T i t l e : G E N E R A L C R E D I T C O R P O R

A T I O N ( n o w P E N T A CAPITAL FINANCE CORPORATION),

petitioner,
vs.
ALSONS DEVELOPMENT and INVESTMENTCORPORATION and CCC EQUITY
CORPORATION,respondents.

Facts:

PetitionerGeneral Credit Corporation (GCC), formerly known as Commercial

Credit Corporation (CCC), established CCC franchise companies inurban areas around
the country. To further its business, it secured a license beforetheCentral Bank (CB)
and the Securities and Exchange Commission (SEC) toalsoengage in quasi-banking
activities.On the other hand,respondentCCC Equity Corporation (Equity)
wasestablished by GCC to take over the operationsoftheir
franchises.Meanwhile, respondent Alsons Development(Alsons)and the Alcantar
afamily owned a total of 101,953 shares of GCC franchises.The Alcantara familyassigned
its rights and interests of its shares to Alsons, making the latter the soleowner of the
total shares.Eventually,Alsons decided to sell theseshares to Equity, which
the latterpromised to pay.Because of Equity’s failure to pay, Alsonsthen filed
a complaint for sums ofmoney against Equity and GCC.Equity claims that GCC should
be liable for the payment ofshares since ithas always been dependent on GCC on its
business operations. However, GCCclaims that it has no liability on the payment of
stocks, being a separate entity from Equity.

Issue:
The issue in this case is whether or not the doctrine of piercing the veil ofcorporate
fiction be applied to Equity Corporation? Or in other words, whetherEquity and
GCC should both be regardedmerelyas an aggregate of persons doing business
enterprise?

Court Ruling:

The Court held that the corporate veil of Equity Corporation be pierced. The Court cites
three basic areas where piercing the veil of corporate fiction is allowed. First, when it
is used to defeat public convenience to evade existing operations or “equity
piercing”; second, in fraud cases where it is used to justify a wrong or “fraud
piercing” and third, in alter ego cases where the corporation is organized as to
make it merely an instrumentality agency. In this case, the Court has the right to pierce
GCC’s corporate veil because evidence point to the following facts: first, Equity is
but an instrumentality of GCC and has always been dependent on the latter for its
operations, second, the commonality of directors, stockholders and sharing of
office between the two companies shows that they should clearly be
regarded merely as an aggregate of persons in a business enterprise; third, the
establishment of Equity is primarily for GCC to circumvent Central Bank rules specifically
the Anti-Usury Law, using it as a conduit to its non-quasi bank affiliates; and lastly, the
funds invested by Equity to GCC franchises are from GCC funds as well. Applying the
three basic areas of corporate veil piercing, GCC clearly defeated public
convenience when it established Equity to extend credit to its investors which in
turnis not allowed by the law; it justified a wrong by fraudulently evading
the Anti-Usury Law established by the Central Bank to quasi-bankingbusinesses,
and lastly, Equity was but a mere instrumentality of GCC for it to get away with
its obligations.

TIMOTEO H. SARONA v. NATIONAL LABOR RELATIONS COMMISSION G.R. No. 185280, January
18, 2012

TIMOTEO H. SARONA v.
NATIONAL LABOR RELATIONS COMMISSION
G.R. No. 185280, January 18, 2012
Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)
(Topic: Doctrine of Piercing the Veil of Corporate Fiction)

FACTS:

On June 20, 2003, the petitioner, who was hired by Sceptre as a security guard
sometime in April 1976, was asked by Karen Therese Tan (Karen), Sceptre’s Operation
Manager, to submit a resignation letter as the same was supposedly required for
applying for a position at Royale. The petitioner was also asked to fill up Royale’s
employment application form, which was handed to him by Royale’s General Manager,
respondent Cesar Antonio Tan II (Cesar).

After several weeks of being in floating status, Royale’s Security Officer, Martin Gono
(Martin), assigned the petitioner at Highlight Metal Craft, Inc. (Highlight Metal) from July
29, 2003 to August 8, 2003. Thereafter, the petitioner was transferred and assigned to
Wide Wide World Express, Inc. (WWWE, Inc.).

On September 17, 2003, the petitioner was informed that his assignment at WWWE,
Inc. had been withdrawn because Royale had allegedly been replaced by another
security agency. The petitioner, however, shortly discovered thereafter that Royale was
never replaced as WWWE, Inc.’s security agency. When he placed a call at WWWE,
Inc., he learned that his fellow security guard was not relieved from his post.

On September 21, 2003, the petitioner was once again assigned at Highlight Metal,
albeit for a short period from September 22, 2003 to September 30, 2003.
Subsequently, when the petitioner reported at Royale’s office on October 1, 2003,
Martin informed him that he would no longer be given any assignment per the
instructions of Aida Sabalones-Tan (Aida), general manager of Sceptre. This prompted
him to file a complaint for illegal dismissal on October 4, 2003.

ISSUE:

Whether or not Royale’s corporate fiction should be pierced for the purpose of
compelling it to recognize the petitioner’s length of service with Sceptre and for holding
it liable for the benefits that have accrued to him arising from his employment with
Sceptre?

RULING:

Yes.

The doctrine of piercing the corporate veil applies in alter ego cases, where a
corporation is merely a farce since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.

The respondents’ scheme reeks of bad faith and fraud and compassionate justice
dictates that Royale and Sceptre be merged as a single entity, compelling Royale to
credit and recognize the petitioner’s length of service with Sceptre. The respondents
cannot use the legal fiction of a separate corporate personality for ends subversive of
the policy and purpose behind its creation53 or which could not have been intended by
law to which it owed its being.

Also, Sceptre and Royale have the same principal place of business. As early as
October 14, 1994, Aida and Wilfredo became the owners of the property used by
Sceptre as its principal place of business by virtue of a Deed of Absolute Sale they
executed with Roso.57 Royale, shortly after its incorporation, started to hold office in the
same property. These, the respondents failed to dispute.

Royale also claimed a right to the cash bond which the petitioner posted when he was
still with Sceptre. If Sceptre and Royale are indeed separate entities, Sceptre should
have released the petitioner’s cash bond when he resigned and Royale would have
required the petitioner to post a new cash bond in its favor.
However, the manner by which the petitioner was made to resign from Sceptre and how
he became an employee of Royale suggest the perverted use of the legal fiction of the
separate corporate personality.

SARONA vs. NLRC

FACTS

The petitioner, who was hired by Sceptre as a security guard, was asked by Karen Therese Tan,
Sceptre’s operations Manager, to submit a resignation letter as the same was supposedly
required for applying for a position at Royale. Martin informed him that he would no
longer be given any assignment per the instructions of Sa ida Sabalones Tan, general
manager of Sceptre. This prompted him to file a complaint for illegal dismissal. While
complainant is entitled to backwages, we are aware that his stint with respondent Royale lasted
only for one -1 month and three days such that it is our considered view that his backwages
shouldbe limited to only three month. The petitioner does not deny that he has received the
full amount of backwages and separation pay as provided under the NIRC’s Novemeber 2003
decision. However, he claims that this does not preclude this court from modifying a decision
that is tainted with grave abuse of discretion or issued without jurisdiction.

Issue:
Whether the petitioner’s backwages should be limited to his salary for three months.

Ruling:
No. In case separation pay is awarded and reinstatement is no longer feasible, backwages
shallbe computed from the time of illegal dismissal up to the finality of the decision should
separation pay not be paid in the meantime. It is the employees actual receipt of the full
amount of his separation pay that will effectively terminate the employment
of an illegaly desmissed employee. Otherwise, the employer-employee relationship
subsists and the illegally dismissed employee is entitled to backwages, taking into account the
increases and other benefits, including the 13 th month pay, that were received by his
co-
employees who are not dismissed. It is the obligation of the employ
er to pay an illegally
dis,issed employee or worker the whole amount of the salari
e s o r w a g e s , p l u s a l l other benefits and bonuses and general increases, to which he
would have been normally entitled had henot been dismissed and had not stopped working
CONCEPT BUILDERS INC. VS NLRC (257 SCRA 149)

Concept Builders Inc. vs National Labor Relations Commission

257 SCRA 149 [G.R. No. 108734. May 29, 1996]

Facts: Petitioner Concept Builders Inc., a domestic corporation with principal office at
355 Maysan Road, Valenzuela, Metro Manila is engaged in the construction business.
Private respondents were employed by said company as laborers, carpenters, and niggers.
On November 1981, private respondents were served with individual written notices of
termination of employment by petitioner, effective on November 30, 1981. It was stated
in the individual notices that their contracts of employment had expired and the project in
which they were hired had been completed. Public respondent found it to be the fact,
however, at the time of the termination of private respondents’ employment, the project
in which they were hired had not yet been finished and completed. Petitioner had to
engage the services of the subcontractors whose workers performed the functions of
private respondents. Aggrieved, private respondents filed a complaint for illegal
dismissal, unfair labor practices and non-payment of their holiday pay, overtime pay, and
13th month pay against petitioners. The labor arbiter rendered decision in favor of the
private respondents. When the same became final and executory, a writ of execution was
issued, however, the same was refused by the security guard on duty on the ground that
the petitioners no longer occupied the premises. A break-open order was then
recommended.

Issue: Whether or not the alias writ of execution can be issued against the sister company
of the petitioners, HPPI.

Held: Yes. 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 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 in circumstances 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 names of keeping corporate books and records
4. Methods of conducting the business.

Where one corporation is so organized and controlled and its affairs are conducted so
that, it is in fact, a mere instrumentality or adjunct of the other, the fiction of the
corporate entity of the instrumentality may be disregarded. The control necessary to
invoke the rule is not majority or even complete stock control but such domination of
instances, policies and practices that the controlled corporation has, so to speak, no
separate mind, will or existence of its own and is but a conduit for its principal. It must be
kept in mind that the control must be shown to have been exercised at the time the acts
complained of took place. Moreover, the control and breach of duty must proximately
cause the injury or unjust loss for which the complaint is made.

The test in determining the applicability of the doctrine of piercing the veil of corporate
fiction 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 on exercise 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.
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 prevents “piercing the corporate veil” of the
corporation. In applying the instrumentality or “alter ego” doctrine, the courts are
concerned with reality and not form, with how the corporation operated and the
individual defendant’s relationship to that operation.

CONCEPT BUILDERS, INC. v. NLRC G.R. No. 108734. May 29, 1996 Doctrine of Piercing the
Veil of Corporate Fiction
JUNE 2 6 , 2 0 18
FACTS:

Petitioner Concept Builders, Inc., a domestic corporation, is engaged in the construction

business. Private respondents were employed by said compay as laborers, carpenters and
riggers.

Private respondents were served individual written notices of termination of employment by

petitioner, stating that their contracts of employment had expired and the project in which
they were hired had been completed.

Private respondents filed a complaint for illegal dismissal, unfair labor practice and non-
payment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner.

The Labor Arbiter (LA) rendered judgment ordering petitioner to reinstate private respondents
and to pay them back wages.

The NLRC dismissed the Motion for Reconsideration.

The LA issued a writ of execution directing the sheriff to execute the Decision. The writ was
partially satisfied through garnishment of sums from petitioners debtor.

An Alias Writ of Execution was issued for the collection of the balance of the judgment award,
and to reinstate private respondents to their former positions. However, the security guard on
duty refused the service of the Writ saying that petitioner no longer occupied the premises.

The LA issued a second alias writ of execution.

The said writ had not been enforced by the special sheriff because, as stated in his progress
report,

1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela, Metro
Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not
by respondent;
2. Levy was made upon personal properties he found in the premises;
3. Security guards with high-powered guns prevented him from removing the properties he
had levied upon.

The said special sheriff recommended that a break-open order be issued to enable him to enter
petitioners premises so that he could proceed with the public auction sale of the aforesaid
personal properties.
A certain Dennis Cuyegkeng filed a third-party claim alleging that the properties sought to be
levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-
President.

Private respondents filed a Motion for Issuance of a Break-Open Order, alleging that HPPI and
petitioner corporation were owned by the same incorporators/stockholders.

HPPI filed an Opposition, contending that HPPI is a corporation which is separate and distinct
from petitioner.

The motion for break-open order was denied by the LA.

On appeal to the NLRC, a break-open order was issued, and the sheriff was directed to proceed
with the auction sale of the properties already levied upon. It dismissed the third-party claim
for lack of merit.

ISSUE:

Whether the doctrine of piercing the veil of corporate fiction is applicable in this case.

RULING:

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. The law in these instances will
regard the corporation as a mere association of persons and, in case of two corporations,
merge them into one.

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.

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 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.

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.
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.

It is very obvious that the second corporation seeks the protective shield of a corporate fiction
whose veil in the present case could, and should, be pierced as it was deliberately and
maliciously designed to evade its financial obligation to its employees.

FACTS:

1. Private Respondents were the employees of the Petitioner Corporation. They filed illegal
dismissal, unfair labor practice and claimed for their benefits with the NLRC. They alleged that
their contract of employment had not yet expired and the project in which they were hired
were not yet completed, as stated in the written notices sent by the Company.

2. NLRC, ruled in favor of the Employees. At the time of the termination of private respondent’s
employment, the project in which they were hired had not yet been finished and completed.
Petitioner had to engage the services of sub-contractors whose workers performed the
functions of private respondents.

3. An alias Writ of Execution was issued by the Labor Arbiter to collect the balance of the
judgment award and to reinstate private respondents. However, the sheriff failed to enforce
because the security guard on the premises refused him to enter on the ground that, it is no
longer occupied by the petitioner.

4. A certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the
properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of
which he is the Vice-President. He alleged that HPPI is a manufacturing firm while petitioner
was then engaged in construction.

5. Private respondents filed a “Motion for Issuance of a Break-Open Order,” alleging that HPPI
and petitioner corporation were owned by the same incorporator and stockholders. NLRC
granted the Motion.
ISSUES:

1. WON the Sister Company (HPPI) has a personality separate and distinct from the petitioner
corporation (CONCEPT BUILDERS)?

2. WON HPPI is used as a shield to evade the corporation’s subsidiary liability for damages?

3. WON NLRC commited a grave abuse of discretion when it issued a break open order?

HELD:

PETITIONER DENIED.

1. The Sister Company has NO separate and distinct personality from the Concept Builders 2.
HPPI is used to Evade Corporations’ liability.

3. NLRC did not commit a grave abuse of discretion when it issued a “break-open order against
HHPI.

RATIONALE:

1. 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.8 But,
this separate and distinct personality of a corporation is merely a fiction created by law for
convenience and to promote justice.9 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,10 this separate personality of the corporation may be
disregarded or the veil of corporate fiction pierced.11 This is true likewise when the corporation
is merely an adjunct, a business conduit or an alter ego of another corporation

2. 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.”13

3. 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;

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

The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.

The absence of any one of these elements prevents ‘piercing the corporate veil. ‘ in applying
the ‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form,
with how the corporation operated and the individual defendant’s relationship to that
operation. “

4. NLRC 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,
(sic) it cannot be said that the property levied upon by the sheriff were not of respondents.16

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.

5. It is very obvious that the second corporation seeks the protective shield of a corporate
fiction whose veil in the present case could, and should, be pierced as it was deliberately and
maliciously designed to evade its financial obligation to its employees.”
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject
of the execution, private respondents had no other recourse but to apply for a break-open
order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC.

WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23,
1992 and December 3, 1992, are AFFIRMED.

SO ORDERED

PNB vs. Andrada Electric & Engineering Co.Case Digest

Philippine National Bank vs. Andrada Electric & Engineering Co.
[GR 142936, 17 April 2002]

Facts: On 26 August 1975, the Philippine national Bank (PNB) acquired the assets of the
Pampanga Sugar Mills (PASUMIL) that were earlier foreclosed by the Development Bank of the
Philippines (DBP) under LOI 311. The PNB organized the ational Sugar Development
Corporation (NASUDECO) in September 1975, to take ownership and possession of the assets
and ultimately to nationalize and consolidate its interest in other PNB controlled sugar mills.
Prior to 29 October 1971, PASUMIL engaged the services of the Andrada Electric & Engineering
Company (AEEC) for electrical rewinding and repair, most of which were partially paid by
PASUMIL, leaving several unpaid accounts with AEEC. On 29 October 1971, AEEC and PASUMIL
entered into a contract for AEEC to perform the (a) Construction of a power house building; 3
reinforced concrete foundation for 3 units 350 KW diesel engine generating sets, 3 reinforced
concrete foundation for the 5,000 KW and 1,250 KW turbo generator sets, among others. Aside
from the work contract, PASUMIL required AEEC to perform extra work, and provide electrical
equipment and spare parts. Out of the total obligation of P777,263.80, PASUMIL had paid only
P250,000.00, leaving an unpaid balance, as of 27 June 1973, amounting to P527,263.80. Out of
said unpaid balance of P527,263.80, PASUMIL made a partial payment to AEEC of P14,000.00,
in broken amounts, covering the period from 5 January 1974 up to 23 May 1974, leaving an
unpaid balance of P513,263.80. PASUMIL and PNB, and now NASUDECO, allegedly failed and
refused to pay AEEC their just, valid and demandable obligation (The President of the
NASUDECO is also the Vice-President of the PNB. AEEC besought said official to pay the
outstanding obligation of PASUMIL, inasmuch as PNB and NASUDECO now owned and
possessed the assets of PASUMIL, and these defendants all benefited from the works, and the
electrical, as well as the engineering and repairs, performed by AEEC).

Because of the failure and refusal of PNB, PASUMIL and/or NASUDECO to pay their obligations,
AEEC allegedly suffered actual damages in the total amount of P513,263.80; and that in order
to recover these sums, AEEC was compelled to engage the professional services of counsel, to
whom AEEC agreed to pay a sum equivalent to 25% of the amount of the obligation due by way
of attorney's fees. PNB and NASUDECO filed a joint motion to dismiss on the ground that the
complaint failed to state sufficient allegations to establish a cause of action against PNB and
NASUDECO, inasmuch as there is lack or want of privity of contract between the them and
AEEC. Said motion was denied by the trial court in its 27 November order, and ordered PNB nad
NASUDECO to file their answers within 15 days. After due proceedings, the Trial Court rendered
judgment in favor of AEEC and against PNB, NASUDECO and PASUMIL; the latter being ordered
to pay jointly and severally the former (1) the sum of P513,623.80 plus interest thereon at the
rate of 14% per annum as claimed from 25 September 1980 until fully paid; (2) the sum of
P102,724.76 as attorney's fees; and, (3) Costs. PNB and NASUDECO appealed. The Court of
Appeals affirmed the decision of the trial court in its decision of 17 April 2000 (CA-GR CV 57610.
PNB and NASUDECO filed the petition for review.

Issue: Whether PNB and NASUDECO may be held liable for PASUMIL’s liability to AEEC.

Held: Basic is the rule that a corporation has a legal personality distinct and separate from the
persons and entities owning it. The corporate veil may be lifted only if it has been used to shield
fraud, defend crime, justify a wrong, defeat public convenience, insulate bad faith or
perpetuate injustice. Thus, the mere fact that the Philippine National Bank (PNB) acquired
ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL), which had
earlier been foreclosed and purchased at the resulting public auction by the Development Bank
of the Philippines (DBP), will not make PNB liable for the PASUMIL's contractual debts to
Andrada Electric & Engineering Company (AEEC). Piercing the veil of corporate fiction may be
allowed only if the following elements concur: (1) control — not mere stock control, but
complete domination — not only of finances, but of policy and business practice in respect to
the transaction attacked, must have been such that the corporate entity as to this transaction
had at the time no separate mind, will or existence of its own; (2) such control must have been
used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory
or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiff's legal
right; and (3) the said control and breach of duty must have proximately caused the injury or
unjust loss complained of. The absence of the foregoing elements in the present case precludes
the piercing of the corporate veil. First, other than the fact that PNB and NASUDECO acquired
the assets of PASUMIL, there is no showing that their control over it warrants the disregard of
corporate personalities. Second, there is no evidence that their juridical personality was used to
commit a fraud or to do a wrong; or that the separate corporate entity was farcically used as a
mere alter ego, business conduit or instrumentality of another entity or person. Third, AEEC
was not defrauded or injured when PNB and NASUDECO acquired the assets of PASUMIL.
Hence, although the assets of NASUDECO can be easily traced to PASUMIL, the transfer of the
latter's assets to PNB and NASUDECO was not fraudulently entered into in order to escape
liability for its debt to AEEC. Neither was there any merger or consolidation with respect to
PASUMIL and PNB. The procedure prescribed under Title IX of the Corporation Code 59 was not
followed. In fact, PASUMIL's corporate existence had not been legally extinguished or
terminated. Further, prior to PNB's acquisition of the foreclosed assets, PASUMIL had
previously made partial payments to AEEC for the former's obligation in the amount of
P777,263.80. As of 27 June 1973, PASUMIL had paid P250,000 to AEEC and, from 5 January
1974 to 23 May 1974, another P14,000. Neither did PNB expressly or impliedly agree to assume
the debt of PASUMIL to AEEC. LOI 11 explicitly provides that PNB shall study and submit
recommendations on the claims of PASUMIL's creditors. Clearly, the corporate separateness
between PASUMIL and PNB remains, despite AEEC's insistence to the contrary.

Facts:
petitioner was incorporated as a juridical entity over one hundred years ago by virtue of Act No.
1285,... The objects of the petitioner,... shall be to enforce laws relating to cruelty inflicted upon
animals or the protection of animals in the Philippine Islands, and generally, to do and perform
all things which may tend in... any way to alleviate the suffering of animals and promote their
welfare
At the time of the enactment of Act No. 1285, the original Corporation Law, Act No. 1459, was
not yet in existence
For the purpose of enhancing its powers in promoting animal welfare and enforcing laws for
the protection of animals, the petitioner was initially imbued under its charter with the power
to apprehend violators of animal welfare laws. In addition, the petitioner was to... share one-
half (1/2) of the fines imposed and collected through its efforts for violations of the laws related
thereto
Subsequently, however, the power to make arrests as well as the privilege to retain a portion of
the fines collected for violation of animal-related laws were recalled by virtue of
Commonwealth Act (C.A.) No. 148
Sec. 2. The full amount of the fines collected for violation of the laws against cruelty to animals
and for the protection of animals, shall accrue to the general fund of the Municipality where
the offense was committed.
President Manuel L. Quezon issued Executive Order (E.O.) No. 6
Commonwealth Act Numbered One Hundred Forty Eight was enacted depriving the agents of
the Society for the Prevention of Cruelty to Animals of their power to arrest persons who have
violated... the laws prohibiting cruelty to animals thereby correcting a serious defect in one of
the laws existing in our statute books.
2003, an audit team from respondent Commission on Audit (COA) visited the office of the
petitioner to conduct an audit survey... petitioner demurred on the ground that it was a private
entity not under the jurisdiction of COA
Issues:
The essential question before this Court is whether the petitioner qualifies as a government
agency that may be subject to audit by respondent COA.
Petitioner argues: first,... it exercises no governmental functions because these have been
revoked by C.A. No. 148 and E.O.
No. 63... second, nowhere in its charter is it indicated that it is a public corporation... if it were a
government body, there would... have been no need for the State to grant it tax exemptions
under Republic Act No. 1178, and the fact that it was so exempted strengthens its position that
it is a private institution
, the employees of the petitioner are registered and covered by the Social
Security System at the latter's initiative and not through the Government Service Insurance
System... seventh, no government appointee or representative sits on the board of... trustees
of the petitioner;... respondents contend that since the petitioner is a "body politic" created by
virtue of a special legislation and endowed with a governmental purpose, then, indubitably, the
COA may audit
Ruling:
"charter test" cannot be applied... charter test" as it stands today provides:
[T]he test to determine whether a corporation is government owned or controlled, or private in
nature is simple. Is it created by its own charter for the exercise of a public function, or by
incorporation under the general corporation law? Those with special... charters are government
corporations subject to its provisions, and its employees are under the jurisdiction of the Civil
Service Commission, and are compulsory members of the Government Service Insurance
System... reading of petitioner's charter shows that it is not subject to control or supervision by
any agency of the State,... unlike government-owned and -controlled corporations. No
government representative sits on the board of trustees of the petitioner
Third. The employees of the petitioner are registered and covered by the Social Security
System at the latter's initiative, and not through the Government Service Insurance System,
which should be the case if the employees are considered government employees.
This is another indication of petitioner's nature as a private entity
Fourth. The respondents contend that the petitioner is a "body politic" because its primary
purpose is to secure the protection and welfare of animals which, in turn, redounds to the
public good
The fact that a certain juridical entity is impressed with public interest does not, by that
circumstance alone, make the entity a public corporation, inasmuch as a corporation may be
private although its charter contains provisions of... a public character, incorporated solely for
the public good
This class of corporations may be considered quasi-public corporations, which are private
corporations that render public service, supply public wants,[21] or pursue other
eleemosynary... objectives. While purposely organized for the gain or benefit of its members,
they are required by law to discharge functions for the public benefit.
Authorities are of the view that the purpose alone of the corporation cannot be taken as a safe
guide
The true criterion, therefore, to determine whether a corporation is public or private is found in
the totality of the relation of the corporation to the State. If the corporation is created by the
State as the latter's own agency or instrumentality to help it in carrying... out its governmental
functions, then that corporation is considered public; otherwise, it is private. Applying the
above test, provinces, chartered cities, and barangays can best exemplify public corporations.
They are created by the State as its own device... and agency for the accomplishment of parts
of its own public works... petition is GRANTED. Petitioner is DECLARED a private domestic
corporation subject to the jurisdiction of the Securities and Exchange Commission.

Feliciano vs. COA (G.R. No. 147402, January 14, 2004

Facts: COA assessed Leyte Metropolitan Water District (LMWD) auditing fees. Petitioner
Feliciano, as General Manager of LMWD, contended that the water district could not pay the
said fees on the basis of Sections 6 and 20 of P.D. No. 198 as well as Section 18 of R.A. No. 6758.
He primarily claimed that LMWD is a private corporation not covered by COA's jurisdiction.
Petitioner also asked for refund of all auditing fees LMWD previously paid to COA.COA
Chairman denied petitioner’s requests. Petitioner filed a motion for reconsideration which COA
denied. Hence, this petition.

Issue: Whether a Local Water District (“LWD”) created under PD 198, as amended, is a
government-owned or controlled corporation subject to the audit jurisdiction of COA or a
private corporation which is outside of COA’s audit jurisdiction.

Held: Petition lacks merit. The Constitution under Sec. 2(1), Article IX-D and existing laws
mandate COA to audit all government agencies, including government-owned and controlled
corporations with original charters. An LWD is a GOCC with an original charter.

The Constitution recognizes two classes of corporations. The first refers to private corporations
created under a general law. The second refers to government-owned or controlled
corporations created by special charters. Under existing laws, that general law is the
Corporation Code.

Obviously, LWD’s are not private corporations because they are not created under the
Corporation Code. LWD’s are not registered with the Securities and Exchange Commission.
Section 14 of the Corporation Code states that “all corporations organized under this code shall
file with the SEC articles of incorporation x x x.” LWDs have no articles of incorporation, no
incorporators and no stockholders or members. There are no stockholders or members to elect
the board directors of LWDs as in the case of all corporations registered with the SEC. The local
mayor or the provincial governor appoints the directors of LWDs for a fixed term of office. The
board directors of LWDs are not co-owners of the LWDs. The board directors and other
personnel of LWDs are government employees subject to civil service laws and anti-graft laws.
Clearly, an LWD is a public and not a private entity, hence, subject to COA’s audit jurisdiction.
FELICIANO VS COA (GR NO. 147402 JANUARY 14, 2004)

Feliciano vs Commission on Audit

GR No. 147402 January 14, 2004

Facts: A special audit team from COA Regional office no. VIII audited the
accounts of LMWD. Subsequently, LMWD received a letter from COA dated July
19, 1999 requesting payment of auditing fees. As general manager of LMWD,
petitioner sent a reply dated October 12, 1999 informing COA’s regional
director that the water district could not pay the auditing fees. Petitioner cited
as basis for his action section 6 and 20 of Presidential Decree no. 198 as well as
section 18 of RA 6758. The regional director referred petitioner to reply o the
COA Chairman on October 18, 1999. On October 19, 1999, petitioner wrote
COA through the Regional Director asking for refund of all auditing fees LMWD
previously paid to COA. On March 16, 2000, petitioner received COA Chairman
Celso D. Gangans resolution dated January 3, 2o00 denying his requests.
Petitioner filed a motion for reconsideration on March 31, 2000, which COA
denied on January 30, 2001.

Issue: Whether or not petitioner LMWD is a private corporation exempt from the
auditing jurisdiction of COA.

Held: No. Private corporations may exist only under a general law. If the
corporation is private, it must necessarily exist under a general law. Stated
differently, only corporations created under a general law can qualify as private
corporations under existing laws, that general law is the corporation code,
except that the cooperative code governs the incorporation of cooperatives.

Obviously, LWDs are not private corporations because they are not created
under the corporation code. LWDs are registered with the Securities and
Exchange Commission (SEC). Section 14 of the corporation code states that all
corporations under this code shall file with the SEC articles of incorporation.
LWDs have no articles of incorporation, no incorporators and no stockholders
or members. There are no stockholders or members to elect the board of
directors of LWDs as in the case of all corporations registered with the SEC. The
local mayor or the provincial governor appoints the directors of LWDs for a
fixed term of office. This court has ruled that LWDs are not created under the
corporation code.

The determining factor of COA’s audit jurisdiction is government ownership or

control of the corporation. The criterion of ownership and control is more
important than the issue of original charter.

Certainly, the government owns and controls LWDs. The government organizes
LWDs in accordance with a specific law, PD 198. There is no private party
involved as co-owner in the creation of and LWD. Just prior to the creation of
LWDs, the national or local government owns and controls all their assets. The
government controls LWDs because under PD 198 the municipal or city mayor,
or the provincial governor, appoints all the board of directors of an LWD for a
fixed term of six (6) years. The board of directors of LWDs are not co-owners of
the LWDs. LWD have no private stockholders or members. The board of
directors and other personnel of LWDs are government employees subject to
civil service laws, anti-graft laws.

Section 18 of RA 6758 prohibits COA Personnel from receiving any kind of

compensation from any government except compensation paid directly by COA
out of its appropriations and contributions. Thus, RA 6758 itself recognizes an
exception to the statutory ban by COA personnel receiving compensation from
GOCCs.

Feliciano vs. COA Case Digest

Feliciano vs. Commission on Audit
[GR 147402, 14 January 2004]

Facts: A Special Audit Team from Commission on Audit (COA) Regional Office No. VIII audited
the accounts of the Leyte Metropolitan Water District (LMWD). Subsequently, LMWD received
a letter from COA dated 19 July 1999 requesting payment of auditing fees. As General Manager
of LMWD, Engr. Ranulfo C. Feliciano sent a reply dated 12 October 1999 informing COA’s
Regional Director that the water district could not pay the auditing fees. Feliciano cited as basis
for his action Sections 6 and 20 of PD 198, as well as Section 18 of RA 6758. The Regional
Director referred Feliciano’s reply to the COA Chairman on 18 October 1999. On 19 October
1999, Feliciano wrote COA through the Regional Director asking for refund of all auditing fees
LMWD previously paid to COA. On 16 March 2000, Feliciano received COA Chairman Celso D.
Gangan’s Resolution dated 3 January 2000 denying Feliciano’s request for COA to cease all audit
services, and to stop charging auditing fees, to LMWD. The COA also denied Feliciano’s request
for COA to refund all auditing fees previously paid by LMWD. Feliciano filed a motion for
reconsideration on 31 March 2000, which COA denied on 30 January 2001. On 13 March 2001,
Felicaino filed the petition for certiorari.

Issue: Whether a Local Water District (“LWD”) is a government-owned or controlled

corporation.

Held: The Constitution recognizes two classes of corporations. The first refers to private
corporations created under a general law. The second refers to government-owned or
controlled corporations created by special charters. The Constitution emphatically prohibits the
creation of private corporations except by a general law applicable to all citizens. The purpose
of this constitutional provision is to ban private corporations created by special charters, which
historically gave certain individuals, families or groups special privileges denied to other
citizens. In short, Congress cannot enact a law creating a private corporation with a special
charter. Such legislation would be unconstitutional. Private corporations may exist only under a
general law. If the corporation is private, it must necessarily exist under a general law. Stated
differently, only corporations created under a general law can qualify as private corporations.
Under existing laws, that general law is the Corporation Code, except that the Cooperative
Code governs the incorporation of cooperatives. The Constitution authorizes Congress to create
government-owned or controlled corporations through special charters. Since private
corporations cannot have special charters, it follows that Congress can create corporations with
special charters only if such corporations are government-owned or controlled. Obviously,
LWDs are not private corporations because they are not created under the Corporation Code.
LWDs are not registered with the Securities and Exchange Commission. Section 14 of the
Corporation Code states that “[A]ll corporations organized under this code shall file with the
Securities and Exchange Commission articles of incorporation x x x.” LWDs have no articles of
incorporation, no incorporators and no stockholders or members. There are no stockholders or
members to elect the board directors of LWDs as in the case of all corporations registered with
the Securities and Exchange Commission. The local mayor or the provincial governor appoints
the directors of LWDs for a fixed term of office. LWDs exist by virtue of PD 198, which
constitutes their special charter. Since under the Constitution only government-owned or
controlled corporations may have special charters, LWDs can validly exist only if they are
government-owned or controlled. To claim that LWDs are private corporations with a special
charter is to admit that their existence is constitutionally infirm. Unlike private corporations,
which derive their legal existence and power from the Corporation Code, LWDs derive their
legal existence and power from PD 198.