1. NARRA NICKEL MINING AND DEVELOPMENT CORP.
, TESORO Tesoro and Narra are in fact Philippine Nationals as 60% of their
MINING AND DEVELOPMENT, INC., and MCARTHUR MINING,
INC., petitioners, vs. REDMONT CONSOLIDATED MINES CORP.,
respondent.
G.R. No. 195580, April 21, 2014
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. However, said areas were already covered by Mineral
Production Sharing Agreement (MPSA) applications of petitioners
Narra, Tesoro and McArthur with the DENR.
Redmont filed three (3) separate petitions for the denial of
petitioners' applications for MPSA before the Panel of Arbitrators
(POA) of the DENR, alleging 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. Petitioners
then filed a conversion of their MPSA applications to Financial or
Technical Assistance Agreements (FTAAs).
According to Redmont, 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. It 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.
Petitioners stated that they were qualified persons under the law and
that their nationality as applicants is immaterial because they also
applied for FTAAs which are granted to foreign-owned corporations
and that the issue on nationality should not be raised since McArthur,
capital is owned by citizens of the Philippines. They said that the best
tool used in determining the nationality of a corporation is the
"control test," embodied in the Foreign Investments Act of 1991.
Issues:
1. Whether or not petitioners are Filipino or Foreign Corporations
qualified from gaining MPSAs.
2. Whether or not the “control test” or the “grandfather rule” will
apply when there is doubt as to the 60-40 Filipino-Foreign equity
ownership in the corporation.
Ruling:
 POA:
Petitioners being considered as Foreign Corporations "effectively
controlled" by MBMI, a 100% Canadian company, are disqualified
from gaining MPSAs and declared their MPSAs null and void.
The filing of the FTAA application during the pendency of the case
only demonstrate the violations and lack of qualification of the
respondent corporations to engage in mining. The filing of the FTAA
application conversion which is allowed foreign corporation of the
earlier MPSA is an admission that indeed the respondent is not
Filipino but rather of foreign nationality who is disqualified under the
laws.
McArthur and Tesoro filed a joint Notice of Appeal and Memorandum
of Appeal with the Mines Adjudication Board (MAB) while Narra
separately filed its Notice of Appeal and Memorandum of Appeal.
Pending the resolution of the appeal filed by petitioners with the
MAB, Redmont filed a Complaint with the SEC, seeking revocation of
petitioners’ certificates for registration on the ground that they are
foreign-owned or controlled corporations engaged in mining in
violation of Philippine laws.
Subsequently, Redmont filed a Complaint for injunction with
application for issuance of a TRO and/or writ of preliminary injunction
with the RTC praying for the deferral of the MAB proceedings pending
the resolution of the Complaint before the SEC.
 MAB:
The MAB issued an Order finding the appeal meritorious. It reversed
and set aside the Resolution of the POA thereby dismissing
Redmont’s Petition.
 RTC:
The RTC granted the issuance of a writ of preliminary injunction
enjoining the MAB from finally disposing of the appeals of petitioners
and from resolving Redmont's Motion for Reconsideration and
Supplement Motion for Reconsideration of the MAB's Resolution.
The MAB issued a second Order denying Redmont's Motion for
Reconsideration and Supplemental Motion for Reconsideration and
resolving the appeals filed by petitioners.
Hence, Redmont filed a petition for review before the Court of
Appeals, assailing the MAB Orders.
 Court of Appeals:
The CA upheld the findings of the POA Resolution which considered
petitioners McArthur, Tesoro and Narra as foreign corporations. The
CA found that there was doubt as to the nationality of petitioners
when it realized that petitioners had a common major investor,
MBMI, a corporation composed of 100% Canadians.
The CA used the "grandfather rule" to determine the nationality of
petitioners. It looked into their corporate structures and their
corresponding common shareholders. 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 in all mining
corporations involved is MBMI." Thus, it concluded that petitioners
McArthur, Tesoro and Narra are also in partnership with, or privies-in-
interest of, MBMI.
While the petition was pending with the CA, Redmont filed with the
OP a petition seeking the cancellation of petitioners' FTAAs.
 Office of the President (OP):
The OP rendered a Decision which canceled and revoked petitioners'
FTAAs for violating and circumventing the Constitution and pertinent
laws. The filing of the FTAA application during the pendency of the
case only demonstrate the violations and lack of qualification of the
respondent corporations to engage in mining. The filing of the FTAA
application conversion which is allowed foreign corporation of the
earlier MPSA is an admission that indeed the respondent is not
Filipino but rather of foreign nationality who is disqualified under the
laws.
The Motion for Reconsideration of the Decision was further denied by
the OP. Hence, the instant petition for review against the CA Decision.
 Supreme Court:
Grandfather test
Basically, there are two acknowledged tests in determining the
nationality of a corporation: the control test and the grandfather rule.
The first part of paragraph 7, DOJ Opinion No. 020, Series of 2005,
adopting the 1967 SEC Rules which implemented the requirement of
the Constitution and other laws pertaining to the controlling interests
in enterprises engaged in the exploitation of natural resources owned
by Filipino citizens, stating that "shares belonging to corporations or
partnerships at least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality," pertains to
the control test or the liberal rule. On the other hand, the second
part of the DOJ Opinion which provides, "if the percentage of the
Filipino ownership in the corporation or partnership is less than 60%,
only the number of shares corresponding to such percentage shall be
counted as Philippine nationality," pertains to the stricter, more
stringent grandfather rule.
"Corporate layering" is admittedly allowed by the FIA but if it is used
to circumvent the Constitution and pertinent laws, then it becomes
illegal. Further, the pronouncement of petitioners that the
grandfather rule has already been abandoned must be discredited for
lack of basis.
The emphasized portion which focuses on the State entering into
different types of agreements for the exploration, development, and
utilization of natural resources with entities who are deemed Filipino
due to 60% ownership of capital is pertinent to this case, since the
issues are centered on the utilization of our country's natural
resources or specifically, mining. Thus, there is a need to ascertain the
nationality of petitioners since, as the Constitution so provides, such
agreements are only allowed corporations or associations "at least
60% of such capital is owned by such citizens."
It is apparent that it is the intention of the framers of the Constitution
to apply the grandfather rule in cases where corporate layering is
present. In this instance, specifically pertaining to the provisions
under Art. XII of the Constitution on National Economy and
Patrimony, Sec. 3 of the FIA will have no place of application. As
decreed by the honorable framers of our Constitution, the
grandfather rule prevails and must be applied.
The Grandfather Rule or the second part of the SEC Rule applies only
when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in
cases where the joint venture corporation with Filipino and foreign
stockholders with less than 60% Filipino stockholdings [or 59%]
invests in other joint venture corporation which is either 60-40%
Filipino-alien or the 59% less Filipino). Stated differently, where the
60-40 Filipino-foreign equity ownership is not in doubt, the
Grandfather Rule will not apply.
The Court finds that this case calls for the application of the
grandfather rule since, as ruled by the POA and affirmed by the OP,
doubt prevails and persists in the corporate ownership of petitioners.
Also, doubt is present in the 60-40 Filipino equity ownership of
petitioners Narra, McArthur and Tesoro, since their common investor,
the 100% Canadian corporation - MBMI, funded them. Obviously, the
instant case presents a situation which exhibits a scheme employed
by stockholders to circumvent the law, creating a cloud of doubt in
the Court's mind. To determine, therefore, the actual participation,
direct or indirect, of MBMI, the grandfather rule must be used.
To establish the actual ownership, interest or participation of MBMI
in each of petitioners' corporate structure, they have to be
"grandfathered." Petitioners McArthur, Tesoro and Narra 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.
The "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. II 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."
2. BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF
APPEALS and GENERAL CREDIT CORPORATION, respondents.
G.R. Nos. 116124-25, November 22, 2000
Facts:
Sometime in the early 1960s, Commercial Credit Corporation (CCC), a
financing and investment firm, decided to organize franchise
companies in different parts of the country to hold 30%
equity. Petitioner Bibiano Reynoso, IV was designated as the
Resident Manager of the franchise company known as the
Commercial Credit Corporation of Quezon City (CCC-QC).
CCC-QC entered into an exclusive management contract with CCC
whereby the latter was granted the management and full control of
the business activities of the former. Under the contract, CCC-QC shall
sell, discount and/or assign its receivables to CCC. However, this
discounting arrangement was discontinued pursuant to the DOSRI
Rule by the Central Bank, prohibiting lending of funds by corporations
to its directors, officers, stockholders and other persons with related
interests. On account of the DOSRI Rule, CCC formed CCC Equity
Corporation, (CCC-Equity), a wholly-owned subsidiary, to which CCC
transferred its 30% equity in CCC-QC, together with two seats in the
latter’s Board of Directors.
CCC-QC filed a complaint for sum of money with preliminary
attachment against petitioner in the then Court of First Instance of
Rizal, alleging that petitioner embezzled CCC-QC funds and used some
of it to purchase a house and lot in Pasig City, mortgaged to CCC and
later foreclosed.
Petitioner denied having unlawfully used CCC-QC’s funds and asserted
that the sum represented his money placements in CCC-QC, as shown
by 23 checks which he issued to the said company.
Issue:
Whether or not corporate character is abrogated when piercing the
veil of corporate fiction is applied, as in this case, in order to
determine if GCC, formerly CCC, may be held liable for CCC-QC’s
obligations.
Ruling:
 RTC:
The RTC rendered its decision dismissing the complaint for lack of
merit. The decision became final and a Writ of Execution was
issued. However, the judgment remained unsatisfied, prompting
petitioner to file a Motion for Alias Writ of Execution. CCC-QC filed an
Opposition to petitioner’s motion, alleging that the possession of its
premises and records had been taken over by CCC.
Meanwhile, CCC became known as the General Credit Corporation
(GCC). It alleged that it was not a party to the case, and therefore
petitioner should direct his claim against CCC-QC and not
GCC. Petitioner filed his reply, stating that the CCC-QC is an adjunct
instrumentality, conduit and agency of CCC, which invoked a SEC
decision declaring that GCC, CCC-Equity and other franchised
companies including CCC-QC were declared as one corporation.
The RTC of Quezon City ordered the issuance of an alias writ of
execution. GCC filed an Omnibus Motion, alleging that the SEC case
was still pending appeal, and the levy on GCC properties by the
court’s deputy sheriff was erroneous. Petitioner insisted that GCC is
just the new name of CCC; hence, GCC and CCC should be treated as
one and the same entity. GCC contends that it is a corporation
separate and distinct from CCC-QC and, therefore, its properties may
not be levied upon to satisfy the monetary judgment in favor of
petitioner.
 Court of Appeals:
The CA sustained respondent’s arguments of separateness and its
character as a different corporation which is a non-party or stranger
to this case. The CA states that CCC, now GCC, is not a formal party in
the case because the complaint was filed by CCC-QC against
petitioner. The judgment award in this case arose from the
counterclaim which petitioner set up against CCC-QC.
 Supreme Court:
The CA decision is reversed and set aside.
Any piercing of the corporate veil has to be done with
caution. However, the Court will not hesitate to use its supervisory
and adjudicative powers where the corporate fiction is used as an
unfair device to achieve an inequitable result, defraud creditors,
evade contracts and obligations, or to shield it from the effects of a
court decision. The corporate fiction has to be disregarded when
necessary in the interest of justice. The defense of separateness will
be disregarded where the business affairs of a subsidiary corporation
are so controlled by the mother corporation to the extent that it
becomes an instrument or agent of its parent. But even when there is
dominance over the affairs of the subsidiary, the doctrine of piercing
the veil of corporate fiction applies only when such fiction is used to
defeat public convenience, justify wrong, protect fraud or defend
crime.
It is obvious that the use by CCC-QC of the same name of CCC was
intended to publicly identify it as a component of the CCC group of
companies engaged in one and the same business. The organization
of subsidiary corporations is usually resorted to for the aggrupation of
capital, the ability to cover more territory and population, the
decentralization of activities best decentralized, and the securing of
other legitimate advantages. But when the mother corporation and
its subsidiary cease to act in good faith and honest business
judgment, when the corporate device is used by the parent to avoid
its liability for legitimate obligations of the subsidiary, and when the
corporate fiction is used to perpetrate fraud or promote injustice, the
law steps in to remedy the problem. When that happens, the
corporate character is not necessarily abrogated. It continues for
legitimate objectives. However, it is pierced in order to remedy
injustice, such as that inflicted in this case.
3. Testate Estate of Idonah Slade Perkins, deceased. Renato D. Tayag
vs. Benguet Consolidated, Inc
G.R. No. L-23145 November 29, 1968
Facts: Idonah Slade Perkins, who died on March 27, 1960 in New York
City, left among others, two stock certificates covering 33,002 shares
of appellant, the certificates being in the possession of the County
Trust Company of New York, which as noted, is the domiciliary
administrator of the estate of the deceased.
The appellant's brief provides that "On August 12, 1960, Prospero
Sanidad instituted ancillary administration proceedings in the Court of
First Instance of Manila; Lazaro A. Marquez was appointed ancillary
administrator, and on January 22, 1963, he was substituted by the
appellee Renato D. Tayag.
A dispute arose between the domiciliary administrator in New York
and the ancillary administrator in the Philippines as to which of them
was entitled to the possession of the stock certificates in question.
On January 27, 1964, the Court of First Instance of Manila ordered the
domiciliary administrator, County Trust Company, to "produce and
deposit" them with the ancillary administrator. The domiciliary
administrator did not comply with the order, and on February 11,
1964, the ancillary administrator petitioned the court to "issue an
order declaring the certificate or certificates of stocks covering the
33,002 shares issued in the name of Idonah Slade Perkins by Benguet
Consolidated, Inc., be declared [or] considered as lost. The lower
court granted said petition.
Appellant Benguet Consolidated, Inc. admits that "it is immaterial" as
far as it is concerned as to "who is entitled to the possession of the
stock certificates in question; appellant opposed the petition of the
ancillary administrator because the said stock certificates are in
existence, they are today in the possession of the domiciliary
administrator, the County Trust Company, in New York, U.S.A. " It is
its view, therefore, that under the circumstances, the stock
certificates cannot be declared or considered as lost. Moreover, it
would allege that there was a failure to observe certain requirements
of its by-laws before new stock certificates could be issued.
Issue: Whether new stock certificates could be issued despite that it
did not follow the requirements provided in the by-laws of the
appellant.
Held: Yes.
First, since there is a refusal, persistently adhered to by the
domiciliary administrator in New York, to deliver the shares of stocks
of appellant corporation owned by the decedent to the ancillary
administrator in the Philippines, there was nothing unreasonable or
arbitrary in considering them as lost and requiring the appellant to
issue new certificates in lieu thereof. Thereby, the task incumbent
under the law on the ancillary administrator could be discharged and
his responsibility fulfilled.
Appellant Benguet Consolidated, Inc. would seek to bolster the above
contention by its invoking one of the provisions of its by-laws which
would set forth the procedure to be followed in case of a lost, stolen
or destroyed stock certificate; it would stress that in the event of a
contest or the pendency of an action regarding ownership of such
certificate or certificates of stock allegedly lost, stolen or destroyed,
the issuance of a new certificate or certificates would await the "final
decision by [a] court regarding the ownership [thereof]."
Such reliance is misplaced. In the first place, there is no such occasion
to apply such by-law. It is admitted that the foreign domiciliary
administrator did not appeal from the order now in question.
Moreover, there is likewise the express admission of appellant that as
far as it is concerned, "it is immaterial ... who is entitled to the
possession of the stock certificates ..." Even if such were not the case,
it would be a legal absurdity to impart to such a provision
conclusiveness and finality. Assuming that a contrariety exists
between the above by-law and the command of a court decree, the
latter is to be followed.
It would be most highly unorthodox if a corporate by-law would be
accorded such a high estate in the jural order that a court must not
only take note of it but yield to its alleged controlling force. The fear
of appellant of a contingent liability with which it could be saddled
unless the appealed order be set aside for its inconsistency with one
of its by-laws does not impress us. Its obedience to a lawful court
order certainly constitutes a valid defense, assuming that such
apprehension of a possible court action against it could possibly
materialize. Thus far, nothing in the circumstances as they have
developed gives substance to such a fear
What is more the view adopted by appellant Benguet Consolidated,
Inc. is fraught with implications at war with the basic postulates of
corporate theory. We start with the undeniable premise that, "a
corporation is an artificial being created by operation of law." It owes
its life to the state, its birth being purely dependent on its will. As
Berle so aptly stated: "Classically, a corporation was conceived as an
artificial person, owing its existence through creation by a sovereign
power." As a matter of fact, the statutory language employed owes
much to Chief Justice Marshall, who defined a corporation precisely
as "an artificial being, invisible, intangible, and existing only in
contemplation of law."
The well-known authority Fletcher could summarize the matter thus:
"A corporation is not in fact and in reality a person, but the law treats
it as though it were a person by process of fiction, or by regarding it
as an artificial person distinct and separate from its individual
stockholders.... It owes its existence to law. It is an artificial person
created by law for certain specific purposes, the extent of whose
existence, powers and liberties is fixed by its charter." Dean Pound's
terse summary, a juristic person, resulting from an association of
human beings granted legal personality by the state, puts the matter
neatly
As a matter of fact, a corporation once it comes into being comes
more often within the ken of the judiciary than the other two
coordinate branches. It institutes the appropriate court action to
enforce its right. Correlatively, it is not immune from judicial control
in those instances, where a duty under the law as ascertained in an
appropriate legal proceeding is cast upon it.
CFI: Court hereby (1) considers as lost for all purposes in connection
with the administration and liquidation of the Philippine estate of
Idonah Slade Perkins the stock certificates covering the 33,002 shares
of stock standing in her name in the books of the Benguet
Consolidated, Inc., (2) orders said certificates cancelled, and (3)
directs said corporation to issue new certificates in lieu thereof, the
same to be delivered by said corporation to either the incumbent
ancillary administrator or to the Probate Division of this Court.
4. International Express Travel & Tour Services, Inc. vs. Hon. Court
Of Appeals, Henri Kahn, Philippine Football Federation
G.R. No. 119002. October 19, 2000
Facts: Petitioner through its managing director, wrote a letter to
the Philippine Football Federation (Federation), through its president
private respondent Henri Kahn, wherein the former offered its
services as a travel agency to the latter. The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and
officials of the Federation to the South East Asian Games in Kuala
Lumpur as well as various other trips to the People's Republic of
China and Brisbane. The total cost of the tickets amounted to
P449,654.83. For the tickets received, the Federation made two
partial payments, both in September of 1989, in the total amount of
P176,467.50.
In addition to the payments made, on 30 October 1989, the
Federation paid the amount of P31,603.00. Also, Henri Kahn issued a
personal check in the amount of P50,000 as partial payment for the
outstanding balance of the Federation. Thereafter, no further
payments were made despite repeated demands.
This prompted petitioner to file a civil case before the Regional Trial
Court of Manila. Petitioner sued Henri Kahn in his personal capacity
and as President of the Federation and impleaded the Federation as
an alternative defendant. Petitioner sought to hold Henri Kahn liable
for the unpaid balance for the tickets purchased by the Federation on
the ground that Henri Kahn allegedly guaranteed the said obligation.
Henri Kahn filed his answer with counterclaim. While not denying the
allegation that the Federation owed the amount P207,524.20,
representing the unpaid balance, he averred that the petitioner has
no cause of action against him either in his personal capacity or in his
official capacity as president of the Federation. He maintained that he
did not guarantee payment but merely acted as an agent of the
Federation which has a separate and distinct juridical personality.
On the other hand, the Federation failed to file its answer, hence, was
declared in default by the trial court.
Only Henri Kahn elevated the above decision to the Court of Appeals.
Issue: Whether Philippine Football Federation is a corporation which
has a juridical existence
Held: None.
R.A. 3135 and P.D. No. 604 merely established the functions, powers
and duties of a National Sports Association.
As correctly observed by the appellate court, both R.A. 3135 and P.D.
No. 604 recognized the juridical existence of national sports
associations.
However, while we agree with the appellate court that national sports
associations may be accorded corporate status, such does not
automatically take place by the mere passage of these laws.
It is a basic postulate that before a corporation may acquire juridical
personality, the State must give its consent either in the form of a
special law or a general enabling act.
We cannot agree with the view of the appellate court and the private
respondent that the Philippine Football Federation came into
existence upon the passage of these laws. Nowhere can it be found in
R.A. 3135 or P.D. 604 any provision creating the Philippine Football
Federation. These laws merely recognized the existence of national
sports associations and provided the manner by which these entities
may acquire juridical personality.
Pursuant to Sec.7, P.D. 604, before an entity may be considered as a
national sports association, such entity must be recognized by the
accrediting organization, the Philippine Amateur Athletic Federation
under R.A. 3135, and the Department of Youth and Sports
Development under P.D. 604. This fact of recognition, however, Henri
Kahn failed to substantiate.
In attempting to prove the juridical existence of the Federation, Henri
Kahn attached to his motion for reconsideration before the trial court
a copy of the constitution and by-laws of the Philippine Football
Federation. Unfortunately, the same does not prove that said
Federation has indeed been recognized and accredited by either the
Philippine Amateur Athletic Federation or the Department of Youth
and Sports Development. Accordingly, we rule that the Philippine
Football Federation is not a national sports association within the
purview of the aforementioned laws and does not have corporate
existence of its own.
RTC: the trial court rendered judgment and ruled in favor of the
petitioner and declared Henri Kahn personally liable for the unpaid
obligation of the Federation. In arriving at the said ruling, the trial
court rationalized:
Defendant Henri Kahn would have been correct in his contentions
had it been duly established that defendant Federation is a
corporation. The trouble, however, is that neither the plaintiff nor the
defendant Henri Kahn has adduced any evidence proving the
corporate existence of the defendant Federation. A voluntary
unincorporated association, like defendant Federation has no power
to enter into, or to ratify, a contract. The contract entered into by its
officers or agents on behalf of such association is not binding on, or
enforceable against it. The officers or agents are themselves
personally liable.
CA: CA reversed the decision of the RTC. In finding for Henri
Kahn, the Court of Appeals recognized the juridical existence of the
Federation. It rationalized that since petitioner failed to prove that
Henri Kahn guaranteed the obligation of the Federation, he should
not be held liable for the same as said entity has a separate and
distinct personality from its officers.
Petitioner filed a motion for reconsideration and as an alternative
prayer pleaded that the Federation be held liable for the unpaid
obligation. The same was denied by the appellate court in its
resolution of 8 February 1995, where it stated that:
As to the alternative prayer for the Modification of the Decision by
expressly declaring in the dispositive portion thereof the Philippine
Football Federation (PFF) as liable for the unpaid obligation, it should
be remembered that the trial court dismissed the complaint against
the Philippine Football Federation, and the plaintiff did not appeal
from this decision. Hence, the Philippine Football Federation is not a
party to this appeal and consequently, no judgment may be
pronounced by this Court against the PFF without violating the due
process clause, let alone the fact that the judgment dismissing the
complaint against it, had already become final by virtue of the
plaintiff's failure to appeal therefrom. The alternative prayer is
therefore similarly DENIED.
7. PHILIPPINE LONG DISTANCE TELEPHONE CO. [PLDT] vs. THE
NATIONAL TELECOMMUNICATIONS COMMISSION AND CELLCOM,
INC., (EXPRESS TELECOMMUNICATIONS CO., INC. [ETCI])

G.R. No. 88404 October 18, 1990
FACTS: R.A. No. 2090, was enacted, otherwise known as "An Act
Granting Felix Alberto and Company, Incorporated, a Franchise to
Establish Radio Stations for Domestic and Transoceanic
Telecommunications." Felix Alberto & Co., Inc. (FACI) was the original
corporate name, which was changed to ETCI with the amendment of
the Articles of Incorporation in 1964.
Alleging urgent public need, ETCI filed an application with public
respondent NTC for the issuance of a Certificate of Public
Convenience and Necessity (CPCN) to construct, install, establish,
operate and maintain a Cellular Mobile Telephone System and an
Alpha Numeric Paging System in Metro Manila and in the Southern
Luzon regions, with a prayer for provisional authority to operate
Phase A of its proposal within Metro Manila.
PLDT filed an Opposition with a Motion to Dismiss, based primarily
on the following grounds: (1) ETCI is not capacitated or qualified
under its legislative franchise to operate a systemwide telephone or
network of telephone service such as the one proposed in its
application; (2) ETCI lacks the facilities needed and indispensable to
the successful operation of the proposed cellular mobile telephone
system; (3) PLDT has itself a pending application with NTC, Case No.
86-86, to install and operate a Cellular Mobile Telephone System for
domestic and international service not only in Manila but also in the
provinces and that under the "prior operator" or "protection of
investment" doctrine, PLDT has the priority or preference in the
operation of such service; and (4) the provisional authority, if granted,
will result in needless, uneconomical and harmful duplication, among
others.
NTC overruled PLDT's Opposition and declared that Rep. Act No.
2090 (1958) should be liberally construed as to include among the
services under said franchise the operation of a cellular mobile
telephone service.
On 12 December 1988, NTC issued the first challenged Order. Opining
that "public interest, convenience and necessity further demand a
second cellular mobile telephone service provider and finds PRIMA
FACIE evidence showing applicant's legal, financial and technical
capabilities to provide a cellular mobile service using the AMPS
system," NTC granted ETCI provisional authority to install, operate
and maintain a cellular mobile telephone system initially in Metro
Manila, Phase A only, subject to the terms and conditions set forth in
the same Order. One of the conditions prescribed (Condition No. 5)
was that, within ninety (90) days from date of the acceptance by ETCI
of the terms and conditions of the provisional authority, ETCI and
PLDT "shall enter into an interconnection agreement for the provision
of adequate interconnection facilities between applicant's cellular
mobile telephone switch and the public switched telephone network
and shall jointly submit such interconnection agreement to the
Commission for approval."
In a "Motion to Set Aside the Order" granting provisional authority,
PLDT alleged essentially that the interconnection ordered was in
violation of due process and that the grant of provisional authority
was jurisdictionally and procedurally infirm. NTC denied
reconsideration and set the date for continuation of the hearings on
the main proceedings. This is the second questioned Order.
PLDT urges us now to annul the NTC Orders of 12 December 1988 and
8 May 1989 and to order ETCI to desist from, suspend, and/or
discontinue any and all acts intended for its implementation.
We resolved to dismiss the petition for its failure to comply fully with
the requirements of Circular No. 1-88. Upon satisfactory showing,
however, that there was, in fact, such compliance, we reconsidered
the order, reinstated the Petition, and required the respondents NTC
and ETCI to submit their respective Comments.

We issued a Temporary Restraining Order enjoining NTC to "Cease
and Desist from all or any of its on-going proceedings and ETCI from
continuing any and all acts intended or related to or which will
amount to the implementation/execution of its provisional
authority." This was upon PLDT's urgent manifestation that it had
been served an NTC Order, dated 14 February 1990, directing
immediate compliance with its Order of 12 December 1988,
"otherwise the Commission shall be constrained to take the necessary
measures and bring to bear upon PLDT the full sanctions provided by
law."
ETCI moved to have the TRO lifted, which we denied on 6 March
1990. We stated, however, that the inaugural ceremony ETCI had
scheduled for that day could proceed, as the same was not covered
by the TRO.
ISSUE:
1. W/N the status and coverage of R.A. 2090 includes franchise
2. W/N there is a transfer of shares of stock of a corporation
holding a CPCN
3. W/N PLDT may refuse the interconnection agreement with
ETCI
RULING: We find no grave abuse of discretion on the part of NTC in
issuing its challenged Orders of 12 December 1988 and 8 May 1989 in
NTC Case No. 87-39. Petition is DISMISSED for lack of merit. The
Temporary Restraining Order heretofore issued is LIFTED.
1. Yes.
The Coverage of ETCI's Franchise
Rep. Act No. 2090 grants ETCI (formerly FACI) "the right and privilege
of constructing, installing, establishing and operating in the entire
Philippines radio stations for reception and transmission of
messages on radio stations in the foreign and domestic public fixed
point-to-point and public base, aeronautical and land mobile stations,
... with the corresponding relay stations for the reception and
transmission of wireless messages on radiotelegraphy and/or
radiotelephony ...."
PLDT maintains that the scope of the franchise is limited to "radio
stations" and excludes telephone services such as the establishment
of the proposed Cellular Mobile Telephone System (CMTS). However,
in its Order of 12 November 1987, the NTC construed the technical
term "radiotelephony" liberally as to include the operation of a
cellular mobile telephone system.
The Status of ETCI Franchise
PLDT alleges that the ETCI franchise had lapsed into nonexistence for
failure of the franchise holder to begin and complete construction of
the radio system authorized under the franchise as explicitly required
in Section 4 of its franchise, Rep. Act No. 2090. PLDT also invokes
Pres. Decree No. 36, enacted on 2 November 1972, which legislates
the mandatory cancellation or invalidation of all franchises for the
operation of communications services, which have not been availed
of or used by the party or parties in whose name they were issued.
However, whether or not ETCI, and before it FACI, in contravention of
its franchise, started the first of its radio telecommunication stations
within (2) years from the grant of its franchise and completed the
construction within ten (10) years from said date; and whether or not
its franchise had remained unused from the time of its issuance, are
questions of fact beyond the province of this Court, besides the well-
settled procedural consideration that factual issues are not subjects
of a special civil action for certiorari
Moreover, neither Section 4, Rep. Act No. 2090 nor Pres. Decree No.
36 should be construed as self-executing in working a forfeiture.
Franchise holders should be given an opportunity to be heard,
particularly so, where, as in this case, ETCI does not admit any
breach, in consonance with the rudiments of fair play. Thus, the
factual situation of this case differs from that in Angeles Ry Co. vs. City
of Los Angeles (92 Pacific Reporter 490) cited by PLDT, where the
grantee therein admitted its failure to complete the conditions of its
franchise and yet insisted on a decree of forfeiture.
More importantly, PLDT's allegation partakes of a Collateral attack
on a franchise Rep. Act No. 2090), which is not allowed. A franchise
is a property right and cannot be revoked or forfeited without due
process of law. The determination of the right to the exercise of a
franchise, or whether the right to enjoy such privilege has been
forfeited by non-user, is more properly the subject of the prerogative
writ of quo warranto, the right to assert which, as a rule, belongs to
the State "upon complaint or otherwise" (Sections 1, 2 and 3, Rule 66,
Rules of Court), the reason being that the abuse of a franchise is a
public wrong and not a private injury. A forfeiture of a franchise will
have to be declared in a direct proceeding for the purpose brought by
the State because a franchise is granted by law and its unlawful
exercise is primarily a concern of Government.
A ... franchise is ... granted by law, and its ... unlawful
exercise is the concern primarily of the Government.
Hence, the latter as a rule is the party called upon to
bring the action for such ... unlawful exercise of
franchise. (IV-B V. FRANCISCO, 298 [1963 ed.], citing
Cruz vs. Ramos, 84 Phil. 226).
2. No.
ETCI admits that in 1964, the Albertos, as original owners of more
than 40% of the outstanding capital stock sold their holdings to the
Orbes. In 1968, the Albertos re-acquired the shares they had sold to
the Orbes. In 1987, the Albertos sold more than 40% of their shares to
Horacio Yalung. Thereafter, the present stockholders acquired their
ETCI shares. Moreover, in 1964, ETCI had increased its capital stock
from P40,000.00 to P360,000.00; and in 1987, from P360,000.00 to
P40M.
PLDT contends that the transfers in 1987 of the shares
of stock to the new stockholders amount to a transfer
of ETCI's franchise, which needs Congressional
approval pursuant to Rep. Act No. 2090, and since such
approval had not been obtained, ETCI's franchise had
been invalidated. The provision relied on reads, in part,
as follows:
SECTION 10. The grantee shall not lease, transfer, grant
the usufruct of, sell or assign this franchise nor the
rights and privileges acquired thereunder to any
person, firm, company, corporation or other
commercial or legal entity nor merge with any other
person, company or corporation organized for the
same purpose, without the approval of the Congress of
the Philippines first had. ...
It should be noted, however, that the foregoing provision is, directed
to the "grantee" of the franchise, which is the corporation itself and
refers to a sale, lease, or assignment of that franchise. It does not
include the transfer or sale of shares of stock of a corporation by the
latter's stockholders.
The sale of shares of stock of a public utility is governed by another
law, i.e., Section 20(h) of the Public Service Act (Commonwealth Act
No. 146).
In other words, transfers of shares of a public utility corporation
need only NTC approval, not Congressional authorization. What
transpired in ETCI were a series of transfers of shares starting in 1964
until 1987. The approval of the NTC may be deemed to have been
met when it authorized the issuance of the provisional authority to
ETCI. There was full disclosure before the NTC of the transfers. In fact,
the NTC Order of 12 November 1987 required ETCI to submit its
"present capital and ownership structure." Further, ETCI even filed a
Motion before the NTC, dated 8 December 1987, or more than a year
prior to the grant of provisional authority, seeking approval of the
increase in its capital stock from P360,000.00 to P40M, and the stock
transfers made by its stockholders.
A distinction should be made between shares of stock, which are
owned by stockholders, the sale of which requires only NTC approval,
and the franchise itself which is owned by the corporation as the
grantee thereof, the sale or transfer of which requires Congressional
sanction. Since stockholders own the shares of stock, they may
dispose of the same as they see fit. They may not, however, transfer
or assign the property of a corporation, like its franchise. In other
words, even if the original stockholders had transferred their shares
to another group of shareholders, the franchise granted to the
corporation subsists as long as the corporation, as an entity,
continues to exist. The franchise is not thereby invalidated by the
transfer of the shares. A corporation has a personality separate and
distinct from that of each stockholder. It has the right of continuity or
perpetual succession (Corporation Code, Sec. 2).
To all appearances, the stock transfers were not just for the purpose
of acquiring the ETCI franchise, considering that, as heretofore stated,
a series of transfers was involved from 1964 to 1987. And, contrary to
PLDT's assertion, the franchise was not the only property of ETCI of
meaningful value. The "zero" book value of ETCI assets, as reflected in
its balance sheet, was plausibly explained as due to the accumulated
depreciation over the years entered for accounting purposes and was
not reflective of the actual value that those assets would command in
the market.
3. No. The PLDT cannot justifiably refuse to interconnect. The
interconnection which has been required of PLDT is a form of
“intervention” with property rights dictated by the encompassing
objective for the common good. The NTC, as regulatory agency of the
state, merely exercised its delegated authority to regulate the use of
telecommunications network when it decreed interconnection.
8. DEVELOPMENT BANK OF THE PHILIPPINES vs. NATIONAL LABOR
RELATIONS COMMISSION et al.
G.R. No. 86932 June 27, 1990
FACTS: Philippine Smelters Corporation (PSC), a corporation
registered under Philippine law, obtained a loan in 1983 from the
Development Bank of the Philippines to finance its iron smelting and
steel manufacturing business. To secure said loan, PSC mortgaged to
DBP real properties with all the buildings and improvements thereon
and chattels, with its President, Jose T. Marcelo, Jr., as co-obligor.
By virtue of the said loan agreement, DBP became the majority
stockholder of PSC, with stockholdings in the amount of
P31,000,000.00 of the total P60,226,000.00 subscribed and paid up
capital stock. Subsequently, it took over the management of PSC.
When PSC failed to pay its obligation with DBP, which amounted to
P75,752,445.83 as of March 31, 1986, DBP foreclosed and acquired
the mortgaged real estate and chattels of PSC in the auction sales
held on February 25, 1987 and March 4, 1987.
Forty (40) petitioners filed a Petition for Involuntary Insolvency in the
RTC, Branch 61 at Makati, Metropolitan Manila against PSC and DBP,
impleading as co-respondents therein Olecram Mining Corporation,
Jose Panganiban Ice Plant and Cold Storage, Inc. and PISO Bank, with
said petitioners representing themselves as unpaid employees of said
private respondents, except PISO Bank.
Private respondents filed a complaint with the Department of Labor
against PSC for nonpayment of salaries, 13th month pay, incentive
leave pay and separation pay. The complaint was amended to include favor, a preference in application. It is a method adopted to
DBP as party respondent. determine and specify the order in which credits should be paid in the
final distribution of the proceeds of the insolvent's assets- It is a right
DBP filed its position paper invoking the absence of employer- to a first preference in the discharge of the funds of the judgment
employee relationship between private respondents and DBP and debtor. in the words of Republic vs. Peralta, supra:
submitting that when DBP foreclosed the assets of PSC, it did so as a
foreclosing creditor. Article 110 of the Labor Code does not
purport to create a lien in favor of
LABOR ARBITER: The labor arbiter rendered a decision, the workers or employees for unpaid wages
dispositive portion of which directed that "DBP as foreclosing creditor either upon all of the properties or upon
is hereby ordered to pay all the unpaid wages and benefits of the any particular property owned by their
workers which remain unpaid due to PSC's foreclosure." employer. Claims for unpaid wages do
not therefore fall at all within the
NLRC: The NLRC sustained the ruling of the labor arbiter, holding DBP category of specially preferred claims
liable for unpaid wages of private respondents "not as a majority established under Articles 2241 and
stockholder of respondent PSC, but as the foreclosing creditor who 2242 of the Civil Code, except to the
possesses the assets of said PSC by virtue of the auction sale it held in extent that such claims for unpaid
1987." In addition, the NLRC held that the labor arbiter is correct in wages are already covered by Article
assuming jurisdiction because "the worker's preference to the 2241, number 6: 'claims for laborers'
amount secured by DBP by virtue of said foreclosure sales of PSC wages, on the goods manufactured or
properties arose out of or are connected or interwoven with the labor the work done; or by Article 2242,
dispute brought forth by appellees against PSC and DBP. Hence, the number 3: 'claims of laborers and other
present petition by DBP. workers engaged in the construction,
reconstruction or repair of buildings,
ISSUE: W/N DBP, as foreclosing creditor, could be held liable for the canals and other works, upon said
unpaid wages, 13th month pay, incentive leave pay and separation buildings, canals or other works.' To the
pay of the employees of PSC. extent that claims for unpaid wages fall
outside the scope of Article 2241,
RULING: NO. number 6 and Article 2242, number 3,
they would come within the ambit of
A distinction should be made between a preference of credit and a the category of ordinary preferred
lien. A preference applies only to claims which do not attach to credits under Article 2244.'
specific properties. A hen creates a charge on a particular property.
The right of first preference as regards unpaid wages recognize by The DBP anchors its claim on a mortgage credit. A mortgage directly
Article 110 does not constitute a hen on the property of the insolvent and immediately subjects the property upon which it is imposed,
debtor in favor of workers. It is but a preference of credit in their whoever the possessor may be, to the fulfillment of the obligation for
whose security it was constituted (Article 2176, Civil Code). It creates
a real right which is enforceable against the whole world. It is a lien
on an Identified immovable property, which a preference is not. A
recorded mortgage credit is a special preferred credit under Article
2242 (5) of the Civil Code on classification of credits. The preference
given by Article 110, when not falling within Article 2241 (6) and
Article 2242 (3) of the Civil Code and not attached to any specific
property, is an ordinary preferred credit although its impact is to
move it from second priority to first priority in the order of
preference established by Article 2244 of the Civil Code.
In fact, under the Insolvency Law (Section 29) a creditor holding a
mortgage or hen of any kind as security is not permitted to vote in the
election of the assignee in insolvency proceedings unless the value of
his security is first fixed or he surrenders all such property to the
receiver of the insolvent's estate.
In fine, the right to preference given to workers under Article 110 of
the Labor Code cannot exist in any effective way prior to the time of
its presentation in distribution proceedings. It will find application
when, in proceedings such as insolvency, such unpaid wages shall be
paid in full before the 'claims of the Government and other creditors'
may be paid. But, for an orderly settlement of a debtor's assets, all
creditors must be convened, their claims ascertained and inventoried,
and thereafter the preference determined in the course of judicial
proceedings which have for their object the subjection of the
property of the debtor to the payment of his debts or other lawful
obligations. Thereby, an orderly determination of preference of
creditors' claims is assured; the adjudication made will be binding on
all parties-in-interest, since those proceedings are proceedings in
rem; and the legal scheme of classification, concurrence and
preference of credits in the Civil Code, the Insolvency Law, and the
Labor Code is preserved in harmony.
On the foregoing considerations and it appearing that an involuntary
insolvency proceeding has been instituted against PSC, private
respondents should properly assert their respective claims in said
proceeding.
9. EDWARD A. KELLER & CO., LTD. vs. COB GROUP MARKETING, INC.
G.R. No. L-68097 January 16, 1986
Facts:
Edward A. Keller & Co., Ltd. appointed COB Group Marketing, Inc. as
exclusive distributor of its household products. As security for COB
Group Marketing's credit purchases up to the amount of P35,000,
Asuncion Manahan mortgaged her land to Keller. Manahan assumed
solidarily with COB Group Marketing.
A second sales agreement was entered by the parties. As security for
the credit purchases, Tomas C. Lorenzo, Jr. and his father Tomas, Sr.
executed a mortgage on their land in Nueva Ecija. Like Manahan, the
Lorenzos were solidarily liable with COB Group Marketing for its
obligations under the sales agreement.
The board of directors of COB Group Marketing were apprised by Jose
E. Bax the firm's president and general manager, that the firm owed
Keller about P179,000. Bax was authorized to negotiate with Keller
for the settlement of his firm's liability.
COB defaulted, Keller sued COB Group Marketing, it’s stockholders
and the mortgagors, Manahan and Lorenzo.
Issue:
W/N the stockholders is personally liable for the financial obligations
of a corporation to the extent of his unpaid subscription
Ruling:
The decision of the RTC and the CA are reversed and set aside.
Yes, it is settled that a stockholder is personally liable for the financial
obligations of a corporation to the extent of his unpaid subscription.
The following respondents are solidarity liable with COB Group
Marketing up to the amounts of their unpaid subscription to be
applied to the company's liability herein: Jose E. Bax P36,000;
Francisco C. de Castro, P36,000; Johnny de la Fuente, P12,000; Sergio
C. Ordonez, P12,000; Trinidad C. Ordonez, P3,000; Magno C. Ordonez,
P3,000; Adoracion C. Ordonez P3,000; Tomas C. Lorenzo, Jr., P3,000
and Luz M. Aguilar-Adao, P6,000.
RTC
After trial, the lower court (1) dismissed the complaint; (2) ordered
Keller to pay COB Group Marketing the sum of P100,596.72 with 6%
interest a year from August 1, 1971 until the amount is fully paid: (3)
ordered Keller to pay P100,000 as moral damages to be allocated
among the stockholders of COB Group Marketing in proportion to
their unpaid capital subscriptions; (4) ordered the petitioner to pay
Manahan P20,000 as moral damages; (5) ordered the petitioner to
pay P20,000 as attomey's fees to be divided among the lawyers of all
the answering defendants and to pay the costs of the suit; (6)
declared void the mortgages executed by Manahan and Lorenzo and
the cancellation of the annotation of said mortgages on the Torrens
titles thereof, and (7) dismissed Manahan's cross-claim for lack of
merit.
CA
The petitioner appealed. The Appellate Court affirmed said judgment
except the award of P20,000 as moral damages which it eliminated.
The petitioner appealed to this Court.
10. WESTERN AGRO INDUSTRIAL CORPORATION and ANTONIO
RODRIGUEZ vs. HON. COURT OF APPEALS and SIA'S AUTOMOTIVE
AND DIESEL PARTS, INC.
G.R. No. 82558 August 20, 1990
Facts:
SIA Automotive and Diesel Parts, Inc. filed with the Regional Trial
Court a complaint for "sum of money and damages" against
petitioners Western Agro Industrial Corporation and/or Antonio
Rodriguez. WESGRO bought on credit different automotive spare
parts from the private respondent amounting to P100,753.80; that
the said amount has long become overdue and yet the petitioners
refused to pay despite repeated demands.
WESGRO admitted that it bought on credit various automotive spare
parts from the respondent corporation, represented by Antonio
Rodriguez but denied that its total obligation was P100,753.80.
WESGRO alleged that this amount is bloated because it had already
made various payments on different dates.
Antonio Rodriguez filed a motion to dismiss on the ground that the
complaint states no cause of action against him. He alleged that he is
a director and officer of WESGRO and that he entered into the
purchase contract with the respondent corporation in his capacity as
officer or agent of WESGRO and therefore such contract was with
WESGRO as a distinct legal entity and did not confer rights much less
liabilities on him.
Issue:
W/N Antonio Rodriguez can be made solidarily liable with the
petitioner corporation for debts incurred by the latter.
Ruling:
No, there is no showing that Antonio Rodriguez, a director and officer
of WESGRO was not authorized by the corporation to enter into
purchase contracts with SIA. Moreover, the respondent corporation
has not shown any circumstances which would necessitate the
piercing of the corporate veil so as to make Rodriguez personally
liable for the obligations incurred by the petitioner. Hence, the
inevitable conclusion is that he was acting in behalf of the corporation
when he executed the purchase contracts with the respondent
corporation. In other words, Rodriguez' acts in representing the
petitioner corporation in its dealings with the respondent corporation
are corporate acts for which only the corporation should be made
liable for any obligations arising from them.
RTC
While it is true that contracts entered into by authorized officers or
agents of a Corporation are contracts of the Corporation as a distinct
entity, yet under the circumstances above-mentioned, the Court finds
it necessary to include defendant, Antonio Rodriguez, as party
defendant, for the Court to arrive at a judicious adjudication on the
matter.
Intermediate Appellate Court
Judgment is rendered in favor of the plaintiff and against the
defendants, ordering defendants to pay jointly and severally to the
plaintiff the sum of P84,626.70 with legal rate of interest from the
filing of the complaint on June 6, 1983 until fully paid; to pay, jointly
and severally 25% of the amount awarded to plaintiff as attorney's
fees; and to pay the costs.
11. Lim v. CA
G.R. No. 124715, January 24, 2000
Facts:
Rufina Luy Lim (Petitioner) is the surviving spouse of the late
Pastor Y. Lim whose estate is the subject of probate proceedings in
Special Proceedings Q-95-23334, entitled, "In Re: Intestate Estate of
Pastor Y. Lim Rufina Luy Lim, represented by George Luy, Petitioner"
while Auto Truck Corporation, Alliance Marketing Corporation, Speed
Distributing, Inc., Active Distributing, Inc. and Action Company
(Private respondent corporations) are corporations formed, organized
and existing under Philippine laws and which owned real properties
covered under the Torrens system.
On 11 June 1994, Pastor Y. Lim (Lim) died intestate so
petitioner, as surviving spouse, filed a joint petition for the
administration of the estate of Pastor Y. Lim before the RTC of
Quezon City which private respondent corporations objected to, since
their properties were included in the inventory of Pastor Y. Lim’s
estate, by filing a motion for the lifting of lis pendens and motion for
exclusion of certain properties from the estate of the decedent which
were both granted by the RTC of Quezon City, sitting as a probate
court in an order dated 08 June 1995. Subsequently, petitioner filed a
verified amended petition with averment the gist of which is that the
assets of private respondent corporations were owned wholly by Lim,
that private respondent corporations themselves are owned and are
mere dummies of Lim. The RTC acted on petitioner’s motion by
setting aside its 08 June 1995 order thru its 04 July 1995 order. Later
on, the probate court appointed Rufina Lim as special
administrator and Miguel Lim and Lawyer Donald Lee, as co-special
administrators of the estate of Pastor Y. Lim, after which letters of
administration were accordingly issued. In the 12 September 1995
order, the probate court denied anew private respondent
corporations’ motion for exclusion then it acted on petitioner’s ex
parte motion by issuing the 15 September 1995 order commanding
the enumerated parties and banks to produce and submit to the
special administrators their respective records of the savings/current
accounts/time deposits and other deposits in the names of Lim
and/or private respondent corporations, showing all the transactions
made or done concerning savings /current accounts from January
1994 up to their receipt of the said court order.
Thus, private respondent corporations filed a special civil
action for certiorari, with an urgent prayer for a restraining order or
writ of preliminary injunction before the CA questioning the orders of
the RTC, sitting as a probate court. The CA ruled in favor of herein
private respondent corporations, nullying and setting aside the orders
dated 04 July 1995, 12 September 1995 and 15 September 1995 of
the Regional Trial Court of Quezon City, Branch 93, sitting as a
probate court. Hence, petitioner’s instant petition for review
on certiorari before the SC.
Issue:
Whether or not private respondent corporations and/or their
assets should be included in the inventory of Lim’s estate?
Ruling:
No. Private respondent corporations and/or their assets
should be included in the inventory of Lim’s estate.
Regarding the assets, the corporations were able to present
their respective Torrens Titles over the disputed assets. It is true that
a probate court may pass upon the question ownership albeit in a
provisional manner but still, a Torrens Title cannot be attacked
collaterally in a probate proceeding, it must be attacked directly in a
separate proceeding.
Regarding the corporations, it is settled that a corporation is
clothed with personality separate and distinct from that of the
persons composing it. It may not generally be held liable for that of
the persons composing it. It may not be held liable for the personal
indebtedness of its stockholders or those of the entities connected
with it. Rudimentary is the rule that a corporation is invested by law
with a personality distinct and separate from its stockholders or
members. In the same vein, a corporation by legal fiction and
convenience is an entity shielded by a protective mantle and imbued
by law with a character alien to the persons comprising it.
Nonetheless, the shield is not at all times invincible. Thus,
in FIRST PHILIPPINE INTERNATIONAL BANK vs. COURT OF APPEALS,
the SC enunciated:
"x x x When the fiction is urged as a means of perpetrating a fraud or
an illegal act or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, the achievement or perfection of a
monopoly or generally the perpetration of knavery or crime, the veil
with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals. x x x"
Piercing the veil of corporate entity requires the court to see
through the protective shroud which exempts its stockholders from
liabilities that ordinarily, they could be subject to, or distinguishes one
corporation from a seemingly separate one, were it not for the
existing corporate fiction. The corporate mask may be lifted and the
corporate veil may be pierced when a corporation is just but the alter
ego of a person or of another corporation. Where badges of fraud
exist, where public convenience is defeated; where a wrong is sought
to be justified thereby, the corporate fiction or the notion of legal
entity should come to naught.
Further, the test in determining the applicability of the
doctrine of piercing the veil of corporate fiction is as follows: 1)
Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will or existence of
its own; (2) Such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a statutory or
other positive legal duty, or dishonest and unjust act in contravention
of plaintiffs legal right; and (3) The aforesaid control and breach of
duty must proximately cause the injury or unjust loss complained of.
The absence of any of these elements prevent "piercing the corporate
veil".
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 a sufficient reason for disregarding the fiction of
separate corporate personalities. Moreover, to disregard the
separate juridical personality of a corporation, the wrong-doing must
be clearly and convincingly established. It cannot be presumed.
12. Good Earth Emporium v. CA
G.R. No. 82797, February 27, 1991
Facts:
A Lease Contract, dated October 16, 1981, was entered into by
and between ROCES-REYES REALTY, INC., as lessor, and GOOD EARTH
EMPORIUM, INC., as lessee, for a term of three years beginning
November 1, 1981 and ending October 31, 1984 at a monthly rental
of P65,000.00. The building which was the subject of the contract of
lease is a five-storey building located at the corner of Rizal Avenue
and Bustos Street in Sta. Cruz, Manila.
From March 1983, up to the time the complaint was filed, the
lessee had defaulted in the payment of rentals, as a consequence of
which, private respondent ROCES-REYES REALTY, INC. (Roces), filed on
October 14, 1984, an ejectment case (Unlawful Detainer) against
herein petitioners, GOOD EARTH EMPORIUM, INC. and LIM KA PING,
(GEE). After the latter had tendered their responsive pleading, the
Manila MeTC on motion of Roces rendered judgment on the
pleadings dated April 17, 1984 in favor of Roces. On May 16, 1984,
Roces filed a motion for execution which was opposed by GEE on May
28, 1984 simultaneous with the latter's filing of a Notice of Appeal. On
June 13, 1984, the Manila MeTC granted Roces’s motion due to GEE’s
failure to file the necessary supersedeas bond. Thereafter, a writ of
execution was issued by the same court.
Meanwhile, the appeal was assigned to the Manila RTC Branch
XLVI (46). However, on August 15, 1984, GEE thru counsel filed with
the Manila RTC, a motion to withdraw appeal since they are satisfied
with the decision of the Metropolitan Trial Court of Manila, Branch
XXVIII (28) which said court granted in its Order of August 27, 1984
and the records were remanded to the Manila MeTC. Upon an ex-
parte Motion of Roces, the Manila MeTC issued an Alias Writ of
Execution dated February 25, 1985 which was implemented on
February 27, 1985. GEE thru counsel filed a motion to quash the writ
of execution and notice of levy and an urgent Ex-parte Supplemental
Motion for the issuance of a restraining order, on March 7, and 20,
1985, respectively. On March 21, 1985, the Manila MeTC issued a
restraining order to the sheriff to hold the execution of the judgment
pending hearing on the motion to quash the writ of execution. While
said motion was pending resolution, GEE filed a Petition for Relief
from judgment before the Manila RTC, Branch IX (19) but such
petition was dismissed and the injunctive writ issued in connection
therewith set aside.
Both parties appealed to the Court of Appeals; GEE on the
order of dismissal and Roces on denial of his motion for indemnity.
Going back to the original case, the Manila MeTC after hearing and
disposing some other incidents, promulgated the Resolution dated
April 8, 1985, denying the motion to quash the writ and setting aside
the March 11 and 23, 1985 restraining orders. GEE appealed and by
coincidence was raffled to the same RTC Branch IX (19). Roces moved
to dismiss the appeal but the Court denied the motion. On certiorari,
the Court of Appeals dismissed Roces's petition and remanded the
case to the RTC. Meantime, Branch IX (19) became vacant and the
case was re-raffled to Branch XLIV (44).
On April 6, 1987, the Manila RTC, finding that the amount of
P1 million evidenced by Exhibit "I" and another P1 million evidenced
by the pacto de retro sale instrument (Exhibit "2") were in full
satisfaction of the judgment obligation, reversed the decision of the
Manila MeTC.
On further appeal, the CA reversed the decision of the RTC
and reinstated the Resolution of the Manila MeTC. GEE's Motion for
Reconsideration of April 5, 1988 was denied. Hence, the instant
petition for review on certiorari before the SC.
Issue:
Whether or not there was full satisfaction of the judgment
debt in favor of Roces?
Ruling:
No. There was no full satisfaction of the judgment debt in
favor of Roces.
Under article 1240 of the Civil Code of the Philippines –
Payment shall be made to the person in whose favor the obligation
has been constituted, on his successor in interest or any person
authorized to receive it.
In the case at bar, the supposed payments were not made to
Roces-Reyes Realty Inc. (Roces) or to its successors in interest nor is
there positive evidence that payment was made to a person
authorized to receive it. No such proof was submitted but merely
inferred by the Manila RTC from Marcos Roces having signed the
lease contract as President which was witnessed by Jesus Marcos
Roces. The latter, however, was no longer President or even an officer
of the Roces-Realty Inc. at the time he received the money and signed
the sale with pacto de retro. He, in fact, denied being in possession of
authority to receive payment for the respondent corporation nor
does the receipt show that he signed in the same capacity as he did in
the lease contract at a time when he was President for respondent
corporation.
A corporation has a personality distinct and separate from its
individual stockholders or members. Being an officer or stockholder
of a corporation does not make one's property also of the
corporation, and vice-versa, for they are separate entities (Traders
Royal Bank v. CA-G.R. No. 78412, September 26, 1989; Cruz v. Dalisay,
152 SCRA 482). Shareowners are in no legal sense the owners of
corporate property (or credits) which is owned by the corporation as
a distinct legal person (Concepcion Magsaysay-Labrador v. CA-G.R.
No. 58168, December 19, 1989). As a consequence of the separate
juridical personality of a corporation, the corporate debt or credit is
not the debt or credit of the stockholder, nor is the stockholder's debt
or credit that of the corporation (Prof. Jose Nolledo's "The
Corporation Code of the Philippines, p. 5, 1988
Edition, citing Professor Ballantine).
The absence of a note to evidence the loan is explained by
Jesus Marcos Roces who testified that the IOU was subsequently
delivered to private respondents. Contrary to the Regional Trial
Court's premise that it was incumbent upon respondent corporation
to prove that the amount was delivered to the Roces brothers in the
payment of the loan in the latter's favor, the delivery of the amount
to and the receipt thereof by the Roces brothers in their names raises
the presumption that the said amount was due to them. There is a
disputable presumption that money paid by one to the other was due
to the latter (Sec. 5(f) Rule 131, Rules of Court). It is for GEE and Lim
Ka Ping to prove otherwise. In other words, it is for the latter to prove
that the payments made were for the satisfaction of their judgment
debt and not vice versa. Sadly, GEE and Lim Ka Ping weren’t able to
establish the payment of the judgment debt by convincing and
reliable evidence.
13. Del Rosario vs. NLRC- G.R. No. 85416 July 24, 1990
FACTS:
The Philippine Overseas Employment Administration (POEA)
promulgated a decision on February 4, 1986 dismissing the complaint
for money claims for lack of merit. The decision was appealed to the
National Labor Relations Commission (NLRC), which on April 30, 1987
reversed the POEA decision and ordered Philsa Construction and
Trading Co., Inc. (the recruiter) and Arieb Enterprises (the foreign
employer) to jointly and severally pay private respondent the peso
equivalent of $16,039.00, as salary differentials, and $2,420.03, as
vacation leave benefits. The case was elevated to the Supreme Court,
but the petition was dismissed on August 31, 1987 and entry of
judgment was made on September 24, 1987.
A writ of execution was issued by the POEA but it was returned
unsatisfied as Philsa was no longer operating and was financially
incapable of satisfying the judgment. Private respondent moved for
the issuance of an alias writ against the officers of Philsa. This motion
was opposed by the officers, led by petitioner, the president and
general manager of the corporation.
The POEA granted the petition for the issuance of an alias writ of
execution against the properties of petitioner Del Rosario and if
insufficient, against the cash and/or surety bond of Bonding Company
concerned for the full satisfaction of the judgment awarded. The
NLRC affirmed POEA’s decision on the ground that it allowed its
franchise to expire to evade payment of respondents claim, thus
applying AC Ransom Labor Union-CCLU vs. NLRC.
ISSUE: (1) WON the veil of corporate fiction of Philsa should be
disregarded to hold Del Rosario solidarily liable for money claims of
atienza, on the ground that the Philsa allowed its franchise to expire
to evade payment of respondent Atienza’s claim?
HELD: No. We find that the NLRC's reliance on the findings of the
POEA and the ruling in A. C. Ransom is totally misplaced. Under the
law a corporation is bestowed juridical personality, separate and
distinct from its stockholders. But when the juridical personality of
the corporation is used to defeat public convenience, justify wrong,
protect fraud or defend crime, the corporation shall be considered as
a mere association of persons and its responsible officers and/or
stockholders shall be held individually liable. For the same reasons, a
corporation shall be liable for the obligations of a stockholder or a
corporation and its successor-in-interest shall be considered as one
and the liability of the former shall attach to the latter.
But for the separate juridical personality of a corporation to be
disregarded, the wrongdoing must be clearly and convincingly
established. It cannot be presumed.
In this regard we find the NLRC's decision wanting. The conclusion
that Philsa allowed its license to expire so as to evade payment of
private respondent's claim is not supported by the facts. Philsa's
corporate personality therefore remains inviolable.
Consider the following undisputed facts:
(1) Private respondent filed his complaint with the POEA on
June 4, 1985;
(2) The last renewal of Philsa's license expired on October 12,
1985;
(3) The POEA dismissed private respondent's complaint on
February 4, 1986;
(4) Philsa was delisted for inactivity on August 15, 1986; *
(5) The dismissal of the complaint was appealed to the NLRC
and it was only on April 30, 1987 that the judgment awarding
differentials and benefits to private respondent was
rendered.
Thus, at the time Philsa allowed its license to lapse in 1985 and even
at the time it was delisted in 1986, there was yet no judgment in
favor of private respondent. An intention to evade payment of his
claims cannot therefore be implied from the expiration of Philsa's
license and its delisting.
14.) Labrador., et al. vs. CA / G.R. No. 58168 December 19,1989.
FACTS:
On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow
and special administratix of the estate of the late Senator Genaro
Magsaysay, brought before the then Court of First Instance of
Olongapo an action against Artemio Panganiban, Subic Land
Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK)
and the Register of Deeds of Zambales. In her complaint, she alleged
that in 1958, she and her husband acquired, thru conjugal funds, a
parcel of land with improvements, known as "Pequena Island",
covered by TCT No. 3258; that after the death of her husband, she
discovered [a] an annotation at the back of TCT No. 3258 that "the
land was acquired by her husband from his separate capital;" [b] the
registration of a Deed of Assignment dated June 25, 1976 purportedly
executed by the late Senator in favor of SUBIC, as a result of which
TCT No. 3258 was cancelled and TCT No. 22431 issued in the name of
SUBIC; and [c] the registration of Deed of Mortgage dated April 28,
1977 in the amount of P 2,700,000.00 executed by SUBIC in favor of
FILMANBANK; that the foregoing acts were void and done in an
attempt to defraud the conjugal partnership considering that the land
is conjugal, her marital consent to the annotation on TCT No. 3258
was not obtained.
She further alleged that the assignment in favor of SUBIC was
without consideration and consequently null and void. She prayed
that the Deed of Assignment and the Deed of Mortgage be annulled
and that the Register of Deeds be ordered to cancel TCT No. 22431
and to issue a new title in her favor.
Herein petitioners, sisters of the late senator, filed a motion for
intervention on the ground that on June 20, 1978, their brother
conveyed to them one-half (1/2 ) of his shareholdings in SUBIC or a
total of 416,566.6 shares and as assignees of around 41 % of the total
outstanding shares of such stocks of SUBIC, they have a substantial
and legal interest in the subject matter of litigation and that they
have a legal interest in the success of the suit with respect to SUBIC.
RTC denied the motion for intervention, and ruled that petitioners
have no legal interest whatsoever in the matter in litigation and their
being alleged assignees or transferees of certain shares in SUBIC
cannot legally entitle them to intervene because SUBIC has a
personality separate and distinct from its stockholders. The appellate
court affirmed RTC, it further stated that whatever claims the
petitioners have against the late Senator or against SUBIC for that
matter can be ventilated in a separate proceeding, such that with the
denial of the motion for intervention, they are not left without any
remedy or judicial relief under existing law.
Petitioners anchor their right to intervene on the purported
assignment made by the late Senator of a certain portion of his
shareholdings to them as evidenced by a Deed of Sale dated June 20,
1978. 2 Such transfer, petitioners posit, clothes them with an interest,
protected by law, in the matter of litigation.
ISSUE: WON petitioners, being the transferees of shares owned by
late senator Magsaysay in Subic clothes them with the legal interest
in the matter in litigation to allow them to intervene in the present
case?
HELD: No. The words "an interest in the subject" mean a direct
interest in the cause of action as pleaded, and which would put the
intervenor in a legal position to litigate a fact alleged in the complaint,
without the establishment of which plaintiff could not recover. 7
Here, the interest, if it exists at all, of petitioners-movants is
indirect, contingent, remote, conjectural, consequential and
collateral. At the very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of the corporation
and to share in the profits thereof and in the properties and assets
thereof on dissolution, after payment of the corporate debts and
obligations.
While a share of stock represents a proportionate or aliquot interest
in the property of the corporation, it does not vest the owner
thereof with any legal right or title to any of the property, his
interest in the corporate property being equitable or beneficial in
nature. Shareholders are in no legal sense the owners of corporate
property, which is owned by the corporation as a distinct legal
person.
17. UMALI vs. CA
189 SCRA 529 (GR. No. 89561), September 13, 1990
FACTS:
Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda.
de Castillo. The Castillo family owns 4 parcels of land which was given
as security for a loan from the Development Banks of the Philippines.
Foreclosure was initiated for their failure to pay. Upon knowledge,
Rivera proposed to the Castillo Family that the property be converted
into a subdivision to raise the necessary funds which was accepted.
Thus, a Memorandum of Agreement was executed by and between
Slobec Realty and Development, Inc., represented by its President
Rivera and the Castillo family wherein Rivera obliged himself to pay
the Castillo family the sum of P70,000.00 immediately after the
agreement’s execution and to pay the additional of P400,000.00 after
the property’s conversion into a subdivision. Later Rivera, approached
Mr. Modesto Cervantes, President of defendant Bormaheco, and
proposed to purchase two (2) tractors wherein a Sales Agreement
was executed.
Bormaheco, Inc. and Slobec Realty and Development, Inc.,
represented by its President Rivera, executed a Sales Agreement over
one unit of Caterpillar Tractor for P230,000.00 of which P50,000.00
was to constitute a down payment, and the balance of P180,000.00
payable in eighteen monthly installments. On the same date, Slobec,
through Rivera, executed in favor of Bormaheco a Chattel Mortgage
security for the payment of the balance. As further security, Slobec
obtained from Insurance Corporation of the Phil. a Surety Bond, with
ICP (Insurance Corporation of the Phil.) as surety and Slobec as
principal, in favor of Bormaheco. The surety bond was in turn secured
by an Agreement of Counter-Guaranty with Real Estate Mortgage
executed by Rivera as president of Slobec and the Castillo Family as
mortgagors and ICP as mortgagee. ICP guaranteed the obligation of
Slobec with Bormaheco in the amount of P180,000.00. In giving the
bond, ICP required that the Castillos mortgage to them the properties
in question.
For violation of the terms and conditions of the Counter-Guaranty
Agreement, the properties of the Castillos were foreclosed by ICP and
won as the highest bidder. The mortgagors failed to redeem the
property and ICP consolidated its ownership. Subequently, ICP sold to
Phil. Machinery Parts Manufacturing Co. (PM Parts) the four (4)
parcels of land. Thereafter, PM Parts, through its President, Mr.
Cervantes, sent a letter addressed to plaintiff Mrs. Mauricia Meer
Castillo requesting her and her children to vacate the property, which
was refused by the latter.
The heirs of the late Felipe Castillo, particularly plaintiff Buenaflor M.
Castillo Umali as the appointed administratrix of the subject
properties filed an action for annulment of title. In their second
amended complaint, Rivera was impleaded as a party plaintiff. They
contended that all the transactions are void for being entered into in
fraud and without the consent and approval of the Court of First
Instance of Quezon, (Branch IX) before whom the administration
proceedings has been pending.
ISSUE: Is there a necessity to pierce the veil of corporate existence?
RULING: No.
Trial Court – Ruled in favor of the plaintiffs declaring the documents
null and void for being fictitious, spurious and without consideration
and ordered the defendants to pay jointly and severally.
CA – Reversed the decision of the RTC.
SC – Under the doctrine of piercing the veil of corporate entity, when
valid grounds therefore exist, the legal fiction that a corporation is an
entity with a juridical personality separate and distinct from its
members or stockholders may be disregarded. In such cases, the
corporation will be considered as a mere association of persons. The
members or stockholders of the corporation will be considered as the
corporation, that is, liability will attach directly to the officers and
stockholders. The doctrine applies when the corporate fiction 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.
In the case at bar, petitioners seek to pierce the veil of corporate
entity of Bormaheco, ICP and PM Parts, alleging that these
corporations employed fraud in causing the foreclosure and
subsequent sale of the real properties belonging to petitioners. It is
our considered opinion that piercing the veil of corporate entity is not
the proper remedy in order that the foreclosure proceeding may be
declared a nullity under the circumstances obtaining in the case at
bar.
In the first place, the legal corporate entity is disregarded only if it is
sought to hold the officers and stockholders directly liable for a
corporate debt or obligation. In the instant case, petitioners do not
seek to impose a claim against the individual members of the three
corporations involved; on the contrary, it is these corporations which
desire to enforce an alleged right against petitioners. Petitioners are
merely seeking the declaration of the nullity of the foreclosure sale,
which relief may be obtained without having to disregard the
aforesaid corporate fiction attaching to respondent corporations.
Secondly, petitioners failed to establish by clear and convincing
evidence that private respondents were purposely formed and
operated, and thereafter transacted with petitioners, with the sole
intention of defrauding the latter.
The mere fact, therefore, that the businesses of two or more
corporations are interrelated is not a justification for disregarding
their separate personalities, absent sufficient showing that the
corporate entity was purposely used as a shield to defraud creditors
and third persons of their rights.
18. DIATAGON LABOR FEDERATION LOCAL 110 OF THEULGWP,
Petitioner, v. HON. BLAS F. OPLE, Secretary of Labor et al.,
Respondents.
101 SCRA 534 (G.R. Nos. L-44493-94). December 3, 1980
FACTS:
Respondent Lianga Bay Logging Co., Inc. is a domestic corporation
engaged in logging and manufacturing plywood. Respondent Georgia
Pacific International Corporation is a Delaware corporation licensed
to do business in the Philippines with around 400 workers.
Petitioner Diatagon Labor Federation Local 110 of ULGWP (United
Lumber and General Workers of the Philippines) had a collective
bargaining agreement (CBA) with Lianga Bay which was due to expire
on March 31, 1975. On February 3, 1975, a rival union, the Mindanao
Association of Trade Unions (MATU), filed with the Bureau of Labor
Relations (BLR) a petition for the holding of a certification election at
Lianga Bay and assumed that Lianga Bay had approximately 900
employees.
Before the petition can be acted upon, Diatagon was able to
negotiate with Georgia Pacific a CBA for a term of three years expiring
on March 31, 1978 which was certified by the BLR. The CBA included
236 employees of Georgia Pacific who were former employees of
Lianga Bay. After July, 1974, they were transferred to Georgia Pacific
and became its employees but continued to use in 1975 the pay
envelopes and identification cards of Lianga Bay.
MATU contends that the said CBA was negotiated between Georgia
Pacific and Diatagon in order to frustrate the petition for certification
election at Lianga Bay which they filed on February 3, 1975. A
certification election was held pursuant to the Med-Arbiter’s order in
BLR Case No. 0399 wherein Diatagon won against the MATU. The
MATU wanted the 236 employees of Georgia Pacific to take part in
the election. Thus, MATU filed an election protest. It petitioned for
decertification of the CBA with the BLR which was dismissed by the
Med-Arbiter on the ground that it was a reiteration of the election
protest of the same union in BLR Case No. 0399.
The Med-Arbiter dismissed the election protest of the MATU and
certified the Diatagon as the exclusive bargaining agent of the
employees of Lianga Bay. MATU appealed to the Director of Labor
Relations. MATU filed a petition for a certification election in Georgia
Pacific (its prior petition was for decertification of the existing CBA)
alleging that there had not been any certification election in that
corporation which was dismissed by the Med-Arbiter.
The Director reversed the Med-Arbiter’s order. He held that the 236
employees should be allowed to vote in the certification election at
Lianga Bay because they used the company’s pay envelopes and
identification cards thus ordering a new certification election.
Diatagon filed a motion for the reconsideration. Lianga Bay filed a
manifestation dated November 17, 1975 categorically alleging that
the 236 workers were not its employees but employees of Georgia
Pacific. The Director denied the motion in his order.
Diatagon appealed to the Secretary of Labor but he refused to rule on
the appeal and instead, referred it to the Director of Labor Relations.
The Director dismissed the appeal ruling that Lianga Bay and Georgia
Pacific have a common interest and that the 236 employees should
be regarded as employees of Lianga Bay; that the transfer of the 236
employees to Georgia Pacific was designed to prejudice the MATU
and to favor Diatagon. Hence, this petition.
ISSUE:
1. Did the Director of Labor Relations gravely abused his
discretion in treating the employees of the two companies as
one bargaining unit?
RULING: Yes.
MED-ARBITER – dismissed the election protest of MATU and certified
the Diatagon as the exclusive bargaining agent of the employees of
Lianga Bay.
DIRECTOR OF LABOR – reversed the Med-Arbiter’s order. The Director
held that the 236 employees should be allowed to vote in the
certification election at Lianga Bay because they used the company’s
pay envelopes and identification cards thus ordering a new
certification election.
SC – We hold that the Director of Labor Relations acted with grave
abuse of discretion in treating the two companies as a single
bargaining unit. The fact that their businesses are related and that the
236 employees of Georgia Pacific International Corporation were
originally employees of Lianga Bay Logging Co., Inc. is not a
justification for disregarding their separate personalities. Hence, the
236 employees, who are now attached to Georgia Pacific
International Corporation, should not be allowed to vote in the
certification election at the Lianga Bay Logging Co., Inc. They should
vote at a separate certification election to determine the collective
bargaining representative of the employees of Georgia Pacific
International Corporation.
However, at this late hour, or after the lapse of more than five years,
the result of the 1975 certification election should not be
implemented. A new certification election should be held at Lianga
Bay Logging Co., Inc. but the 236 employees should not be allowed to
vote in that election.
WHEREFORE, the orders of the Director of Labor Relations are
reversed and set aside. A new certification election should be held at
Lianga Bay Logging Co., Inc.
19. SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC.,
petitioner, vs. COURT OF APPEALS, MOTORICH SALES
CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP.
and JNM REALTY AND DEVELOPMENT CORP., respondents
G.R. No. 129459 September 29, 1998
Facts:
Plaintiff-appellant San Juan Structural (San Juan) entered into an
agreement with defendant-appellee Motorich Sales Corporation
(Motorich) for the transfer to it of a 414 sqm parcel of land in Quezon
City. San Juan paid the down payment of P100k, with the
understanding that the balance is to be paid on March 2, 1989. On
March 1, 1989, Mr. Andres T. Co, president of San Juan, wrote a letter
to Motorich requesting for a computation of the balance to be paid,
that said letter was coursed through defendant-appellees broker,
Linda Aduca, who wrote the computation of the balance. On March 2,
1989, plaintiff-appellant was ready with the amount corresponding to
the balance covered by a check payable to Motorich. The parties were
supposed to meet at the office of Motorich, however, the meeting did
not materialize due to the failure of Motorich’s treasurer, Nenita
Gruenberg, to appear. Despite repeated demands, Motorich refused
to execute the transfer of rights/deed of assignemt in favor of San
Juan, prompting San Juan to file a case against Motorich.
In its answer, Motorich interposed as affirmative defense that the
President and Chairman of Motorich did not sign the agreement. The
signature of the treasurer, Nenita Gruenberg, on the agreement is
inadequate to bind Motorich because the signature of Reynaldo
Gruenberg, President and Chairman of Motorich, is required.
Motorich further alleges that the San Juan this from the very
beginning as it was presented a copy of the Transfer of Rights at the
time the agreement was signed.
RTC
Issue:
(1) W/N San Juan had the right to compel defendants to execute a
deed of absolute sale in accordance with the agreement?
Held:
No.
There is no evidence to show that defendant Nenita Lee Gruenberg
was indeed authorized by defendant corporation, Motorich Sales, to
dispose of that property. Since the property is clearly owned by the
corporation, Motorich Sales, then its disposition should be governed
by the requirement laid down in Sec. 40, of the Corporation Code of
the Philippines, to wit:
Sec. 40, Sale or other disposition of assets. Subject to the
provisions of existing laws on illegal combination and
monopolies, a corporation may by a majority vote of its board
of directors xxx sell, lease, exchange, mortgage, pledge or
otherwise dispose of all or substantially all of its property and
assets, including its goodwill xxx when authorized by the vote
of the stockholders representing at least two third (2/3) of the
outstanding capital stock x x x.
No such vote was obtained by defendant Nenita Lee Gruenberg for
that proposed sale[;] neither was there evidence to show that the
supposed transaction was ratified by the corporation. Plaintiff should
have been on the look out under these circumstances.
CA
Issue:
Same with RTC.
Held:
Ca affirmed RTC decisions.
Supreme Court
Issues:
(1) W/N there is a valid contract of sale between San Juan and
Motorich?
(2) W/N the doctrince of piercing the veil of corporate fiction be
applied to Motorich?
Held:
No to the first issue.
True, Gruenberg and Co signed on February 14, 1989, the Agreement
according to which a lot owned by Motorich Sales Corporation was
purportedly sold. Such contract, however, cannot bind Motorich,
because it never authorized or ratified such sale.
A corporation is a juridical person separate and distinct from its
stockholders or members. Accordingly, the property of the
corporation is not the property of its stockholders or members and
may not be sold by the stockholders or members without express
authorization from the corporation’s board of directors.[10] Section
23 of BP 68, otherwise known as the Corporation Code of the
Philippines, provides:
SEC. 23. The Board of Directors or Trustees. -- Unless
otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be
elected from among the holders of stocks, or where there is
no stock, from among the members of the corporation, who
shall hold office for one (1) year and until their successors are
elected and qualified.
Indubitably, a corporation may act only through its board of directors,
or, when authorized either by its bylaws or by its board resolution,
through its officers or agents in the normal course of business. Thus,
this Court has held that a corporate officer or agent may represent
and bind the corporation in transactions with third persons to the
extent that the authority to do so has been conferred upon him, and
this includes powers which have been intentionally conferred, and
also such powers as, in the usual course of the particular business, are
incidental to, or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as usually pertaining
to the particular officer or agent, and such apparent powers as the
corporation has caused persons dealing with the officer or agent to
believe that it has conferred. Unless duly authorized, a treasurer,
whose powers are limited, cannot bind the corporation in a sale of its
assets.[14]
In the case at bar, Respondent Motorich categorically denies that it
ever authorized Nenita Gruenberg, its treasurer, to sell the subject
parcel of land.[15] Consequently, petitioner had the burden of proving
that Nenita Gruenberg was in fact authorized to represent and bind
Motorich in the transaction. Petitioner failed to discharge this
burden. Its offer of evidence before the trial court contained no proof
of such authority.[16] It has not shown any provision of said
respondents articles of incorporation, bylaws or board resolution to
prove that Nenita Gruenberg possessed such power.
No to the second issue.
True, one of the advantages of a corporate form of business
organization is the limitation of an investors liability to the amount of
the investment.[30] This feature flows from the legal theory that a
corporate entity is separate and distinct from its
stockholders. However, the statutorily granted privilege of a
corporate veil may be used only for legitimate purposes.[31] On
equitable considerations, the veil can be disregarded when it is
utilized as a shield to commit fraud, illegality or inequity; defeat
public convenience; confuse legitimate issues; or serve as a mere
alter ego or business conduit of a person or an instrumentality,
agency or adjunct of another corporation.[32]
Thus, the Court has consistently ruled that [w]hen the fiction is
used as a means of perpetrating a fraud or an illegal act or as a
vehicle for the evasion of an existing obligation, the circumvention of
statutes, the achievement or perfection of a monopoly or generally
the perpetration of knavery or crime, the veil with which the law
covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals.[33]
We stress that the corporate fiction should be set aside when it
becomes a shield against liability for fraud, illegality or inequity
committed on third persons. The question of piercing the veil of
corporate fiction is essentially, then, a matter of proof. In the present
case, however, the Court finds no reason to pierce the corporate veil
of Respondent Motorich.Petitioner utterly failed to establish that said
corporation was formed, or that it is operated, for the purpose of
shielding any alleged fraudulent or illegal activities of its officers or
stockholders; or that the said veil was used to conceal fraud, illegality
or inequity at the expense of third persons, like petitioner.
Petitioner claims that Motorich is a close corporation. We rule that it
is not. Section 96 of the Corporation Code defines a close corporation
as follows:
SEC. 96. Definition and Applicability of Title. -- A close
corporation, within the meaning of this Code, is one whose
articles of incorporation provide that: (1) All of the
corporations issued stock of all classes, exclusive of treasury
shares, shall be held of record by not more than a specified
number of persons, not exceeding twenty (20); (2) All of the
issued stock of all classes shall be subject to one or more
specified restrictions on transfer permitted by this Title; and
(3) The corporation shall not list in any stock exchange or
make any public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall be deemed
not a close corporation when at least two-thirds (2/3) of its
voting stock or voting rights is owned or controlled by another
corporation which is not a close corporation within the
meaning of this Code. xxx.
The articles of incorporation[34] of Motorich Sales Corporation does
not contain any provision stating that (1) the number of stockholders
shall not exceed 20, or (2) a preemption of shares is restricted in favor
of any stockholder or of the corporation, or (3) listing its stocks in any
stock exchange or making a public offering of such stocks is
prohibited. From its articles, it is clear that Respondent Motorich is
not a close corporation.[35] Motorich does not become one either,
just because Spouses Reynaldo and Nenita Gruenberg owned
99.866% of its subscribed capital stock. The [m]ere ownership by a
single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personalities.[36] So too, a
narrow distribution of ownership does not, by itself, make a close
corporation.
20. FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers
Bank of the Philippines) and MERCURIO RIVERA, petitioners, vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO
DEMETRIA, and JOSE JANOLO, respondents.
G.R. No. 115849 January 24, 1996
Facts:
Petitioner, First Philippine International Bank (FPIB), formerly buyer. Plaintiffs demanded the execution by the bank of the
Producer’s Bank, acquired six parcels of land with a total area of 101 documents on what was considered as a perfected agreement.
hectares located at Sta. Rosa, Laguna. Demetrio Demetria and Jose
On December 14, 1987, the plaintiffs made a second tender of
Janolo wanted to purchase the property and thus initiated
payment (Exhs. L and L-1), this time through the Acting Conservator.
negotiations for that purpose.
The foregoing letter drew no response for more than four months.
In August of 1987, Demetria and Janolo met with Mercurio Rivera, Then, on May 3, 1988, plaintiff, through counsel, made a final
Manager of the Property Management Department of FPIB, pursuant demand for compliance by the bank with its obligations under the
to the plan to buy the property in Laguna. After the meeting, plaintiff considered perfected contract of sale.
Janolo, following the advice of defendant Rivera, made a formal
In May 16, 1988, plaintiffs filed a suit for specific performance with
purchase offer to the bank through a letter dated August 30, 1987, in
damages against the bank, its Manager Rivera and Acting Conservator
the amount of P3.5m. On September 1, 1987, on behalf of the bank,
Encarnacion. The basis of the suit was that the transaction had with
Rivera replied to the letter, stating that the bank’s counter-offer is
the bank resulted in a perfected contract of sale. The defendants took
P5.5m. On September 17, 1987, Janolo responded to the letter stating
the position that there was no such perfected sale because the
his proposal to buy said property in the amount of P4.25m. On
defendant Rivera is not authorized to sell the property, and that there
September 28, 1987, a meeting between Demetrio, Janolo, and Luis
was no meeting of the minds as to the price.
co, SVP of FPIB materialized. Two (2) days later, Janolo again sent a
letter to FPIB proposing to buy the property for P5.5m. RTC
On October 12, 1987, the conservator of FPIB (which has been placed Issue:
under conservatorship by the Central Bank since 1984) was replaced
W/N there is a perfected contract of sale between the parties?
by an Acting Conservator in the person of defendant Leonida T.
Encarnacion. Rivera wrote letter to Demetria stating that the proposal Held:
to buy the property is still under study, to be submitted to the new
Yes. (There was no discussion as how the RTC had arrived to its
Acting Conservator.
decisions. The case merely quoted the dispositive portion of the RTC
What thereafter transpired was a series of demands by the plaintiffs decision)
for compliance by the bank with what plaintiff considered as a
CA
perfected contract of sale, which demands were in one form or
another refused by the bank. Issue:
In November 17, 1987, plaintiffs through a letter to defendant Rivera W/N there is a perfected contract of sale between the parties?
tendered payment of the amount of P5.5 million pursuant to (our)
perfected sale agreement. Defendants refused to receive both the Held:
payment and the letter. Instead, the parcels of land involved in the Yes.
transaction were advertised by the bank for sale to any interested
There is no dispute that the object of the transaction is that property
owned by the defendant bank as acquired assets consisting of six (6)
parcels of land specifically identified under Transfer Certificates of
Title Nos. T-106932 to T-106937. It is likewise beyond cavil that the
bank intended to sell the property. As testified to by the Banks
Deputy Conservator, Jose Entereso, the bank was looking for buyers
of the property. It is definite that the plaintiffs wanted to purchase
the property and it was precisely for this purpose that they met with
defendant Rivera, Manager of the Property Management Department
of the defendant bank, in early August 1987.
The plaintiffs, therefore, at that meeting of August 1987 regarding
their purpose of buying the property, dealt with and talked to the
right person. Necessarily, the agenda was the price of the property,
and plaintiffs were dealing with the bank official authorized to
entertain offers, to accept offers and to present the offer to the
Committee before which the said official is authorized to discuss
information relative to price determination.
What transpired after the meeting of early August 1987 are
consistent with the authority and the duties of Rivera and the banks
internal procedure in the matter of the sale of banks assets.
It is important to note that negotiations on the price had started in
early August and the plaintiffs had already offered an amount as
purchase price, having been made to understand by Rivera, the
official in charge of the negotiation, that the price will be submitted
for approval by the bank and that the banks decision will be relayed
to plaintiffs. From the facts, the amount of P5.5 Million has a definite
significance. It is the official bank price. At any rate, the bank placed
its official, Rivera, in a position of authority to accept offers to buy
and negotiate the sale by having the offer officially acted upon by the
bank. The bank cannot turn around and later say, as it now does, that
what Rivera states as the banks action on the matter is not in fact so.
It is a familiar doctrine, the doctrine of ostensible authority, that if a
corporation knowingly permits one of its officers, or any other agent,
to do acts within the scope of an apparent authority, and thus holds
him out to the public as possessing power to do those acts, the
corporation will, as against anyone who has in good faith dealt with
the corporation through such agent, he estopped from denying his
authority.
Supreme Court
Issue:
W/N there is a perfected contract of sale between the parties?
Held:
Yes.
Article 1318 of the Civil Code enumerates the requisites of a valid and
perfected contract as follows: (1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract; (3)
Cause of the obligation which is established.
There is no dispute on requisite no. 2. The object of the questioned
contract consists of the six (6) parcels of land in Sta. Rosa, Laguna
with an aggregate area of about 101 hectares, more or less, and
covered by Transfer Certificates of Title Nos. T-106932 to T-106937.
There is, however, a dispute on the first and third requisites.
The authority of a corporate officer in dealing with third persons may
be actual or apparent. The doctrine of apparent authority, with
special reference to banks, was laid out in Prudential Bank vs. Court of
Appeals,[31] where it was held that:
Conformably, we have declared in countless decisions that the
principal is liable for obligations contracted by the agent. The
agent’s apparent representation yields to the principals true
 representation and the contract is considered as entered into
between the principal and the third person.
A bank is liable for wrongful acts of its officers done in the
interests of the bank or in the course of dealings of the
officers in their representative capacity but not for acts
outside the scope of their authority (9 C.J.S., p. 417). A bank
holding out its officers and agents as worthy of confidence will
not be permitted to profit by the frauds they may thus be
enabled to perpetrate in the apparent scope of their
employment; nor will it be permitted to shirk its responsibility
for such frauds, even though no benefit may accrue to the
bank therefrom. Accordingly, a banking corporation is liable to
innocent third persons where the representation is made in
the course of its business by an agent acting within the
general scope of his authority even though, in the particular
case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some
other person, for his own ultimate benefit.
that the buyers offer should be no less than P3.3 million; (c)
Rivera received the buyers letter dated August 30, 1987
offering P3.5 million; (d) Rivera signed the letter dated
September 1, 1987 offering to sell the property for P5.5
million; (e) Rivera received the letter dated September 17,
1987 containing the buyers proposal to buy the property for
P4.25 million; (f) Rivera, in a telephone conversation,
confirmed that the P5.5 million was the final price of the Bank;
(g) Rivera arranged the meeting between the buyers and Luis
Co on September 28, 1987, during which the Banks offer of
P5.5 million was confirmed by Rivera. At said meeting, Co, a
major shareholder and officer of the Bank, confirmed Riveras
statement as to the finality of the Banks counter-offer of P5.5
million; (h) In its newspaper advertisements and
announcements, the Bank referred to Rivera as the officer
acting for the Bank in relation to parties interested in buying
assets owned/acquired by the Bank. In fact, Rivera was the
officer mentioned in the Banks advertisements offering for
sale the property in question.

From the evidence found by respondent Court, it is obvious that

petitioner Rivera has apparent or implied authority to act for the Bank
in the matter of selling its acquired assets. This evidence includes the
following:
21. HEIRS OF DURANO, SR. VS UY
344 SCRA 238
(a) The petition itself in par. II-1 states that Rivera was at all
FACTS:
times material to this case, Manager of the Property
Sometime in 1977, herein petitioners, late Congressman Romano
Management Department of the Bank. By his own admission,
Durano, Sr., together with his son, Romano Durano III and the latter’s
Rivera was already the person in charge of the Banks acquired
wife, instituted an action for damages against respondents for
assets; (b) As observed by respondent Court, the land was
officiating a hate campaign by lodging complaints over petitioners’ so-
definitely being sold by the Bank. And during the initial
called invasion of respondents’ alleged properties. This was followed
meeting between the buyers and Rivera, the latter suggested
by another complaint sent by respondents which depicted petitioners
as oppressors, landgrabbers and usurpers of their alleged rights.
Investigations on the matter were simultaneously conducted but the
said complaints were dismissed as baseless. Respondents, in their
Answer, contended that they received mimeographed notices dated
August 2, 1970 and signed by the late Ramon Durano, Sr., informing
them that the lands which they are tilling and residing in, formerly
owned by the Cebu Portland Cement Company (Cepoc) had been
purchased by Durano & Co., Inc. Said lands were needed for planting
sugar and for roads or residences, and directed respondents to
immediately turn over the said lands to the representatives of the
company. Simultaneously, tall bamboo poles with pennants at the
tops thereof were planted in some areas of the lands and metal
sheets bearing the initials RMD were nailed to posts. Then men who
identified themselves as employees of Durano & Co. proceeded to
bulldoze the lands occupied by various respondents, destroying in
their wake the plantings and improvements made by the respondents
therein. On September 15, 1970, Durano & Co. sold the disputed
property to Ramon Durano III who procured registration of these
lands in his name. In their counterclaim, respondents alleged that
petitioners’ acts deprived most of them of their independent source
of income and have made destitute of some of them. Also, petitioners
have done serious violence to respondents’ spirit, as citizens and
human beings, to the extent that one of them had been widowed by
the emotional shock that the damage and dispossession has caused.
Thus, in addition to the dismissal of the complaint, respondents
demanded actual damages for the cost of the improvements they
made on the land, together with the damage arising from the
dispossession itself; moral damages for the anguish they underwent
as a result of the high-handed display of power by petitioners in
depriving them of their possession and property; as well as exemplary
damages, attorney’s fees and expenses of litigation. Petitioners
moved to dismiss their complaint which was granted by the trial court
but without prejudice to respondents’ right to proceed with their
counterclaim. On March 8, 1990, the RTC issued a decision upholding
respondents’ counterclaim and directing petitioners to pay and return
the properties of respondents. An appeal was filed by the petitioners
invoking the doctrine of separate corporate responsibility before the
CA. However, the CA affirmed the RTC’s decision. Hence, the instant
petition.
ISSUE:
Could petitioners justifiably invoke the doctrine of separate corporate
personality to evade liability for damages?
RULING: NO
Regional Trial Court: It issued a decision upholding respondents’
counterclaim and directing petitioners to pay and return the
properties of respondents.
Court of Appeals: It applied the well-recognized principle of piercing
the corporate veil, i.e., the law will regard the act of the corporation
as the act of its individual stockholders when it is shown that the
corporation was used merely as an alter ego by those persons in the
commission of fraud or other illegal acts.
Supreme Court: The question of whether a corporation is a mere
alter ego is purely one of fact. The Court sees no reason to reverse
the finding of the Court of Appeals. The facts show that shortly after
the purported sale by Cepco to Durano & Co., the latter sold the
property to petitioner Ramon Durano III, who immediately procured
the registration of the property in his name. Obviously, Durano & Co.
was used by petitioners merely as an instrumentality to appropriate
the disputed property for themselves.
The test in determining the applicability of the doctrine of piercing
the veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but
complete domination, not only of finances but of policy and
 business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;
2. Such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and unjust
acts in contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately
cause the injury or unjust loss complained of.
The absence of any one of these elements prevents piercing the
corporate veil. In applying the instrumentality or alter ego doctrine,
the courts are concerned with reality and not form, with how the
corporation operated and the individual defendants relationship to
that operation.
22. CONCEPT BUILDERS, INC. VS NLRC
257 SCRA 149
FACTS:
Petitioner is a domestic corporation with principal office at 355
Mayasan Road, Valenzuela, Metro Manila, engaged in the
construction business whereas respondents were employed by said
company as laborers, carpenters, and riggers. The latter were served
individual written notices of termination of employment by the
former. It was stated therein that their contracts of employment had
expired and the project in which they were hired had been
completed. It was found out, however, that at the time of the
termination of private respondents’ employment, the project in
which they were hired had not yet finished and completed. Petitioner
had to engage the services of subcontractors whose workers
performed the functions of private respondents. Aggrieved, private
respondents filed a complaint for illegal dismissal, unfair labor
practice, non-payment of their holiday pay, overtime pay, and 13th
month pay against petitioner. The LA rendered judgment in favor of
private respondents. NLRC dismissed the motion for reconsideration
of the petitioner on the ground of finality. Thereafter, the LA issued a
writ of execution directing the sheriff to execute the said decision. It
was partially satisfied through garnishment of sums of petitioner’s
debtor, Metropolitan Waterworks and Sewerage Authority. The
amount received was turned over to the NLRC. An alias of writ of
execution was issued by the LA directing the sheriff to collect the
balance of the award of judgment and to reinstate the private
respondents. However, such writ was refused on the ground that the
petitioner no longer occupied the premises. A second alias writ was
issued but the same had not been enforced. In the sheriff’s report, it
stated that all the employees inside the premises at the said principal
office claimed that they were employees of Hydro Pipes Philippines,
Inc. and not by respondent, levy was made upon personal properties
he found in the premises, and that security guard with high-powered
guns prevented him from removing the properties he had levied
upon. A break-open order was recommended by him to enable him to
enter and proceed with the public auction of said personal properties.
However, a third-party claim was filed with the LA alleging that the
properties sought to be levied upon by the sheriff were owned by
Hydro of which he is the vice president. Private respondents filed a
motion for the issuance of a break-open order alleging that Hydro and
petitioner corporation were owned by the same incorporator-
stockholders. They also alleged that petitioner temporarily suspended
its business operations in order to evade its legal obligation to them.
The LA denied said motion. The NLRC, on appeal, set aside the LA’s
order and issued a break-open order. A motion for reconsideration
was filed but the same was denied. Hence, the present petition by the
petitioner alleging that the NLRC committed grave abuse of discretion
by applying the doctrine of piercing the corporate veil in this absence
of any showing that it created Hydro in order to evade its liability.
ISSUE:
Was the doctrine of piercing the corporate veil applicable to the
instant case?
RULING: YES
National Labor Relations Commission: In this case, the NLRC noted
that, while petitioner claimed that it ceased its business operations
on April 29, 1986, it filed an Information Sheet with the Securities and
Exchange Commission on May 15, 1987, stating that its office address
is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand,
HPPI, the third-party claimant, submitted on the same day, a similar
information sheet stating that its office address is at 355 Maysan
Road, Valenzuela, Metro Manila. Furthermore, it stated that “Both
information sheets were filed by the same Virgilio O. Casino as the
corporate secretary of both corporations. It would also not be amiss to
note that both corporations had the same president, the same board
of directors, the same corporate officers, and substantially the same
subscribers. From the foregoing, it appears that, among other things,
the respondent (herein petitioner) and the third-party claimant shared
the same address and/or premises. Under this circumstances, it
cannot be said that the property levied upon by the sheriff were not of
respondents. Clearly, petitioner ceased its business operations in order
to evade the payment to private respondents of backwages and to bar
their reinstatement to their former positions. HPPI is obviously a
business conduit of petitioner corporation and its emergence was
skillfully orchestrated to avoid the financial liability that already
attached to petitioner corporation.”
Supreme Court: It is a fundamental principle of corporation law that a
corporation is an entity separate and distinct from its stockholders
and from other corporations to which it may be connected. But, this
separate and distinct personality of a corporation is merely a fiction
created by law for convenience and to promote justice. So, when the
notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used
as a device to defeat the labor laws, this separate personality of the
corporation may be disregarded or the veil of corporate fiction
pierced. This is true likewise when the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation.
The conditions under which the juridical entity may be disregarded
vary according to the peculiar facts and circumstances of each case.
No hard and fast rule can be accurately laid down, but certainly, there
are some probative factors of identity that will justify the application
of the doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both
corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.
The SEC en banc explained the instrumentality rule which the courts
have applied in disregarding the separate juridical personality of
corporations as follows:
Where one corporation is so organized and controlled and its affairs
are conducted so that it is, in fact, a mere instrumentality or adjunct
of the other, the fiction of the corporate entity of the instrumentality
may be disregarded. The control necessary to invoke the rule is not
majority or even complete stock control but such domination of
finances, policies and practices that the controlled corporation has, so
to speak, no separate mind, will or existence of its own, and is but a
conduit for its principal. It must be kept in mind that the control must
be shown to have been exercised at the time the acts complained of
took place. Moreover, the control and breach of duty must
proximately cause the injury or unjust loss for which the complaint is
made.
Thus, the question of whether a corporation is a mere alter ego, a
mere sheet or paper corporation, a sham or a subterfuge is purely
one of fact.
23. Traders Royal Bank vs. CA
G.R. No. 93397, March 3, 1997
FACTS:
Filriters is the registered owner of CBCI No. D891. Under a deed of
assignment dated November 27, 1971, Filriters transferred CBCI No.
D891 to Philippine Underwriters Finance Corporation (Philfinance).
Subsequently, Philfinance transferred CBCI No. D891, which was still
registered in the name of Filriters, to appellant Traders Royal Bank
(TRB). The transfer was made under a repurchase agreement dated
February 4, 1981, granting Philfinance the right to repurchase the
instrument on or before April 27, 1981. When Philfinance failed to
buy back the note on maturity date, it executed a deed of
assignment, dated April 27, 1981, conveying to appellant TRB all its
right and the title to CBCI No. D891.
Armed with the deed of assignment, TRB then sought the transfer and
registration of CBCI No. D891 in its name before the Security and
Servicing Department of the Central Bank (CB). Central Bank,
however, refused to effect the transfer and registration in view of an
adverse claim filed by defendant Filriters.
Left with no other recourse, TRB filed a special civil action
for mandamus against the Central Bank in the Regional Trial Court of
Manila. The suit, however, was subsequently treated by the lower
court as a case of interpleader when CB prayed in its amended
answer that Filriters be impleaded as a respondent and the court
adjudge which of them is entitled to the ownership of CBCI No. D891.
ISSUE/S:
Whether or not there was a piercing a veil of corporate entity, the
Court of Appeals should have ruled that such veil of corporate entity
was, in fact, pierced, and the payment by TRB to Philfinance should
be construed as payment to Filriters.
RULING: NO
Trial Court found the assignment of CBCI No. D891 in favor of
Philfinance, and the subsequent assignment of the same CBCI by
Philfinance in favor of Traders Royal Bank null and void and of no
force and effect.
Court of Appeals
The appellate court ruled that the CBCI is not a negotiable
instrument, since the instrument clearly stated that it was payable to
Filriters, the registered owner, whose name was inscribed thereon,
and that the certificate lacked the words of negotiability which serve
as an expression of consent that the instrument may be transferred
by negotiation.
Supreme Court
Petitioner cannot put up the excuse of piercing the veil of corporate
entity, as this merely an equitable remedy, and may be awarded only
in cases when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime or where a
corporation is a mere alter ego or business conduit of a person.
Piercing the veil of corporate entity requires the court to see through
the protective shroud which exempts its stockholders from liabilities
that ordinarily, they could be subject to, or distinguished one
corporation from a seemingly separate one, were it not for the
existing corporate fiction. But to do this, the court must be sure that
the corporate fiction was misused, to such an extent that injustice,
fraud, or crime was committed upon another, disregarding, thus, his,
her, or its rights. It is the protection of the interests of innocent third
persons dealing with the corporate entity which the law aims to
protect by this doctrine.
The corporate separateness between Filriters and Philfinance
remains, despite the petitioners insistence on the contrary. For one,
other than the allegation that Filriters is 90% owned by Philfinance,
and the identity of one shall be maintained as to the other, there is
nothing else which could lead the court under circumstance to
disregard their corporate personalities.
Though it is true that when valid reasons exist, the legal fiction that a
corporation is an entity with a juridical personality separate from its
stockholders and from other corporations may be disregarded, in the
absence of such grounds, the general rule must upheld. The fact that
Filfinance owns majority shares in Filriters is not by itself a ground to
disregard the independent corporate status of Filriters.
In the case at bar, there is sufficient showing that the petitioner was
not defrauded at all when it acquired the subject certificate of
indebtedness from Philfinance.
24. Laguio vs. NLRC
262 SCRA 715
Facts:
Private respondent April Toy, Inc. (April) is a domestic
corporation incorporated for the purpose of manufacturing,
importing, exporting, buying, selling, sub-contracting or otherwise
dealing in, at wholesale and retail, stuffed toys, with principal place of
business at Paranaque, Manila. After almost a year of
operation, April posted a memorandum informing them of its dire
financial condition. So, April decided to shorten its corporate term
and submitted a notice of dissolution to the Securities and Exchange
Commission.
In view of April’s cessation of operations, petitioners who initially
composed of seventy-seven employees below filed a complaint for
illegal shutdown/retrenchment/dismissal and unfair labor
practice. On June 21, 1990, petitioners amended their complaint to
implead private respondent Well World Toys, Inc. (Well World), a
corporation also engaged in the manufacture of stuffed toys for
export with principal office located at Las Pinas, Manila.
Petitioners alleged that they were original probationary
employees of Well World but were later laid off in 1989 for starting to
organize themselves into a union. They applied with and were
thereafter hired by April. On February 2, 1990, and while under the
employ of April, their union, Alyansang Likha ng mga Anak ng Bayan
(ALAB), won as the exclusive bargaining agent for the
workers. Petitioners thereafter submitted a Collective Bargaining
Agreement proposal which April rejected in view of its cessation of
operation. The closure, petitioners declared, is April’s clever ploy to
defeat their right to self organization. Petitioners further alleged that
the original incorporators and principal officers of April were likewise
the original incorporators of Well World, thus both corporations
should be treated as one corporation liable for their claims.
Labor Arbiter: the LA found as valid the closure of April, and
treated April and Well World as two distinct corporations
NLRC: Affirmed. Hence, this petition.
ISSUE: Whether April and Well World should be treated as one and
the same corporation liable for their grievances?
Ruling: Petitioners also insist that the two corporations are being
managed by Mr. Jean Li Wang and that their articles of incorporation,
general information sheets and certificates of increase of capital stock
were notarized by the same Notary Public. Additionally, petitioners
aver that when some of them transferred from Well
World to April they were not given their separation pay, a factor
which presumably proves that April is a mere conduit of Well
World. Petitioners likewise assert that their transfer from one
corporation to another was made at the time that they were on the
process of organizing a union. Finally, petitioners allege
that April and Well World were engaged in the same line of business,
with the latter also supplying the former raw materials and
machineries.
Petitioners allegation that both corporations were managed by a
single individual, Mr. Jen Li Weng, contradicts paragraphs 7 and 8 of
their petition which state:
7. Respondents Yu-Sheng Ling, Jen Li Weng (Alias James Wang), Eucliff
Cheng and Chia Sheng Lin are the President, Managing Director,
Treasurer and Secretary respectively of respondent Well World Toy,
Inc., all of whom are holding office at 399-B Real St., Talon, Las Pinas,
Metro Manila. x x x.
8. Respondents Nenita C. Aguirre, Ma. Theresa R. Cadiente and
Gliceria R. Aguirre are the President, Treasurer and Secretary,
respectively of respondent April Toy, Inc. all of whom are holding
office at No. 6-C Ascie Avenue, Severina Industrial Estate, Km. 16
South Superhighway Paranaque. x x x.[14]
What clearly appears therefrom is that the two corporations have
two different set of officers managing their respective affairs in two
separate offices.
Mere substantial identity of the incorporators of the two
corporations does not necessarily imply fraud, nor warrant the
piercing of the veil of corporation fiction. In the absence of clear and
convincing evidence that April and Well Worlds corporate
personalities were used to perpetuate fraud, or circumvent the law
said corporations were rightly treated as distinct and separate from
each other.
Hence, with the facts and circumstances showing that the owners of
April Toy are different from those of Well-World, the management of
one being different from the other, and the office of April Toy is
situated more than ten kilometers away from Well-World, plus the
fact that the closure of April Toy was for valid reasons, the Labor
Arbiter likewise correctly opined that the two corporations are
separate and distinct from each other, and that there is no basis for
piercing the veil of corporate fiction.
25. Luxuria Homes, Inc vs Garcia
216 SCRA 470; G.R. No. 125986. January 28, 1999
Facts:
Petitioner Aida M. Posadas and her two (2) minor children co-
owned a property in Sucat, Muntinlupa, which was occupied by
squatters. Petitioner Posadas entered into negotiations with private
respondent Jaime T. Bravo regarding the development of the said
property into a residential subdivision.
Meanwhile, some seven (7) months later petitioner Posadas and
her two (2) children, through a Deed of Assignment, assigned the said
property to petitioner Luxuria Homes, Inc., purportedly for
organizational and tax avoidance purposes. Respondent Bravo signed
as one of the witnesses to the execution of the Deed of Assignment
and the Articles of Incorporation of petitioner Luxuria Homes, Inc.
A year and a half later, the harmonious and congenial
relationship of petitioner Posadas and respondent Bravo turned sour
when the former supposedly could not accept the management
contracts to develop the 1.6 hectare property into a residential
subdivision, the latter was proposing. In retaliation, respondent Bravo
demanded payment for services rendered in connection with the
development of the land.
Petitioner Posadas refused to pay the amount demanded. Thus
private respondents James Builder Construction and Jaime T. Bravo
instituted a complaint for specific performance before the trial court
against petitioners Posadas and Luxuria Homes, Inc. Private
respondents alleged therein that petitioner Posadas asked them to
clear the subject parcel of land of squatters for a fee of P1,100,000.00
for which they were partially paid the amount of P461,511.50, leaving
a balance of P638,488.50. They were also supposedly asked to
prepare a site development plan and an architectural design for a
contract price of P450,000.00 for which they were partially paid the
amount of P25,000.00, leaving a balance of P425,000.00. And in
anticipation of the signing of the land development contract, they had
to construct a bunkhouse and warehouse on the property which
amounted to P300,000.00, and a hollow blocks factory
for P60,000.00. Private respondents also claimed that petitioner
Posadas agreed that private respondents will develop the land into a
first class subdivision thru a management contract and that petitioner
Posadas is unjustly refusing to comply with her obligation to finalize
the said management contract.
Issue:
Can petitioner Luxuria Homes, Inc., be held liable to private
respondents for the transactions supposedly entered into between
petitioner Posadas and private respondents?
Ruling:
RTC
Yes. It ruled that Luxuria Homes, Inc., was formed by petitioner
Posadas after demand for payment had been made, evidently for her
to evade payment of her obligation, thereby showing that the
transfer of her property to Luxuria Homes, Inc., was in fraud of
creditors.
Court of Appeals
The Court of Appeals upheld the factual finding of the trial court that
Luxuria Homes, Inc was liable. It ruled that Luxuria Homes, Inc., was
formed by petitioner Posadas after demand for payment had been
made, evidently for her to evade payment of her obligation, thereby
showing that the transfer of her property to Luxuria Homes, Inc., was
in fraud of creditors.
Supreme Court
No. Luxuria Homes, Inc. should not be liable to the contract
entered between Posadas and private respondents.
The allegation that Posadas surreptitiously formed Luxuria
Homes, Inc. in order to evade payment and defraud creditors is not
supported by evidence.
It can easily be gleaned from the record that the demand letters
of private respondent were made more than a year and a half after
the execution of the Deed of Assignment. The transfer was made at
the time the relationship between Posadas and private respondents
was very pleasant since private respondent Bravo himself is one of
the witness to the said assignment. The very presence of Bravo as a
witness to the assignment negates the allegation of fraud. In addition,
Posadas is not a majority stockholder of Luxuria Homes, Inc. as
erroneously stated by the lower court. The Articles of Incorporation
of Luxuria clearly shows that Posadas only owns around 33% of the
capital stock, hence Posadas cannot be considered as an alter ego of
Luxuria Homes Inc.
To disregard the separate juridical personality of a corporation,
the wrongdoing must be clearly and convincingly established. It
cannot be presumed. This is elementary. Thus in Bayer-Roxas v. Court
of Appeals, we said that the separate personality of the corporation
may be disregarded only when the corporation is used as a cloak or
cover for fraud or illegality, or to work injustice, or where necessary
for the protection of the creditors. Accordingly in Del Rosario v.
NLRC, where the Philsa International Placement and Services Corp.
was organized and registered with the POEA in 1981, several years
before the complainant was filed a case in 1985, we held that this
cannot imply fraud.
Obviously in the instant case, private respondents failed to show
proof that petitioner Posadas acted in bad faith. Consequently since
private respondents failed to show that petitioner Luxuria Homes,
Inc., was a party to any of the supposed transactions, not even to the
agreement to negotiate with and relocate the squatters, it cannot be
held liable, nay jointly and in solidum, to pay private respondents. In
this case since it was petitioner Aida M. Posadas who contracted
respondent Bravo to render the subject services, only she is liable to
pay the amounts adjudged herein.
26. SIBAGAT TIMBER v. GARCIA
216 SCRA 470
FACTS:
Respondent Sheriff Adolfo B. Garcia, who was entrusted with
the implementation of the writ of execution issued by the RTC of
Makati, Branch 147, in the Civil Case entitled "USIPHIL, INC. v. Del
Rosario and Sons Logging Enterprises, Inc.," levied several personal
properties of Del Rosario & Sons, Inc and scheduled it for a public
auction.
However, petitioner Sibagat Timber Corporation filed an
injunction case alleging that it is the lawful owner of the levied
machinery and equipment, and as ruled upon by the SC in G.R. No.
84497 "Escovilla, Jr. v. CA, Sibagat Timber Corporation and Conchita
del Rosario" wherein the Court held that private respondents (herein
petitioner) are the actual owners of the properties subject of
execution by virtue of a sale in their favor by Del Rosario & Sons
Logging Enterprises, Inc.
The RTC dismissed the petition. On appeal, the CA affirmed
the RTC’s decision stating that Sibagat Corporation, is not a separate
and distinct entity from the judgment debtor, Del Rosario & Sons
Logging Enterprises, Inc.
ISSUE:
Whether Sibagat Timber Corporation is mere conduit or alter
ego of Del Rosario & Sons Logging.
RULING:
Yes. The SC affirmed the decision of the CA and held that
Sibagat Timber is a mere alter ego of Del Rosario & Sons Logging. The
circumstances that: (1) petitioner and Del Rosario & Sons Logging
Enterprises, Inc. hold office in the same building; (2) the officers and
directors of both corporations are practically the same; and (3) the
Del Rosarios assumed management and control of Sibagat and have
been acting for and managing its business, bolster the conclusion that
petitioner is an alter ego of the Del Rosario & Sons Logging
Enterprises, Inc.
The rule is that the veil of corporate fiction may be pierced
when made as a shield to perpetrate fraud and/or confuse legitimate
issues. The theory of corporate entity was not meant to promote
unfair objectives or otherwise, to shield them. Likewise, where it
appears that two 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 the legal
fiction that two corporations are distinct entities, and treat them as
identical.
The SC also held that question of real ownership may be
disregarded when a corporation is just a conduit of another
corporation. The SC held that the ruling in G.R. No. 84497, where the
petitioners where pronounced as the owner of the properties levied
under execution, will not be a legal obstacle to the piercing of the
corporate fiction. As found by both the trial and appellate courts,
petitioner is just a conduit, if not an adjunct of Del Rosario & Sons
Logging Enterprises, Inc. In such a case, the real ownership becomes
unimportant and may be disregard for the two entities may/can be
treated as only one agency or instrumentality.
"The corporate entity is disregarded 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."
27. Maglutac vs NLRC
G.R. No. 78345, September 21, 1990
FACTS:
Jose M. Maglutac was employed by Commart (Phils.), Inc.
sometime in February, 1980 and rose to become the Manager of its
Energy Equipment Sales. On October 3, 1984, he received a notice of
termination signed by Joaquin S. Cenzon, Vice-President-General
Manager and Corporate Secretary of CMS International, a corporation
controlled by Commart.
Thereafter, Jose Maglutac filed a complaint for illegal dismissal
against Commart and Jesus T. Maglutac, President and Chairman of
the Board of Directors of Commart. The complainant alleged that his
dismissal was part of a vendetta drive against his parents who dared
to expose the massive and fraudulent diversion of company funds to
the company president's private accounts, stressing that
complainant's efficiency and effectiveness were never put to question
when very suddenly he received his notice of termination.
Commart and Jesus T. Maglutac, justified the dismissal for lack
of trust and confidence brought about by complainant and his family's
establishment of a company, MM International, in direct competition
with Commart.
The Labor Arbiter, Jose Collado, Jr., rendered a decision
finding that complainant was illegally dismissed and ordered to
reinstate complainant to his former position with full backwages
without loss of seniority rights and other personnel privileges.
Commart and Jesus T. Maglutac filed a motion for
reconsideration to the National Labor Relations Commission (NLRC).
The NLRC affirmed the finding of the Labor Arbiter that complainant
was illegally dismissed by Commart but it deleted the award for moral
and exemplary damages in favor of complainant and absolved Jesus T.
Maglutac from any personal liability to the complainant.
ISSUE:
W/N Jesus Maglutac should be held jointly and severally liable
with Commart
RULING:
Yes. The SC affirmed the finding of the LA and the NLRC that
the vice-president of a corporation who was the most ranking officer
of the corporation can be held jointly and severally liable with the
corporation for the payment of the unpaid wages of its president.
The president or presidents of the corporation may be held
liable for the corporations’ obligations to its workers. Since a
corporation is an artificial being, it must have an officer who can be
presumed to be the employer being the person acting in the interest
of the employer, otherwise, any decision that may be rendered
against the latter would be useless and ineffective for there would be
no one against whom it can be enforced.
Moreover, not only was Jesus T. Maglutac the most ranking
officer of Commart at the time of the termination of the complainant,
it was likewise found that he had a direct hand in the latter's
dismissal. The Labor Arbiter therefore, correctly ruled that Jesus T.
Maglutac was jointly and severally liable with Commart.
28. PNB vs. RITRATO, INC.
GR No. 142616, 31 July 2001
Facts:
PNB International Finance Ltd. (PNB-IFL), a subsidiary
company of PNB, organized and doing business in Hong Kong,
extended a letter of credit in favor of the respondents in the amount
of US$300,000.00 secured by real estate mortgages constituted over
four (4) parcels of land in Makati City. This credit facility was later
increased successively to US$1,140,000.00 in September 1996; to
US$1,290,000.00 in November 1996; to US$1,425,000.00 in February
1997; and decreased to US$1,421,316.18 in April 1998. Respondents
made repayments of the loan incurred by remitting those amounts to
their loan account with PNB-IFL in Hong Kong.
However, later, their outstanding obligations stood at
US$1,497,274.70. Pursuant to the terms of the real estate mortgages,
PNB-IFL, through its attorney-in-fact PNB, notified the respondents of
the foreclosure of all the real estate mortgages and that the
properties subject thereof were to be sold at a public auction at the
Makati City Hall.
Respondents then filed a complaint for injunction with prayer
for the issuance of a writ of preliminary injunction and/or temporary
restraining order before the Regional Trial Court of Makati. Petitioner
also filed a motion to dismiss on the grounds of failure to state a
cause of action and the absence of any privity between the petitioner
and respondents. The RTC Judge granted the writ of preliminary
injunction and denied the motion to dismiss.
Petitioner, thereafter, in a petition for certiorari and
prohibition assailed the issuance of the writ of preliminary injunction
before the Court of Appeals. The CA later dismissed the petition.
ISSUE: Whether the doctrine of “Piercing the Veil of the Corporate
Identity” is applicable.
RULING:
No. Herein petitioner is an agent with limited authority and
specific duties under a special power of attorney incorporated in the
real estate mortgage. It is not privy to the loan contracts entered into
by respondents and PNB-IFL.
The trial court erred in applying the case of Koppel Phil Inc. vs.
Yatco. In said case, this Court disregarded the separate existence of
the parent and the subsidiary on the ground that the latter was
formed merely for the purpose of evading the payment of higher
taxes. In the case at bar, respondents failed to show any cogent
reason why the separate entities of the PNB and PNB-IFL should be
disregarded.
In Garrett vs. Southern Railway Co, the Tennessee Supreme
Court outlined the circumstances which may be useful in the
determination of whether the subsidiary is but a mere instrumentality
of the parent-corporation:
(a) The parent corporation owns all or most of the capital stock of
the subsidiary.
(b) The parent and subsidiary corporations have common
directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of
the subsidiary or otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses
or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the
parent corporation or no assets except those conveyed to or by
the parent corporation.
(h) In the papers of the parent corporation or in the statements
of its officers, the subsidiary is described as a department or
division of the parent corporation, or its business or financial
responsibility is referred to as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as
its own.
(j) The directors or executives of the subsidiary do not act
independently in the interest of the subsidiary but take their
orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not
observed.
In this case, only two of the eleven listed indicia occur, namely,
the ownership of most of the capital stock of Lenoir by Southern, and
possibly subscription to the capital stock of Lenoir The complaint
must be dismissed.
 In this jurisdiction, the doctrine applies when the corporate
fiction 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.
In Concept Builders, Inc. v. NLRC, we have laid the test in
determining the applicability of the doctrine of piercing the veil of
corporate fiction, to wit:
1. Control, not mere majority or complete 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 rights; and,
3. The aforesaid control and breach of duty must proximately cause
the injury or unjust loss complained of.
The absence of any one of these elements prevents "piercing the
corporate veil." In applying the "instrumentality" or "alter ego"
doctrine, the courts are concerned with reality and not form, with
how the corporation operated and the individual defendant's
relationship to the operation.
Aside from the fact that PNB-IFL is a wholly owned subsidiary of
petitioner PNB, there is no showing of the indicative factors that the
former corporation is a mere instrumentality of the latter are
present. Neither is there a demonstration that any of the evils sought
to be prevented by the doctrine of piercing the corporate veil
exist. Inescapably, therefore, the doctrine of piercing the corporate
veil based on the alter ego or instrumentality doctrine finds no
application in the case at bar.
In any case, the parent-subsidiary relationship between PNB and
PNB-IFL is not the significant legal relationship involved in this case
since the petitioner was not sued because it is the parent company of
PNB-IFL. Rather, the petitioner was sued because it acted as an
attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings.
29. Tomas Lao Construction vs. NLRC
G.R. No. 116781., September 5, 1997
FACTS: Petitioners Tomas Lao Corporation (TLC), Thomas and James
Developers (T&J) and LVM Construction Corporation (LVM), referred
to as the “Lao Group of Companies,” are (3) entities comprising a
business conglomerate exclusively controlled and managed by
members of the Lao family. They are engaged in the construction of
public roads and bridges. Under a JVA among each other, they would
undertake projects simultaneously or successively so whenever
necessary they would lease tools and equipment as well as utilize
each other’s employees— workers were transferred whenever
necessary or were rehired after the completion of the project.
In 1989, Andres Lao, Managing Director of LVM required all personnel
to sign antedated employment contract forms and ordered the
withholding of the salary of any employee who refused to sign. The
contracts expressly described the construction workers as project
employees whose employments were for a definite period. Private
respondents refused to sign so their salaries were withheld and they
were required to explain why their services should not be terminated
for violation of company rules. Later, their services were terminated.
From October to December 1990 private respondents individually
filed complaints for illegal dismissal against petitioners with the NLRC
alleging that that they were hired for various periods as construction
workers in different capacities and alternatively worked for TLC, T&J,
and LVM.
NLRC RAB VIII dismissed the complaints finding that private
respondents were project employees whose employments could be
terminated upon completion of the projects or project phase for
which they were hired. The decision was reversed on appeal by the
4th Division of the NLRC Cebu on the ground that private respondents
were regular employees who were dismissed without just cause and
denied due process. The NLRC also disregarded the veil of corporate
fiction and treated the 3 corporations as forming only one entity.
ISSUE: W/N the NLRC erred in disregarding the veil of separate
corporate personality and holding petitioners jointly and severally
liable for private respondents’ back wages and separation pay.
RULING: NO.
Based on the records, the 3 corporations were in fact substantially
owned and controlled by members of the Lao family. Majority of the
outstanding shares of stock in LVM and T&J is owned by the Lao
family. T&J is also 100% owned by the Laos as reflected in its Articles
of Incorporation. The Lao Group of Companies therefore is a closed
corporation where the incorporators and directors belong to a single
family.
Petitioners are engaged in the same line of business under one
management and use the same equipment including manpower
services. When it appears that 3 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
the legal fiction that the 3 corporations are distinct entities and treat
them as identical.
Therefore, petitioners’ liability extends to the officers acting in the
interest of the corporations. The fiction of law that a corporation as a
juridical entity has a distinct and separate personality was envisaged
for convenience and to serve justice; therefore, it should not be used
as a subterfuge to commit injustice and circumvent labor laws.
30. Buan vs. Alcantara
GR No. 59592, February 29, 1984
Facts:
Assailed in this petition is the Order of the then Court of First
Instance of Tarlac, Branch I, denying the Omnibus Motion filed by
petitioners Blesilo Buan and Florencio Buan, Jr. principally praying for
the closure of the intestate estate proceedings of their deceased
parents.
Petitioner’s parents died in a motor vehicle accident. They
were survived by 5 minor children. The deceased’s brother and sister
were appointed as the co-administrators of the estate of the late
spouses in the intestate proceedings instituted in the year 1953. In
1957, the Philippine Rabbit Bus Lines was incorporated. The Buan
estate was the majority stockholder with 1,992 shares of stock with a
par value of P100.00 per share, or 99.67%.
In the interim, the co-administrators formed other
corporations, the Tarlac Development Bank and Bupar Motors
Corporation. All of these corporations were incorporated with the
estate being one of the major stockholders.
On March 26, 1965, the heirs Jesusa Janina Buan-Monteyro
and Lourdes Palmyra Buan-Tabamo, filed an Omnibus Motion praying
among others, for their appointment, either solely or jointly, as
administrators of the estate of their late parents, and on April 11,
1965, an Alternative Motion to Close Administration Proceedings on
the ground that the administrators were not taking positive steps to
close the intestate proceedings instituted some twelve years back.
 Eventually one of the heirs, Blesilo Buan, was appointed as co-
administrator of the estate together with respondent Natividad
Paras-Nsce, who is previously appointed as an administratix.
On June 19, 1981, Blesilo and Florencio, Jr., filed an Omnibus
Motion praying, principally, for the closure of the intestate
proceedings, having been long deprived of the possession of their
inheritance. Respondent administratrix opposed the Motion denying
the charges of breach of trust and stating that the delay in the closure
of the estate was not caused by her, but was due to the pendency of
actions for damages filed against the administrators of the estate,
which have remained pending over the years.
The respondent Court denied the petitoner’s motion on the
ground that damage suits filed against the administrators in
connection with the land transportation business of the decedents
have prevented the settlement of the estate.
Issue:
Whether the denial of petitioner’s motion is proper.
Ruling:
No. The Supreme Court ruled that consideration must be given
to the fact that the land transportation business was incorporated in
1957 as the Philippine Rabbit Bus Lines, Inc. Since the estate became
the owner of practically all the shares of stock of the corporation, the
damage suits, thereafter, should have also become the responsibility
of the corporation.c
At the time of incorporation, the administrators and the
corporation technically became "alter egos", each in respect of the
other. The administrators would still be liable for obligations of the
corporation. Similarly, the corporation would have to be liable for the
debts of the administrators.
"A new corporation taking over all of mortgaged assets of old
corporation in exchange for all of old corporation’s capital stock and
continuing to operate business formerly operated by old corporation
was ‘alter ego’ of old corporation so as to be obligated to pay annual
patent royalty which old corporation was required to pay,
notwithstanding that old corporation retained title to mortgaged
assets
It should be rather clear that, as between the estate and the
corporation, the intention of incorporation was to make the
corporation liable for past and pending obligations of the estate as
the transportation business itself was being transferred to and placed
in the name of, the corporation. That liability on the part of the
corporation, vis-a-vis the estate, should continue to remain with it
even after the percentage of the estate’s shares of stock in the
corporation should be diluted.
It should also be borne in mind that vehicular accidents are a
risk inherent in transportation business, and as long as this business
continues in operation, accidents are bound to occur from time to
time with the consequent filing of suits by persons who may be
injured. To await the termination or settlement of all these suits
before closing the intestate proceedings will virtually place the estate
under perpetual administration contrary to the intendment of the
law.
The Supreme Court set aside the ruling of the lower Court
Order denying the closure of the estate ordered, not later than three
(3) months after receipt hereof, to distribute the assets of the estate
to the heirs or their assignees, or their successors-in-interest,
according to the rules on intestate succession or as the heirs may
agree.
31. OMORECA MOTORS VS SSS
4 SCRA 1188
FACTS:
On December 18, 1957 appellant Oromeca Lumber Co., Inc. filed a
petition with appellee Social Security Commission for the refund of
the premiums it had remitted to the System on November 20 and
December 9, both of the year 1957, upon the ground that they
corresponded to a period when it was not yet subject to the
compulsory coverage provided for by the Social Security Act of 1954.
On December 27, 1957, Social Security System objected to the
petition claiming that appellant was already subject to compulsory
coverage during the period material to the petition, because it merely
took over the business of the partnership Ortega, Roman & Lacson De
Leon Company doing business under the name and style of Oromeca
Lumber Company since 1947, its business operations, therefore,
being mere continuation of those of the latter.
On March 10, 1958 the Commission denied appellant's petition which
states, among others, that the Commission erred in taking cognizance
of and in taking into account the contents of their partnership's
Articles of Dissolution. The appellants contends that it is expressly
stated that the partnership will be dissolved upon the registration of
the corporation, hence the corporation is a new and distinct entity
from that of the partnership.
After the denial, the appellants took this present appeal.
ISSUE: Whether or not the petitioners are subject to the compulsory
coverage of the SSS.
RULING:
Yes. The Articles of Dissolution contained a resolutory clause wherein
they were "to wind up the affairs of the partnership and dissolve it"
with the desire and express will of the partners to have it
(partnership) organized into a corporation for the purpose of
expanding its business in the exploitation and development of the
lumber industry in the Philippines" to be "effective upon the date of
registration of the new corporation which shall assume all the assets
and liabilities" of the partnership.
In resolving the issue, the court did not disregard facts and
circumstances of record which clearly show that appellant
corporation merely absorbed and continued the business of its
predecessor, the partnership Oromeca Lumber Company.
For instance, the dissolution was made effective only upon
incorporation of the new corporation which was to take over or
assume all the assets and liabilities of the partnership. This makes it
clear that, as held in the appealed resolution, appellant merely
absorbed and continued the business of its predecessor.
32. Cagayan Valley vs Court of Appeals
G.R. No. 78413 (179 scra 218) November 8, 1989
Facts:
Sometime in 1953, La Tondeña (LTI, for brevity) registered
with the Philippine Patent Office, pursuant to Republic Act 623, the
bottle it has been using for its gin popularly known as “Ginebra San
Miguel”. The registration was renewed in 1974.
In 1981, La Tondeña filed for injunction and damages against
Cagayan Valley for using the said bottles bearing the mark “La
Tondeña” and “Ginebra San Miguel” and by filling the same with the
latter’s liquor product bearing the label “Sonny Boy”, without its
written consent and in violation of the said law.
Cagayan raised the following defenses:
 1. LTI has no cause of action for having failed to give notice by
displaying the words “Reg Phil Pat Off”
2. Hard-liquor is not what is protected or contemplated in the
said law. What is protected are beverages like Coca-Cola and
similar beverages
3. There was no reservation of ownership since they do not
require deposit for retention of said bottles
4. Cagayan uses its own mark or label
The records show that in Civil Case No. 102859 of the Court of
First Instance of Manila, entitled "La Tondeña Inc. versus Diego Lim,
doing business under the name and style 'Cagayan Valley Distillery,' "
a decision was rendered in favor of plaintiff therein on the basis of
the admission and/or acknowledgment made by the defendant that
the bottles marked only with the words "La Tondeña Inc." and
"Ginebra San Miguel" are registered bottles of LTI.
Petitioner's claim that it is separate and distinct from the former
Cagayan Valley Distillery is belied by the evidence on record. The
following facts warrant the conclusion that petitioner, as a corporate
entity, and Cagayan Valley Distillery are one and the same. to wit: (1)
petitioner is being managed by Rogelio Lim, the son of Diego Lim, the
owner and manager of Cagayan Valley Distellery; (2) it is a family
corporation; (3) it is an admitted fact that before petitioner was
incorporated it was under a single proprietorship; (4) petitioner is
engaged in the same business as Cagayan Valley Distillery, the
manufacture of wines and liquors; and (5) the factory of petitioner is
located in the same place as the factory of the former Cagayan Valley
Distillery.
The lower court issued a writ of preliminary injunction in favour of
LTI. However, after a protracted trial, the lower court ruled in favour
of Cagayan ruling that the complaint does not state a cause of action.
LTI appealed to the Court of Appeals which granted the same
enjoining Cagayan from using the said bottles. Cagayan filed a motion
for reconsideration but the same was denied.
Issue:
Is petitioner bound by the admission of Diego Lim?
Ruling:
Yes. Petitioner cannot avoid the effect of the admission and/or
acknowledgment made by Diego Lim in the said case. While a
corporation is an entity separate and distinct from its stock-holders
and from other corporations with which it may be connected, where
the discreteness of its personality 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. When the corporation is
the mere alter ego or business conduit of a person, it may be
disregaded.
It is thus clear that herein petitioner is a mere continuation and
successor of Cagayan Valley Distillery. It is likewise indubitable that
the admission made in the former case, as earlier explained, is
binding on it as cogent proof that even before the filing of this case it
had actual knowledge that the bottles in dispute were registered
containers of LTI. As held in La Campana Coffee Factory, Inc., et al. vs.
Kaisahan Ng Mga Manggagawa sa La Campana (KKM), et al., where
the main purpose in forming the corporation was to evade one's
subsidiary liability for damages in a criminal case, the corporation
may not be heard to say that it has a personality separate and distinct
from its members, because to allow it to do so would be to sanction
the use of the fiction of corporate entity as a shield to further an end
subversive of justice.