petitioner's members. Assuming respondent is a party to the merger, its employment contracts are
deemed to subsist and continue by "the combined operation of the Corporation Code and the Labor Code under the
backdrop of the labor and social justice provisions of the Constitution."

Jardine Davies v. CA; G.R. No. 128066; June 19, 2000


Doctrine:
A corporation may be awarded with moral damages as long as it was able to prove that such reputation was
besmirched.
Facts:
The case arose from a breached of contract. FEMSCO thus wrote PUREFOODS to honor its contract with the
former, and to JARDINE to cease and desist from delivering and installing the two (2) generators at PUREFOODS. Its
demand letters unheeded, FEMSCO sued both PUREFOODS and JARDINE: PUREFOODS for reneging on its
contract, and JARDINE for its unwarranted interference and inducement. One of the prayers of FEMSCO is for
JARDINE to pay FEMSCO moral damages.

Issue: Whether or not FEMSCO is entitled to moral damages.

Held:
Yes. The Court ruled that it has awarded in the past moral damages to a corporation whose reputation has been
besmirched. In the instant case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it
immediately ordered equipment from its suppliers on account of the urgency of the project, only to be canceled later. We
thus sustain respondent appellate court's award of moral damages.

ABS-CBN broadcasting v. CA; G.R. 128690; January 21, 1999


Doctrine:
The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and
having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience
physical suffering and mental anguish, which can be experienced only by one having a nervous system. [Juridical
Personality of Corporations; Consequences]

Facts:
The case arose from the Agreement which ABS-CBN and Viva had. ABS CBN claims that it had yet to fully
exercise its right of first refusal over twenty-four titles under the 1990 Film Exhibition Agreement, as it had chosen
only ten titles from the first list. It insists that we give credence to Lopez's testimony that he and Del Rosario met at the
Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992 Film Exhibition Agreement)
and upon agreement thereon, wrote the same on a paper napkin. Moreover, there is no basis to award RBS damages.

On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent any
meeting of minds between them regarding the object and consideration of the alleged contract. It affirms that ABS-
CBN's claim of a right of first refusal was correctly rejected by the trial court. As regards moral and exemplary
damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely for the purpose of harassing and
prejudicing RBS.
Pursuant then to Articles 19 and 21 of the Civil Code, ABS-CBN must be held liable for such damages. Citing Tolentino,
damages may be awarded in cases of abuse of rights even if the act done is not illicit, and there is abuse of rights where a
plaintiff institutes an action purely for the purpose of harassing or prejudicing the defendant. In support of its stand that
a juridical entity can recover moral and exemplary damages, private respondent RBS cited People v. Manero, where it
was stated that such entity may recover moral and exemplary damages if it has a good reputation that is debased
resulting in social humiliation.

Issue: Whether or not a corporation may claim moral damages.

Held:
Generally, no unless the basis of such moral damages is besmirched reputation. The award of moral damages
cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental
anguish which can be experienced only by one having a nervous system. The statement in People v. Manero and
Mambulao Lumber Co. v. PNB that a corporation may recover moral damages if it "has a good reputation that is
debased, resulting in social humiliation" is an obiter dictum. On this score alone the award for damages must be set
aside, since RBS is a corporation.

NOTE:
Under the Corporation Code, unless otherwise provided by said Code, corporate powers, such as the power to
enter into contracts, are exercised by the Board of Directors. However, the Board may delegate such powers to either an
executive committee or officials or contracted managers. The delegation, except for the executive committee, must be
for specific purposes. Delegation to officers makes the latter agents of the corporation; accordingly, the general rules of
agency as to the binding effects of their acts would apply. For such officers to be deemed fully clothed by the corporation
to exercise a power of the Board, the latter must specially authorize them to do so.

Y-1 Leisure v. YU; G.R. No. 207171; September 8, 2015


Doctrine: (Nell Doctrine)
Facts:
MADCI offered for sale shares of a golf and country club located in the vicinity of Mt. Arayat in Arayat,
Pampanga. Relying on the representation of MADCI's brokers and sale agents, Yu bought 500 golf and 150 country
club shares which he paid by installment with fourteen (14) Far East Bank and Trust Company (FEBTC) checks.

Upon full payment of the shares to MADCI, Yu visited the supposed site of the golf and country club and
discovered that it was non-existent. In a letter, Yu demanded from MADCI that his payment be returned to him.
MADCI recognized that Yu had an investment but the latter had not yet received any refund.

Yu filed with the RTC a complaint against MADCI and its president Rogelio Sangil (Sangil) to recover his
payment for the purchase of golf and country club shares. In his transactions with MADCI, Yu alleged that he dealt
with Sangil, who used MADCI's corporate personality to defraud him. This was denied by Sangil and he further alleged
that the return of Yu's money was no longer possible because its approval had been blocked by the new set of officers of
MADCI, which controlled the majority of its board of directors.

On the other hand, MADCI claimed that it was Sangil who defrauded Yu. It invoked the Memorandum of
Agreement (MOA) entered into by MADCI, Sangil and petitioner Yats International Ltd. (YIL). Under the MOA,
Sangil undertook to redeem MADCI proprietary shares sold to third persons or settle in full all their claims for refund
of payments. Thus, it was MADCI's position that Sangil should be ultimately liable to refund the payment for shares
purchased.

Later on Yu found out that all the assets of MADCI, consisting of one hundred twenty (120) hectares of land
located in Magalang, Pampanga, were sold to YIL, YILPI and YICRI. The transfer was done in fraud of MADCI's
creditors, and without the required approval of its stockholders and board of directors under Section 40 of the
Corporation Code. AT the CA, it ruled that petitioners should also be held jointly and severally liable to Yu. Petitioner
argues that there was no stipulation whatsoever stating that the petitioners shall assume the payment of MADCI's
debts.

Issue: whether the transfer of all or substantially all the assets of a corporation under Section 40 of the Corporation
Code carries with it the assumption of corporate liabilities.

Held:
In the 1965 case of Nell v. Pacific Farms, Inc., the Court first pronounced the rule regarding the transfer of all
the assets of one corporation to another (hereafter referred to as the Nell Doctrine) as follows:
Generally, where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is
not liable for the debts and liabilities of the transferor, except:
1. Where the purchaser expressly or impliedly agrees to assume such 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 entered into fraudulently in order to escape liability for such debts.
The Nell Doctrine states the general rule that the transfer of all the assets of a corporation to another shall not
render the latter liable to the liabilities of the transferor. If any of the above-cited exceptions are present, then the
transferee corporation shall assume the liabilities of the transferor.

The general rule expressed by the doctrine reflects the principle of relativity under Article 1311 of the Civil
Code. Contracts, including the rights and obligations arising therefrom, are valid and binding only between the
contracting parties and their successors-in-interest. Thus, despite the sale of all corporate assets, the transferee
corporation cannot be prejudiced as it is not in privity with the contracts between the transferor corporation and its
creditors.

The first exception under the Nell Doctrine, where the transferee corporation expressly or impliedly agrees to
assume the transferor's debts, is provided under Article 2047 of the Civil Code. When a person binds himself solidarily
with the principal debtor, then a contract of suretyship is produced. Necessarily, the corporation which expressly or
impliedly agrees to assume the transferor's debts shall be liable to the same.

The second exception under the doctrine, as to the merger and consolidation of corporations, is well-established
under Sections 76 to 80, Title X of the Corporation Code. If the transfer of assets of one corporation to another amounts
to a merger or consolidation, then the transferee corporation must take over the liabilities of the transferor.

Another exception of the doctrine, where the sale of all corporate assets is entered into fraudulently to escape
liability for transferor's debts, can be found under Article 1388 of the Civil Code. It provides that whoever acquires in
bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered. Thus, if there is fraud
in the transfer of all the assets of the transferor corporation, its creditors can hold the transferee liable.

The legal basis of the last in the four (4) exceptions to the Nell Doctrine, where the purchasing corporation is
merely a continuation of the selling corporation, is challenging to determine. In his book, Philippine Corporate Law,
Dean Cesar Villanueva explained that this exception contemplates the "business-enterprise transfer." In such transfer,
the transferee corporation's interest goes beyond the assets of the transferor's assets and its desires to acquire the
latter's business enterprise, including its goodwill.

In other words, in this last exception, the transferee purchases not only the assets of the transferor, but also its
business. As a result of the sale, the transferor is merely left with its juridical existence, devoid of its industry and
earning capacity. Fittingly, the proper provision of law that is contemplated by this exception would be Section 40 of the
Corporation Code. To reiterate, Section 40 refers to the sale, lease, exchange or disposition of all or substantially all of
the corporation's assets, including its goodwill. The sale under this provision does not contemplate an ordinary sale of
all corporate assets; the transfer must be of such degree that the transferor corporation is rendered incapable of
continuing its business or its corporate purpose.

Section 40 suitably reflects the business-enterprise transfer under the exception of the Nell Doctrine because the
purchasing or transferee corporation necessarily continued the business of the selling or transferor corporation. Given
that the transferee corporation acquired not only the assets but also the business of the transferor corporation, then the
liabilities of the latter are inevitably assigned to the former. It must be clarified, however, that not every transfer of the
entire corporate assets would qualify under Section 40. It does not apply (1) if the sale of the entire property and assets
is necessary in the usual and regular course of business of corporation, or (2) if the proceeds of the sale or other
disposition of such property and assets will be appropriated for the conduct of its remaining business. Thus, the litmus
test to determine the applicability of Section 40 would be the capacity of the corporation to continue its business after
the sale of all or substantially all its assets.

Jurisprudence has held that in a business-enterprise transfer, the transferee is liable for the debts and liabilities
of his transferor arising from the business enterprise conveyed. Many of the application of the business enterprise
transfer have been related by the Court to the application of the piercing doctrine. The exception of the Nell doctrine,
which finds its legal basis under Section 40, provides that the transferee corporation assumes the debts and liabilities of
the transferor corporation because it is merely a continuation of the latter's business. A cursory reading of the exception
shows that it does not require the existence of fraud against the creditors before it takes full force and effect. Indeed,
under the Nell Doctrine, the transferee corporation may inherit the liabilities of the transferor despite the lack of fraud
due to the continuity of the latter's business.
Notably, an evaluation of the relevant jurisprudence reveals that fraud is not an essential element for the
application of the business-enterprise transfer. The exception of the Nell doctrine, which finds its legal basis under
Section 40, provides that the transferee corporation assumes the debts and liabilities of the transferor corporation
because it is merely a continuation of the latter's business. A cursory reading of the exception shows that it does not
require the existence of fraud against the creditors before it takes full force and effect. Indeed, under the Nell Doctrine,
the transferee corporation may inherit the liabilities of the transferor despite the lack of fraud due to the continuity of
the latter's business. The purpose of the business-enterprise transfer is to protect the creditors of the business by
allowing them a remedy against the new owner of the assets and business enterprise. Otherwise, creditors would be left
"holding the bag," because they may not be able to recover from the transferor who has "disappeared with the loot," or
against the transferee who can claim that he is a purchaser in good faith and for value. Based on the foregoing, as the
exception of the Nell doctrine relates to the protection of the creditors of the transferor corporation, and does not
depend on any deceit committed by the transferee corporation, then fraud is certainly not an element of the business
enterprise doctrine.

It is apparent that the business enterprise transfer rule applies when two requisites concur: (a) the transferor
corporation sells all or substantially all of its assets to another entity; and (b) the transferee corporation continues the
business of the transferor corporation. Both requisites are present in this case.

While the Corporation Code allows the transfer of all or substantially all of the assets of a corporation, the
transfer should not prejudice the creditors of the assignor corporation. Under the business-enterprise transfer, the
petitioners have consequently inherited the liabilities of MADCI because they acquired all the assets of the latter
corporation. The continuity of MADCI's land developments is now in the hands of the petitioners, with all its assets and
liabilities. There is absolutely no certainty that Yu can still claim its refund from MADCI with the latter losing all its
assets. To allow an assignor to transfer all its business, properties and assets without the consent of its creditors will
place the assignor's assets beyond the reach of its creditors. Thus, the only way for Yu to recover his money would be to
assert his claim against the petitioners as transferees of the assets.

San Miguel Corp v. Kahn; G.R. No. 85339; August 11, 1989
Doctrine:
The requisites for a derivative suit are as follows: a) the party bringing suit should be a shareholder as of the
time of the act or transaction complained of, the number of his shares not being material; b) he has tried to exhaust
intra-corporate remedies, i.e., has made a demand on the board of directors for the appropriate relief but the latter has
failed or refused to heed his plea; and c) the cause of action actually devolves on the corporation, the wrongdoing or
harm having been, or being caused to the corporation and not to the particular stockholder bringing the suit.

Facts:
The case is about the Board Resolution No. 86-12-2. The SMC Board, by Resolution No. 86-12-2, "decided to
assume the loans incurred by Neptunia for the down payment (P500M) on the 33,133,266 shares." The Board opined
that there was "nothing illegal in this assumption (of liability for the loans)," since Neptunia was "an indirectly wholly
owned subsidiary of SMC," there "was no additional expense or exposure for the SMC Group, and there were tax and
other benefits which would redound to the SMC group of companies."

However, at the meeting of the SMC Board, Eduardo de los Angeles, one of the PCCG representatives in the
SMC board, impugned said Resolution No. 86-12-2, denying that it was ever adopted, and stating that what in truth was
agreed upon at the previous meeting was merely a "further study" by Director Ramon del Rosario of a plan presented by
him for the assumption of the loan. De los Angeles also pointed out certain "deleterious effects" thereof. He was however
overruled by private respondents. When his efforts to obtain relief within the corporation and later the PCGG proved
futile, he repaired to the Securities and Exchange Commission (SEC).

He filed with the SEC, what he describes as a derivative suit in behalf of San Miguel Corporation, against ten
(10) of the fifteen-member Board of Directors who had "either voted to approve and/or refused to reconsider and revoke
Board Resolution No. 86-12-2." Ernest Kahn moved to dismiss de los Angeles' derivative suit on two grounds, to wit: 1.
De los Angeles has no legal capacity to sue because:
a) having been merely "imposed" by the PCCG as a director on San Miguel, he has no standing to bring a minority
derivative suit; b) he personally holds only 20 shares and hence cannot fairly and adequately represent the minority
stockholders of the corporation; c) he has not come to court with clean hands; and The Securities & Exchange
Commission has no jurisdiction over the controversy because the matters involved are exclusively within the business
judgment of the Board of Directors.

Issue: Whether or not De los Angeles have personality to file the derivative suit.
Held:
Yes. The theory that de los Angeles has no personality to bring suit in behalf of the corporation — because his
stockholding is minuscule, and there is a "conflict of interest" between him and the PCGG — cannot be sustained,
either. It is claimed that since de los Angeles' 20 shares (owned by him since 1977) represent only .00001644% of the
total number of outstanding shares (121,645,860), he cannot be deemed to fairly and adequately represent the interests
of the minority stockholders. The implicit argument — that stockholder, to be considered as qualified to bring a
derivative suit, must hold a substantial or significant block of stock — finds no support whatever in the law. The
requisites for a derivative suit are as follows:
a) The party bringing suit should be a shareholder as of the time of the act or transaction complained of, the
number of his shares not being material;
b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for the
appropriate relief but the latter has failed or refused to heed his plea; and
c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being
caused to the corporation and not to the particular stockholder bringing the suit.

The bona fide ownership by a stockholder of stock in his own right suffices to invest him with standing to bring
a derivative action for the benefit of the corporation. The number of his shares is immaterial since he is not suing in his
own behalf, or for the protection or vindication of his own particular right, or the redress of a wrong committed against
him, individually, but in behalf and for the benefit of the corporation.

Restaurante Las Conchas v. LLego; G.R. No. 119085; September 9, 1999


Doctrine:
Although as a rule, the officers and members of a corporation are not personally liable for acts done in the
performance of their duties, this rule admits of exceptions, one of which is when the employer-corporation is no longer
existing and is unable to satisfy the judgment in favor of the employee, the officers should be held liable for acting on
behalf of the corporation. In that case, the restaurant business had to be closed down because possession of the premises
had been lost through an adverse decision in an ejectment case. [Liability of Officers]

Facts:
Petitioner lost a land case with Ayala. Given this lost, petitioner is unable to find a location to place its business.
As such, its business ceased its operations. Thus, resulted in the termination of employment of private respondents.
Private respondents filed a complaint with the Labor Arbiter for payment of separation pay and 13th month pay.

Petitioners claim that the private respondents were not entitled to separation pay because under the law, the
payment of separation benefits is mandated only when the closure of business or cessation of its operations was not due
to serious business losses or reverses. In this case, they contend that the restaurant was encountering serious business
losses, thus, private respondents were not entitled to the separation benefits provided for under Art. 283 of the Labor
Code.

Petitioners David Gonzales and Elizabeth Ann Gonzales, it is argued that they were mere officers and members
of the board of directors of petitioner corporation which has a separate and distinct personality from those of its
members and officers, hence, the Gonzales couple cannot be held to answer for the corporation's liabilities. They insist
that personally, they had nothing to do with the separation of hereon private respondents from petitioner corporation
and therefore, should not be made personally liable for their alleged separation pay.

Issue: Whether or not petitioner is liable to pay private respondents.

Held:

Records reveal that the Restaurant Services Corporation was not a party respondent in the complaint filed before the
Labor Arbiter. The complaint was filed only against the Restaurante Las Conchas and the spouses David Gonzales and
Elizabeth Anne Gonzales as owner, manager and president. The Restaurant Services Corporation was mentioned for the
first time in the Motion to Dismiss filed by petitioners David Gonzales and Elizabeth Anne Gonzales who did not even
bother to adduce any evidence to show that the Restaurant Services Corporation was really the owner of the
Restaurante Las Conchas. On the other hand, if indeed, the Restaurant Services Corporation was the owner of the
Restaurante Las Conchas and the employer of the private respondents, it should have filed a motion to intervene in the
case. The records, however, show that no such motion to intervene was ever filed by the said corporation. The only
conclusion that can be derived is that the Restaurant Services Corporation, if it still exists, has no legal interest in the
controversy. Notably, the corporation was only included in the decision of the Labor Arbiter and the NLRC as
respondent because of the mere allegation of petitioners David Gonzales and Elizabeth Gonzales, albeit without proof,
that it is the owner of the Restaurante Las Conchas. Thus, petitioners David Gonzales and Elizabeth Anne Gonzales
cannot rightfully claim that it is the corporation which should be made liable for the claims of private respondents.

Assuming that indeed, the Restaurant Services Corporation was the owner of the Restaurante Las Conchas and
the employer of private respondents, this will not absolve petitioners David Gonzales and Elizabeth Anne Gonzales
from their liability as corporate officers. Although as a rule, the officers and members of a corporation are not personally
liable for acts done in the performance of their duties, this rule admits of exceptions, one of which is when the employer
corporation is no longer existing and is unable to satisfy the judgment in favor of the employee, the officers should be
held liable for acting on behalf of the corporation. Here, the corporation does not appear to exist anymore.

In the present case, the employees can no longer claim their separation benefits and 13 th month pay from the
corporation because it has already ceased operation. To require them to do so would render illusory the separation and
13th month pay awarded to them by the NLRC. Their only recourse is to satisfy their claim from the officers of the
corporation who were, in effect, acting in behalf of the corporation. It would appear that, originally, Restaurante Las
Conchas was a single proprietorship put up by the parents of Elizabeth Anne Gonzales, who together with her husband,
petitioner David Gonzales, later took over its management. Private respondents claim, and rightly so, that the former
were the real owners of the restaurant. The conclusion is bolstered by the fact that petitioners never revealed who were
the other officers of the Restaurant Services Corporation, if only to pinpoint responsibility in the closure of the
restaurant that resulted in the dismissal of private respondents from employment. Petitioners David Gonzales and
Elizabeth Anne Gonzales are, therefore, personally liable for the payment of the separation and 13 th month pay due to
their former employees.

AVON Insurance v. CA; G.R. No. 97642; August 29, 1997


Held:
"There is no exact rule or governing principle as to what constitutes doing or engaging in or transacting
business. Indeed, such case must be judged in the light of its peculiar circumstances, upon its peculiar facts and upon the
language of the statute applicable. The true test, however, seems to be whether the foreign corporation is continuing the
body or substance of the business or enterprise for which it was organized. Article 44 of the Omnibus Investments Code
of 1987 defines the phrase to include: 'soliciting orders, purchases, service contracts, opening offices, whether called
'liaison' offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in
any calendar year stay in the Philippines for a period or periods totaling one hundred eighty (180) days or more;
participating in the management, supervision or control of any domestic business form, entity or corporation in the
Philippines, and any other act or acts that imply a continuity or commercial dealings or arrangements and contemplate
to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the business organization.'" The term
ordinarily implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of the functions normally incident to and in progressive prosecution of the
purpose and object of its organization. A single act or transaction made in the Philippines, however, could qualify a
foreign corporation to be doing business in the Philippines, if such singular act is not merely incidental or casual, but
indicates the foreign corporation's intention to do business in the Philippines.

For the purpose of acquiring jurisdiction by way of summons on a defendant foreign corporation, there is no
need to prove first the fact that defendant is doing business in the Philippines. The plaintiff only has to allege in the
complaint that the defendant has an agent in the Philippines for summons to be validly served thereto, even without
prior evidence advancing such factual allegation. A foreign corporation, is one which owes its existence to the laws of
another state, [Section 123, Corporation Code of the Philippines] and generally, has no legal existence within the state
in which it is foreign. In Marshall Wells Co. vs. Elser, No. 22015, September 1, 1924, 46 Phil. 70, it was held that
corporations have no legal status beyond the bounds of the sovereignty by which they are created. Nevertheless, it is
widely accepted that foreign corporations are, by reason of state comity, allowed to transact business in other states and
to sue in the courts of such fora. In the Philippines foreign corporations are allowed such privileges, subject to certain
restrictions, arising from the state's sovereign right of regulation. Before a foreign corporation can transact business in
the country, it must first obtain a license to transact business here [Section 125, 126, Corporation Code of the
Philippines] and secure the proper authorizations under existing law. If a foreign corporation engages in business
activities without the necessary requirements, it opens itself to court actions against it, but it shall not be allowed to
maintain or intervene in an action, suit or proceeding for its own account in any court or tribunal or agency in the
Philippines. [Section 133, id.]

The purpose of the law in requiring that foreign corporations doing business in the country be licensed to do so,
is to subject the foreign corporations doing business in the Philippines to the jurisdiction of the courts, otherwise, a
foreign corporation illegally doing business here because of its refusal or neglect to obtain the required license and
authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and
thereby impugn the jurisdiction of the local courts. The same danger does not exist among foreign corporations that are
indubitably not doing business in the Philippines. Indeed, if a foreign corporation does not do business here, there would
be no reason for it to be subject to the State's regulation. As we observed, in so far as the State is concerned, such
foreign corporation has no legal existence. Therefore, to subject such corporation to the courts' jurisdiction would
violate the essence of sovereignty.

Merrill Lynch Futures, Inc. v. CA; G.R. No. 97816; July 24, 1992
Held:
In other words, if it be true that during all the time that they were transacting with ML FUTURES, the Laras
were fully aware of its lack of license to do business in the Philippines, and in relation to those transactions had made
payments to, and received money from it for several years, the question is whether or not the Lara Spouses are now
estopped to impugn ML FUTURES capacity to sue them in the courts of the forum. The rule is that a party is estopped
to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it.

And the "doctrine of estoppel to deny corporate existence applies to foreign as well as to domestic corporations;"
[14 C.J. 227] "one who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its
corporate existence and capacity." [36 Am Jur 2d, pp. 296-297, although there is authority that said doctrine "does not,
by analogy, require that such person be held estopped to deny that the corporation has complied with the local statutes
imposing conditions, restrictions, and regulations on foreign corporations and that it has acquired thereby the right to
do business in the state"] The principle "will be applied to prevent a person contracting with a foreign corporations
from later taking advantage of its noncompliance with the statues, chiefly in cases where such person has received the
benefits of the contract (Sherwood v. Alvis, 83 Ala 115, 3 So 307, limited and distinguished in Dudley v. Collier, 87 Ala
431, 6 So 304; Spinney v. Miller 114 Iowa 210, 86 NW 317), where such person has acted as agent for the corporation
and has violated his fiduciary obligations as such, and where the statute does not provide that the contract shall be void,
but merely fixes a special penalty for violation of the statute."

There would seem to be no question that the Laras received benefits generated by their business relations with
ML FUTURES. Those business relations, according to the Laras themselves, spanned a period of seven (7) years; and
they evidently found those relations to be of such profitability as warranted their maintaining them for that not
insignificant period of time; otherwise, it is reasonably certain that they would have terminated their dealings with ML
FUTURES much, much earlier. In fact, even as regards their last transaction, in which the Laras allegedly suffered a
loss in the sum of US$160,749.69, the Laras nonetheless still received some monetary advantage, for ML FUTURES
credited them with the amount of US $75,913.42 then due to them, thus reducing their debt to US $84,836.27. Given
these facts, and assuming that the Lara Spouses were aware from the outset that ML FUTURES had no license to do
business in this country and MLPI, no authority to act as broker for it, it would appear quite inequitable for the Laras to
evade payment of an otherwise legitimate indebtedness due and owing to ML FUTURES upon the plea that it should
not have done business in this country in the first place, or that its agent in this country, MLPI, had no license either to
operate as a "commodity and/or financial futures broker."

The general rule that in the absence of fraud a person who has contracted or otherwise dealt with an association
in such a way as to recognize and in effect admit its legal existence as corporate body is thereby estopped to deny its
corporate existence in any action leading out of or involving such contract or dealing, unless its existence is attacked for
causes which have arisen since making the contract or other dealing relied on as an estoppel and this applies to foreign
as well as domestic corporations.

Columbia Pictures, Inc. V. CA; G.R. No. 110318; August 28, 1996
Held:
The obtainment of a license prescribed by Section 125 of the Corporation Code is not a condition precedent to
the maintenance of any kind of action in Philippine courts by foreign corporation. However, under the aforequoted
provision, no foreign corporation shall be permitted to transact business in the Philippines, as this phrase is understood
under the Corporation Code, unless it shall have the license required by law, and until it complies with the law in
transacting business here, it shall not be permitted to maintain any suit in local courts. As thus interpreted, any foreign
corporation not doing business in the Philippines may maintain an action in our courts upon any cause of action,
provided that the subject matter and the defendant are within the jurisdiction of the court. It is not the absence of the
prescribed license but "doing business" in the Philippines without such license which debars the foreign corporation
from access to our courts. In other words, although a foreign corporation is without license to transact business in the
Philippines, it does not follow that It has no capacity to bring an action. Such license is not necessary if it is not engaged
in business in the Philippines. Based on Article 133 of the Corporation Code and gauged by such statutory standards,
petitioners are not barred from maintaining the present action. There is no showing that, under our statutory of case
law, petitioners are doing, transacting, engaging in or carrying on business in the Philippines as would require
obtaining of a license before they can seek redress from our courts. No evidence has been offered to show that
petitioners have performed any of the enumerated acts or any other specific act indicative of an intention to conduct or
transact business in the Philippines.

No general rule or governing principle can be laid down as to what constitutes "doing" or "engaging in" or
"transacting" business. Each case must be judged in the light of its own peculiar environmental circumstances. The true
tests, however, seem to be whether the foreign corporation is continuing the body or substance of the business or
enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. As a
general proposition upon which many authorities agree in principle, subject to such modifications as may be necessary in
view of the particular issue or of the terms of the statute involved, it is recognized that a foreign corporation is "doing",
"transacting", "engaging in", or carrying on "business in the State when, and ordinarily only when, it has entered the
State by its agent and is there engaged in carrying on and transacting through them some substantial part of its
ordinary or customary business, usually continuous in the sense that it may be distinguished from merely casual,
sporadic, or occasional transactions and isolated acts. The Corporation Code does not itself define or categorize what
acts constitute doing or transacting business in the Philippines. Jurisprudence has, however, held that the term implies a
continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works
or the exercise of some of the functions normally incident to or in progressive prosecution of the purpose and subject of
its organization.

Presidential Decree No. 1789, in Article 65 thereof, defines "doing business" to include soliciting orders,
purchases, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or
distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or
periods totaling one hundred eighty days or more; participating in the management, supervision or control of any
domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity of
commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise
of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and
object of the business organization.

The fact that petitioners are admittedly copyright owners or owners of exclusive distribution rights in the
Philippines motion pictures or alms does not convert such ownership into an indicium of doing business which would
require them to obtain a license before they can sue upon a cause of action in local courts. In accordance with the rule
that "doing business" imports only acts in furtherance of the purposes for which a foreign corporation was organized, it
is held that the mere institution and prosecution or defense of a suit, particularly if the transaction which is the basis of
the suit took place out of the State, do not amount to the doing of business in the State. The institution of a suit or the
removal thereof is neither the making of contract nor the doing of business within a constitutional provision placing
foreign corporations licensed to do business in the State under the same regulations, limitations and liabilities with
respect to such acts as domestic corporations. Merely engaging in litigation has been considered as not a sufficient
minimum contact to warrant the exercise of Jurisdiction over a foreign corporation.

As a general rule, a foreign corporation will not be regarded as doing business in the State simply because it
enters into contracts with residents of the State, where such contracts are consummated outside the State. In fact, a view
is taken that a foreign corporation is not doing business in the state merely because sales of its product are made there
or other business furthering its interests is transacted there by an alleged agent, whether a corporation or a natural
person, where such activities are not under the direction and control of the foreign corporation but are engaged in by
the alleged agent as an independent business.

It is generally held that sales made to customers in the State by an independent dealer who has purchased and
obtained title from the corporation to the products sold are not a doing of business by the corporation. Likewise, a
foreign corporation which sells its products to persons styled "distributing agents" in the State, for distribution by then,
is not doing business in the State so as to render it subject to service of process therein, where the contract with these
purchasers is that they shall buy exclusively from the foreign corporation such goods as it manufactures and shall sell
them at trade prices established by it. It has moreover been held that the act of a foreign corporation in engaging an
attorney to represent it in a Federal court sitting in a particular State is not doing business within the scope of the
minimum contact test. With much more reason should this doctrine apply to the mere retainer of Atty. Domingo for
legal protection against contingent acts of intellectual piracy.

In accordance with the rule that "doing business" imports only acts in furtherance of the purposes for which a
foreign corporation was organized, it is held that the mere institution and prosecution or defense of a suit, particularly if
the transaction which is the basis of the suit took place out of the State, do not amount to the doing of business in the
State. The institution of a suit or the removal thereof is neither the making of a contract nor the doing of business
within a constitutional provision placing foreign corporations licensed to do business in the State under the same
regulations, limitations and liabilities with respect to such acts as domestic corporations. Merely engaging in litigation
has been considered as not a sufficient minimum contact to warrant the exercise of jurisdiction over a foreign
corporation.

La Chemise Lacoste v. Fernandez; G.R. Nos. 63796-97; May 21, 1984


Held:
In the present case, the petitioner is a foreign corporation. The marketing of its products in the Philippines is
done through an exclusive distributor, Rustan Commercial Corporation. The latter is an independent entity which buys
and then markets not only products of the petitioner but also many other products bearing equally well-known and
established trademarks and tradenames. In other words, Rustan is not a mere agent or conduit of the petitioner.
Applying Rule I Section 1 (g) of the rules and regulations promulgated by the Board of Investments pursuant to its rule-
making power under Presidential Decree No. 1789, otherwise known as the Omnibus Investment Code, to the facts of
this case, we find and conclude that the petitioner is not doing business in the Philippines. Rustan is actually a
middleman acting and transacting business in its own name and/or its own account and not in the name or for the
account of the petitioner.

Foreign corporation not doing business in the Philippines needs no license to sue before Philippine courts for
infringement of trademark and unfair competition (Western Equipment and Supply Co. vs. Reyes, 51 Phil. 115). In East
Board Navigation Ltd. v. Ysmael and Co., Inc. (102 Phil. 1), we recognized a right of foreign corporation to sue on
isolated transactions. In General Garments Corp. v. Director of Patents, (41 SCRA 50), we sustained the right of
Puritan Sportswear Corp., a foreign corporation not licensed to do and not doing business in the Philippines, to file a
petition for cancellation of a trademark before the Patent Office.

Mentholatum Co., Inc. v, Mangaliman; G.R. No 47701; June 27, 1941


Held:
No general rule or governing principles can be laid down as to what constitutes "doing" or "engaging in" or
"transacting" business. Indeed, each case must be judged in the light of its peculiar environmental circumstances. The
rule test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or
enterprise for which it was organized or whether it has substantially retire from it and turned it over to another.
(Traction Cos. vs. Collectors of Int. Revenue [C. C. S. Ohio], 223 F., 984, 987.) The term implies a continuity of
commercial dealings and arrangements, and contemplates to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its
organization.

The Mentholatum Co., Inc. being a foreign corporation doing business in the Philippines without the license
required by section 68 of the Corporation Law, it may not prosecute this action for violation of trade mark and unfair
competition. Neither may the Philippine-American Drug Co., Inc. maintain the action here for the reason that the
distinguishing features of the agent being his representative character and derivative authority (Merchem on Agency,
sec. 1; Story on Agency, sec. 3; Sternaman vs. Metropolitan Life Ins. Co., 170 N. Y., 21), it cannot now, to the advantage
of its principal, claim an independent standing in court.