OUTLINE 1 - BUSINESS ORGANIZATION 2 Prof. M.I.P.

Romero (2015 - 2016) Arevalo|Diato|Dulce|Limbo|Padilla|Quiapon|Rafols|Roldan

I. DEFINITIONS/ ATTRIBUTES OF A CORPORATION commences from the moment its files its
articles of incorporation and is approved.
A. Artificial Being - Sec. 2, Corp. Code; Art. 44 (3), Civil Code - The general rule is the CORPORATION
Attributes of a Corporation CODE.
1. It is an artificial being; PARTNERSHIPS - Commences to acquire juridical personality
2. It is created by operation of law; from the moment of the execution of the
3. It has the right of succession; contract of partnership EXCEPT if there
4. It has only the powers, attributes and properties expressly authorized by law or incident is a stipulation of the parties that it shall
to its existence. commence after a certain time or on a
certain date
- Upon meeting of the minds
Sec. 2, Corp. Code - SEC approval is not a requisite for judicial
Corporation defined – A corporation is an artificial being created by operation of law, having the personality
right of succession and the powers, attributes and properties expressly authorized by law or - Art. 1771. A partnership may be constituted
incident to its existence. in any form, except where immovable
property or real rights are contributed
Art. 44 (3), Civil Code (Juridical Persons) thereto, in which case a public instrument
The following are juridical persons xxxx shall be necessary. (1667a)
3. Corporations, partnership and associations for private interest or purpose to which - Art. 1772. Every contract of partnership
the law grants a juridical personality, separate and distinct from that of each having a capital of three thousand pesos or
shareholder, partner or member. more, in money or property, shall appear in
a public instrument, which must be
 A corporation is a legal or juridical person with a personality separate and apart from its recorded in the Office of the Securities and
individual members or stockholders who, as natural persons, are merged in the corporate body. Exchange Commission.
 The law treats it’s as though it is a person UNREGISTERED ASSOCIATIONS - Article 1775 of the Civil Code provides that
associations and societies, whose articles
are kept secret among the members, and
Commencement of juridical personality – distinguish from that of partnerships, wherein anyone of the members, and
unregistered associations, and sole proprietorships wherein anyone of the members may
**JURIDICAL PERSONALITY – when an entity is conferred by the law for it to acquire liabilities contract in his own name with third
and obligations. persons, shall have NO JURIDICAL
PERSONALITY, and shall be governed
COMMENCEMENT OF JURIDICAL PERSONALITY by the provisions relation to co –
CORPORATION - Created by law or by operation of law ownership
- They required special authority or grant - Allowed under the Bill of Rights
from the state – through legislative  Article 3 Section 8. The right of the
department either by special incorporation people, including those employed in
law which directly creates the corporation the public and private sectors, to form
or by means of a general incorporation law unions, associations, or societies for
under which, by operation said law, purposes not contrary to law shall not
persons desiring to be and act as a be abridged.
corporation may incorporate  This is allowed as long as it is not
- Commence to acquire juridical personality against or contrary to public policy,
from the date of issuance of the morals, etc.
certificate of incorporation by the SEC SOLE PROPRIETORSHIPS - Not endowed with a separate juridical
under its official seal personality from its owner
- CORPORATION CREATED BY SPECIAL - DTI  for proper business permits is
LAW – juridical personality commences as needed
expressly specified by the law or upon the
effectivity of the said special law
- CORPORATION SOLE – are religious  Individual proprietorship - Operates a small business, usually with limited capital, and is
entity, and its juridical personality responsible alone for its success or failure
 Partnership – by the contract of a partnership 2 or more persons bind themselves to
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contribute money, property or industry to a common fund with the intention of dividing the
profits among themselves
 Joint Stock Company - can be considered as a combination of partnership in that it is
formed under a contract and requires no special sanction from the state
 Cooperative Association – an autonomous and duly registered association of persons, with
a common bond of interest, who have voluntarily joined together to achieve their social,
economic and cultural needs and aspirations by making equitable contributions to the
capital required, patronizing their products and services and by accepting a fair share of the
risks and benefits of the undertaking in accordance with universally accepted cooperative
principles
 Business Trust – is created under the terms of a deed of trust which is easier and less
expensive to constitute for t is not bounded by any legal requirements. It has no separate
and juridical personality. Mainly governed by contractual doctrines and the common law
principles on trust.
Mangila v. CA (GR 125027; 8/12/ 02)
ANITA MANGILA, petitioner, vs. COURT OF APPEALS and LORETA
GUINA, respondents. [G.R. No. 125027. August 12, 2002.]
 the stipulated venue, the same was merely an inadvertence by the printing press whose general
Facts: Petitioner Anita Mangila ("petitioner" for brevity) is an exporter of sea foods and doing
business under the name and style of Seafoods Products. Private respondent Loreta Guina
("private respondent" for brevity) is the President and General Manager of Air Swift International, a
single registered proprietorship engaged in the freight forwarding business. Sometime in January
1988, petitioner contracted the freight forwarding services of private respondent for shipment of
petitioner's products, such as crabs, prawns and assorted fishes, to Guam (USA) where petitioner
maintains an outlet. Petitioner agreed to pay private respondent cash on delivery. Private
respondent's invoice stipulates a charge of 18 percent interest per annum on all overdue accounts.
In case of suit, the same invoice stipulates attorney's fees equivalent to 25 percent of the amount
due plus costs of suit.
On the first shipment, petitioner requested for seven days within which to pay private respondent.
However, for the next three shipments, March 17, 24 and 31, 1988, petitioner failed to pay private
respondent shipping charges amounting to P109,376.95. Despite several demands, petitioner
never paid private respondent. Thus, on June 10, 1988, private respondent filed Civil Case No.
5875 before the Regional Trial Court of Pasay City for collection of sum of money. On August 1,
1988, the sheriff filed his Sheriff's Return showing that summons was not served on petitioner. A
woman found at petitioner's house informed the sheriff that petitioner transferred her residence to
Sto. Niño, Guagua, Pampanga. The sheriff found out further that petitioner had left the Philippines
for Guam. Thus, on September 13, 1988, construing petitioner's departure from the Philippines as
done with intent to defraud her creditors, private respondent filed a Motion for Preliminary
Attachment.
On September 26, 1988, the trial court issued an Order of Preliminary Attachment against
petitioner. The following day, the trial court issued a Writ of Preliminary Attachment. The trial court
granted the request of its sheriff for assistance from their counterparts in RTC, Pampanga. Thus,
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on October 28, 1988, Sheriff Alfredo San Miguel of RTC Pampanga served on petitioner's
household help in San Fernando, Pampanga, the Notice of Levy with the Order, Affidavit and
Bond. On November 7, 1988, petitioner filed an Urgent Motion to Discharge Attachment without
submitting herself to the jurisdiction of the trial court. She pointed out that up to then, she had not
been served a copy of the Complaint and the summons. Hence, petitioner claimed the court had
not acquired jurisdiction over her person. The trial court granted the Motion to Discharge
Attachment on January 13, 1989 upon filing of petitioner's counter-bond. The trial court, however,
did not rule on the question of jurisdiction and on the validity of the writ of preliminary attachment.
On December 26, 1988, private respondent applied for an alias summons, which the trial court
issued on January 19, 1989. It was only on January 26, 1989 that summons was finally served on
petitioner.
On February 9, 1989, petitioner filed a Motion to Dismiss the Complaint on the ground of improper
venue. Private respondent's invoice for the freight forwarding service stipulates that "if court
litigation becomes necessary to enforce collection . . . the agreed venue for such action is Makati,
Metro Manila." Private respondent filed an Opposition asserting that although "Makati" appears as
manager executed an affidavit admitting such inadvertence. Moreover, private respondent claimed
that petitioner knew that private respondent was holding office in Pasay City and not in Makati. The
lower court, finding credence in private respondent's assertion, denied the Motion to Dismiss and
gave petitioner five days to file her Answer. Petitioner filed a Motion for Reconsideration but this
too was denied.
Petitioner filed her Answer on June 16, 1989, maintaining her contention that the venue was
improperly laid.
Ruling of the Trial Court: On November 20, 1989, the petitioner received a copy of the Decision
of November 10, 1989, ordering petitioner to pay respondent P109,376.95 plus 18 percent interest
per annum, 25 percent attorney's fees and costs of suit. Private respondent filed a Motion for
Execution Pending Appeal but the trial court denied the same.
The Ruling of the Court of Appeals: On December 15, 1995, the Court of Appeals rendered a
decision affirming the decision of the trial court. The Court of Appeals upheld the validity of the
issuance of the writ of attachment and sustained the filing of the action in the RTC of Pasay. The
Court of Appeals also affirmed the declaration of default on petitioner and concluded that the trial
court did not commit any reversible error.
Petitioner filed a Motion for Reconsideration on January 5, 1996 but the Court of Appeals denied
the same in a Resolution dated May 20, 1996.
Issue/s:
1. W/N the writ of attachment is valid because of failure to serve summons on her before or
simultaneously with the writ's implementation.
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2. W/N there is improper venue in the filing of this case in the RTC of Pasay (ISSUE IN RELATION
TO CORPORATION LAW)
Held:
1. The SC held that the alias summons belatedly served on petitioner cannot be deemed to have
cured the fatal defect in the enforcement of the writ. The trial court cannot enforce such a coercive
process on petitioner without first obtaining jurisdiction over her person. The preliminary writ of
attachment must be served after or simultaneous with the service of summons on the defendant
whether by personal service, substituted service or by publication as warranted by the
circumstances of the case. The subsequent service of summons does not confer a retroactive
acquisition of jurisdiction over her person because the law does not allow for retroactivity of a
belated service.
2. In the instant case, the stipulation does not limit the venue exclusively to Makati. There are no
qualifying or restrictive words in the invoice that would evince the intention of the parties that
Makati is the "only or exclusive" venue where the action could be instituted. SC therefore agree
with private respondent that Makati is not the only venue where this case could be filed.
Nevertheless, SC held that Pasay is not the proper venue for this case.
Under the 1997 Rules of Civil Procedure, the general rule is venue in personal actions is "where
the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the
plaintiffs resides, at the election of the plaintiff." The exception to this rule is when the parties agree
on an exclusive venue other than the places mentioned in the rules. But, as we have discussed,
this exception is not applicable in this case. Hence, following the general rule, the instant case may
be brought in the place of residence of the plaintiff or defendant, at the election of the plaintiff
(private respondent herein).
In the instant case, the residence of private respondent (plaintiff in the lower court) was not alleged
in the complaint. Rather, what was alleged was the postal address of her sole proprietorship, Air
Swift International. It was only when private respondent testified in court, after petitioner was
declared in default, that she mentioned her residence to be in Better Living Subdivision, Parañaque
City. In the earlier case of Sy v. Tyson Enterprises, Inc., the Court there held that:
“The evident purpose of alleging the address of the corporation's president and
manager was to justify the filing of the suit in Rizal, Pasig instead of in Manila.
Thus, the Court ruled that there was no question that venue was improperly
laid in that case and held that the place of business of Tyson Enterprises, Inc.
is considered as its residence for purposes of venue. Furthermore, the Court
held that the residence of its president is not the residence of the corporation
because a corporation has a personality separate and distinct from that of its
officers and stockholders.”
In the instant case, it was established in the lower court that petitioner resides in San Fernando,
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Pampanga while private respondent resides in Parañaque City. However, this case was brought in
Pasay City, where the business of private respondent is found. This would have been permissible
had private respondent's business been a corporation, just like the case in Sy v. Tyson
Enterprises, Inc. However, as admitted by private respondent in her Complaint in the lower court,
her business is a sole proprietorship, and as such, does not have a separate juridical personality
that could enable it to file a suit in court. In fact, there is no law authorizing sole proprietorships to
file a suit in court.
A sole proprietorship does not possess a juridical personality separate and distinct from
the personality of the owner of the enterprise. The law merely recognizes the existence of a
sole proprietorship as a form of business organization conducted for profit by a single
individual and requires its proprietor or owner to secure licenses and permits, register its
business name, and pay taxes to the national government. The law does not vest a separate
legal personality on the sole proprietorship or empower it to file or defend an action in
court.
Thus, not being vested with legal personality to file this case, the sole proprietorship is not the
plaintiff in this case but rather Loreta Guina in her personal capacity. In fact, the complaint in the
lower court acknowledges in its caption that the plaintiff and defendant are Loreta Guina and Anita
Mangila, respectively. The title of the petition before us does not state, and rightly so,Anita Mangila
v. Air Swift International, but rather Anita Mangila v. Loreta Guina. Logically then, it is the residence
of private respondent Guina, the proprietor with the juridical personality, which should be
considered as one of the proper venues for this case.
WHEREFORE, the petition is GRANTED on the grounds of improper venue and invalidity of the
service of the writ of attachment. The decision of the Court of Appeals and the order of respondent
judge denying the motion to dismiss are REVERSED and SET ASIDE. Civil Case No. 5875 is
hereby dismissed without prejudice to refiling it in the proper venue. The attached properties of
petitioner are ordered returned to her immediately.
SO ORDERED.
 Puno and Panganiban, JJ., concur. Sandoval-Gutierrez, J., is on leave.
Excellent Quality Apparel v. Win Multiple Rich Builders 578 SCRA 272 (2009)
Facts: Respondent Win Multi-Rich Builders, Inc. (Win) was incorporated with the Securities and
Exchange Commission (SEC) on 20 February 1997 with Chua as its President and General
Manager. On 26 January 2004, Win filed a complaint for a sum of money against petitioner and Mr.
Ying amounting to P8,634,448.20. It also prayed for the issuance of a writ of attachment claiming
that Mr. Ying was about to abscond and that petitioner was about to close. Win obtained a surety
bond issued by Visayan Surety & Insurance Corporation. On 10 February 2004, the RTC issued
the Writ of Attachment against the properties of petitioner. Petitioner filed an Omnibus Motion
claiming that it was neither about to close. It also denied owing anything to Win, as it had already
paid all its obligations to it. Lastly, it questioned the jurisdiction of the trial court from taking
cognizance of the case. Petitioner pointed to the presence of the Arbitration Clause and it asserted
that the case should be referred to the Construction Industry Arbitration Commission (CIAC)
pursuant to Executive Order (E.O.) No. 1008. In the hearing held on 10 February 2004, the counsel
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of Win moved that its name in the case be changed from "Win Multi-Rich Builders, Inc." to "Multi-
Rich Builders, Inc." It was only then that petitioner apparently became aware of the variance in the
name of the plaintiff. In the Reply filed by petitioner, it moved to dismiss the case since Win was
not the contractor and neither a party to the contract, thus it cannot institute the case. Petitioner
obtained a Certificate of Non-Registration of Corporation/Partnership from the SEC which certified
that the latter did not have any records of a "Multi-Rich Builders, Inc." Moreover, Win in its
Rejoinder did not oppose the allegations in the Reply. Win admitted that it was only incorporated
on 20 February 1997 while the construction contract was executed on 26 March 1996. Likewise, it
admitted that at the time of execution of the contract, Multi-Rich was a registered sole
proprietorship and was issued a business permit by the Office of the Mayor of Manila.
Decision of the RTC: In an Order dated 12 April 2004, the RTC denied the motion and stated that
the issues can be answered in a full-blown trial. Upon its denial, petitioner filed its Answer and
prayed for the dismissal of the case. Win filed a Motion to deposit the garnished amount to the
court to protect its legal rights. In a Manifestation, petitioner vehemently opposed the deposit of the
garnished amount. The RTC issued an Order dated 20 April 2004, which granted the motion to
deposit the garnished amount.
Decision of CA: On 18 June 2004, petitioner filed a petition for review on certiorari under Rule 65
before the Court of Appeals, which questioned the jurisdiction of the RTC and challenged the
orders issued by the lower court with a prayer for the issuance of a temporary retraining order and
a writ of preliminary injunctionOn 14 March 2006, the Court of Appeals rendered its Decision
annulling the 12 April and 20 April 2004 orders of the RTC.
Issue: Whether or not Win have a legal personality to institute the present case
Held: No. Win admitted that the contract was executed between Multi-Rich and petitioner. It further
admitted that Multi-Rich was a sole proprietorship with a business permit issued by the Office of
the Mayor of Manila. The sole proprietor is personally liable for all the debts and obligations of the
business. In the case of Mangila v. Court of Appeals, the SC held that:
In fact, there is no law authorizing sole proprietorships to file a suit in court.
A sole proprietorship does not possess a juridical personality separate and
distinct from the personality of the owner of the enterprise. The law merely
recognizes the existence of a sole proprietorship as a form of business
organization conducted for profit by a single individual and requires its
proprietor or owner to secure licenses and permits, register its business name,
and pay taxes to the national government. The law does not vest a separate
legal personality on the sole proprietorship or empower it to file or defend an
action in court.
The original petition was instituted by Win, which is a SEC-registered corporation. It filed a
collection of sum of money suit which involved a construction contract entered into by petitioner
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and Multi-Rich, a sole proprietorship. The counsel of Win wanted to change the name of the
plaintiff in the suit to Multi-Rich. The change cannot be countenanced. The plaintiff in the collection
suit is a corporation. The name cannot be changed to that of a sole proprietorship. Again, a sole
proprietorship is not vested with juridical personality to file or defend an action.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals is hereby
MODIFIED. Civil Case No. 04-108940 is DISMISSED. Win Multi-Rich Builders, Inc. is ORDERED
to return the garnished amount of EIGHT MILLION SIX HUNDRED T H I R T Y- F O U R T H O U
S A N D F O U R H U N D R E D F O R T Y- E I G H T P E S O S A N D F O R T Y CENTAVOS
(P8,634,448.40), which was turned over by the Regional Trial Court, to petitioner with legal interest
of 12 percent (12%) per annum upon finality of this Decision until payment.
SO ORDERED.
 Quisumbing, Carpio-Morales, Velasco, Jr. and Brion, JJ., concur.
Rights of a juridical person
Consequence of this legal concept of a corporation: (DE LEON BOOK)
a. Corporation is not liable for the debts of its stockholders, and the latter are not
individually liable for the corporation’s debts
b. It may acquire and possess property of all kids, as well as incur obligations and bring
civil and criminal actions in its own name in the same manner as a natural person
c. Property conveyed to or acquired by the corporation is in law the property of the
corporation itself as a distinct legal entity and not that of the member or stockholders as
such
d. All contracts entered into in its name by its regular appointed officers and agents are the
contract of the corporation and not those of the members or stockholders. A corporation
cannot be held liable for the personal debt or obligation of a stockholder even if he
should be its president.
e. A tax exemption granted to a corporation cannot be extended to include dividends
f. Corporation has no personality to bring an action for and in behalf of its stockholders or
members for the purpose of recovering property which belongs to said stockholders or
employees
g. A corporation remains unchanged and unaffected in its identity by changes in its
individual membership
Entitled of the Corporation to Constitutional Guarantees (AQUINO BOOK)
a. Due process and Equal Protection Clauses
 Article 3 Bill of Rights Section 1. No person shall be deprived of life, liberty, or
property without due process of law, nor shall any person be denied the equal
protection of the laws. (
1. A corporation has right to life  because the law allows it to have a life of
50 years which can be extended and it has the right of succession)
2. A corporation has no right to liberty, because it is only natural person who has
this right. Corporations are controlled and limited by the law that created it.
3. Right to Property  yes, because a corporation may own property as part of
its business.
b. Unreasonable Searches and Seizures
1. A corporation is but an association of individuals under an summed named
and with a distinct legal entity. In organizing itself as a collective body, it
waives no constitutional immunities appropriate to such body  only a
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corporation as a separate juridical entity can question unlawful invasion or
unreasonable searches and seizures of its property
c. NO Right against self –incrimination
1. There is a reserve right on the part of the legislature to inquire if the
corporation has abused its privilege  the government may required the
corporation to produce its books
d. NO Free Access Clause
Bache & Co. (Phils.), Inc. v. Ruiz (37 SCRA 823; 1971)
FACTS
On 24 Feb 1970, Commissioner Vera of Internal Revenue, wrote a letter addressed to J Ruiz
requesting the issuance of a search warrant against petitioners for violation of Sec 46(a) of the
NIRC, in relation to all other pertinent provisions thereof, particularly Sects 53, 72, 73, 208 and
209, and authorizing Revenue Examiner de Leon make and file the application for search warrant
which was attached to the letter. The next day, de Leon and his witnesses went to CFI Rizal to
obtain the search warrant. At that time J Ruiz was hearing a certain case; so, by means of a note,
he instructed his Deputy Clerk of Court to take the depositions of De Leon and Logronio. After the
session had adjourned, J Ruiz was informed that the depositions had already been taken. The
stenographer read to him her stenographic notes; and thereafter, J Ruiz asked respondent
Logronio to take the oath and warned him that if his deposition was found to be false and without
legal basis, he could be charged for perjury. J Ruiz signed de Leon’s application for search
warrant and Logronio’s deposition. The search was subsequently conducted.
ISSUE: Whether or not there had been a valid search warrant.
HELD: The SC ruled in favor of Bache on three grounds.
1. J Ruiz failed to personally examine the complainant and his witness.
Personal examination by the judge of the complainant and his witnesses is necessary to enable
him to determine the existence or non-existence of a probable cause.
2. The search warrant was issued for more than one specific offense.
The search warrant in question was issued for at least four distinct offenses under the Tax Code.
As ruled in Stonehill “Such is the seriousness of the irregularities committed in connection with the
disputed search warrants, that this Court deemed it fit to amend Section 3 of Rule 122 of the
former Rules of Court that ‘a search warrant shall not issue but upon probable cause in connection
with one specific offense.’ Not satisfied with this qualification, the Court added thereto a paragraph,
directing that ‘no search warrant shall issue for more than one specific offense.
3. The search warrant does not particularly describe the things to be seized.
The documents, papers and effects sought to be seized are described in the Search Warrant
“Unregistered and private books of accounts (ledgers, journals, columnars, receipts and
disbursements books, customers ledgers); receipts for payments received; certificates of stocks
and securities; contracts, promissory notes and deeds of sale; telex and coded messages;
business communications, accounting and business records; checks and check stubs; records of
bank deposits and withdrawals; and records of foreign remittances, covering the years 1966 to
1970.”
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The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of Sec. 3,
Rule 126 of the Revised Rules of Court, that the warrant should particularly describe the things to
be seized.
A search warrant may be said to particularly describe the things to be seized when the description
therein is as specific as the circumstances will ordinarily allow or when the description expresses a
conclusion of fact not of law by which the warrant officer may be guided in making the search and
seizure or when the things described are limited to those which bear direct relation to the offense
for which the warrant is being issued.
Bataan Shipyard v. PCGG (150 SCRA 181; 1987
Facts: BASECO describes itself in its petition as “a ship repair and ship building company
incorporated as a domestic private corporation on August 30, 1972 by a consortium of Filipino ship
owners and shipping executives. Its main office is at Mariveles, Bataan.
Its Articles of Incorporation disclose that its authorized capital stock is 60 million pesos divided into
60,000 shares, of which 12,000 shares with a value of 12 million pesos have been subscribed, and
on said corporation, the aggregate sum of 3.05 million has been paid by the incorporators.
The same articles identify the incorporators, numbering 15. By 1986, however, of these 15
incorporators, six had ceased to be stockholders. As of 1986, there were 20 stockholders listed in
BASECO’s Stock and Transfer Book.
When President Corazon Aquino took power, the Presidential Commission on Good Government
(PCGG) was formed in order to recover ill-gotten wealth allegedly acquired by former President
Marcos and his cronies. Aquino then issued two executive orders in 1986 and pursuant thereto; a
sequestration and a takeover order were issued against Bataan Shipyard & engineering Co., Inc.
(BASECO). BASECO was alleged to be in actuality owned and controlled by the Marcoses through
the Romualdez family, and in turn, through dummy stockholders.
The sequestration order issued in 1986 required, among others that BASECO produce corporate
records from 1973 to 1986 under pain of contempt of the PCGG if it fails to do so. BASECO assails
this order as it avers, among others, that it is against BASECO’s right against self-incrimination and
unreasonable searches and seizures.
Issue: Whether or not the order of production of documents would be self-incrimination to
BASECO and could such a corporation avail of the said right.
Held: It is elementary that the right against self-incrimination has no application to juridical
persons.
"While an individual may lawfully refuse to answer incriminating questions unless protected by an
immunity statute, it does not follow that a corporation, vested with special privileges and franchises,
may refuse to show its hand when charged with an abuse of such privileges . . ."
Relevant jurisprudence is also cited by the Solicitor General.
". . . corporations are not entitled to all of the constitutional protections which private individuals
have. . . . They are not at all within the privilege against self-incrimination, although this court more
than once has said that the privilege runs very closely with the 4th Amendment's Search and
Seizure provisions. It is also settled that an officer of the company cannot refuse to produce its
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records in its possession, upon the plea that they will either incriminate him or may incriminate it."
(Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).
". . . The corporation is a creature of the state. It is presumed to be incorporated for the benefit of
the public. It received certain special privileges and franchises, and holds them subject to the laws
of the state and the limitations of its charter. Its powers are limited by law. It can make no contract
not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it
obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts
and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state,
having chartered a corporation to make use of certain franchises, could not, in the exercise of
sovereignty, inquire how these franchises had been employed, and whether they had been
abused, and demand the production of the corporate books and papers for that purpose. The
defense amounts to this, that an officer of the corporation which is charged with a criminal violation
of the statute may plead the criminality of such corporation as a refusal to produce its books. To
state this proposition is to answer it. While an individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it does not follow that a corporation vested with
special privileges and franchises may refuse to show its hand when charged with an abuse of such
privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's])"
At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures
protection to individuals required to produce evidence before the PCGG against any possible
violation of his right against self-incrimination. It gives them immunity from prosecution on the basis
of testimony or information he is compelled to present. As an amended, said Section 4 now
provides that —
xxx xxx xxx
"The witness may not refuse to comply with the order on the basis of his privilege against self-
incrimination; but no testimony or other information compelled under the order (or any information
directly or indirectly derived from such testimony, or other information) may be used against the
witness in any criminal case, except a prosecution for perjury, giving a false statement, or
otherwise failing to comply with the order."
The constitutional safeguard against unreasonable searches and seizures finds no application to
the case at bar either. There has been no search undertaken by any agent or representative of the
PCGG, and of course no seizure on the occasion thereof.
Good Shepherd Foundation, Inc. (A.M. No. 09-6-9 SC; 8/19/09)
Facts: Mr. Roger C. Prioreschi, administrator of the Good Shepherd Foundation, Inc., wrote to the
Chief Justice asking thecourt to grant to their Foundation, who works for indigent and
underprivileged people, the same option granted to indigentpeople which is the exemption from
payment of docket fees.
Issue: Should an incorporated foundation (serving indigent litigants) be exempted from payment of
docket fees?
Ruling: No. The basis for the exemption from legal and filing fees is the free access clause,
embodied in Sec. 11, Art. III of the1987 Constitution. The clear intent and precise language of the
provisions of the Rules of Court indicate that only a natural party litigant may be regarded as an
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indigent litigant. The Good Shepherd Foundation, Inc., a juridical cannot beaccorded the exemption
from legal and filing fees granted to indigent litigants
Criminal Liability
(VILLANUEVA / DE LEON BOOK)
- no supporting legislation has been promulgates is because of the public policy that if a
crime was committed in the name of a corporation, then it is actually committed by the
individual who act for and in behalf of such corporation
- a corporation can act only through its officers and agents, and where the business itself
involves a violation of the law, the correct rule is that all who participates in it are liable
(AQUINO BOOK)
- no criminal action can lie against corporation under the present rules
- CORPORATION cannot commit felonies described under the RPC because artificial
beings are incapable of INTENT. Neither can they perform overt act
- JURISPRUDENCE: an officer of a corporation can be held criminally liable for acts or
commissions done in behalf of the corporation only where the law directly requires the
corporation to do an act in a given manner and the same law makes the person who fails
to perform the act in the prescribed manner expressly liable criminally
 When a corporate officer is made criminally liable for corporate acts he is also
civilly liable in accordance with Article 100 of the RPC
- Before a stockholder may be held criminally liable for acts committed by the corporation,
it must be shown that he had knowledge of the criminal act committed in the name of the
corporation and that he took part in the same or gave his consent to its commission,
whether by action or inaction
- Offenses MALA PROHOBITIA which may be committed simply by committing the act
prohibited, thus it may be committed by a corporation.
- If the law on corporations imposes criminal liability, the SC should promulgate
appropriate criminal procedure for the prosecution of corporations.
- If the State, through a statute, defines a crime that may be committed by a corporation
but prescribes the penalty therefor to be suffered by the officers, directors, employees of
such corporation or other person responsible for the offenses, only such individuals will
suffer such penalty.
- A corporation may be charged and prosecuted for a crime if the imposable penalty is fine.
Ching v. Sec. of Justice (Feb. 6, 2006)
FACTS: Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI).
Sometime in September to October 1980, PBMI, through petitioner, applied with the Rizal
Commercial Banking Corporation (respondent bank) for the issuance of commercial letters of credit
to finance its importation of assorted goods. Respondent bank approved the application, and
irrevocable letters of credit were issued in favor of petitioner. The goods were purchased and
delivered in trust to PBMI. Petitioner signed 13 trust receipts4 as surety, acknowledging delivery of
the following goods.
Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to
sell but not by way of conditional sale, pledge or otherwise; and in case such goods were sold, to
turn over the proceeds thereof as soon as received, to apply against the relative acceptances and
payment of other indebtedness to respondent bank. In case the goods remained unsold within the
specified period, the goods were to be returned to respondent bank without any need of demand.
Thus, said "goods, manufactured products or proceeds thereof, whether in the form of money or
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bills, receivables, or accounts separate and capable of identification" were respondent bank’s
property.
When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to
return their value amounting to P6,940,280.66 despite demands. Thus, the bank filed a criminal
complaint for estafa6 against petitioner in the Office of the City Prosecutor of Manila
ISSUE: ISSUE: Whether or not Ching should be held criminally liable?
HELD: Yes he is criminally liable under PD115
If the violation or offense is committed by a corporation, partnership, association or other judicial
entities, the penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without prejudice to the
civil liabilities arising from the criminal offense.’
"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the
thirteen (13) trust receipts. As such, the law points to him as the official responsible for the offense.
Since a corporation cannot be proceeded against criminally because it cannot commit crime in
which personal violence or malicious intent is required, criminal action is limited to the corporate
agents guilty of an act amounting to a crime and never against the corporation itself (West Coast
Life Ins. Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus, the execution by
respondent of said receipts is enough to indict him as the official responsible for violation of PD
115.
"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are
ultimately destined for sale and not goods, like those imported by PBM, for use in manufacture.
This issue has already been settled in the Allied Banking Corporation case, supra, where he was
also a party, when the Supreme Court ruled that PD 115 is ‘not limited to transactions in goods
which are to be sold (retailed), reshipped, stored or processed as a component or a product
ultimately sold’ but ‘covers failure to turn over the proceeds of the sale of entrusted goods, or to
return said goods if unsold or disposed of in accordance with the terms of the trust receipts.’
"In regard to the other assigned errors, we note that the respondent bound himself under the terms
of the trust receipts not only as a corporate official of PBM but also as its surety. It is evident that
these are two (2) capacities which do not exclude the other. Logically, he can be proceeded
against in two (2) ways: first, as surety as determined by the Supreme Court in its decision in
RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as the corporate official responsible for
the offense under PD 115, the present case is an appropriate remedy under our penal law.
"Moreover, PD 115 explicitly allows the prosecution of corporate officers ‘without prejudice to the
civil liabilities arising from the criminal offense’ thus, the civil liability imposed on respondent in
RCBC vs. Court of Appeals case is clearly separate and distinct from his criminal liability under PD
115.’"28
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Petitioner asserts that the appellate court’s ruling is erroneous because (a) the transaction between
PBMI and respondent bank is not a trust receipt transaction; (b) he entered into the transaction and
was sued in his capacity as PBMI Senior Vice-President; (c) he never received the goods as an
entrustee for PBMI, hence, could not have committed any dishonesty or abused the confidence of
respondent bank; and (d) PBMI acquired the goods and used the same in operating its
machineries and equipment and not for resale.
The OSG, for its part, submits a contrary view, to wit:
Petitioner further claims that he is not a person responsible for the offense allegedly because
"[b]eing charged as the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner cannot
be held criminally liable as the transactions sued upon were clearly entered into in his capacity as
an officer of the corporation" and that [h]e never received the goods as an entrustee for PBM as he
never had or took possession of the goods nor did he commit dishonesty nor "abuse of confidence
in transacting with RCBC." Such argument is bereft of merit.
Petitioner’s being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him
from any liability. Petitioner’s responsibility as the corporate official of PBM who received the goods
in trust is premised on Section 13 of P.D. No. 115, which provides:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the
goods, documents or instruments covered by a trust receipt to the extent of the amount owing to
the entruster or as appears in the trust receipt or to return said goods, documents or instruments if
they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute
the crime of estafa, punishable under the provisions of Article Three hundred and fifteen,
paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended,
otherwise known as the Revised Penal Code. If the violation or offense is committed by a
corporation, partnership, association or other juridical entities, the penalty provided for in this
Decree shall be imposed upon the directors, officers, employees or other officials or persons
therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal
offense. (Emphasis supplied).
Petitioner having participated in the negotiations for the trust receipts and having received the
goods for PBM, it was inevitable that the petitioner is the proper corporate officer to be proceeded
against by virtue of the PBM’s violation of P.D. No. 115.29
TupazlV v. CA 475 SCRA 398 (2005)
Facts: Jose C. Tupaz IV and Petronila C. Tupaz were Vice-President for Operations and Vice-
President/Treasurer, respectively, of El Oro Engraver Corporation (“El Oro Corporation”). El Oro
Corporation had a contract with the Philippine Army to supply the latter with “survival bolos.”
To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El Oro
Corporation, applied with respondent Bank of the Philippine Islands (“respondent bank”) for two
commercial letters of credit. The letters of credit were in favor of El Oro Corporation’s suppliers,
Tanchaoco Manufacturing Incorporated Simultaneous with the issuance of the letters of credit,
petitioners signed trust receipts in favor of respondent bank. On 30 September 1981, petitioner
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Jose C. Tupaz IV (“petitioner Jose Tupaz”) signed, in his personal capacity, a trust receipt
corresponding to Letter of Credit No. 2-00896-3 (for P564,871.05). Petitioners did not comply with
their undertaking under the trust receipts. Respondent bank made several demands for payments
but El Oro Corporation made partial payments only. On 27 June 1983 and 28 June 1983,
respondent bank’s counsel and its representative respectively sent final demand letters to El Oro
Corporation. El Oro Corporation replied that it could not fully pay its debt because the Armed
Forces of the Philippines had delayed paying for the survival bolos.
Issue: Whether or not Tupaz can escape liability in violation of the Trust Receipt Law by the
delayed payment of the bolo
Held: A corporate representative signing as a solidary guarantee as corporate representative did
not undertake to guarantee personally the payment of the corporation’s debts. In the trust receipt
dated 9 October 1981, petitioners signed below this clause as officers of El Oro Corporation. Thus,
under petitioner Petronila Tupaz’s signature are the words “Vice-Pres–Treasurer” and under
petitioner Jose Tupaz’s signature are the words “Vice-Pres–Operations.” By so signing that trust
receipt, petitioners did not bind themselves personally liable for El Oro Corporation’s obligation. In
Ong v. Court of Appeals, a corporate representative signed a solidary guarantee clause in two trust
receipts in his capacity as corporate representative. There, the Court held that the corporate
representative did not undertake to guarantee personally the payment of the corporation’s debts.
A corporation, being a juridical entity, may act only through its directors, officers, and employees.
Debts incurred by these individuals, acting as such corporate agents, are not theirs but the direct
liability of the corporation they represent. As an exception, directors or officers are personally liable
for the corporation’s debts only if they so contractually agree or stipulate. ; Excussion is not a
prerequisite to secure judgment against a guarantor; The benefit of excussion may be waived.
Civil Liability
NOTE:
(VILLANUEVA / DE LEON BOOK)
- The civil liability is still measured from the determination of whether there is basis to
apply the doctrine of piercing the veil of corporate fiction to make the acting corporate
officer personally liable for the debt incurred in behalf of the corporation
- EXCEPTION to liability of officers: when the directors or officers are personally liable for
the corporation’s debt if they so contractually agree of stipulate
(AQUINO BOOK)
- TORT LIABILITY – corporation is civilly liable in the same manner as a natural person for
torts, because generally speaking, the rules governing the liability of a principal or master
for a tort committed by an agent or servant are the same whether principal or master be
a natural person or a corporation
- Liability of corporation may be vicarious or direct personal obligation and it may arise out
different sources of obligation
- PRIMARY RULE OF ATTRIBUTION – the corporation is liable based on contract if the
board of directors sanctioned the breach
- DIRECT CORPORATE RESPONSIBILITY may be imposed under Article 2176
 CHAPTER 2 QUASI-DELICTS Art. 2176. Whoever by act or omission causes
damage to another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the
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provisions of this Chapter. (1902a)
- VICARIOUS LIABILITY – may be based on quasi-delict under Article 2180 of the NCC,
delict under Article 102 of the RPC and Article 104 of the RPC for innkeepers and
hotelkeepers
 CHAPTER 2 QUASI-DELICTS Art. 2180. The obligation imposed by Article 2176
is demandable not only for one's own acts or omissions, but also for those of
persons for whom one is responsible.
The father and, in case of his death or incapacity, the mother, are responsible for
the damages caused by the minor children who live in their company.
Guardians are liable for damages caused by the minors or incapacitated persons
who are under their authority and live in their company.
The owners and managers of an establishment or enterprise are likewise
responsible for damages caused by their employees in the service of the branches
in which the latter are employed or on the occasion of their functions.
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though the
former are not engaged in any business or industry.
The State is responsible in like manner when it acts through a special agent; but not
when the damage has been caused by the official to whom the task done properly
pertains, in which case what is provided in Article 2176 shall be applicable.
Lastly, teachers or heads of establishments of arts and trades shall be liable for
damages caused by their pupils and students or apprentices, so long as they
remain in their custody.
The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to
prevent damage. (1903a)
 Revised Penal Code Article 102. Subsidiary civil liability of innkeepers,
tavernkeepers and proprietors of establishments. - In default of the persons
criminally liable, innkeepers, tavernkeepers, and any other persons or corporations
shall be civilly liable for crimes committed in their establishments, in all cases where
a violation of municipal ordinances or some general or special police regulation
shall have been committed by them or their employees.
Innkeepers are also subsidiarily liable for the restitution of goods taken by robbery
or theft within their houses from guests lodging therein, or for the payment of the
value thereof, provided that such guests shall have notified in advance the
innkeeper himself, or the person representing him, of the deposit of such goods
within the inn; and shall furthermore have followed the directions which such
innkeeper or his representative may have given them with respect to the care and
vigilance over such goods. No liability shall attach in case of robbery with violence
against or intimidation of persons unless committed by the innkeeper's employees.
 Revised Penal Code Article 104. What is included in civil liability. - The civil
liability established in Articles 100, 101, 102, and 103 of this Code includes:
1. Restitution;
2. Reparation of the damage caused;
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3. Indemnification for consequential damages.
PNB v. CA 83 SCRA 238 (1978)
FACTS: Mrs. Tapnio had an export sugar quota of 1,000 piculs for the agricultural year 1956-1957
which she did not need. She agreed to allow Mr. Jacobo C. Tuazon to use said quota for the
consideration of P2,500.00 (Exh. "4"-Gueco). This agreement was called a contract of lease of
sugar allotment.
At the time of the agreement, Mrs. Tapnio was indebted to the Philippine National Bank
at San Fernando, Pampanga. Her indebtedness was known as a crop loan and was secured by a
mortgage on her standing crop including her sugar quota allocation for the agricultural year
corresponding to said standing crop. This arrangement was necessary in order that when Mrs.
Tapnio harvests, the P.N.B., having a lien on the crop, may effectively enforce collection against
her. Since the quota was mortgaged to the P.N.B., the contract of lease had to be approved by
said Bank.
The latter required the parties to raise the consideration of P2.80 per picul or a total of
P2,800.00 (Exh. "2-Gueco") informing them that "the minimum lease rental acceptable to the Bank,
is P2.80 per picul." In a letter addressed to the branch manager on August 10, 1956, Mr. Tuazon
informed the manager that he was agreeable to raising the consideration to P2.80 per picul. He
further informed the manager that he was ready to pay said amount as the funds were in his folder
which was kept in the bank.
On November 19, 1956, the branch manager submitted Tuazon's request for
reconsideration to the board of directors with another recommendation for the approval of the lease
at P2.80 per picul, but the board returned the recommendation unacted upon, considering that the
current price prevailing at the time was P3.00 per picul.
The parties were notified of the refusal on the part of the board of directors of the Bank to
grant the motion for reconsideration. The matter stood as it was until February 22, 1957, when
Tuazon wrote a letter (Exh. 10-Bank informing the Bank that he was no longer interested to
continue the deal, referring to the lease of sugar quota allotment in favor of defendant Rita Gueco
Tapnio. The result is that the latter lost the sum of P2,800.00 which she should have received from
Tuazon and which she could have paid the Bank to cancel off her indebtedness.
Thus, Rita Gueco Tapnio filed her third-party complaint against the Bank to recover from the latter
any and all sums of money which may be adjudged against her and in favor of the plaitiff plus
moral damages, attorney's fees and costs.
ISSUE:
1. Whether or not Tapnio is correct
2. Whether or not petitioner is liable for the damage caused.
HELD: Yes. In this type of transaction, time is of the essence considering that Tapnio’s sugar
quota for said year needs to be utilized ASAP otherwise her allotment may be assigned to
someone else, and if she can’t use it, she won’t be able to export her crops. It is unreasonable for
PNB’s board of directors to disallow the agreement between Tapnio and Tuazon because of the
mere difference of 0.20 in the agreed price rate. What makes it more unreasonable is the fact that
the P2.80 was recommended both by the bank manager and PNB’s VP yet it was disapproved by
the board. Further, the P2.80 per picul rate is the minimum allowable rate pursuant to prevailing
market trends that time. This unreasonable stand reflects PNB’s lack of the reasonable degree of
care and vigilance in attending to the matter. PNB is therefore negligent.
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While petitioner had the ultimate authority of approving or disapproving the proposed lease
since the quota was mortgaged to the Bank, the latter certainly cannot escape its
responsibility of observing, for the protection of the interest of private respondents, that
degree of care, precaution and vigilance which the circumstances justly demand in
approving or disapproving the lease of said sugar quota. The law makes it imperative that
every person "must in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith.”This petitioner
failed to do. Certainly, it knew that the agricultural year was about to expire, that by its disapproval
of the lease private respondents would be unable to utilize the sugar quota in question. In failing to
observe the reasonable degree of care and vigilance which the surrounding circumstances
reasonably impose, petitioner is consequently liable for the damages caused on private
respondents. Under Article 21 of the New Civil Code, "any person who wilfully causes loss or injury
to another in a manner that is contrary to morals, good customs or public policy shall compensate
the latter for the damage." The afore-cited provisions on human relations were intended to expand
the concept of torts in this jurisdiction by granting adequate legal remedy for the untold number of
moral wrongs which is impossible for human foresight to specifically provide in the statutes.
A corporation is civilly liable in the same manner as natural persons for torts, because
“generally speaking, the rules governing the liability of a principal or master for a tort
committed by an agent or servant are the same whether the principal or master be a natural
person or a corporation, and whether the servant or agent be a natural or artificial person.
All of the authorities agree that a principal or master is liable for every tort which it
expressly directs or authorizes, and this is just as true of a corporation as of a natural
person, a corporation is liable, therefore, whenever a tortious act is committed by an officer
or agent under express direction or authority from the stockholders or members acting as a
body, or, generally, from the directors as the governing body.”
Secosa v. Heirs of Francisco 433 SCRA 273 (2004)
Facts: Francisco, an 18 year old 3rd year physical therapy student was riding a motorcycle. A sand
and gravel truck was traveling behind the motorcycle, which in turn was being tailed by the Isuzu
truck driven by Secosa. The Isuzu cargo truck was owned by Dassad Warehousing and Port
Services, Inc.. The three vehicles were traversing the southbound lane at a fairly high speed. When
Secosa overtook the sand and gravel truck, he bumped the motorcycle causing Francisco to fall.
The rear wheels of the Isuzu truck then ran over Francisco, which resulted in his instantaneous
death. Secosa left his truck and fled the scene of the collision.
The parents of Francisco, respondents herein, filed an action for damages against Secosa, Dassad
Warehousing and Port Services, Inc. and Dassad’s president, El Buenasucenso Sy.
The court a quo rendered a decision in favor of herein respondents; thus petitioners appealed the
decision to the Court of Appeals, which unfortunately affirmed the appealed decision in toto.
Hence, the present petition.
Issues: W/N THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE
DECISION OF THE TRIAL COURT IN HOLDING PETITIONER EL BUENASENSO SY
SOLIDARILY LIABLE WITH PETITIONERS DASSAD AND SECOSA IN VIOLATION OF THE
CORPORATION LAW AND RELATED JURISPRUDENCE ON THE MATTER.
Held:
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It is a settled precept in this jurisdiction that a corporation is invested by law with a personality
separate from that of its stockholders or members. It has a personality separate and distinct from
those of the persons composing it as well as from that of any other entity to which it may be
related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not in itself sufficient ground for disregarding the separate
corporate personality. A corporation’s authority to act and its liability for its actions are separate
and apart from the individuals who own it.
The so-called veil of corporation fiction treats as separate and distinct the affairs of a corporation
and its officers and stockholders. As a general rule, a corporation will be looked upon as a legal
entity, unless and until sufficient reason to the contrary appears. When the notion of legal entity is
used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard
the corporation as an association of persons. Also, the corporate entity may be disregarded in the
interest of justice in such cases as fraud that may work inequities among members of the
corporation internally, involving no rights of the public or third persons. In both instances, there
must have been fraud and proof of it. For the separate juridical personality of a corporation to be
disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed.
The records of this case are bereft of any evidence tending to show the presence of any grounds
enumerated above that will justify the piercing of the veil of corporate fiction such as to hold the
president of Dassad Warehousing and Port Services, Inc. solidarily liable with it.
The Isuzu cargo truck which ran over Erwin Francisco was registered in the name of Dassad
Warehousing and Port Services, Inc., and not in the name of El Buenasenso Sy. Raymundo
Secosa is an employee of Dassad Warehousing and Port Services, Inc. and not of El Buenasenso
Sy. All these things, when taken collectively, point toward El Buenasenso Sy’s exclusion from
liability for damages arising from the death of Erwin Francisco.
WHEREFORE, the petition is DENIED. The assailed decision is AFFIRMED with the
MODIFICATION that petitioner El Buenasenso Sy is ABSOLVED from any liability adjudged
against his co-petitioners in this case.
Costs against petitioners.
 SO ORDERED.
 Davide, Jr., C .J ., Panganiban, Carpio and Azcuna,
JJ ., concur.
Prof. Services, Inc. v. CA 611 SCRA 282 (2010) ***The Doctrine in this case is only applicable in
this case
FACTS: Natividad Agana was rushed to the Medical City General Hospital (Medical City Hospital)
because of difficulty of bowel movement and bloody anal discharge. Dr. Miguel Ampil diagnosed
her to be suffering from "cancer of the sigmoid."
Dr. Ampil performed an anterior resection surgery on Natividad. He found that the malignancy in
her sigmoid area had spread on her left ovary, necessitating the removal of certain portions of it.
Thus, Dr. Ampil obtained the consent of Natividad’s husband, Enrique Agana, to permit Dr. Juan
Fuentes, to perform hysterectomy on her.
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After Dr. Fuentes had completed the hysterectomy, Dr. Ampil took over, completed the operation
and closed the incision. However, the operation appeared to be flawed. In the record, the attending
nurses entered these remarks: "sponge count lacking 2” and "announced to surgeon searched (sic)
done but to no avail continue for closure."
After a couple of days, Natividad complained of excruciating pain in her anal region. She consulted
both Dr. Ampil and Dr. Fuentes about it. They told her that the pain was the natural consequence
of the surgery. Natividad, accompanied by her husband, went to the United States to seek further
treatment. After four months of consultations and laboratory examinations, Natividad was told she
was free of cancer.
Natividad flew back to the Philippines, still suffering from pains. Two weeks thereafter, her
daughter found a piece of gauze protruding from her vagina. Upon being informed about it, Dr.
Ampil proceeded to her house where he managed to extract by hand a piece of gauze measuring
1.5 inches in width. He then assured her that the pains would soon vanish.
Dr. Ampil’s assurance did not come true. Instead, the pains intensified, prompting Natividad to
seek treatment at the Polymedic General Hospital. While confined there, Dr. Ramon Gutierrez
detected the presence of another foreign object in her vagina -- a foul-smelling gauze measuring
1.5 inches in width which badly infected her vaginal vault. A recto-vaginal fistula had formed in her
reproductive organs which forced stool to excrete through the vagina. Another surgical operation
was needed to remedy the damage.
Natividad and her husband filed with the RTC, Branch 96, Quezon City a complaint for damages
against the Professional Services, Inc. (PSI), owner of the Medical City Hospital, Dr. Ampil, and Dr.
Fuentes.
RTC: found PSI, Dr. Ampil and Dr. Fuentes liable for negligence and malpractice;
CA: the case against Dr. Juan Fuentes is hereby DISMISSED; PSI and Dr. Ampil still liable
PSI alleged in its petition that the Court of Appeals erred in holding that: (1) it is estopped from
raising the defense that Dr. Ampil is not its employee; (2) it is solidarily liable with Dr. Ampil; and (3)
it is not entitled to its counterclaim against the Aganas. PSI contends that Dr. Ampil is not its
employee, but a mere consultant or independent contractor. As such, he alone should answer for
his negligence.
ISSUE: WoN PSI should be held liable for the negligence of Dr. Ampil
HELD: YES!
In Ramos v. Court of Appeals, for purposes of apportioning responsibility in medical negligence
cases, an employer-employee relationship in effect exists between hospitals and their attending
and visiting physicians.
But the Ramos pronouncement is not our only basis in sustaining PSI’s liability. Its liability is also
anchored upon the agency principle of apparent authority or agency by estoppel and the doctrine
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of corporate negligence which have gained acceptance in the determination of a hospital’s liability
for negligent acts of health professionals.
Apparent authority, or what is sometimes referred to as the "holding out" theory, or doctrine of
ostensible agency or agency by estoppel,29 has its origin from the law of agency. It imposes
liability, not as the result of the reality of a contractual relationship, but rather because of the
actions of a principal or an employer in somehow misleading the public into believing that the
relationship or the authority exists.
"The principal is bound by the acts of his agent with the apparent authority which he knowingly
permits the agent to assume, or which he holds the agent out to the public as possessing. The
question in every case is whether the principal has by his voluntary act placed the agent in such a
situation that a person of ordinary prudence, conversant with business usages and the nature of
the particular business, is justified in presuming that such agent has authority to perform the
particular act in question.31
In this case, PSI publicly displays in the lobby of the Medical City Hospital the names and
specializations of the physicians associated or accredited by it, including those of Dr. Ampil and Dr.
Fuentes. We concur with the Court of Appeals’ conclusion that it "is now estopped from passing all
the blame to the physicians whose names it proudly paraded in the public directory leading the
public to believe that it vouched for their skill and competence." Indeed, PSI’s act is tantamount to
holding out to the public that Medical City Hospital, through its accredited physicians, offers quality
health care services. By accrediting Dr. Ampil and Dr. Fuentes and publicly advertising their
qualifications, the hospital created the impression that they were its agents, authorized to perform
medical or surgical services for its patients. As expected, these patients, Natividad being one of
them, accepted the services on the reasonable belief that such were being rendered by the
hospital or its employees, agents, or servants. The trial court correctly pointed out:
Doctrine of Ccorporate Negligence or Corporate Responsibility.
A hospital’s corporate negligence extends to permitting a physician known to be incompetent to
practice at the hospital. With the passage of time, more duties were expected from hospitals,
among them: (1) the use of reasonable care in the maintenance of safe and adequate facilities and
equipment; (2) the selection and retention of competent physicians; (3) the overseeing or
supervision of all persons who practice medicine within its walls; and (4) the formulation, adoption
and enforcement of adequate rules and policies that ensure quality care for its patients. Thus, in
Tucson Medical Center, Inc. v. Misevich, it was held that a hospital, following the doctrine of
corporate responsibility, has the duty to see that it meets the standards of responsibilities for the
care of patients. Such duty includes the proper supervision of the members of its medical staff.
In the present case, it was duly established that PSI operates the Medical City Hospital for the
purpose and under the concept of providing comprehensive medical services to the public.
Accordingly, it has the duty to exercise reasonable care to protect from harm all patients admitted
into its facility for medical treatment. Unfortunately, PSI failed to perform such duty.
PSI’s liability is traceable to its failure to conduct an investigation of the matter reported in the nota
bene of the count nurse. Such failure established PSI’s part in the dark conspiracy of silence and
concealment about the gauzes. Ethical considerations, if not also legal, dictated the holding of an
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immediate inquiry into the events, if not for the benefit of the patient to whom the duty is primarily
owed, then in the interest of arriving at the truth.
It was held that a corporation is bound by the knowledge acquired by or notice given to its agents
or officers within the scope of their authority and in reference to a matter to which their authority
extends. This means that the knowledge of any of the staff of Medical City Hospital constitutes
knowledge of PSI. Now, the failure of PSI, despite the attending nurses’ report, to investigate and
inform Natividad regarding the missing gauzes amounts to callous negligence. Not only did PSI
breach its duties to oversee or supervise all persons who practice medicine within its walls, it also
failed to take an active step in fixing the negligence committed. This renders PSI, not only
vicariously liable for the negligence of Dr. Ampil under Article 2180 of the Civil Code, but also
directly liable for its own negligence under Article 2176. In Fridena, the Supreme Court of Arizona
held:
The hospital had created a professional staff whose competence and performance was to be
monitored and reviewed by the governing body of the hospital, and the court held that a hospital
would be negligent where it had knowledge or reason to believe that a doctor using the facilities
was employing a method of treatment or care which fell below the recognized standard of care.
A a hospital has certain inherent responsibilities regarding the quality of medical care furnished to
patients within its walls and it must meet the standards of responsibility commensurate with this
undertaking. A hospital has the duty of supervising the competence of the doctors on its staff.
Anent the corollary issue of whether PSI is solidarily liable with Dr. Ampil for damages, let it be
emphasized that PSI, apart from a general denial of its responsibility, failed to adduce evidence
showing that it exercised the diligence of a good father of a family in the accreditation and
supervision of the latter. In neglecting to offer such proof, PSI failed to discharge its burden under
the last paragraph of Article 2180 cited earlier, and, therefore, must be adjudged solidarily liable
with Dr. Ampil. Moreover, as we have discussed, PSI is also directly liable to the Aganas.
Decision Affirmed.
Moral damages
- GENERAL RULE: A corporation is an artificial person and cannot experience physical
sufferings, mental anguish, fright serious anxiety, wounded feelings, moral shock or social
humiliation, there would be no basis to grant its recovery of moral damages
- EXCEPTION: a corporation may have a good reputation which, if besmirched, may also be a
ground for the award of moral damages (Claim under Article 2219 (7) of the Civil Code – which
authorizes the recovery of moral damages in cases of libel, slander or any other form of
defamation and does not qualify whether the plaintiff is a natural or juridical person.)
ABS-CBN Corp. V. CA (361 Phil. 499; 1999)
FACTS: ABS-CBN wanted to secure exclusive rights to 24 VIVA Films for TV Broadcast. VIVA
made a counter proposal, through its agent, Del Rosario, in the form of 3 film packages from which
ABS-CBN had a right of first refusal through their agreement. From these film packages, ABS-CBN
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selected 10 films from the film packages offered. Thereafter, Del Rosario offered ABS-CBN airing
rights over a package of 104 movies for 60 million. Sometime later, Mr. Lopez of ABS-CBN and Del
Rosario had a meeting to discuss the package proposal. In this meeting, ABS-CBN claims Del
Rosario and them had come to an agreement for the rights to air 14 films. Del Rosario, on the other
hand denies that an agreement had occurred, saying that what was discussed in the meeting was
the rights to air 60 films, to which ABS-CBN made a counter proposal, and was subsequently
denied by VIVA’s board of directors. VIVA then granted the rights to air the 104 viva films to
Republic Broadcasting Corporation. ABS-CBN moved to file a complaint for specific performance
to enforce what they thought had been agreed upon in their meeting with Del Rosario.
ISSUE: Whether or not Del Rosario had the authority to enter into an agreement with ABS-CBN
regarding the right to air motion pictures of VIVA Films.
HELD: No. As evinced by the submission by Del Rosario of the draft agreement sent by Mrs.
Concio, VP of ABS-CBN, for approval of the board of directors, he did not have the authority to
enter into an agreement with ABS-CBN. Del Rosario needs a specific authority emanating from the
board of directors, of which is not present. Corporate powers, such as the power to enter into
contracts, are exercised by the board of directors. However, the board may delegate such powers
to either an executive committee or officials or contracted managers. The delegation, except for the
executive committee, must be for specific purposes. For such officers to be deemed fully clothed
by the corporation to exercise a power of the board, the officer must be specially authorized to do
so.
ADDENDUM: MORAL DAMAGES
The award of moral damages cannot be granted in favor of a corporation because, being
an artificial person and having existence only in legal contemplation, it has no feelings, no
emotions, no senses, it cannot, therefore, experience physical suffering and mental anguish, which
can be experienced by one having a nervous system. Moral damages are in the category of an
award designed to compensate the claimant for actual injury suffered and not to impose a penalty
on the wrongdoer; designed to obviate the moral suffering he has undergone, the restoration within
the limits of the possible, of the spiritual status quo ante, and should be proportionate to the
suffering inflicted.
The possible basis of recovery of a corporation would be under Articles 19, 20, and 21 of
the civil code, but which requires a clear proof of malice or bad faith.
Jardine Davies v. CA (GR 128066; 6/19/2000)
DOCTRINE: Court has awarded in the past moral damages to a corporation whose reputation has
been besmirched
FACTS: In November 1992, a bidding for the supply and installation of generators at Purefoods
Corporation was held. In a letter dated December 12, 1992, Purefoods confirmed the award of the
contract to Far East Mills Supply Corporation (FEMSCO). Immediately, FEMSCO submitted the
required performance bond and contractor's all-risk insurance policy. Later, however, in a letter
dated December 22, 1992, Purefoods unilaterally canceled the award through Senior Vice
President Teodoro L. Dimayuga base on the reason that "significant factors were uncovered and
brought to (their) attention which dictate (the) cancellation and warrant a total review and re-bid of
(the) project.". The contract was subsequently entered into with Jardine Nell. FEMSCO sued both
Purefoods and Jardine: Purefoods for reneging on its contract, and Jardine, for its unwarranted
interference and inducement.
RTC: granted JARDINEs Demurrer to Evidence because it is unsupported by hard evidence, mere
suspicions and suppositions would not stand up very well in a court of law. The trial court rendered
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a decision ordering PUREFOODS to indemnify FEMSCO for the value of engineering services, to
pay for the contractor’s mark-up on installation, attorneys fees and to pay costs
CA: Both FEMSCO and PUREFOODS appealed to the Court of Appeals. The CA affirmed the
decision against PUREFOODS but reversed the trial courts decision against JARDINE. JARDINE
was ordered to pay FEMSCO for damages because the former induced PUREFOODS to violate
their contract against FEMSCO.
PUREFOODS maintains that the letter to FEMSCO was not an acceptance of the latter's bid
proposal and award of the project but more of a qualified acceptance constituting a counter-offer
which required FEMSCO's express conforme. PUREFOODS did not received FEMSCO’s
conforme thus allowing it to revoke since the contract was not perfected. JARDINE asserts that the
records are bereft of any showing that it had prior knowledge of the supposed contract between
PUREFOODS and FEMSCO.
ISSUE:
1. Whether or not there existed a perfected contract between PUREFOODS and FEMSCO
(contract existed)
2. Whether or not there is any showing that JARDINE induced or connived with
PUREFOODS to violate the latter's contract with FEMSCO. (yes)
3. Whether or not a corporation, an artificial person is entitled to moral damages (yes)
HELD:
1.) Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made
by the offeror. For a contract to arise, the acceptance must be made known to the offeror.
Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.
Since petitioner PUREFOODS started the process of entering into the contract by conducting a
bidding, Art. 1326 of the Civil Code, which provides that "[a]dvertisements for bidders are simply
invitations to make proposals," applies. Accordingly, the Terms and Conditions of the
Bidding disseminated by petitioner PUREFOODS constitutes the "advertisement" to bid on the
project. The bid proposals or quotations submitted by the prospective suppliers including
respondent FEMSCO, are the offers. And, the reply of petitioner PUREFOODS, the
acceptance or rejection of the respective offers.
The letter of petitioner PUREFOODS to FEMSCO constituted acceptance of respondent
FEMSCOs offer as contemplated by law. In fine, the enumerated "basic terms and conditions"
were prescriptions on how the obligation was to be performed and implemented. They were far
from being conditions imposed on the perfection of the contract.
But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS
constituted a "conditional counter-offer," respondent FEMCO's submission of the performance
bond and contractor's all-risk insurance was an implied acceptance, if not a clear indication of its
acquiescence to, the "conditional counter-offer," which expressly stated that the performance bond
and the contractor's all-risk insurance should be given upon the commencement of the contract.
The discussion of the price of the project two (2) months after the 12 December 1992 letter can be
deemed as nothing more than a pressure being exerted by petitioner PUREFOODS on respondent
FEMSCO to lower the price even after the contract had been perfected.
2.)While it may seem that petitioners PUREFOODS and JARDINE connived to deceive respondent
FEMSCO, we find no specific evidence on record to support such perception. Likewise, there is no
showing whatsoever that petitioner JARDINE induced petitioner PUREFOODS. The similarity in
the design submitted to petitioner PUREFOODS by both petitioner JARDINE and
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respondent FEMSCO, and the tender of a lower quotation by petitioner JARDINE are
insufficient to show that petitioner JARDINE indeed induced petitioner PUREFOODS to
violate its contract with respondent FEMSCO.
3.)This Court has awarded in the past moral damages to a corporation whose reputation has
been besmirched.[12] In the instant case, respondent FEMSCO has sufficiently shown that its
reputation was tarnished after it immediately ordered equipment from its suppliers on account of
the urgency of the project, only to be canceled later. We thus sustain respondent appellate court's
award of moral damages. We however reduce the award from P2,000,000.00 to P1,000,000.00, as
moral damages are never intended to enrich the recipient. Likewise, the award of exemplary
damages by way of example for the public good is excessive and should be reduced
to P100,000.00.
Crystal, et. al v. BPI (GR 172428, Nov. 2008)
Facts: On 28 March 1978, spouses Raymundo and Desamparados Crystal obtained a
P300,000.00 loan in behalf of the Cebu Contractors Consortium Co. (CCCC) from the BPI-Butuan.
The loan was secured by a chattel mortgage on heavy equipment and machinery of CCCC.
Thereafter, or on 29 March 1979, Raymundo Crystal executed a promissory note for the amount of
P300,000.00, also in favor of BPI- Butuan.
Sometime in August 1979, CCCC renewed a previous loan, this time from BPI, Cebu City branch.
The renewal was evidenced by a promissory note dated 13 August 1979, signed by the spouses in
their personal capacities and as managing partners of CCCC.
The promissory note states that the spouses are jointly and severally liable with CCCC. It appears
that before the original loan could be granted, BPI-Cebu City required CCCC to put up a security.
However, CCCC had no real property to offer as security for the loan; hence, the spouses
executed a real estate mortgage over their own real property on 22 September 1977.
On 3 October 1977, they executed another real estate mortgage over the same lot in favor of BPI-
Cebu City, to secure an additional loan of P20,000.00 of CCCC.
CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became due
despite demands.
Thus, BPI resorted to the foreclosure of the chattel mortgage and the real estate mortgage. The
foreclosure sale on the chattel mortgage was initially stalled with the issuance of a restraining order
against BPI.
However, following BPI’s compliance with the necessary requisites of extrajudicial foreclosure, the
foreclosure sale on the chattel mortgage was consummated on 28 February 1988, with the
proceeds amounting to P240,000.00 applied to the loan from BPI-Butuan which had then reached
P707,393.90.
Meanwhile, on 7 July 1981, Insular Bank of Asia and America (IBAA), through its Vice-President for
Legal and Corporate Affairs, offered to buy the lot subject of the two (2) real estate mortgages and
to pay directly the spouses’ indebtedness in exchange for the release of the mortgages. BPI
rejected IBAA’s offer to pay.
BPI filed a complaint for sum of money against CCCC and the spouses before the Regional Trial
Court of Butuan City, seeking to recover the deficiency of the loan of CCCC and the spouses with
BPI-Butuan.
The trial court ruled in favor of BPI. Pursuant to the decision, BPI instituted extrajudicial foreclosure
of the spouses’ mortgaged property.
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On 10 April 1985, the spouses filed an action for Injunction With Damages, With A Prayer For A
Restraining Order and/ or Writ of Preliminary Injunction. The spouses claimed that the foreclosure
of the real estate mortgages is illegal because BPI should have exhausted CCCC’s properties first,
stressing that they are mere guarantors of the renewed loans. They also prayed that they be
awarded moral and exemplary damages, attorney’s fees, litigation expenses and cost of suit.
The trial court dismissed the spouses’ complaint and ordered them to pay moral and exemplary
damages and attorney’s fees to BPI. It ruled that since the spouses agreed to bind themselves
jointly and severally, they are solidarily liable for the loans; hence, BPI can validly foreclose the two
real estate mortgages. Moreover, being guarantors-mortgagors, the spouses are not entitled to the
benefit of exhaustion
The spouses appealed the decision of the trial court to the Court of Appeals, but their appeal was
dismissed. The spouses moved for the reconsideration of the decision, but the Court of Appeals
also denied their motion for reconsideration.
Issue:
1) Whether or not the liability is extinguished;
2) Whether or not Spouses are solidarily liable with the corporation’s debt; and
3) Whether or not they are entitled to moral damages
Held:
The contention has no merit.
1. Petitioners rely on IBAA’s offer to purchase the mortgaged lot from them and to directly pay BPI
out of the proceeds thereof to settle the loan. BPI’s refusal to agree to such payment scheme
cannot extinguish the spouses’ loan obligation. In the first place, IBAA is not privy to the loan
agreement or the promissory note between the spouses and BPI. Contracts, after all, take effect
only between the parties, their successors in interest, heirs and assigns.
Besides, under Art. 1236 of the Civil Code, the creditor is not bound to accept payment or
performance by a third person who has no interest in the fulfillment of the obligation, unless there is
a stipulation to the contrary. We see no stipulation in the promissory note which states that a third
person may fulfill the spouses’ obligation. Thus, it is clear that the spouses alone bear
responsibility for the same.
2. A solidary obligation is one in which each of the debtors is liable for the entire obligation, and
each of the creditors is entitled to demand the satisfaction of the whole obligation from any or all of
the debtors. A liability is solidary "only when the obligation expressly so states, when the law so
provides or when the nature of the obligation so requires."
Thus, when the obligor undertakes to be "jointly and severally" liable, it means that the obligation is
solidary, such as in this case. By stating "I/we promise to pay, jointly and severally, to the BANK
OF THE PHILIPPINE ISLANDS," the spouses agreed to be sought out and be demanded payment
from, by BPI.
BPI did demand payment from them, but they failed to comply with their obligation, prompting BPI’s
valid resort to the foreclosure of the chattel mortgage and the real estate mortgages.
Thus we held in one case that if solidary liability was instituted to "guarantee" a principal obligation,
the law deems the contract to be one of suretyship.26 And while a contract of a surety is in
essence
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secondary only to a valid principal obligation, the surety’s liability to the creditor or promisee of the
principal is said to be direct, primary, and absolute; in other words, the surety is directly and equally
bound with the principal.
3. Moral damages are meant to compensate the claimant for any physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation and similar injuries unjustly caused.
Such damages, to be recoverable, must be the proximate result of a wrongful act or omission the
factual basis for which is satisfactorily established by the aggrieved party. There being no wrongful
or unjust act on the part of BPI in demanding payment from them and in seeking the foreclosure of
the chattel and real estate mortgages, there is no lawful basis for award of damages in favor of the
spouses.
Neither is BPI entitled to moral damages. A juridical person is generally not entitled to moral
damages because, unlike a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish or moral shock
Indeed, while the Court may allow the grant of moral damages to corporations, it is not
automatically granted; there must still be proof of the existence of the factual basis of the damage
and its causal relation to the defendant’s acts. This is so because moral damages, though
incapable of pecuniary estimation, are in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty on the wrongdoer.
The spouses’ complaint against BPI proved to be unfounded, but it does not automatically entitle
BPI to moral damages. Although the institution of a clearly unfounded civil suit can at times be a
legal justification for an award of attorney's fees, such filing, however, has almost invariably been
held not to be a ground for an award of moral damages.
The rationale for the rule is that the law could not have meant to impose a penalty on the right to
litigate. Otherwise, moral damages must every time be awarded in favor of the prevailing defendant
against an unsuccessful plaintiff. BPI may have been inconvenienced by the suit, but we do not
see how it could have possibly suffered besmirched reputation on account of the single suit alone.
Hence, the award of moral damages should be deleted.
The awards of exemplary damages and attorney’s fees, however, are proper. Exemplary damages,
on the other hand, are imposed by way of example or correction for the public good, when the
party to a contract acts in a wanton, fraudulent, oppressive or malevolent manner, while attorney’s
fees are allowed when exemplary damages are awarded and when the party to a suit is compelled
to incur expenses to protect his interest.
The spouses instituted their complaint against BPI notwithstanding the fact that they were the ones
who failed to pay their obligations. Consequently, BPI was forced to litigate and defend its interest.
For these reasons, BPI is entitled to the awards of exemplary damages and attorney’s fees
ISSUE: Whether or not BPI is entitled to moral damages
Neither is BPI entitled to moral damages. A juridical person is generally not entitled to moral
damages because, unlike a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.
In holding that BPI is entitled to moral damages, however, the Court of Appeals relied on the case
of Mambulao Lumber Co. v. PNB, et al, and on the case of People v. Manero, wherein the Court
ruled that "It is only when a juridical person has a good reputation that is debased, resulting in
social humiliation, that moral damages may be awarded.”.
However, this is not a hard and fast rule.
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Indeed, while the Court may allow the grant of moral damages to corporations, it is not
automatically granted; there must still be proof of the existence of the factual basis of the damage
and its causal relation to the defendant’s acts. This is so because moral damages, though
incapable of pecuniary estimation, are in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty on the wrongdoer.
The awards of exemplary damages and attorney’s fees, however, are proper. The spouses
instituted their complaint against BPI notwithstanding the fact that they were the ones who failed to
pay their obligations. Consequently, BPI was forced to litigate and defend its interest. For these
reasons, BPI is entitled to the awards of exemplary damages and attorney’s fees.
Mambulao Lumber v. PNB; 130 Phil. 366 (1968)
MAMBULAO LUMBER CO. VS. PNB
22 SCRA 359
An artificial person like herein appellant corporation cannot experience physical sufferings, mental
anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are
basis or moral damages.
A Corporation may have a good reputation if besmirched, may also be a ground for the award of
moral damages.
NB: Regarded only as an obiter dicta *
FACTS:
On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 (approved for a loan of
P100,000 only) with the Naga Branch of defendant PNB. To secure payment, the plaintiff
mortgaged aparcel of land, together with the buildings and improvements existing thereon, situated
in the poblacion of Jose Panganiban (formerly Mambulao), province of Camarines Norte. The PNB
released from the approvedloan the sum of P27,500, and another release of P15,500.The plaintiff
failed to pay the amortization on the amounts released to and received by it. It was found that the
plaintiff had already stopped operation about the end of 1957 or early part of 1958.The unpaid
obligation of the plaintiff as of September 22, 1961, amounted to P57,646.59, excludingattorney's
fees. A foreclosure sale of the parcel of land, together with the buildings and improvementsthereon
was, held on November 21, 1961, and the said property was sold to the PNB for the sum of
P56,908.00, subject to the right of the plaintiff to redeem the same within a period of one year.The
plaintiff sent a letter reiterating its request that the foreclosure sale of the mortgaged chattels
bediscontinued on the grounds that the mortgaged indebtedness had been fully paid and that it
could not belegally effected at a place other than the City of Manila.The trial court sentenced the
Mambulao Lumber Company to pay to the defendant PNB the sum of P3,582.52 with interest
thereon at the rate of 6% per annum. The plaintiff on appeal advanced that its totalindebtedness to
the PNB as of November 21, 1961, was only P56,485.87 and not P58,213.51 as concludedby the
court a quo; hence, the proceeds of the foreclosure sale of its real property alone in the amount of
P56,908.00 on that date, added to the sum of P738.59 it remitted to the PNB thereafter was more
thansufficient to liquidate its obligation, thereby rendering the subsequent foreclosure sale of its
chattelsunlawful;That for the acts of the PNB in proceeding with the sale of the chattels, in utter
disregard of plaintiff'svigorous opposition thereto, and in taking possession thereof after the sale
thru force, intimidation,coercion, and by detaining its "man-in-charge" of said properties,
the PNB is liable to plaintiff fordamages and attorney's fees.
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ISSUE:Whether or not PNB may be held liable to plaintiff Corporation for damages and attorney’s
fees.
HELD: Herein appellant's claim for moral damages, seems to have no legal or factual basis.
Obviously, anartificial person like herein appellant corporation cannot experience physical
sufferings, mentalanguish, fright, serious anxiety, wounded feelings, moral shock or social
humiliation which arebasis of moral damages. A corporation may have a good reputation which, if
besmirched, may also be aground for the award of moral damages. The same cannot be
considered under the facts of this case,however, not only because it is admitted that herein
appellant had already ceased in its business operationat the time of the foreclosure sale of the
chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the
chattels could have upon its reputation or business standing would undoubtedlybe the same
whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is
theplace agreed upon by the parties in the mortgage contract
Pp. v. Manero, Jr.; GR 86883-85, (1993)
FACTS: A hapless foreign religious minister was riddled with bullets, his head shattered into bits
and pieces amidst the revelling of his executioners as they danced and laughed around their
quarry, chanting the tune "Mutya Ka Baleleng", a popular regional folk song, kicking and scoffing
at his prostrate, miserable, spiritless figure that was gasping its last. Fr. Tulio Favali 1 was
senselessly killed for no apparent reason than that he was one of the Italian Catholic missionaries
laboring in heir vineyard in the hinterlands of Mindanao. 2
Informations for Murder, 3 Attempted Murder 4 and Arson 5 were accordingly filed ; they were all
consolidated in Branch 17 of the Regional Trial Court of Kidapawan, Cotabato After trial, the court
a quo held them guilty, hereby sentences each of them to a penalty of imprisonment of reclusion
perpetua; to pay the Pontifical Institute of Foreign Mission (PIME) Brothers, the congregation to
which Father Tulio Favali belonged, a civil indemnity of P12,000.00; attorney's fees of
P400,000.00; court appearance fee of P10,000.00 for every day the case was set for trial; moral
damages in the sum of P100,000.00.
Further, the Court finds the accused Norberto Manero, Jr. alias Commander Bucay GUILTY of
Arson..
Finally, the Court finds the accused Norberto Manero, Edil, Elpidio Manero, Severino Lines, Rudy
Lines, Rudy, Efren Pleñago and Roger Bedaño of Attempted Murder…
Only accused Severino Lines, Rudy Lines, Efren Pleñago and Roger Bedaño appealed with
respect to the cases for Murder and Attempted Murder.
On their defense of alibi, accused brothers Severino and Rudy Lines claim that they were
harvesting palay the whole some one kilometer away from the crime scene. Accused Roger
Bedaño alleges that he was on an errand for the church to buy lumber and nipa in M'lang,
Cotabato, taking along his wife and sick child for medical treatment and arrived in La Esperanza,
Tulunan, past noontime.
It is axiomatic that the accused interposing the defense of alibi must not only be at some other
place but that it must also be physically impossible for him to be at the scene of the crime at the
time of its commission. 14
In the case before Us, two (2) eyewitnesses, Reynaldo Deocades and Manuel Bantolo, testified
that they were both inside the eatery at about 10:00 o'clock in the morning of 11 April 1985 when
the Manero brothers, together with appellants, first discussed their plan to kill some communist
sympathizers. Indeed, in the face of such positive declarations that appellants were at the locus
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criminis from 10:00 o'clock in the morning up to about 5:00 o'clock in the afternoon, the alibi of
appellants that they were somewhere else, which is negative in nature, cannot prevail. 21
The findings of the court a quo unmistakably show that there was indeed a community of design
as evidenced by the concerted acts of all the accused. Thus —
The other six accused, 25 all armed with high powered firearms, were positively identified with
Norberto Manero, Jr. and Edilberto Manero in the carinderia of Reynaldo Deocades in La
Esperanza, Tulunan, Cotabato at 10:00 o'clock in the morning of 11 April 1985 morning . . . they
were outside of the carinderia by the window near the table where Edilberto Manero, Norberto
Manero, Jr., Jun Villamor, Elpidio Manero and unidentified members of the airborne from
Cotabato were grouped together. Later that morning, they all went to the cockhouse nearby to
finish their plan and drink tuba. They were seen again with Edilberto Manero and Norberto
Manero, Jr., at 4:00 o'clock in the afternoon of that day near the house of Rufino Robles (Bantil)
when Edilberto Manero shot Robles. They surrounded the house of Domingo Gomez where
Robles fled and hid, but later left when Edilberto Manero told them to leave as Robles would die
of hemorrhage. They followed Fr. Favali to Domingo Gomez' house, witnessed and enjoyed the
burning of the motorcycle of Fr. Favali and later stood guard with their firearms ready on the road
when Edilberto Manero shot to death Fr. Favali. Finally, they joined Norberto Manero, Jr. and
Edilberto Manero in their enjoyment and merriment on the death of the priest. 26
ISSUE: WON moral damages may be awarded to the congregation to which the victim, Father
Tulio Favali was a member.
HELD: The award of moral damages in the amount of P100,000.00 to the congregation, the
Pontifical Institute of Foreign Mission (PIME) Brothers, is not proper. There is nothing on record
which indicates that the deceased effectively severed his civil relations with his family, or that he
disinherited any member thereof, when he joined his religious congregation. As a matter of fact,
Fr. Peter Geremias of the same congregation, who was then a parish priest of Kidapawan,
testified that "the religious family belongs to the natural family of origin." 31 Besides, as We already
held, 32 a juridical person is not entitled to moral damages because, not being a natural person, it
cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety,
mental anguish or moral shock. It is only when a juridical person has a good reputation that is
debased, resulting in social humiliation, that moral damages may be awarded.
Neither can We award moral damages to the heirs of the deceased who may otherwise be
lawfully entitled thereto pursuant to par. (3), Art. 2206, of the Civil Code, 33 for the reason that the
heirs never presented any evidence showing that they suffered mental anguish; much less did
they take the witness stand. It has been held 34 that moral damages and their causal relation to
the defendant's acts should be satisfactorily proved by the claimant. It is elementary that in order
that moral damages may be awarded there must be proof of moral suffering. 35 However,
considering that the brutal slaying of Fr. Tulio Favali was attended with abuse of superior
strength, cruelty and ignominy by deliberately and inhumanly augmenting the pain and anguish of
the victim, outraging or scoffing at his person or corpse, exemplary damages may be awarded to
the lawful heirs, 36 even though not proved nor expressly pleaded in the complaint, 37 and the
amount of P100,000.00 is considered reasonable.
WHEREFORE, the judgment appealed from being in accord with law and the evidence is
AFFIRMED with the modification that the civil indemnity which is increased from P12,000.00 to
P50,000.00 is awarded to the lawful heirs of the deceased plus exemplary damages of
P100,000.00; however, the award of moral damages is deleted.
SO ORDERED.
Filipinas Broadcasting Network v. AMEC-BCCM (GR 141994, Jan. 17, 2005)
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FACTS: Carmelo Rima and Hermogenes Alegre are hosts of “Expos,” a radio documentary and are authorized to distribute to the (barangay, municipality, cities, provinces)
program that aired on DZRC-AM, owned by FBNI. In two occasions, the hosts exposed various holders of such shares dividends or - Mini State – holds the 3 powers of the
alleged complaints from students, teachers, and parents against AMEC and its administrators on allotments of the surplus profit on the government (police power, eminent domain
the radio show. AMEC and Angelito Ago, the Dean of AMEC’s College of Medicine, claimed that basis of the shares held and taxation)
the broadcasts were libelous. As a result, they filed a complaint for damages against FBNI, Rima, 2. Non-stock corporations - 2 fold character
and Alegre. - Classified into 1. Public or governmental character – acts
1. Business corporation/ profit seeking as an agent of the state
FBNI was included as defendant for allegedly failing to exercise due diligence in the selection and corporation 2. Private or corporate or proprietary
supervision of its employees. As a defense, the defendants claimed that they were only fulfilling a 2. Religious corporation character – acts as a private or
public duty to report issues in AMEC, which is an institution imbued with public interest. In addition, 3. Eleemosynary corporations – organized business corporation and stands for the
FBNI filed a separate answer arguing that it exercised due diligence in the selection and for charitable, scientific or vocational community in the administration of its
supervision of Rima and Alegre by citing its process in hiring broadcasters. corporations local affairs wholly beyond the sphere
The trial court found FBNI and Alegre liable for libel. The court ruled that FBNI failed to exercise of public purposes for which its
diligence in the selection and supervision of its employees. Rima was absolved because his governmental powers are conferred
participation was agreeing with Alegre’s expos and was ruled to be within the bounds of freedom of - Created under a general incorporation law - Created by its charter
speech. - Has a juridical entity, but it exists primarily for
the government of a portion of the state –
On appeal, the CA upheld the ruling with modifications. The CA held Rima solidarily liable with exercising state powers
FBNI and Alegre for payment of moral damages to AMEC. Hence, FBNI filed this petition and
raised that AMEC is not entitled to moral damages because it is a corporation.
GOCCs (define and give examples)
ISSUE: Whether or not AMEC is entitled to moral damages.
GOCCs (define and give examples)
HELD: Yes. A juridical person is generally not entitled to moral damages because, unlike a natural - A Government-owned and controlled corporation (GOCC), sometimes with an
person, it cannot experience physical suffering or such sentiments as wounded feelings, serious "and/or",[1] is a term in the Philippines used to describe government-owned corporations
anxiety, mental anguish or moral shock. AMECs claim for moral damages falls under item 7 of that conduct both commercial and non-commercial activity. Examples of the latter would
Article 2219 of the Civil Code. This provision expressly authorizes the recovery of moral damages be the Government Service Insurance System, a social security system for government
in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether employees. There are over 200 GOCCs. GOCCs both receive subsidies and pay
the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can dividends to the national government.
validly complain for libel or any other form of defamation and claim for moral damages. - Government owned or controlled corporations may be
Moreover, where the broadcast is libelous per se, the law implies damages. In such a case, 1. With original charter or created by special law
evidence of an honest mistake or the want of character or reputation of the party libeled goes only 2. Incorporated under the general law (the corporation code)
in mitigation of damages. Neither in such a case is the plaintiff required to introduce evidence of - Paragraph 13 Section 2 of the Administrative Code of 1987 : "Government-owned or
actual damages as a condition precedent to the recovery of some damages. In this case, the controlled corporation" refers to any agency organized as a stock or non-stock
broadcasts are libelous per se. Thus, AMEC is entitled to moral damages. corporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its
B. Created by Operation of Law – Art. XII, Sec. 16, Constitution instrumentalities either wholly, or, where applicable as in the case of stock corporations,
to the extent of at least fifty-one (51) per cent of its capital stock: Provided, That
ARTICLE XII NATIONAL ECONOMY AND PATRIMONY government-owned or controlled corporations may be further categorized by the
Section 16. The Congress shall not, except by general law, provide for the formation, Department of the Budget, the Civil Service Commission, and the Commission on Audit
organization, or regulation of private corporations. Government-owned or controlled corporations for purposes of the exercise and discharge of their respective powers, functions and
may be created or established by special charters in the interest of the common good and subject responsibilities with respect to such corporations.
to the test of economic viability. - Government-owned or controlled corporations are regarded as private corporations
- EXAMPLES:
Private corporations (distinguish from public corporations).  Al-Amanah Islamic Investment Bank of the Philippines
 Aurora Pacific Economic Zone and Freeport Authority
PRIVATE CORPORATION PUBLIC CORPORATION  Authority of the Freeport Area of Bataan
- Those formed for some private purpose, - Those formed or organized for the  Bangko Sentral ng Pilipinas
benefit, aim or end. They may be stock or government of a portion of the state for the  Bases Conversion Development Authority
non- stock corporation purpose of serving general good and welfare  Cagayan Economic Zone Authority
- Divided into: - Created for political purposes connected with  Center for International Trade Expositions and Missions
1. Stock corporations – are those who the public good in the administration of the  Central Bank-Board of Liquidators
have capital stock divided into shares civil government – municipal corporation  Cottage Industry Technology Center
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 Credit Information Corporation  Social Security System
 Cultural Center of the Philippines  Southern Philippines Development Authority
 Development Academy of the Philippines  Subic Bay Metropolitan Authority
 Development Bank of the Philippines  Sugar Regulatory Administration
 Duty Free Philippines Corporation  Technology Resource Center
 Employees’ Compensation Commission  Tourism Infrastructure and Enterprise Zone Authority
 Government Service Insurance System  Tourism Promotions Board
 Home Development Mutual Fund  Philippine Export-Import Credit Agency
 Home Guaranty Corporation  Zamboanga City Special Economic Zone Authority & Freeport
 Human Settlements Development Corporations
 Land Bank of the Philippines
Others – government instrumentalities (VILLANUEVA BOOK)
 Local Water Utilities Administration
 Lung Center of the Philippines CLASSIFICATION AS TO LEGAL STATUS
 Metropolitan Waterworks and Sewerage System De jure Corporation A corporation organized in accordance with
 National Dairy Authority requirements of law
 National Development Company
 National Electrification Administration if there is a full or substantial compliance with
 National Food Authority the requirements of an existing law permitting
 National Home Mortgage Finance Corporation organization of such corporation as by proper
 National Housing Authority articles of incorporation duly executed and filed
 National Irrigation Administration – juridical personality is not subject to attack in
 National Kidney and Transplant Institute the courts from any source (corporation existing
 National Livelihood Development Corporation in fact and in law)
 National Power Corporation De facto Corporation A corporation that is formed where there exists
 National Tobacco Administration a flaw in its incorporation but there is colorable
compliance with the requirements of law
 National Transmission Corporation
 Natural Resources Development Corporation
A corporation that is formed where there exists
 Nayong Pilipino Foundation, Inc. a flaw in its incorporation but there is colorable
 Partido Development Administration compliance with the requirements of law. Sec
 People’s Credit and Finance Corporation 20 of the corporation code
 Philippine Amusement and Gaming Corporation Corporation by Estoppel A group of persons which holds itself out as a
 Philippine Center for Economic Development corporation and enters into a contract with a
 Philippine Charity Sweepstakes Office third person on the strength of such
 Philippine Children’s Medical Center appearance cannot be permitted to deny its
 Philippine Coconut Authority existence in an action under said contract.
 Philippine Crop Insurance Corporation Corporation by Prescription A corporation that was not formally organized
 Philippine Economic Zone Authority as such but has been duly recognized by
 Philippine Fisheries Development Authority immemorial usage as a corporation, with rights
 Philippine Heart Center and duties enforceable under the law.
 Philippine International Trading Corporation Roman catholic church is a corporation by
 Philippine National Oil Company prescription, with acknowledged juridical
 Philippine Postal Corporation personality in as much as it is an institution
 Philippine Retirement Authority which antedated by almost a 1000 years.
 Philippine Rice Research Institute
 Philippine Sugar Corporation CLASSIFICATION AS TO EXISTENCE OF STOCKS
 Philippine Veterans Investment Development Corporation (Phividec) Industrial Stock Corporation A corporation with capital stock divided into
Authority shares and is authorized to distribute to holders
thereof such shares dividends or allotments of
 Power Sector Assets and Liabilities Management Corporation
the surplus profits on the basis of the shares
 Quedan & Rural Credit Guarantee Corporation
held
 Small Business Corporation
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OUTLINE 1 - BUSINESS ORGANIZATION 2 Prof. M.I.P. Romero (2015 - 2016)
Non-Stock Corporation
CLASSIFICATION AS TO LAWS OF INCORPORATION
Domestic Corporation
Foreign Corporation
SPECIAL TYPES OF CORPORATIONS UNDER THE CORPORATION CODE
Close Corporation
Special Corporation
ECCLESIASTICAL AND LAY CORPORATIONS
Ecclesiastical Corporation
Lay Corporation
ELEEMONSYNARY AND CIVIL CORPORATION
Eleemosynary or Charitable Corporation A corporation created not for private gain or for
Civil Corporation
A corporation that does not issue stocks and
does not distribute dividends to their members
A corporation formed, organized or existing
under Philippine laws
A corporation formed, organized or existing
under any laws other than those of the
Philippines and whose laws allow Filipino
citizens and corporations to do business in its
own country or state
A corporation whose articles of incorporations
provide that:
a. All the corporation’s issued stock of
all classes, exclusive of treasury
shares, shall be held of record by not
more than a specified number of
persons, not exceeding 20
b. All the issued stock of all classes
shall be subject to one or more
specified restrictions on transfer
permitted by Title XII of the
corporation code
c. The corporation shall not list in any
stock exchange or make any public
offering of any of its stock of ay class
A type corporation that includes an educational
corporation and a religious corporation.
Religious corporations include corporation sole
and religious societies
Corporations composing entirely of spiritual
persons like bishops, deacons and the like and
are established for the furtherance of religion
and for perpetuating the rights of a church
All corporations other the ecclesiastical are lay
corporations
profit but for charitable purposes for the
administration of charitable trust. This
corporation is not an ecclesiastical corporation
but a lay corporation
A corporation not for the purpose of charity but
for the benefit, pecuniary or otherwise, of its
members.
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CLASSIFICATION AS TO RELATIONSHIP
Subsidiary A corporation more than 50% of the voting
stock of which is owned or controlled directly or
indirectly through one or more intermediaries by
another corporation, which thereby become a
parent company
Affiliate A corporation that directly or indirectly, through
one or more intermediaries, is controlled by, or
is under the control of another corporation,
which thereby becomes it parent company
Parent Corporation A corporation that ahs control over another
corporation directly or indirectly through one or
more intermediaries. It is the corporation that
owns all or substantially all or the controlling
shares in the subsidiary.
Mla. Int’l Airport v. CA G.R. 155650; 7/20/2006
Facts:
 As operator of the international airport, MIAA administers the land, improvements and
equipment within the NAIA Complex. The MIAA Charter transferred to MIAA
approximately 600 hectares of land,3 including the runways and buildings ("Airport Lands
and Buildings") then under the Bureau of Air Transportation. 4 The MIAA Charter further
provides that no portion of the land transferred to MIAA shall be disposed of through sale
or any other mode unless specifically approved by the President of the Philippines.
 The OGCC opined that the Local Government Code of 1991 withdrew the exemption
from real estate tax granted to MIAA under Section 21 of the MIAA Charter.
 On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the
City of Parañaque for the taxable years 1992 to 2001. On 17 July 2001, the City of
Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on the
Airport Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at
public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax
delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.
 The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt
from real estate tax.
 On 1 October 2001, MIAA filed with the Court of Appeals an original petition for
prohibition and injunction, with prayer for preliminary injunction or temporary restraining
order.
 On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it
beyond the 60-day reglementary period.
 Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the
Barangay Halls of Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City; in the
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OUTLINE 1 - BUSINESS ORGANIZATION 2 Prof. M.I.P. Romero (2015 - 2016)
public market of Barangay La Huerta; and in the main lobby of the Parañaque City
Hall. The notices announced the public auction sale of the Airport Lands and Buildings to
the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall
Building of Parañaque City.
 On 7 February 2003, this Court issued a temporary restraining order (TRO) effective
immediately. The Court ordered respondents to cease and desist from selling at public
auction the Airport Lands and Buildings. Respondents received the TRO on the same
day that the Court issued it. However, respondents received the TRO only at 1:25
p.m. or three hours after the conclusion of the public auction.
 MIAA admits that the MIAA Charter has placed the title to the Airport Lands and
Buildings in the name of MIAA. However, MIAA points out that it cannot claim ownership
over these properties since the real owner of the Airport Lands and Buildings is the
Republic of the Philippines.
 MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA
from the payment of real estate tax. MIAA insists that it is also exempt from real estate
tax under Section 234 of the Local Government Code because the Airport Lands and
Buildings are owned by the Republic.
 Respondents invoke Section 193 of the Local Government Code, which expressly
withdrew the tax exemption privileges of "government-owned and-controlled
corporations" upon the effectivity of the Local Government Code. Respondents also
argue that a basic rule of statutory construction is that the express mention of one
person, thing, or act excludes all others. An international airport is not among the
exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents
assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real
estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are
exempt from real estate tax under existing laws. If so exempt, then the real estate tax assessments
issued by the City of Parañaque, and all proceedings taken pursuant to such assessments, are
void. In such event, the other issues raised in this petition become moot.
Held:
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local
governments.
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the
National Government and thus exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
A government-owned or controlled corporation must be "organized as a stock or non-stock
corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock divided into shares. MIAA has no stockholders or
voting shares.
Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is
divided into shares and x x x authorized to distribute to the holders of such shares
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dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no
stockholders or voting shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers." A non-stock corporation must have
members. Even if we assume that the Government is considered as the sole member of MIAA, this
will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of
their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its
annual gross operating income to the National Treasury. 11 This prevents MIAA from qualifying as a
non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is
not organized for any of these purposes. MIAA, a public utility, is organized to operate an
international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-
owned or controlled corporation. What then is the legal status of MIAA within the National
Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is
that MIAA is vested with corporate powers.
When the law vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, 12 police
authority13 and the levying of fees and charges.14 At the same time, MIAA exercises "all the powers
of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order."
Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with
the department framework. The MIAA Charter expressly states that transforming MIAA into a
"separate and autonomous body"16 will make its operation more "financially viable."17
Many government instrumentalities are vested with corporate powers but they do not become stock
or non-stock corporations, which is a necessary condition before an agency or instrumentality is
deemed a government-owned or controlled corporation. Examples are the Mactan International
Airport Authority, the Philippine Ports Authority, the University of the Philippines and Bangko
Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are
not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory
Provisions of the Administrative Code.
A government instrumentality like MIAA falls under Section 133(o) of the Local Government
Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. –
Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:
xxxx
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OUTLINE 1 - BUSINESS ORGANIZATION 2 Prof. M.I.P. Romero (2015 - 2016)
(o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalitiesand local government units.(Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While the
1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power "subject to such guidelines and limitations as the
Congress may provide."
2. Airport Lands and Buildings of MIAA are Owned by the Republic
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code,
like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned
by the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and
Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the
MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or
the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the public
for international and domestic travel and transportation. The fact that the MIAA collects
terminal fees and other charges from the public does not remove the character of the Airport Lands
and Buildings as properties for public use.
The operation by the government of a tollway does not change the character of the road as one for
public use. Someone must pay for the maintenance of the road, either the public indirectly through
the taxes they pay the government, or only those among the public who actually use the road
through the toll fees they pay upon using the road. The tollway system is even a more efficient and
equitable manner of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it is of
public dominion or not. Article 420 of the Civil Code defines property of public dominion as one
"intended for public use." Even if the government collects toll fees, the road is still "intended for
public use" if anyone can use the road under the same terms and conditions as the rest of the
public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed
restrictions and other conditions for the use of the road do not affect the public character of the
road.
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was
not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose
was merely to reorganize a division in the Bureau of Air Transportation into a separate and
autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings.
MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAA's
assets adverse to the Republic.
(ADDITIONAL CASE) Boy Scouts of the Phil. v. Commission on Audit G.R. 177131; June 7,
2011 (add to the MIAA case)
Boy Scouts of the Philippines vs. Commission on Audit (2011) [Vital Role of the Youth]
Petition: petition for prohibition with preliminary injunction and temporary restraining order
Petitioner: Boy Scouts of the Philippines
Respondent: Commission on Audit
Ponencia: Leonardo-De Castro
DOCTRINE:
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An institution that molds and prepares the youth to become model citizens and outstanding leaders
of the country through lessons in patriotism, civic consciousness and moral values, ultimately
redounds to the benefit of public welfare and the state. The aforementioned functions are
undeniably sovereign functions enshrined under the Art. II- Sec. 13 of the Constitution
FACTS:
-The BSP is a public corporation created under Commonwealth Act No. 111 dated October 31,
1936, and whose functions relate to the fostering of public virtues of citizenship and patriotism and
the general improvement of the moral spirit and fiber of the youth.
-On Aug 19, 1999, COA issued Resolution No. 99-011 "Defining the Commission's policy with
respect to the audit of the Boy Scouts of the Philippines" which provides for the conduction of an
annual financial audit of the Boy Scouts of the Phil. and the expression of an opinion on the
fairness of their financial statements. The BSP shall also be classified among the government
corporations belonging to the Educational, Social, Scientific, Civic and Research Sector.
- The COA resolution stated that the BSP was created as a public corporation under
Commonwealth Act No. 111 and is a government-controlled corporation. The COA Resolution also
cited its constitutional mandate under Section 2 (1), Article IX (D).
-On Nov. 26, 1999, the BSP National President Jejomar Binay sought reconsideration of the
resolution stating that the BSP is not subject to the Commission's jurisdiction because it is not a
unit of the government. Moreover, RA 7278 virtually eliminated the "substantial government
participation" in the National Executive Board and that the BSP is not as a government
instrumentality under the 1987 Administrative Code which provides that instrumentality refers to
"any agency of the National Government, not integrated within the department framework, vested
with special functions or jurisdiction by law.
-On July 3, 2000, Director Sunico, Corporate Audit Officer of the COA, furnished the BSP with a
copy of the Memorandum that opined that the substantial government participation is only one (1)
of the three (3) grounds relied upon by the Court in the resolution of the case. Other considerations
include the character of the BSP's purposes and functions which has a public aspect and the
statutory designation of the BSP as a "public corporation". On the argument that BSP is not "a
government instrumentality" and "agency" of the government, the Supreme Court has elucidated
this matter in the BSP vs NLRC case when it declared that BSP is both a "government-controlled
corporation with an original charter" and as an "instrumentality" of the Government.
-Upon the BSP's request, the audit was deferred for thirty (30) days. The BSP then filed a Petition
for Prohibition with Prayer for Preliminary Injunction and/or Temporary Restraining Order before
the COA.
ISSUES: W/N the BSP is a public corporation and is subject to COA’s audit jurisdiction.
PROVISIONS:
-Commonwealth Act No. 111 (Boy Scout Charter), or An Act to Create a Public Corporation to
be Known as the Boy Scouts of the Philippines, and to Define its Powers and Purposes: Section
3.The purpose of this corporation shall be to promote, through organization, and cooperation with
other agencies, the ability of boys to do things for themselves and others, to train them in
scoutcraft, and to teach them patriotism, courage, self-reliance, and kindred virtues, using the
methods which are now in common use by boy scouts.
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OUTLINE 1 - BUSINESS ORGANIZATION 2 Prof. M.I.P. Romero (2015 - 2016)
-Section 2(1), Article IX-D of the Constitution provides that COA shall have the power, authority,
and duty to examine, audit and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the
Government, or any of its subdivisions, agencies or instrumentalities, including government-owned
or controlled corporations with original charters
-ART II- Section 13 of the Constitution. The State recognizes the vital role of the youth in nation-
building and shall promote and protect their physical, moral, spiritual, intellectual, and social well-
being. It shall inculcate in the youth patriotism and nationalism, and encourage their involvement in
public and civic affairs.
Article 44 of the Civil Code:
The following are juridical persons:
(1)The State and its political subdivisions;
(2)Other corporations, institutions and entities for public interest or purpose created by law;
their personality begins as soon as they have been constituted according to law;
(3)Corporations, partnerships and associations for private interest or purpose to which the law
grants a juridical personality, separate and distinct from that of each shareholder, partner or
member
RULING + RATIO: Yes. BSP is a public corporation and its funds are subject to the COA's audit
jurisdiction.
The BSP is a public corporation whose functions relate to the fostering of public virtues of
citizenship and patriotism and the general improvement of the moral spirit and fiber of the youth.
The functions of the BSP include, among others, the teaching to the youth of patriotism, courage,
self-reliance, and kindred virtues, are undeniably sovereign functions enshrined under the
Constitution. Any attempt to classify the BSP as a private corporation would be incomprehensible
since no less than the law which created it had designated it as a public corporation and its
statutory mandate embraces performance of sovereign functions. The manner of creation and the
purpose for which the BSP was created indubitably prove that it is a government agency.
Moreover, there are three classes of juridical persons under Article 44 of the Civil Code and the
BSP, as presently constituted under Republic Act No. 7278, falls under the second
classification.
The purpose of the BSP as stated in its amended charter shows that it was created in order to
implement a State policy declared in Article II, Section 13 of the Constitution.
Evidently, the BSP, which was created by a special law to serve a public purpose in pursuit of a
constitutional mandate, comes within the class of "public corporations" defined by paragraph 2,
Article 44 of the Civil Code and governed by the law which creates it.
DISPOSITION: WHEREFORE, premises considered, the instant petition for prohibition is
DISMISSED.
Dissenting Opinion relevant to the issue: (Carpio)
According to Carpio, the public purpose of the BSP is not determinative of status. The BSP
performs functions which may be classified as public in character, in the sense that it promotes
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"virtues of citizenship and patriotism and the general improvement of the moral spirit and fiber of
our youth." However, this fact alone does not automatically make the BSP a GOCC. The fact that
a certain juridical entity is impressed with public interest does not, by that circumstance
alone, make the entity a public corporation, incorporated solely for the public good.
Authorities are of the view that the purpose alone of the corporation cannot be taken as a safe
guide, for the fact is that almost all corporations are nowadays created to promote the interest,
good, or convenience of the public.
-The true criterion 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.
FACTS:
This case arose when the COA issuedResolution No. 99-011on August 19, 1999 ("the COA
Resolution"), with the subject "Defining the Commissions policy with respect to the audit of the Boy
Scouts of the Philippines."In its whereas clauses, the COA Resolution stated that the BSP was
created as a public corporation under Commonwealth Act No. 111, as amended by Presidential
Decree No. 460 and Republic Act No. 7278; that inBoy Scouts of the Philippines v. National Labor
Relations Commission, the Supreme Court ruled that the BSP, as constituted under its charter,
was a "government-controlled corporation within the meaning of Article IX(B)(2)(1) of the
Constitution"; and that "the BSP is appropriately regarded as a government instrumentality under
the 1987 Administrative Code." The COA Resolution also cited its constitutional mandate under
Section 2(1), Article IX (D).Finally, the COA Resolution reads:
NOW THEREFORE, in consideration of the foregoing premises, the COMMISSION PROPER HAS
RESOLVED, AS IT DOES HEREBY RESOLVE,to conduct an annual financial audit of the Boy
Scouts of the Philippines in accordance with generally accepted auditing standards, and express
an opinion on whether the financial statements which include the Balance Sheet, the Income
Statement and the Statement of Cash Flows present fairly its financial position and results of
operations.
xxxx
BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision,the Boy Scouts of the
Philippines shall be classified among the government corporations belonging to the Educational,
Social, Scientific, Civic and Research Sectorunder the Corporate Audit Office I, to be audited,
similar to the subsidiary corporations, by employing the team audit approach
ISSUE: Whether the COA has jurisdiction over the BSP
HELD: Yes
POLITICAL LAW: Jurisdiction of COA
After looking at the legislative history of its amended charter and carefully studying the applicable
laws and the arguments of both parties, we find that the BSP is a public corporation and its funds
are subject to the COAs audit jurisdiction.
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The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936), entitled "An Act to
Create a Public Corporation to be Known as the Boy Scouts of the Philippines, and to Define its Distinguish from partnership and sole proprietorship (Right of Succession)
Powers and Purposes" created the BSP as a "public corporation"
CORPORATION Sec 2 of the CC – right of succession, a
There are three classes of juridical persons under Article 44 of the Civil Code and the BSP, as corporation has the capacity for continuous
presently constituted under Republic Act No. 7278,falls under the second classification.Article 44 existence despite the death or replacement of
reads: its shareholders or members, for it has a
personality separate and distinct from those
Art. 44. The following are juridical persons: who compose it.
(1) The State and its political subdivisions; PARTNERSHIP Has no right of succession
SOLE PROPRIETORSHIP Has no right of succession
(2)Other corporations,institutions and entities for public interest or purpose created by law;
their personality begins as soon as they have been constituted according to law;
D. Express/Implied/Incidental Powers --- Sec. 45, 36-44
(3) Corporations, partnerships and associations forprivate interest or purposeto which the law
grants a juridical personality, separate and distinct from that of each shareholder, partner or Section 45. Ultra vires acts of corporations. – No corporation under this Code shall possess or
member. exercise any corporate powers except those conferred by this Code or by its articles of
incorporation and except such as are necessary or incidental to the exercise of the powers so
The BSP, which is a corporation created for a public interest or purpose, is subject to the law conferred.
creating it under Article 45 of the Civil Code, which provides:
Art. 45.Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the NOTE
laws creating or recognizing them. - EXPRESS POWERS – are those conferred upon the corporation by the law. Can be
ascertained from the special law creating the corporation, or from the general
Private corporations are regulated by laws of general application on the subject. incorporation law under which it is created.
- IMPLIED POWERS – those powers which are reasonably necessary to exercise the
Partnerships and associations for private interest or purpose are governed by the provisions of this express powers and to accomplish or carry out the purpose for which the corporation
Code concerning partnerships. was formed
The purpose of the BSP as stated in its amended charter shows that it was created in order to 1. Acts in the usual course of business
implement a State policy declared in Article II, Section 13 of the Constitution, which reads: 2. Acts to protect debts owing to a corporation
3. Embarking in different business
ARTICLE II -DECLARATION OF PRINCIPLES AND STATE POLICIES 4. Acts in part or wholly to protect or aid employees
5. Acts to increase business
Section 13. The State recognizes the vital role of the youth in nation-building and shall promote
and protect their physical, moral, spiritual, intellectual, and social well-being. It shall inculcate in the - INCIDENTAL/INHERENT POWERS – are powers which a corporation can exercise by
youth patriotism and nationalism, and encourage their involvement in public and civic affairs. the mere fact of its being a corporation or powers which are necessary to corporate
existence and are therefore impliedly granted – power of succession, to sue and be
Evidently, the BSP, which was created by a special law to serve a public purpose in pursuit of a sued, to have a corporate name, to purchase and hold real and personal property, to
constitutional mandate, comes within the class of "public corporations" defined by paragraph 2, adopt and use a corporate seal, to contract, to make by-laws, etc
Article 44 of the Civil Code and governed by the law which creates it, pursuant to Article 45 of the
same Code.
Alternatively --- General (Sec. 36) and Specific powers (37- 44)

PETITION DENIED. General (Powers of Corporation)

C. Right of Succession – Rationale
RATIONALE:
- To enable a corporation to manage its own affairs, and to hold property without the
perplexing intricacies, that hazardous and endless necessity, of perpetual conveyances
for the purpose of transmitting it from hand to hand.
- For the purpose of clothing bodies of men in succession with theses qualities and
capacities that corporations were invented and are in use
- Perpetual Succession – that continuous existence which enables a corporation to
manage its affairs, and hold property without the necessity of perpetual conveyances, for
purposes of transmitting it
Section 36. Corporate powers and capacity. – Every corporation incorporated under this Code
has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the
same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to
subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to
admit members to the corporation if it be a non-stock corporation;
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7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of other
corporations, as the transaction of the lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed by law and the Constitution;
8. To enter into merger or consolidation with other corporations as provided in this Code;
9. To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation,
domestic or foreign, shall give donations in aid of any political party or candidate or for
purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its directors, trustees,
officers and employees; and
11. To exercise such other powers as may be essential or necessary to carry out its purpose
or purposes as stated in the articles of incorporation.
Specific powers (37- 44)
Section 37. Power to extend or shorten corporate term. – A private corporation may extend or
shorten its term as stated in the articles of incorporation when approved by a majority vote of the
board of directors or trustees and ratified at a meeting by the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members in
case of non-stock corporations. Written notice of the proposed action and of the time and place of
the meeting shall be addressed to each stockholder or member at his place of residence as shown
on the books of the corporation and deposited to the addressee in the post office with postage
prepaid, or served personally: Provided, That in case of extension of corporate term, any
dissenting stockholder may exercise his appraisal right under the conditions provided in this code.
(n)
Section 38. Power to increase or decrease capital stock; incur, create or increase bonded
indebtedness. – No corporation shall increase or decrease its capital stock or incur, create or
increase any bonded indebtedness unless approved by a majority vote of the board of directors
and, at a stockholder’s meeting duly called for the purpose, two-thirds (2/3) of the outstanding
capital stock shall favor the increase or diminution of the capital stock, or the incurring, creating or
increasing of any bonded indebtedness. Written notice of the proposed increase or diminution of
the capital stock or of the incurring, creating, or increasing of any bonded indebtedness and of the
time and place of the stockholder’s meeting at which the proposed increase or diminution of the
capital stock or the incurring or increasing of any bonded indebtedness is to be considered, must
be addressed to each stockholder at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office with postage prepaid, or served
personally.
A certificate in duplicate must be signed by a majority of the directors of the corporation and
countersigned by the chairman and the secretary of the stockholders’ meeting, setting forth:
(1) That the requirements of this section have been complied with;
(2) The amount of the increase or diminution of the capital stock;
(3) If an increase of the capital stock, the amount of capital stock or number of shares of no-
par stock thereof actually subscribed, the names, nationalities and residences of the persons
subscribing, the amount of capital stock or number of no-par stock subscribed by each, and
the amount paid by each on his subscription in cash or property, or the amount of capital
stock or number of shares of no-par stock allotted to each stock-holder if such increase is for
the purpose of making effective stock dividend therefor authorized;
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(4) Any bonded indebtedness to be incurred, created or increased;
(5) The actual indebtedness of the corporation on the day of the meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the capital stock, or the incurring,
creating or increasing of any bonded indebtedness.
Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded
indebtedness shall require prior approval of the Securities and Exchange Commission.
One of the duplicate certificates shall be kept on file in the office of the corporation and the other
shall be filed with the Securities and Exchange Commission and attached to the original articles of
incorporation. From and after approval by the Securities and Exchange Commission and the
issuance by the Commission of its certificate of filing, the capital stock shall stand increased or
decreased and the incurring, creating or increasing of any bonded indebtedness authorized, as the
certificate of filing may declare: Provided, That the Securities and Exchange Commission shall not
accept for filing any certificate of increase of capital stock unless accompanied by the sworn
statement of the treasurer of the corporation lawfully holding office at the time of the filing of the
certificate, showing that at least twenty-five (25%) percent of such increased capital stock has been
subscribed and that at least twenty-five (25%) percent of the amount subscribed has been paid
either in actual cash to the corporation or that there has been transferred to the corporation
property the valuation of which is equal to twenty-five (25%) percent of the subscription: Provided,
further, That no decrease of the capital stock shall be approved by the Commission if its effect shall
prejudice the rights of corporate creditors.
Non-stock corporations may incur or create bonded indebtedness, or increase the same, with the
approval by a majority vote of the board of trustees and of at least two-thirds (2/3) of the members
in a meeting duly called for the purpose.
Bonds issued by a corporation shall be registered with the Securities and Exchange Commission,
which shall have the authority to determine the sufficiency of the terms thereof. (17a)
Section 39. Power to deny pre-emptive right. – All stockholders of a stock corporation shall
enjoy pre-emptive right to subscribe to all issues or disposition of shares of any class, in proportion
to their respective shareholdings, unless such right is denied by the articles of incorporation or an
amendment thereto: Provided, That such pre-emptive right shall not extend to shares to be issued
in compliance with laws requiring stock offerings or minimum stock ownership by the public; or to
shares to be issued in good faith with the approval of the stockholders representing two-thirds (2/3)
of the outstanding capital stock, in exchange for property needed for corporate purposes or in
payment of a previously contracted debt.
Section 40. Sale or other disposition of assets. – Subject to the provisions of existing laws on
illegal combinations and monopolies, a corporation may, by a majority vote of its board of directors
or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all
of its property and assets, including its goodwill, upon such terms and conditions and for such
consideration, which may be money, stocks, bonds or other instruments for the payment of money
or other property or consideration, as its board of directors or trustees may deem expedient, when
authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding
capital stock, or in case of non-stock corporation, by the vote of at least to two-thirds (2/3) of the
members, in a stockholder’s or member’s meeting duly called for the purpose. Written notice of the
proposed action and of the time and place of the meeting shall be addressed to each stockholder
or member at his place of residence as shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served personally: Provided, That any
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OUTLINE 1 - BUSINESS ORGANIZATION 2 Prof. M.I.P. Romero (2015 - 2016)
dissenting stockholder may exercise his appraisal right under the conditions provided in this Code.
A sale or other disposition shall be deemed to cover substantially all the corporate property and
assets if thereby the corporation would be rendered incapable of continuing the business or
accomplishing the purpose for which it was incorporated.
After such authorization or approval by the stockholders or members, the board of directors or
trustees may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage,
pledge or other disposition of property and assets, subject to the rights of third parties under any
contract relating thereto, without further action or approval by the stockholders or members.
Nothing in this section is intended to restrict the power of any corporation, without the authorization
by the stockholders or members, to sell, lease, exchange, mortgage, pledge or otherwise dispose
of any of its property and assets if the same is necessary in the usual and regular course of
business of said corporation or if the proceeds of the sale or other disposition of such property and
assets be appropriated for the conduct of its remaining business.
In non-stock corporations where there are no members with voting rights, the vote of at least a
majority of the trustees in office will be sufficient authorization for the corporation to enter into any
transaction authorized by this section.
Section 41. Power to acquire own shares. – A stock corporation shall have the power to
purchase or acquire its own shares for a legitimate corporate purpose or purposes, including but
not limited to the following cases: Provided, That the corporation has unrestricted retained earnings
in its books to cover the shares to be purchased or acquired:
1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation, arising out of unpaid
subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale;
and
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under
the provisions of this Code. (a)
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outstanding capital stock at a regular or special meeting duly called for the purpose. (16a)
Stock corporations are prohibited from retaining surplus profits in excess of one hundred (100%)
percent of their paid-in capital stock, except: (1) when justified by definite corporate expansion
projects or programs approved by the board of directors; or (2) when the corporation is prohibited
under any loan agreement with any financial institution or creditor, whether local or foreign, from
declaring dividends without its/his consent, and such consent has not yet been secured; or (3)
when it can be clearly shown that such retention is necessary under special circumstances
obtaining in the corporation, such as when there is need for special reserve for probable
contingencies. (n)
Section 44. Power to enter into management contract. – No corporation shall conclude a
management contract with another corporation unless such contract shall have been approved by
the board of directors and by stockholders owning at least the majority of the outstanding capital
stock, or by at least a majority of the members in the case of a non-stock corporation, of both the
managing and the managed corporation, at a meeting duly called for the purpose: Provided, That
(1) where a stockholder or stockholders representing the same interest of both the managing and
the managed corporations own or control more than one-third (1/3) of the total outstanding capital
stock entitled to vote of the managing corporation; or (2) where a majority of the members of the
board of directors of the managing corporation also constitute a majority of the members of the
board of directors of the managed corporation, then the management contract must be approved
by the stockholders of the managed corporation owning at least two-thirds (2/3) of the total
outstanding capital stock entitled to vote, or by at least two-thirds (2/3) of the members in the case
of a non-stock corporation. No management contract shall be entered into for a period longer than
five years for any one term.
The provisions of the next preceding paragraph shall apply to any contract whereby a corporation
undertakes to manage or operate all or substantially all of the business of another corporation,
whether such contracts are called service contracts, operating agreements or otherwise: Provided,
however, That such service contracts or operating agreements which relate to the exploration,
development, exploitation or utilization of natural resources may be entered into for such periods
as may be provided by the pertinent laws or regulations.

Section 42. Power to invest corporate funds in another corporation or business or for any
other purpose. – Subject to the provisions of this Code, a private corporation may invest its funds II.COMPARISONS/DISTINCTIONS--- Corporations / Partnerships Sole proprietorships
in any other corporation or business or for any purpose other than the primary purpose for which it
was organized when approved by a majority of the board of directors or trustees and ratified by the SOLE PROP PARTNERSHIPS CORPORATIONS
stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or by at least MANNER OF Created by mere Created by law or by
two thirds (2/3) of the members in the case of non-stock corporations, at a stockholder’s or CREATION agreement of the operation of law
member’s meeting duly called for the purpose. Written notice of the proposed investment and the parties
time and place of the meeting shall be addressed to each stockholder or member at his place of NUMBER OF Owner May be organized by Requires a total of 5
residence as shown on the books of the corporation and deposited to the addressee in the post INCORPORATORS only 2 partners incorporators (except
office with postage prepaid, or served personally: Provided, That any dissenting stockholder shall a corporation sole)
have appraisal right as provided in this Code: Provided, however, That where the investment by COMMENCEMENT None – its From the moment of From the date of the
the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles OF JURIDICAL personality is one the execution of the issuance of the
of incorporation, the approval of the stockholders or members shall not be necessary. (17 1/2a) PERSONALITY and the same with contract of certificate of
Section 43. Power to declare dividends. - The board of directors of a stock corporation may its owner partnership incorporation by the
declare dividends out of the unrestricted retained earnings which shall be payable in cash, in SEC under its official
property, or in stock to all stockholders on the basis of outstanding stock held by them: Provided, seal
That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the POWERS May exercise any Can only exercise the
subscription plus costs and expenses, while stock dividends shall be withheld from the delinquent power authorized by powers expressly
stockholder until his unpaid subscription is fully paid: Provided, further, That no stock dividend shall the partners provided granted by law or
be issued without the approval of stockholders representing not less than two-thirds (2/3) of the it is not contrary to implied from those

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public order, policy, granted or incident to lll. DOCTRINE OF CORPORATE ENTITY
good customs, etc its existence
A. Doctrine/ Effects:
MANAGEMENT Owner has No agreement: every Power to do business
complete control of partner is an agent of and manage its affairs 18. Gallagher v. Germania Brewing Co. 54 N.W. 115 (1893)
the business the partnership is vested in the board
of directors or trustees DOCTRINE: To allow the set-off in the case at bat, it will be tantamount to totally ignoring the legal
EFFECT OF Owner will be liable Partner as such can The suit against a doctrine, or fiction, that a corporation is an entity separate and distinct from the body of its
MISMANAGEMENT for his and his sue a co-partner who member of the board stockholders. It has been absolutely essential, for the administration of justice, to treat a
authorized agents mismanages of directors or trustees corporation as a collective entity, without regard to its individual shareholders. If the rights or
act who mismanages liabilities of a corporation could be affected by the acts of the stockholders, except when acting in
must be in the name the corporate name, it can easily be seen into what confusion and chaos corporate affairs would
of the corporation inevitably fall.
RIGHT OF No right of No right of succession Has right of Facts: J. Mitchell, the plaintiff, as assignee of Westphal brought an action to recover for goods sold
SUCCESSION succession succession and delivered by his assignor to the defendant corporation. Jacob Barge and John Vander Horck
EXTENT OF Unlimited liability – Partners (Except The stockholders are intervened, stating in their complaint that they owned all the capital stock of the defendant, and no
LIABILITY OF 3RD personally liable limited partners) are liable only to the other person other than themselves have any interest in the stock or property of the corporation.
PERSONS liable personally and extent of their They also argued that they had a valid and unsatisfied judgment against Westphal upon a cause of
subsidiarily for investments as action which accrued before the assignment to the plaintiff, and that Westphal was utterly
partnership debts to represented by the insolvent. They were seeking to equitably set-off their claims against Westphal from those that
3rd persons shares subscribed by Gallagher has against the defendant corp. Gallagher states that Barge and Vander had no such
them interest in the litigation as to entitle them to intervene and that their claims cannot be set off against
TRANSFERABILITY A partner cannot A stockholder has a a claim against the corporation, since a corporation is a legal entity, entirely distinct from its
OF INTEREST transfer his interest in right to transfer his stockholders
the partnership so as shares without the
to make the prior consent of the
transferee a partner other stockholders.
without the consent of Issue: Whether or not the claims of Barge and VanderHorck can be equitable set-off against the
all the existing claims of Gallagher as against Germania Brewin Corp.?
partners – because
the partnership is
based on the principle Held:No. Their claims against Westphal are not subjects of equitable set-off to a claim against the
of delectus defendant corporation.
personarum
TERM OF Dependent on the May be established May not be formed for
EXISTENCE life of the proprietor for a period of time a term in excess of 50 In the case at bar, to allow such set-off would be tantamount to totally ignoring the legal
– upon owners stipulated by the years extendible to not doctrine that a corporation is an entity separate and distinct from the body of its stockholders. The
death his heir may partners more than 5- years in recognition of a corporation as a collective entity without regard to its individual shareholders has
continue any one instance been absolutely essential for the administration of justice. If the rights or liabilities of a corporation
FIRM NAME Under owners Limited partnership May adopt any firm could be affected by the acts of the stockholders, except when acting in the corporate name, it can
name or a business requires “LTD” name provided it is not easily be seen into what confusion and chaos corporate affairs would inevitably result in. In as
name – register identical or deceptively much as the 2 intervenors own all the stock of this corporation, the facts of this case seem
under RA 3883 / similar to any comparatively free from embarrassments, and the contention of the respondent quite plausible.
DTI registered firm name Illustration might be multiplied indefinitely to show that to recognize any such right would result in
or contrary to existing the worst sort of complications, and that the only safe or sound rule is to adhere strictly to the
law doctrine of a corporate entity distinct from the individual stockholders.
DISSOLUTION May be dissolved any Can only be dissolved
time by the will of any with the consent of the 19. Magsaysay-Labrador v. CA. (1989) 180 SCRA 266
or all of the partners state DOCTRINE: The case of the assignment by Senator Magsaysay of a certain portion of his
LAWS WHICH Civil Code Corporation Code shareholdings in SUBIC granting his sisters the right to intervene in a case filed by the widow
GOVERN against SUBIC.

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OUTLINE 1 - BUSINESS ORGANIZATION 2 Prof. M.I.P. Romero (2015 - 2016)
The words "an interest in the subject," to allow petitioners to intervene, 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.
Here, the interest, of petitioners, if it exists at all, 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 corp, 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 and beneficial in nature. Shareholders are in no legal sense the
owners of corporate property, which is owned by the corp as a distinct legal person.
Facts: On 9 February 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of
the estate of the late Senator Genaro Magsaysay, brought before the then Court of First Instance
of Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas
Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales, for the annulment of
the Deed of Assignment executed by the late Senator in favor of SUBIC (as a result of which TCT
3258 was cancelled and TCT 22431 issued in the name of SUBIC), for the annulment of the Deed
of Mortgage executed by SUBIC in favor of FILMANBANK (dated 28 April 1977 in the amount of P
2,700,000.00), and cancellation of TCT 22431 by the Register of Deeds, and for the latter to issue
a new title in her favor. On 7 March 1979, Concepcion Magsaysay-Labrador, Soledad Magsaysay-
Cabrera, Luisa Magsaysay-Corpuz, Felicidad Magsaysay, and Mercedes Magsaysay-Diaz, sisters
of the late senator, filed a motion for intervention on the ground that on 20 June 1978, their brother
conveyed to them 1/2 of his shareholdings in SUBIC or a total of 416,566.6 shares and as
assignees of around 41 % of the total outstanding shares of such stocks of SUBIC, they have a
substantial and legal interest in the subject matter of litigation and that they have a legal interest in
the success of the suit with respect to SUBIC. On 26 July 1979, the trial court denied the motion for
intervention, and ruled that petitioners have no legal interest whatsoever in the matter in litigation
and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle
them to intervene because SUBIC has a personality separate and distinct from its stockholders.
On appeal, the Court of Appeals found no factual or legal justification to disturb the findings of the
lower court. The appellate court further stated that whatever claims the Magsaysay sisters have
against the late Senator or against SUBIC for that matter can be ventilated in a separate
proceeding. The motion for reconsideration of the Magsaysay sisters was denied. Hence, the
petition for review on certiorari.
Issue: Whether the Magsaysay sister, allegedly stockholders of SUBIC, are interested parties in a
case where corporate properties are in dispute.
Held: Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the Magsaysay
sisters have no legal interest in the subject matter in litigation so as to entitle them to intervene in
the proceedings. To be permitted to intervene in a pending action, the party must have a legal
interest in the matter in litigation, or in the success of either of the parties or an interest against
both, or he must be so situated as to be adversely affected by a distribution or other disposition of
the property in the custody of the court or an officer thereof . Here, the interest, if it exists at all, of
the Magsaysay sisters is indirect, contingent, remote, conjectural, consequential and collateral. At
the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management
of the corporation and to share in the profits thereof and in the properties and assets thereof on
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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.
Issue: Whether or not the Magsaysay sister are interested parties in a case where corporate
properties are in dispute
Held: No. The instant petition was denied. Court ruled that viewed in the light of Section 2, Rule 12
of the Revised Rules of Court, the Magsaysay sisters have no legal interest in the subject matter in
litigation so as to entitle them to intervene in the proceedings. To be permitted to intervene in a
pending action, the party must have a legal interest in the matter in litigation, or in the success of
either of the parties or an interest against both, or he must be so situated as to be adversely
affected by a distribution or other disposition of the property in the custody of the court or an officer
thereof . Here, the interest, if it exists at all, of the Magsaysay sisters is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of the corporation and to share in the profits thereof
and in the properties and assets thereof on dissolution, after payment of the corporate debts and
obligations. While a share of stock represents a proportionate or aliquot interest in the property of
the corporation, it does not vest the owner thereof with any legal right or title to any of the property,
his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no
legal sense the owners of corporate property, which is owned by the corporation as a distinct legal
person.
20. San Juan Structural v. CA (1998) 296 SCRA 631
DOCTRINE: 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.
In this case, the sale of a piece of land belonging to Motorich Corporation by the corporation
treasurer (Gruenberg) was held to be invalid in the absence of evidence that said corporate
treasurer was authorized to enter into the contract of sale, or that the said contract was ratified by
Motorich. Even though Gruenberg and her husband owned 99.866% of Motorich, her act could not
bind the corporation
Facts: San Juan Structural and Steel Fabricators entered into an agreement with Motorich Sales
Corporation through Nenita Gruenberg, corporate treasurer of Motorich, for the transfer to the
former a parcel of land upon a P100,000 earnest money, balance to be payable within March 2,
1989. Upon payment of the earnest money, and on March 1, 1989, San Juan allegedly asked to
be submitted a computation of the balance due to Motorich. The latter, despite repeated demands,
refused to execute the Deed of Assignment of the land. San Juan discovered that Motorich
entered into a Deed of Absolute Sale of the land to ACL Development Corporation. Hence, San
Juan filed a complaint with the RTC.
On the other hand, Motorich contends that since Nenita Gruenberg was only the
treasurer of said corporation, and that its president, Reynaldo Gruenberg, did not sign the
agreement entered into by San Juan and Motorich, the treasurer’s signature was inadequate to
bind Motorich to the agreement. Furthermore, Nenita contended that since San Juan was not able
to pay within the stipulated period, no deed of assignment could be made. The deed was agreed
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to be executed only after receipt of the cash payment, and since according to Nenita, no cash
payment was made on the due date, no deed could have been executed.
RTC dismissed the case holding that Nenita Gruenberg was not authorized by Motorich
to enter into said contract with San Juan, and that a majority vote of the BoD was necessary to sell
assets of the corporation in accordance with Sec. 40 of the Corporation Code. CA affirmed this
decision. Hence, this petition with SC.
Issues:
(1) Whether or not there was a valid contract existing between San Juan and Motorich.
(2) Whether or not the veil of corporate fiction could be pierced.
Held:
(1) No. The contract entered into between Nenita and San Juan cannot bind Motorich,
because the latter never authorized nor 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 and may not be sold by them without express
authorization from the corporation’s BoD. This is in accordance with Sec. 23 of the Corporation
Code.
Indubitably, a corporation can only act through its BoD or, when authorized either by its
by laws or by its board resolution, through its officers or agents in the normal course of business.
The general principles of agency govern the relation between the corporation and its officers or
agents, subject to the AoI, by laws, or relevant provisions of law. A corporate officer or agent may
represent and bind the corporation in transactions with 3rd 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.
Furthermore, persons dealing with an assumed agent, whether the assumed agency be a general
or special one, are bound at their peril, if they would hold the principal liable, to ascertain not only
the fact of agency but also the nature and extent of authority, and in case either is controverted, the
burden of proof is upon them to establish it. Unless duly authorized, a treasurer, whose powers
are limited, cannot bind the corporation in a sale of its assets.
In the case at bar, San Juan had the responsibility of ascertaining the extent of Nenita’s authority
to represent the corporation. Selling is obviously foreign to a corporate treasurer’s function.
Neither was real estate sale shown to be a normal business activity of Motorich. The primary
purpose of said corporation is marketing, distribution, import and export relating to a general
merchandising business. Unmistakably, its treasurer is not cloaked with actual or apparent
authority to buy or sell real property, an activity which falls way beyond the scope of her general
authority.
Acts of corporate officers within the scope of their authority are binding on the corporation. But
when these officers exceed their authority, their actions cannot bind the corporation, unless it has
ratified such acts or is estopped from disclaiming them.
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(2) No. San Juan argues that the veil of corporate fiction should be pierced because the
spouses Reynaldo and Nenita Gruenberg own 99.96% of the subscribed capital stock, they
needed no authorization from the BoD to enter into the said contract.
The veil can only 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.
Hence, the question of piercing the veil becomes a matter of proof. In the case at bar, SC found no
reason to pierce the veil. San Juan failed to establish that said corporation was formed for the
purpose of shielding any fraudulent act of its officers and stockholders.
 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."
21. Tramat Mercantile v. CA (1994) 238 SCRA 14
DOCTRINE : Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when --
1. He assents (a) to a patently unlawful act of the corporation, or
(b) for bad faith, or gross negligence in directing its affairs, or (c) for conflict of interest,
resulting in damages to the corporation, its stockholders or other persons;
2. He consents to the issuance of watered stocks or who, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate
action.
FACTS:
1. Melchor de la Cuesta, doing business under the name and style of "Farmers
Machineries," sold to Tramat Mercantile, Inc. ("Tramat"), one (1) unit HINOMOTO
TRACTOR Model MB 1100D powered by a 13 H.P. diesel engine.
2. In payment, David Ong, Tramat's president and manager, issued a check for
P33,500.00 (apparently replacing an earlier postdated check for P33,080.00).
3. Tramat, in turn, sold the tractor, together with an attached lawn mower fabricated by
it, to the Metropolitan Waterworks and Sewerage System ("NAWASA") for
P67,000.00.
4. David Ong caused a "stop payment" of the check when NAWASA refused to pay
the tractor and lawn mowerafter discovering that, aside from some stated defects of
the attached lawn mower, the engine (sold by de la Cuesta) was a reconditioned
unit.
5. de la Cuesta filed an action for the recovery of P33,500.00, as well as attorney's
fees of P10,000.00, and the costs of suit.
6. Ong, in his answer, averred that de la Cuesta had no cause of action; that the
questioned transaction was between plaintiff and Tramat Mercantile, Inc., and not
with Ong in his personal capacity;
7. and that the payment of the check was stopped because the subject tractor had
been priced as a brand new, not as a reconditioned unit.
8. RTC: ordered the defendants (Tramat and Ong), jointly and severally liable to
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plaintiff ( de la Cuesta).
9. CA: affirmed the RTC’s decision in toto. Hence, the instant petition.
ISSUE:
Whether or not Ong may be held jointly and severally liable to plaintiff.
Ruling:
1. Although Tramat is liable to plaintiff because:
a.) the contract between de la Cuesta and TRAMAT was one of absolute, not
conditional sale (evidenced by the fact that TRAMAT issued a check in payment of
the item to the appellee long after MWSS had complained about the defective
tractor engine)
b.) and that de la Cuesta did not violate any warranty on the sale of the tractor to
TRAMAT.
c.) And that at the time of the purchase, the appellants did not reveal to the appellee
the true purpose for which the tractor would be used.
d.) that the lawn mower as fabricated by the appellants was the root of the parties'
problems. Having had no previous experience in the manufacture of lawn mowers
of the same type as that in litigation, and in a possibly patent-infringing effort to
undercut their competition, the appellants gathered enough daring to do the
fabrication themselves. But the product might have proved too much for the subject
tractor to power, and the tractor's engine was strained beyond its limits, causing it
to overheat and damage its gaskets.
2. It was, nevertheless, an error to hold David Ong jointly and severally liable with
TRAMAT to de la Cuesta under the questioned transaction. Ong had there so acted,
not in his personal capacity, but as an officer of a corporation, TRAMAT, with a distinct and
separate personality. As such, it should only be the corporation, not the person acting for
and on its behalf, that properly could be made liable thereon. 3
Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when —
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad
faith, or gross negligence in directing its affairs, or (c) for conflict of
interest, resulting in damages to the corporation, its stockholders or other
persons; 4
2. He consents to the issuance of watered stocks or who, having knowledge
thereof, does not forthwith file with the corporate secretary his written
objection thereto; 5
3. He agrees to hold himself personally and solidarily liable with the
corporation; 6 or
4. He is made, by a specific provision of law, to personally answer for his
corporate action. 7
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In the case at bench, there is no indication that petitioner David Ong could be held personally
accountable under any of the abovementioned cases.
22. Palay, Inc. v. Clave (1983) 124 SCRA 640
DOCTRINE: The case of the reliance on a default provision of the contract granting automatic
extra-judicial rescission.
The court found no badges of fraud on the part of the president of the corporation. The
BOD had literally and mistakenly relied on the default provision of the contract. As president and
controlling stockholder of the corp, no sufficient proof exists on record that he used the corp to
defraud private respondent. He cannot, therefore, be made personally liable because he appears
to be the controlling stockholder. Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality.
FACTS
ON March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott executed in favor of
private respondent, Nazario Dumpit, a Contract to sell a parcel of Land in Antipolo, Rizal owned by
said corporation. The sale price was P23, 300.00 with 9% interest per annum, payable with a down
payment of P4, 660.00 and monthly installments of P246.42 until fully paid.
Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default in payment
of any monthly installment after the lapse of 90 days from the expiration of the grace period of one
month, without need of notice and with forfeiture of all installments paid. Respondent Dumpit paid
the down payment and several installments amounting to P13, 722.50. The last payment was
made on December 5, 1967 for installments up to September 1967.
On May 10, 1973, or almost six (6) years later, private respondent wrote petitioner offering to
update all his overdue accounts with interest, and seeking its written consent to the assignment of
his rights to a certain Lourdes Dizon. In response, petitioners informed respondent that his
Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot
had already been resold.
A complaint was filed by the respondent with the NHA for conveyance with an alternative prayer for
refund. The NHA, in its resolution, ordered Palay, Inc. and Alberto Onstott in his capacity as
President of the corporation, jointly and severally, to refund immediately to respondent the amount
paid with 12% interest from the filing of complaint. Respondent Presidential Executive Assistant
Clave affirmed the NHA resolution.
ISSUE:
1. Whether the doctrine of piercing the veil of corporate fiction has application to the case.
2. Whether petitioner On Stott can be held solidarity liable with petitioner Corporation for the refund
of the installment payments made by respondent Dump it.
RULING:
The doctrine of piercing the veil of corporate fiction has no application to the case. Consequently,
petitioner Onstott cannot be held solidarity liable with petitioner Corporation for the refund of the
installment payments made by respondent Dumpit.
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A corporation is invested by law with a personality separate and distinct from those of the persons
composing it. As a general rule, a corporation may not be made to answer for acts or liabilities of
its stockholders or those of the legal entities to which it may be connected and vice versa.
However, the veil of corporate fiction may be pierced when: it is used as a shield to further an end
subversive of justice; or for purposes that could not have been intended by the law that created it;
or to defeat public convenience, justify wrong, protect fraud, or defend crime; or to perpetrate fraud
or con fuse legitimate issues; or to circumvent the law or perpetuate deception; or as an alter ego,
adjunct or business conduit for the sole benefit of the stockholders. In this case however, there are
no badges of fraud on the part of the petitioners. They had literally relied, although mistakenly, on
paragraph 6 of the contract with respondent when they rescinded the contract to sell extra
judicially.
Although On Stott appears to be the controlling stockholder, there being no fraud, he cannot be
made personally liable.
23. Villa Rey Transit v. Ferrer (1968) 25 SCRA 845
DOCTRINE: The doctrine that a corporation is a legal entity distinct and separate from the
members and stockholders who compose it is recognized and respected in all cases, which are
within reason and the law. When the fiction is urged as means of perpetrating a fraud or an illegal
act or as a vehicle for the evasion of an existing obligation, the circumvention of statues, the
achievement of perfection of a monopoly or generally the perpetration of knavery o 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.
The preponderance of evidence have shown that the Villa Rey Transit, Inc. is an alter ego of Jose
M. Villarama, and that the restrictive clause in the contract entered into by the latter and Pantranco
is also enforceable and binding against the said Corporation. For the rule is that a seller or
promissor may not make use of a corporate entity as a means of evading the obligation of his
covenant. Where the corporation is substantially the alter ego of the covenantor to the restrictive
agreement, it can be enjoined from competing with the covenantee.
Facts: Prior to 1959, Jose M. Villarama was an operator of a bus transportation, under the
business name of Villa Rey Transit, pursuant to certificates of public convenience granted him by
the Public Service Commission (PSC) in Cases 44213 and 104651, which authorized him to
operate a total of 32 units on various routes or lines from Pangasinan to Manila, and vice-versa. On
8 January 1959, he sold the two certificates of public convenience to the Pangasinan
Transportation Company, Inc. (Pantranco), for P350,000.00 with the condition, among others, that
the seller (Villarama) "shall not for a period of 10 years from the date of this sale, apply for any
TPU service identical or competing with the buyer." Barely 3 months thereafter, or on 6 March
1959: a corporation called Villa Rey Transit, Inc. (the Corporation) was organized with a capital
stock of P500,000.00 divided into 5,000 shares of the par value of P100.00 each; P200,000.00 was
the subscribed stock; Natividad R. Villarama (wife of Jose M. Villarama) was one of the
incorporators, and she subscribed for P1,000.00; the balance of P199,000.00 was subscribed by
the brother and sister-in-law of Jose M. Villarama; of the subscribed capital stock, P105,000.00
was paid to the treasurer of the corporation, who was Natividad R. Villarama. In less than a month
after its registration with the Securities and Exchange Commission (10 March 1959), the
Corporation, on 7 April 1959, bought 5 certificates of public convenience, 49 buses, tools and
equipment from one Valentin Fernando, for the sum of P249,000.00, of which P100,000.00 was
paid upon the signing of the contract; P50,000.00 was payable upon the final approval of the sale
by the PSC; P49,500.00 one year after the final approval of the sale; and the balance of
P50,000.00 "shall be paid by the buyer to the different suppliers of the seller." The very same day
that the contract of sale was executed, the parties thereto immediately applied with the PSC for its
approval, with a prayer for the issuance of a provisional authority in favor of the vendee
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Corporation to operate the service therein involved. On 19 May 1959, the PSC granted the
provisional permit prayed for, upon the condition that "it may be modified or revoked by the
Commission at any time, shall be subject to whatever action that may be taken on the basic
application and shall be valid only during the pendency of said application." Before the PSC could
take final action on said application for approval of sale, however, the Sheriff of Manila, on 7 July
1959, levied on 2 of the five certificates of public convenience involved therein, namely, those
issued under PSC cases 59494 and 63780, pursuant to a writ of execution issued by the Court of
First Instance of Pangasinan in Civil Case 13798, in favor of Eusebio E. Ferrer against Valentin
Fernando. The Sheriff made and entered the levy in the records of the PSC. On 16 July 1959, a
public sale was conducted by the Sheriff of the said two certificates of public convenience. Ferrer
was the highest bidder, and a certificate of sale was issued in his name. Thereafter, Ferrer sold the
two certificates of public convenience to Pantranco, and jointly submitted for approval their
corresponding contract of sale to the PSC. Pantranco therein prayed that it be authorized
provisionally to operate the service involved in the said two certificates. The applications for
approval of sale, filed before the PSC, by Fernando and the Corporation, Case 124057, and that of
Ferrer and Pantranco, Case 126278, were scheduled for a joint hearing. In the meantime, to wit, on
22 July 1959, the PSC issued an order disposing that during the pendency of the cases and before
a final resolution on the aforesaid applications, the Pantranco shall be the one to operate
provisionally the service under the two certificates embraced in the contract between Ferrer and
Pantranco. The Corporation took issue with this particular ruling of the PSC and elevated the
matter to the Supreme Court, which decreed, after deliberation, that until the issue on the
ownership of the disputed certificates shall have been finally settled by the proper court, the
Corporation should be the one to operate the lines provisionally. On 4 November 1959, the
Corporation filed in the Court of First Instance of Manila, a complaint for the annulment of the
sheriff's sale of the aforesaid two certificates of public convenience (PSC Cases 59494 and 63780)
in favor of Ferrer, and the subsequent sale thereof by the latter to Pantranco, against Ferrer,
Pantranco and the PSC. The Corporation prayed therein that all the orders of the PSC relative to
the parties' dispute over the said certificates be annulled. The CFI of Manila declared the sheriff's
sale of two certificates of public convenience in favor of Ferrer and the subsequent sale thereof by
the latter to Pantranco null and void; declared the Corporation to be the lawful owner of the said
certificates of public convenience; and ordered Ferrer and Pantranco, jointly and severally, to pay
the Corporation, the sum of P5,000.00 as and for attorney's fees. The case against the PSC was
dismissed. All parties appealed.
Issue: Whether the stipulation in the contract between Villarama and Pantranco, binds the
Corporation
Held: Villarama supplied the organization expenses and the assets of the Corporation, such as
trucks and equipment; there was no actual payment by the original subscribers of the amounts of
P95,000.00 and P100,000.00 as appearing in the books; Villarama made use of the money of the
Corporation and deposited them to his private accounts; and the Corporation paid his personal
accounts. Villarama himself admitted that he mingled the corporate funds with his own money.
These circumstances are strong persuasive evidence showing that Villarama has been too much
involved in the affairs of the Corporation to altogether negative the claim that he was only a part-
time general manager. They show beyond doubt that the Corporation is his alter ego. The
interference of Villarama in the complex affairs of the corporation, and particularly its finances, are
much too inconsistent with the ends and purposes of the Corporation law, which, precisely, seeks
to separate personal responsibilities from corporate undertakings. It is the very essence of
incorporation that the acts and conduct of the corporation be carried out in its own corporate name
because it has its own personality. The doctrine that a corporation is a legal entity distinct and
separate from the members and stockholders who compose it is recognized and respected in all
cases which are within reason and the law. 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
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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. Hence, the Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the
restrictive clause in the contract entered into by the latter and Pantranco is also enforceable and
binding against the said Corporation. For the rule is that a seller or promisor may not make use of a
corporate entity as a means of evading the obligation of his covenant. Where the Corporation is
substantially the alter ego of the covenantor to the restrictive agreement, it can be enjoined from
competing with the covenantee.
24. Marvel Bldg. v. David (1954) 94 Phil. 376
DOCTRINE: CORPORATIONS; CIRCUMSTANTIAL EVIDENCE SHOWING ONE-MAN
CORPORATION. — The existence of endorsed certificates discovered by internal revenue agents
between 1948 and 1949 in the possession of the Secretary-Treasurer of a supposed corporation;
the fact that twenty-five certificates were signed by its president for no justifiable reason; the fact
that its principal stockholder had made enormous profits and, therefore, had a motive to hide them
to evade the payment of taxes; the fact that the other subscribers had no incomes of sufficient
magnitude to justify their big subscriptions; the fact that the treasurer in the name of the alleged
corporation but were kept by the principal stockholder herself; the fact that the stockholders or the
directors never appeared to have ever met to discuss the business of the corporation; the fact that
she advanced big sums of money to the corporation without any previous arrangement or
accounting; and the fact that the books of accounts were kept as if they belonged to her alone —
are circumstantial evidence which are not only convincing but conclusive that she is the sole and
exclusive owner of all the shares of stock of the corporation and that the other partners are her
dummies. The doctrine of piercing the corporate veil does not apply in this case.
Facts: Upon consideration of the report with regards to the war profit tax case of Maria B. Castro,
the Secretary of Finance recommended the collection of war profit taxes from the latter. Pursuant
thereto, various properties including the Aguinaldo Building, Wise Building and
Dewey Boulevard Padre Faura Mansionwere seized by the CIR. An action was filed by the
plaintiffs enjoining the defendant CIR from selling at public auction the three properties since it
belong to Marvel Corporation and not to Maria B. Castro. Defendant claims that Maria B. Castro is
the sole and true owner of all the subscribed stocks of the Marvel Corporation including those
appearing to have been subscribed and paid for by other members. CFI of Manila
rendered judgment ordering the release of properties and enjoined CIR from selling the same. CIR
appealed.
Issue:
Whether or not Maria Castro is the owner of the share of stock of Marvel Building Corp.
Held:
Yes. The CIR presented evidence to prove his claim that Maria B. Castro the sole and true owner
of the share of stock Marvel Building Corp., this was the supposed endorsement in blank of the
shares of stock in the name of other incorporators. This evidence was testified by Aquino, Internal
Revenue examiner, Mariano, examiner and Crispin Llamado, undersecretary of Finance. Julio
Llamado who was at that time the bookkeeper of Marvel Building Corp also testified that he was
the one who had prepared the original certificates which was given by Maria for comparison with
the Articles of Incorporation and that he also prepared a stock certificates which was copied in the
Photostat presented in evidence.
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CIR was also able to submit an evidence, is the fact that the other stockholder did not have
incomes in such amounts during the time of the organization of the corporation in 1947 or
immediately thereto, as to enable them to pay full for their supposed subscription and that this
supposed subscribers fail to come to court to assert that they actually paid for their subscription
and are not mere dummies.
25. Cease v. CA (1979) 93 SCRA 483
DOCTRINE: This separate and distinct personality is merely a fiction created by law for the
convenience and to promote the ends of justice. The notion of corporate entity will be pierced or
disregarded, and the corporation will be treated merely as an association of persons or, where
there are two corporations, they will be merged as one, and being merely regarded as part or the
instrumentality of the other.
When Tiaong Milling adduced its defense and raised the issue of ownership , its corporate
existence already terminated through the expiration of its charter. Section 77 of the Corporation
Law provides that upon the expiration of the charter period, the corporation ceases to exist and is
dissolved ipso facto, except for the purposes connected with winding up and liquidation
FACTS: Forrest L. Cease, along with five other American citizens organized the Tiaong Milling and
Plantation Company, and acquired various properties in the course of its corporate existence, but
at the same time all the other original incorporators were bought out by Forrest Cease together
with five of his children and one Bonifacio Tirante. The charter of the company lapsed, and a year
later, Forrest Cease died. The company was disposed of among his children by extrajudicial
partition of his shares, but trouble arose as two of the children who wanted an actual division
sought the settlement of the estate of Forrest Cease, while the others wanted reincorporation and
proceeded to incorporate themselves into the F.L. Cease Plantation Company and registered it
with the Security Exchange Commission. A month after seeking the settlement of the estate by
initiating Special Proceeding No. 3893, the two children subsequently filed a civil case against the
other stockholders, asking that the Tiaong Milling and Plantation Corporation be declared identical
to F.L. Cease and that its properties be divided among his children as his intestate heirs. This was
however resisted by the latter, and the filing of a bond precluded the former from gaining
possession of the same.
ISSUE: Whether the properties of Tiaong Milling are also properties of the estate of Forrest Cease
RULING: Yes. The original incorporators were aliens, friends or third-parties in relation of one to
another, and in the course of its existence, it developed into a close family corporation. The Board
of Directors and stockholders belong to one family the head of which Forrest L. Cease always
retained the majority stocks and hence the control and management of its affairs. Generally, a
corporation is invested by law with a personality separate and distinct from that of the persons
composing it as well as from that of any other legal entity to which it may be related. By virtue of
this attribute, a corporation may not, generally, be made to answer for acts or liabilities of its
stockholders or those of the legal entities to which it may be connected, and vice versa. This
separate and distinct personality is, however, merely a fiction created by law for convenience and
to promote the ends of justice. For this reason, it may not be used or invoked for ends subversive
of the policy and purpose behind its creation or which could not have been intended by law to
which it owes its being. This is particularly true where the fiction is used to defeat public
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convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues,
perpetrate deception or otherwise circumvent the law. This is likewise true where the corporate
entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the
stockholders or of another corporate entity. In any of these cases, the notion of corporate entity will
be pierced or disregarded, and the corporation will be treated merely as an association of persons
or, where there are two corporations, they will be merged as one, the one being merely regarded
as part or the instrumentality of the other. Furthermore, when Tiaong Milling adduced its defense
and raised the issue of ownership, its corporate existence already terminated through the
expiration of its charter. Section 77 of Act No. 1459 (Corporation Law) provides that upon the
expiration of the charter period, the corporation ceases to exist and is dissolved ipso facto, except
for purposes connected with the winding up and liquidation. The provision allows a three-year,
period from expiration of the charter within which the entity gradually settles and closes its affairs,
disposes and convey its property and to divide its capital stock, but not for the purpose of
continuing the business for which it was established. At this terminal stage of its existence, Tiaong
Milling may no longer persist to maintain adverse title and ownership of the corporate assets as
against the prospective distributees when at this time it merely holds the property in trust, its
assertion of ownership is not only a legal contradiction, but more so, to allow it to maintain adverse
interest would certainly thwart the very purpose of liquidation and the final distribute loll of the
assets to the proper, parties.
26. Secosa v. Heirs of Francisco (2004) 433 SCRA 273
DOCTRINE: NO ground exists to justify the peircing of the ceil of the corporate fiction as to hold
the president of Dassad solidarily liable with it.
Facts: Francisco, an 18 year old 3rd year physical therapy student was riding a motorcycle. A sand
and gravel truck was traveling behind the motorcycle, which in turn was being tailed by the Isuzu
truck driven by Secosa. The Isuzu cargo truck was owned by Dassad Warehousing and Port
Services, Inc.. The three vehicles were traversing the southbound lane at a fairly high speed. When
Secosa overtook the sand and gravel truck, he bumped the motorcycle causing Francisco to fall.
The rear wheels of the Isuzu truck then ran over Francisco, which resulted in his instantaneous
death. Secosa left his truck and fled the scene of the collision.
The parents of Francisco, respondents herein, filed an action for damages against Secosa, Dassad
Warehousing and Port Services, Inc. and Dassad’s president, El Buenasucenso Sy.
The court a quo rendered a decision in favor of herein respondents; thus petitioners appealed the
decision to the Court of Appeals, which unfortunately affirmed the appealed decision in toto.
Hence, the present petition.
Issues:
(1) Whether or not Dassad Warehousing and Port Services, Inc. exercised the diligence of a good
father of a family in the selection and supervision of its employees; hence it cannot be held solidary
liable with the negligence of its employee.
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(2) Whether or not Dassad’s president, El Buenasucenso Sy, can be held solidary liable with co-
petitioners.
Held:
(1) No. Dassad Warehousing and Port Services, Inc. did not exercise the required diligence of a
good father of a family in the selection and supervision of its employees. Hence, it cannot be held
solidary liable with the negligence of its employee.
Article 2176 of the Civil Code provides:
Whoever by act or omission causes damage to another, there being fault or negligence, is obliged
to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
On the other hand, Article 2180, in pertinent part, states:
The obligation imposed by article 2176 is demandable not only for one’s own acts or omissions, but
also for those of persons for whom one is responsible x x x.
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in any
business or industry x x x.
The responsibility treated of in this article shall cease when the persons herein mentioned prove
that they observed all the diligence of a good father of a family to prevent damage.
Based on the foregoing provisions, when an injury is caused by the negligence of an employee,
there instantly arises a presumption that there was negligence on the part of the employer, which
however, may be rebutted by a clear evidence showing on the part of the employer that it
exercised the care and diligence of a good father of a family in the selection and supervision of his
employee.
In the selection of prospective employees, employers are required to examine them as to their
qualifications, experience, and service records. On the other hand, with respect to the supervision
of employees, employers should formulate standard operating procedures, monitor their
implementation, and impose disciplinary measures for breaches thereof. To establish these factors
in a trial involving the issue of explicit liability, employers must submit concrete proof, including
documentary evidence. The reason for this is to obviate the biased nature of the employer’s
testimony or that of his witnesses.
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In the case at bar, Dassad Warehousing and Port Services, Inc. failed to conclusively prove that it
had exercised the requisite diligence of a good father of a family in the selection and supervision of
its employees. Dassad Warehousing and Port Services, Inc. failed to support the testimony of its
lone witness, Edilberto Duerme, with documentary evidence which would have strengthened its
claim of due diligence in the selection and supervision of its employees. Such an omission is fatal
on account of which, Dassad can be rightfully held solidarily liable with its co-petitioner Secosa for
the damages suffered by the heirs of Francisco.
(2) No. Sy cannot be held solidarily liable with his co-petitioners. While it may be true that Sy is the
president of Dassad Warehousing and Port Services, Inc., such fact is not by itself sufficient to hold
him solidarily liable for the liabilities adjudged against his co-petitioners.
A corporation has a personality separate from that of its stockholders or members. The doctrine of
‘veil of corporation’ treats as separate and distinct the affairs of a corporation and its officers and
stockholders. As a rule, a corporation will be looked upon as a legal entity, unless and until
sufficient reason to the contrary appears. When the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an
association of persons. Also, the corporate entity may be disregarded in the interest of justice in
such cases as fraud that may work inequities among members of the corporation internally,
involving no rights of the public or third persons. In both instances, there must have been fraud and
proof of it.
The records of the case does not point toward the presence of any grounds enumerated above that
will justify the piercing of the veil of corporate entity such as to hold Sy, the president of Dassad
Warehousing and Port Services, Inc., solidarily liable with it.
Furthermore, the Isuzu cargo truck which ran over Francisco was registered in the name of Dassad
and not in the name of Sy. Secosa is an employee of Dassad and not of Sy. These facts showed
Sy’s exclusion from liability for damages arising from the death of Francisco.
Facts: Francisco, an 18 year old 3rd year physical therapy student was riding a motorcycle. A sand
and gravel truck was traveling behind the motorcycle, which in turn was being tailed by the Isuzu
truck driven by Secosa. The Isuzu cargo truck was owned by Dassad Warehousing and Port
Services, Inc.. The three vehicles were traversing the southbound lane at a fairly high speed. When
Secosa overtook the sand and gravel truck, he bumped the motorcycle causing Francisco to fall.
The rear wheels of the Isuzu truck then ran over Francisco, which resulted in his instantaneous
death. Secosa left his truck and fled the scene of the collision.
The parents of Francisco, respondents herein, filed an action for damages against Secosa, Dassad
Warehousing and Port Services, Inc. and Dassad’s president, El Buenasucenso Sy.
The court a quo rendered a decision in favor of herein respondents; thus petitioners appealed the
decision to the Court of Appeals, which unfortunately affirmed the appealed decision in toto.
Hence, the present petition.
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Issues:
(1) Whether or not Dassad Warehousing and Port Services, Inc. exercised the diligence of a good
father of a family in the selection and supervision of its employees; hence it cannot be held solidary
liable with the negligence of its employee.
(2) Whether or not Dassad’s president, El Buenasucenso Sy, can be held solidary liable with co-
petitioners.
Held:
(1) No. Dassad Warehousing and Port Services, Inc. did not exercise the required diligence of a
good father of a family in the selection and supervision of its employees. Hence, it cannot be held
solidary liable with the negligence of its employee.
Article 2176 of the Civil Code provides:
Whoever by act or omission causes damage to another, there being fault or negligence, is obliged
to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
On the other hand, Article 2180, in pertinent part, states:
The obligation imposed by article 2176 is demandable not only for one’s own acts or
omissions, but also for those of persons for whom one is responsible x x x.
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in any
business or industry x x x.
The responsibility treated of in this article shall cease when the persons herein mentioned prove
that they observed all the diligence of a good father of a family to prevent damage.
Based on the foregoing provisions, when an injury is caused by the negligence of an employee,
there instantly arises a presumption that there was negligence on the part of the employer, which
however, may be rebutted by a clear evidence showing on the part of the employer that it
exercised the care and diligence of a good father of a family in the selection and supervision of his
employee.
In the selection of prospective employees, employers are required to examine them as to their
qualifications, experience, and service records. On the other hand, with respect to the supervision
of employees, employers should formulate standard operating procedures, monitor their
implementation, and impose disciplinary measures for breaches thereof. To establish these factors
in a trial involving the issue of explicit liability, employers must submit concrete proof, including
documentary evidence. The reason for this is to obviate the biased nature of the employer’s
testimony or that of his witnesses.
In the case at bar, Dassad Warehousing and Port Services, Inc. failed to conclusively prove that it
had exercised the requisite diligence of a good father of a family in the selection and supervision of
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OUTLINE 1 - BUSINESS ORGANIZATION 2 Prof. M.I.P. Romero (2015 - 2016)
its employees. Dassad Warehousing and Port Services, Inc. failed to support the testimony of its
lone witness, Edilberto Duerme, with documentary evidence which would have strengthened its
claim of due diligence in the selection and supervision of its employees. Such an omission is fatal
on account of which, Dassad can be rightfully held solidarily liable with its co-petitioner Secosa for
the damages suffered by the heirs of Francisco.
(2) No. Sy cannot be held solidarily liable with his co-petitioners. While it may be true that Sy is the
president of Dassad Warehousing and Port Services, Inc., such fact is not by itself sufficient to hold
him solidarily liable for the liabilities adjudged against his co-petitioners.
A corporation has a personality separate from that of its stockholders or members. The doctrine of
‘veil of corporation’ treats as separate and distinct the affairs of a corporation and its officers and
stockholders. As a rule, a corporation will be looked upon as a legal entity, unless and until
sufficient reason to the contrary appears. When the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an
association of persons. Also, the corporate entity may be disregarded in the interest of justice in
such cases as fraud that may work inequities among members of the corporation internally,
involving no rights of the public or third persons. In both instances, there must have been fraud and
proof of it.
The records of the case does not point toward the presence of any grounds enumerated above that
will justify the piercing of the veil of corporate entity such as to hold Sy, the president of Dassad
Warehousing and Port Services, Inc., solidarily liable with it.
Furthermore, the Isuzu cargo truck which ran over Francisco was registered in the name of Dassad
and not in the name of Sy. Secosa is an employee of Dassad and not of Sy. These facts showed
Sy’s exclusion from liability for damages arising from the death of Francisco.
27. Concept Builders v. NLRC (1996) 257 SCRA 149
DOCTRINE: 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:
(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.
Methods of conducting the business.
Facts: Concept Builders, Inc., (CBI) 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 riggers. On November 1981, private
respondents’ were served individual written notices of termination of employment by CBI, effective
on 30 November 1981. It was stated in the individual notices that their contracts of employment
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had expired and the project in which they were hired had been completed. The National Labor
Relations Commission (NLRC) found it to be, the fact, however, that at the time of the termination
of private respondents’ employment, the project in which they were hired had not yet been finished
and completed. CBI had to engage the services of sub-contractors whose workers performed the
functions of private respondents. Aggrieved, 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 CBI. On 19 December 1984, the Labor Arbiter rendered judgment
ordering CBI to reinstate private respondents and to pay them back wages equivalent to 1 year or
300 working days. On 27 November 1985, the NLRC dismissed the motion for reconsideration filed
by CBI on the ground that the said decision had already become final and executory.
On 13 July 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution
on petitioner through the security guard on duty but the service was refused on the ground that CBI
no longer occupied the premises. On 26 September 1986, upon motion of private respondents, the
Labor Arbiter 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 dated 2 November 1989, that all the
employees inside CBI's premises claimed that they were employees of Hydro Pipes Philippines,
Inc. (HPPI) and not by CBI; that levy was made upon personal properties he found in the premises;
and that 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 CBI's premises so that he could proceed with the public auction sale of the
aforesaid personal properties on 7 November 1989. On 6 November 1989, 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 HPPI, of which he is the Vice-President. On 23
November 1989, Marabe, et. al. filed a "Motion for Issuance of a Break-Open Order," alleging that
HPPI and CBI were owned by the same incorporator/stockholders. They also alleged that petitioner
temporarily suspended its business operations in order to evade its legal obligations to them and
that Marabe, et. al. were willing to post an indemnity bond to answer for any damages which CBI
and HPPI may suffer because of the issuance of the break-open order. On 2 March 1990, the
Labor Arbiter issued an Order which denied private respondents motion for break-open order.
Private respondents then appealed to the NLRC. On 23 April 1992, the NLRC set aside the order
of the Labor Arbiter, issued a break-open order and directed private respondents to file a bond.
Thereafter, it directed the sheriff to proceed with the auction sale of the properties already levied
upon. It dismissed the third-party claim for lack of merit. CBI moved for reconsideration but the
motion was denied by the NLRC in a Resolution, dated 3 December 1992. Hence, the petition.
Issue: Whether the NLRC was correct in issuing the break-open order to levy the “HPPI properties”
located at CBI amd/or HPPI’s premises at 355 Maysan Road, Valenzuela, Metro Manila.
Held: Yes. The doctrine is APPLICABLE IN CASE AT BAR. 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 test in determining the applicability of the doctrine of piercing the veil of corporation 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
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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 prevent 'piercing the
corporate veil.' In applying the 'instrumentality' or 'alter ego' doctrine, the courts are concerned with
reality and not form, with how
28. Claparols v. CIR (1965) 65 SCRA 613
DOCTRINE: CORPORATIONS; PIECING THE VEIL OF CORPORATE EXISTENCE. — The ruling
in Sta. Cecilia Sawmills to the effect that the recoverable backwages shall be limited to only three
(3) months where the company had ceased operations, does not apply to a case where the
company after ceasing it as operations is succeeded by another company, which continued the
operations of the first entity, and its emergence was skillfully timed to avoid the financial liability
that already attached to its predecessor, and where the "avoiding-the-liability" scheme is patently
shown by the fact that 90% of the subscribed shares of stock of the second company was owned
by the same person and all the assets of the dissolved company were turned over to the new
company. The second company cannot seek the protective shield of a corporate function whose
veil could and should be pierced as it was deliberately and maliciously designed to evade its
financial obligation to its employees.
CORPORATIONS; NOTION OF LEGAL ENTITY CANNOT BE USED TO DEFEAT PUBLIC
CONVENIENCE. — When the notion of legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, the law will regard the corporation as an association of
persons, or in the case of two persons, will merge them into one. Thus, where a corporation is a
dummy and serves no business purpose and is intended only as a blind, the corporate fiction may
be ignored. And where a corporation is merely an adjunct, business conduct or alter ego of another
corporation the fiction of separate and distinct corporate entities should be disregarded.
FACTS: On August 6, 1957, a complaint for unfair labor practice was filed by herein private
respondent Allied Workers' Association, respondent Demetrio Garlitos and ten (10) respondent
workers against herein petitioners on account of the dismissal of respondent workers from
petitioner Claparols Steel and Nail Plant.
Court rendered its decision finding "Mr. Claparols guilty of union busting and" of having "dismissed
said complainants because of their union activities," and ordering respondents "(1) To cease and
desist from committing unfair labor practices against their employees and laborers; (2) To reinstate
said complainants to their former or equivalent jobs, as soon as possible, with back wages from the
date of their dismissal up to their actual reinstatement".
On January 23, 1965, petitioners filed an opposition alleging that under the circumstances
presently engulfing the company, petitioner Claparols could not personally reinstate respondent
workers; that assuming the workers are entitled to back wages, the same should only be limited to
three months pursuant to the court ruling in the case of Sta. Cecilia Sawmills vs. CIR (L-19273-74,
February 20, 1964); and that since Claparols Steel and Nail Plant ceased to operate on December
7, 1962, re-employment of respondent workers cannot go beyond December 7, 1962.
A reply to petitioner's opposition was filed by respondent workers, alleging among others, that
Claparols Steel and Claparols Steel and Nail Plant are one and the same corporation controlled by
petitioner Claparols, with the latter corporation succeeding the former.
ISSUE: Should the corporate veil of the present Claparols Steel and Nail Plant be pierced?
RATIONAL: PETITION IS HEREBY DENIED.
Yes. Respondent Court's findings that indeed the Claparols Steel and Nail Plant, which ceased
operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the
next day, July 1, 1957 up to December 7, 1962, when the latter finally ceased to operate, were not
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disputed by petitioners. It is very clear that the latter corporation was a continuation and successor
of the first entity, and its emergence was skillfully timed to avoid the financial liability that already
attached to its predecessor, the Claparols Steel and Nail Plant. Both predecessors and successor
were owned and controlled by the petitioner Eduardo Claparols and there was no break in the
succession and continuity of the same business. This "avoiding-the-liability" scheme is very patent,
considering that 90% of the subscribed shares of stocks of the Claparols Steel Corporation (the
second corporation) was owned by respondent (herein petitioner) Claparols himself, and all the
assets of the dissolved Claparols Steel and Nail Plant were turned over to the emerging Claparols
Steel 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.
WE agree with respondent Court of Industrial Relations, therefore, that the amount of back wages
recoverable by respondent workers from petitioners should be the amount accruing up to
December 7, 1962 when the Claparols Steel and Nail Plant ceased operations.
29. La Campana Coffee Factory v. Kaisahan (1953) 93 Phil 160
DOCTRINE: A subsidiary or auxiliary corporation which is created by a parent corporation merely
as an agent for the latter may sometimes be regarded as identical with the parent corporation,
especially if the stockholders or officers of the two corporations are substantially the same or their
system of operation unified. However, in this case, the attempt to make the two factories appear as
two separate businesses, when in reality they are but one, is but a device to defeat the ends of the
law and should not be permitted to prevail.
FACTS: Tan Tong has since 1932 been engaged in the business of buying and selling gaugau
under the trade name La Campana Gaugau Packing with an establishment in Binondo, Manila,
which was later transferred to España Extension, Quezon City, but on July 6, 1950, Tan Tong and
members of his family corporation known as La Campana Factory Co., Inc., with its principal office
located in the same place as that of La Campana Gaugau Packing.
On July 11, 1949, Tan Tong had entered into a collective bargaining agreement with the Philippine
Legion of Organized Workers, known as PLOW for short, to which the union of Tan Tong's
employees headed by Manuel E. Sadde was then affiliated. Seceding, however, from the PLOW,
Tan Tong's employees later formed their own organization known as Kaisahan Ng Mga
Manggagawa Sa La Campana, one of the herein respondents, and applied for registration in the
Department of Labor as an independent entity. Pending consideration of this application, the
Department gave the new organization legal standing by issuing it a permit as an affiliate to
the Kalipunan Ng Mga Manggagawa.
On July 19, 1951, the Kaisahan Ng Mga Manggagawa Sa La Campana, presented a demand for
higher wages and more privileges, the demand being addressed to La Campana Starch and
Coffee Factory, by which name they sought to designate, so it appears, the La Campana Gaugau
Packing and the La Campana Coffee Factory Co., Inc. As the demand was not granted and an
attempt at settlement through the mediation of the Conciliation Service of the Department of Labor
had given no result, the said Department certified the dispute to the Court of Industrial Relations on
July 17, 1951.
With the case already pending in the industrial court, the Secretary of Labor, on September 5,
1951, revoked the Kalipunan Ng Mga Kaisahang Manggagawa's permit as a labor union on the
strength of information received that it was dominated by subversive elements, and, in
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consequence, on the 20th of the same month, also suspended the permit of its affiliate, the
respondent Kaisahan.
From the court's order of January 15, 1952, following the revocation of the Kaisahan's permit, "La
Campana Gaugau and Coffee Factory" (combined name of La Campana Gaugau Packing and La
Campana Coffee Factory Co., Inc,) and the PLOW, which had been allowed to intervene as a party
having an interest in the dispute, filed separate motions for the dismissal of the case, among others
on the following grounds: that the action is directed against two different entities with distinct
personalities, with "La Campana Starch Factory" and the "La Campana Coffee Factory, Inc."; that
the petitioning union has no legal capacity to sue, because its registration as an organized union
has been revoked by the Department of Labor on September 5, 1951.
Several hearings were held on the above motions, in the course of which ocular inspections were
also made, and on the basis of the evidence received and the facts observed in the ocular
inspections, the Court of Industrial Relations denied the said motions in its order of January 14,
1952, because if found as a fact that: All the laborers working in the gaugau or in the coffee factory
receive their pay from the same person, the cashier, Miss Natividad Garcia, secretary of Mr. Tan
Tong; and they are transferred from the gaugau to the coffee and vice-versa as the management
so requires. There has been only one payroll for the entire La Campana personnel and only one
person preparing the same Miss Natividad Garcia, secretary of Mr. Tan Tong. But after the case at
bar was certified to this Court on July 17, 1951, the company began making separate payrolls for
the coffee factory and for the gaugau factory. And held that: there is only one management for the
business of gaugau and coffee with whom the laborers are dealing regarding their work. Hence,
the filing of action against the Ka Campana Starch and Coffee Factory is proper and justified. With
regards to the alleged lack of personality, it is to be noted that before the certification of the case to
this Court on July 17, 1951, the petitioner Kaisahan Ng Mga Manggagawa Sa La Campana, had a
separate permit from the Department of Labor. This permit was suspended on September 30,
1951.
Tan Tong and La Campana Coffee Factory, Inc., later joined by the PLOW, filed the present
petition for certiorari on the grounds that the Court of Industrial Relations had no jurisdiction to take
cognizance of the case, for the reason, according to them, "(1) that the petitioner La Campana
Coffee Factory, Inc. has only 14 employees, only 5 of whom are members of the respondent union
and therefore the absence of the jurisdictional number (30) as provided by sections 1 and 4 of
Commonwealth Act No. 103; and, (2) that the suspension of respondent union's permit by the
Secretary of Labor has the effect of taking away the union's right to collective bargaining under
section 2 of Commonwealth Act No. 213 and consequently, its personality to sue for ad in behalf of
its members."
ISSUE: Whether or not the Court of Industrial Relations had jurisdiction to take cognizance of the
case.
HELD: YES. As to the first ground, petitioners obviously do not question the fact that the number of
employees of the La Campana Gaugau Packing involved in the case is more than the jurisdictional
number (31) required by law, but they do contend that the industrial court has no jurisdiction to try
the case as against La Campana Coffee Factory, Inc. because the latter has allegedly only 14
laborers and only of these are members of the respondent Kaisahan. This contention loses force
when it is noted that, as found by the industrial court and this finding is conclusive upon us La
Campana Gaugau Packing and La Campana Coffee Factory Co. Inc., are operating under one
single management, that is, as one business though with two trade names. True, the coffee factory
is a corporation and, by legal fiction, an entity existing separate and apart from the persons
composing it, that is, Tan Tong and his family. But it is settled that this fiction of law, which has
been introduced as a matter of convenience and to subserve the ends of justice cannot be invoked
to further an end subversive of that purpose. Thus, in an appropriate case and in furtherance of the
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ends of justice, a corporation and the individual or individuals owning all its stocks and assets will
be treated as identical, the corporate entity being disregarded where used as a cloak or cover for
fraud or illegality. A subsidiary or auxiliary corporation which is created by a parent corporation
merely as an agency for the latter may sometimes be regarded as identical with the parent
corporation, especially if the stockholders or officers of the two corporations are substantially the
same or their system of operation unified.
In the present case Tan Tong appears to be the owner of the gaugau factory. And the coffee
factory, though an incorporated business, is in reality owned exclusively by Tan Tong and his
family. As found by the Court of industrial Relations, the two factories have but one office, one
management and one payroll, except after July 17. And above all, it should not be overlooked that,
as also found by the industrial court, the laborers of the gaugau factory and the coffee factory were
interchangeable, that is, the laborers from the gaugau factory were sometimes transferred to the
coffee factory and vice-versa. In view of all these, the attempt to make the two factories appears as
two separate businesses, when in reality they are but one, is but a device to defeat the ends of the
law (the Act governing capital and labor relations) and should not be permitted to prevail.
The second point raised by petitioners is likewise without merit. In the first place, there being more
than 30 laborers involved and the Secretary of Labor having certified the dispute to the Court of
Industrial Relations, that court duly acquired jurisdiction over the case. This jurisdiction was not
when the Department of Labor suspended the permit of the respondent Kaisahan as a labor
organization. For once jurisdiction is acquired by the Court of Industrial Relations it is retained until
the case is completely decided. In view of the foregoing, the petition is denied, with costs against
the petitioner.
30. Pamplona Plantation v. Tinghil (2005) 450 SCRA 421
DOCTRINE: The principle requiring the piercing of the corporate veil mandates courts to see
through the protective shroud that distinguishes one corporation from a seemingly separate on.
The corporate mask may be removed and the corporate veil pierced when a corporation is the
mere alter ego of another. The corporate character is not necessarily abrogated. It continues for
other legitimate objectives. However, it may be pierced In any of the instances cited in order to
promote substantial justice.
FACTS: Sometime in 1993, Petitioner Pamplona Plantations Company, Inc. was organized for
the purpose of taking over the operations of the coconut and sugar plantation of Hacienda
Pamplona located in Pamplona, Negros Oriental. It appears that Hacienda Pamplona was formerly
owned by a certain Mr. Bower who had in his employ several agricultural workers.
When the company took over the operation of Hacienda Pamplona in 1993, it did not absorb all the
workers of Hacienda Pamplona. Some, however, were hired by the company during harvest
season as coconut hookers or 'sakador,' coconut filers, coconut haulers, coconut scoopers or
'lugiteros,' and charcoal makers.
Sometime in 1995, Pamplona Plantation Leisure Corporation was established for the purpose of
engaging in the business of operating tourist resorts, hotels, and inns, with complementary
facilities.
Upon learning that some of the respondents attended the Pamplona Plantation Labor Independent
Union (PAPLIU) organizational meeting, Petitioner Jose Luis Bondoc, manager of the company,
did not allow respondents to work anymore in the plantation.
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Thereafter, respondents filed their respective complaints with the NLRC against petitioners for
unfair labor practice, illegal dismissal, underpayment, overtime pay, premium pay for rest day and
holidays, service incentive leave pay, damages, attorney's fees and 13th month pay.
On 09 October 1997, respondent Carlito Tinghil amended his complaint to implead Pamplona
Plantation Leisure Corporation.
The Labor Arbiter Jose G. Gutierrez rendered a decision finding respondents, except Rufino
Bacubac, Antonio Cañolas and Felix Torres who were complainants in another case, to be entitled
to separation pay.
Petitioners appealed the Labor Arbiter's decision to the NLRC. In the assailed decision dated 19
July 2000, the NLRC's Fourth Division reversed the Labor Arbiter, ruling that respondents, except
Carlito Tinghil, failed to implead Pamplona Plantation Leisure Corporation, an indispensable party
and that 'there exist no employer-employee relation between the parties.'
Respondents elevated the case to the CA wherein the Court of Appeals ruled that there was an
employer-employee relationship and that the respondents were regular employees.
Hence, this Petition.
Petitioners contend that the CA should have dismissed the case for the failure of respondents
(except Carlito Tinghil) to implead the Pamplona Plantation Leisure Corporation, an indispensable
party, for being the true and real employer.
Petitioners claim that, as a sugar and coconut plantation company separate and distinct from the
Pamplona Plantation Leisure Corporation, the petitioner-company is not the real party in interest.
ISSUE: W/N Pamplona Plantation Company is separate and distinct from Pamplona Leisure
Corporation
HELD: The court held that Pamplona Plantation Company is not separate and distinct from
Pamplona Leisure Corporation.
There is only one management which the laborers deal with regarding their work for both the
coconut plantation and the golf course. A portion of the plantation (also called Hacienda Pamplona)
had actually been converted into a golf course and other recreational facilities. The weekly payrolls
issued by petitioner-company bore the name "Pamplona Plantation Co., Inc." It is also a fact that
respondents all received their pay from the same person, Petitioner Bondoc — the managing
director of the company. Since the workers were working for a firm known as Pamplona Plantation
Co., Inc., the reason they sued their employer through that name was natural and understandable.
True, the Petitioner Pamplona Plantation Co., Inc., and the Pamplona Plantation Leisure
Corporation appear to be separate corporate entities. But it is settled that this fiction of law cannot
be invoked to further an end subversive of justice.
The principle requiring the piercing of the corporate veil mandates courts to see through the
protective shroud that distinguishes one corporation from a seemingly separate one. The
corporate mask may be removed and the corporate veil pierced when a corporation is the
mere alter ego of another.
Where badges of fraud exist, where public convenience is defeated, where a wrong is sought to be
justified thereby, or where a separate corporate identity is used to evade financial obligations to
employees or to third parties, the notion of separate legal entity should be set aside and the factual
truth upheld. When that happens, the corporate character is not necessarily abrogated. It continues
for other legitimate objectives. However, it may be pierced in any of the instances cited in order to
promote substantial justice.
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In the present case, the corporations have basically the same incorporators and directors and are
headed by the same official. Both use only one office and one payroll and are under one
management.
Thus, the attempt to make the two corporations appear as two separate entities, insofar as the
workers are concerned, should be viewed as a devious but obvious means to defeat the ends of
the law. Such a ploy should not be permitted to cloud the truth and perpetrate an injustice.
WHEREFORE, the Petition is DENIED, and the assailed Decision AFFIRMED.
31. Yu v. NLRC (1995) 245 SCRA 134
DOCTRINE:
It is basic that a corporation is invested by law with a personality separate and distinct from those
of the persons composing it as well as from that of any other legal entity to which it may be related
(Palay, Inc. et al. vs. Clave, et al., 124 SCRA 641 [1983]). The genuine nature of the sale to Twin
Ace is evidenced by the fact that Twin Ace was only a subsequent interested buyer. At the time
when termination notices were sent to its employees, TDI was negotiating with the First Pacific
Metro Corporation for the sale of its assets. Only after First Pacific gave up its efforts to acquire the
assets did Twin Ace or Tanduay Distillers come into the picture. Respondents-employees have not
presented any proof as to communality of ownership and management to support their contention
that the two companies are one firm or closely related. The doctrine of piercing the veil of corporate
entity applies when the corporate fiction is used to defeat public convenience, justify wrong, protect
fraud, or defend crime or where a corporation is the mere alter ego or business conduit of a person
(Indophil Textile Mill Workers Union vs. Calica, 205 SCRA 697, 703 [1992]). To disregard the
separate juridical personality of a corporation, the wrong-doing must be clearly and convincingly
established. It cannot be presumed (Del Rosario vs. NLRC, 187 SCRA 777, 780 [1990].
APPLICATION:
Tanduay Distillery, Inc. (TDI) had sold its assets to Twin Ace Holdings, Inc., which
assumed the name Tanduay Distillers. In the process, the 4 private respondents-employees’
services were terminated due to retrenchment. They sought reinstatement to their supposed
“former positions” and filed a case against TDI and petitioners (Tanduay Distillers’s
officers).The SC held that, although both Tanduay Distillers and TDI contained the name
“Tanduay,” petitioners and Tanduay Distillers were not one and the same as TDI. Hence, the
doctrine of piercing the veil of corporate entity was deemed inapplicable, because:
1) The sale to Twin Ace or Tanduay Distillers was a genuine one, especially since it was
only a subsequent interested buyer. (TDI first negotiated with First Pacific Metro
Corporations for the sale of its assets.)
2) There was no proof of communality of ownership and management between the two
corporations to show that they were one firm or closely related.
3) TDI as a corporation or its shares of stock were not purchased by Twin Ace. The buyer
limited itself to purchasing most of TDI’s assets, equipment, and machinery. Thus, Twin
Ace or Tanduay Distillers did not take over TDI’s corporate personality. The trade name
"Tanduay" went with the sale, because the new firm did business as Tanduay Distillers
and its main product of rum was sold as Tanduay Rum.
DOCTRINE:
The doctrine of piercing the veil of corporate entity applies when the corporate fiction is
used to defeat public convenience, justify wrong, protect fraud, or defend crime or where a
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corporation is the mere alter ego or business conduit of a person (Indophil Textile Mill
Workers Union vs. Calica). To disregard the separate juridical personality of a corporation, the
wrong-doing must be clearly and convincingly established. It cannot be presumed (Del
Rosario vs. NLRC) [Emphasis supplied.]
APPLICATION:
The doctrine was inapplicable, because there was no clause in the sale requiring Tanduay
Distillers to absorb TDI’s employees. Hence, respondents-employees were never Tanduay
Distillers’s employees and could not claim to be reinstated to their “former positions” under
such corporation.
FACTS:
 Fernando Duran, Eduardo Paliwan, Roque Estoce, and Rodrigo Santos were employees of
respondent corporation Tanduay Distillery, Inc. (TDI).
March 29, 1988: 22 TDI employees, including private respondents-employees, received a
memorandum from TDI terminating their services due to retrenchment, effective 30 days from
receipt thereof or not later than the close of business hours on April 28, 1988.
 April 26, 1988: All 22 employees filed an application for the issuance of a temporary
restraining order against their retrenchment.
 The labor arbiter issued the restraining order the following day.
However, due to the 20-day lifetime of the TRO and the on-going negotiations for the sale of
TDI to the First Pacific Metro Corporation, the retrenchment pushed through.
 June 1, 1988 (or after respondents-employees had ceased as such employees): A new buyer
of TDI's assets, Twin Ace Holdings, Inc. (under the Allied Bank Group), took over the
business. Twin Ace assumed the business name Tanduay Distillers.
 June 14, 1988: The First Pacific Metro Corporation moved that it be dropped as a party to the
case, because its projected purchase of TDI’s assets was not consummated.
 August 8, 1988: The employees filed a motion to implead herein petitioners James Yu and
Wilson Young, doing business under the name and style of Tanduay Distillers, as party
respondents in the said cases.
 Petitioners filed an opposition to the aforementioned motion, asserting that:
1) They are representatives of Tanduay Distillers, an entity distinct and separate from TDI,
the previous owner.
2) There is no employer-employee relationship between Tanduay Distillers and private
respondents.
 Respondents-employees filed a reply to the opposition stating that Yu, as officer-in-charge of
Tanduay Distillers, had informed the TDI labor union’s president of Tanduay Distillers'
decision to hire everybody with a clean slate on a probation basis.
 Respondents-employees filed an amended complaint against TDI, Yu and Young for unfair
labor practice, illegal lay off, and separation benefits.
 May 24, 1989: LA Daisy Cauton-Barcelona held that the retrenchment was illegal. She
ordered TDI “to reinstate the complainants to their former position with backwages up to the
time of the change of ownership, if one has taken place.”
 Only TDI appealed the said decision to the NLRC.
 June 18, 1991: The NLRC’s Second Division promulgated an affirmance decision.
 TDI filed a motion for reconsideration, but the same was denied on August 15, 1991.
 September 16, 1991: Respondents-employees filed a motion for execution.
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 April 24, 1992: TDI filed a manifestation stating that “At the hearing held on March 23, 1992,
the individual complainants agreed to be paid the total amount of P86,049.83, in full
satisfaction of TDI’s liability.” Rodrigo F. Santos would receive P20,282.03;
Roque Estoce, P20,092.50; Eduardo Daliwan, P19,973.40; and Fernando A. Duran,
P25,702.00.
 November 17, 1992: The NLRC, through LA Daniel C. Cueto, issued an order, stating that
the writ of execution should be issued against TDI, Yu and Young “to immediately reinstate
complainants X X X to their respective positions.”
 December 16, 1992: A writ of execution was issued by LA Cueto.
 To stop the implementation of the writ of execution, petitioners filed a petition for certiorari
before the NLRC.
 August 25, 1993: The NLRC dismissed the petition for certiorari.
 Petitioners filed a petition for certiorari before the SC.
ISSUE:
WON the fiction of separate and distinct corporate entities can be disregarded and brushed aside
in the present case
HELD: (Romero, Vitug, and Francisco, JJ., concur. Feliciano, J., took no part.)
NO. Petitioners and Tanduay Distillers were not one and the same as TDI. Hence, the order for
Tanduay Distillers (and petitioners) to reinstate respondents-employees was without legal and
factual basis.
 It is basic that a corporation is invested by law with a personality separate and distinct from
those of the persons composing it as well as from that of any other legal entity to which it may
be related (Palay, Inc., et al. vs. Clave, et al.)
Petitioners were working for Twin Ace Holdings Corporation. Although it conducted the rum
business under the name of Tanduay Distillers, Twin Ace was part of the Allied Bank Group.
The use of a similar sounding or almost identical name was an obvious device to capitalize on
the goodwill which Tanduay Rum had built over the years.
 The doctrine of piercing the veil of corporate entity applies when the corporate fiction is
used to defeat public convenience, justify wrong, protect fraud, or defend crime or where a
corporation is the mere alter ego or business conduit of a person (Indophil Textile Mill
Workers Union vs. Calica). To disregard the separate juridical personality of a corporation, the
wrong-doing must be clearly and convincingly established. It cannot be presumed (Del
Rosario vs. NLRC).
 The genuine nature of the sale to Twin Ace was evidenced by the fact that Twin Ace was
only a subsequent interested buyer. At the time when termination notices were sent to its
employees, TDI was negotiating with the First Pacific Metro Corporations for the sale of
its assets.
 Respondents-employees did not present any proof as to communality of ownership and
management to support their contention that the two companies were one firm or closely
related.
 The complaint was filed against TDI. It was only after the manufacture and sale of Tanduay
products was taken over by Twin Ace or Tanduay Distillers that Yu and Young were
impleaded. The corporation itself—Twin Ace or Tanduay Distillers—was never made a party
to the case.
 TDI as a corporation or its shares of stock were not purchased by Twin Ace. The buyer limited
itself to purchasing most of TDI’s assets, equipment, and machinery. Thus, Twin Ace or
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Tanduay Distillers did not take over TDI’s corporate personality. The trade name "Tanduay"
went with the sale, because the new firm did business as Tanduay Distillers and its main
product of rum was sold as Tanduay Rum.
 In the case, TDI was a party respondent represented by its own counsel.
In its memorandum filed on January 9, 1995, TDI, taking the side of its former employees,
argued that petitioners should also be held liable. If TDI and Tanduay Distillers were one and
the same group (or if one was a continuation of the other), then they would not be fighting
each other in this case.
 The circumstances of this case were different from the earlier decisions of the Court in labor
cases where the veil of corporate fiction was pierced.
 La Campana Coffee Factory, Inc. vs. Kaisahan ng Manggagawa sa La Campana
(KKM):
La Campana Coffee Factory, Inc. and La Campana Gaugau Packing were
substantially owned by the same person. They had one office, one management, and
a single payroll for both businesses. The laborers of the gaugau factory and the coffee
factory were also interchangeable, since the workers in one factory also worked in the
other factory.
 Claparols vs. Court of Industrial Relations:
The Claparols Steel and Nail Plant, which was ordered to pay its workers backwages,
ceased operations on June 30, 1956 and was succeeded on the very next day by the
Clarapols Steel Corporation. Both corporations were substantially owned and
controlled by the same person, and there was no break or cessation in operations.
Moreover, all the assets of the steel and nail plant were transferred to the new
corporation.
Petition granted.
No special pronouncement as to costs.
32. Indo-Phil Textile Mills v. Calica (1992) 205 SCRA 698
COMMERCIAL LAW; CORPORATION LAW; DOCTRINE OF PIERCING THE VEIL OF
CORPORATE ENTITY; EXPLAINED. — 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 or 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. (Umali et al. v. Court of Appeals, G.R. No. 89561, September 13, 1990, 189 SCRA
529, 542)
3. ID.; ID.; ID.; NOT APPLICABLE IN CASE AT BAR. — In the case at bar, petitioner seeks to
pierce the veil of corporate entity of Acrylic, alleging that the creation of the corporation is a devise
to evade the application of the CBA between petitioner Union and private respondent Company.
While we do not discount the possibility of the similarities of the businesses of private respondent
and Acrylic, neither are we inclined to apply the doctrine invoked by petitioner in granting the relief
sought. The fact that the businesses of private respondent and Acrylic are related, that some of the
employees of the private respondent are the same persons manning and providing for auxiliary
services to the units of Acrylic, and that the physical plants, offices and facilities are situated in the
same compound, it is our considered opinion that these facts are not sufficient to justify the
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piercing of the corporate veil of Acrylic. In the same case of Umali, et al. v. Court of Appeals (189
SCRA 529), We already emphasized that "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, petitioner does not seek to impose a claim against the members of the Acrylic.
Furthermore, We already ruled in the case of Diatagon Labor Federation Local 110 of the ULGWP
v. Ople (supra) that it is grave abuse of discretion to treat two companies as a single bargaining
unit when these companies are indubitably distinct entities with separate juridical personalities.
Hence, the Acrylic not being an extension or expansion of private respondent, the rank-and-file
employees working at Acrylic should not be recognized as part of, and/or within the scope of the
petitioner, as the bargaining representative of private respondent.
APPLICATION:
Petitioner Indophil Textile Mill Workers Union-PTGWO and private respondent Indophil
Textile Mills, Inc. executed a collective bargaining agreement effective from April 1, 1987
to March 31, 1990.
On November 3, 1987, Indophil Acrylic Manufacturing Corporation was formed and
registered with the Securities and Exchange Commission. In 1988, Acrylic became
operational and hired workers according to its own criteria and standards. Sometime in July
1989, Acrylic’s workers unionized and a duly certified collective bargaining agreement was
executed.
A year after Acrylic’s workers had been unionized and a CBA executed, the petitioner union
claimed that the plant facilities built and set up by Acrylic should be considered as an
extension or expansion of the facilities of private respondent Company. Petitioner emphasized
that the two corporations had practically the same incorporators, directors and officers. In fact,
of the total stock subscription of Indophil Acrylic, P1,749,970.00 which represents seventy
percent (70%) of the total subscription of P2,500,000.00 was subscribed to by respondent
Company. Petitioner sought to pierce Acrylic’s veil of corporate entity, alleging that the
creation of the corporation was a devise to evade the application of the CBA between
petitioner Union and private respondent Company.
The SC refused to apply the doctrine of piercing the veil of corporate entity and held that the
Indophil Acrylic Manufacturing Corporation was not an alter ego or an adjunct or business
conduit of private respondent. It has a separate legitimate business purpose. Private
respondent’s primary purpose was to engage in the business of manufacturing yarns of
various counts and kinds and textiles. On the other hand, Indophil Acrylic’s primary purpose
was to manufacture, buy, sell at wholesale basis, barter, import, export and otherwise deal in
yarns of various counts and kinds. Hence, Indophil Acrylic could not manufacture textiles
while private respondent could not buy or import yarns.
The Court held that the fact that the businesses of private respondent and Acrylic were
related; that some of the private respondent’s employees were the same persons manning
and providing for auxiliary services to the units of Acrylic; and that the physical plants, offices
and facilities were situated in the same compound were not sufficient to justify the piercing of
Acrylic’s corporate veil. [Emphasis supplied.]
DOCTRINE: (Also under the Doctrine of Piercing the Veil of Corporate Entity)
"[T]he legal corporate entity is disregarded only if it is sought to hold the officers and
stockholders directly liable for a corporate debt or obligation." (Umali, et al. v. Court of
Appeals)
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APPLICATION:
The legal corporate entity could not be disregarded, because petitioner did not seek to impose
a claim against Acrylic’s members.
FACTS OF THE CASE
In April, 1987, petitioner Indophil Textile Mill Workers Union-PTGWO and private respondent
Indophil Textile Mills, Inc. executed a collective bargaining agreement effective from April 1, 1987
to March 31, 1990. Meanwhile,Indophil Acrylic Manufacturing Corporation was formed and
registered with the Securities and Exchange Commission. Subsequently, Acrylic applied for
registration with the Board of Investments for incentives under the 1987 Omnibus Investments
Code. The application was approved on a preferred non-pioneer status. In 1988, Acrylic became
operational and hired workers according to its own criteria and standards. Sometime in July, 1989,
the workers of Acrylic unionized and a duly certified collective bargaining agreement was executed.
In 1990 or a year after the workers of Acrylic have been unionized and a CBA executed, the
petitioner union claimed that the plant facilities built and set up by Acrylic should be considered as
an extension or expansion of the facilities of private respondent Company pursuant to Section 1(c),
Article I of the CBA, to wit,. c) This Agreement shall apply to the Company's plant facilities and
installations and to any extension and expansion thereat.
In other words, it is the petitioner's contention that Acrylic is part of the Indophil bargaining unit.
The petitioner's contention was opposed by private respondent which submits that it is a juridical
entity separate and distinct from Acrylic. Voluntary Arbitrator ruled in favor of Indophil.
ISSUE
Whether Indophil Acrylic is a separate and distinct entity from respondent company for purposes of
union representation.
RULING
Yes. 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, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that the
creation of the corporation is a devise to evade the application of the CBA between petitioner
Union and private respondent Company. While we do not discount the possibility of the similarities
of the businesses of private respondent and Acrylic, neither are we inclined to apply the doctrine
invoked by petitioner in granting the relief sought. The fact that the businesses of private
respondent and Acrylic are related, that some of the employees of the private respondent are the
same persons manning and providing for auxiliary services to the units of Acrylic, and that the
physical plants, offices and facilities are situated in the same compound, it is our considered
opinion that these facts are not sufficient to justify the piercing of the corporate veil of Acrylic.
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Hence, the Acrylic not being an extension or expansion of private respondent, the rank-and-file
employees working at Acrylic should not be recognized as part of, and/or within the scope of the
petitioner, as the bargaining representative of private respondent.
33. Umali v. CA (1990) 189 SCRA 529
DOCTRINE:
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. [Emphasis supplied.]
APPLICATION:
Plaintiff Santiago Rivera was plaintiff Mauricia Meer Vda. de Castillo’s nephew. The Castillo
family were the owners of a parcel of land located in Lucena City which was given as security
for a loan from the Development Banks of the Philippines. For their failure to pay the
amortization, foreclosure of the said property was about to be initiated. Rivera proposed to
them the conversion into subdivision of the 4 parcels of land adjacent to the mortgaged
property to raise the necessary fund. A Memorandum of Agreement was executed by and
between Slobec Realty and Development, Inc., represented by its President Santiago
Rivera, and the Castillo family.
Rivera approached Mr. Modesto Cervantes, President of Bormaheco, and proposed to
purchase from Bormaheco 2 tractors. Bormaheco, Inc. and Slobec Realty and Development,
Inc., represented by Rivera, executed a Sales Agreement over one unit of Caterpillar Tractor
D-7. Slobec, through Rivera, executed in favor of Bormaheco a Chattel Mortgage over the
said equipment as security for the payment of the balance of P180,000.00.
As further security of the aforementioned unpaid balance, Slobec obtained from Insurance
Corporation of the Phil. (ICP) a Surety Bond. 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 Mauricia Meer Vda. de Castillo, Buenaflor Castillo Umali, Bertilla
Castillo Rada, Victoria Castillo, Marietta Castillo and Leovina Castillo Jalbuena, as
mortgagors and ICP as mortgagee.
For violation of the terms and conditions of the Counter-Guaranty Agreement, the Castillos’
properties were foreclosed by ICP. As the highest bidder, a Certificate of Sale was issued by
the Provincial Sheriff of Lucena City and Transfer Certificates of Title over the subject parcels
of land were issued by the Register of Deeds of Lucena City in favor of ICP. The mortgagors
failed to redeem the properties within 1 year from the date of the registration of the certificate
of sale. Consequently, a Deed of Sale of Real Estate covering the subject properties was
issued in favor of ICP.
The ICP sold to Phil. Machinery Parts Manufacturing Co. (PM Parts) the 4 parcels of land
and PM Parts transferred unto itself the titles over the lots. Its President, Mr. Modesto
Cervantes, sent a letter addressed to plaintiff Mrs. Mauricia Meer Castillo requesting her and
her children to vacate the subject property.
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Petitioners sought 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 petitioners’ real properties.
While the Court did not discount the possibility of the existence of fraud in the foreclosure
proceedings, it did not deem the piercing the veil of corporate entity as the proper remedy in
order that the foreclosure proceeding would be declared a nullity. Petitioners merely sought
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.
DOCTRINE:
The legal corporate entity would be disregarded only if it was sought to hold the officers and
stockholders directly liable for a corporate debt or obligation.
APPLICATION:
Petitioners did not seek to impose a claim against the individual members of the three
corporations involved; on the contrary, it was these corporations which desired to enforce an
alleged right against petitioners.
However, while the doctrine of piercing the veil of corporate entity was inapplicable to the
case, its inapplicability had no bearing on the good faith or bad faith of PM Parts.
Modesto N. Cervantes served as Vice-President (and later, President) of Bormaheco and as
member of the Board of Directors (and later, President) of PM Parts. In addition, Atty. Martin
de Guzman, who was the Executive Vice-President of Bormaheco, was also the legal
counsel of ICP and PM Parts.
Hence, the defense of good faith could not be resorted to by PM Parts which was charged
with knowledge of the true relations existing between Bormaheco, ICP and herein petitioners.
Accordingly, the transfer certificates of title issued in its name, as well as the certificate of
sale, must be declared null and void.
FACTS: Mauricia Castillo was the administratrix of a parcel of land left by Felipe Castillo. Said land
was given as security for a loan from the Development Bank of the Philippines and was about to be
foreclosed but Mauricia’s nephew, Santiago Rivera, proposed that they convert the land into
subdivisions so that they can raise the necessary money to avoid foreclosure. The Castillo family
agreed. Rivera carried out to develop said land through his company, Slobec Realty Corporation
(SRC), of which he was the president. SRC then contracted with Bormaheco, Inc. for the purchase
of two tractors. Bormaheco agreed to sell one tractor on an installment basis. At the same time,
SRC mortgaged said tractor to Bormaheco as security for payment of the balance. As additional
security, SRC obtained from Insurance Corporation of the Philippines (ICP) a surety bond which
was secured by a counter-guaranty agreement executed by Mauricia and other family members
whereby in case of default in paying said tractor, ICP shall pay the balance. The surety bond
agreement between Mauricia and ICP was secured by Mauricia’s aforementioned parcel of land.
SRC defaulted in paying said tractor. Bormaheco foreclosed the tractor but it wasn’t enough thus
ICP paid the deficiency. ICP then foreclosed the property of Mauricia; and later sold said property
to Philippine Machinery Parts Manufacturing Corporation (PMPMC). PMPMC then demanded
Mauricia et al to vacate the premises of said property.
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Later on, Buenaflor Umali, the judicial administratrix, questioned the foreclosure made by ICP.
Umali alleged that all the transactions are void for being entered into in fraud and without the
consent and approval of the CFI of Quezon, (Branch IX) before whom the administration
proceedings has been pending. CFI ruled in favor of the petitioners but the CA reversed said
decision. Hence, this petition.
ISSUE: W/N the veil of corporate entity should be pierced
HELD: NO. The Court is of 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 legal 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.
Assuming that petitioners were indeed defrauded by private respondents in the foreclosure of the
mortgaged properties, this fact alone is not, under the circumstances, sufficient to justify the
piercing of the corporate fiction, since petitioners do not intend to hold the officers and/or members
of respondent corporations personally liable therefor. 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.
34. First Phil. Int’l Bank 252 SCRA 259
DOCTRINE: In this case, petitioner also tried to seek refuge in the corporate fiction that the
personality of the Bank is separate and distinct from its shareholders. x x x In addition to the many
cases where the corporate fiction has been disregarded, the Court now adds the instant case, and
declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of
the prohibition against forum-shopping. Shareholders, whether suing as the majority in direct action
or as the minority in a derivative suit, cannot be allowed to trifle with court processes, particularly
where, as in this case, the corporation itself has not been remiss in vigorously prosecuting or
defending corporate causes and in using and applying remedies available to it. To rule otherwise
would be to encourage corporate litigants to use their shareholders as fronts to circumvent the
stringent rules against forum shopping.
FACTS: Producers Bank (now called First Philippine International Bank), which has been under
conservatorship since 1984, is the owner of 6 parcels of land. The Bank had an agreement with
Demetrio Demetria and Jose Janolo for the two to purchase the parcels of land for a purchase
price of P5.5 million pesos. The said agreement was made by Demetria and Janolo with the Bank’s
manager, Mercurio Rivera. Later however, the Bank, through its conservator, Leonida
Encarnacion, sought the repudiation of the agreement as it alleged that Rivera was not authorized
to enter into such an agreement, hence there was no valid contract of sale. Subsequently,
Demetria and Janolo sued Producers Bank. The regional trial court ruled in favor of Demetria et al.
The Bank filed an appeal with the Court of Appeals.
Meanwhile, Henry Co, who holds 80% shares of stocks with the said Bank, filed a motion for
intervention with the trial court. The trial court denied the motion since the trial has been concluded
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already and the case is now pending appeal. Subsequently, Co, assisted by ACCRA law office,
filed a separate civil case against Carlos Ejercito as successor-in-interest (assignee) of Demetria
and Janolo seeking to have the purported contract of sale be declared unenforceable against the
Bank. Ejercito et al argued that the second case constitutes forum shopping.
ISSUE: Whether or not there is forum shopping.
HELD: Yes. There is forum shopping because there is identity of interest and parties between the
first case and the second case. There is identity of interest because both cases sought to have the
agreement, which involves the same property, be declared unenforceable as against the Bank.
There is identity of parties even though the first case is in the name of the bank as defendant, and
the second case is in the name of Henry Co as plaintiff. There is still forum shopping here because
Henry Co essentially represents the bank. Both cases aim to have the bank escape liability from
the agreement it entered into with Demetria et al.
The Supreme Court also discussed that to combat forum shopping, which originated as a concept
in international law, the principle of forum non conveniens was developed. The doctrine of forum
non conveniens provides that a court, in conflicts of law cases, may refuse impositions on its
jurisdiction where it is not the most “convenient” or available forum and the parties are not
precluded from seeking remedies elsewhere
35. Almocera v. Ong (2008) 546 SCRA 164
DOCTRINE: The issue of piercing the veil of corporate fiction was never raised before the trial
court. The same was raised for the first time before the Court of Appeals, which ruled that it was
too late in the day to raise the same. The Court of Appeals declared “the pleadings and the
evidence of the defendants are one and the same and never had it made to appear that Almocera
is a person distinct and separate from FBMC. In fine, we cannot treat this error for the first time on
appeal. CA cannot in good conscience, let Almocera raise the issue of piercing the veil of corporate
fiction just because of the adverse decision against him.”
To allow petitioner to pursue such a defense would undermine basic considerations of due
process. Points of law, theories, issues and arguments not brought to the attention of the trial court
will not be and ought not to be considered by a reviewing court, as these cannot be raised for the
first time on appeal. It would be unfair to the adverse party who would have no opportunity to
present further evidence material to the new theory not ventilated before the trial court.
FACTS:
Johnny Ong tried to acquire from Almocera and First Builder Multi-Purpose Cooperative (FBMC) a
"townhome" (Unit No. 4 of Atrium Townhomes) in Cebu City. As reflected in a Contract to Sell, the
selling price of the unit was P3,400,000.00 pesos, for a lot area of 88 square meters with a three-
storey building. Out of the purchase price, plaintiff was able to pay the amount of P1,060,000.00.
Eventually, the unit was advertised in a local tabloid for public auction for foreclosure of mortgage.
It is the assertion of respondent that had it not been for the fraudulent concealment of the mortgage
and encumbrance by petitioners, he would have not entered into the contract to sell.
In trying to recover the amount he paid as down payment for the townhouse unit, respondent Ong
filed a complaint for Damages before the RTC of Cebu City, against Almocera and FBMC alleging
that petitioners were guilty of fraudulent concealment and breach of contract when they sold to him
a townhouse unit without divulging that the same, at the time of the perfection of their contract, was
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already mortgaged with the Land Bank of the Philippines (LBP), with the latter causing the
foreclosure of the mortgage and the eventual sale of the townhouse unit to a third person.
In their Answer, petitioners denied liability claiming that the foreclosure of the mortgage on the
townhouse unit was caused by the failure of Ong to pay the balance of the price of said townhouse
unit.
The RTC decision found Almocera and FBMC solidarily liable for damages, for not acting in good
faith and for not complying with their obligations under their contract with respondent. In the
Contract to Sell involving Unit 4 of the Atrium Townhomes.
Upon appeal, the Court of Appeals agreed with the finding of the trial court that the nonpayment of
the balance of P2.4M by Ong to petitioners was proper in light of such delay and the fact that the
property subject of the case was foreclosed and auctioned. It added that the trial court did not err in
giving credence to respondent’s assertion that had he known beforehand that the unit was used as
collateral with the LBP, he would not have proceeded in buying the townhouse.
ISSUE:
Whether or not Almocera should be solidarily liable with FBMC? (YES)
HELD:
Petitioner contends that he should not be held solidarily liable with FBMC, because the latter is a
separate and distinct entity which is the seller of the subject townhouse. He claims that he, as
Chairman and Chief Executive Officer of FBMC, cannot be held liable because his representing
FBMC in its dealings is a corporate act for which only FBMC should be held liable.
This issue of piercing the veil of corporate fiction was never raised before the trial court. The same
was raised for the first time before the Court of Appeals which ruled that it was too late in the day to
raise the same. As the Court of Appeals declared, the pleadings and the evidence of the
defendants are one and the same and never had it made to appear that Almocera is a person
distinct and separate from FBMC. In fine, we cannot treat this error for the first time on appeal. We
cannot in good conscience, let Almocera raise the issue of piercing the veil of corporate fiction just
because of the adverse decision against him.
To allow petitioner to pursue such a defense would undermine basic considerations of due
process. Points of law, theories, issues and arguments not brought to the attention of the trial court
will not be and ought not to be considered by a reviewing court, as these cannot be raised for the
first time on appeal. It would be unfair to the adverse party who would have no opportunity to
present further evidence material to the new theory not ventilated before the trial court.
*Piercing the veil of corporate fiction means that while the corporation cannot be generally held
liable for acts or liabilities of its stockholders or members, and vice versa because a corporation
has a personality separate and distinct from its members or stockholders, however, the corporate
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existence is disregarded under this doctrine when the corporation is formed or used for illegitimate
purposes, particularly, as a shield to perpetuate fraud, defeat public convenience, justify wrong,
evade a just and valid obligation or defend a crime.
36. Uy v. Villanueva (2007) 526 SCRA 73
DOCTRINE: Doctrine of piercing the veil of corporate fiction finds no application in the case.
Piercing the veil of corporate fiction may only be done when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime. The general rule is that a
corporation will be looked upon as a separate legal entity, unless and until sufficient reason to the
contrary appears. For the separate juridical personality of a corporation to be disregarded, the
wrongdoing must be clearly and convincingly established. It cannot be presumed. Mere ownership
by a single stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not in itself sufficient ground for disregarding the separate corporate personality.
In the case at bar, petitioners are not even stockholders of the bank but mere depositors. That they
assumed temporary control of the bank's administration did not change the character of their
relationship with the bank. In fact, their bid to convert their interest in the bank to that of
stockholders failed as the BSP denied their plan to rehabilitate the bank. H
Facts: Countrywide Bank experienced liquidity problems. A group of depositors met to organize
themselves into a Committee of Depositors for the purpose of protecting their collective interests
and to increase their chances of recovering their deposits. Felix Yusay was the Chairman of the
Interim Board of Directors and Atty. Andrea Uy was designated Secretary.The Committee of
Depositors assumed temporary administrative control of the remaining operations of the bank. BSP
subsequently placed the bank under receivership and appointed a liquidator. Meanwhile, the PDIC
commenced the processing of claims for return of deposits.Realizing that their bid to rehabilitate
the bank had failed, the Committee of Depositors disbanded.
Eventually, three cases for illegal dismissal were filed against Countrywide Bank before the NLRC.
One of which is Villanueva who avers that she was a regular employee who received a
memorandum from the Interim Board of Directors accepting her courtesy resignation. She,
however, denies that she submitted a written courtesy resignation.
The Labor Arbiter rendered a Decision that Atty. Andrea Uy and Felix Yusay are solidarily liable to
pay complainant Villanueva but Countrywide Bank filed an opposition to its execution through the
PDIC.
Thereafter, Labor Arbiter rendered a Resolution and Order for all three cases against Countrywide
Bank to have the complainants file their respective money claims as adjudged in the decisions
rendered in the above-entitled cases before the liquidation court for the latters approval of inclusion
in the Banks Distribution Plan.
ISSUES:
1.) WON Yusay and Uy are corporate officers of the bank
2.) WON Yusay and Uy are solidarily liable with Countrywide Bank
3.) WON Doctrine of Piercing the Veil can apply in this case
4.) WON LA acquired jurisdiction over the case
HELD:
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1.) NO. It has been held that an office is created by the charter of the corporation and the officer is
elected by the directors or stockholders. On the other hand, an employee usually occupies no
office and generally is employed not by action of the directors or stockholders but by the managing
officer of the corporation who also determines the compensation to be paid to such employee.
Given this distinction, petitioners are neither officers nor employees of the bank. They are mere
depositors who sought to manage the bank in order to save it.Petitioners assumed only limited
administrative control of the bank as part of the Committee of Depositors. The assumed temporary
control of the banks administration did not change the character of their relationship with the bank.
In fact, their bid to convert their interest in the bank to that of stockholders failed as the BSP denied
their plan to rehabilitate the bank.
2.) NO. A corporation is vested by law with a legal personality separate and distinct from those
acting for and in its behalf and, in general, from the people comprising it.The general rule is that
obligations incurred by the corporation, acting through its directors, officers, and employees, are its
sole liabilities. However, solidary liability may be incurred, but only under the following exceptional
circumstances:
1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or
assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in
directing the corporate affairs; (c) are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto;
3. When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation; or
4. When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.
Not one of these circumstances is present in this case.
3.) NO. The doctrine of piercing the veil of corporate fiction finds no application in the case.
Piercing the veil of corporate fiction may only be done when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime.The general rule is that a
corporation will be looked upon as a separate legal entity, unless and until sufficient reason to the
contrary appears. For the separate juridical personality of a corporation to be disregarded, the
wrongdoing must be clearly and convincingly established. It cannot be presumed. Mere ownership
by a single stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not in itself sufficient ground for disregarding the separate corporate personality.
4.) NO. Since the employer-employee relationship between petitioner Uy and respondent Bueno
was not established, the labor arbiter never acquired jurisdiction over petitioner Uy.The cases a
Labor Arbiter can hear and decide are employment-related.Even assuming that an employer-
employee relationship does exist between petitioners and private respondent, the former still
cannot be held liable with Countrywide Bank for the illegal dismissal of private respondent.
Corporate officers are not personally liable for the money claims of discharged corporate
employees, unless they acted with evident malice and bad faith in terminating their employment.
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C. Parent-Subsidiary Relationship:
37. Yutivo v. CTA (1961) 1 SCRA 160
DOCTRINE: Southern Motors was actually owned and controlled by Yutivo as to make it a mere
subsidiary or branch of the latter created for the purpose of selling vehicles at retail. Yutivo
financed principally, if not wholly, the business of Southern Motors and actually exceeded the credit
of the latter . At all times, Yutivo, through the officers and directors common to it and the Southern
Motors exercised full control over the cash funds, policies, expenditures and obligations of the
latter. Hence, Southern Motors, was a mere instrumentality or adjunct of Yutivo. The CTA correctly
disregarded the technical defense of separate corporate identity in order to arrive at the true tax
liability of Yutivo.
Facts: Yutivo, a domestic corporation incorporated in 1916 under Philippine laws, was engaged in
the importation and sale of hardware supplies and equipment. After the first world war, it resumed
its business and bought a number of cars and trucks from General Motors(GM), an American
Corporation licensed to do business in the Philippines.
On June 13, 1946, the Southern Motors Inc,(SM) was organized to engage in the
business of selling cars, trucks and spare parts. One of the subscribers of stocks during its
incorporation was Yu Khe Thai, Yu Khe Siong and Hu Kho Jin, who are sons of Yu Tiong Yee, one
of Yutivo’s founders. After SM’s incorporation and until the withdrawal of GM from the Philippines,
the cars and trucks purchased by Yutivo from GM were sold by Yutivo to SM which the latter sold
to the public.
Yutivo was appointed importer for Visayas and Mindanao by the US manufacturer of
cars and trucks sold by GM. Yutivo paid the sales tax prescribed on the basis of selling price to
SM. SM paid no sales tax on its sales to the public.
An assessment was made upon Yutivo for deficiency sales tax. The Collector of Internal
Revenue, contends that the taxable sales were the retail sales by SM to the public and not the
sales at wholesale made by Yutivo to the latter inasmuch as SM and Yutivo were one and the
same corporation, the former being a subsidiary of the latter.
The assessment was disputed by petitioner. After reinvestigation, a second assessment
was made, sustaining the validity of the first assessment. Yutivo contested the second
assessment, alleging that there is no valid ground to disregard the corporate personality of SM and
to hold that it is an adjunct of petitioner.
Issue: Whether or not the corporate personality of SM could be disregarded.
Held: Yes. A corporation is an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. However, when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons, or, in the case of two corporations, merge them into one.
When the corporation is a mere alter ego or business conduit of a person, it may be disregarded.
SC ruled that CTA was not justified in finding that SM was organized to defraud the
Government. SM was organized in June 1946, from that date until June 30, 1947, GM was the
importer of the cars and trucks sold to Yutivo, which in turn was sold to SM. GM, as importer was
the one solely liable for sales taxes. Neither Yutivo nor SM was subject to the sales taxes. Yutivo’s
liability arose only until July 1, 1947 when it became the importer. Hence, there was no tax to
evade.
However, SC agreed with the respondent court that SM was actually owned and
controlled by petitioner. Consideration of various circumstances indicate that Yutivo treated SM
merely as its department or adjunct:
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a. The founders of the corporation are closely related to each other by blood and affinity.
b. The object and purpose of the business is the same; both are engaged in sale of
vehicles, spare parts, hardware supplies and equipment.
c. The accounting system maintained by Yutivo shows that it maintained high degree of
control over SM accounts.
d. Several correspondences have reference to Yutivo as the head office of SM. SM may
even freely use forms or stationery of Yutivo.
e. All cash collections of SM’s branches are remitted directly to Yutivo.
f. The controlling majority of the Board of Directors of Yutivo is also the controlling
majority of SM.
g. The principal officers of both corporations are identical. Both corporations have a
common comptroller in the person of Simeon Sy, who is a brother-in-law of Yutivo’s
president, Yu Khe Thai.
h. Yutivo, financed principally the business of SM and actually extended all the credit to
the latter not only in the form of starting capital but also in the form of credits extended
for the cars and vehicles allegedly sold by Yutivo to SM.
38. Koppel v. Yatco (1946) 77 Phil 496
DOCTRINE: This case involved a complaint for the recovery of merchant sales tax paid by Koppel
(Philippines), Inc. under protest to the Collector of Internal Revenue. Although the Court of First
Instance did not deny legal personality to Koppel (Philippines), Inc. for any and all purposes, it
dismissed the complaint saying that in the transactions involved in the case, the public interest and
convenience would be defeated and would amount to a perpetration of tax evasion unless resort
was had to the doctrine of "disregard of the corporate fiction."
The facts show that 99.5% of the shares of stocks of K-Phil were owned by K-USA. K-Phil. acted
as a representative of K-USA and not as an agent. K-Phil. also bore alone its own incidental
expenses (e.g. Cable expenses) and also those of its “principal”. Moreover, K-Phil’s share in the
profits was left in the hands of K-USA. Clearly, K-Phil was a mere branch or dummy of K-USA,
and was therefore liable for merchant sales tax. To allow otherwise would be to sanction a
circumvention of our tax laws and permit a tax evasion of no mean proportion and the consequent
commission of a grave injustice to the Government. Moreover, it would allow the taxpayer to do by
indirection what the tax laws prohibit to be done directly.
CORPORATIONS; DISREGARD OF CORPORATE FICTION. — A corporation will be looked upon
as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the
notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, the law will regard the corporation as an association of persons.
CONTROL BY ANOTHER CORPORATION. — The corporate entity is disregard where it 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.
DOCTRINE: This case involved a complaint for the recovery of merchant sales tax paid by Koppel
(Philippines), Inc. under protest to the Collector of Internal Revenue. Although the Court of First
Instance did not deny legal personality to Koppel (Philippines), Inc. for any and all purposes, it
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dismissed the complaint saying that in the transactions involved in the case, the public interest and
convenience would be defeated and would amount to a perpetration of tax evasion unless resort
was had to the doctrine of "disregard of the corporate fiction."
The facts show that 99.5% of the shares of stocks of K-Phil were owned by K-USA. K-Phil. acted
as a representative of K-USA and not as an agent. K-Phil. also bore alone its own incidental
expenses (e.g. Cable expenses) and also those of its “principal”. Moreover, K-Phil’s share in the
profits was left in the hands of K-USA. Clearly, K-Phil was a mere branch or dummy of K-USA,
and was therefore liable for merchant sales tax. To allow otherwise would be to sanction a
circumvention of our tax laws and permit a tax evasion of no mean proportion and the consequent
commission of a grave injustice to the Government. Moreover, it would allow the taxpayer to do by
indirection what the tax laws prohibit to be done directly.
FACTS: Plaintiff is a corporation duly organized and existing under and by virtue of the laws of the
Philippines, with principal office therein at the City of Manila, the capital stock of the which is
divided into one thousand (1,000) shares of P100 each. The Koppel Industrial Car and Equipment
Company, a corporation organized and existing under the laws of the State of Pennsylvania,
United States of America, and not licensed to do business in the Philippines, owned nine hundred
and ninety-five (995) shares of the total capital stock of the plaintiff from the year 1928 up to and
including the year 1936, and the remaining five (5) shares only were and are owned one each by
officers of the plaintiff corporation.
That plaintiff, at all times material to this case, was and now is duly licensed to engage in business
as a merchant and commercial broker in the Philippines; and was and is the holder of the
corresponding merchant's and commercial broker's privilege tax receipts.
The shares of stock of plaintiff corporation were and are all owned by Koppel Industrial Car and
Equipment Company of Pennsylvania, U. S. A., except five which were necessary to qualify the
Board of Directors of said plaintiff corporation.
The plaintiff corporation bore alone incidental expenses as, for instance, cable expenses — not
only those of its own cables but also those of its "principal".
On April 1, 1930, a new local buyer, Mr. Cesar Barrios, of for $21.000 (P42,000) C. I. F. Hongkong.
The engines were shipped to Hongkong and a draft for $21,000 was drawn by Koppel Industrial
Car and Equipment Company on Mr. Cesar Barrios. After the draft was fully by Mr. Barrios, Koppel
Industrial Car and Equipment Company reimbursed plaintiff with cost price of $16,508.32 and
credited it with $1,152.95 as its share of the profit on the transaction.
Plaintiff within the time provided by law returned the amount of P132,201.30 for the purpose of the
commercial broker's 4 per cent tax and paid thereon the sum of P5,288.05 as such tax. Defendant
demanded of the plaintiff the sum of P664,122.51 as the merchants' sales tax which was paid
under protest by plaintiff. That defendant, on November 10, 1936, overruled plaintiff's protest, and
defendant has failed and refused and still fails and refuses, notwithstanding demands by plaintiff, to
return to the plaintiff said sun of p64,122.51 or any part thereof.
ISSUE: Whether or not plaintiff is in fact a branch or subsidiary of Koppel Industrial Car and
Equipment Co..
HELD: No. Koppel (Philippines), Inc., and Koppel Industrial Car and Equipment Company are to all
intents and purposes one and the same; or, to use another mode of expression, that, as regards
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those transaction s, the former corporation is a mere branch, subsidiary or agency of the latter. To
our mind this is conclusively borne out by the fact, among others, that the amount of the so-called
"share in the profits of Koppel (Philippines) Inc., was ultimately left to the sole, underlined control of
Koppel Industrial Car and Equipment Company. we can not conceive how the Philippine
corporation could effectively go against the policies, decisions, and desires of the American
corporation with regard to the scheme which was devised through the instrumentality of the
contract Exhibit H, as well as all the other details of the system which was adopted in order to
avoid paying the 1 1/2 per cent merchants' sales tax. Neither can we conceive how the Philippine
corporation could avoid following the directions of the American corporation in every other
transaction where they had both to intervene, in view of the fact that the American corporation held
99.5 per cent of the capital stock of the Philippine corporation. In the present instance, we note that
Koppel (Philippines), Inc., was represented in the Philippines by its "resident Vice-President." This
fact necessarily leads to the inference that the corporation had at least a Vice-President, and
presumably also a President, who were not resident in the Philippines but in America, where the
parent corporation is domiciled. If Koppel (Philippines), Inc., had been intended to operate as a
regular domestic corporation in the Philippines, where it was formed, the record and the evidence
do not disclose any reason why all its officers should not reside and perform their functions in the
Philippines.
The act of one corporation crediting or debiting the other for certain items, expenses or even
merchandise sold or disposed of, is perfectly compatible with the idea of the domestic entity being
or acting as a mere branch, agency or subsidiary of the parent organization.
39. CIR v. Norton and Harrison 11 SCRA 714
DOCTRINE: The Doctrine of piercing the veil of corporation fiction applies to this case. The two
corporations have the same board of directors and Norton and Harrison owned substantially all of
the stocks of Jackbilt, which facts justify the conclusion that the latter is merely an extension of the
personality of the former, and that the former controls the policies of the latter. Added to this is the
fact that Norton and Harrison controls the finances of Jackbilt which is merely an adjunct, business
conduit or alter ego of Norton and Harrison.
FACTS: Norton and Harrison is a corporation organized in 1911, (1) to buy and sell at wholesale
and retail, all kinds of goods, wares, and merchandise; (2) to act as agents of manufacturers in the
United States and foreign countries; and (3) to carry on and conduct a general wholesale and retail
mercantile establishment in the Philippines. Jackbilt is, likewise, a corporation organized on
February 16, 1948 primarily for the purpose of making, producing and manufacturing concrete
blocks. In 1948, Norton and Jackbilt entered into an agreement whereby Norton was made the sole
and exclusive distributor of concrete blocks manufactured by Jackbilt. Pursuant to this agreement,
whenever an order for concrete blocks was received by the Norton & Harrison Co. from a
customer, the order was transmitted to Jackbilt which delivered the merchandise direct to the
customer. Payment for the goods is, however, made to Norton, which in turn pays Jackbilt the
amount charged the customer less a certain amount, as its compensation or profit. However in
1953, the agency was terminated and instead entered into a management agreement which
provides that Norton would sell concrete blocks for Jackbilt, for a fixed monthly fee of P2,000.00,
which was later increased to P5,000.00.
During the existence of the distribution or agency agreement, or on June 10, 1949, Norton &
Harrison acquired by purchase all the outstanding shares of stock of Jackbilt. Apparently, due to
this transaction, the Commissioner of Internal Revenue, after conducting an investigation,
assessed the respondent Norton & Harrison for deficiency sales tax and surcharges in the amount
of P32,662.90, making as basis thereof the sales of Norton to the Public. The Commissioner of
Internal Revenue contends that since Jackbilt was owned and controlled by Norton & Harrison, the
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corporate personality of the former (Jackbilt) should be disregarded for sales tax purposes, and the
sale of Jackbilt blocks by petitioner to the public must be considered as the original sales from
which the sales tax should be computed. The CTA then held in favor of Norton and Harrison stating
that the distributorship agreement of July 27, 1948, is denominated by the parties themselves as
an "agency for marketing" JACKBILT products. Thus, this petition.
ISSUE: whether or not Norton can be made liable for the debts of Jackbilt
HELD: Yes, Norton is to be held liable for the deficiency sales taxes. The doctrine of piercing the
veil of corporation fiction applies to this case. The two corporations have the same board of
directors and Norton and Harrison owned substantially all of the stocks of Jackbilt, which facts
justify the conclusion that the latter is merely an extension of the personality of the former, and that
the former controls the policies of the latter. Added to this is the fact that Norton and Harrison
controls the finances of Jackbilt which is merely an adjunct, business conduit or alter ego of Norton
and Harrison.
It may not be amiss to state in this connection, the advantages to Norton in maintaining a
semblance of separate entities. If the income of Norton should be considered separate from the
income of Jackbilt, then each would declare such earning separately for income tax purposes and
thus pay lesser income tax. The combined taxable Norton-Jackbilt income would subject Norton to
a higher tax.
WHEREFORE, the decision appealed from should be as it is hereby reversed and another entered
making the appellee Norton & Harrison liable for the deficiency sales taxes assessed against it by
the appellant Commissioner of Internal Revenue
40. Jardine Davis Inc. v. JRB Realty (2005) 463 SCRA 555
DOCTRINE: 1. COMMERCIAL LAW; CORPORATION LAW; CORPORATIONS; DOCTRINE OF
PIERCING THE VEIL OF CORPORATE FICTION; WHEN APPLICABLE; RATIONALE BEHIND
THE DOCTRINE. — It is an elementary and fundamental principle of corporation law that a
corporation is an artificial being invested by law with a personality separate and distinct from its
stockholders and from other corporations to which it may be connected. While a corporation is
allowed to exist solely for a lawful purpose, the law will regard it as an association of persons or in
case of two corporations, merge them into one, when this corporate legal entity is used as a cloak
for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction which applies only
when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud or
defend crime. The rationale behind piercing a corporation's identity is to remove the barrier
between the corporation from the persons comprising it to thwart the fraudulent and illegal
schemes of those who use the corporate personality as a shield for undertaking certain proscribed
activities.
2. ID.; ID.; ID.; ID.; REQUISITES; A SUBSIDIARY HAS AN INDEPENDENT AND SEPARATE
JURIDICAL PERSONALITY DISTINCT FROM THAT OF ITS PARENT COMPANY; CASE AT
BAR. — While it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow
that Aircon's corporate legal existence can just be disregarded. In Velarde v. Lopez, Inc., the Court
categorically held that a subsidiary has an independent and separate juridical personality, distinct
from that of its parent company; hence, any claim or suit against the latter does not bind the
former, and vice versa. In applying the doctrine, the following requisites must be established: (1)
control, not merely majority or complete stock control; (2) such control must have been used by the
defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest acts in contravention of plaintiff's legal rights; and (3) the aforesaid control and
breach of duty must proximately cause the injury or unjust loss complained of. The records bear
out that Aircon is a subsidiary of the petitioner only because the latter acquired Aircon's majority of
capital stock. It, however, does not exercise complete control over Aircon; nowhere can it be
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gathered that the petitioner manages the business affairs of Aircon. Indeed, no management
agreement exists between the petitioner and Aircon, and the latter is an entirely different entity
from the petitioner.
FACTS: JRB Realty, Inc. built a bulding. An air conditioning system was needed for the Blanco
Law Firm housed at the second floor of the building which led them to accept a contract with Aircon
for installation of 2 Fedders Adaptomatic air conditioning equipment. However, the said units were
not delivering their desired temperature. Despite several adjustments and corrective measures, the
respondent conceded that Fedders Air Conditioning USAs technology for rotary compressors for
big capacity conditioners like those installed at the Blanco Center had not yet been perfected. The
parties thereby agreed to replace the units with reciprocating/semi-hermetic compressors instead.
Aircon stated that it would be replacing the units currently installed with new ones without
specifying the date. TempControl Systems, Inc. (a subsidiary of Aircon until 1987) undertook the
maintenance of the units. JRB Realty learned that Maxim was the new and exclusive licensee of
Fedders Air Conditioning USA in the Philippines for the manufacture, distribution, sale, installation
and maintenance of Fedders air conditioners. The respondent requested that Maxim honor the
obligation of Aircon, but the latter refused. Considering that the ten-year period of prescription was
fast approaching, the respondent then instituted an action for specific performance with damages
against Aircon & Refrigeration Industries, Inc., Fedders Air Conditioning USA, Inc., Maxim
Industrial & Merchandising Corporation and petitioner Jardine Davies, Inc. The latter was
impleaded as defendant, considering that Aircon was a subsidiary of the petitioner. The RTC and
CA ruled in favor of JRB.
ISSUE: Whether or not Jardine Davis Inc. shall be held liable for the alleged contractual breach of
Aircon solely because the latter was formerly Jardines subsidiary
HELD: It is an elementary and fundamental principle of corporation law that a corporation is an
artificial being invested by law with a personality separate and distinct from its stockholders and
from other corporations to which it may be connected. While a corporation is allowed to exist solely
for a lawful purpose, the law will regard it as an association of persons or in case of two
corporations, merge them into one, when this corporate legal entity is used as a cloak for fraud or
illegality.This is the doctrine of piercing the veil of corporate fiction which applies only when such
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend
crime. The rationale behind piercing a corporations identity is to remove the barrier between the
corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those
who use the corporate personality as a shield for undertaking certain proscribed activities
While it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow
that Aircons corporate legal existence can just be disregarded. In Velarde v. Lopez, Inc., the Court
categorically held that a subsidiary has an independent and separate juridical personality, distinct
from that of its parent company; hence, any claim or suit against the latter does not bind the
former, and vice versa. In applying the doctrine, the following requisites must be established: (1)
control, not merely majority or complete stock control; (2) such control must have been used by the
defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest acts in contravention of plaintiffs legal rights; and (3) the aforesaid control and
breach of duty must proximately cause the injury or unjust loss complained of.
The records bear out that Aircon is a subsidiary of the petitioner only because the latter
acquired Aircons majority of capital stock. It, however, does not exercise complete control over
Aircon; nowhere can it be gathered that the petitioner manages the business affairs of Aircon.
Indeed, no management agreement exists between the petitioner and Aircon, and the latter is an
entirely different entity from the petitioner.
In the instant case, there is no evidence that Aircon was formed or utilized with the
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intention of defrauding its creditors or evading its contracts and obligations. There was nothing
fraudulent in the acts of Aircon in this case. Aircon, as a manufacturing firm of air conditioners,
complied with its obligation of providing two air conditioning units for the second floor of the Blanco
Center in good faith, pursuant to its contract with the respondent. Unfortunately, the performance of
the air conditioning units did not satisfy the respondent despite several adjustments and corrective
measures. In a Letter dated October 22, 1980, the respondent even conceded that Fedders Air
Conditioning USA has not yet perhaps perfected its technology of rotary compressors, and agreed
to change the compressors with the semi-hermetic type. Thus, Aircon substituted the units with
serviceable ones which delivered the cooling temperature needed for the law office. After enjoying
ten (10) years of its cooling power, respondent cannot now complain about the performance of
these units, nor can it demand a replacement thereof.
41. PNB v. Ritratto Group (2001) 362 SCRA 216
 GENERAL RULE: a legal entity, a corporation has a personality distinct and separate
from its individual stockholders or members, and is not affected by the personal rights,
obligations and transactions of the latter. The mere fact that a corporation owns all of the
stocks of another corporation, taken alone is not sufficient to justify their being treated as
one entity. If used to perform legitimate functions, a subsidiary's separate existence may
be respected, and the liability of the parent corporation as well as the subsidiary will be
confined to those arising in their respective business. The courts may in the exercise of
judicial discretion step in to prevent the abuses of separate entity privilege and pierce the
veil of corporate entity
 The stock ownership alone by one corporation of the stock of another does not thereby
render the dominant corporation liable for the torts of the subsidiary UNLESS the
separate corporate existence of the subsidiary is a mere sham, or unless the control of
the subsidiary is such that it is but an instrumentality or adjunct of the dominant
corporation
 REITERATED THE RULING in Garett vs. Southern Railway Co
o The Circumstances rendering the subsidiary an instrumentality. It is manifestly
impossible to catalogue the infinite variations of fact that can arise but there
are certain common circumstances which are important and which, if present
in the proper combination, are controlling. These are as follows; (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.
FACTS: On May 29, 1996, PNB International Finance Ltd. (PNB-IFL), a subsidiary company of
petitioner Philippine National Bank (PNB), and respondents entered into loan contracts whereby
the former extended credit facility in favor of the latter secured by real estate mortgages constituted
over four (4) parcels of land in Makati City. When respondents failed to pay their obligations, a
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foreclosure proceeding was instituted by PNB-IFL, through its attorney-in-fact, PNB. Hence,
respondents 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.
Respondents anchored their prayer for injunction on alleged invalid provisions of the contract.
Petitioner 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 trial court granted respondents'
application for preliminary injunction and eventually denied petitioner's motion for lack of merit.
Applying the doctrine of "Piercing the Veil of Corporate Identity," the trial court ruled that since
PNB-IFL is a wholly owned subsidiary of petitioner PNB, the suit against the petitioner is a suit
against PNB-IFL. A petition for certiorari and prohibition was thereafter filed by the petitioner before
the Court of Appeals, but the same was denied by the appellate court. Hence, petitioner sought
recourse before the Supreme Court.
ISSUE: Whether or not PNB is an alter ego or insrumentality of PNB-IFL
RULING: No.
In granting the petition, the Court held that the respondents do not have a cause of action against
the petitioner, as the latter was not a privy to the contract the provisions of which respondents seek
to declare void.
The Court found the doctrine of piercing the corporate veil based on the alter ego or instrumentality
doctrine inapplicable in the case at bar. Aside from the fact that PNB-IFL is a wholly owned
subsidiary of petitioner PNB, there was no showing of the indicative factors that the former
corporation was a mere instrumentality of the latter are present. Neither was there a demonstration
that any of the evils sought to be prevented by the doctrine of piercing the corporate veil exist.
The general rule is that as a legal entity, a corporation has a personality distinct and separate from
its individual stockholders or members, and is not affected by the personal rights, obligations and
transactions of the latter. The mere fact that a corporation owns all of the stocks of another
corporation, taken alone is not sufficient to justify their being treated as one entity. If used to
perform legitimate functions, a subsidiary's separate existence may be respected, and the liability
of the parent corporation as well as the subsidiary will be confined to those arising in their
respective business. The courts may in the exercise of judicial discretion step in to prevent the
abuses of separate entity privilege and pierce the veil of corporate entity. AC
While there exists no definite test of general application in determining when a subsidiary may be
treated as a mere instrumentality of the parent corporation, some factors have been identified that
will justify the application of the treatment of the doctrine of the piercing of the corporate veil.||| Said
Court then outlined the circumstances in Garett vs. Southern Railway Co.||| which may be useful in
the determination of whether the subsidiary is but a mere instrumentality of the parent-corporation.
The Circumstances rendering the subsidiary an instrumentality. ||| It is manifestly impossible to
catalogue the infinite variations of fact that can arise but there are certain common circumstances
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which are important and which, if present in the proper combination, are controlling. These are as
follows;
(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.|||
42. Pantranco v. NLRC. (G.R. No. 170689) March 17, 2009
DOCTRINE:
 When one corporation sells or otherwise transfers all its assets to another
corporation for value, the latter is not, by that fact alone, liable for the debts and
liabilities of the transferor
 The mere fact that a corporation owns all of the stocks of another corporation, taken
alone, is not sufficient to justify their being treated as one entity. If used to perform
legitimate functions, a subsidiary's separate existence shall be respected, and the
liability of the parent corporation as well as the subsidiary will be confined to those
arising in their respective businesses.
 Reiterated the ruling in PNB v. Ritratto Group, Inc: outlined the circumstances
which are useful in the determination of whether a subsidiary is but a mere
instrumentality of the parent-corporation, to wit:
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;
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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.
FACTS:
Pantranco Employees Association (PEA) and Pantranco Retrenched Employees
Association (PANREA) pray that the CA decision be set aside and a new one be entered, declaring
the Philippine National Bank (PNB) and PNB Management and Development Corporation (PNB-
Madecor) jointly and solidarily liable for theP722,727,150.22 National Labor Relations Commission
(NLRC) judgment in favor of the Pantranco North Express, Inc. (PNEI) employees. PNB likewise
prays that the auction sale of the Pantranco properties be declared null and void.
On July 5, 2002, the Labor Arbiter issued the Sixth Alias Writ of Execution commanding
the NLRC Sheriffs to levy on the assets of PNEI in order to satisfy theP722,727,150.22 due its
former employees, as full and final satisfaction of the judgment awards in the labor cases. The
sheriffs were likewise instructed to proceed against PNB, PNB-Madecor and Mega Prime. The
property levied upon were the four valuable pieces of real estate located at the corner of Quezon
and Roosevelt Avenues, on which the former Pantranco Bus Terminal stood.
On September 10, 2002, the Labor Arbiter declared that the subject Pantranco
properties were owned by PNB-Madecor. It being a corporation with a distinct and separate
personality, its assets could not answer for the liabilities of PNEI. Considering, however, that PNB-
Madecor executed a promissory note in favor of PNEI for P7,884,000.00, the writ of execution to
the extent of the said amount was concerned was considered valid. On appeal to the NLRC, the
same was denied and the Labor Arbiters disposition was affirmed. On June 3, 2005, the CA
rendered the assailed decision affirming the NLRC resolutions. The appellate court pointed out that
PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct from
PNEI. As such, there being no cogent reason to pierce the veil of corporate fiction, the separate
personalities of the above corporations should be maintained.
ISSUE:
WON PNB is solidarily liable to the employees
HELD:
NO. The subject property is not owned by the judgment debtor, that is, PNEI. Nowhere in the
records was it shown that PNEI owned the Pantranco properties. Petitioners, in fact, never alleged
in any of their pleadings the fact of such ownership, the properties were owned by Macris, the
predecessor of PNB-Madecor. Hence, they cannot be pursued against by the creditors of PNEI.
Further, PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and
distinct from that of PNEI. PNB was only a stockholder of PNB-Madecor which later sold its shares
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OUTLINE 1 - BUSINESS ORGANIZATION 2 Prof. M.I.P. Romero (2015 - 2016)
to Mega Prime; and that PNB-Madecor was the owner of the Pantranco properties. Moreover,
these corporations are registered as separate entities and, absent any valid reason, we maintain
their separate identities and we cannot treat them as one. The court further assailed that settled is
the rule that where one corporation sells or otherwise transfers all its assets to another corporation
for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor. And
under the doctrine of piercing the veil of corporate fiction, the court looks at the corporation as a
mere collection of individuals or an aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the corporation unifying the group.
43. Garrett v. Southern Railways 173 F. Supplement 915
DOCTRINE:
 The general rule is that stock ownership alone by one corporation of the stock of another
does not thereby render the dominant corporation liable for the torts of the subsidiary
unless the separate corporate existence of the subsidiary is a mere sham, or unless the
control of the subsidiary is such that it is but an instrumentality or adjunct of the dominant
corporation.
 corporation is ordinarily an entity, separate and apart from its stockholders, and mere
ownership of all the stock of one corporation by another, and the identity of officers of
one with officers of another, are not alone sufficient to create identity of corporate
interest between the two companies or to create the relation of principal and agent or to
create a representative or fiduciary relationship between the two.
 If such stock ownership and potential control be resorted to only for the purpose of
normally participating in the affairs of the subsidiary corporation in a manner usual to
stockholders and not for the purpose of taking some unfair advantage of the subsidiary
or using it as a mere adjunct to the main corporation or as a subterfuge to justify
wrongdoing, their identity as separate corporations will not be disregarded but their
respective rights when dealing with each other in respect to their separate property will
be recognized and maintained.
 The extent of stock ownership and mere potential control of one company over another
has never been regarded as the determining factor in the consideration of such cases.
Something must be disclosed to indicate the exercise of undue domination or influence
resulting in an infringement upon the rights of the subservient corporation for the benefit
of the dominant one. Otherwise, the rights of the separate corporations in respect to their
corporate property must be governed by the rules applicable in ordinary cases
 Instrumentality rule between parent and subsidiary corporation, there must be present in
addition to the elements of control through stock ownership and common directorates
and officers, elements of fraud or wrongdoing on the part of the parent corporation to the
detriment of the susbidiary and third persons in their relations with the subsidiary.
 The parent corporation will be responsible for the obligations of its subsidiary when its
control has been exercised to such a degree that the subsidiary has become its mere
instrumentality.
 if present in the proper combination, are controlling. These are as follows:`(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 it 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
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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 in the latter's interest.`(k) The formal legal
requirements of the subsidiary are not observed.'
Facts:
The case involved a suit against the Southern Railway Company. The plaintiff in this case was
employed as a wheel moulder by Lenoir Car Works, a Tennessee corporation. He claims injuries
from silicosis contracted from silica dust permeating the foundry. But the questions whether he had
silicosis, and the amount of injury, are not reached in this phase of the case. The sole question
here is whether defendant, Southern Railway Company (hereinafter referred to as Southern),
which acquired the entire capital stock of Lenoir Car Works (referred to hereinafter as Lenoir) in
1904, the year of the latter's organization, so completely dominated Lenoir that the latter was but
an adjunct, or instrumentality, of Southern. If it did, then the complainant would, for the purpose of
this case, be an employee of Southern and would be entitled to recover under the Federal
Employers' Liability Act, 45 U.S.C.A. § 51 et seq.
Issue
Whether or not Lenoir was operated so tightly by Southern that it was an agency or instrumentality
of Southern.
Held:
Carefully considered opinion, the United States District Court found that there was no evidence that
the Southern Railway Company dictated the management of the Lenoir Car Works, although it
owned the entire capital stock of that corporation. It was found that the evidence indicated that an
individual, Henry Marius, was in full control of the operation of the car works. He established prices
and handled all negotiations and collective bargaining agreements. Lenoir paid local taxes, had
local counsel, and maintained workmen's compensation. The district judge noted that "a substantial
part of its requirements in the field of operation of Lenoir were bought elsewhere." Lenoir sold
substantial quantities of its product to other companies than Southern; it operated no rolling stock;
and had nothing to do with the transportation business. The court found further that the facts did
not reveal such intimacy and inseparability of control as would lead to the conclusion that the
Southern Railway Company and Lenoir Car Works were one and the same. Lenoir was not, in the
words of the Federal Employers' Liability Act, a "common carrier by railroad"; it was not performing
the non-delegable duties of a railroad; it was not the operator of a terminal; and it performed no
switching or transportation functions at all. It was distinctively a manufacturer, performing no
common-carrier operations. It was a manufacturer and plaintiff was one of its employees. It was
hence not an "agent" of Southern in the sense used in some of the cases cited by the plaintiff,
since it performed no common carrier operations
Issue:
Whether or not the control by Southern of Lenoir was of such character as to constitute the latter a
mere adjunct of the former.
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Held: No such control was evident. In Kentucky Electric Power Company v. Norton Coal Company,
supra, 93 F.2d at page 926, this court said: "On the other hand, it is likewise well settled that a
corporation is ordinarily an entity, separate and apart from its stockholders, and mere ownership of
all the stock of one corporation by another, and the identity of officers of one with officers of
another, are not alone sufficient to create identity of corporate interest between the two companies
or to create the relation of principal and agent or to create a representative or fiduciary relationship
between the two. If such stock ownership and potential control be resorted to only for the purpose
of normally participating in the affairs of the subsidiary corporation in a manner usual to
stockholders and not for the purpose of taking some unfair advantage of the subsidiary or using it
as a mere adjunct to the main corporation or as a subterfuge to justify wrongdoing, their identity as
separate corporations will not be disregarded but their respective rights when dealing with each
other in respect to their separate property will be recognized and maintained. The extent of stock
ownership and mere potential control of one company over another has never been regarded as
the determining factor in the consideration of such cases. Something must be disclosed to indicate
the exercise of undue domination or influence resulting in an infringement upon the rights of the
subservient corporation for the benefit of the dominant one. Otherwise, the rights of the separate
corporations in respect to their corporate property must be governed by the rules applicable in
ordinary cases. [Citing cases.]" The district court concluded that, upon the principles of the
Kentucky Electric Power Company case, the control of Southern Railway Company over Lenoir
Car Works was not such as constituted Lenoir an adjunct of Southern.
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(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 the case at bar only two of the eleven listed indicia occur, namely, the ownership of most of the
capital stock of Lenoir by Southern, and possibly subscription by Southern to the capital stock of
Lenoir. In our opinion the principles of the Kentucky Electric Power case apply here, and when
applied we conclude that the control of Southern over Lenoir was not such as to constitute the
latter an adjunct of Southern. The complaint must be dismissed.

Issue:

What are the circumstances that may be useful in the determination of whether the subsidiary is
but a mere instrumentality of the parent-corporation:

Held:

The Circumstance rendering the subsidiary an instrumentality. It is manifestly impossible to

catalogue the infinite variations of fact that can arise but there are certain common circumstances
which are important and which, if present in the proper combination, are controlling.

These are as follows:

(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.

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