VIRGILIO S. DELIMA v.

SUSAN MERCAIDA GOIS

GR NO. 178352 | June 17, 2008

FACTS:

A case for illegal dismissal was filed by petitioner Virgilio S. Delima against Golden
Union Aquamarine Corporation (Golden), Prospero Gois and herein respondent
Susan Mercaida Gois before the NLRC.
The Labor Arbiter ruled in favor of Gois and finding Golden guilty of Illegal dismissal.

The decision became final and executory. A writ of execution was issued and an Isuzu
Jeep with plate number PGE-531 was attached.

Thereafter, respondent Gois filed an Affidavit of Third Party Claim claiming that the
attachment of the vehicle was irregular because said vehicle was registered in her
name and not Goldens; and that she was not a party to the illegal dismissal case filed
by Delima against Golden. This was denied.

Gois filed a petition for certiorari before the Court of Appeals. She claimed that by
denying her third-party claim, she was in effect condemned to pay a judgment debt
issued against a corporation of which she is neither a president nor a majority owner
but merely a stockholder. She further argued that her personality is separate and
distinct from that of Golden; thus, the judgment ordering the corporation to pay the
petitioner could not be satisfied out of her personal assets.

ISSUE:

Whether Gois’ personality is separate and distinct from that of Golden; thus, the
judgment ordering the corporation to pay the petitioner could not be satisfied out of
her personal assets.

RULING: YES.

A corporation has a personality distinct and separate from its individual stockholders
or members and from that of its officers who manage and run its affairs. The rule is
that obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities. Thus, property belonging to a corporation cannot
be attached to satisfy the debt of a stockholder and vice versa, the latter having only
an indirect interest in the assets and business of the former.

Since the Decision of the Labor Arbiter was directed only Golden to pay the petitioner
and the same was not joint and solidary obligation with Gois, then the latter could not
be held personally liable since Golden has a separate and distinct personality of its
own. It remains undisputed that the subject vehicle was owned by Gois, hence it
should not be attached to answer for the liabilities of the corporation. Unless they
have exceeded their authority, corporate officers are, as a general rule, not personally
liable for their official acts, because a corporation, by legal fiction, has a personality
separate and distinct from its officers, stockholders and members. No evidence was
presented to show that the termination of the petitioner was done with malice or in
bad faith for it to hold the corporate officers, such as Gois, solidarily liable with the
corporation.

Padilla v. CA
GR NO. 123893 |November 22, 2001

FACTS:

Susana Realty, Inc. (SRI), by a deed of absolute sale, sold to the Light Rail Transit
Authority (LRTA) several parcels of land. A contract was between Phoenix Omega and
SRI with LRTA whereby Phoenix Omega undertook to construct commercial stalls on
the 90-sq. m. property, however only upon SRIs approval of such plans and
specifications. Also, Phoenix Omega assigned its right and interests over the
remaining property unto its sister company, PKA Development and Management
Corporation (PKA).

The development of the remaining property having been assigned to PKA, it entered
into a contract of lease with SRI. PKAs building permit was later revoked due to
certain violations of the National Building Code (BP 344). Subsequently, PKA was
allowed by the (Department) of Public Works and Highway(s) to resume construction
on the leased premises subject to PKAs correction of the defects in the construction
to conform to BP 344. As SRIs approval of PKAs amended plans in the construction
was required, PKA transmitted the same to SRI which withheld approval thereof
pending PKAs correction of the defects in the construction. Repeated requests for
approval of its amended plans not having been heeded by SRI, PKA filed at the court a
quo the action at bar for rescission of contract of lease against SRI.

Possession of the subject properties was subsequently restored to SRI, but the
monetary award was left unsatisfied. Thus, SRI filed a motion for issuance of an alias
writ against herein petitioners, based on the trial courts observation that PKA and
Phoenix-Omega are one and the same entity. This was granted by the RTC.
Alleging that the writ of execution cannot be enforced against them, herein
petitioners filed with the RTC an omnibus motion for the reconsideration. Petitioners
assailed these orders as confiscatory, since they were never parties to the case filed
by PKA against SRI, and they were unable to present evidence on their behalf.
CA agreed with the RTC that PKA and Phoenix-Omega are one and the same, or that
the former is a mere conduit of the latter. It pointed out that petitioner Padilla is both
president and general manager of PKA and at the same time chairman of the board of
directors and controlling stockholder of Phoenix-Omega.PKA and Phoenix-Omega
also shared officers, laborers, and offices.

Issue:
Whether the doctrine of piercing the veil of corporate fiction applies to the case at
bar to justify the issuance of an alias writ of execution against their properties.

Ruling:

The general rule is that a corporation is clothed with a personality separate and
distinct from the persons composing it. It may not be held liable for the obligations of
the persons composing it, and neither can its stockholders be held liable for its
obligations.
This veil of corporate fiction may only be disregarded in cases where the corporate
vehicle is being used to defeat public convenience, justify wrong, protect fraud, or
defend crime. PKA and Phoenix-Omega are admittedly sister companies, and may be
sharing personnel and resources, but we find in the present case no allegation, much
less positive proof, that their separate corporate personalities are being used to
defeat public convenience, justify wrong, protect fraud, or defend crime. For the
separate juridical personality of a corporation to be disregarded, the wrongdoing
must be clearly and convincingly established. It cannot be presumed. We find no
reason to justify piercing the corporate veil in this instance.
We understand private respondents’ frustration at not being able to have the
monetary award in their favor satisfied. But given the circumstances of this case,
public respondent cannot order the seizure of petitioners’ properties without
violating their constitutionally enshrined right to due process, merely to compensate
private respondent.

PNB v. Andrada Electric & Engineering Co.

GR NO. 142936 |April 17, 2002

FACTS:

On August 26, 1975 he defendant PNB acquired the assets of the defendant PASUMIL
that were earlier foreclosed by the Development Bank of the Philippines (DBP) under
LOI No. 311; that the defendant PNB organized the defendant National 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;

That prior to October 29, 1971, the defendant Pampanga Sugar Mills (PASUMIL)
engaged the services of plaintiff for electrical rewinding and repair, most of which
were partially paid by the defendant PASUMIL, leaving several unpaid accounts with
the plaintiff; that finally, on October 29, 1971, the plaintiff and the defendant
PASUMIL entered into a contract for the plaintiff to perform the construction of
several infrastructure and extra work and electrical equipment; that out of the total
obligation of P777,263.80, the defendant PASUMIL had paid onlyP250,000.00,
leaving an unpaid balance. Thus this complaint was filed to recover such unpaid
balances

The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint on
the ground that the complaint failed to state sufficient allegations to establish a cause
of action against the defendant NASUDECO and PNB because: (a) they are not x x x
privy to the contract being sued upon under the complaint; (b) the taking over of the
assets of defendant PASUMIL was solely for the purpose of reconditioning the sugar
central of defendant PASUMIL pursuant to martial law powers of the President under
the Constitution and so that PASUMIL may resume its operations; (c) nothing in the
LOI No. 189-A (as well as in LOI No. 311) authorized or commanded the PNB or its
subsidiary corporation, the NASUDECO, to assume the corporate obligations of
PASUMIL;

In affirming the RTC, CA held that it was offensive to the basic tenets of justice and
equity for a corporation to take over and operate the business of another corporation,
while disavowing or repudiating any responsibility, obligation or liability arising
therefrom.

Issue: whether PNB is liable for the unpaid debts of PASUMIL to respondent.

Ruling: NO

As a rule, a corporation that purchases the assets of another will not be liable for the
debts of the selling corporation, provided the former acted in good faith and paid
adequate consideration for such assets, except when any of the following
circumstances is present: (1) where the purchaser expressly or impliedly agrees to
assume the debts, (2) where the transaction amounts to a consolidation or merger of
the corporations, (3) where the purchasing corporation is merely a continuation of
the selling corporation, and (4) where the transaction is fraudulently entered into in
order to escape liability for those debts.

A corporation is an artificial being created by operation of law. It has a personality

separate and distinct from the persons composing it, as well as from any other legal
entity to which it may be related.
Equally well-settled is the principle that the corporate mask may be removed or the
corporate veil pierced when the corporation is just an alter ego of a person or of
another corporation.

This Court has pierced the corporate veil to ward off a judgment credit, to avoid
inclusion of corporate assets as part of the estate of the decedent, to escape liability
arising from a debt, or to perpetuate fraud and/or confuse legitimate issues either to
promote or to shield unfair objectives or to cover up an otherwise blatant violation of
the prohibition against forum-shopping. Only in these and similar instances may the
veil be pierced and disregarded.

The question of whether a corporation is a mere alter ego is one of fact.

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 plaintiffs legal right; and (3) the said control and breach of duty must
have proximately caused the injury or unjust loss complained of.

We believe that the absence of the foregoing elements in the present case precludes
the piercing of the corporate veil.

First, other than the fact that petitioners 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, respondent was not defrauded or injured when petitioners acquired the assets
of PASUMIL.
Being the party that asked for the piercing of the corporate veil, respondent had the
burden of presenting clear and convincing evidence. However, it failed to establish by
competent evidence that petitioners separate corporate veil had been used to conceal
fraud, illegality or inequity.

While we agree with respondents claim that the assets of the National Sugar
Development Corporation (NASUDECO) can be easily traced to PASUMIL, we are not
convinced that the transfer of the latter’s assets to petitioners was fraudulently
entered into in order to escape liability for its debt to respondent.

A review of the records reveals that DBP foreclosed the mortgage executed by
PASUMIL and acquired the assets as the highest bidder at the public auction
conducted. PASUMIL account had incurred arrearages of more than 20 percent of the
total outstanding obligation. Thus, DBP had not only a right, but also a duty under the
law to foreclose the subject properties.

Pursuant to LOI No. 189-A as amended by LOI No. 311, PNB acquired PASUMILs assets
that DBP had foreclosed and purchased in the normal course. Petitioner bank was
likewise tasked to manage temporarily the operation of such assets either by itself or
through a subsidiary corporation.
PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL assets.
These assets were later conveyed to PNB for a consideration.

PNB, as successor-in-interest, stepped into the shoes of DBP as PASUMILs creditor. By

way of a Deed of Assignment, PNB then transferred to NASUDECO all its rights under
the Redemption Agreement.