CORPORATION LAW

ATTRIBUTES OF CORPORATION

ALFREDO CHING vs. THE SECRETARY OF JUSTICE, ET AL.

G. R. No. 164317 February 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 for the issuance of commercial letters of credit to finance its
importation of assorted goods.
RCBC 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
receipts as surety, with the agreement that petitioner shall 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.
When the trust receipts matured, petitioner failed to return the goods to respondent bank,
or to return their value amounting to ₱6,940,280.66 despite demands. RCBC filed a criminal
complaint for estafa against petitioner in the Office of the City Prosecutor of Manila.
The City Prosecutor found probable cause for estafa, in relation to PD 115 (Trust
Receipts Law). Thirteen information were filed against the petitioner. The resolution was
appealed by the petitioner to the then Minister of Justice which was initially dismissed, but upon
a motion for reconsideration, the Minister granted the motion and ordered the City Prosecutor to
withdraw the information.
RCBC filed for a reconsideration which was denied. The RTC granted petitioner’s
Motion to Quash on the ground that the material allegations did not amount to estafa.
In Allied Banking Corp. v. Ordoñez, the Court held that the penal provision of PD 115 is
not limited to transactions involving goods which are to be retailed, reshipped, stored or
processed as a component of a product ultimately sold. That the non-payment of the amount
covered by a trust receipt is a violation of the entrustee’s obligation to pay.

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This prompted RCBC to re-file the case. The City Prosecutor ruled that there was no
probable cause because the petitioner’s liability was only civil having signed the trust receipts as
surety. RCBC then appealed to the DOJ which granted the petition and reversed the City
Prosecutor’s resolution stating that the petitioner was the one responsible for the offense. Thus,
the execution of the receipts is enough to indict the petitioner as the official responsible for
violation of PD 115.
The City Prosecutor, by virtue of the Sec. of Justice’s decision, filed 13 informations
against the petitioner for violation of PD 115. Petitioner then filed a petition for certiorari,
prohibition and mandamus with the CA.
The CA dismissed the petition and ruled that the Sec. of Justice was correct in stating
that, petitioner, being the Senior Vice President of PBMI and signatory to the trust receipts, is
criminally liable for violation of PD 115.
ISSUE:
Whether Alfredo Ching is liable for violation of PD 115
RULING:
Petitioner’s being a Senior Vice President of PBMI does not exculpate him from any
liability. Having participated in the negotiations for the trust receipts and having received the
goods for PBMI, it was inevitable that the petitioner is the proper officer to be proceeded against
by virtue of the PBMI’s violation of PD 115.
The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions
involving goods procured as a component of a product ultimately sold has been resolved in the
affirmative in Allied Banking Corporation v. Ordoñez. The law applies to goods used by the
entrustee in the operation of its machineries and equipment. The non-payment of the amount
covered by the trust receipts or the non-return of the goods covered by the receipts, if not sold or
otherwise not disposed of, violate the entrustee’s obligation to pay the amount or to return the
goods to the entruster.
Though the entrustee is a corporation, nevertheless, the law specifically makes the
officers, employees or other officers or persons responsible for the offense, without prejudice to
the civil liabilities of such corporation and/or board of directors, officers, or other officials or
employees responsible for the offense. The rationale is that such officers or employees are vested
with the authority and responsibility to devise means necessary to ensure compliance with the
law and, if they fail to do so, are held criminally accountable; thus, they have a responsible share
in the violations of the law.
Petition is DENIED.

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FILIPINAS BROADCASTING NETWORK, INC. vs. AGO MEDICAL AND EDUCATIONAL

CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO
G.R. No. 141994 January 17, 2005
FACTS:
Expos is a radio documentary program hosted by Carmelo Mel Rima (Rima) and
Hermogenes Jun Alegre (Alegre). Expos is aired every morning over DZRC-AM which is owned
by Filipinas Broadcasting Network, Inc. (FBNI). Expos is heard over Legazpi City, the Albay
municipalities and other Bicol areas.
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged
complaints from students, teachers and parents against Ago Medical and Educational Center-
Bicol Christian College of Medicine (AMEC) and its administrators. Claiming that the
broadcasts were defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College of
Medicine, filed a complaint for damages against FBNI, Rima and Alegre on 27 February 1990.
On 14 December 1992, the trial court rendered a Decision finding FBNI and Alegre liable
for libel except Rima. Further, it ordered FBNI and Alegre to pay AMEC moral damages in the
amount of Php 300,000.00. The Court of Appeals affirmed the trial courts decision and adjudged
FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages, attorneys fees and costs
of suit.

ISSUE:
(1) Is Ago Medical and Educational Center-Bicol Christian College of Medicine
entitled to moral damages?
(2) Is Filipinas Broadcasting Network, Inc. solidarily liable with Alegre and Rima?

RULING:
(1) Yes. AMECs claim for moral damages falls under item 7 of Article 2219 of the
Civil Code. This provision expressly authorizes the recovery of moral damages in cases of libel,
slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is
a natural or juridical person. Therefore, a juridical person such as a corporation can validly
complain for libel or any other form of defamation and claim for moral damages. In this case, the
broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.
(2) Yes. An employer and employee are solidarily liable for a defamatory statement by the
employee within the course and scope of his or her employment, at least when the employer
authorizes or ratifies the defamation. In this case, Rima and Alegre were clearly performing their
official duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI

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neither alleged nor proved that Rima and Alegre went beyond the scope of their work at that
time. There was likewise no showing that FBNI did not authorize and ratify the defamatory
broadcasts. Moreover, there is insufficient evidence on record that FBNI exercised due diligence
in the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely
showed that it exercised diligence in the selection of its broadcasters without introducing any
evidence to prove that it observed the same diligence in the supervision of Rima and Alegre.
FBNI did not show how it exercised diligence in supervising its broadcasters.
Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre.

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NATIONAL POWER CORPORATION VS. PHILIPP BROTHERS OCEANIC, INC

G.R. NO. 126204 NOVEMBER 20, 2001
FACTS:

On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to bid
for the supply and delivery of 120,000 metric tons of imported coal for its Batangas Coal-Fired
Thermal Power Plant in Calaca, Batangas. The Philipp Brothers Oceanic, Inc. (PHIBRO)
prequalified and was allowed to participate as one of the bidders. After the public bidding was
conducted, PHIBROs bid was accepted. NAPOCORs acceptance was conveyed in a letter dated
July 8, 1987, which was received by PHIBRO on July 15, 1987.
On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon
plague Australia, the shipments point of origin, which could seriously hamper PHIBROs ability
to supply the needed coal because of this they were unable to fulfill their obligation.
Consequently, in October 1987, NAPOCOR once more advertised for the delivery of coal
to its Calaca thermal plant. PHIBRO participated anew in this subsequent bidding. On November
24, 1987, NAPOCOR disapproved PHIBROs application for pre-qualification to bid for not
meeting the minimum requirements. Upon further inquiry, PHIBRO found that the real reason
for the disapproval was its purported failure to satisfy NAPOCORs demand for damages due to
the delay in the delivery of the first coal shipment.
This prompted PHIBRO to file an action for damages with application for injunction
against NAPOCOR.
In its complaint, PHIBRO alleged that NAPOCORs act of disqualifying it in the October
1987 bidding and in all subsequent biddings was tainted with malice and bad faith. PHIBRO
prayed for actual, moral and exemplary damages and attorney’s fees. Both lower courts ruled in
favor of PHIBRO and awarded moral damages.
ISSUE:
Does Philipp Brothers Oceanic Incorporated have the right to be awarded moral
damages?

RULING:
NO. The award of moral damages is likewise improper. To reiterate, NAPOCOR did not
act in bad faith. Moreover, moral damages are not, as a general rule, granted to a corporation.
While it is true that besmirched reputation is included in moral damages, it cannot cause mental
anguish to a corporation, unlike in the case of a natural person, for a corporation has no

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reputation in the sense that an individual has, and besides, it is inherently impossible for a
corporation to suffer mental anguish. In LBC Express, Inc. v. Court of Appeals, we ruled:
Moral damages are granted in recompense for physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury. A corporation, being an artificial person and having existence only in legal
contemplation, has no feelings, no emotions, and no senses; therefore, it cannot experience
physical suffering and mental anguish. Mental suffering can be experienced only by one having a
nervous system and it flows from real ills, sorrows, and griefs of life all of which cannot be
suffered by respondent bank as an artificial person.
Neither can we award exemplary damages under Article 2234 of the Civil Code. Before
the court may consider the question of whether or not exemplary damages should be awarded,
the plaintiff must show that he is entitled to moral, temperate, or compensatory damages.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 126204 dated
August 27, 1996 is hereby MODIFIED. The award, in favor of PHIBRO, of actual, moral and
exemplary damages, reimbursement for expenses, cost of litigation and attorney’s fees, and costs
of suit, is DELETED.

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ABS-CBN BROADCASTING CORPORATION vs. HONORABLE COURT OF APPEALS, REPUBLIC

BROADCASTING CORP., VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO
G.R. No. 128690 January 21, 1999
FACTS:
In 1992, ABS-CBN Broadcasting Corporation, through its vice president Charo Santos-
Concio, requested Viva Production, Inc. to allow ABS-CBN to air at least 14 films produced by
Viva. Pursuant to this request, a meeting was held between Viva’s representative (Vicente Del
Rosario) and ABS-CBN’s Eugenio Lopez (General Manager) and Santos-Concio was held on
April 2, 1992. During the meeting Del Rosario proposed a film package which will allow ABS-
CBN to air 104 Viva films for P60 million. Later, Santos-Concio, in a letter to Del Rosario,
proposed a counterproposal of 53 films (including the 14 films initially requested) for P35
million. Del Rosario presented the counter offer to Viva’s Board of Directors but the Board
rejected the counter offer. Several negotiations were subsequently made but on April 29, 1992,
Viva made an agreement with Republic Broadcasting Corporation (referred to as RBS – or GMA
7) which gave exclusive rights to RBS to air 104 Viva films including the 14 films initially
requested by ABS-CBN.
ABS-CBN now filed a complaint for specific performance against Viva as it alleged that
there is already a perfected contract between Viva and ABS-CBN in the April 2, 1992 meeting.
Lopez testified that Del Rosario agreed to the counterproposal and he (Lopez) even put the
agreement in a napkin which was signed and given to Del Rosario. ABS-CBN also filed an
injunction against RBS to enjoin the latter from airing the films. The injunction was granted.
RBS now filed a countersuit with a prayer for moral damages as it claimed that its reputation was
debased when they failed to air the shows that they promised to their viewers. RBS relied on the
ruling in People vs Manero and Mambulao Lumber vs PNB which states that a corporation may
recover moral damages if it “has a good reputation that is debased, resulting in social
humiliation”. The trial court ruled in favor of Viva and RBS. The Court of Appeals affirmed the
trial court.
ISSUE:
1. Is a corporation, like RBS, entitled to an award of moral damages upon grounds of
debased reputation?
2. Was there a perfected contract between the representatives of the two corporations?
RULING:
1. 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. The award is not meant to
enrich the complainant at the expense of the defendant, but to enable the injured party to obtain
means, diversion, or amusements that will serve to obviate the moral suffering he has
undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status
quo ante, and should be proportionate to the suffering inflicted. Trial courts must then guard

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against the award of exorbitant damages; they should exercise balanced restrained and measured
objectivity to avoid suspicion that it was due to passion, prejudice, or corruption or the part of
the trial court.
The award of moral damages cannot be granted in favor of a corporation because, being
an artificial person and having existence only in legal contemplation, it has no feelings, no
emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish,
which can be experienced only by one having a nervous system. The statement in People v.
Manero and Mambulao Lumber Co. v. PNB that a corporation may recover moral damages if it
has a good reputation that is debased, resulting in social humiliation is an obiter dictum. On this
score alone the award for damages must be set aside, since RBS is a corporation.

2. There is no proof that a contract was perfected in the said meeting. Lopez’ testimony
about the contract being written in a napkin is not corroborated because the napkin was never
produced in court. Further, there is no meeting of the minds because Del Rosario’s offer was of
104 films for P60 million was not accepted. And that the alleged counter-offer made by Lopez on
the same day was not also accepted because there’s no proof of such. The counter offer can only
be deemed to have been made days after the April 2 meeting when Santos-Concio sent a letter to
Del Rosario containing the counter-offer. Regardless, there was no showing that Del Rosario
accepted. But even if he did accept, such acceptance will not bloom into a perfected contract
because Del Rosario has no authority to do so.

As a rule, corporate powers, such as the power; to enter into contracts; are exercised by
the Board of Directors. But this power may be delegated to a corporate committee, a corporate
officer or corporate manager. Such a delegation must be clear and specific. In the case at bar,
there was no such delegation to Del Rosario. The fact that he has to present the counteroffer to
the Board of Directors of Viva is proof that the contract must be accepted first by the Viva’s
Board. Hence, even if Del Rosario accepted the counter-offer, it did not result to a contract
because it will not bind Viva sans authorization.

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JRS BUSINESS CORP v. IMPERIAL INSURANCE, INC

G.R. No. L-19891 July 31, 1964

FACTS:
J. R. Da Silva, is the President of the J.R.S. Business Corporation, an establishment duly
franchised to conduct a messenger and delivery express service. Imperial Insurance filed a
complaint against petitioner for sum of money. The parties later on entered into Compromise
Agreement where JRS admit and confess their joint and solidary indebtedness to Imperial
Insurance, and that JRS binds themselves, jointly and severally and promise to pay the obligation
to Imperial Insurance within sixty, failure of such Imperial Insurance shall be entitled as a matter
of right to move the execution of the decision based on the compromise agreement. The lower
court rendered judgment embodying the contents of the compromise agreement.
JRS failed to settle their indebtedness, hence Imperial Insurance filed a motion for the
issuance of writ of execution where the lower court issued. Notices of sale were sent out for the
auction of the personal properties of the petitioner J.R.S. Business Corporation. Notice of Sale of
the "whole capital stocks of the defendants JRS Business Corporation, the business name, right
of operation, the whole assets, furnitures and equipments, the total liabilities, and Net Worth,
books of accounts, etc., etc." of the petitioner corporation was, handed down. JRS then filed
Supplemental Motion for Release of Execution, was filed by counsel of petitioner JRS Business
Corporation, claiming that the capital stocks thereof, could not be levied upon and sold under
execution. Motions for reconsideration were filed by both parties, but the same were denied.
Hence, the filing of a Petition for Review on Certiorari. In the sale the business name, right of
operation, the whole assets, furniture and equipment, the total liabilities and Net Worth, books of
accounts, etc., etc.), were bought by respondent Imperial Insurance, Inc. Hence the present
appeal.
ISSUE:
Is the business name or trade name, franchise and capital stocks of the petitioner are
properties or property rights which could be the subject of levy, execution and sale.
RULING:

No. A franchise is a special privilege conferred by governmental authority, and which

does not belong to citizens of the country generally as a matter of common right. Its meaning
depends more or less upon the connection in which the word is employed and the property and
corporation to which it is applied. It may have different significations. For practical purposes,

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franchises, so far as relating to corporations, are divisible into (1) corporate or general franchises;
and (2) special or secondary franchises. The former is the franchise to exist as a corporation,
while the latter are certain rights and privileges conferred upon existing corporations, such as the
right to use the streets of a municipality to lay pipes or tracks, erect poles or string wires. The
primary franchise of a corporation that is, the right to exist as such, is vested "in the individuals
who compose the corporation and not in the corporation itself but the specify or secondary
franchises of a corporation are vested in the corporation and may ordinarily be conveyed or
mortgaged under a general power granted to a corporation to dispose of its property except such
special or secondary franchises as are charged with a public use.

The right to operate a messenger and express delivery service, by virtue of a legislative
enactment, is admittedly a secondary franchise and, as such, under our corporation law, is subject
to levy and sale on execution together and including all the property necessary for the enjoyment
thereof. The law, however, indicates the procedure under which the same may be sold under
execution. Said franchise can be sold under execution, when such sale is especially decreed and
ordered in the judgment and it becomes effective only when the sale is confirmed by the Court
after due notice. And, as such, under our corporation law, is subject to levy and sale on
execution together and including all the property necessary for the enjoyment thereof. The law,
however, indicates the procedure under which the same may be sold under execution. Said
franchise can be sold under execution, when such sale is especially decreed and ordered in the
judgment and it becomes effective only when the sale is confirmed by the Court after due notice
The compromise agreement and the judgment based thereon, do not contain any special decree
or order making the franchise answerable for the judgment debt. The same thing may be stated
with respect to petitioner's trade name or business name and its capital stock. Incidentally, the
trade name or business name corresponds to the initials of the President of the petitioner
corporation and there can be no serious dispute regarding the fact that a trade name or business
name and capital stock are necessarily included in the enjoyment of the franchise. Like that of a
franchise, the law mandates, that property necessary for the enjoyment of said franchise, can
only be sold to satisfy a judgment debt if the decision especially so provides. As we have stated
heretofore, no such directive appears in the decision. It, therefore, results that the inclusion of the
franchise, the trade name and/or business name and the capital stock of the petitioner
corporation, in the sale of the properties of the JRS Business Corporation, has no justification.

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PETRON CORPORATION vs. NATIONAL COLLEGE OF BUSINESS AND ARTS

G.R. No. 155683 February 16, 2007

FACTS:

Sometime in 1969, the V. Mapa properties, then owned by Felipe and Enrique Monserrat,
Jr., were mortgaged to the Development Bank of the Philippines (DBP) as part of the security for
the P5.2 million loan of Manila Yellow Taxicab Co., Inc. (MYTC) and Monserrat Enterprises
Co. MYTC, for its part, mortgaged four parcels of land located in Quiapo, Manila.

However, Felipe’s undivided interest in the V. Mapa properties was levied upon in
execution of a money judgment rendered by the RTC in Filoil Marketing Corporation v. MYTC,
Felipe Monserrat, and Rosario Vda. De Monserrat (the Manila case). DBP challenged the levy
through a third-party claim asserting that the V. Mapa properties were mortgaged to it and were,
for that reason, exempt from levy or attachment. The RTC quashed it.

MYTC and the Monserrats got DBP to accept a dacion en pago arrangement whereby
MYTC conveyed to the bank the four mortgaged Quiapoproperties as full settlement of their loan
obligation. But despite this agreement, DBP did not release the V. Mapa properties from the
mortgage.

Felipe, acting for himself and as Enrique’s attorney-in-fact, sold the V. Mapa properties
to respondent NCBA. Part of the agreement was that Felipe and Enrique would secure the release
of the titles to the properties free of all liens and encumbrances including DBPs mortgage lien
and Filoils levy it.
But the Monserrats failed to comply with this undertaking. Thus, NCBA caused the
annotation of an affidavit of adverse claim on the TCTs covering the V. Mapa properties.

Shortly thereafter, NCBA filed a complaint against Felipe and Enrique for specific
performance with an alternative prayer for rescission and damages in the RTC of Manila. The
case was docketed as Civil Case No. 83-16617.

NCBA then had a notice of lis pendens inscribed on the TCTs of the V. Mapa properties.
A little over two years later, NCBA impleaded DBP as an additional defendant to compel it to
release the V. Mapa properties from mortgage.

During the pendency of Civil Case No. 83-16617, Enriques undivided interest in the
V. Mapa properties was levied on in execution of a judgment of the RTC
of Makati (the Makati case) holding him liable to Petron on a 1972 promissory note.

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The V. Mapa properties were later sold at public auction to satisfy the judgments in the
Manila and Makati cases. Petron, the highest bidder, acquired both Felipe’s and Enrique’s
undivided interests in the property. Subsequently, Petron intervened in NCBAs suit against
Felipe, Enrique and DBP (Civil Case No. 83-16617) to assert its right to the V. Mapa properties.

The RTC ruled, among other things, that Petron never acquired valid title to the
V. Mapa properties as the levy and sale thereof were void and that NCBA was now the lawful
owner of the properties. Moreover, the RTC held Petron, DBP, Felipe and Enrique jointly and
severally liable to NCBA for exemplary damages and attorney’s fees. Both parties have
absolutely no reason to claim the V. Mapa property. The acts of defendants
and intervenor demonstrate wanton, fraudulent, reckless, oppressive and malevolent conduct in
their dealings with NCBA. Furthermore, they acted with gross and evident bad faith in refusing
to satisfy NCBAs plainly valid and demandable claims.

Enrique, DBP and Petron appealed to the Court of Appeals (CA). The CA affirmed the
RTC decision in toto.

ISSUE:

Should Petron be held liable to pay attorney’s fees and exemplary damages to NCBA?

RULING:

No. The SC reversed the rulings of the trial and appellate courts.

The RTC held Petron liable to NCBA for attorney’s fees under Article 2208(5), which
allows such an award where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiffs plainly valid, just, and demandable claim. However, the only justification
given for this verdict was that Petron had no reason to claim the V. Mapa properties because, in
the RTCs opinion, the levy and sale thereof were void. This was sorely inadequate and it was
erroneous for the CA to have upheld that ruling built on such a flimsy foundation.
Article 2208(5) contemplates a situation where one refuses unjustifiably and in evident
bad faith to satisfy another’s plainly valid, just and demandable claim, compelling the latter
needlessly to seek redress from the courts. It does not mean, however, that the losing party
should be made to pay attorney’s fees merely because the court finds his legal position to be
erroneous and upholds that of the other party, for that would be an intolerable transgression of
the policy that no one should be penalized for exercising the right to have contending claims
settled by a court of law. In fact, even a clearly untenable defense does not justify an award of
attorney’s fees unless it amounts to gross and evident bad faith.

Petron’s claim to the V. Mapa properties, founded as it was on final deeds of sale on
execution, was far from untenable. No gross and evident bad faith could be imputed
to Petron merely for intervening in NCBAs suit against DBP and the Monserrats to assert what it
believed were its rights and to have the disputed ownership of the V. Mapa properties settled
decisively in a single lawsuit.

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With respect to the award of exemplary damages, the rule in this jurisdiction is that the
plaintiff must show that he is entitled to moral, temperate or compensatory damages before the
court may even consider the question of whether exemplary damages should be awarded. In
other words, no exemplary damages may be awarded without the plaintiffs right to moral,
temperate, liquidated or compensatory damages having first been established. Therefore, in view
of our ruling that Petron cannot be made liable to NCBA for compensatory damages (i.e.,
attorneys fees), Petron cannot be held liable for exemplary damages either.

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HANIL DEVELOPMENT CO., LTD., vs. COURT OF APPEALS AND M.R. ESCOBAR EXPLOSIVE
ENGINEERS, INC.,
G.R. No. 113176 July 30, 2001

FACTS:

The Ministry of Public Works and Highways (MPWH for brevity) awarded Hanil the
contract to construct the 200-kilometer Iligan-Cagayan de Oro-Butuan Highway Project. Hanil
sub-let the rock-blasting work portion of the contract to Escobar. Escobar commenced its
blasting works and continued its services until terminated by Hanil. Escobar worked on the
segments of the construction undertaking designated in the agreement as A-2, B-2, B-3, B-4, and
C-1 and was fully paid for the areas A-2 and B-4 while claiming that Hanil still partially owes it
P1.3 million for the blastings done on areas B-2, B-3, and C-1. The claim was predicated on the
theory that the rocks it caused to explode in the contested areas were solid in nature, and
therefore the volumes should be computed using the cross-section approach; that Hanil should
pay it the same amount of money Hanil received from the MPWH for the blastings it did in the
contested areas.

Consequently, Escobar instituted a civil case for recovery of sum of money with damages
against Hanil with the CFI. The CFI made a decision ordering Hanil to pay P1.3 miliion for the
value of rocks blasted by Escobar. Upon Escobar’s motion, the CFI garnished the bank accounts
of Hanil and levied its equipments. It also granted Escobar’s ex-parte Motion to Deposit cash
praying that the Finance Manager of the NAPOCOR be directed to withdraw Hanil's funds from
the NAPOCOR and deposit the same with the Clerk of Court. Hanil challenged the issuance
Orders before the CA and the appellate court voided the challenged Orders.

ISSUE:

Is Hanil entitled to moral damages and exemplary damages?

RULING:

No. The rule is that moral damages cannot be granted in favor of a corporation. Being an
artificial person and having existence only in legal contemplation, a corporation has no feelings,
no emotions, no senses. It cannot, therefore, experience physical suffering, mental anguish,
fright, serious anxiety, wounded feelings or moral shock or social humiliation, which can be
suffered only by one having a nervous system. Hanil's prayer for exemplary damages must
likewise be denied. It must be remembered that this kind of damages cannot be recovered as a
matter of right. Its allowance rests in the sound discretion of the court, and only upon a showing
of its legal foundation. Under the Civil Code, the claimant must first establish that he is entitled

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to moral, temperate, compensatory or liquidated damages before it may be imposed in his

favor. Hanil failed to do so, hence, it cannot claim exemplary damages.

ASSET PRIVATIZATION TRUST vs. COURT OF APPEALS

G.R. No. 121171 December 29, 1998

FACTS:
On July 13, 1981, Marinduque Mining and Industrial Corporation (MMIC), Philippine
National Bank (PNB) and Development Bank of the Philippines (DBP) executed a Mortgage
Trust Agreement whereby MMIC, as mortgagor, agreed to constitute a mortgage in favor of PNB
and DBP as mortgagees, over all MMIC’s assets.
MMIC was having a difficult time meeting its financial obligations. Thus, PNB and DBP
decided to exercise their right to extra judicially foreclose the mortgages in accordance with the
mortgage trust agreement.
On February 28, 1985, Jesus Cabarrus, Sr. together with other stockholders of MMIC,
filed a derivative suit against DBP and PNB before the RTC of Makati. The parties mutually
agreed to submit the case to arbitration by entering into a “Compromise and Arbitration
Agreement”. The arbitration committee rendered a majority decision in favor of MMIC. The
order of the arbitration committee was that APT must pay MMIC moral damages in the amount
of P13,000 and to pay Jesus Cabarrus the sum of P10,000,000.00 for moral damages.
Motions for reconsideration were filed by both parties, but the same were denied. Hence,
the filing of a Petition for Review on Certiorari
ISSUE:
I. Is MMIC entitled to moral damges?
II. Is the award of damages to Jesus Cabarrus, Sr. proper?
RULING:
I. No, Under Article 2217 of the New Civil Code, moral damages include besmirched
reputation which corporation may possibly suffer. A corporation whose overdue and unpid debts
to the Government alone reached a tremendous amount of P22 Billion cannot certainlyt have a
solid business reputation to brag about.
It is not yet a well settled jurisprudence that corporations are entitled to moral damages. It
must be pointed out that when the supposed wrongful act of foreclosure was done. MMIC’s
credit reputation was no longer a desirable one. The company then was already suffering from
serious financial crisis which definitely projects an image not compatible with good and
wholesome reputation. So it could not be said that there was a “reputation” besmirched by the act
of foreclosure.

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II. No, It is a basic postulate that a corporation has a personality separate and distinct
from its stockholders. The properties foreclosed belonged to MMIC, not to its stockholders.
Hence, if wrong was committed in the foreclosure, it was done against the corporation.
Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself that would result
in the appropriation by, and the distribution to him part of the corporations assets before the
dissolution of the corporation and the liquidation of its debts and liabilities.

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SULO NG BAYAN INC., vs. GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL
WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF
DEEDS OF BULACAN
G.R. No. L-31061 August 17, 1976
FACTS:

On April 26, 1966 Sulo ng Bayan, Inc. filed an accion de revindicacion against
defendants-appellees to recover the ownership and possession of a large tract of land in San Jose
del Monte, Bulacan, containing an area of 27,982,250 square meters, more or less, registered
under the Torrens System in the name of defendants-appellees' predecessors-in-interest.

Sulo ng Bayan, Inc is a corporation organized and existing under the laws of the
Philippines, with its principal office and place of business at San Jose del Monte, Bulacan. Its
members, through themselves and their predecessors-in-interest, had pioneered in the clearing of
the fore-mentioned tract of land, cultivated the same since the Spanish regime and continuously
possessed the said property openly and public under concept of ownership adverse against the
whole world.

Sometime in the year 1958, Gregorio Araneta, Inc., through force and intimidation,
ejected the members of the plaintiff corporation from their possession of the aforementioned vast
tract of land. Upon investigation by Sulo ng Bayan, they found out that the land in question "had
been either fraudulently or erroneously included, by direct or constructive fraud, in Original
Certificate of Title No. 466 of the Land of Records of the province of Bulacan", issued on May
11, 1916, which title is fictitious, non-existent and devoid of legal efficacy due to the fact that
"no original survey nor plan whatsoever" appears to have been submitted as a basis thereof and
that the Court of First Instance of Bulacan which issued the decree of registration did not acquire
jurisdiction over the land registration case because no notice of such proceeding was given to the
members of the plaintiff corporation who were then in actual possession of said properties. As a
consequence of the nullity of the original title, all subsequent titles derived therefrom, such as
Transfer Certificate of Title No. 4903 issued in favor of Gregorio Araneta and Carmen Zaragoza,
which was subsequently cancelled by Transfer Certificate of Title No. 7573 in the name of
Gregorio Araneta, Inc., Transfer Certificate of Title No. 4988 issued in the name of, the National
Waterworks & Sewerage Authority (NWSA), Transfer Certificate of Title No. 4986 issued in the
name of Hacienda Caretas, Inc., and another transfer certificate of title in the name of Paradise
Farms, Inc., are therefore void.

The plaintiff-appellees except NWSA filed a motion to dismiss the amended complaint
on the grounds that (1) the complaint states no cause of action; and (2) the cause of action, if any,
is barred by prescription and laches. The trial court dismissed the complaint.

Sulo ng Bayan appealed to the Court of Appeals. On 3 September 1969, the Court of
Appeals, upon finding that no question of fact was involved in the appeal but only questions of
law and jurisdiction, certified the case to the Supreme Court for resolution of the legal issues
involved in the controversy.

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ISSUE:

Whether or not plaintiff corporation, non- stock, may institute an action in behalf of its
individual members for the recovery of certain parcels of land allegedly owned by said members

HELD:

No. It is a doctrine well-established and obtains both at law and in equity that a
corporation is a distinct legal entity to be considered as separate and apart from the individual
stockholders or members who compose it, and is not affected by the personal rights, obligations
and transactions of its stockholders or members. The property of the corporation is its property
and not that of the stockholders, as owners, although they have equities in it. Properties
registered in the name of the corporation are owned by it as an entity separate and distinct from
its members. Conversely, a corporation ordinarily has no interest in the individual property of its
stockholders unless transferred to the corporation, "even in the case of a one-man
corporation. The mere fact that one is president of a corporation does not render the property
which he owns or possesses the property of the corporation, since the president, as individual,
and the corporation are separate similarities. Similarly, stockholders in a corporation engaged in
buying and dealing in real estate whose certificates of stock entitled the holder thereof to an
allotment in the distribution of the land of the corporation upon surrender of their stock
certificates were considered not to have such legal or equitable title or interest in the land, as
would support a suit for title, especially against parties other than the corporation.

It must be noted, however, that the juridical personality of the corporation, as separate
and distinct from the persons composing it, is but a legal fiction introduced for the purpose of
convenience and to subserve the ends of justice. This separate personality of the corporation may
be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or
cover for fraud or illegality, or to work -an injustice, or where necessary to achieve equity.

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

ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the
plaintiff-appellant.

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BACHE & CO. (PHIL.), INC. v. HON. JUDGE VIVENCIO M. RUIZ

G.R. No. L-32409 February 27, 1971
FACTS:
On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue,
wrote a letter addressed to respondent Judge Vivencio M. Ruiz requesting the issuance of a
search warrant against petitioners for violation of Section 46(a) of the National Internal Revenue
Code, in relation to all other pertinent provisions thereof, particularly Sections 53, 72, 73, 208
and 209, and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents, to
make and file the application for search warrant which was attached to the letter.
In the afternoon of the following day, respondent De Leon and his witness, respondent
Arturo Logronio, went to the Court of First Instance of Rizal. Respondent Judge signed
respondent de Leon’s application for search warrant and respondent Logronio’s deposition,
Search Warrant No. 2-M-70 was then sign by respondent Judge and accordingly issued.
Three days later, the BIR agents served the search warrant petitioners at the offices of
Petitioner Corporation on Ayala Avenue, Makati, Rizal. Petitioners’ lawyers protested the search
on the ground that no formal complaint or transcript of testimony was attached to the warrant.
The agents nevertheless proceeded with their search which yielded six boxes of documents.
Thereafter, petitioners filed a petition praying that the search warrant be quashed,
dissolved or recalled, that preliminary prohibitory and mandatory writs of injunction be issued,
that the search warrant be declared null and void, and that the respondents be ordered to pay
petitioners, jointly and severally, damages and attorney’s fees. The respondents, thru the
Solicitor General, filed an answer to the petition. After hearing, the court, presided over by
respondent Judge, issued an order dismissing the petition for dissolution of the search warrant. In
the meantime, the Bureau of Internal Revenue made tax assessments on Petitioner Corporation in
the total sum of P2, 594,729.97, partly, if not entirely, based on the documents thus seized.
Petitioners came to this Court.
ISSUE:
Whether the search warrants issued by respondent are null and void and that petitioner
corporation is entitled to protection against unreasonable search and seizure.
RULING:
The Court held that the search warrants issued by respondent are null and void. The
search warrants were considered to be null and void as Respondent Judge failed to personally
examine the complainant and his witness, in violation of the pertinent provisions of the
Constitution and the Revised Penal Code, which are stated, to wit:
“The right of the people to be secure in their persons, houses, papers and effects against
unreasonable searches and seizures shall not be violated, and no warrants shall issue but

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upon probable cause, to be determined by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce, and particularly
describing the place to be searched, and the persons or things to be seized." (Art. III, Sec.
1, Constitution.)
"SEC. 3. Requisites for issuing search warrant. — A search warrant shall not issue but
upon probable cause in connection with one specific offense to be determined by the
judge or justice of the peace after examination under oath or affirmation of the
complainant and the witnesses he may produce, and particularly describing the place to
be searched and the persons or things to be seized.”
Further, the Court posited that, In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court
impliedly recognized the right of a corporation to object against unreasonable searches and
seizures, thus:
"As regards the first group, we hold that petitioners herein have no cause of action to
assail the legality of the contested warrants and of the seizures made in pursuance
thereof, for the simple reason that said corporations have their respective personalities,
separate and distinct from the personality of herein petitioners, regardless of the amount
of shares of stock or the interest of each of them in said corporations, whatever, the
offices they hold therein may be. Indeed, it is well settled that the legality of a seizure can
be contested only by the party whose rights have been impaired thereby, and that the
objection to an unlawful search and seizure is purely personal and cannot be availed of by
third parties. Consequently, petitioners herein may not validly object to the use in
evidence against them of the documents, papers and things seized from the offices and
premises of the corporations adverted to above, since the right to object to the admission
of said papers in evidence belongs exclusively to the corporations, to whom the seized
effects belong, and may not be invoked by the corporate officers in proceedings against
them in their individual capacity . . ."
In the Stonehill case only the officers of the various corporations in whose offices
documents, papers and effects were searched and seized were the petitioners. In the case at bar,
the corporation to whom the seized documents belong, and whose rights have thereby been
impaired, is itself a petitioner. On that score, Petitioner Corporation here stands on a different
footing from the corporations in Stonehill.
Therefore, the petition is granted. Accordingly, the Search Warrant issued by respondent
Judge is declared null and void; respondents are permanently enjoined from enforcing the said
search warrant; the documents, papers and effects seized thereunder are ordered to be returned to
petitioners; and respondent officials the Bureau of Internal Revenue and their representatives are
permanently enjoined from enforcing the assessments of the present petition, as well as other
assessments based on the documents, papers and effects seized under the search warrant herein
nullified, and from using the same against petitioners in any criminal or other proceeding.

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MAMBULAO LUMBER COMPANY vs. PHILIPPINE NATIONAL BANK and ANACLETO

HERALDO Deputy Provincial Sheriff of Camarines Norte
G.R. No.L-22973 January 30, 1968

FACTS:

Plaintiff applied for an industrial loan of P155, 000.00 with the PNB and the former
offered real estate, machinery, logging and transportation equipment as collaterals. The
application was approved for a loan of P100, 000.00 only. To secure the payment of the loan, the
plaintiff mortgaged to defendant PNB a parcel of land, together with the buildings and
improvements existing thereon, situated in the province of Camarines Norte, and covered by
TCT No. 381 of the land records of said province, as well as various sawmill equipment, rolling
unit and other fixed assets of the plaintiff, all situated in its compound in the aforementioned
municipality.
PNB released from the approved loan the sum of P27, 500.00, for which the plaintiff
signed a promissory note wherein it promised to pay to the PNB. PNB made another release of
P15, 500.00 as part of the approved loan granted to the plaintiff and so on the said date, the latter
executed another promissory note. Plaintiff failed to pay the amortization on the amounts
released to and received by it. Repeated demands were made upon the plaintiff to pay its
obligation but it failed or otherwise refused to do so. Upon inspection and verification made by
employees of the PNB, it was found that the plaintiff had already stopped operation.
PNB initiated steps to have the properties extrajudicially foreclosed. The Plaintiff
opposed. The foreclosure sale of the parcel of land, together with the buildings and
improvements thereon, was held 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. PNB
sold the properties to Mariano Bundok. The Security guard of the properties refused to let
PNB’s successor in interest to retrieve properties inside the premises of the property bought by
them.
RTC sentenced the Mambulao Lumber Company to pay to the defendant PNB.
Mambulao therefore appealed.

ISSUE:

Can a corporation be awarded for moral damages?

RULING:

NO. 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. The same cannot be considered under the facts of this case, however,
not only because it is admitted that herein appellant had already ceased in its business operation
at the time of the foreclosure sale of the chattels, but also for the reason that whatever adverse

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effects of the foreclosure sale of the chattels could have upon its reputation or business standing
would undoubtedly be the same whether the sale was conducted at Camarines Norte, or in
Manila which is the place agreed upon by the parties in the mortgage contract.

But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines
Norte in proceeding with the sale in utter disregard of the agreement to have the chattels sold in
Manila as provided for in the mortgage contract, to which their attentions were timely called by
herein appellant, and in disposing of the chattels in gross for the miserable amount of P4, 200.00,
herein appellant should be awarded exemplary damages in the sum of P10, 000.00. The
circumstances of the case also warrant the award of P3, 000.00 as attorney's fees for herein
appellant.

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PHILIPPINE NATIONAL BANK vs. HYDRO RESOURCES CONTRACTORS CORPORATION

G.R. No. 167530 March 13, 2013

FACTS:
Petitioners DBP and PNB foreclosed on certain mortgages made on the properties of
Marinduque Mining and Industrial Corporation (MMIC). As a result of the foreclosure, DBP and
PNB acquired substantially all the assets of MMIC and resumed the business operations of the
defunct MMIC by organizing NMIC. DBP and PNB owned 57% and 43% of the shares of
NMIC, respectively, except for five qualifying shares. As of September 1984, the members of
the Board of Directors of NMIC, namely, Jose Tengco, Jr., Rolando Zosa, Ruben Ancheta,
Geraldo Agulto, and Faustino Agbada, were either from DBP or PNB.
NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping and Road
Construction Program. After computing the payments already made by NMIC under the program
and crediting the NMIC’s receivables from Hercon, Inc., the latter found that NMIC still has an
unpaid balance of ₱8,370,934.74. Hercon, Inc. made several demands on NMIC, including a
letter of final demand and when these were not heeded, a complaint for sum of money was filed
in the RTC of Makati. Subsequent to the filing of the complaint, Hercon, Inc. was acquired by
HRCC in a merger.
The RTC of Makati rendered a Decision dated November 6, 1995 in favor of HRCC. It
pierced the corporate veil of NMIC and held DBP and PNB solidarily liable with NMIC. The
Court of Appeals affirmed the piercing of the veil of the corporate personality of NMIC and held
DBP, PNB, and APT solidarily liable with NMIC.
All three petitioners assert that NMIC is a corporate entity with a juridical personality
separate and distinct from both PNB and DBP. They insist that the majority ownership by DBP
and PNB of NMIC is not a sufficient ground for disregarding the separate corporate personality
of NMIC because NMIC was not a mere adjunct, business conduit or alter ego of DBP and PNB.
According to them, the application of the doctrine of piercing the corporate veil is unwarranted
as nothing in the records would show that the ownership and control of the shareholdings of
NMIC by DBP and PNB were used to commit fraud, illegality or injustice. In the absence of
evidence that the stock control by DBP and PNB over NMIC was used to commit some fraud or
a wrong and that said control was the proximate cause of the injury sustained by HRCC, resort to
the doctrine of "piercing the veil of corporate entity" is misplaced.
ISSUE:
Should DBP, PNB and the APT as assignee of DBP and PNB be held solidarily liable.

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RULING:
No. While ownership by one corporation of all or a great majority of stocks of another
corporation and their interlocking directorates may serve as indicia of control, by themselves and
without more, however, these circumstances are insufficient to establish an alter ego relationship
or connection between DBP and PNB on the one hand and NMIC on the other hand, that will
justify the puncturing of the latter’s corporate cover. This Court has declared that "mere
ownership 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." This Court has likewise ruled that the "existence of interlocking directors, corporate
officers and shareholders is not enough justification to pierce the veil of corporate fiction in the
absence of fraud or other public policy considerations.
In this case, nothing in the records shows that the corporate finances, policies and
practices of NMIC were dominated by DBP and PNB in such a way that NMIC could be
considered to have no separate mind, will or existence of its own but a mere conduit for DBP and
PNB. HRCC has presented nothing to show that DBP and PNB had a hand in the act complained
of, the alleged undue disregard by NMIC of the demands of HRCC to satisfy the unpaid claims
for services rendered by HRCC in connection with NMIC’s mine stripping and road construction
program. There being a total absence of evidence pointing to a fraudulent, illegal or unfair act
committed against HRCC by DBP and PNB under the guise of NMIC, there is no basis to hold
that NMIC was a mere alter ego of DBP and PNB.
In the absence of both control by DBP and PNB of NMIC and fraud or fundamental
unfairness perpetuated by DBP and PNB through the corporate cover of NMIC, no harm could
be said to have been proximately caused by DBP and PNB on HRCC for which HRCC could
hold DBP and PNB solidarily liable with NMIC. Even under Section 2.02 of the respective deeds
of transfer executed by DBP and PNB which HRCC invokes, the APT cannot be held liable. The
contingent liability for which the National Government, through the APT, may be held liable
under the said provision refers to contingent liabilities of DBP and PNB. Since DBP and PNB
may not be held solidarily liable with NMIC, no contingent liability may be imputed to the APT
as well. Only NMIC as a distinct and separate legal entity is liable to pay its corporate obligation
to HRCC.

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CLASSIFICATION OF CORPORATIONS

BOY SCOUTS OF THE PHILIPPINES, vs. COMMISSION ON AUDIT

G.R. No. 177131 June 7, 2011

FACTS:

The COA issued Resolution No. 99-011 on August 19, 1999 (the COA Resolution) which
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 in Boy 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).

The BSP sought reconsideration of the COA Resolution in a letter signed by the BSP
National President Jejomar C. Binay. He claimed that RA 7278 eliminated the substantial
government participation in the National Executive Board by removing: (i) the President of the
Philippines and executive secretaries, with the exception of the Secretary of Education, as
members thereof; and (ii) the appointment and confirmation power of the President of the
Philippines, as Chief Scout, over the members of the said Board. Further , BSP claims that The
1987 Administrative Code itself, of which the BSP vs. NLRC relied on for some terms, defines
government-owned and controlled corporations as agencies organized as stock or non-stock
corporations which the BSP, under its present charter, is not.

Finally, it claims that the Government, like in other GOCCs, does not have funds
invested in the BSP. What RA 7278 only provides is that the Government or any of its
subdivisions, branches, offices, agencies and instrumentalities can from time to time donate and
contribute funds to the BSP. The BSP is not an entity administering special funds; that the BSP is
not an agency of the Government. The BSP is neither a unit of the Government; a department
which refers to an executive department as created by law; nor a bureau which refers to any
principal subdivision nor unit of any department.

ISSUE:

Is BSP a public corporation?

HELD:

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Yes. The BSP, which is a corporation created for a public interest or purpose, is subject
to the law 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 laws creating or recognizing them.

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 which states
that: 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.

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, pursuant to
Article 45 of the same Code.

The public, rather than private, character of the BSP is classified as an attached agency of
the DECS under Executive Order No. 292 (Administrative Code of 1987) which states:
xxx (3) Attachment. (a) …the lateral relationship between the department or its equivalent and
the attached agency or corporation for purposes of policy and program coordination. The
coordination may be accomplished by having the department represented in the governing board
of the attached agency or corporation, either as chairman or as a member, with or without voting
rights, if this is permitted by the charter.

The BSP is not subject is not subject to the test of government ownership or control and
economic viability because it enjoys operational autonomy, as long as policy and program
coordination is achieved by having at least one representative of government in its governing
board, which in the case of the BSP is the DECS Secretary. In this sense, the BSP is not under
government control or supervision and control.

The BSP is a public corporation or a government agency or instrumentality with juridical

personality, which does not fall within the constitutional prohibition in Article XII, Section 16,
notwithstanding the amendments to its charter. Not all corporations, which are not government
owned or controlled, are ipso facto to be considered private corporations as there exists another
distinct class of corporations or chartered institutions which are otherwise known as public
corporations.

The BSP may be regarded as both a "government controlled corporation with an original
charter" and as an "instrumentality" of the Government within the meaning of Article IX (B) (2)
(1) of the Constitution. While the BSP may be seen to be a mixed type of entity, combining
aspects of both public and private entities, we believe that considering the character of its
purposes and its functions, the statutory designation of the BSP as "a public corporation" and the
substantial participation of the Government in the selection of members of the National
Executive Board of the BSP, the BSP, as presently constituted under its charter, is a government-
controlled corporation.

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Thus, since the BSP, under its amended charter, continues to be a public corporation or a
government instrumentality, we come to the inevitable conclusion that it is subject to the
exercise by the COA of its audit jurisdiction in the manner consistent with the provisions of the
BSP Charter.

DANTE V. LIBAN, REYNALDO M. BERNARDO, and SALVADOR M. VIARI vs. RICHARD J.

GORDON,
G.R. No. 175352 July 15, 2009 as reconsidered on January 18, 2011
FACTS:
Petitioners Dante V. Liban, Reynaldo M. Bernardo, and Salvador M. Viari (petitioners)
filed with this Court a Petition to Declare Richard J. Gordon as Having Forfeited His Seat in the
Senate. Petitioners are officers of the Board of Directors of the Quezon City Red Cross Chapter
while respondent is Chairman of the Philippine National Red Cross (PNRC) Board of Governors.
Petitioners allege that by accepting the chairmanship of the PNRC Board of Governors,
respondent has ceased to be a member of the Senate as provided in Section 13, Article VI of the
Constitution. Respondent further insists that the PNRC is not a government-owned or controlled
corporation and that the prohibition under Section 13, Article VI of the Constitution does not
apply in the present case since volunteer service to the PNRC is neither an office nor an
employment.
In 2009, the Court held that respondent did not forfeit his seat in the Senate when he
accepted the chairmanship of the PNRC Board of Governors, as the office of the PNRC
Chairman is not a government office or an office in a government-owned or controlled
corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. It
explained that the government does not control the PNRC to ensure and maintain its autonomy,
neutrality, and independence, the PNRC cannot be owned or controlled by the government.
Indeed, the Philippine government does not own the PNRC. The PNRC does not have
government assets and does not receive any appropriation from the Philippine Congress. The
PNRC is financed primarily by contributions from private individuals and private entities. The
PNRC Chairman is not an official or employee of the Philippine Government. Not being a
government official or employee, the PNRC Chairman, as such, does not hold a government
office or employment. It further held that the PNRC Charter is void insofar as it creates the
PNRC as a private corporation and that the PNRC should incorporate under the Corporation
Code and register with the Securities and Exchange Commission if it wants to be a private
corporation.
Respondent Richard J. Gordon filed a Motion for Clarification and/or for Reconsideration
and a Motion for Partial Reconsideration was filed by movant-intervenor PNRC. PNRC prayed
that the Court sustain the constitutionality of its Charter
ISSUE:
What is the nature of PNRC?

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RULING:
The PNRC is one of the National Red Cross and Red Crescent Societies, which, together
with the International Committee of the Red Cross (ICRC) and the IFRC and RCS, make up the
International Red Cross and Red Crescent Movement (the Movement). National Societies such
as the PNRC act as auxiliaries to the public authorities of their own countries in the humanitarian
field and provide a range of services including disaster relief and health and social programmes.
A National Society partakes of a sui generis character. The PNRC, as a National Society
of the International Red Cross and Red Crescent Movement, can neither be classified as an
instrumentality of the State, so as not to lose its character of neutrality as well as its
independence, nor strictly as a private corporation since it is regulated by international
humanitarian law and is treated as an auxiliary of the State. By requiring the PNRC to organize
under the Corporation Code just like any other private corporation, the Decision of July 15, 2009
lost sight of the PNRCs special status under international humanitarian law and as an auxiliary of
the State, designated to assist it in discharging its obligations under the Geneva Conventions.
The nature of PNRC is sui generis. Although it is neither a subdivision, agency, or
instrumentality of the government, nor a government-owned or -controlled corporation or a
subsidiary thereof, as succinctly explained in the Decision of July 15, 2009, so much so that
respondent, under the Decision, was correctly allowed to hold his position as Chairman thereof
concurrently while he served as a Senator, such a conclusion does not ipso facto imply that the
PNRC is a private corporation within the contemplation of the provision of the Constitution, that
must be organized under the Corporation Code. As correctly mentioned by Justice Roberto A.
Abad, the sui generis character of PNRC requires us to approach controversies involving the
PNRC on a case-to-case basis.
In sum, the PNRC enjoys a special status as an important ally and auxiliary of the
government in the humanitarian field in accordance with its commitments under international
law. This Court cannot all of a sudden refuse to recognize its existence, especially since the issue
of the constitutionality of the PNRC Charter was never raised by the parties
WHEREFORE, premises considered, respondent Richard J. Gordons Motion for
Clarification and/or for Reconsideration and movant-intervenor PNRCs Motion for Partial
Reconsideration of the Decision in G.R. No. 175352 dated July 15, 2009 are GRANTED. The
constitutionality of R.A. No. 95, as amended, the charter of the Philippine National Red Cross,
was not raised by the parties as an issue and should not have been passed upon by this Court. The
structure of the PNRC is sui generis being neither strictly private nor public in nature. R.A. No.
95 remains valid and constitutional in its entirety. The dispositive portion of the Decision should
therefore be MODIFIED by deleting the second sentence, to now read as follows:
WHEREFORE, we declare that the office of the Chairman of the Philippine National Red
Cross is not a government office or an office in a government-owned or controlled corporation
for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution.

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SEVENTH DAY ADVENTIST CONFERENCE CHURCH OF SOUTHERN PHILIPPINES, INC.,

and/or represented by MANASSEH C. ARRANGUEZ, BRIGIDO P. GULAY, FRANCISCO M.
LUCENARA, DIONICES O. TIPGOS, LORESTO C. MURILLON, ISRAEL C. NINAL, GEORGE G.
SOMOSOT, JESSIE T. ORBISO, LORETO PAEL and JOEL BACUBAS vs. NORTHEASTERN
MINDANAO MISSION OF SEVENTH DAY ADVENTIST, INC., and/or represented by JOSUE A.
LAYON, WENDELL M. SERRANO, FLORANTE P. TY and JETHRO CALAHAT and/or SEVENTH
DAY ADVENTIST CHURCH [OF] NORTHEASTERN MINDANAO MISSION
G.R. No. 150416 July 21, 2006

FACTS:

Felix Cosio and his wife, Felisa Cuysona owned a 1,069 sq. m.
in Bayugan, Agusan del Sur. They donated the land to the South Philippine Union Mission of
Seventh Day Adventist Church of Bayugan Esperanza, Agusan (SPUM-SDA Bayugan).

The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Day
Adventist Church, on behalf of the donee.

21 years later, the same parcel of land was sold by the spouses Cosio to the Seventh Day
Adventist Church of Northeastern Mindanao Mission (SDA-NEMM).

Alleging to be donees successors-in-interest, petitioners asserted ownership over the

property. Respondents argued that SPUM-SDA Bayugan could not legally be a done because,
not having been incorporated yet, it had no juridical personality.

Trial Court uphold the sale in favor of respondents.

CA affirmed the RTC decision.

ISSUE:

Whether the donation is valid and therefore the SDA-NEMM’s ownership of the lot
should be upheld.

RULING:

No. The alleged donation to petitioners was void.

Donation is an act of liberality whereby a person disposes gratuitously of a thing or right

in favor of another person who accepts it. The donation could not have been made in favor of an
entity yet inexistent at the time it was made. Nor could it have been accepted as there was yet no
one to accept it.

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The deed of donation was not in favor of any informal group of SDA members but a
supposed SPUM-SDA Bayugan which, at the time, had neither juridical personality nor capacity
to accept such gift.

There is no proof that there was an attempt to incorporate.

The filing of articles of incorporation and the issuance of the certificate of incorporation
are essential for the existence of a de facto corporation. An organization not registered with the
SEC cannot be considered a corporation in any concept, not even as a corporation de facto.

Corporate existence begins only from the moment a certificate of incorporation is

issued. No such certificate was ever issued to petitioners or their supposed predecessor-in-
interest at the time of the donation. Petitioners obviously could not have claimed succession to an
entity that never came to exist. Neither could the principle of separate juridical personality apply
since there was never any corporation to speak of.

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MANILA INTERNATIONAL AIRPORT AUTHORITY vs. COURT OF APPEALS, CITY OF

PARAÑAQUE, CITY MAYOR OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG
PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF PARAÑAQUE
G.R. No. 155650 July 20, 2006

FACTS:
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Parañaque City under Executive Order No. 903,
otherwise known as the Revised Charter of the Manila International Airport Authority ("MIAA
Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E.
Marcos. Subsequently, Executive Order Nos. 909 and 298 amended the MIAA Charter.
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, including the runways and buildings (Airport Lands and Buildings) then
under the Bureau of Air Transportation. 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.
MIAA filed with the Court of Appeals an original petition for prohibition and injunction,
with prayer for preliminary injunction or temporary restraining order. The petition sought to
restrain the City of Parañaque from imposing real estate tax on, levying against, and auctioning
for public sale the Airport Lands and Buildings.
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. The Airport Lands and Buildings are thus inalienable and are not subject to real
estate tax by local governments.
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.
ISSUE:
1. Is MIAA a public corporation?
2. Are the Airport Lands and Buildings of MIAA are exempt from real estate tax?

RULING:
1. Yes. MIAA is a government instrumentality vested with corporate powers and
performing essential public services pursuant to Section 2(10) of the Introductory Provisions of
the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of
tax by local governments under Section 133(o) of the Local Government Code. The exception to
the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity

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under the Local Government Code. Such exception applies only if the beneficial use of real
property owned by the Republic is given to a taxable entity.
2. Yes. Under Section 133(o) of the Local Government Code, MIAA as a government
instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any
kind" by local governments. The only exception is when MIAA leases its real property to a
"taxable person" as provided in Section 234(a) of the Local Government Code, in which case the
specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport
Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by
the City of Parañaque.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the
Court of Appeals. We DECLARE the Airport Lands and Buildings of the Manila International
Airport Authority EXEMPT from the real estate tax imposed by the City of Parañaque. We
declare VOID all the real estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Parañaque on the Airport Lands and Buildings of the Manila
International Airport Authority, except for the portions that the Manila International Airport
Authority has leased to private parties. We also declare VOID the assailed auction sale, and all
its effects, of the Airport Lands and Buildings of the Manila International Airport Authority.

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THE VETERANS FEDERATION OF THE PHILIPPINES represented by Esmeraldo R.

Acorda, vs. Hon. ANGELO T. REYES in his capacity as Secretary of National Defense; and
Hon. EDGARDO E. BATENGA in his capacity as Undersecretary for Civil Relations and
Administration of the Department of National Defense
G.R. No. 155027 February 28, 2006
FACTS:
Respondent Angelo Reyes, the Secretary of National Defense (DND Secretary), issues
Department Circular No. 04 and respondent Edgardo Batenga, the DND Undersecretary, is
tasked by the respondent DND Secretary to conduct an extensive management audit of the record
of petitioner Veterans Federation of the Philippines (VFP), a corporate body organized under
Republic Act No. 2640 and duly registered with the Securities and Exchange Commission.
Petitioner claims that the rules and guidelines laid down in Department Circular No. 04
expanded the scope of “control and supervision” beyond what has been laid down in Republic
Act No. 2640. It claims that it is not a public nor a governmental entity but a private
organization.
ISSUE:
Is Veterans Federation of the Philippines a private corporation?
RULING:
No. VFP is a public corporation. Our constitutions explicitly prohibit the regulation by
special laws of private corporations, with the exception of government-owned or controlled
corporations (GOCCs). Hence, it would be impermissible for the law to grant control of the VFP
to a public official if it were neither a public corporation, an unincorporated governmental entity,
nor a GOCC.
The functions of Petitioner Corporation enshrined in Section 4 of RA 2640 should most
certainly fall within the category of sovereign functions. The protection of the interests of war
veterans is not only meant to promote social justice, but is also intended to reward patriotism. All
of the functions in Section 4 concern the well-being of war veterans, our countrymen who risked
their lives and lost their limbs in fighting for and defending our nation. It would be injustice of
catastrophic proportions to say that it is beyond sovereignty’s power to reward the people who
defended her.
Department Circular No. 04 is an internal regulation. They are meant to regulate a public
corporation under the control of DND, and not the public in general. As likewise discussed
above, what has been created as a body corporate by Rep. Act No. 2640 is not the individual
membership of the affiliate organizations of the VFP, but merely the aggregation of the heads of
the affiliate organizations.
The assailed DND Department Circular No. 04 does not supplant nor modify and is, on
the contrary, perfectly in consonance with Rep. Act No. 2640. Petitioner VFP is a public

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corporation. As such, it can be placed under the control and supervision of the Secretary of
National Defense, who consequently has the power to conduct an extensive management audit of
Petitioner Corporation.

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INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC. vs. COURT OF APPEALS, HENRI
KAHN AND PHILIPPINE FOOTBALL FEDERATION
G.R. NO. 119002 OCTOBER 19, 2000
FACTS:
On June 30, 1989, the petitioner International Express Travel and Tour Services, Inc.
(IETTSI) through its managing director, offered its services as a travel agency to the private
respondent Philippine Football Federation (PFF), through its president Henri Kahn, who
accepted the offer.
The petitioner IETTSI secured the airline tickets for the trips of the athletes and officials of
the private respondent PFF to the South East Asian Games in Kuala Lumpur as well as various
other trips to the People’s Republic of China and Brisbane. The total cost of the tickets amounted
to P449,654.83; the private respondent PFF made two (2) partial payments, both in September of
1989, in the total amount of P176,467.50.
On October 4, 1989, the petitioner IETTSI wrote the private respondent PFF a demand letter
requesting for the amount of P265,894.33. On October 30, 1989, the private respondent PFF,
through the Project Gintong Alay, paid the amount of P31,603.00.
On December 27, 1989, the private respondent Henri Kahn issued a personal check in the
amount of P50,000 as partial payment for the outstanding balance of the Federation. Thereafter,
no further payments were made despite repeated demands.
The petitioner IETTSI sued the private respondent Henri Kahn in his personal capacity and
as President, and impleaded the private respondent PFF as an alternative defendant.
While not denying the allegation that the private respondent PFF owed the amount
P207,524.20, the private respondent Henri Kahn maintained that he did not guarantee payment
but merely acted as an agent of the Federation which has a separate and distinct juridical
personality.
ISSUE:
Whether or not the private respondent PFF exists as a juridical person
RULING:
A voluntary unincorporated association, like the private respondent PFF, has no power to
enter into, or to ratify, a contract. The contract entered into by its officers or agents on behalf of
such association is not binding on, or enforceable against it. The officers or agents are
themselves personally liable.
Before a corporation may acquire juridical personality, the State must give its consent either
in the form of a special law or a general enabling act.
Before an entity may be considered as a national sports association, such entity must be
recognized by the accrediting organization, the Philippine Amateur Athletic Federation (PAAF)

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under Republic Act No. 3135, and the Department of Youth and Sports Development (DYSD)
under Presidential Decree No. 604. Accordingly, the private respondent PFF is not a national
sports association within the purview of the aforementioned laws and does not have corporate
existence of its own.
Any person acting or purporting to act on behalf of a corporation which has no valid
existence assumes such privileges and becomes personally liable for contract entered into or for
other acts performed as such agent.
The doctrine of corporation by estoppel applies to a third party only when he tries to escape
liability on a contract from which he has benefited on the irrelevant ground of defective
incorporation. In the case at bar, the petitioner IETTSI is not trying to escape liability from the
contract but rather, the one claiming from the contract.

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ACEBEDO OPTICAL COMPANY, INC. vs. THE HONORABLE COURT OF APPEALS, ET AL.
G.R. NO. 100152 MARCH 31, 2000
FACTS:
Petitioner applied with the Office of the City Mayor of Iligan for a business permit.
Thereafter, respondent City Mayor issued a business permit subject to several conditions. Some
of these conditions were that Acebedo cannot put up an optical clinic but only a commercial
store since it is a corporation and that Acebedo cannot examine and/or prescribe reading and
similar optical glasses for patients because these are functions of optical clinics, among others.
On December 5, 1988, private respondent Samahan ng Optometrist Sa Pilipinas (SOPI),
through its president, lodged a complaint against the petitioner before the Office of the City
Mayor, alleging that Acebedo violated the conditions set forth in its business permit. The City
Mayor then designated its City Legal Officer to conduct an investigation on the matter. As a
result of said investigation, respondent City Legal Officer submitted a report to the City Mayor
finding the petitioner guilty of violating all the conditions of its business permit and
recommended the disqualification of petitioner from operating its business in Iligan City. Thus,
the City Mayor sent petitioner a Notice of Resolution and Cancellation of Business Permit and
gave the petitioner three months to wind up its affairs. On October 17, 1989, petitioner brought a
petitioner for certiorari, prohibition and mandamus with a prayer for restraining order against the
respondents.
ISSUE:
Whether the special conditions on the business permit of the petitioner are valid and
binding.
RULING:
The special conditions that were imposed by the City Mayor are invalid. Police power as
an inherent attribute of sovereignty is the power to prescribe regulations to promote health,
morals, peace, education, good order or safety and general welfare of the people. Moreover,
police power is essentially regulatory in nature and the power to issue licenses or grant business
permits, if exercised for a regulatory purpose, is within the scope of this power. The authority of
city mayors to grant or issue licenses and business permits is provided for by law. However, the
power to grant or issue licenses or business permits must always be exercised in accordance with
law.
The power of the City Mayor to impose conditions in the business permit is indisputable.
However, what is sought by the petitioner is a permit to engage in business of running an optical
shop. It does not seek a license to engage in the practice of optometry as a corporate body or
entity. The fact that petitioner hires optometrists who practice their profession in the course of
their employment in petitioner’s optical shop does not mean the practice of optometry of the
petitioner itself.

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FRANCISCA S. BALUYOT vs. PAUL E. HOLGANZA and the OFFICE OF THE OMBUDSMAN
(VISAYAS)
G.R. No. 136374 February 9, 2000
FACTS:

During a spot audit conducted on March 21, 1977 by a team of auditors from the
Philippine National Red Cross (PNRC) headquarters, a cash shortage of P154,350.13 was
discovered in the funds of its Bohol chapter. The chapter administrator, petitioner Francisca S.
Baluyot, was held accountable for the shortage. Thereafter, on January 8, 1998, private
respondent Paul E. Holganza, in his capacity as a member of the board of directors of the Bohol
chapter, filed an affidavit-complaint before the Office of the Ombudsman charging petitioner of
malversation under Article 217 of the Revised Penal Code. However, upon recommendation by
respondent Anna Marie P. Militante, Graft Investigation Officer I, an administrative docket for
dishonesty was also opened against petitioner.

On February 6, 1998, public respondent issued an Order requiring petitioner to file her
counter-affidavit to the charges of malversation and dishonesty within ten days from notice, with
a warning that her failure to comply would be construed as a waiver on her part to refute the
charges, and that the case would be resolved based on the evidence on record. On March 14,
1998, petitioner filed her counter-affidavit, raising principally the defense that public respondent
had no jurisdiction over the controversy. She argued that the Ombudsman had authority only
over government-owned or controlled corporations, which the PNRC was not, or so she claimed.

ISSUE:

Is petitioner's contention correct that PNRC is a private voluntary organization and that
the Ombudsman has no jurisdiction over the subject matter of the controversy?

RULING:

No. We dismiss the petition.

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

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PNRC was not "impliedly converted to a private corporation" simply because its charter was
amended to vest in it the authority to secure loans, be exempted from payment of all duties,
taxes, fees and other charges of all kinds on all importations and purchases for its exclusive use,
on donations for its disaster relief work and other services and in its benefits and fund raising
drives, and be allotted one lottery draw a year by the Philippine Charity Sweepstakes Office for
the support of its disaster relief operation in addition to its existing lottery draws for blood
program.

Clearly then, public respondent has jurisdiction over the matter, pursuant to Section 13,
of Republic Act No. 6770, otherwise known as "The Ombudsman Act of 1989".

WHEREFORE, the petition for certiorari is hereby DISMISSED. Costs against

petitioner.

SO ORDERED.

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LIM TONG LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC.

G.R. NO. 136448 November 3, 1999

FACTS:
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered
into a Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the
Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were
engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory
to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of floats
worth P68,000 were also sold to the Corporation.
The buyers, however, failed to pay for the fishing nets and the floats; hence, private
respondents filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer
for a writ of preliminary attachment. The suit was brought against the three in their capacities as
general partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent
corporation as shown by a Certification from the Securities and Exchange Commission. On
September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff
enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the
Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability
and requesting a reasonable time within which to pay. He also turned over to respondent some of
the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to
have waived his right to cross-examine witnesses and to present evidence on his behalf, because
of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an
Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of
Attachment. The trial court maintained the Writ, and upon motion of private respondent, ordered
the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won the
bidding and deposited with the said court the sales proceeds of P900,000.
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine
Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as
general partners, were jointly liable to pay respondent.
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on
the testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the
three in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of
Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation
of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages.

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The trial court noted that the Compromise Agreement was silent as to the nature of their
obligations, but that joint liability could be presumed from the equal distribution of the profit and
loss.
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
ISSUE:
Whether by their acts, Lim, Chua and Yao could be deemed to have entered into a
partnership
RULING:
We are not persuaded by the arguments of petitioner. The facts as found by the two lower
courts clearly showed that there existed a partnership among Chua, Yao and him, pursuant to
Article 1767 of the Civil Code which provides:
Art. 1767 — By the contract of partnership, two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing
the profits among themselves.
Moreover, it is clear that the partnership extended not only to the purchase of the boat,
but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing,
were obviously acquired in furtherance of their business. It would have been inconceivable for
Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid
equipment, without which the business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a
partnership engaged in the fishing business. They purchased the boats, which constituted the
main assets of the partnership, and they agreed that the proceeds from the sales and operations
thereof would be divided among them.

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MARIANO A. ALBERT vs. UNIVERSITY PUBLISHING CO., INC

G.R. No. L-19118 January 30, 1965

FACTS:
On July 19, 1948, defendant University Publishing Co.,Inc., through Jose M. Aruego, its
President, entered into a contract with plaintifif Mariano A. Albert. The defendant had thereby
agreed to pay plaintiff P30,000.00 for the exclusive right to publish his revised Commentaries on
the Revised Penal Code and for his share in previous sales of the book's first edition. The
defendant had undertaken to pay in eight quarterly installments of P3,750.00 starting July 15,
1948. However, the defendant had failed to pay the second installment. As per the contract,
failure to pay one installment would render the rest due. Thus, on September 24, 1949, the
plaintiff sued the defendant. A judgment favorable to the plaintiff was rendered.
Thereafter, on July 22, 1961, the court a quo ordered issuance of an execution writ
against University Publishing Co., Inc. Plaintiff, however, on August 10, 1961, petitioned for a
writ of execution against Jose M. Aruego, as the real defendant, stating, "plaintiff's counsel and
the Sheriff of Manila discovered that there is no such entity as University Publishing Co., Inc."
ISSUE:
Is Jose M. Aruego a party to the case considering that University Publishing Co., Inc does
not exist as a corporation nor a partnership.
RULING:
Yes. The fact of non-registration of University Publishing Co., Inc. in the Securities and
Exchange Commission has not been disputed. However, on account of the non-registration it
cannot be considered a corporation, not even a corporation de facto. It has therefore no
personality separate from Jose M. Aruego; it cannot be sued independently.

The corporation-by-estoppel doctrine has not been invoked. At any rate, the same is
inapplicable here. Aruego represented a non-existent entity and induced not only the plaintiff but
even the court to believe in such representation. He signed the contract as "President" of
"University Publishing Co., Inc.," stating that this was "a corporation duly organized and existing
under the laws of the Philippines," and obviously misled plaintiff (Mariano A. Albert) into
believing the same. One who has induced another to act upon his wilful misrepresentation that a
corporation was duly organized and existing under the law, cannot thereafter set up against his
victim the principle of corporation by estoppel

In Salvatiera vs. Garlitos, the Court ruled that "A person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such privileges and obligations and
becomes personally liable for contracts entered into or for other acts performed as such agent."

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Had Jose M. Aruego been named as party defendant instead of, or together with, "University
Publishing Co., Inc.," there would be no room for debate as to his personal liability. Since he was
not so named, the matters of "day in court" and "due process" have arisen.
The evidence is patently clear that Jose M. Aruego, acting as representative of a non-
existent principal, was the real party to the contract sued upon; that he was the one who reaped
the benefits resulting from it, so much so that partial payments of the consideration were made
by him; that he violated its terms, thereby precipitating the suit in question; and that in the
litigation he was the real defendant. Perforce, in line with the ends of justice, responsibility under
the judgment falls on him.

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ARNOLD HALL and BRADLEY P. HALL vs. EDMUNDO S. PICCIO

G.R. No. L-2598 June 29, 1950

FACTS:

The petitioner Far Eastern Lumber and Commercial Co., Inc., organized to engage in a
general lumber business to carry on as general contractors, operators and managers, etc. Attached
to the article was an affidavit of the treasurer stating that 23,428 shares of stock had been
subscribed and fully paid with certain properties transferred to the corporation described in a list
appended thereto.
On December 2, 1947, the said articles of incorporation were filed in the office of the
Securities and Exchange Commissioner, for the issuance of the corresponding certificate of
incorporation. Immediately after the execution of said articles of incorporation, the corporation
proceeded to do business with the adoption of by-laws and the election of its officers.
On March 22, 1948, pending action on the articles of incorporation by the aforesaid
governmental office, the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and
Ceferino S. Abella filed before the Court of First Instance of Leyte the civil case numbered 381,
entitled "Fred Brown et al. vs. Arnold C. Hall et al.", alleging among other things that the Far
Eastern Lumber and Commercial Co. was an unregistered partnership; that they wished to have it
dissolved because of bitter dissension among the members, mismanagement and fraud by the
managers and heavy financial losses.
Hon. Edmund S. Piccio ordered the dissolution of the company. However, the petitioner
alleges that the court had no jurisdiction in civil case No. 381 to decree the dissolution of the
company, because it being a de facto corporation, dissolution thereof may only be ordered in a
quo warranto proceeding instituted in accordance with section 19 of the Corporation Law.
ISSUE:
What is the classification of Far Eastern Lumber and Commercial Co., Inc?
RULING:

It is not a corporation of any kind.

As explained by the court, not having obtained the certificate of incorporation, the Far
Eastern Lumber and Commercial Co. — even its stockholders — may not probably claim "in
good faith" to be a corporation.
Under our statue it is to be noted that it is the issuance of a certificate of incorporation by
the Director of the Bureau of Commerce and Industry which calls a corporation into being. The

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immunity if collateral attack is granted to corporations "claiming in good faith to be a

corporation under this act." Such a claim is compatible with the existence of errors and
irregularities; but not with a total or substantial disregard of the law. Unless there has been an
evident attempt to comply with the law the claim to be a corporation "under this act" could not
be made "in good faith."
Furthermore, this is not a suit in which the corporation is a party. This is litigation
between stockholders of the alleged corporation, for the purpose of obtaining its dissolution.
Even the existence of a de jure corporation may be terminated in a private suit for its dissolution
between stockholders, without the intervention of the state.
The petition will, therefore, be dismissed, with costs.

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NATIONALITY OF CORPORATIONS

JOSE M. ROY III vs. CHAIRPERSON TERESITA HERBOSA

G.R. No. 207246 November 22, 2016

FACTS:

On June 28, 2011, the Court issued the Gamboa Decision, the dispositive portion of
which reads:

WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in
Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in
the election of directors, and thus in the present case only to common shares, and not to the total
outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson
of the Securities and Exchange Commission is DIRECTED to apply this definition of the term
"capital" in determining the extent of allowable foreign ownership in respondent Philippine
Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the
Constitution, to impose the appropriate sanctions under the law.

The Gamboa Decision attained finality on October 18, 2012, and Entry of Judgment was
thereafter issued on December 11, 2012.

On November 6, 2012, the SEC posted a Notice in its website inviting the public to
attend a public dialogue and to submit comments on the draft memorandum circular (attached
thereto) on the guidelines to be followed in determining compliance with the Filipino ownership
requirement in public utilities under Section 11, Article XII of the Constitution pursuant to the
Court's directive in the Gamboa Decision.

On March 25, 2013, the SEC posted another Notice in its website soliciting from the
public comments and suggestions on the draft guidelines.

On April 22, 2013, petitioner Atty. Jose M. Roy III ("Roy") submitted his written
comments on the draft guidelines.

On May 20, 2013, the SEC, through respondent Chairperson Teresita J. Herbosa, issued
SEC-MC No. 8 entitled "Guidelines on Compliance with the Filipino-Foreign Ownership
Requirements Prescribed in the Constitution and/or Existing Laws by Corporations Engaged in
Nationalized and Partly Nationalized Activities." It was published in the Philippine Daily
Inquirer and the Business Mirror on May 22, 2013.13Section 2 of SEC-MC No. 8 provides:

Section 2. All covered corporations shall, at all times, observe the constitutional or
statutory ownership requirement. For purposes of determining compliance therewith, the
required percentage of Filipino ownership shall be applied to BOTH (a) the total number of
outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number
of outstanding shares of stock, whether or not entitled to vote in the election of directors.

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On June 10, 2013, petitioner Roy, as a lawyer and taxpayer, filed the Petition, assailing
the validity of SEC-MC No. 8 for not conforming to the letter and spirit of the Gamboa Decision
and Resolution and for having been issued by the SEC with grave abuse of discretion. Petitioner
Roy seeks to apply the 60-40 Filipino ownership requirement separately to each class of shares
of a public utility corporation, whether common, preferred nonvoting, preferred voting or any
other class of shares. Petitioner Roy also questions the ruling of the SEC that respondent
Philippine Long Distance Telephone Company ("PLDT") is compliant with the constitutional
rule on foreign ownership. He prays that the Court declare SEC-MC No. 8 unconstitutional and
direct the SEC to issue new guidelines regarding the determination of compliance with Section
11, Article XII of the Constitution in accordance with Gamboa.

ISSUE:

Is the SEC-MC No.8 contrary to the court’s definition and interpretation of the term
“capital” provided by the Constitution?

RULING:

The Gamboa Decision held that preferred shares are to be factored in only if they are
entitled to vote in the election of directors. If preferred shares have no voting rights, then they
cannot elect members of the board of directors, which wields control of the corporation. As to
the right of non voting preferred shares to vote in the 8 instances enumerated in Section 6 of the
Corporation Code, the Gamboa Decision considered them but, in the end, did not find them
significant in resolving the issue of the proper interpretation of the word "capital" in Section 11,
Article XII of the Constitution.

Therefore, to now insist in the present case that preferred shares be regarded differently
from their unambiguous treatment in the Gamboa Decision is enough proof that
the Gamboa Decision, which had attained finality more than 4 years ago, is being drastically
changed or expanded.

In this regard, it should be noted that the 8 corporate matters enumerated in Section 6 of
the Corporation Code require, at the outset, a favorable recommendation by the management to
the board. As mandated by Section 11, Article XII of the Constitution, all the executive and
managing officers of a public utility company must be Filipinos. Thus, the all-Filipino
management team must first be convinced that any of the 8 corporate actions in Section 6 will be
to the best interest of the company. Then, when the all-Filipino management team recommends
this to the board, a majority of the board has to approve the recommendation and, as required by
the Constitution, foreign participation in the board cannot exceed 40% of the total number of
board seats. Since the Filipino directors comprise the majority, they, if united, do not even need
the vote of the foreign directors to approve the intended corporate act. After approval by the
board, all the shareholders (with and without voting rights) will vote on the corporate action. The
required vote in the shareholders' meeting is 2/3 of the outstanding capital stock. Given the super

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majority vote requirement, foreign shareholders cannot dictate upon their Filipino counterpart.
However, foreigners (if owning at least a third of the outstanding capital stock) must agree with
Filipino shareholders for the corporate action to be approved. The 2/3 voting requirement applies
to all corporations, given the significance of the 8 corporate actions contemplated in Section 6 of
the Corporation Code. In short, if the Filipino officers, directors and shareholders will not
approve of the corporate act, the foreigners are helpless.

With the foregoing disquisition, the Court rules that SEC-MC No. 8 is not contrary to the
Court's definition and interpretation of the term "capital". Accordingly, the petitions must be
denied for failing to show grave abuse of discretion in the issuance of SEC-MC No. 8.
Ultimately, the key to nationalism is in the individual. Particularly for a public utility
corporation or association, whether stock or non-stock, it starts with the Filipino shareholder or
member who, together with other Filipino shareholders or members wielding 60% voting power,
elects the Filipino director who, in turn, together with other Filipino directors comprising a
majority of the board of directors or trustees, appoints and employs the all-Filipino management
team. This is what is envisioned by the Constitution to assure effective control by Filipinos. If
the safeguards, which are already stringent, fail, i.e., a public utility corporation whose voting
stocks are beneficially owned by Filipinos, the majority of its directors are Filipinos, and all its
managing officers are Filipinos, is proalien (or worse, dummies), then that is not the fault or
failure of the Constitution. It is the breakdown of nationalism in each of the Filipino
shareholders, Filipino directors and Filipino officers of that corporation. No Constitution, no
decision of the Court, no legislation, no matter how ultranationalistic they are, can guarantee
nationalism.

WHEREFORE, premises considered, the Court DENIES the Petition.

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NARRA NICKEL MINING and DEVELOPMENT CORP. v. REDMONT CONSOLIDATED MINES,

CORP
G.R. No. 195580 January 28, 2015

FACTS:
This case is a Motion for Reconsideration of its April 21, 2014 decision. What transpired
in the original case is that Redmont Consolidated Mines, Inc. filed before the Panel of
Arbitrators of the DENR separate petitions for denial of McArthur Mining, Inc. (McArthur),
Tesoro and Mining and Development, Inc. and Narra Nickel Mining and Development
Corporation applications Mineral Production Sharing Agreement (MPSA) on the ground that
they are not “qualified persons” and thus disqualified from engaging in mining activities through
MPSAs reserved only for Filipino citizens. McArthur Mining, Inc., is composed, among others,
by Madridejos Mining Corporation (Filipino) and MBMI Resources, Inc. (Canadian) owning
3,998 out of 10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Madridejos Mining
Corporation. Tesoro and Mining and Development, Inc., is composed, among others, by Sara
Marie Mining, Inc. (Filipino), and MBMI Resources, Inc. (Canadian); MBMI also owns shares
of Sara Marie Mining, Inc. Narra Nickel Mining and Development Corporation, is composed,
among others, by Patricia Louise Mining & Development Corporation (Filipino), and MBMI
Resources, Inc. (Canadian); MBMI also owns shares of Patricia Louise Mining & Development
Corporation.
The challenged decision sustained the appellate court’s ruling that petitioner’s, being
foreign corporations, are not entitled to Mineral Production Sharing Agreements (MPSAs). The
finds that there was a doubt as to petitioner’s nationality since a 100% Canadian owned firm,
MBMI effectively owns 60% of the common stocks of the petitioner’s by owning equity interest
of petitioner’s other majority corporate shareholders.
In a strongly worded Motion for Reconsideration dated June 5, 2014, petitioners-movants
argued, in the main, that the Court's Decision was not in accord with law and logic.
ISSUES:
Can the Grand Father Rule be applied to determine the nationality of the corporations?
RULING:
Grand Father Rule is use to supplement to the control test.

The court did not foreclose the application of the Control Test in determining which
corporations may be considered as Philippine nationals. Instead, to borrow Justice Leonen’s
term, the Court used the Grandfather Rule as a "supplement" to the Control Test so that the intent
underlying the averted Sec. 2, Art. XII of the Constitution be given effect. The following
excerpts of the April 21, 2014 Decision cannot be clearer:

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In ending, the "control test" is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit of Sec. 2, Art. XII of the 1987
Constitution, entitled to undertake the exploration, development and utilization of the natural
resources of the Philippines. When in the mind of the Court, there is doubt, based on the
attendant facts and circumstances of the case, in the 60-40 Filipino equity ownership in the
corporation, then it may apply the "grandfather rule." Control Test can be, as it has been, applied
jointly withthe Grandfather Rule to determine the observance of foreign ownership restriction in
nationalized economic activities. The Control Test and the Grandfather Rule are not, as it were,
incompatible ownership-determinant methods that can only be applied alternative to each other.
Rather, these methods can, if appropriate, be used cumulatively in the determination of the
ownership and control of corporations engaged in fully or partly nationalized activities, as the
mining operation involved in this case or the operation of public utilities as in Gamboa or
Bayantel.

The Grandfather Rule, standing alone, should not be used to determine the Filipino
ownership and control in a corporation, as it could result in an otherwise foreign corporation
rendered qualified to perform nationalized or partly nationalized activities. Hence, it is only
when the Control Test is first complied with that the Grandfather Rule may be applied. Put in
another manner, if the subject corporation’s Filipino equity falls below the threshold 60%, the
corporation is immediately considered foreign-owned, in which case, the need to resort to the
Grandfather Rule disappears. On the other hand, a corporation that complies with the 60-40
Filipino to foreign equity requirement can be considered a Filipino corporation if there is no
doubt as to who has the "beneficial ownership" and "control" of the corporation. In that instance,
there is no need fora dissection or further inquiry on the ownership of the corporate shareholders
in both the investing and investee corporation or the application of the Grandfather Rule. As a
corollary rule, even if the 60-40 Filipino to foreign equity ratio is apparently met by the subject
or investee corporation, a resort to the Grandfather Rule is necessary if doubt exists as to the
locus of the "beneficial ownership" and "control." In this case, a further investigation as to the
nationality of the personalities with the beneficial ownership and control of the corporate
shareholders in both the investing and investee corporations is necessary.

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HEIRS OF WILSON P. GAMBOA vs. TEVES

G.R. No. 176579 October 9, 2012

FACTS:

The issue started when petitioner Gamboa questioned the indirect sale of shares involving
almost 12 million shares of the Philippine Long Distance Telephone Company (PLDT) owned
by Philippine Telecommunications Investment Corporation (PTIC) to First Pacific Company
Limited (First Pacific). Thus, First Pacific’s common shareholdings in PLDT increased from
30.7 percent to 37 percent or about 6.3 percent of the outstanding common shares of PLDT. With
the sale, First Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37
percent, thereby increasing the common shareholdings of foreigners in PLDT to about 81.47
percent.

This violates Section 11, Article XII of the 1987 Philippine Constitution which limits
foreign ownership of the capital of a public utility to not more than 40 percent.
In the Court’s 28 June 2011 decision, it ruled the case in favor of the petitione. It was ruled that
the term capital in Section 11, Article XII of the 1987 Constitution refers only to shares of stock
entitled to vote in the election of directors, and thus in the present case only to common shares,
and not to the total outstanding capital stock (common and non-voting preferred shares).
Hence this new case, resolving the motion for reconsideration for the 2011 decision filed by the
respondents.

Movants Philippine Stock Exchange’s (PSE) President, Manuel V. Pangilinan, Napoleon

L. Nazareno, and the Securities and Exchange Commission (SEC) contend that the term
“capital” in Section 11, Article XII of the Constitution has long been settled and defined to refer
to the total outstanding shares of stock, whether voting or non-voting. In fact, movants claim that
the SEC, which is the administrative agency tasked to enforce the 60-40 ownership requirement
in favor of Filipino citizens in the Constitution and various statutes, has consistently adopted this
definition in its numerous opinions. Movants point out that with the 2011 Decision, the Court in
effect introduced a “new” definition or “midstream redefinition” of the term “capital” in Section
11, Article XII of the Constitution.

ISSUE:

Does the term “capital” provided for in the Constitution include both voting and non-
voting shares?

RULING:

No. The term “capital” provided for in the Constitution includes only voting shares.

For more than 75 years since the 1935 Constitution, the Court has not interpreted or
defined the term "capital" found in various economic provisions of the various Constitutions.
Hence, it is patently wrong and utterly baseless to claim that the Court in defining the term

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"capital" in its 28 June 2011 Decision modified, reversed, or set aside the purported long-
standing definition of the term "capital," which supposedly refers to the total outstanding shares
of stock, whether voting or non-voting.

The opinions of the SEC, as well as of the Department of Justice (DOJ), on the definition
of the term "capital" as referring to both voting and non-voting shares (combined total of
common and preferred shares) are, conflicting and inconsistent. There is no basis whatsoever to
the claim that the SEC and the DOJ have consistently and uniformly adopted a definition of the
term "capital" contrary to the definition that this Court adopted in its 28 June 2011 Decision.

The Court stressed that the Constitution expressly declares as State policy the
development of an economy "effectively controlled" by Filipinos. Consistent with such State
policy, the Constitution explicitly reserves the ownership and operation of public utilities to
Philippine nationals, who are defined in the Foreign Investments Act of 1991 as Filipino citizens,
or corporations or associations at least 60 percent of whose capital with voting rights belongs to
Filipinos. The FIA's implementing rules explain that for stocks to be deemed owned and held by
Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required
Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is
essential.

Any other construction of the term "capital" in Section 11, Article XII of the Constitution
contravenes the letter and intent of the Constitution. Any other meaning of the term "capital"
openly invites alien domination of economic activities reserved exclusively to Philippine
nationals. Therefore, respondents’ interpretation will ultimately result in handing over effective
control of our national economy to foreigners in patent violation of the Constitution, making
Filipinos second-class citizens in their own country.

Therefore, the Court’s interpretation of the term ‘capital’ was not erroneous and the term
shall only refer to stocks with voting rights.

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EXPRESS INVESTMENTS III PRIVATE LTD. AND EXPORT DEVELOPMENT CANADA, vs.
BAYAN TELECOMMUNICATIONS, INC., et. al.,
G.R. NOS. 174457-59 December 5, 2012

FACTS:

Bayantel is a domestic corporation engaged in the business of providing

telecommunication services. It is 98.6% owned by Bayan Telecommunications Holdings
Corporation (BTHC), which in turn is 85.4% owned by the Lopez Group of Companies and
Benpres Holdings Corporation. Between the years 1995 and 2001, Bayantel entered into several
credit agreements with Express Investments III Private Ltd. And Export Development Canada,
Asian Finance and Investment Corporation, Bayerische Landesbank, and Clearwater Capital
Partners Singapore Pte Ltd., as agent for Credit Industriel et Commercial, Deutsche Bank AG,
Equitable PCI Bank, JP Morgan Chase Bank, Metropolitan Bank and Trust Co., P.T. Bank
Negara Indonesia, TBK, Hong Kong Branch, Rizal Commercial Banking Corporation and
Standard Chartered Bank. To secure said loans, Bayantel executed an Omnibus Agreement and
an EVTELCO Mortgage Trust Indenture. Pursuant to the Omnibus Agreement, Bayantel
executed an Assignment Agreement in favor of the lenders under the Omnibus Agreement. In the
Assignment Agreement, Bayantel bound itself to assign, convey and transfer to the Collateral
Agent certain properties as collateral security for the prompt and complete payment of its
obligations to the Omnibus Creditors.

Foreseeing the impossibility of further meeting its obligations, Bayantel sent, in October
2001, a proposal for the restructuring of its debts to the Bank Creditors and the Holders of Notes.
To facilitate the negotiations between Bayantel and its creditors, an Informal Steering Committee
was formed. In its initial proposal called the "First Term Sheet," Bayantel suggested a 25%
write-off of the principal owing to the Holders of Notes. The Informal Steering Committee
rejected the idea, but accepted Bayantel’s proposal to pay the restructured debt, pari passu, out
of its cash flow. This pari passu or equal treatment of debts, however, was opposed by the Bank
Creditors who invoked their security interest under the Assignment Agreement.

Bayantel continued to pay reduced interest on its debt to the Bank Creditors but stopped
paying the Holders of Notes starting July 17, 2000. By May 31, 2003, Bayantel’s total
indebtedness had reached US$674 million or P35.928 billion in unpaid principal and interest,
based on the prevailing conversion rate of US$1 = P53.282. Out of its total liabilities, Bayantel
allegedly owes 43.2% or US$291 million (P15.539 billion) to the Holders of the Notes. The
Bank of New York, as trustee for the Holders of the Notes, wrote Bayantel an Acceleration
Letter declaring immediately due and payable the principal, premium interest, and other
monetary obligations on all outstanding Notes. Then, on July 30, 2003, The Bank of New York
filed a petition for the corporate rehabilitation of Bayantel upon the instructions of the Informal
Steering Committee.

The RTC, acting as a Rehabilitation Court, approved the Report and Recommendations
attached by the Receiver. On appeal, The Court of Appeals agreed with the Rehabilitation Court
that it is reasonable to adopt a level of sustainable debt that approximates respondent Bayantel’s

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proposal because the latter is in the best position to determine the level of sustainable debt that it
can manage.

ISSUE:

Is the conversion of debt to equity in excess of 40% of the outstanding capital stock
violates the constitutional limit on foreign ownership of a public utility?

RULING:

No. Two steps must be followed in order to determine whether the conversion of debt to
equity in excess of 40% of the outstanding capital stock violates the constitutional limit on
foreign ownership of a public utility: First, identify into which class of shares the debt shall be
converted, whether common shares, preferred shares that have the right to vote in the election of
directors or non-voting preferred shares; Second, determine the number of shares with voting
right held by foreign entities prior to conversion. If upon conversion, the total number of shares
held by foreign entities exceeds 40% of the capital stock with voting rights, the constitutional
limit on foreign ownership is violated. Otherwise, the conversion shall be respected.

In its Rehabilitation Plan, among the material financial commitments made by respondent
Bayantel is that its shareholders shall "relinquish the agreed-upon amount of common stock[s] as
payment to Unsecured Creditors as per the Term Sheet." Evidently, the parties intend to convert
the unsustainable portion of respondent's debt into common stocks, which have voting rights. If
we indulge petitioners on their proposal, the Omnibus Creditors which are foreign corporations,
shall have control over 77.7% of Bayantel, a public utility company. This is precisely the
scenario proscribed by the Filipinization provision of the Constitution. Therefore, the Court of
Appeals acted correctly in sustaining the 40% debt-to-equity ceiling on conversion.

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HEIRS OF WILSON GAMBOA v. TEVES

G.R. No. 176579 June 28, 2011
FACTS:
Petitioner filed a petition to nullify the sales of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the government of the Republic of the
Philippines to Metro Pacific Assets Holdings, Inc., a Hong Kong based investment management
and holding company and a shareholder of the Philippine Long Distance Telephone Company
(PLDT).
Petitioner questioned the sale on the ground that it also involved an indirect sale of 12
million shares of PLDT owned by PTIC to First Pacific. With this sale, from 30.7% to 37 %,
thereby increasing the total common shareholdings of foreigners in PLDT to about 81.47%. This
according to petitioner, violates Section 11, Article XII of the 1987 Constitution which limits
foreign ownership of the capital of a public utility to not more than 40%
ISSUE:
Does the term “capital” in Section 11, Article XII of the Constitution refer to the total
common shares only, or to the total outstanding capital stock of PLDT, a public utility?
RULING:
The term “capital” in Section 11, Article XII of the Constitution refers only to shares of
stock entitled to vote in the election of directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock comprising both common and non-voting
preferred shares.
To construe broadly the term “capital” as the total outstanding capital stock, including
both common and non-voting preferred shares, grossly contravenes the intent and letter of the
Constitution that the “State shall develop a self-reliant and independent national economy
effectively controlled by Filipinos.” A broad definition unjustifiably disregards who owns the
all-important voting stock, which necessarily equates to control of the public utility.
WHEREFORE, we rule that the term “capital” in Section 11, Article XII of the 1987
Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in
the present case only to common shares, and not to the total outstanding capital.

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DEMOSTHENES P. AGAN, JR., et al. vs. PHILIPPINE INTERNATIONAL AIR TERMINALS CO.,
INC., MANILA INTERNATIONAL AIRPORT AUTHORITY (PIATCO), et al
G.R. No. 155001 January 21, 2004
FACTS:
On October 5, 1994, Asias Emerging Dragon Corp. (AEDC) submitted an unsolicited
proposal to the Philippine Government through the Department of Transportation and
Communication (DOTC) and Manila International Airport Authority (MIAA) for the
construction and development of the NAIA IPT III under a build-operate-and-transfer
arrangement pursuant to R.A. No. 6957, as amended by R.A. No. 7718 (BOT Law). In
accordance with the BOT Law and its Implementing Rules and Regulations (Implementing
Rules), the DOTC/MIAA invited the public for submission of competitive and comparative
proposals to the unsolicited proposal of AEDC. On September 20, 1996 a consortium composed
of the Peoples Air Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services,
Inc. (PAGS) and Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium),
submitted their competitive proposal to the Prequalification Bids and Awards Committee
(PBAC).
After finding that the Paircargo Consortium submitted a bid superior to the unsolicited
proposal of AEDC and after failure by AEDC to match the said bid, the DOTC issued the notice
of award for the NAIA IPT III project to the Paircargo Consortium, which later organized into
herein respondent PIATCO. Hence, on July 12, 1997, the Government, through then DOTC
Secretary Arturo T. Enrile, and PIATCO, through its President, Henry T. Go, signed the
Concession Agreement for the Build-Operate-and-Transfer Arrangement of the Ninoy Aquino
International Airport Passenger Terminal III (1997 Concession Agreement). On November 26,
1998, the 1997 Concession Agreement was superseded by the Amended and Restated
Concession Agreement (ARCA) containing certain revisions and modifications from the original
contract. A series of supplemental agreements was also entered into by the Government and
PIATCO.
On September 17, 2002, various petitions were filed before this Court to annul the 1997
Concession Agreement, the ARCA and the Supplements and to prohibit the public
respondents DOTC and MIAA from implementing them.
In a decision dated May 5, 2003, this Court granted the said petitions and declared the 1997
Concession Agreement, the ARCA and the Supplements null and void.
Respondent PIATCO, respondent-Congressmen and respondents-intervenors now seek the
reversal of the May 5, 2003 decision and pray that the petitions be dismissed. In the alternative,
PIATCO prays that the Court should not strike down the entire 1997 Concession Agreement, the
ARCA and its supplements in light of their separability clause. Respondent-Congressmen and
NMTAI also pray that in the alternative, the cases at bar should be referred to arbitration
pursuant to the provisions of the ARCA. PIATCO-Employees pray that the petitions be
dismissed and remanded to the trial courts for trial on the merits or in the alternative that the
1997 Concession Agreement, the ARCA and the Supplements be declared valid and binding.
ISSUE:
Is PIATCO a qualified bidder

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HELD:
No.Under the debt-to-equity restriction, a bidder may only seek financing of the NAIA IPT
III Project up to 70% of the project cost. Thirty percent (30%) of the cost must come in the form
of equity or investment by the bidder itself. It cannot be overly emphasized that the rules require
a minimum amount of equity to ensure that a bidder is not merely an operator or implementor of
the project but an investor with a substantial interest in its success. The minimum equity
requirement also guarantees the Philippine government and the general public, who are the
ultimate beneficiaries of the project, that a bidder will not be indifferent to the completion of the
project. The discontinuance of the project will irreparably damage public interest more than
private interest.
In the cases at bar, after applying the investment ceilings provided under the General
Banking Act and considering the maximum amounts that each member of the consortium may
validly invest in the project, it is daylight clear that the Paircargo Consortium, at the time of pre-
qualification, had a net worth equivalent to only 6.08% of the total estimated project cost By
any reckoning, a showing by a bidder that at the time of pre-qualification its maximum funds
available for investment amount to only 6.08% of the project cost is insufficient to satisfy the
requirement prescribed by the Implementing Rules that the project proponent must have the
ability to provide at least 30% of the total estimated project cost. In peso and centavo terms, at
the time of pre-qualification, the Paircargo Consortium had maximum funds available for
investment to the NAIA IPT III Project only in the amount of P558,384,871.55, when it had to
show that it had the ability to provide at least P2,755,095,000.00. The huge disparity cannot be
dismissed as of de minimis importance considering the high public interest at stake in the project.
PIATCO nimbly tries to sidestep its failure by alleging that it submitted not only audited
financial statements but also testimonial letters from reputable banks attesting to the good
financial standing of the Paircargo Consortium. It contends that in adjudging whether the
Paircargo Consortium is a pre-qualified bidder, the PBAC should have considered not only its
financial statements but other factors showing its financial capability.
It is beyond refutation that Paircargo Consortium failed to prove its ability to provide the
amount of at least P2,755,095,000.00, or 30% of the estimated project cost. Its submission of
testimonial letters attesting to its good financial standing will not cure this failure. At best, the
said letters merely establish its credit worthiness or its ability to obtain loans to finance the
project. They do not, however, prove compliance with the aforesaid requirement of minimum
amount of equity in relation to the prescribed debt-to-equity ratio. This equity cannot be satisfied
through possible loans.
In sum, we again hold that given the glaring gap between the net worth of Paircargo and
PAGS combined with the amount of maximum funds that Security Bank may invest by equity in
a non-allied undertaking, Paircargo Consortium, at the time of pre-qualification, failed to show
that it had the ability to provide 30% of the project cost and necessarily, its financial capability
for the project cannot pass muster.

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THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO, INC. vs.

THE LAND REGISTRATION COMMISSION and THE REGISTER OF DEEDS OF DAVAO CITY
G.R. No. L-8451 December 20, 1957
FACTS:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao,
executed a deed of sale of a parcel of land located in the same city covered by Transfer
Certificate No. 2263, in favor of the Roman Catholic Apostolic Administrator of Davao Inc., s
corporation sole organized and existing in accordance with Philippine Laws, with Msgr. Clovis
Thibault, a Canadian citizen, as actual incumbent.
When the deed of sale was presented to Register of Deeds of Davao for registration, the
latter, required said corporation sole to submit an affidavit declaring that 60 per cent of the
members thereof were Filipino citizens.
As the Register of Deeds entertained some doubts as to the registerability if the
document, the matter was referred to the Land Registration Commissioner en consulta for
resolution in accordance with section 4 of Republic Act No. 1151.
Proper hearing on the matter was conducted by the Commissioner and after the petitioner
corporation had filed its memorandum, a resolution was rendered holding that in view of the
provisions of Section 1 and 5 of Article XIII of the Philippine Constitution, the vendee was not
qualified to acquire private lands in the Philippines in the absence of proof that at least 60 per
centum of the capital, property, or assets of the Roman Catholic Apostolic Administrator of
Davao, Inc., was actually owned or controlled by Filipino citizens, there being no question that
the present incumbent of the corporation sole was a Canadian citizen. It was also the opinion of
the Land Registration Commissioner that section 159 of the corporation Law relied upon by the
vendee was rendered operative by the aforementioned provisions of the Constitution with respect
to real estate, unless the precise condition set therein — that at least 60 per cent of its capital is
owned by Filipino citizens — be present, and, therefore, ordered the Registered Deeds of Davao
to deny registration of the deed of sale in the absence of proof of compliance with such
condition. Hence, this petition.
ISSUE:
Whether Petitioner is qualified to acquire private agricultural lands in the Philippines
pursuant to the provisions of the Constitution
RULING:

The Supreme Court held that Petitioner is qualified to acquire the said lands.

According to our Corporation Law, Public Act No. 1549, approved April 1, 1906, a
corporation sole is organized and composed of a single individual, the head of any religious
society or church, for the ADMINISTRATION of the temporalities of such society or church. By
"temporalities" is meant estate and properties not used exclusively for religious worship. The

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successor in office of such religious head or chief priest incorporated as a corporation sole shall
become the corporation sole on ascension to office, and shall be permitted to transact business as
such on filing with the Securities and Exchange Commission a copy of his commission,
certificate of election or letter of appointment duly certified by any notary public or clerk of
court of record (Guevara's The Philippine Corporation Law, p. 223).

The Corporation Law also contains the following provisions:

SECTION 159. Any corporation sole may purchase and hold real estate and personal;
property for its church, charitable, benevolent, or educational purposes, and may receive
bequests or gifts of such purposes. Such corporation may mortgage or sell real property
held by it upon obtaining an order for that purpose from the Court of First Instance of the
province in which the property is situated; but before making the order proof must be
made to the satisfaction of the Court that notice of the application for leave to mortgage
or sell has been given by publication or otherwise in such manner and for such time as
said Court or the Judge thereof may have directed, and that it is to the interest of the
corporation that leave to mortgage or sell must be made by petition, duly verified by the
bishop, chief priest, or presiding elder acting as corporation sole, and may be opposed by
any member of the religious denomination, society or church represented by the
corporation sole: Provided, however, That in cases where the rules, regulations, and
discipline of the religious denomination, society or church concerned represented by such
corporation sole regulate the methods of acquiring, holding, selling and mortgaging real
estate and personal property, such rules, regulations, and discipline shall control and the
intervention of the Courts shall not be necessary.

It can, therefore, be noticed that the power of a corporation sole to purchase real
property, like the power exercised in the case at bar, it is not restricted although the power to sell
or mortgage sometimes is, depending upon the rules, regulations, and discipline of the church
concerned represented by said corporation sole. Under the circumstances of this case, We might
safely state that even before the establishment of the Philippine Commonwealth and of the
Republic of the Philippines every corporation sole then organized and registered had by express
provision of law the necessary power and qualification to purchase in its name private lands
located in the territory in which it exercised its functions or ministry and for which it was
created, independently of the nationality of its incumbent unique and single member and head,
the bishop of the dioceses. It can be also maintained without fear of being gainsaid that the
Roman Catholic Apostolic Church in the Philippines has no nationality and that the framers of
the Constitution, as will be hereunder explained, did not have in mind the religious corporations
sole when they provided that 60 per centum of the capital thereof be owned by Filipino citizens.

Therefore, the Register of Deeds must take cognizance of the said Deed of sale and must
carry on with the necessary processes for its registration.

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CORPORATE JURIDICAL PERSONALITY

CONSEQUENCES/ SIGNIFICANCE

PHILIPPINE NATIONAL BANK vs. HYDRO RESOURCES CONTRACTORS CORPORATION

G.R. No. 167530 March 13, 2013

FACTS:

Sometime in 1984, DBP and PNB foreclosed on certain mortgages made on the
properties of Marinduque Mining and Industrial Corporation (MMIC). As a result of the
foreclosure, DBP and PNB acquired substantially all the assets of MMIC and resumed the
business operations of the defunct MMIC by organizing NMIC.

As of September 1984 DBP and PNB respectively owned 57% and 43% of the shares of
NMIC except for five qualifying shares which are owned by the members of the Board of
Directors of NMIC, namely, Jose Tengco, Jr., Rolando Zosa, Ruben Ancheta, Geraldo Agulto,
and Faustino Agbada, were either from DBP or PNB.

In 1985, NMIC engaged the services of Hercon, Inc. (later on recognized as Hydro
Resources Contractors Corporation or HRCC), for NMIC’s Mine Stripping and Road
Construction Program for a total contract price of P35,770,120. Payments were subsequently
made by NMIC under the program and crediting the NMIC’s receivables. However, HRCC the
later found that NMIC still has an unpaid balance of P8,370,934.74.
On August 12 1986, after HRCC’s several demands on NMIC, which were to no avail, a
complaint for sum of money was filed in the RTC of Makati, seeking to hold petitioners NMIC,
DBP, and PNB solidarily liable for the amount owing HRCC.

ISSUE:

Whether or not the corporate entity of PNB and DBP must be pierced.

RULING:

NO.
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely:
1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion
of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong,
protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since
it is a mere alter ego or business conduit of a person, or where the corporation is so organized
and controlled and its affairs are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation

In this connection, case law lays down a three-pronged test to determine the application
of the alter ego theory, which is also known as the instrumentality theory, namely:

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1. Control, not mere majority or complete stock control, but complete domination, not
only of finances but of policy and business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiff’s legal right; and
3. The aforesaid control and breach of duty must have proximately caused the injury or
unjust loss complained of.

To summarize, piercing the corporate veil based on the alter ego theory requires the
concurrence of three elements: control of the corporation by the stockholder or parent
corporation, fraud or fundamental unfairness imposed on the plaintiff, and harm or damage
caused to the plaintiff by the fraudulent or unfair act of the corporation. The absence of any of
these elements prevents piercing the corporate veil. It was not shown however that the elements
are present in this case; hence the veil of corporate fiction cannot be pierced.

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DONNINA C. HALLEY vs. PRINTWELL, INC.,

G.R. No. 157549, May 30, 2011

FACTS:

BMPI (Business Media Philippines Inc.) is a corporation under the control of its
stockholders, including Donnina Halley. In the course of its business, BMPI commissioned
PRINTWELL to print Philippines, Inc. (a magazine published and distributed by
BMPI).PRINTWELL extended 30-day credit accommodation in favour of BMPI and in a period
of nine months. BMPI placed several orders amounting to 316,000.

However, only 25,000 were paid hence a balance of 291,000. PRINTWELL sued BMPI
for collection of the unpaid balance and later on impleaded BMPI’s original stockholders and
incorporators to recover on their unpaid subscriptions.

It appears that BMPI has an authorized capital stock of 3M divided into 300,000 shares
with P10 par value. Only 75,000 shares worth P750, 000 were originally subscribed of which
P187, 500 were paid up capital. Halley subscribed to 35,000 shares worth P350, 000 but only
paid P87, 500.

Haley contends that they all had paid their subscriptions in full; that BMPI had a separate
personality from those of its stockholders; that Rizalino C. Vieza had assigned his fully-paid up
shares to a certain Gerardo R. Jacinto; and that the directors and stockholders of BMPI had
resolved to dissolve BMPI during the annual meeting.

ISSUE:

Is Donnina Haley personally though submits that she had no participation in the
transaction between BMPI and Printwell?

HELD:

The Court ruled against the petitioner’s submission.

Although a corporation has a personality separate and distinct from those of its
stockholders, directors, or officers, such separate and distinct personality is merely a fiction
created by law for the sake of convenience and to promote the ends of justice.[The corporate
personality may be disregarded, and the individuals composing the corporation will be treated as
individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality; as a
justification for a wrong; as an alter ego, an adjunct, or a business conduit for the sole benefit of
the stockholders. As a general rule, a corporation is looked upon as a legal entity; unless and
until sufficient reason to the contrary appears. Thus, the courts always presume good faith, and
for that reason accord prime importance to the separate personality of the corporation,
disregarding the corporate personality only after the wrongdoing is first clearly and convincingly
established. It thus behoves the courts to be careful in assessing the milieu where the piercing of
the corporate veil shall be done.

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Although nowhere in Printwell’s amended complaint or in the testimonies Printwell

offered can it be read or inferred from that the petitioner was instrumental in persuading BMPI to
renege on its obligation to pay; or that she induced Printwell to extend the credit accommodation
by misrepresenting the solvency of BMPI to Printwell, her personal liability, together with that
of her co-defendants, remained because the CA found her and the other defendant stockholders
to be in charge of the operations of BMPI at the time the unpaid obligation was transacted and
incurred, to wit:

In the case at bench, it is undisputed that BMPI made several orders on credit from
appellee PRINTWELL involving the printing of business magazines, wrappers and subscription
cards, in the total amount of P291, 342.76 which facts were never denied by appellants
stockholders that they owe(d) appellee the amount of P291,342.76. The said goods were
delivered to and received by BMPI but it failed to pay its overdue account to appellee as well as
the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time
that appellants stockholders were in charge of the operation of BMPI despite the fact that they
were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said
transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee of its liability;
hence appellee in order to protect its right can collect from the appellant’s stockholders regarding
their unpaid subscriptions. To deny appellee from recovering from appellants would place
appellee in a limbo on where to assert their right to collect from BMPI since the stockholders
who are appellants herein are availing the defense of corporate fiction to evade payment of its
obligations.

It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its
obligations to pay, and whether or not she induced Printwell to transact with BMPI were not
good defences in the suit.

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RYUICHI YAMAMOTO vs. NISHINO LEATHER INDUSTRIES, INC. and IKUO NISHINO
G.R. No. 150283 April 16, 2008

FACTS:

Yamamoto and Ikuo Nishino (Nishino) forged a Memorandum of Agreement under

which they agreed to enter into a joint venture wherein Nishino would acquire such number of
shares of stock equivalent to 70% of the authorized capital stock of the WAKO corporation.
Nishino and his brotherYoshinobu Nishino (Yoshinobu) acquired more than 70% of the
authorized capital stock of WAKO, reducing Yamamotos investment.The corporate name of
WAKO was later changed to, as reflected earlier, its current name NLII. Negotiations
subsequently ensued in light of a planned takeover of NLII by Nishino who would buy-out the
shares of stock of Yamamoto. In the course of the negotiations, Yoshinobu and Nishinos counsel
Atty. Emmanuel G. Doce (Atty. Doce) advised Yamamoto by letter that he may take all the
equipment/ machinery he had contributed to the company (for his own use and sale) provided
that the value of such machines is deducted from the capital contributions which will be paid to
him. the letter requested that he give his “comments on all the above, soonest”. On the basis of
the said letter, Yamamoto attempted to recover the machineries but Nishino hindered him to do
so, drawing him to file a Writ of Replevin.

RTC issued a writ of replevin after Yamamoto. The respondents claimed that the
machineries and equipment subject of replevin form part of Yamamotos capital contributions in
NLII and should thus be treated as corporate property. The trial court favored of Yamamoto as
the rightful owner and possessor of the machineries in question. The CA reversed the RTC
decision finding that the machineries and equipment are corporate property of NLII and may not
thus be retrieved without the authority of the NLII Board of Directors; and that petitioners
argument that Nishino and Yamamoto cannot hide behind the shield of corporate fiction does not
lie, nor does petitioners invocation of the doctrine of promissory estoppel.

ISSUE:

Whether or not Yamamoto can retrieve the properties he contributed to the company in
view of the Doctrine of Piercing the Veil of Corporate Fiction and Doctrine of Promissory
Estoppel.

RULING:

The Court holds in the negative. While the veil of separate corporate personality may be
pierced when the corporation is merely an adjunct, a business conduit, or alter ego of a
person, the mere ownership by a single stockholder of even all or nearly all of the capital stocks
of a corporation is not by itself a sufficient ground to disregard the separate corporate
personality.[

The elements determinative of the applicability of the doctrine of piercing the veil of
corporate fiction follow:

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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 the plaintiffs legal rights; and

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

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

In relation to the second element, to disregard the separate juridical personality of a

corporation, the wrongdoing or unjust act in contravention of a plaintiffs legal rights must be
clearly and convincingly established; it cannot be presumed. Without a demonstration that any of
the evils sought to be prevented by the doctrine is present, it does not apply. In the case at bar,
there is no showing that Nishino used the separate personality of NLII to unjustly act or do
wrong to Yamamoto in contravention of his legal rights.

Yamamoto argues, in another vein, that promissory estoppel lies against respondents,
thus: Under the doctrine of promissory estoppel, x x x estoppel may arise from the making of a
promise, even though without consideration, if it was intended that the promise should be relied
upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction
the perpetration of fraud or would result in other injustice.

It bears noting, however, that the aforementioned paragraph 12 of the letter is followed
by a request for Yamamoto to give his comments on all the above, soonest. What was thus
proffered to Yamamoto was not a promise, but a mere offer, subject to his acceptance. Without
acceptance, a mere offer produces no obligation.

The machineries and equipment, which comprised Yamamotos investment in NLII, thus
remained part of the capital property of the corporation. It is settled that the property of a
corporation is not the property of its stockholders or members.

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RICARDO S. SILVERIO, JR., ESSES DEVELOPMENT CORPORATION, and TRI-STAR FARMS,

INC. vs. FILIPINO BUSINESS CONSULTANTS, INC.
G.R. No. 143312. August 12, 2005

FACTS:

Silverio, Jr. is the President of Esses and Tri-Star. Esses and Tri-Star were in possession
of the Calatagan Property registered in the names of Esses and Tri-Star.

Esses and Tri-Star executed a Deed of Sale with Assumption of Mortgage in favor of
FBCI. Esses and Tri-Star failed to redeem the Calatagan Property.

FBCI then filed a Petition for Consolidation of Title of the Calatagan Property with the
RTC Balayan. The TCT in the names of Esses and Tri-Star was cancelled and new title was
issued in FBCI.

When Silverio, Jr., Esses and Tri-Star learned of the judgment by default and writ of
possession, they filed a petition for relief from judgment and the recall of the writ of possession.
Silverio, Jr., Esses and Tri-Star alleged that the judgment by default is void because the RTC
Balayan did not acquire jurisdiction over them. FBCI allegedly forged the service of summons
on them.

The RTC Balayan found that the summons and the complaint were not served on
Silverio, Jr., Esses and Tri-Star. The RTC Balayan directed the service of summons anew on
Silverio, Jr., Esses and Tri-Star.
The RTC Balayan ruled that FBCI could not be deprived of possession of the Calatagan
Property because FBCI made substantial improvements on it. Possession could revert to Silverio,
Jr., Esses and Tri-Star only if they reimburse FBCI..

On 8 May 2000, the RTC Balayan issued the writ of possession to Silverio, Jr., Esses and
Tri-Star.

On the same day, the RTC Balayan issued the order suspending the writ of possession it
had On 15 June 2000, the RTC Balayan.

ISSUE:

Whether RTC Balayan upon suspending the writ of possession, was barred from hearing
intra-corporate disputes

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RULING:

No. There is no judgment on the merits, only a judgment on a technicality. Even then, the
judgment of default rendered in FBCIs favor was voided because the RTC Balayan did not
acquire jurisdiction over Silverio, Jr., Esses and Tri-Star due to a fraudulent service of summons.
The case for consolidation of title, from which this petition stemmed, is in fact still being
litigated before the RTC Balayan.

The issuance of the writ of possession in favor of Silverio, Jr., Esses and Tri-Star is also
not a judgment on the merits. The issuance of the writ of possession to Silverio, Jr., Esses and
Tri-Star is but an order of restitution a consequence of the nullification of the judgment by
default.
The order of restitution placed the parties in the situation prior to the RTC Balayans
rendition of the void judgment by default. Title to the Calatagan Property is still in the names of
Esses and Tri-Star. Possession of the Calatagan Property must revert to Esses and Tri-Star as
legal owners of the property.

The case is still under litigation it is only in the pre-trial stage Esses and Tri-Star in
whose names the Calatagan Property is titled and in whose favor the order of restitution was
issued, are the ones entitled to possession of the property.

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RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S. RUSTE AND EVELYN SAW vs. HON.
COURT OF APPEALS, HON. BERNARDO P. PARDO, Presiding Judge of Branch 43, (Regional
Trial Court of Manila), FREEMAN MANAGEMENT AND DEVELOPMENT CORPORATION,
EQUITABLE BANKING CORPORATION, FREEMAN INCORPORATED, SAW CHIAO LIAN, THE
REGISTER OF DEEDS OF CALOOCAN CITY, and DEPUTY SHERIFF ROSALIO G. SIGUA
G.R. No. 90580 April 8, 1991

FACTS:
A collection suit with preliminary attachment was filed by Equitable Banking
Corporation against Freeman, Inc. and Saw Chiao Lian, its President and General Manager. The
petitioners moved to intervene, alleging that (1) the loan transactions between Saw Chiao Lian
and Equitable Banking Corp. were not approved by the stockholders representing at least 2/3 of
corporate capital; (2) Saw Chiao Lian had no authority to contract such loans; and (3) there was
collusion between the officials of Freeman, Inc. and Equitable Banking Corp. in securing the
loans. The motion to intervene was denied, and the petitioners appealed to the Court of Appeals.
Meanwhile, Equitable and Saw Chiao Lian entered into a compromise agreement which they
submitted to and was approved by the lower court. But because it was not complied with,
Equitable secured a writ of execution, and two lots owned by Freeman, Inc. were levied upon
and sold at public auction to Freeman Management and Development Corp.
The Court of Appeals1 sustained the denial of the petitioners' motion for intervention,
holding that "the compromise agreement between Freeman, Inc., through its President, and
Equitable Banking Corp. will not necessarily prejudice petitioners whose rights to corporate
assets are at most inchoate, prior to the dissolution of Freeman, Inc
The petitioners are contending that The Honorable Court of Appeals erred in holding that
the petitioners cannot intervene in the case because their rights as stockholders of Freeman are
merely inchoate and not actual, material, direct and immediate prior to the dissolution of the
corporation. The petitioners base their right to intervene for the protection of their interests as
stockholders on Everett v. Asia Banking Corp. where it was held: The well-known rule that
shareholders cannot ordinarily sue in equity to redress wrongs done to the corporation, but that
the action must be brought by the Board of Directors has its exceptions.
ISSUE:
Are the contentions of the petitioner correct?
RULING:
No. The Everett case is not applicable because it involved an action filed by the minority
stockholders where the board of directors refused to bring an action in behalf of the corporation.
In the case at bar, it was Freeman, Inc. that was being sued by the creditor bank.
In the case of Magsaysay-Labrador v. Court of Appeals, we ruled as follows:

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To allow intervention, [a] it must be shown that the movant has legal interest in the
matter in litigation, or otherwise qualified; and [b] consideration must be given as to whether the
adjudication of the rights of the original parties may be delayed or prejudiced, or whether the
intervenor's rights may be protected in a separate proceeding or not. Both requirements must
concur as the first is not more important than the second.
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of the corporation and to share in the profits
thereof and in the properties and assets thereof on dissolution, after payment of the corporate
debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any of the property,
his interest in the corporate property being equitable or beneficial in nature. Shareholders are in
no legal sense the owners of corporate property, which is owned by the corporation as a distinct
legal person.
In the case at bar, there is no more principal action to be resolved as a writ of execution
had already been issued by the lower court and the claim of Equitable had already been satisfied.
The decision of the lower court had already become final and in fact had already been enforced.
There is therefore no more principal proceeding in which the petitioners may intervene.
The Court observes that even with the denial of the petitioners' motion to intervene,
nothing is really lost to them. The denial did not necessarily prejudice them as their rights are
being litigated in the case now before the Securities and Exchange Commission and may be fully
asserted and protected in that separate proceeding.
WHEREFORE, the petition is DENIED, with costs against the petitioners. It is so
ordered

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HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK vs. HON. JOSE
W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in his capacity as
Acting Director, National Bureau of Investigation; SPECIAL PROSECUTORS PEDRO D.
CENZON, EFREN I. PLANA and MANUEL VILLAREAL, JR. and ASST. FISCAL MANASES G.
REYES; JUDGE AMADO ROAN, Municipal Court of Manila; JUDGE ROMAN CANSINO,
Municipal Court of Manila; JUDGE HERMOGENES CALUAG, Court of First Instance of
Rizal-Quezon City Branch, and JUDGE DAMIAN JIMENEZ, Municipal Court of Quezon City
G.R. No. L-19550 June 19, 1967
FACTS:
Respondent-Judges issued on different dates 42 search warrants against petitioners and/or
the corporations of which they were officers to search the persons named and/or the premises of
their offices, warehouse and/or residences, and to seize and take possession some personal
properties for the violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue
Code and the Revised Penal Code.
Alleging that the search warrants are null and void as contravening the Constituting and
the Rules of Court, the petitioners filed with the Supreme Court an original action for certiorari,
prohibition, mandamus and injunction and prayed that a writ of preliminary injunction be issued
restraining Respondent-Prosecutors, their agents and/or representatives from using the effects
seized in the deportation cases and that decision be rendered quashing the contested search
warrants and declaring it null and void.
ISSUE:
Are the search warrants valid?
RULING:
The documents, papers, and things seized under the alleged authority of the warrants in
question may be split into two major groups, namely: (a) those found and seized in the offices of
the aforementioned corporations, and (b) those found and seized in the residences of petitioners.
As regards the first group, the Court hold that petitioners herein have no cause of action
to assail the legality of the contested warrants and of the seizures made in pursuance thereof, for
the simple reason that said corporations have their respective personalities, separate and distinct
from the personality of herein petitioners, regardless of the amount of shares of stock or of the
interest of each of them in said corporations, and whatever the offices they hold therein may be.
Petitioners may not validly object to the use in evidence against them of the documents,
papers and things seized from the offices and premises of the corporations adverted to above,
since the right to object to the admission of said papers in evidence belongs exclusively to the
corporations, to whom the seized effects belong, and may not be invoked by the corporate
officers in proceedings against them in their individual capacity.

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With respect to the documents, papers and things seized in the residences of petitioners,
two points must be stressed in connection with this constitutional mandate, namely: (1) that no
warrant shall issue but upon probable cause, to be determined by the judge in the manner set
forth in said provision; and (2) that the warrant shall particularly describe the things to be seized.
None of these requirements has been complied with in the contested warrants.
No specific offense had been alleged in said applications. The averments thereof with respect to
the offense committed were abstract. As a consequence, it was impossible for the judges who
issued the warrants to have found the existence of probable cause, for the same presupposes the
introduction of competent proof that the party against whom it is sought has
performed particular acts, or committed specific omissions, violating a given provision of our
criminal laws.

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MANILA GAS CORPORATION VS. COLLECTOR OF INTERNAL REVENUE

G. R. NO. 42780 JANUARY 17, 1936
FACTS:
The plaintiff Manila Gas Corporation (MGC) is a corporation organized under the laws of
the Philippine Islands, operating a gas plant in the City of Manila and furnishing gas service to
the people of the metropolis and surrounding municipalities by virtue of a franchise granted to
it by the Philippine Government. Associated with it are the Islands Gas and Electric Company
(IGEC) domiciled in New York, United States, and the General Finance Company (GFC)
domiciled in Zurich, Switzerland.
For the years 1930 to 1932, dividends in the sum of P1,348,847.50 were paid by the plaintiff
MGC to IGEC in the capacity of stockholders upon which withholding income taxes were
paid to the defendant Collector of Internal Revenue (CIR) totaling P40,460.03. For the same
years, interest on bonds in the sum of P411,600 was paid by the plaintiff MGC to IGEC, upon
which withholding income taxes were paid to the defendant CIR totaling P12,348, and interest
on other indebtedness in the sum of P131,644.90 was paid by the plaintiff MGC to IGEC and
GFC, respectively, upon which withholding income taxes were paid to the defendant CIR
totaling P3,949.34
The plaintiff-appellant MGC contends that the dividends paid by it to its stockholders, the
IGEC, were not subject to tax because to impose a tax thereon would be to do so on the domestic
corporation, in violation of the terms of its franchise and would, moreover, be oppressive and
inequitable. This argument is predicated on the constitutional provision that no law impairing
the obligation of contracts shall be enacted.
ISSUE:
What is a consequence of the doctrine of corporate juridical personality?
RULING:
In the case of Philippine Telephone and Telegraph Co. vs. Collector of Internal Revenue
([1933], 58 Phil., 639), a corporation has a personality distinct from that of its stockholders,
enabling the taxing power to reach the latter when they receive dividends from the corporation. It
must be considered as settled in this jurisdiction that dividends of a domestic corporation, which
are paid and delivered in cash to foreign corporations as stockholders, are subject to the payment
of the income tax, the exemption clause in the charter of the corporation notwithstanding.

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ERNESTO CEASE, ET AL VS. HONORABLE COURT OF APPEALS, ET AL.

G.R. NO. L-33172 OCTOBER 18, 1979

FACTS:
Sometime in June 1908, one Forrest L. Cease common predecessor in interest of the
parties together with five (5) other American citizens organized the Tiaong Milling and
Plantation Company and in the course of its corporate existence the company acquired various
properties but at the same time all the other original incorporators were bought out by Forrest L.
Cease together with his children. Moreover, the charter of the company lapsed in June 1958. On
13 August 1959, Forrest L. Cease died and by extrajudicial partition of his shares, among the
children, this was disposed of on 19 October 1959. However, this is when the dispute started.
Benjamin and Florence wanted an actual division while the other children wanted
reincorporation. Benjamin and Florence for their part initiated a Special Proceeding No. 3893 of
the Court of First Instance of Tayabas for the settlement of the estate of Forest L. Cease on 21
April, 1960 and one month afterwards on 19 May 1960 they filed Civil Case No. 6326 against
Ernesto, Teresita and Cecilia Cease together with Bonifacia Tirante 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.

ISSUE:

Whether the personality of Tiaong Milling and Forrest L. Cease one and the same, and
whether there is a need to pierce the corporate veil of said entity.

RULING:

It must be remembered that when Tiaong Milling adduced its defense and raised the issue
of ownership, its corporate existence already terminated through the expiration of its charter. It is
clear in Section 77 of Act No. 1459 (Corporation Law) 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.

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

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for convenience and to promote the ends of justice. This is particularly true where the fiction is
used to defeat public convenience, justify wrong, protect fraud, defend crime, confuse legitimate
legal or judicial issues, perpetrate deception or otherwise circumvent the law. An indubitable
deduction from the findings of the trial court cannot but lead to the conclusion that the business
of the corporation is largely, if not wholly, the personal venture of Forrest L. Cease. There is not
even a shadow of a showing that his children were subscribers or purchasers of the stocks they
own. Their participation as nominal shareholders emanated solely from Forrest L. Cease's
gratuitous dole out of his own shares to the benefit of his children and ultimately his family.

Were we sustain the theory of petitioners that the trial court acted in excess of jurisdiction
or abuse of discretion amounting to lack of jurisdiction in deciding Civil Case No. 6326 as a case
for partition when the defendant therein, Tiaong Milling and Plantation Company, Inc. as
registered owner asserted ownership of the assets and properties involved in the litigation, which
theory must necessarily be based on the assumption that said assets and properties of Tiaong
Milling and Plantation Company, Inc. now appearing under the name of F. L. Cease Plantation
Company as Trustee are distinct and separate from the estate of Forrest L. Cease to which
petitioners and respondents as legal heirs of said Forrest L. Cease are equally entitled share and
share alike, then that legal fiction of separate corporate personality shall have been used to delay
and ultimately deprive and defraud the respondents of their successional rights to the estate of
their deceased father. For Tiaong Milling and Plantation Company shall have been able to extend
its corporate existence beyond the period of its charter which lapsed in June, 1958 under the
guise and cover of F. L, Cease Plantation Company, Inc. as Trustee which would be against the
law, and as Trustee shall have been able to use the assets and properties for the benefit of the
petitioners, to the great prejudice and defraudation of private respondents. Hence, it becomes
necessary and imperative to pierce that corporate veil.

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MARIANO A. ALBERT vs. UNIVERSITY PUBLISHING CO., INC.,

G.R. No. L-19118 January 30, 1965

FACTS:

No less than three times have the parties here appealed to this Court.

In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff
entitled to damages (for breach of contract) but reduced the amount from P23,000.00 to
P15,000.00.

Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held
that the judgment for P15,000.00 which had become final and executory, should be executed to
its full amount, since in fixing it, payment already made had been considered.

Now we are asked whether the judgment may be executed against Jose M. Aruego,
supposed President of University Publishing Co., Inc., as the real defendant.

Fifteen years ago, on September 24, 1949, Mariano A. Albert sued University Publishing
Co., Inc. Plaintiff alleged inter alia that defendant was a corporation duly organized and existing
under the laws of the Philippines; that on July 19, 1948, defendant, through Jose M. Aruego, its
President, entered into a contract with plaintifif; that defendant had thereby agreed to pay
plaintiff P30,000.00 for the exclusive right to publish his revised Commentaries on the Revised
Penal Code and for his share in previous sales of the book's first edition; that defendant had
undertaken to pay in eight quarterly installments of P3,750.00 starting July 15, 1948; that per
contract failure to pay one installment would render the rest due; and that defendant had failed to
pay the second installment.

Defendant admitted plaintiff's allegation of defendant's corporate existence; admitted the

execution and terms of the contract dated July 19, 1948; but alleged that it was plaintiff who
breached their contract by failing to deliver his manuscript. Furthermore, defendant
counterclaimed for damages.

Plaintiff died before trial and Justo R. Albert, his estate's administrator, was substituted
for him.

ISSUE:

Is Jose M. Aruego the real party to the contract sued upon?

RULING:

Yes. We grant the petition.

The evidence is patently clear that Jose M. Aruego, acting as representative of a non-
existent principal, was the real party to the contract sued upon; that he was the one who reaped

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the benefits resulting from it, so much so that partial payments of the consideration were made
by him; that he violated its terms, thereby precipitating the suit in question; and that in the
litigation he was the real defendant. Perforce, in line with the ends of justice, responsibility under
the judgment falls on him.

The corporation-by-estoppel doctrine has not been invoked. At any rate, the same is
inapplicable here. Aruego represented a non-existent entity and induced not only the plaintiff but
even the court to believe in such representation. He signed the contract as "President" of
"University Publishing Co., Inc.," stating that this was "a corporation duly organized and existing
under the laws of the Philippines," and obviously misled plaintiff (Mariano A. Albert) into
believing the same. One who has induced another to act upon his wilful misrepresentation that a
corporation was duly organized and existing under the law, cannot thereafter set up against his
victim the principle of corporation by estoppel (Salvatiera vs. Garlitos, 56 O.G. 3069).

"University Publishing Co., Inc." purported to come to court, answering the complaint
and litigating upon the merits. But as stated, "University Publishing Co., Inc." has no
independent personality; it is just a name. Jose M. Aruego was, in reality, the one who answered
and litigated, through his own law firm as counsel. He was in fact, if not, in name, the defendant.

Even with regard to corporations duly organized and existing under the law, we have in
many a case pierced the veil of corporate fiction to administer the ends of justice. And
in Salvatiera vs. Garlitos, supra, p. 3073, we ruled: "A person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such privileges and obligations and
becomes personally liable for contracts entered into or for other acts performed as such agent."
Had Jose M. Aruego been named as party defendant instead of, or together with, "University
Publishing Co., Inc.," there would be no room for debate as to his personal liability. Since he was
not so named, the matters of "day in court" and "due process" have arisen.

In this connection, it must be realized that parties to a suit are "persons who have a right
to control the proceedings, to make defense, to adduce and cross-examine witnesses, and to
appeal from a decision" (67 C.J.S. 887) — and Aruego was, in reality, the person who had and
exercised these rights. Clearly, then, Aruego had his day in court as the real defendant; and due
process of law has been substantially observed.

We need hardly state that should there be persons who under the law are liable to Aruego
for reimbursement or contribution with respect to the payment he makes under the judgment in
question, he may, of course, proceed against them through proper remedial measures.

PREMISES CONSIDERED, the order appealed from is hereby set aside and the case
remanded ordering the lower court to hold supplementary proceedings for the purpose of
carrying the judgment into effect against University Publishing Co., Inc. and/or Jose M. Aruego.
So ordered.

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ANTONIO VAZQUEZ vs. FRANCISCO DE BORJA

G.R. No. L-48930 February 23, 1944

FACTS:
This action was commenced in the Court of First Instance of Manila by Francisco de
Borja against Antonio Vazquez and Fernando Busuego to recover from them jointly and
severally the total sum of P4,702.70 upon three alleged causes of action, to wit: First, that in or
about the month of January, 1932, the defendants jointly and severally obligated themselves to
sell to the plaintiff 4,000 cavans of palay at P2.10 per cavan, to be delivered during the month of
February, 1932, the said defendants having subsequently received from the plaintiff in virtue of
said agreement the sum of P8,400; that the defendants delivered to the plaintiff during the
months of February, March, and April, 1932, only 2,488 cavans of palay of the value of
P5,224.80 and refused to deliver the balance of 1,512 cavans of the value of P3,175.20
notwithstanding repeated demands. Second, that because of defendants' refusal to deliver to the
plaintiff the said 1,512 cavans of palay within the period above mentioned, the plaintiff suffered
damages in the sum of P1,000. And, third, that on account of the agreement above mentioned the
plaintiff delivered to the defendants 4,000 empty sacks, of which they returned to the plaintiff
only 2,490 and refused to deliver to the plaintiff the balance of 1,510 sacks or to pay their value
amounting to P377.50; and that on account of such refusal the plaintiff suffered damages in the
sum of P150.
The defendant Antonio Vazquez answered the complaint, denying having entered into the
contract mentioned in the first cause of action in his own individual and personal capacity, either
solely or together with his codefendant Fernando Busuego, and alleging that the agreement for
the purchase of 4,000 cavans of palay and the payment of the price of P8,400 were made by the
plaintiff with and to the Natividad-Vasquez Sabani Development Co., Inc., a corporation
organized and existing under the laws of the Philippines, of which the defendant Antonio
Vazquez was the acting manager at the time the transaction took place. By way of counterclaim,
the said defendant alleged that he suffered damages in the sum of P1,000 on account of the filing
of this action against him by the plaintiff with full knowledge that the said defendant had nothing
to do whatever with any and all of the transactions mentioned in the complaint in his own
individual and personal capacity.
The trial court rendered judgment ordering the defendant Antonio Vazquez to pay to the
plaintiff the sum of P3,175.20 plus the sum of P377.50, with legal interest on both sums, and
absolving the defendant Fernando Busuego (treasurer of the corporation) from the complaint and
the plaintiff from the defendant Antonio Vazquez' counterclaim. Upon appeal to the Court of
Appeals, the latter modified that judgment by reducing it to the total sum of P3,314.78, with
legal interest thereon and the costs. But by a subsequent resolution upon the defendant's motion
for reconsideration, the Court of Appeals set aside its judgment and ordered that the case be
remanded to the court of origin for further proceedings. The defendant Vazquez, not being
agreeable to that result, filed the present petition for certiorari (G.R. No. 48930) to review and
reverse the judgment of the Court of Appeals; and the plaintiff Francisco de Borja, excepting to

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the resolution of the Court of Appeals whereby its original judgment was set aside and the case
was ordered remanded to the court of origin for further proceedings, filed a cross-petition for
certiorari (G.R. No. 48931) to maintain the original judgment of the Court of Appeals.
ISSUE:
Whether the plaintiff entered into the contract with the defendant Antonio Vazquez in his
personal capacity or as manager of the Natividad-Vazquez Sabani Development Co., Inc.
RULING:
The action being on a contract, and it appearing from the preponderance of the evidence
that the party liable on the contract is the Natividad-Vazquez Sabani Development Co., Inc.
which is not a party herein, the complaint should have been dismissed. Counsel for the plaintiff,
in his brief as respondent, argues that altho by the preponderance of the evidence the trial court
and the Court of Appeals found that Vazquez celebrated the contract in his capacity as acting
president of the corporation and altho it was the latter, thru Vazquez, with which the plaintiff had
contracted and which, thru Vazquez, had received the sum of P8,400 from Borja, and altho that
was true from the point of view of a legal fiction, "ello no impede que tambien sea verdad lo
alegado en la demanda de que la misma persona de Vasquez fue la que contrato con Borja y que
la misma persona de Vasquez fue quien recibio la suma de P8,400." But such argument is invalid
and insufficient to show that the president of the corporation is personally liable on the contract
duly and lawfully entered into by him in its behalf.
It is well known that a corporation is an artificial being invested by law with a personality
of its own, separate and distinct from that of its stockholders and from that of its officers who
manage and run its affairs. The mere fact that its personality is owing to a legal fiction and that it
necessarily has to act thru its agents, does not make the latter personally liable on a contract duly
entered into, or for an act lawfully performed, by them for an in its behalf. The legal fiction by
which the personality of a corporation is created is a practical reality and necessity. Without it no
corporate entities may exists and no corporate business may be transacted. Such legal fiction
may be disregarded only when an attempt is made to use it as a cloak to hide an unlawful or
fraudulent purpose. No such thing has been alleged or proven in this case. It has not been alleged
nor even intimated that Vazquez personally benefited by the contract of sale in question and that
he is merely invoking the legal fiction to avoid personal liability. Neither is it contended that he
entered into said contract for the corporation in bad faith and with intent to defraud the plaintiff.
We find no legal and factual basis upon which to hold him liable on the contract either
principally or subsidiarily.

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WISE & COMPANY, INC. vs. MAN SUN LUNG, EL SHERIFF PROVINCIAL DE CAMARINES SUR
G.R. No. 46997 January 11, 1940

FACTS:
Sometime in 1937, Man Sun Lung was declared insolvent by the Court of First Instance
of Manila. The Sheriff thereof was then ordered to sell the different properties seized by him and
deliver the proceeds thereof to Wise & Company, Inc. However, some of the properties seized
are properties of Man Sun Lung & Co. On appeal, Wise & Company pointed out that the lower
court erred in determining Man Sun Lung from Man Sun Lung & Co.
ISSUE:
Did the lower court erred in ordering for the seizure of the properties of Man Sun Lung &
Co.
RULING:
Yes. Man Sun Lung & Co. is a corporation which has a different and distinct personality
from Man Sun Lung. Consequently, the properties of the former are only of its own and not also
of the latter, even if the latter owns majority of the shares of the former.
In this case, the Sheriff of the Court of First Instance of Manila was ordered to seize
properties Man Sun Lung & Co. to be sold for the payment of the unpaid debts of Man Sun
Lung. This order is erroneous as the properties ordered to be seized are not owned by Man Sun
Lung but by Man Sun Lung & Co., thereby not proper to be used to pay Man Sun Lungs debt.

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SMITH, BELL & COMPANY (LTD.) VS. JOAQUIN NATIVIDAD, COLLECTOR OF CUSTOMS OF
THE PORT OF CEBU
G.R. NO. 15574 SEPTEMBER 17, 1919
FACTS:

Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the
Philippine Islands. A majority of its stockholders are British subjects. It is the owner of a motor
vessel known as the Bato built for it in the Philippine Islands in 1916, of more than fifteen tons
gross The Bato was brought to Cebu in the present year for the purpose of transporting plaintiff's
merchandise between ports in the Islands. Application was made at Cebu, the home port of the
vessel, to the Collector of Customs for a certificate of Philippine registry. The Collector refused
to issue the certificate, giving as his reason that all the stockholders of Smith, Bell & Co., Ltd.,
were not citizens either of the United States or of the Philippine Islands.
On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section
of this law amended section 1172 of the Administrative Code to read as follows:
SEC. 1172. Certificate of Philippine register. — Upon registration of a vessel of domestic
ownership, and of more than fifteen tons gross, a certificate of Philippine register shall be issued
for it. If the vessel is of domestic ownership and of fifteen tons gross or less, the taking of the
certificate of Philippine register shall be optional with the owner.
"Domestic ownership," as used in this section, means ownership vested in some one or
more of the following classes of persons: (a) Citizens or native inhabitants of the Philippine
Islands; (b) citizens of the United States residing in the Philippine Islands; (c) any corporation or
company composed wholly of citizens of the Philippine Islands or of the United States or of
both, created under the laws of the United States, or of any State thereof, or of thereof, or the
managing agent or master of the vessel resides in the Philippine Islands
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative
Code to read as follows:
SEC. 1176. Investigation into character of vessel. — No application for a certificate of
Philippine register shall be approved until the collector of customs is satisfied from an
inspection of the vessel that it is engaged or destined to be engaged in legitimate trade and that it
is of domestic ownership as such ownership is defined in section eleven hundred and seventy-two
of this Code.
ISSUE:

Can the Government of the Philippine Islands, through its Legislature deny the registry of
vessel in its coastwise trade to corporations having alien stockholders?

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RULING:
Yes. A literal application of general principles to the facts before us would, of course,
cause the inevitable deduction that Act No. 2761 is unconstitutional by reason of its denial to a
corporation, some of whole members are foreigners, of the equal protection of the laws.
To justify that portion of Act no. 2761 which permits corporations or companies to obtain
a certificate of Philippine registry only on condition that they be composed wholly of citizens of
the Philippine Islands or of the United States or both, as not infringing Philippine Organic Law,
it must be done under some one of the exceptions here mentioned This must be done, moreover,
having particularly in mind what is so often of controlling effect in this jurisdiction — our local
experience and our peculiar local conditions.
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien
stockholders, is entitled to the protection afforded by the due-process of law and equal protection
of the laws clause of the Philippine Bill of Rights, nevertheless, Act No. 2761 of the Philippine
Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd., the right to register
vessels in the Philippines coastwise trade, does not belong to that vicious species of class
legislation which must always be condemned, but does fall within authorized exceptions,
notably, within the purview of the police power, and so does not offend against the constitutional
provision.
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be
to enact an anti-alien shipping act. The ultimate purpose of the Legislature is to encourage
Philippine ship-building. This, without doubt, has, likewise, been the intention of the United
States Congress in passing navigation or tariff laws on different occasions.
With full consciousness of the importance of the question, we nevertheless are clearly of
the opinion that the limitation of domestic ownership for purposes of obtaining a certificate of
Philippine registry in the coastwise trade to citizens of the Philippine Islands, and to citizens of
the United States, does not violate the provisions of paragraph 1 of section 3 of the Act of
Congress of August 29, 1916 No treaty right relied upon Act No. 2761 of the Philippine
Legislature is held valid and constitutional .
The petition for a writ of mandamus is denied.

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LIABILITY FOR TORT AND CRIMES

ALFREDO CHING vs. THE SECRETARY OF JUSTICE

G. R. No. 164317 February 6, 2006

FACTS:

Alfredo Ching 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 receipts as surety, acknowledging delivery of the 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 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 ₱6,940,280.66 despite demands. Thus, the bank filed a
criminal complaint for estafa against petitioner in the Office of the City Prosecutor of Manila.

ISSUE:

Can a corporation be made liable for tort and crimes committed by its officers?

RULING:

If the crime is committed by a corporation or other juridical entity, the directors, officers,
employees or other officers thereof responsible for the offense shall be charged and penalized for
the crime, precisely because of the nature of the crime and the penalty therefor. A corporation
cannot be arrested and imprisoned; hence, cannot be penalized for a crime punishable by
imprisonment. However, a corporation may be charged and prosecuted for a crime if the
imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a
corporation may be prosecuted and, if found guilty, may be fined.

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A crime is the doing of that which the penal code forbids to be done, or omitting to do
what it commands. A necessary part of the definition of every crime is the designation of the
author of the crime upon whom the penalty is to be inflicted. When a criminal statute designates
an act of a corporation or a crime and prescribes punishment therefor, it creates a criminal
offense which, otherwise, would not exist and such can be committed only by the corporation.
But when a penal statute does not expressly apply to corporations, it does not create an offense
for which a corporation may be punished. On the other hand, if the State, by statute, defines a
crime that may be committed by a corporation but prescribes the penalty therefor to be suffered
by the officers, directors, or employees of such corporation or other persons responsible for the
offense, only such individuals will suffer such penalty. Corporate officers or employees, through
whose act, default or omission the corporation commits a crime, are themselves individually
guilty of the crime.

The principle applies whether or not the crime requires the consciousness of wrongdoing.
It applies to those corporate agents who themselves commit the crime and to those, who, by
virtue of their managerial positions or other similar relation to the corporation, could be deemed
responsible for its commission, if by virtue of their relationship to the corporation, they had the
power to prevent the act. Moreover, all parties active in promoting a crime, whether agents or
not, are principals. Whether such officers or employees are benefited by their delictual acts is not
a touchstone of their criminal liability. Benefit is not an operative fact.

In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind
the cloak of the separate corporate personality of PBMI. In the words of Chief Justice Earl
Warren, a corporate officer cannot protect himself behind a corporation where he is the actual,
present and efficient actor.

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PHILIPPINE NATIONAL BANK. vs. COURT OF APPEALS

G.R. No. L-27155 May 18, 1978

FACTS:
Philippine National Bank (PNB) executed its bond with Rita Gueco Tapnio as principal,
in favor of the Philippine National Bank Branch at San Fernando, Pampanga, to guarantee the
payment of defendant Rita Gueco Tapnio's account with said Bank. In turn, to guarantee the
payment of whatever amount the bonding company would pay to the Philippine National Bank,
both defendants executed the indemnity agreement. Under the terms and conditions of this
indemnity agreement, whatever amount the plaintiff would pay would earn interest at the rate of
12% per annum, plus attorney's fees in the amount of 15 % of the whole amount due in case of
court litigation.
Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however,
when demand was made upon her by plaintiff for her to pay her debt to the Bank, that she told
the Plaintiff that she did not consider herself to be indebted to the Bank at all because she had an
agreement with one Jacobo-Nazon whereby she had leased to the latter her unused export sugar
quota for the 1956-1957 agricultural year, consisting of 1,000 piculs at the rate of P2.80 per
picul, or for a total of P2,800.00, which was already in excess of her obligation guaranteed by
plaintiff's bond. This lease agreement, according to her, was with the knowledge of the bank. But
the Bank has placed obstacles to the consummation of the lease, and the delay caused by said
obstacles forced 'Nazon to rescind the lease contract.
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.
ISSUES:
Can PNB be made liable for tort?
RULING:
Yes. 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 he 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."
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

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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, which petitioner failed to do so. 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.

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THE PEOPLE OF THE PHILIPPINE ISLANDS vs. TAN BOON KONG

G.R. No. L-35262 March 15, 1930

FACTS:

Tan Boon Kong was the manager of a corporation organized under the laws of the
Philippine Islands and engaged in the purchase and sale of sugar, `bayon,’ coprax, and other
native products. And as such, the corporation is subject to the payment of internal-revenue taxes
upon its sales. It was declared in 1924 for purpose of taxation that the sum of sales was
P2,352,761.94, when in truth, the defendant knew that the total gross sales of said corporation
during that year amounted to P2,543,303.44, thereby failing to declare P190,541.50, and
voluntarily not paying the percentage taxes the sum of P2,960.12, corresponding to 1½ per cent
of said undeclared sales.

Subsequently, an information was filed charging the defendant Tan Boon Kong with the
violation of section 1458 of Act No. 2711 as amended.

ISSUE:

Should Tan Boon Kong, as manager of the corporation, be held liable criminally under
section 2723 of Act No. 2711 for violation of section 1458 of the same act for the benefit of the
corporation?

RULING:

Yes, Tan Boon Kong should be held criminally liable.

A corporation can act only through its officers and agents, and where the business itself
involves a violation of the law, all who participate in it are liable. In case of State vs. Burnam (71
Wash., 199), the court hold that the manager of a dairy corporation was criminally liable for the
violation of a statute by the corporation though he was not present when the offense was
committed.

In the present case the information or complaint alleges that he defendant was the
manager of a corporation which was engaged in business as a merchant, and as such manager, he
made a false return, for purposes of taxation, of the total amount of sale made by said false return
constitutes a violation of law, the defendant, as the author of the illegal act, must necessarily
answer for its consequences, provided that the allegation are proven.

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RECOVERY OF DAMAGES

FILIPINAS BROADCASTING NETWORK, INC., vs. AGO MEDICAL AND EDUCATIONAL

CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO
G.R. No. 141994 January 17, 2005

FACTS:

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

The trial court rendered a Decision finding FBNI and Alegre liable for libel except Rima.
The trial court held that the broadcasts are libelous per se. The trial court rejected the
broadcasters’ claim that their utterances were the result of straight reporting because it had no
factual basis. The broadcasters did not even verify their reports before airing them to show good
faith. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence
in the selection and supervision of its employees. In absolving Rima from the charge, the trial
court ruled that Rima’s only participation was when he agreed with Alegre’s exposé. The trial
court found Rima’s statement within the "bounds of freedom of speech, expression, and of the
press. On appeal, the Court of Appeals affirmed the trial court’s judgment with modification.
The appellate court made Rima solidarily liable with FBNI and Alegre. Hence, this petition

ISSUES:

Is AMEC entitled to moral damages and attorney’s fees?

RULING:

Yes, AMEC is 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. Nevertheless,
AMEC’s claim for moral damages falls under item 7 of Article 2219 of the Civil Code. This
provision expressly authorizes the recovery of moral damages in cases of libel, slander or any
other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or
juridical person. Therefore, a juridical person such as a corporation can validly complain for libel
or any other form of defamation and claim for moral damages. Moreover, where the broadcast is
libelous per se, the law implies damages. In such a case, evidence of an honest mistake or the
want of character or reputation of the party libeled goes only in mitigation of damages. Neither

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in such a case is the plaintiff required to introduce evidence of actual damages as a condition
precedent to the recovery of some damages. In this case, the broadcasts are libelous per se. Thus,
AMEC is entitled to moral damages. However, we find the award of ₱300,000 moral damages
unreasonable. The record shows that even though the broadcasts were libelous per se, AMEC has
not suffered any substantial or material damage to its reputation. Therefore, we reduce the award
of moral damages from ₱300,000 to ₱150,000.

The award of attorney’s fees is not proper because AMEC failed to justify satisfactorily
its claim for attorney’s fees. AMEC did not adduce evidence to warrant the award of attorney’s
fees. Moreover, both the trial and appellate courts failed to explicitly state in their respective
decisions the rationale for the award of attorney’s fees.

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ABS-CBN vs. COURT OF APPEALS

G.R. No. 128690 January 21, 1999

FACTS:
ABS-CBN through its vice-president Charo Santos-Concio, requested Viva to allow the
airing of at least 14 films produced by Viva in the year 1992. A meeting was held between the
representative of Viva and ABS-CBN. There was a series of offers and proposals between the
said parties however, there was no final agreement that was reached upon.
ABS-CBN filed a complaint for specific performance against Viva as it alleged that there
was already a perfected contract between Viva and ABS-CBN at the meeting held on April 2,
1992. The trial court ruled in favor of Viva and RBS which was then affirmed by the Court of
Appeals upon appeal.
ISSUE:
Is RBS entitled to an award of moral damages?
RULING:
No, 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, and no senses. It cannot, therefore, experience physical suffering and mental anguish,
which call be experienced only by one having a nervous system. No moral damages can be
awarded to a juridical person.

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DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION

PHILIPPINE NATIONAL BANK vs. HYDRO RESOURCES CONTRACTORS CORPORATION

G.R. No. 167530 March 13, 2013

FACTS:

Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages made on
the properties of Marinduque Mining and Industrial Corporation (MMIC). As a result of the
foreclosure, DBP and PNB acquired substantially all the assets of MMIC and resumed the
business operations of the defunct MMIC by organizing NMIC. DBP and PNB owned 57% and
43% of the shares of NMIC, respectively, except for five qualifying shares. As of September
1984, the members of the Board of Directors of NMIC, namely, Jose Tengco, Jr., Rolando Zosa,
Ruben Ancheta, Geraldo Agulto, and Faustino Agbada, were either from DBP or PNB.

Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping
and Road Construction Program in 1985 for a total contract price of ₱35,770,120. After
computing the payments already made by NMIC under the program and crediting the NMIC’s
receivables from Hercon, Inc., the latter found that NMIC still has an unpaid balance of
₱8,370,934.74. Hercon, Inc. made several demands on NMIC, including a letter of final demand
dated August 12, 1986, and when these were not heeded, a complaint for sum of money was filed
in the RTC of Makati, Branch 136 seeking to hold petitioners NMIC, DBP, and PNB solidarily
liable for the amount owing Hercon, Inc. The case was docketed as Civil Case No. 15375.

Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a
merger. This prompted the amendment of the complaint to substitute HRCC for Hercon, Inc.12
Thereafter, on December 8, 1986, then President Corazon C. Aquino issued Proclamation No. 50
creating the APT for the expeditious disposition and privatization of certain government
corporations and/or the assets thereof. Pursuant to the said Proclamation, on February 27, 1987,
DBP and PNB executed their respective deeds of transfer in favor of the National Government
assigning, transferring and conveying certain assets and liabilities, including their respective
stakes in NMIC. In turn and on even date, the National Government transferred the said assets
and liabilities to the APT as trustee under a Trust Agreement.

RTC of Makati rendered a Decision in favor of HRCC. It pierced the corporate veil of
NMIC and held DBP and PNB solidarily liable with NMIC. Court of Appeals affirmed the
piercing of the veil of the corporate personality of NMIC and held DBP, PNB, and APT
solidarily liable with NMIC

ISSUE:

Is there sufficient ground to pierce the veil of corporate fiction

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RULING:

No. Equally well-settled is the principle that the corporate mask may be removed or the
corporate veil pierced when the corporation is just an alter ego of a person or of another
corporation. For reasons of public policy and in the interest of justice, the corporate veil will
justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed
against third persons. However, the rule is that a court should be careful in assessing the milieu
where the doctrine of the corporate veil may be applied. Otherwise an injustice, although
unintended, may result from its erroneous application. Thus, cutting through the corporate cover
requires an approach characterized by due care and caution. Hence, any application of the
doctrine of piercing the corporate veil should be done with caution

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

To summarize, piercing the corporate veil based on the alter ego theory requires the
concurrence of three elements: control of the corporation by the stockholder or parent
corporation, fraud or fundamental unfairness imposed on the plaintiff, and harm or damage
caused to the plaintiff by the fraudulent or unfair act of the corporation. The absence of any of
these elements prevents piercing the corporate veil.

In this case, nothing in the records shows that the corporate finances, policies and
practices of NMIC were dominated by DBP and PNB in such a way that NMIC could be
considered to have no separate mind, will or existence of its own but a mere conduit for DBP and
PNB. On the contrary, the evidence establishes that HRCC knew and acted on the knowledge
that it was dealing with NMIC, not with NMIC’s stockholders. The letter proposal of Hercon,
Inc., HRCC’s predecessor-in-interest, regarding the contract for NMIC’s mine stripping and road
construction program was addressed to and accepted by NMIC. The various billing reports,
progress reports, statements of accounts and communications of Hercon, Inc./HRCC regarding
NMIC’s mine stripping and road construction program in 1985 concerned NMIC and NMIC’s
officers, without any indication of or reference to the control exercised by DBP and/or PNB over
NMIC’s affairs, policies and practices.

HRCC has presented nothing to show that DBP and PNB had a hand in the act
complained of, the alleged undue disregard by NMIC of the demands of HRCC to satisfy the
unpaid claims for services rendered by HRCC in connection with NMIC’s mine stripping and
road construction program in 1985. On the contrary, the overall picture painted by the evidence
offered by HRCC is one where HRCC was dealing with NMIC as a distinct juridical person
acting through its own corporate officers.

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GOLD LINE TOURS, INC. vs. HEIRS OF MARIA CONCEPCION LACSA

G.R. No. 159108 June 18, 2012

FACTS:

On August 2, 1993, Ma. Concepcion Lacsa and her sister, Miriam Lacsa boarded a
Goldline passenger bus owned and operated by Travel &Tours Advisers, Inc. They were enroute
from Sorsogon to Cubao, Quezon City. At the time, Concepcion, having just obtained her degree
of Bachelor of Science in Nursing at the Ago Medical and Educational Center, was proceeding to
Manila to take the nursing licensure board examination. Upon reaching the highway at Barangay
San Agustin in Pili, Camarines Sur, the Goldline bus, driven by Rene Abania collided with a
passenger jeepney coming from the opposite direction and driven by Alejandro Belbis. As a
result, a metal part of the jeepney was detached and struck Concepcion in the chest, causing her
instant death.

Concepcion’s heirs, represented by Teodoro Lacsa, instituted in the RTC a suit against
Travel & Tours Advisers Inc. and Abania to recover damages arising from breach of contract of
carriage. The RTC ruled in favor of the Respondents. On appeal, petitioner submitted a so-called
verified third party claim,claiming that the tourist bus that was levied, be returned to petitioner
because it was the owner and that petitioner had not been made a party to the civil case; and that
petitioner was a corporation entirely different from Travel & Tours Advisers, Inc., the defendant
in the Civil Case. This is the subject matter of the case at bar.

ISSUE:

Whether or not Petitioner Gold Line has a separate and distinct personality from its
members for its properties to be exempt from the levy.

RULING:

NO. This Court is not persuaded by the proposition of the third party claimant that a
corporation has an existence separate and/or distinct from its members insofar as this case at bar
is concerned, for the reason that whenever necessary for the interest of the public or for the
protection of enforcement of their rights, the notion of legal entity should not and is not to be
used to defeat public convenience, justify wrong, protect fraud or defend crime.

The RTC had sufficient factual basis to find that petitioner and Travel and Tours
Advisers, Inc. were one and the same entity, specifically: – (a) documents submitted by
petitioner in the RTC showing that William Cheng, who claimed to be the operator of Travel and
Tours Advisers, Inc., was also the President/Manager and an incorporator of the petitioner; and
(b) Travel and Tours Advisers, Inc. had been known in Sorsogon as Goldline.

Be that as it may, we concur in the trial court’s finding that the two companies are
actually one and the same, hence the levy of the bus in question was proper.

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The RTC thus rightly ruled that petitioner might not be shielded from liability under the
final judgment through the use of the doctrine of separate corporate identity. Truly, this fiction of
law could not be employed to defeat the ends of justice.

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VIVIAN T. RAMIREZ, ALBERTO B. DIGNO, DANILO M. CASQUITE, JUMADIYA A. KADIL,

FAUJIA SALIH, ANTONIO FABIAN, ROMEL DANAG, et.al. vs. MAR FISHING CO., INC.,
MIRAMAR FISHING CO., INC., ROBERT BUEHS AND JEROME SPITZ
G.R. No. 168208 June 13, 2012

FACTS:

Mar Fishing Co., Inc. (Mar Fishing), engaged in the business of fishing and canning of
tuna, sold its principal assets to co-respondent Miramar through public bidding. Proceeds of the
sale were paid to the Trade and Investment Corp. to cover Mar Fishing’s outstanding obligation
in the amount of ₱ 897,560,041.00.
In view of that transfer, Mar Fishing issued a Memorandum informing all its workers that
the company would cease to operate by the end of the month. It notified the DOLE of the closure
of its business operations. Then, Mar Fishing’s labor union, Mar Fishing Workers Union –
NFL – and Miramar entered into a Memorandum of Agreement for the acquiring company,
Miramar, to absorb Mar Fishing’s regular rank and file employees whose performance was
satisfactory, without loss of seniority rights and privileges previously enjoyed. Unfortunately,
petitioners, who worked as rank and file employees, were not hired or given separation pay by
Miramar, so they filed Complaints for illegal dismissal with money claims before the Arbitration
Branch of the NLRC.

ISSUE:

Is Mar Fishing and Miramar solidarily liable to the employees?

RULING:

NO. Mar Fishing, and not Miramar, is required to compensate petitioners. Indeed, the
back wages and retirement pay earned from the former employer cannot be filed against the new
owners or operators of an enterprise.

Miramar and Mar Fishing are separate and distinct entities, based on the marked
differences in their stock ownership. Also, the fact that Mar Fishing’s officers remained as such
in Miramar does not by itself warrant a conclusion that the two companies are one and the same.
The mere showing that the corporations had a common director sitting in all the boards without
more does not authorize disregarding their separate juridical personalities.

Neither can the veil of corporate fiction between the two companies be pierced by the rest
of petitioners’ submissions, namely, the alleged take-over by Miramar of Mar Fishing’s
operations and the evident similarity of their businesses. Since piercing the veil of corporate
fiction is frowned upon, those who seek to pierce the veil must clearly establish that the separate
and distinct personalities of the corporations are set up to justify a wrong, protect a fraud, or
perpetrate a deception. This, unfortunately, petitioners have failed to do.

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HACIENDA LUISITA, INCORPORATED, vs. PRESIDENTIAL AGRARIAN REFORM COUNCIL, et

al.
G.R. No. 171101, January 22, 2011

FACTS:

In 1958, the Spanish owners of Compañia General de Tabacos de Filipinas (Tabacalera)

sold Hacienda Luisita and the Central Azucarera de Tarlac, the sugar mill of the hacienda, to the
Tarlac Development Corporation (Tadeco), then owned and controlled by the Jose Cojuangco Sr.
Group. The Central Bank of the Philippines assisted Tadeco in obtaining a dollar loan from
a US bank. Also, the GSIS extended a PhP5.911 million loan in favor of Tadeco to pay the peso
price component of the sale, with the condition that “the lots comprising the Hacienda Luisita be
subdivided by the applicant-corporation and sold at cost to the tenants, should there be any, and
whenever conditions should exist warranting such action under the provisions of the Land
Tenure Act.” Tadeco however did not comply with this condition.

On May 7, 1980, the martial law administration filed a suit before the Manila RTC
against Tadeco, et al., for them to surrender Hacienda Luisita to the then Ministry of Agrarian
Reform (MAR) so that the land can be distributed to farmers at cost. Responding, Tadeco alleged
that Hacienda Luisita does not have tenants, besides which sugar lands – of which the hacienda
consisted – are not covered by existing agrarian reform legislations. The Manila RTC rendered
judgment ordering Tadeco to surrender Hacienda Luisita to the MAR. Therefrom, Tadeco
appealed to the CA.

On March 17, 1988, during the administration of President Corazon Cojuangco Aquino,
the Office of the Solicitor General moved to withdraw the government’s case against Tadeco, et
al. The CA dismissed the case, subject to the PARC’s approval of Tadeco’s proposed stock
distribution plan (SDP) in favor of its farmworkers. On August 23, 1988, Tadeco organized a
spin-off corporation, herein petitioner HLI, as vehicle to facilitate stock acquisition by the
farmworkers. For this purpose, Tadeco conveyed to HLI the agricultural land portion and other
farm-related properties of Hacienda Luisita in exchange for HLI shares of stock.

On May 9, 1989, some 93% of the then farmworker-beneficiaries (FWBs) complement of

Hacienda Luisita signified in a referendum their acceptance of the proposed HLI’s Stock
Distribution Option Plan (SODP). On May 11, 1989, the SDOA was formally entered into by
Tadeco, HLI, and the 5,848 qualified FWBs. This attested to by then DAR Secretary Philip
Juico. The SDOA embodied the basis and mechanics of HLI’s SDP, which was eventually
approved by the PARC after a follow-up referendum conducted by the DAR who participated,
opted to receive shares in HLI.

On August 15, 1995, HLI applied for the conversion of 500 hectares of land of the
hacienda from agricultural to industrial use, pursuant to Sec. 65 of RA 6657. The DAR approved
the application on August 14, 1996, subject to payment of three percent (3%) of the gross selling
price to the FWBs and to HLI’s continued compliance with its undertakings under the SDP,
among other conditions.

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On December 13, 1996, HLI, in exchange for subscription of 12,000,000 shares of stocks
of Centennary Holdings, Inc. (Centennary), ceded 300 hectares of the converted area to the latter.
Subsequently, Centennary sold the entire 300 hectares for PhP750 million to Luisita Industrial
Park Corporation (LIPCO), which used it in developing an industrial complex. From this area
was carved out 2 parcels, for which 2 separate titles were issued in the name of LIPCO. Later,
LIPCO transferred these 2 parcels to the Rizal Commercial Banking Corporation (RCBC) in
payment of LIPCO’s PhP431, 695,732.10 loan obligations to RCBC. LIPCO’s titles were
cancelled and new ones were issued to RCBC. Apart from the 500 hectares, another 80.51
hectares were later detached from Hacienda Luisita and acquired by the government as part of
the Subic-Clark-Tarlac Expressway (SCTEX) complex. Thus, 4,335.75 hectares remained of the
original 4,915 hectares Tadeco ceded to HLI.

Such, was the state of things when two separate petitions reached the DAR in the latter
part of 2003. The first was filed by the Supervisory Group of HLI (Supervisory Group), praying
for a renegotiation of the SDOA, or, in the alternative, its revocation. The second petition,
praying for the revocation and nullification of the SDOA and the distribution of the lands in the
hacienda, was filed by Alyansa ng mga Manggagawang Bukid ng Hacienda Luisita (AMBALA).
The DAR then constituted a Special Task Force (STF) to attend to issues relating to the SDP of
HLI. After investigation and evaluation, the STF found that HLI has not complied with its
obligations under RA 6657 despite the implementation of the SDP. On December 22, 2005, the
PARC issued the assailed Resolution No. 2005-32-01, recalling/revoking the SDO plan of
Tadeco/HLI. It further resolved that the subject lands be forthwith placed under the compulsory
coverage or mandated land acquisition scheme of the CARP.

From the foregoing resolution, HLI sought reconsideration. Its motion notwithstanding,
HLI also filed a petition before the Supreme Court in light of what it considers as the DAR’s
hasty placing of Hacienda Luisita under CARP even before PARC could rule or even read the
motion for reconsideration. PARC would eventually deny HLI’s motion for
reconsideration via Resolution No. 2006-34-01 dated May 3, 2006.

ISSUE:

Is the doctrine of piercing of corporate fiction applicable in this case?

RULING:

Absent any allegation or proof of fraud or other public policy considerations, the
existence of interlocking directors, officers and stockholders is not enough justification to pierce
the veil of corporate fiction as in the instant case.

By arguing that the companies involved in the transfers of the 300-hectare portion of
Hacienda Luisita have interlocking directors and, thus, knowledge of one may already be
imputed upon all the other companies, AMBALA and Rene Galang, in effect, want this Court to
pierce the veil of corporate fiction. However, piercing the veil of corporate fiction is warranted
only in cases when the separate legal entity is used to defeat public convenience, justify wrong,

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protect fraud, or defend crime, such that in the case of two corporations, the law will regard the
corporations as merged into one. As succinctly discussed by the Court in Velarde v. Lopez, Inc.:

Petitioner argues nevertheless that jurisdiction over the subsidiary is justified by piercing
the veil of corporate fiction. Piercing the veil of corporate fiction is warranted, however, only in
cases when the separate legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, such that in the case of two corporations, the law will regard the
corporations as merged into one. 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.

In applying the doctrine of piercing the veil of corporate fiction, 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.

Nowhere, however, in the pleadings and other records of the case can it be gathered that
respondent has complete control over Sky Vision, not only of finances but of policy and business
practice in respect to the transaction attacked, so that Sky Vision had at the time of the
transaction no separate mind, will or existence of its own. The existence of interlocking
directors, corporate officers and shareholders is not enough justification to pierce the veil of
corporate fiction in the absence of fraud or other public policy considerations.

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PANTRANCO EMPLOYEES ASSOCIATION vs. NLRC, PNEI, PNB, PNB-MADECOR, and MEGA
PRIME
GR No. 170689/170705 March 17, 2009

FACTS:

Gonzales family owned two (2) corporations, namely, the Pantranco North Express, Inc
(PNEI) and Macris Realty Corporation (Macris). PNEI provided transportation services to the
public. They incurred huge financial losses and creditors took over the management of PNEI and
Maricris. Full ownership was transferred to one of their creditors, the National Investment
Development Corporation (NIDC), a subsidiary of the PNB. Macris was later renamed as the
National Realty Development Corporation (Naredeco) and eventually merged with the National
Warehousing Corporation (Nawaco) to form the new PNB subsidiary, the PNB-Madecor. PNEI
applied with the Securities and Exchange Commission (SEC) for suspension of payments. A
management committee was thereafter created which recommended to the SEC the sale of the
company through privatization. As a cost-saving measure, the committee likewise suggested the
retrenchment of several PNEI employees. Eventually, PNEI ceased its operation. Along with the
cessation of business came the various labor claims commenced by the former employees of
PNEI where the latter obtained favorable decisions.

Labor Arbiter issued the Sixth Alias Writ of Execution commanding the NLRC Sheriffs
to levy on the assets of PNEI due to its former employees. The sheriffs were likewise instructed
to proceed against PNB, PNB-Madecor and Mega Prime. In implementing the writ, the sheriffs
levied upon the four valuable pieces of real estate owned by PNB-Madecor. PNB, PNB-Madecor
and Mega Prime filed motion to quash the writ and third-party claims. 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. PNB’s third-party claim – to nullify the writ on the ground that it has an
interest in the Pantranco properties being a creditor of PNB-Madecor, – on the other hand, was
denied because it only had an inchoate interest in the properties.
On appeal to the NLRC, the same was denied and the Labor Arbiter’s disposition was affirmed.
In view of the P7,884,000.00 debt of PNB-Madecor to PNEI, an auction sale was conducted over
the Pantranco properties to satisfy the claim of the PNEI employees, wherein CPAR Realty was
adjudged as the highest bidder.

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. The CA added that the Pantranco properties were never owned by PNEI;
rather, their titles were registered under the name of PNB-Madecor. If PNB and PNB-Madecor
could not answer for the liabilities of PNEI, with more reason should Mega Prime not be held
liable being a mere successor-in-interest of PNB-Madecor.

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ISSUE:
Whether former PNEI employees can attach the properties of PNB, PNB-Madecor and
Mega Prime to satisfy their unpaid labor claims against PNEI

RULING:

No. The subject property is not owned by the judgment debtor, that is, PNEI. PNB, PNB-
Madecor and Mega Prime are corporations with personalities separate and distinct from that of
PNEI. The general rule is that a corporation has a personality separate and distinct from those of
its stockholders and other corporations to which it may be connected. This is a fiction created by
law for convenience and to prevent injustice.

Clearly, what can be inferred from the earlier cases is that the doctrine of piercing the
corporate veil applies only in three (3) basic areas, namely:1) defeat of public convenience as
when the corporate fiction is used as a vehicle for the evasion of an existing obligation;2) fraud
cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime;
or3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation. In the absence of malice, bad faith, or a specific provision of law making a
corporate officer liable, such corporate officer cannot be made personally liable for corporate
liabilities.

Assuming arguendo, that PNB may be held liable for the debts of PNEI, petitioners still
cannot proceed against the Pantranco properties, the same being owned by PNB-Madecor,
notwithstanding the fact that PNB-Madecor was a subsidiary of PNB. The general rule remains
that PNB-Madecor has a personality separate and distinct from PNB. 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.

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ANDRE T. ALMOCERA vs. JOHNNY ONG

G.R. No. 170479 February 18, 2008

FACTS:

Plaintiff Johnny Ong tried to acquire from the defendants a "townhome" 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 sqm. with a 3-storey building.

Out of the purchase price, plaintiff was able to pay the amount of P1,060,000.00. Prior to
the full payment of this amount, plaintiff claims that defendants Andre Almocera and First
Builders fraudulently concealed the fact that before and at the time of the perfection of the
aforesaid contract to sell, the property was already mortgaged to and encumbered with the Land
Bank of the Philippines (LBP).

In addition, the construction of the house has long been delayed and remains unfinished.
On March 13, 1999 the lot covering the unit was advertised in a local tabloid for public auction
for foreclosure of mortgage.

It is the assertion of the plaintiff that had it not for the fraudulent concealment of the
mortgage and encumbrance by defendants, he would have not entered into the contract to sell.

In their Answer, defendants denied liability claiming that the foreclosure of the mortgage
on the townhouse unit was caused by the failure of complainant Johnny Ong to pay the balance
of the price of said townhouse unit.

RTC ruled against defendants for not acting in good faith and for not complying with
their obligations under their contract with respondent.
It found that respondent was able to make a down payment or partial payment
of P1,060,000.00 and that the defendants failed to complete the construction of, as well as
deliver to respondent, the townhouse within six months from the signing of the contract.
Moreover, respondent was not informed by the defendants at the time of the perfection of their
contract that the subject townhouse was already mortgaged to LBP.

CA affirmed

ISSUE:

Whether Almocera is solidarily liable with the defendant Cooperative.

RULING:

Yes. It is clear that petitioner and FBMC had the obligation to complete the townhouse
unit within six months from the signing of the contract. Upon compliance therewith, the
obligation of respondent to pay the balance of P2,400,000.00 arises. Upon payment thereof, the

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townhouse shall be delivered and conveyed to respondent upon the execution of the Absolute
Deed of Sale and other relevant documents.

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 CA which ruled that it was too late in the day to
raise the same.

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.

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CAGAYAN VALLEY DRUG CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 151413 February 13, 2008

FACTS:
Petitioner a duly licensed retailer of medicine and other pharmaceutical products alleged
that in 1995, it granted 20% sales discounts to qualified senior citizens on purchases of medicine
pursuant to Republic Act No. (RA) 74323 and its implementing rules and regulations. It treated
the 20% sales discounts granted to qualified senior citizens in 1995 as deductions from the gross
sales in order to arrive at the net sales, instead of treating them as tax credit as provided by
Section 4 of RA 7432.
On December 27, 1996, however, petitioner filed with the Bureau of Internal Revenue
(BIR) a claim for tax refund/tax credit of the full amount of the 20% sales discount it granted to
senior citizens for the year 1995, allegedly totaling to PhP 123,083 in accordance with Sec. 4 of
RA 7432. The BIR’s inaction on petitioner’s claim for refund/tax credit compelled petitioner to
file a petition for review before the CTA.
The CTA sustained petitioner’s contention that pursuant to Sec. 4 of RA 7432, the 20%
sales discounts petitioner extended to qualified senior citizens in 1995 should be treated as tax
credit and not as deductions from the gross sales as erroneously interpreted in RR 2-94.
Notwithstanding petitioner’s entitlement to a tax credit from the 20% sales discounts it extended
to qualified senior citizens in 1995, the CTA nonetheless dismissed petitioner’s action for refund
or tax credit on account of petitioner’s net loss in 1995. First, the CTA rejected the refund as it is
clear that RA 7432 only grants the 20% sales discounts extended to qualified senior citizens as
tax credit and not as tax refund. Second, in rejecting the tax credit, the CTA reasoned that while
petitioner may be qualified for a tax credit, it cannot be so extended to petitioner on account of
its net loss in 1995
The case was elevated before Court of Appeals however it was dismissed on procedural
grounds.
ISSUE:
Is the petitioner entitled to a tax refund or tax credit?
RULING:
Yes. This issue is not new, as the Court has resolved several cases involving the very
same issue. In Commissioner of Internal Revenue v. Central Luzon Drug Corporation (Central
Luzon), we held that private drug companies are entitled to a tax credit for the 20% sales
discounts they granted to qualified senior citizens under RA 7432 and nullified Secs. 2.i and 4 of
RR 2-94.
In Bicolandia Drug Corporation (formerly Elmas Drug Corporation) v. Commissioner of
Internal Revenue, we ruled that petitioner therein is entitled to a tax credit of the "cost" or the full
20% sales discounts it granted pursuant to RA 7432. In the related case of Commissioner of

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Internal Revenue v. Bicolandia Drug Corporation, we likewise ruled that respondent drug
company was entitled to a tax credit, and we struck down RR 2-94 to be null and void for failing
to conform with the law it sought to implement.
The fact that petitioner suffered a net loss in 1995 will not make the tax credit due to
petitioner unavailable. This is the core issue resolved in Central Luzon, where we ruled that the
net loss for a taxable year does not bar the grant of the tax credit to a taxpayer pursuant to RA
7432 and that prior tax payments are not required for such grant.
It is thus clear that petitioner is entitled to a tax credit for the full 20% sales discounts it
extended to qualified senior citizens for taxable year 1995. Considering that the CTA has not
disallowed the PhP 123,083 sales discounts petitioner claimed before the BIR and CTA, we are
constrained to grant them as tax credit in favor of petitioner.

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THE HEIRS OF THE LATE PANFILO V. PAJARILLO vs. THE HON. COURT OF APPEALS,
NATIONAL LABOR RELATIONS COMMISSION and SAMAHAN NG MGA MANGGAGAWA NG
PANFILO V. PAJARILLO, ALFREDO HOYOHOY, HERMINIO CASTILLO, BERNARDO ROCO,
RODOLFO TORRES, JULIAN JORVINA, LOURDES ROCO, FLORITA YAPOC, MARLON ALDANA,
PARALUMAN ULANG, TOLENTINO SANHI, JOHNNY SORIANO, ANDRES CALAQUE,
ROBERTO LAVAREZ, FRANCISCO MORALES, SALVACION PERINA, ANTONIO ABALA,
ROMEO SALONGA, AUGUR M. MANIPOL, BIENVENIDA TEQUIL, MARIO ELEP, ALADINO
LATIGO, BERNARDINE BANSAL, PEDRO DE BAGUIO, RICARDO CALICA, LAURA CO, VICENTE
RECANA, ELENA TOLLEDO, ALFREDO PLAZA, SR., HERMINIO BALDONO, FELIPE YAPOC,
ARISTON NIPA, and ALFONSO C. BALDOMAR
G.R. No. 155056-57 October 19, 2007

FACTS:
Panfilo Pajarillo was the owner and operator od several busses plying certain routes in
Metro Manila. He used the name “PVP Liner” in his buses. Private respondents were employed
as drivers, conductors of Panfilo. Private respondents worked at least four time a week or for an
average of 15 working days per month. They were not given emergency cost of living allowance,
13th month pay, legal holiday pay and service incentive leave pay.
The following were deducted from the private respondents’ daily commissions: (a) costs
of washing the assigned buses; (b) terminal fees; (c) fees for sweeping the assigned buses; (d)
fees paid to the barangay tanod at bus terminals; and (e) rental fees for the use of stereo in the
assigned buses. Any employee who refused such deductions were either barred from working or
dismissed from work.
Private respondents and several co-employees formed a union called "SAMAHAN NG
MGA MANGGAGAWA NG PANFILO V. PAJARILLO" (respondent union). The Department
of Labor and Employment (DOLE) issued a Certificate of Registration in favor of the respondent
union. Panfilo and his children and relatives also formed a company union where they acted as
its directors and officers. Respondent union and several employees filed a Complaint for unfair
labor practice and illegal deduction before the Labor Arbiter with "Panfilo V. Pajarillo Liner" as
party-respondent. Respondent union and several employees filed another Complaint for
violation of labor standard laws claiming non-payment of (1) ECOLA, (2) 13th month pay, (3)
overtime pay, (4) legal holiday pay, (5) premium pay, and (6) service incentive leave.
ISSUE:
Is P.V. Pajarillo Liner Inc. an independent corporation and cannot be considered as an
adjunct of Panfilo as the sole operator of PVP Liner buses?

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RULING:
No. It is a fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders and from other corporations to which it may be
connected. However, this separate and distinct personality of a corporation is merely a fiction
created by law for convenience and to promote justice. Hence, when the notion of separate
juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend
crime, or is used as a device to defeat labor laws, this separate personality of the corporation may
be disregarded or the veil of the corporate fiction pierced. This is true likewise when the
corporation is merely an adjunct, a business conduit or an alter ego of another corporation. The
corporate mask may be lifted and the corporate veil may be pierced when a corporation is but the
alter ego of a person or another corporation.
It is apparent that Panfilo started his transportation business as the sole owner and
operator of passenger buses utilizing the name PVP Liner for his buses. After being charged by
respondent union of unfair labor practice, illegal deductions, illegal dismissal and violation of
labor standard laws, Panfilo transformed his transportation business into a family corporation,
namely, P.V. Pajarillo Liner Inc. He and petitioners were the incorporators, stockholders and
officers therein. P.V. Pajarillo Inc. and the sole proprietorship of Panfilo have the same business
address. P.V. Pajarillo Inc. also uses the name "PVP Liner" in its buses. Further, the license to
operate or franchise of the sole proprietorship was merely transferred to P.V. Pajarillo Liner Inc.

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ATTY. ANDREA UY AND FELIX YUSAY VS. ARLENE VILLANUEVA AND NATIONAL LABOR
RELATIONS COMMISSION
G.R. NO. 157851 JUNE 29, 2007

FACTS:
Countrywide Rural Bank of La Carlota, Inc. is a private banking corporation engaged in
rural banking and other allied services through its branches nationwide. Sometime in 1998, it
experienced liquidity problems and its treasury department was unable to comply with its
branches’ demands for fresh funds. Its various branches eventually experienced bank runs.
Several of the banks’ depositors were alarmed at the prospect of losing their deposits and
investments. A group of depositors, holding about 70% of the banks deposit accounts, met and
agreed to organize themselves into a Committee of Depositors. The petitioner Felix Yusay was
elected by the Committee as Chairman of the Interim Board of Directors, while the petitioner
Atty. Andrea Uy was designated Secretary. According to the petitioners, the Committee was
formed for the purpose of protecting their collective interests and to increase their chances of
recovering their deposits.
With the consent and approval of the incumbent Board of Directors, the Committee of
Depositors assumed temporary administrative control of the remaining operations of the bank.
The incumbent Board of Directors informed the Committee that some employees had tendered
courtesy resignations, while some had expressed their willingness to resign upon official request.
The Committee then accepted some of the courtesy resignations.
The Bangko Sentral ng Pilipinas (BSP) subsequently placed the bank under receivership and
appointed a liquidator. Meanwhile, the Philippine Deposit Insurance System (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 (3) cases for illegal dismissal were filed by Amalia Bueno, Amelia Valdez
and Lyn Villa and the private respondent Arlene Villanueva against Countrywide Rural Bank of
La Carlota, Inc. before the National Labor Relations Commission (NLRC).
ISSUE:
Whether or not the doctrine of piercing the veil of corporate fiction is applicable
RULING:
The doctrine of piercing the veil of corporate fiction finds no application in the case.
Assuming that an employer-employee relationship does exist, the petitioners cannot be held
liable with Countrywide Rural Bank of La Carlota, Inc. for the illegal dismissal of the private
respondent. Corporate officers are not personally liable for the money claims of discharged

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corporate employees, unless they acted with evident malice and bad faith in terminating their
employment.
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 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.

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ROSAURA P. CORDON VS. JESUS BALICANTA

A.C. NO. 2797 OCTOBER 4, 2002

FACTS:

Sometime in the early part of 1981, respondent enticed complainant and her daughter to
organize a corporation that would develop the said real properties into a high-scale commercial
complex with a beautiful penthouse for complainant. Relying on these apparently sincere
proposals, complainant and her daughter assigned 19 parcels of land to Rosaura Enterprises,
Incorporated, a newly-formed and duly registered corporation in which they assumed majority
ownership. The subject parcels of land were then registered in the name of the corporation.
Thereafter, respondent single-handedly ran the affairs of the corporation in his capacity as
Chairman of the Board, President, General Manager and Treasurer. The respondent also made
complainant sign a document which turned out to be a voting trust agreement. Respondent
likewise succeeded in making complainant sign a special power of attorney to sell and mortgage
some of the parcels of land she inherited from her deceased husband. She later discovered that
respondent transferred the titles of the properties to a certain Tion Suy Ong who became the new
registered owner thereof. Respondent never accounted for the proceeds of said transfers.

In 1981, respondent, using a spurious board resolution, contracted a loan from the Land
Bank of the Philippines (LBP, for brevity) in the amount of Two Million Two Hundred Twenty
Pesos (P2,220,000) using as collateral 9 of the real properties that the complainant and her
daughter contributed to the corporation. For four years from the time the debt was contracted,
respondent failed to pay even a single installment. As a result, the LBP, in a letter dated May 22,
1985, informed respondent that the past due amortizations and interest had already accumulated
to Seven Hundred Twenty-nine Thousand Five Hundred Three Pesos and Twenty-five Centavos
(P729,503.25). The LBP made a demand on respondent for payment for the tenth time.
Respondent did not exert any effort to redeem the foreclosed properties. Worse, he sold the
corporation’s right to redeem the mortgaged properties to a certain Hadji Mahmud Jammang
through a fake board resolution dated January 14, 1989 which clothed himself with the authority
to do so. Complainant and her daughter, the majority stockholders, were never informed of the
alleged meeting held on that date. Again, respondent never accounted for the proceeds of the sale
of the right to redeem. Respondent also sold to Jammang a parcel of land belonging to
complainant and her daughter. Complainant and her daughter made several demands on
respondent for the delivery of the real properties they allegedly assigned to the corporation, for
an accounting of the proceeds of the LBP loan and as well as the properties sold, and for the
rentals earned by BCC. But the demands remained unheeded. Hence, complainant and her
daughter, in a letter dated June 4, 1985, terminated the services of respondent as their lawyer and
repeated their demands for accounting and turn-over of the corporate funds, and the return of the
19 titles that respondent transferred to the corporation.
ISSUE:
Whether the respondent can hide behind the corporate veil of the corporation.

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RULING:

This Court holds that respondent cannot invoke the separate personality of the
corporation to absolve him from exercising these duties over the properties turned over to him by
complainant. He blatantly used the corporate veil to defeat his fiduciary obligation to his client,
the complainant. The massive fraud perpetrated by respondent on the complainant leaves us no
choice but to set aside the veil of corporate entity. For purposes of this action therefore, the
properties registered in the name of the corporation should still be considered as properties of
complainant and her daughter. The respondent merely held them in trust for complainant (now
an ailing 83-year-old) and her daughter. The properties conveyed fraudulently and/or without the
requisite authority should be deemed as never to have been transferred, sold or mortgaged at all.
Respondent shall be liable, in his personal capacity, to third parties who may have contracted
with him in good faith.

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MR HOLDINGS, LTD., vs. SHERIFF CARLOS P. BAJAR, SHERIFF FERDINAND M. JANDUSAY,

SOLIDBANK CORPORATION, and MARCOPPER MINING CORPORATION
G.R. No. 138104 April 11, 2002
FACTS:

Under a "Principal Loan Agreement" and "Complementary Loan Agreement," both dated
November 4, 1992, Asian Development Bank (ADB), a multilateral development finance
institution, agreed to extend to Marcopper Mining Corporation (Marcopper) a loan in the
aggregate amount of US$40,000,000.00 to finance the latter’s mining project at Sta. Cruz,
Marinduque. The principal loan of US$ 15,000,000.00 was sourced from ADB’s ordinary capital
resources, while the complementary loan of US$ 25,000,000.00 was funded by the Bank of Nova
Scotia, a participating finance institution.

On even date, ADB and Placer Dome, Inc., (Placer Dome), a foreign corporation which
owns 40% of Marcopper, executed a "Support and Standby Credit Agreement" whereby the
latter agreed to provide Marcopper with cash flow support for the payment of its obligations to
ADB.

To secure the loan, Marcopper executed in favor of ADB a "Deed of Real Estate and
Chattel Mortgage" dated November 11, 1992, covering substantially all of its (Marcopper’s)
properties and assets in Marinduque. It was registered with the Register of Deeds on November
12, 1992.

When Marcopper defaulted in the payment of its loan obligation, Placer Dome, in
fulfillment of its undertaking under the "Support and Standby Credit Agreement," and
presumably to preserve its international credit standing, agreed to have its subsidiary corporation,
petitioner MR Holding, Ltd., assumed Marcopper’s obligation to ADB in the amount of US$
18,453,450.02. Consequently, in an "Assignment Agreement" dated March 20, 1997, ADB
assigned to petitioner all its rights, interests and obligations under the principal and
complementary loan agreements, ("Deed of Real Estate and Chattel Mortgage," and "Support
and Standby Credit Agreement").

On December 8, 1997, Marcopper likewise executed a "Deed of Assignment" in favor of

petitioner. Under its provisions, Marcopper assigns, transfers, cedes and conveys to petitioner, its
assigns and/or successors-in-interest all of its (Marcopper’s) properties, mining equipment and
facilities

ISSUE:

Are petitioner MR Holdings, Ltd., Placer Dome, and Marcopper one and the same entity?

RULING:

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The record is lacking in circumstances that would suggest that petitioner corporation,
Placer Dome and Marcopper are one and the same entity. While admittedly, petitioner is a
wholly-owned subsidiary of Placer Dome, which in turn, which, in turn, was then a minority
stockholder of Marcopper, however, 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 business.

The recent case of Philippine National Bank vs. Ritratto Group Inc., outlines 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.

(g) The subsidiary has substantially no business except with the parent corporation or no assets
except those conveyed to or by the parent corporation.

(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is
described as a department or division of the parent corporation, or its business or financial
responsibility is referred to as the parent corporation’s own.

(i) The parent corporation uses the property of the subsidiary as its own.

(j) The directors or executives of the subsidiary do not act independently in the interest of the
subsidiary, but take their orders from the parent corporation.

(k) The formal legal requirements of the subsidiary are not observed.

In this catena of circumstances, what is only extant in the records is the matter of stock
ownership. There are no other factors indicative that petitioner is a mere instrumentality of
Marcopper or Placer Dome. The mere fact that Placer Dome agreed, under the terms of the
"Support and Standby Credit Agreement" to provide Marcopper with cash flow support in

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paying its obligations to ADB, does not mean that its personality has merged with that of
Marcopper. This singular undertaking, performed by Placer Dome with its own stockholders in
Canada and elsewhere, is not a sufficient ground to merge its corporate personality with
Marcopper which has its own set of shareholders, dominated mostly by Filipino citizens. The
same view applies to petitioner’s payment of Marcopper’s remaining debt to ADB.

With the foregoing considerations and the absence of fraud in the transaction of the three
foreign corporations, we find it improper to pierce the veil of corporate fiction – that equitable
doctrine developed to address situations where the corporate personality of a corporation is
abused or used for wrongful purposes.

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MARUBENI CORPORATION, RYOICHI TANAKA, RYOHEI KIMURA and SHOICHI ONE vs.
FELIX LIRAG
G.R. No. 13099 August 10, 2001

FACTS:
Petitioner Marubeni is a foreign corporation organized and existing under the laws of
Japan.It was doing business in the Philippines through its duly licensed, wholly owned
subsidiary, Marubeni Philippines Corporation. Petitioners Ryoichi Tanaka, Ryohei Kimura and
Shoichi One were officers of Marubeni assigned to its Philippine branch.
On January 27, 1989, respondent Lirag filed with the Regional Trial Court... a
complaint... for specific performance and damages claiming that petitioners owed him the sum of
P6,000,000.00 representing commission pursuant to an oral consultancy... agreement with
Marubeni. Lirag claimed that on February 2, 1987, petitioner Ryohei Kimura hired his
consultancy group for the purpose of obtaining government contracts of various projects.
Petitioners promised to pay him six percent (6%) consultancy fee... based on the total
costs of the projects obtained. The consultancy agreement was not reduced into writing because
of the mutual trust between Marubeni and the Lirag family.
Their close business and personal relationship dates back to 1960, when respondent's
family was engaged in the textile fabric manufacturing business, in which Marubeni supplied the
needed machinery, equipment, spare parts and raw materials.
In compliance with the agreement, respondent Lirag made representations with various
government officials, arranged for meetings and conferences, relayed pertinent information as
well as submitted feasibility studies and project proposals, including pertinent documents
required... by petitioners.
Despite respondent's repeated formal verbal demands for payment of the agreed
consultancy fee, petitioners did not pay. In response to the first demand letter, petitioners
promised to reply within fifteen (15) days, but they did not do so.
Pursuant to the consultancy agreement, respondent claimed a commission of six percent
(6%) of the total contract price, or a total of P6,000,000.00, or in the alternative, that he be paid
the same amount by way of damages or as the reasonable value of the services he rendered to...
petitioners, and further claimed twenty percent (20%) of the amount recoverable as attorney's
fees and the costs of suit.
Petitioners denied the consultancy agreement. Petitioner Ryohei Kimura did not have the
authority to enter into such agreement in behalf of Marubeni. Only Mr. Morihiko Maruyama, the
general manager, upon issuance of a special power of attorney by the principal office in Tokyo,
Japan, could enter into any contract in behalf of the corporation. Mr. Maruyama did not discuss
with respondent Lirag any of the matters alleged in the complaint, nor agreed to the payment of
commission. Thus, petitioners moved for the dismissal of the complaint.

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On April 29, 1993, the trial court promulgated a decision and ruled that respondent is
entitled to a commission. Respondent was led to believe that there existed an oral consultancy
agreement. Hence, he performed his part of the agreement and helped petitioners get the project.
On May 26, 1993, petitioners interposed an appeal from the decision to the Court of
Appeals.
After due proceedings, on October 9, 1997, the Court of Appeals promulgated a decision
affirming the decision of the trial court.
ISSUE:
Whether or not respondent is entitled to receive a commission if there was, in fact, a
consultancy agreement
RULING:
We find the appeal meritorious.
Assuming for the sake of argument that an oral consultancy agreement has been perfected
between the parties, respondent Lirag could not still claim fees on the project that has not been
awarded to Marubeni.
Respondent tried to justify his commission of roughly about P6,000,000.00 in the guise
that Marubeni and Sanritsu are sister corporations, thereby implying the need to pierce the veil of
corporate fiction. Respondent claimed that Marubeni as the supplier and real contractor of... the
project hired and sub-contracted the project to Sanritsu.
To disregard the separate juridical personality of a corporation, the wrongdoing must be
clearly and convincingly established. It cannot be presumed. The separate personality of the
corporation may be disregarded only when the corporation is used as a cloak or cover for fraud
or illegality, or to work injustice, or where necessary for the protection of creditors.
Any agreement entered into because of the actual or supposed influence which the party
has, engaging him to influence executive officials in the discharge of their duties, which
contemplates the use of personal influence and solicitation rather than an appeal to the judgment
of the official on the merits of the object sought is contrary to public policy.
Consequently, the agreement, assuming that the parties agreed to the consultancy, is null
and void as against public policy.
Therefore, it is unenforceable before a court of justice.

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PHILIPPINE NATIONAL BANK vs. RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC.,
and DADASAN GENERAL MERCHANDISE
G.R. No. 142616 July 31, 2001

FACTS:

On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of
PNB, organized and doing business in Hong Kong, extended a letter of credit in favor of the
respondents in the amount of US$300,000.00 secured by real estate mortgages constituted over
four (4) parcels of land in Makati City. This credit facility was later increased successively to
US$1,140,000.00 in September 1996; to US$1,290,000.00 in November 1996; to
US$1,425,000.00 in February 1997; and decreased to US$1,421,316.18 in April 1998.
Respondents made repayments of the loan incurred by remitting those amounts to their loan
account with PNB-IFL in Hong Kong.

However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70.

Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB,
notified the respondents of the foreclosure of all the real estate mortgages and that the properties
subject thereof were to be sold at a public auction on May 27, 1999 at the Makati City Hall.

The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is
a wholly owned subsidiary of defendant Philippine National Bank, the suit against the defendant
PNB is a suit against PNB-IFL. In justifying its ruling, the trial court, citing the case of Koppel
Phil. Inc. vs. Yatco, reasoned that the corporate entity may be disregarded where a corporation is
the mere alter ego, or business conduit of a person or where the corporation is so organized and
controlled and its affairs are so conducted, as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation.
ISSUE:
Is the Doctrine of piercing the corporate veil applicable in this case?

RULING:
No. 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. The test in
determining the applicability of the doctrine of piercing the veil of corporate fiction are: 1.)
Control, not mere majority or complete control, but complete domination, not only of finances
but of policy and business practice in respect to the transaction attacked so that the corporate
entity as to this transaction had at the time no separate mind, will or existence of its own; 2.)
such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and, unjust act in contravention

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of plaintiffs legal rights; and, 3.) the aforesaid control and breach of duty must proximately cause
the injury or unjust loss complained of. The absence of any one of these elements prevents
"piercing the corporate veil."
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there
is no showing of the indicative factors that the former corporation is a mere instrumentality of
the latter are present. Neither is there a demonstration that any of the evils sought to be prevented
by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the doctrine of
piercing the corporate veil based on the alter ego or instrumentality doctrine finds no application
in the case at bar.

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MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD., VS. NATIONAL LABOR RELATIONS
COMMISSION
G.R. NO. 120077 OCTOBER 13, 2000

FACTS:

Petitioners are the Manila Hotel Corporation and the Manila Hotel International
Company, Limited. When the case was filed in 1990, MHC was still a government-owned and
controlled corporation duly organized and existing under the laws of the Philippines. MHICL is a
corporation duly organized and existing under the laws of Hong Kong. MHC is an "incorporator"
of MHICL, owning 50% of its capital stock.
In May, 1988, private respondent Marcelo Santos (hereinafter referred to as "Santos")
was an overseas worker employed as a printer at the Mazoon Printing Press, Sultanate of Oman.
Subsequently, in June 1988, he was directly hired by the Palace Hotel, Beijing, People's
Republic of China and later terminated due to retrenchment.
The facts of his employments are as follows:
Respondent Santos was hired directly by the Palace Hotel, a foreign employer, through
correspondence sent to the Sultanate of Oman, where respondent Santos was then employed. He
was hired without the intervention of the POEA or any authorized recruitment agency of the
government.
The employment contract was not perfected in the Philippines. Respondent Santos
signified his acceptance by writing a letter while he was in the Republic of Oman. This letter was
sent to the Palace Hotel in the People's Republic of China and later signed an amended
"employment agreement" with the Palace Hotel, effective November 5, 1988.
Thus, on February 20, 1990, respondent Santos filed a complaint for illegal dismissal.
On July 23, 1991, petitioners appealed to the NLRC, arguing that the POEA, not the
NLRC had jurisdiction over the case. NLRC granted the appeal. Complainant appealed to NLRC
since he was not an overseas worker and this was granted. On November 25, 1994, Labor Arbiter
de Vera submitted his report. He found that respondent Santos was illegally dismissed from
employment and recommended that he be paid actual damages equivalent to his salaries for the
unexpired portion of his contract.
On December 15, 1994, the NLRC ruled in favor of private respondent. Hence this petition.
ISSUE:
Was the NLRC the correct forum for the illegal dismissal case filed against it?
Are MHC and MHICL liable for illegal dismissal?

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RULING:
No. We note that the main aspects of the case transpired in two foreign jurisdictions and
the case involves purely foreign elements. The only link that the Philippines has with the case is
that respondent Santos is a Filipino citizen. The Palace Hotel and MHICL are foreign
corporations. Not all cases involving our citizens can be tried here.
Even assuming that a proper decision could be reached by the NLRC, such would not
have any binding effect against the employer, the Palace Hotel. The Palace Hotel is a corporation
incorporated under the laws of China and was not even served with summons. Jurisdiction over
its person was not acquired.

MHC and MHICL are not Liable

Even if we assume two things: (1) that the NLRC had jurisdiction over the case, and (2)
that MHICL was liable for Santos' retrenchment, still MHC, as a separate and distinct juridical
entity cannot be held liable.
True, MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital
stock. However, this is not enough to pierce the veil of corporate fiction between MHICL and
MHC.
Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend a
crime. It is done only when a corporation is a mere alter ego or business conduit of a person or
another corporation.
In Traders Royal Bank v. Court of Appeals, we held that "the mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation is
not of itself a sufficient reason for disregarding the fiction of separate corporate personalities."
The tests in determining whether the corporate veil may be pierced are: First, the
defendant must have control or complete domination of the other corporation's finances, policy
and business practices with regard to the transaction attacked. There must be proof that the other
corporation had no separate mind, will or existence with respect the act complained of. Second,
control must be used by the defendant to commit fraud or wrong. Third, the aforesaid control or
breach of duty must be the proximate cause of the injury or loss complained of. The absence of
any of the elements prevents the piercing of the corporate veil.
It is basic that a corporation has a personality separate and distinct from those composing
it as well as from that of any other legal entity to which it may be related. Clear and convincing
evidence is needed to pierce the veil of corporate fiction. In this case, we find no evidence to
show that MHICL and MHC are one and the same entity.
MHICL did not have and did not exercise any of the aforementioned powers. It did not
select respondent Santos as an employee for the Palace Hotel. He was referred to the Palace
Hotel by his friend, Nestor Buenio. MHICL did not engage respondent Santos to work. The

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terms of employment were negotiated and finalized through correspondence between respondent
Santos, Mr. Schmidt and Mr. Henk, who were officers and representatives of the Palace Hotel
and not MHICL. Neither did respondent Santos adduce any proof that MHICL had the power to
control his conduct. Finally, it was the Palace Hotel, through Mr. Schmidt and not MHICL that
terminated respondent Santos' services.
Neither is there evidence to suggest that MHICL was a "labor-only contractor." There is
no proof that MHICL "supplied" respondent Santos or even referred him for employment to the
Palace Hotel.
Likewise, there is no evidence to show that the Palace Hotel and MHICL are one and the
same entity. The fact that the Palace Hotel is a member of the "Manila Hotel Group" is not
enough to pierce the corporate veil between MHICL and the Palace Hotel.
WHEREFORE, the Court hereby GRANTS the petition for certiorari and ANNULS the
orders and resolutions of the National Labor Relations Commission

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PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT CORPORATION vs.

ANDRADA ELECTRIC & ENGINEERING COMPANY
G.R. No. 142936 April 17, 2002
FACTS:
In its complaint, Andrada Electric & Engineering Company alleged that it is a partnership
duly organized, existing, and operating under the laws of the Philippines, while PNB, is a semi-
government corporation duly organized, existing and operating under the laws of the Philippines;
whereas, the other defendant, the National Sugar Development Corporation (NASUDECO in
brief), is also a semi-government corporation and the sugar arm of the PNB; and the defendant
Pampanga Sugar Mills (PASUMIL in short), is a corporation organized, existing and operating
under the 1975 laws of the Philippines; that the plaintiff is engaged in the business of general
construction for the repairs and/or construction of different kinds of machineries and buildings;
that on August 26, 1975, the defendant PNB acquired the assets of the defendant PASUMIL that
were earlier foreclosed by the DBP; that the defendant PNB organized the defendant
NASUDECO in September, 1975, to take ownership and possession of the assets and ultimately
to nationalize and consolidate its interest in other PNB controlled sugar mills; that prior to
October 29, 1971, the defendant PASUMIL engaged the services of plaintiff for electrical
rewinding and repair, most of which were partially paid by the defendant PASUMIL, leaving
several unpaid accounts with the plaintiff; that finally, on October 29, 1971, the plaintiff and the
defendant PASUMIL entered into a contract for the plaintiff to perform obligations.
That out of the total obligation of P777,263.80, the defendant PASUMIL had paid
only P250,000.00, leaving an unpaid balance amounting to P527,263.80 the defendant
PASUMIL made a partial payment to the plaintiff of P14,000.00, in broken amounts, covering
the period from January 5, 1974 up to May 23, 1974, leaving an unpaid balance of P513,263.80;
that the defendant PASUMIL and the defendant PNB, and now the defendant NASUDECO,
failed and refused to pay the plaintiff their just, valid and demandable obligation; that the
President of the NASUDECO is also the Vice-President of the PNB and plaintiff besought this
official to pay the outstanding obligation of the defendant PASUMIL, inasmuch as the defendant
PNB and NASUDECO now owned and possessed the assets of the defendant PASUMIL, and
these defendants all benefited from the works, and the electrical, as well as the engineering and
repairs, performed by the plaintiff; that because of the failure and refusal of the defendants to pay
their just, valid, and demandable obligations, plaintiff suffered actual damages in the total
amount of P513,263.80; and that in order to recover these sums, the plaintiff was compelled to
engage the professional services of counsel, to whom the plaintiff agreed to pay a sum equivalent
to 25% of the amount of the obligation due by way of attorneys fees.
The trial court and the Court of Appeals decided against PNB, NASUDECO and
PASUMIL. Hence, this petition.
ISSUE:
Is the Doctrine of piercing the veil of corporate fiction applicable in this case?
RULING:

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Equally well-settled is the principle that the corporate mask may be removed or the
corporate veil pierced when the corporation is just an alter ego of a person or of another
corporation. For reasons of public policy and in the interest of justice, the corporate veil will
justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed
against third persons.
Hence, any application of the doctrine of piercing the corporate veil should be done with
caution. A court should be mindful of the milieu where it is to be applied. It must be certain that
the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed
against another, in disregard of its rights. The wrongdoing must be clearly and convincingly
established; it cannot be presumed. Otherwise, an injustice that was never unintended may result
from an erroneous application.
This Court has pierced the corporate veil to ward off a judgment credit, to avoid inclusion
of corporate assets as part of the estate of the decedent, to escape liability arising from a debt or
to perpetuate fraud and/or confuse legitimate issues either to promote or to shield unfair
objectives or to cover up an otherwise blatant violation of the prohibition against forum-
shopping. Only in these and similar instances may the veil be pierced and disregarded.
Piercing the veil of corporate fiction may be allowed only if the following elements
concur: (1) control -- not mere stock control, but complete domination -- not only of finances,
but of policy and business practice in respect to the transaction attacked, must have been such
that the corporate entity as to this transaction had at the time no separate mind, will or existence
of its own; (2) such control must have been used by the defendant to commit a fraud or a wrong
to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust
act in contravention of plaintiffs legal right; and (3) the said control and breach of duty must
have proximately caused the injury or unjust loss complained of.
We believe that the absence of the foregoing elements in the present case precludes the
piercing of the corporate veil. First, other than the fact that petitioners acquired the assets of
PASUMIL, there is no showing that their control over it warrants the disregard of corporate
personalities. Second, there is no evidence that their juridical personality was used to commit a
fraud or to do a wrong; or that the separate corporate entity was farcically used as a mere alter
ego, business conduit or instrumentality of another entity or person. Third, respondent was not
defrauded or injured when petitioners acquired the assets of PASUMIL.
Being the party that asked for the piercing of the corporate veil, respondent had the
burden of presenting clear and convincing evidence to justify the setting aside of the separate
corporate personality rule. However, it utterly failed to discharge this burden; it failed to
establish by competent evidence that petitioners separate corporate veil had been used to conceal
fraud, illegality or inequity.

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LIM. vs. COURT OF APPEALS

G.R. No. 124795 January 24, 2000

FACTS:
Petitioner Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim whose estate is
the subject of probate proceedings. Private respondents Auto Truck Corporation, Alliance
Marketing Corporation, Speed Distributing, Inc., Active Distributing, Inc. and Action Company
are corporations formed, organized and existing under Philippine laws and which owned real
properties covered under the Torrens system. Private respondent corporations, whose properties
were included in the inventory of the estate of Pastor Y. Lim, then filed a motion for the lifting
of lis pendens and motion for exclusion of certain properties from the estate of the decedent.
ISSUES:
Can the respondent corporation’s properties be included from the inventory of the estate
subject for probate?
RULING:
No. Inasmuch as the real properties included in the inventory of the estate of the Late
Pastor Y. Lim are in the possession of and are registered in the name of private respondent
corporations, which under the law possess a personality separate and distinct from their
stockholders, and in the absence of any cogency to shred the veil of corporate fiction, the
presumption of conclusiveness of said titles in favor of private respondents should stand
undisturbed. Accordingly, the probate court was remiss in denying private respondents' motion
for exclusion. While it may be true that the Regional Trial Court, acting in a restricted capacity
and exercising limited jurisdiction as a probate court, is competent to issue orders involving
inclusion or exclusion of certain properties in the inventory of the estate of the decedent.
It is settled that a corporation is clothed with personality separate and distinct from that of
the persons composing it. It may not generally be held liable for that of the persons composing it.
It may not be held liable for the personal indebtedness of its stockholders or those of the entities
connected with it. Rudimentary is the rule that a corporation is invested by law with a personality
distinct and separate from its stockholders or members. In the same vein, a corporation by legal
fiction and convenience is an entity shielded by a protective mantle and imbued by law with a
character alien to the persons comprising it. The corporate mask may be lifted and the corporate
veil may be pierced when a corporation is just but the alter ego of a person or of another
corporation. Where badges of fraud exist, where public convenience is defeated; where a wrong
is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to
naught.
Further, the test in determining the applicability of the doctrine of piercing the veil of
corporate fiction is as follows: 1) Control, not mere majority or complete stock control, but
complete domination, not only of finances but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to this transaction had at the time no separate

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mind, will or existence of its own; (2) Such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or
dishonest and unjust act in contravention of plaintiffs legal right; and (3) The aforesaid control
and breach of duty must proximately cause the injury or unjust loss complained of. The absence
of any of these elements prevent "piercing the corporate veil". Mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation is
not of itself a sufficient reason for disregarding the fiction of separate corporate personalities.
Moreover, to disregard the separate juridical personality of a corporation, the wrong-doing must
be clearly and convincingly established. It cannot be presumed.

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FRANCISCO MOTORS CORPORATION v. COURT OF APPEALS

and SPOUSES GREGORIO and LIBRADA MANUEL
G.R. No. 100812 June 25, 1999

FACTS:

Petitioner Francisco Motors Corporation filed a complaint against private respondents to

recover the unpaid balance of the jeepney bought by the Manuels from petitioner.

In their answer, private respondents interposed a counterclaim for unpaid legal services
by Gregorio Manuel which was not paid by the incorporators, directors and officers of the
petitioner. Manuel alleged as an affirmative defense that, while he was petitioners Assistant
Legal Officer, he represented members of the Francisco family in the intestate estate proceedings
of the late Benita Trinidad. However, even after the termination of the proceedings, his services
were not paid. Said family members, he said, were also incorporators, directors and officers of
petitioner. Hence to counter petitioner’s collection suit, he filed a permissive counterclaim for
the unpaid attorney’s fees.

On the other hand, petitioner argued that being a corporation, it should not be held liable
therefor because these fees were owed by the incorporators, directors and officers of the
corporation in their personal capacity as heirs of Benita Trinidad. Petitioner stressed that the
personality of the corporation, vis--vis the individual persons who hired the services of private
respondent, is separate and distinct, hence, the liability of said individuals did not become an
obligation chargeable against petitioner.

The trial court decided the case in favor of petitioner regarding the petitioners claim for
money, but also allowed the counter-claim of private respondents. Both parties appealed. The
Court of Appeals, applying the doctrine of piercing the veil of corporate fiction, sustained the
trial court’s decision.

ISSUE:

Should petitioner corporation be held liable for the liability incurred by its directors and
officers in their personal capacity?

RULING:

No, the corporation should not be held liable in this case.

Basic in corporation law is the principle that a corporation has a separate personality
distinct from its stockholders and from other corporations to which it may be
connected. However, under the doctrine of piercing the veil of corporate entity, the corporations
separate juridical personality may be disregarded, for example, when the corporate identity is
used to defeat public convenience, justify wrong, protect fraud, or defend crime. Also, where the
corporation is a mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an instrumentality,

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agency, conduit or adjunct of another corporation, then its distinct personality may be ignored. In
these circumstances, the courts will treat the corporation as a mere aggrupation of persons and
the liability will directly attach to them. The legal fiction of a separate corporate personality in
those cited instances, for reasons of public policy and in the interest of justice, will be justifiably
set aside.

In our view, however, given the facts and circumstances of this case, the doctrine of
piercing the corporate veil has no relevant application here. The rationale behind piercing a
corporation’s identity in each case is to remove the barrier between the corporation from the
persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate
personality as a shield for undertaking certain proscribed activities.

However, in the case at bar, instead of holding certain individuals or persons responsible
for an alleged corporate act, the situation has been reversed. It is the petitioner as a corporation
which is being ordered to answer for the personal liability of certain individual directors, officers
and incorporators concerned. Hence, it appears to us that the doctrine has been turned upside
down because of its erroneous invocation.

The personality of the corporation and those of its incorporators, directors and officers in
their personal capacities ought to be kept separate in this case. The claim for legal fees against
the concerned individual incorporators, officers and directors could not be properly directed
against the corporation without violating basic principles governing corporations. Moreover,
every action including a counterclaim must be prosecuted or defended in the name of the real
party in interest. It is plainly an error to lay the claim for legal fees of private respondent
Gregorio Manuel at the door of petitioner (FMC) rather than individual members of the
Francisco family.

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COMPLEX ELECTRONICS EMPLOYEES ASSOCIATION (CEEA) represented by its union

president CECILIA TALAVERA, GEORGE ARSOLA, MARIO DIAGO AND SOCORRO
BONCAYAO, vs. THE NATIONAL LABOR RELATIONS COMMISSION, et. al.
G.R. No. 121315 July 19, 1999

FACTS:

Complex was engaged in the manufacture of electronic products. It was actually a

subcontractor of electronic products where its customers gave their job orders, sent their own
materials and consigned their equipment to it. The customers were foreign-based companies with
different product lines and specifications requiring the employment of workers with specific
skills for each product line. The rank and file workers of Complex were organized into a union
known as the Complex Electronics Employees Association, herein referred to as the Union.
Complex received a facsimile message from Lite-On Philippines Electronics Co., requiring it to
lower its price by 10%. Complex informed its Lite-On personnel that such request of lowering
their selling price by 10% was not feasible as they were already incurring losses at the present
prices of their products. Under such circumstances, Complex regretfully informed the employees
that it was left with no alternative but to close down the operations of the Lite-On Line. The
Union, on the other hand, pushed for a retrenchment pay equivalent to one month salary for
every year of service, which Complex refused. In the evening of April 6, 1992, the machinery,
equipment and materials being used for production at Complex were pulled-out from the
company premises and transferred to the premises of Ionics Circuit, Inc. at Cabuyao, Laguna.
The following day, a total closure of company operation was effected at Complex. A complaint
was, thereafter, filed with the Labor Arbitration Branch of the NLRC for unfair labor practice,
illegal closure/illegal lockout, money claims for vacation leave, sick leave, unpaid wages, 13th
month pay, damages and attorney's fees. The Union alleged that the pull-out of the machinery,
equipment and materials from the company premises, which resulted to the sudden closure of the
company was in violation of Section 3 and 8, Rule XIII, Book V of the Labor Code of the
Philippines and the existing CBA. Ionics was impleaded as a party defendant because the
officers and management personnel of Complex were also holding office at Ionics with
Lawrence Qua as the President of both companies.

The Labor Arbiter rendered a decision ordering the respondent Complex and/or Ionics
and/or Lawrence Qua, to reinstate the 531 above-listed employees to their former position with
all the rights, privileges and benefits appertaining thereto, and to pay said complainants-
employees the aggregate backwages until their actual reinstatement. Separate appeals were filed
by Complex, Ionics and Lawrence Qua before the respondent NLRC which rendered the
questioned decision ordering Complex Electronics Corporation to pay 531 complainants
equivalent to one month pay in lieu of notice and separation pay equivalent to one month pay for
every year of service and a fraction of six months considered as one whole year while Ionics
Circuit Incorporated and Lawrence Qua are ordered excluded as parties solidarily liable with
Complex Electronics Corporation. Hence, this petition

ISSUE:

Is there ground to pierce the veil of corporate fiction?

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RULING:

There is none. The mere fact that one or more corporations are owned or controlled by
the same or single stockholder is not a sufficient ground for disregarding separate corporate
personalities. Ionics may be engaged in the same business as that of Complex, but this fact alone
is not enough reason to pierce the veil of corporate fiction of the corporation. Well-settled is the
rule that a corporation has a personality separate and distinct from that of its officers and
stockholders. This fiction of corporate entity can only be disregarded in certain cases such as
when it is used to defeat public convenience, justify wrong, protect fraud, or defend crime. To
disregard said separate juridical personality of a corporation, the wrongdoing must be clearly and
convincingly established.

As to the additional documentary evidence which consisted of a newspaper clipping filed

by petitioner Union, the Court agrees with Ionics that the photo/newspaper clipping itself does
not prove that Ionics and Complex are one and the same entity. The photo/newspaper clipping
merely showed that some plants of Ionics were recertified to ISO 9002 and does not show that
there is a relation between Complex and Ionics except for the fact that Lawrence Qua was also
the president of Ionics. However, as we have stated above, the mere fact that both of the
corporations have the same president is not in itself sufficient to pierce the veil of corporate
fiction of the two corporations.

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AZCOR MANUFACTURING vs. NATIONAL LABOR RELATIONS COMMISSION

G.R. No. 117963 February 11, 1999

FACTS:
Candido Capulso filed an illegal dismissal case before the Labor Arbiter against Azcor
Manufacturing. Azcor filed a motion to dismiss the complaint alleging that there was no
employer-employee relationship between Azcor and Capulso; that Capuslo was an employee of
Filipinas Paso who voluntarily resigned from the company.
The Labor Arbiter denied the motion to dismiss and ordered for the presentation of
evidence by both parties. The Labor Arbiter ordered the dismissal of the complaint but orders
Azcor to refund to Capulso the amount of P200.00 representing the amount illegally deducted
from his salary.
On appeal the NLRC modified the decision of the Labor Arbiter, the petitioner filed a
motion for reconsideration but was denied thus, the present petition.
ISSUE:
Was the veil of corporate fiction pierced by the court that made Azcor liable for
backwages?
RULING:
Yes, the Doctrine that a corporation is a legal entity or a person in law distinct from the
persons composing it is merely a legal fiction for purposes of convenience and to subserve the
ends of justice. This fiction cannot be extend to a point beyond its reason and policy. Where, as
in this case, the corporate fiction was used as a means to perpetrate a social injustice or as a
vehicle to evade obligations or confuse the legitimate issues, it would be discarded and the two
corporations would be merged as one, the first being merely considered as the instrumentality,
agency, conduit or adjunct of the other.
We see in the totality of the evidence a veiled attempt by petitioners to deprive Capulso
of what he had earned through hard labor by taking advantage of his low level of education and
confusing him as to who really was his true employer such a callous and despicable treatment of
a worker who had rendered faithful service to their company.

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SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC. vs. COURT OF APPEALS,
MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP.
and JNM REALTY AND DEVELOPMENT CORP.
G.R. No. 129459 September 29, 1998

FACTS:
In 1989, San Juan Structural and Steel Fabricators, Inc. (San Juan) entered into an
agreement with Motorich Sales Corporation for the transfer to it of a parcel of land, through the
latter’s treasurer, Nenita Lee Gruenberg. The subject of the sale was a parcel of land owned by
Motorich. In the said agreement, San Juan advanced P100,000 to Nenita as downpayment and
the balance to be paid on or before March 2, 1989.
On March 1, 1989, Mr. Andres T. Co, president of San Juan requesting for a computation
of the balance to be paid to Motorich broker Linda Aduca. The following day, SanJuan was
ready with the amount corresponding to the balance but Nenita did not show up to deliver the
title. Despite demand by San Juan, Motorich refused to execute the Transfer of Rights/Deed of
Assignment which is necessary to transfer the certificate of title hence San Juan sued Motorich.
ACL Development Corp and JNM Realty & Development Corp were impleaded as necessary
party thereto. Reason behind is that the certificate of title is still in the name of ACL and JNM is
the transferor of right in favor of Motorich.

On April 6, 1989: ACL and Motorich entered into a Deed of Absolute Sale .The Registry
of Deeds of Quezon City issued a new title in the name of Motorich Sales Corporation,
represented by Nenita Lee Gruenberg and Reynaldo L. Gruenberg, under Transfer Certificate of
Title No. 3571. As a result of Nenita Lee Gruenberg and Motorich's bad faith in refusing to
execute a formal Transfer of Rights/Deed of Assignment, San Juan suffered moral and nominal
damages of P500,000 and exemplary damages of P100,000.00 and P100,000 attorneys fees. San
Juan lost the opportunity to construct a residential building in the sum of P100,000.00 Pesos

Motorich, in its defense, argued that it is not bound by the acts of its treasurer, Nenita,
since her act in contracting with San Juan was not authorized by the corporate board. San Juan
raised the issue that Nenita was actually the wife of the President of Motorich, Mr. Reynaldo
Gruenberg. It argued that the corporate veil may be properly pierced. Since "Spouses Reynaldo
L. Gruenberg and Nenita R. Gruenberg owned all or almost all or 99.866% to be accurate, of the
subscribed capital stock" of Motorich, San Juan argues that Gruenberg needed no authorization
from the board to enter into the subject contract. That being solely owned by the Spouses
Gruenberg, the company can treated as a close corporation which can be bound by the acts of its
principal stockholder who needs no specific authority.

ISSUE:
May the veil of corporate fiction be pierced on the mere ground that almost all of the
shares of stock of the corporation are owned by treasurer and her husband

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RULING:
No. First, petitioner itself concedes having raised the issue belatedly, not having done so
during the trial, but only when it filed its sur-rejoinder before the Court of Appeals. Thus, this
Court cannot entertain said issue at this late stage of the proceedings. It is well-settled that points
of law, theories and arguments not brought to the attention of the trial court need not be, and
ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time
on appeal. Allowing petitioner to change horses in midstream, as it were, is to run roughshod
over the basic principles of fair play, justice and due process.
Second, even if the above-mentioned argument were to be addressed at this time, the Court
still finds no reason to uphold it. True, one of the advantages of a corporate form of business
organization is the limitation of an investors liability to the amount of the investment. This
feature flows from the legal theory that a corporate entity is separate and distinct from its
stockholders. However, the statutorily granted privilege of a corporate veil may be used only for
legitimate purposes. On equitable considerations, the veil can be disregarded when it is utilized
as a shield to commit fraud, illegality or inequity; defeat public convenience; confuse legitimate
issues; or serve as a mere alter ego or business conduit of a person or an instrumentality, agency
or adjunct of another corporation.
Thus, the Court has consistently ruled that [w]hen the fiction is used as a means of
perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievement or perfection of a monopoly or generally the
perpetration of knavery or crime, the veil with which the law covers and isolates the corporation
from the members or stockholders who compose it will be lifted to allow for its consideration
merely as an aggregation of individuals.
The court stress that the corporate fiction should be set aside when it becomes a shield
against liability for fraud, illegality or inequity committed on third persons. The question of
piercing the veil of corporate fiction is essentially, then, a matter of proof. In the present case,
however, the Court finds no reason to pierce the corporate veil of Respondent
Motorich. Petitioner utterly failed to establish that said corporation was formed, or that it is
operated, for the purpose of shielding any alleged fraudulent or illegal activities of its officers or
stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense
of third persons, like petitioner.

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MATUGUINA INTEGRATED WOOD PRODUCTS, INC., vs. The HON. COURT OF APPEALS,
DAVAO ENTERPRISES CORPORATION
G.R. No. 98310 October 24, 1996

FACTS:

In 1973, a Provisional Timber License, covering an area of 5,400 hectares was issued to
Ms. Milagros Matuguina under her group Matuguina Logging Enterprises. MIWPI was
established in 1974 with 7 stockholders. Milagros Matuguina became the majority stockholder
later on. Milagros later petitioned to have MLE be transferred to MIWPI.

Pending approval of the request to transfer the PTL to MIWPI, DAVENCOR,

complained to the District Forester at Mati, Davao Oriental that Milagros Matuguina/MLE had
encroached into and was conducting logging operations in DAVENCOR's timber concession.

The Investigating Committee found MLE guilty as charged and had recommended the
Director to declare that MLE has done so. MLE appealed the case to the Ministry of Natural
Resources. During pendency, Milagrosa withdrew her shares from MIWPI. Later, MNR
Minister Ernesto Maceda found MLE guilty as charged. Pursuant to the finding, DAVENCOR
and Philip Co requested Maceda to order MLE and/or MIWPI to comply with the ruling to pay
for the value of the timbers.

The Minister then issued a writ of execution against MIWPI. MIWPI filed a petition for
prohibition before the Davao RTC. The RTC ruled in favor of MIWPI and has ordered to enjoin
the Minister from pursuing the execution of the writ. DAVENCOR appealed and the CA
reversed the ruling of the RTC. MIWPI averred that it is not a party to the original case (as it was
MLE that was sued – a separate entity). That the issuance of the order of execution by the
Minister has been made not only without or in excess of his authority but that the same was
issued patently without any factual or legal basis, hence, a gross violation of MIWPI’s
constitutional rights under the due process clause.

ISSUE:

Whether or not MIWPI’s right to due process has been violated.

RULING:

The SC ruled in favor of MIWPI. The generally accepted principle is that no man shall be
affected by any proceeding to which he is a stranger, and strangers to a case not bound by
judgment rendered by the court. In the same manner an execution can be issued only against a
party and not against one who did not have his day in court. There is no basis for the issuance of
the Order of Execution against the MIWPI. The same was issued without giving MIWPI an
opportunity to defend itself and oppose the request of DAVENCOR for the issuance of a writ of
execution against it. In fact, it does not appear that MIWPI was at all furnished with a copy of
DAVENCOR’s letter requesting for the Execution of the Minister’s decision against it. MIWPI

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was suddenly made liable upon the order of execution by the respondent Secretary’s expedient
conclusions that MLE and MIWPI are one and the same, apparently on the basis merely of
DAVENCOR’s letter requesting for the Order, and without hearing or impleading MIWPI. Until
the issuance of the Order of execution, MIWPI was not included or mentioned in the proceedings
as having any participation in the encroachment in DAVENCOR’s timber concession. This
action of the Minister disregards the most basic tenets of due process and elementary fairness.

The liberal atmosphere which pervades the procedure in administrative proceedings does
not empower the presiding officer to make conclusions of fact before hearing all the parties
concerned.

In sum, the Court makes the following pronouncements:

(a) The respondent Honorable Minister of Natural Resources gravely abused its discretion when
it issued its Order of Execution including therein as one of the parties liable the petitioner
Matuguina Integrated Wood Products, Inc., which was never a party to the assailed proceeding
resulting in the issuance of such Order and, without affording the same an opportunity to be
heard before it was adjudged liable.

(b) The petitioner is a corporate entity separate and distinct from Milagros Matuguina/Matuguina
Logging Enterprises, there being no clear basis for considering it as a mere conduit or alter ego
of Matuguina/MLE, and therefore, cannot be made liable for the obligations of the same for
encroachment over the timber concession of private respondent DAVENCOR.

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SOL LAGUIO, RENE LAOLAO, ANNALIZA ENSANDO, EDELIZA ASAS, LILIA MARAY, EVELYN
UNTALAN,* ROSARIO CHICO, REYNALDO GARCIA, MERLITA DE LOS SANTOS,* JOSEPHINE
DERONG,* GEMMA TIBALAO BANTOLO, LUCY ALMONTE,* CRISPINA VANQUARDIA,
NARCISA VENZON, NORMA ELEGANTE,* AMELIA MORENO,* ABNER PETILOS, NARCISO
HILAPO, DOLORES OLAES, MELINDA LLADOC, ERNA AZARCON, and APRIL TOY, INC.
WORKERS UNION – ALAB vs. NATIONAL LABOR RELATIONS COMMISSION, WELL WORLD
TOYS, INC., APRIL TOYS, INC., YU SHENG LING, JENN L. WANG, EUCLIFF CHENG, CHI
SHENG LIN, NENITA C. AGUIRRE, MA. THERESA R. CADIENTE and GLICERIA R. AGUIRRE
G.R. No. 108936 October 4, 1996

FACTS:

Private respondent April Toy, Inc. is a domestic corporation, for the purpose of
"manufacturing, importing, exporting, buying , selling, sub-contracting or otherwise dealing in,
at wholesale and retail," stuffed toys. On December 20, 1989, or after almost a year of operation,
April posted a memorandum 2 within its premises and circulated a copy of the same among its
employees informing them of its dire financial condition. April decided to shorten its corporate
term "up to February 28, 1990,”
In view of April's cessation of operations, petitioners who initially composed of seventy-
seven employees below filed a complaint for "illegal shutdown/retrenchment/dismissal and
unfair labor practice." On June 21, 1990, petitioners amended their complaint to implead private
respondent Well World Toys, Inc. (Well World for brevity), a corporation also engaged in the
manufacture of stuffed toys for export.
Petitioners further alleged that the original incorporators and principal officers of April
were likewise the original incorporators of Well World, thus both corporations should be treated
as one corporation liable for their claims. The Labor Arbiter found as valid the closure of April,
and treated April and Well World as two distinct corporations.

ISSUE:

Whether or not April and Well World two distinct corporations.

RULING:

YES. The two corporations have two different set of officers managing their respective
affairs in two separate offices. 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. Mere substantial identity of the incorporators of the two
corporations does not necessarily imply fraud, 15 nor warrant the piercing of the veil of
corporate fiction. In the absence of clear and convincing evidence that April and Well World's
corporate personalities were used to perpetuate fraud, or circumvent the law said corporations
were rightly treated as distinct and separate from each other.

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CONCEPT BUILDERS, INC. vs. THE NATIONAL LABOR RELATIONS COMMISSION, (First
Division) et al.
G.R. No. 108734 May 29, 1996

FACTS:

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

business employed Private respondents as laborers, carpenters and riggers. After the project in
which they were hired had been completed, they were served individual written notices
of termination of employment by petitioner stating that their contracts of employment had
expired. Public respondent found it to be, the fact, however, that at the time of the termination of
private respondent's employment, the project in which they were hired had not yet been finished
and completed. Petitioner had to engage the services of sub-contractors whose workers
performed the functions of private respondents.

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 petitioner. The Labor Arbiter rendered judgment ordering petitioner to reinstate private
respondents and to paythem back wages equivalent to one year or three hundred working
days.The National Labor Relations Commission (NLRC) dismissed the motion for
reconsideration filed by petitioner on theground that the said decision had already become final
and executory. The Labor Arbiter issued awrit of execution and was partially satisfied through
garnishment of sums from petitioner's debtor,the Metropolitan Waterworks and Sewerage
Authority with the amount turned over to the cashier of the NLRC. As to the balance of the
award, two alias writs of execution were issued but to no availsince the properties stated were
alleged to be owned by another corporation, of Hydro Pipes Philippines, Inc. (HPPI).

In the light of such circumstances, a "break-open order was issued in spite of a third-party
claim filed Dennis Cuyegkeng in behalf of HPPI. It was alleged that HPPI and petitioner
corporation were owned by the same incorporator/stockholders. They also alleged that petitioner
temporarily suspended its business operations in order to evade its legal obligations to them and
that private respondents were willing to post an indemnity bond to answer for any damages
which petitioner and HPPI may suffer because of the issuance of the break-open
order. Issue: Whether the National Labor Relations Commission committed grave abuse of
discretion when it issued a "break-open order" to the sheriff to be enforced against personal
property found in the premises of petitioner's sister company.

ISSUE:

Did NLRC commit a grave abuse of discretion when it ordered the execution of its
decision despite a third-party claim on the levied property, thus the doctrine of piercing the
corporate veil should not have been applied?

RULING:

The Court finds petitioners contention to be unmeritorious.

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It is a fundamental principle of corporation law that a corporation is an entity separate

and distinct from its stockholders and from other corporations to which it may be connected. But,
this separate and distinct personality of a corporation is merely a fiction created by law for
convenience and to promote justice. So, when the notion of separate juridical personality is used
to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device
to defeat the labor laws, this separate personality of the corporation may be disregarded or the
veil of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct,
a business conduit or an alter ego of another corporation.

The conditions under which the juridical entity may be disregarded vary according to the
peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down,
but certainly, there are some probative factors of identity that will justify the application of the
doctrine of piercing the corporate veil, to wit:

1. Stock ownership by one or common ownership of both corporations.

2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.

The test in determining the applicability of the doctrine of piercing the veil of corporate
fiction is as follows:
1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.

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

Clearly, petitioner ceased its business operations in order to evade the payment to private
respondents of backwages and to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of petitioner-corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to petitioner-corporation. It is
very obvious that the second corporation seeks the protective shield of a corporate fiction whose
veil in the present case could, and should, be pierced as it was deliberately and maliciously
designed to evade its financial obligation to its employees.

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Furthermore, our perusal of the records shows that the twin requirements of due notice
and hearing were complied with. Petitioner and the third-party claimant were given the
opportunity to submit evidence in support of their claim.

Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the
break-open order issued by the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial
agencies supported by substantial evidence are binding on this Court and are entitled to great
respect, in the absence of showing of grave abuse of discretion.

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FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) vs.
COURT OF APPEALS
G.R. No. 115849 January 24, 1996
FACTS:

Producer Bank of the Philippines acquired 6 parcels of land at Laguna. The property used
to be owned by BYME Corporation which was mortgaged as collateral for a loan. Demetrio
Demetria and Jose O. Janolo wanted to purchase the property and thus initiated negotiations for
that purpose. Demetria and Janolo met with Mercurio Rivera, Manager of the Bank to discuss
their plan to buy the property. Thereafter, they had a series of letters where parties accepted the
offer of Demetria and Janolo. Later, the conservator of the bank (which has been placed under
conservatorship by the Central Bank since 1984) was replaced by Leonida Encarnacionas
wherein she 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. Demetria and Janolo
sued Producers Bank, its Manager Rivera and Acting Conservator Encarnacion. The regional
trial court ruled in favor of Demetria et al. The Bank filed an appeal with the Court of Appeals.
In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted
in place of Demetria and Janolo. During the pendency of the proceedings in the Court of
Appeals, Henry Co and several other stockholders of the Bank, filed an action (hereafter, the
Second Case) -purportedly a derivative suit - with the RTC against Encarnacion, Demetria and
Janolo to declare any perfected sale of the property as unenforceable and to stop Ejercito from
enforcing or implementing the sale.
ISSUE:
Whether or not corporate veil can be used to shield a blatant violation of the prohibition
against forum-shopping
RULING:
No. Petitioner tried to seek refuge in the corporate fiction that the personality of the Bank
is separate and distinct from its shareholders. But the rulings of this Court are consistent: When
the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of
a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers
and isolates the corporation from the members or stockholders who compose it will be lifted to
allow for its consideration merely as an aggregation of individuals.
In addition to the many cases where the corporate fiction has been disregarded, we now
add 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 actions 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
emedies 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.

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FRANCISCO V. DEL ROSARIO vs. NATIONAL LABOR RELATIONS COMMISSION and

LEONARDO V. ATIENZA
G.R. No. 85416 July 24, 1990

FACTS:

POEA promulgated a decision dismissing the complaint for money claims for lack of
merit. The decision was appealed to the NLRC which reversed the POEA decision and ordered
Philsa Construction and Trading Co., Inc. (the recruiter) and Arieb Enterprises (the foreign
employer) to jointly and severally pay private respondent the peso equivalent of $16,039.00, as
salary differentials, and $2,420.03, as vacation leave benefits.

The case was elevated to the SC but was dismissed.

A writ of execution was issued by the POEA but it was returned unsatisfied as Philsa was
no longer operating and was financially incapable of satisfying the judgment. Private respondent
moved for the issuance of an alias writ against the officers of Philsa.

The motion was opposed by the officers, led by petitioner, the president and general
manager of the corporation. Petitioner appealed to the NLRC. On September 23, 1988, the
NLRC dismissed the appeal.

After considering the undisputed facts and the arguments raised in the pleadings, the
Court finds grave abuse of discretion on the part of the NLRC.

ISSUE:

Whether the NLRC's reliance on the findings of the POEA is justified.

RULING:

No. NLRC's reliance on the findings of the POEA and the ruling in A. C. Ransom is
totally misplaced.

Under the law a corporation is bestowed juridical personality, separate and distinct from
its stockholders. But when the juridical personality of the corporation is used to defeat public
convenience, justify wrong, protect fraud or defend crime, the corporation shall be considered as
a mere association of persons.

But for the separate juridical personality of a corporation to be disregarded, the

wrongdoing must be clearly and convincingly established. It cannot be presumed.

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The NLRC's decision wanting. The conclusion that Philsa allowed its license to expire so
as to evade payment of private respondent's claim is not supported by the facts. Philsa's corporate
personality therefore remains inviolable.

Likewise, substantial identity of the incorporators of the two corporations does not
necessarily imply fraud.

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DELPHER TRADES CORPORATION, and DELPHIN PACHECO vs. INTERMEDIATE APPELLATE

COURT and HYDRO PIPES PHILIPPINES, INC.
G.R. No. L-69259 January 26, 1988

FACTS:
Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters
of real estate. The said co-owners leased to Construction Components International Inc. the same
property and providing that during the existence or after the term of this lease the lessor should
he decide to sell the property leased shall first offer the same to the lessee and the letter has the
priority to buy under similar conditions. Lessee Construction Components International, Inc.
assigned its rights and obligations under the contract of lease in favor of Hydro Pipes
Philippines, Inc. A deed of exchange was executed between lessors Delfin and Pelagia Pacheco
and defendant Delpher Trades Corporation.
The corporation was organized by the children of the two spouses Pelagia Pacheco and
Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles who owned in common the
parcel of land leased to Hydro Pipes Philippines in order to perpetuate their control over the
property through the corporation and to avoid taxes. Two pieces of real estate which had been
leased to Hydro Pipes Philippines were transferred to the corporation by virtue of a deed of
exchange of property. In exchange for these properties, Pelagia and Delfin acquired 2,500
unissued no par value shares of stock which are equivalent to a 55% majority in the corporation
because the other owners only owned 2,000 shares. and He knew all about the contract of lease
of Lot. No. 1095 to Hydro Pipes Philippines at the time of incorporation. In the petitioners'
motion for reconsideration, they refer to this scheme as "estate planning."
The petitioners contend that there was actually no transfer of ownership of the subject
parcel of land since the Pachecos remained in control of the property. The transfer of ownership,
if anything, was merely in form but not in substance. In reality, petitioner corporation is a mere
alter ego or conduit of the Pacheco co-owners; hence the corporation and the co-owners should
be deemed to be the same, there being in substance and in effect an Identity of interest.
The private respondent argues that Delpher Trades Corporation is a corporate entity
separate and distinct from the Pachecos. Thus, it contends that it cannot be said that Delpher
Trades Corporation is the Pacheco's same alter ego. It maintains that there was actual transfer of
ownership interests over the leased property when the same was transferred to Delpher Trades
Corporation in exchange for the latter's shares of stock.
ISSUE:
Was the petitioner corporation a mere alter ego of the Pacheco co-owners?
RULING:

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Yes. In the case at bar, in exchange for their properties, the Pachecos acquired 2,500
original unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently,
the Pachecos became stockholders of the corporation by subscription "The essence of the stock
subscription is an agreement to take and pay for original unissued shares of a corporation,
formed or to be formed.
The records do not point to anything wrong or objectionable about this "estate planning"
scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of
what otherwise could be his taxes or altogether avoid them, by means which the law permits,
cannot be doubted."
The "Deed of Exchange" of property between the Pachecos and Delpher Trades
Corporation cannot be considered a contract of sale. There was no transfer of actual ownership
interests by the Pachecos to a third party. The Pacheco family merely changed their ownership
from one form to another. The ownership remained in the same hands. Hence, the private
respondent has no basis for its claim of a light of first refusal under the lease contract.
WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and
resolution of the then Intermediate Appellate Court are REVERSED and SET ASIDE. The
amended complaint in Civil Case No. 885-V-79 of the then Court of First Instance of Bulacan is
DISMISSED. No costs.

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ADELIO C. CRUZ vs. QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila

Adm. Matter No. R-181-P July 31, 1987

FACTS:
Delio C. Cruz charged Quiterio L. Dalisay, Senior Deputy Sheriff of Manila, with
"malfeasance in office, corrupt practices and serious irregularities" allegedly committed by
attaching or levying the money belonging to complainant Cruz when he was not himself the
judgment debtor in the case but rather the company known as “Qualitrans Limousine Service,
Inc.” a duly registered corporation.
Respondent Dalisay explained that when he garnished complainant's cash deposit at the
Philtrust bank, he was merely performing a ministerial duty. While it is true that said writ was
addressed to Qualitrans Limousine Service, Inc., yet it is also a fact that complainant had
executed an affidavit before the Pasay City assistant fiscal stating that he is the owner/president
of said corporation and, because of that declaration, the counsel for the plaintiff in the labor case
advised him to serve notice of garnishment on the Philtrust bank.
ISSUE:
May Delio Cruz be considered as the judgment debtor and not the company Qualitrans
Limousine Service, Inc?
RULING:
No. Respondent Dalisay chose to "pierce the veil of corporate entity" usurping a power
belonging to the court and assumed improvidently that since the complainant is the
owner/president of Qualitrans Limousine Service, Inc., they are one and the same. It is a well-
settled doctrine both in law and in equity that as a legal entity, a corporation has a personality
distinct and separate from its individual stockholders or members. The mere fact that one is
president of a corporation does not render the property he owns or possesses the property of the
corporation, since the president, as individual, and the corporation are separate entities.

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EDUARDO CLAPAROLS, ROMULO AGSAM AND/OR CLAPAROLS STEEL AND NAIL PLANT VS.
COURT OF INDUSTRIAL RELATIONS, ALLIED WORKERS’ ASSOCIATION AND/OR DEMETRIO
GARLITOS, ALFREDO ONGSUCO, JORGE SEMILLANO, SALVADOR DOROTEO, ROSENDO
ESPINOSA, LUDOVICO BALOPENOS, ASER AMANCIO, MAXIMO QUIOYO, GAUDENCIO
QUIOYO, AND IGNACIO QUIOYO
G.R. No. L-30822 July 31, 1975
FACTS:
On August 6, 1957, a complaint for unfair labor practice was filed by the private respondents
Allied Workers’ Associations (AWA) and ten (10) workers against the petitioners on account of
their dismissal from Claparols Steel and Nail Plant (CSNP).
On September 16, 1963, the respondent Court of Industrial Relations (CIR) rendered its
decision finding “Mr. Claparols guilty of union busting and” of having “dismissed said
complainants because of their union activities,” and ordering “(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, the petitioners filed an opposition alleging that under the
circumstances presently engulfing the company, the petitioner Claparols could not personally
reinstate respondent workers and that since Claparols Steel and Nail Corporation (CSNC) ceased
to operate on December 7, 1962, re-employment of the respondent workers cannot go beyond
December 7, 1962.
A reply to the petitioner’s opposition was filed by the respondent workers, alleging among
others, that CSNP and CSNC are one and the same corporation controlled by the petitioner
Eduardo Claparols, with the latter corporation succeeding the former.
ISSUE:
Whether or not the doctrine of piercing the veil of corporate fiction is applicable
RULING:
The protective shield of a corporate fiction could, and should, be pierced as it was
deliberately and maliciously designed to evade its financial obligation to its employees.
The respondent CIR’s findings that indeed the CSNP, which ceased operation of June 30,
1957, was succeeded by the CSNC effective the next day, July 1, 1957 up to December 7, 1962,
when the latter finally ceased to operate, were not disputed by the petitioners. It is very clear that
the latter corporation was a continuation and successor of the former, and its emergence was
skillfully timed to avoid financial liability. Both predecessor 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 CSNC was owned by the petitioner Eduardo

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Claparols himself, and all the assets of the dissolved CSNP were turned over to the emerging
corporation.
Pursuant to Yutivo & Sons Hardware Company vs. Court of Tax Appeals (L-13203, Jan. 28,
1961, 1 SCRA 160), 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 or
persons, or, in the case of two corporations, will merge them into one.
Pursuant to Liddel & Company, Inc. vs. Collector of Internal Revenue (L-9687, June 30,
1961, 2 SCRA 632), where a corporation is a dummy and serves no business purpose and is
intended only as a blind, the corporate fiction may be ignored.
Pursuant to Commissioner of Internal Revenue vs. Norton and Harrison Company (L-17618,
Aug. 31, 1964, 11 SCRA 714), where a corporation is merely an adjunct, business conduit or
alter ego of another corporation, the fiction of separate and distinct corporate entities should be
disregarded.

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COMMISSIONER OF INTERNAL REVENUE VS. NORTON AND HARRISON COMPANY

G.R. NO. L-17618 AUGUST 31, 1964

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. 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. 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. In other words, the
Commissioner considered the sale of Norton to the public as the original sale and not the
transaction from Jackbilt. The Commissioner of Internal Revenue contends that since Jackbilt
was owned and controlled by Norton & Harrison, the 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 majority of the Tax Court, in relieving Norton & Harrison of liability under
the assessment. The law applicable to the case is Section 186 of the National Internal Revenue
Code which imposes a percentage tax of 7% on every original sale of goods, wares or
merchandise, such tax to be based on the gross selling price of such goods, wares or
merchandise. The term "original sale" has been defined as the first sale by every manufacturer,
producer or importer.
ISSUE:
Whether the acquisition of all the stocks of the Jackbilt by the Norton & Harrison Co.,
merged the two corporations into a single corporation
RULING:
It has been settled that the ownership of all the stocks of a corporation by another
corporation does not necessarily breed an identity of corporate interest between the two
companies and be considered as a sufficient ground for disregarding the distinct personalities.

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However, in the case at bar, we find sufficient grounds to support the theory that the
separate identities of the two companies should be disregarded. Among these circumstances,
which we find not successfully refuted by appellee Norton are: (a) Norton and Harrison owned
all the outstanding stocks of Jackbilt; of the 15,000 authorized shares of Jackbilt on March 31,
1958, 14,993 shares belonged to Norton and Harrison and one each to seven others; (b) Norton
constituted Jackbilt's board of directors in such a way as to enable it to actually direct and
manage the other's affairs by making the same officers of the board for both companies; (c)
Norton financed the operations of the Jackbilt, and this is shown by the fact that the loans
obtained from the RFC and Bank of America were used in the expansion program of Jackbilt, to
pay advances for the purchase of equipment, materials rations and salaries of employees of
Jackbilt and other sundry expenses; d) Norton treats Jackbilt employees as its own; (e)
Compensation given to board members of Jackbilt, indicate that Jackbilt is merely a department
of Norton.
Norton and Harrison, while not denying the presence of the set up stated above, tried to
explain that the control over the affairs of Jackbilt was not made in order to evade payment of
taxes; that the loans obtained by it which were given to Jackbilt, were necessary for the
expansion of its business in the manufacture of concrete blocks, which would ultimately benefit
both corporations; that the transactions and practices just mentioned, are not unusual and
extraordinary, but pursued in the regular course of business and trade; that there could be no
confusion in the present set up of the two corporations, because they have separate Boards, their
cash assets are entirely and strictly separate; cashiers and official receipts and bank accounts are
distinct and different; they have separate income tax returns, separate balance sheets and profit
and loss statements. These explanations notwithstanding an over-all appraisal of the
circumstances presented by the facts of the case, yields to the conclusion that the Jackbilt is
merely an adjunct, business conduit or alter ego, of Norton and Harrison and that the fiction of
corporate entities, separate and distinct from each, should be disregarded. This is a case where
the doctrine of piercing the veil of corporate fiction, should be made to apply.

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YUTIVO SONS HARDWARE COMPANY vs. COURT OF TAX APPEALS and COLLECTOR OF
INTERNAL REVENUE
G.R. No. L-13203 January 28, 1961
FACTS:
Petitioner Yutivo Sons Hardware Co. (hereafter referred to as Yutivo) is a domestic
corporation, organized under the laws of the Philippines, it was engaged, prior to the last world
war, in the importation and sale of hardware supplies and equipment. After the liberation, it
resumed its business and until June of 1946 bought a number of cars and trucks from General
Motors Overseas Corporation (hereafter referred to as GM for short), an American corporation
licensed to do business in the Philippines. As importer, GM paid sales tax prescribed by sections
184, 185 and 186 of the Tax Code on the basis of its selling price to Yutivo. Said tax being
collected only once on original sales, Yutivo paid no further sales tax on its sales to the public.
On June 13, 1946, the Southern Motors, Inc. (hereafter referred to as SM) was organized
to engage in the business of selling cars, trucks and spare parts. At the time of its incorporation
2,500 shares worth P250,000 appear to have been subscribed into equal proportions by Yu Khe
Thai, Yu Khe Siong, Hu Kho Jin, Yu Eng Poh, and Washington Sycip. The first three named
subscribers are brothers, being sons of Yu Tiong Yee, one of Yutivo's founders. The latter two
are respectively sons of Yu Tiong Sin and Albino Sycip, who are among the founders of Yutivo.
After the incorporation of SM and until the withdrawal of GM from the Philippines in the
middle of 1947, the cars and tracks purchased by Yutivo from GM were sold by Yutivo to SM
which, in turn, sold them to the public in the Visayas and Mindanao.
When GM decided to withdraw from the Philippines in the middle of 1947, the U.S.
manufacturer of GM cars and trucks appointed Yutivo as importer for the Visayas and
Mindanao, and Yutivo continued its previous arrangement of selling exclusively to SM. In the
same way that GM used to pay sales taxes based on its sales to Yutivo, the latter, as importer,
paid sales tax prescribed on the basis of its selling price to SM, and since such sales tax, as
already stated, is collected only once on original sales, SM paid no sales tax on its sales to the
public.
On November 7, 1950, after several months of investigation by revenue officers started in
July, 1948, the Collector of Internal Revenue made an assessment upon Yutivo and demanded
from the latter P1,804,769.85 as deficiency sales tax plus surcharge covering the period from the
third quarter of 1947 to the fourth quarter of 1949; or from July 1, 1947 to December 31, 1949,
claiming 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 the subsidiary of the latter.
After another investigation, the respondent Collector, in a letter to petitioner dated
December 16, 1954, re determined that the aforementioned tax assessment was lawfully due the

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government and in addition assessed deficiency sales tax due from petitioner for the four quarters
of 1950; the respondents' last demand was in the total sum of P2,215,809.27
This second assessment was contested by the petitioner Yutivo before the Court of Tax
Appeals, alleging that there is no valid ground to disregard the corporate personality of SM and
to hold that it is an adjunct of petitioner Yutivo; (2) that assuming the separate personality of SM
may be disregarded, the sales tax already paid by Yutivo should first be deducted from the
selling price of SM in computing the sales tax due on each vehicle; and (3) that the surcharge has
been erroneously imposed by respondent. Finding against Yutivo and sustaining the respondent
Collector's theory that there was no legitimate or bona fide purpose in the organization of SM —
the apparent objective of its organization being to evade the payment of taxes — and that it was
owned (or the majority of the stocks thereof are owned) and controlled by Yutivo and is a mere
subsidiary, branch, adjunct, conduit, instrumentality or alter ego of the latter, the Court of Tax
Appeals — with Judge Roman Umali not taking part — disregarded its separate corporate
existence and on April 27, 1957, rendered the decision now complained of.
ISSUE:
Could the separate corporate personality of SM and Yutivo be disregarded?
RULING:
It is an elementary and fundamental principle of corporation law that a corporation is an
entity separate and distinct from its stockholders and from other corporation petitions 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.
Another rule is that, when the corporation is the "mere alter ego or business conduit of a
person, it may be disregarded."
Southern Motors being but a mere instrumentality, or adjunct of Yutivo, the Court of Tax
Appeals correctly disregarded the technical defense of separate corporate entity in order to arrive
at the true tax liability of Yutivo.
After going over the voluminous record of the present case, we are inclined to rule that
the Court of Tax Appeals was not justified in finding that SM was organized for no other
purpose than to defraud the Government of its lawful revenues.
In the first place, this corporation was organized in June, 1946 when it could not have
caused Yutivo any tax savings. From that date up to June 30, 1947, or a period of more than one
year, GM was the importer of the cars and trucks sold to Yutivo, which, in turn resold them to
SM. During that period, it is not disputed that GM as importer, was the one solely liable for sales
taxes. Neither Yutivo or SM was subject to the sales taxes on their sales of cars and trucks. The
sales tax liability of Yutivo did not arise until July 1, 1947 when it became the importer and
simply continued its practice of selling to SM.

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The decision, therefore, of the Tax Court that SM was organized purposely as a tax
evasion device runs counter to the fact that there was no tax to evade.
IN VIEW OF THE FOREGOING, the decision of the Court of Tax Appeals under review
is hereby modified in that petitioner shall be ordered to pay to respondent the sum of
P820,549.91, plus 25% surcharge thereon for late payment.
So ordered without costs.

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KOPPEL (PHILIPPINES), INC. vs. ALFREDO L. YATCO

G.R. No. L-47673 October 10, 1946

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 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 out 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.
Defendant Collector of Internal Revenue is now Mr. Bibiano L, Meer in lieu of Mr.
Alfredo L. Yatco.
That during the period from January 1, 1929, up to and including December 31, 1932,
plaintiff transacted business in the Philippines.
A cable was then sent to Koppel Industrial Car and Equipment Company giving
instructions to ship the merchandise to Manila forwarding the customer's order.The bills of
lading were usually made to 'order' and indorsed in blank with notation to the effect that the
buyer be notified of the shipment of the goods covered in the bills of lading; commercial
invoices were issued by Koppel Industiral Car and Equipment Company in the names of the
purehasers and certificates of insurance were likewise issued in their names, or in the name of
Koppel Industrial Car and Equipment Company but indorsed in blank and attached to drafts
drawn by Koppel Industrial Car and Equipment Company on the purchasers, which were
forwarded through foreign banks to local banks.
The purchasers secured the shipping papers by arrangement with the banks, and
thereupon received and cleared the shipments. If the merchandise were of European origin, and if
there was not sufficient time to forward the documents necessary for clearance, through foreign
banks to local banks, to the purchasers, the Koppel Industrial Car and Equipment Company did,
in many cases, send the documents directly from Europe to plaintiff with instructions to turn
these documents over to the purchasers.
The price were payable by drafts agreed upon in each case and drawn by Koppel
Industrial Car and Equipment Company on the respective purchasers through local banks, and
payments were made to the banks by the purchasers on presentation and delivery to them of the
above-mentioned shipping documents or copies thereof.
That the total gross sales from January 1, 1929, up to and including Decembar 31, 1932,
effected in the foregoing manner and under the above specified conditions, amount to
P3,596,438.84.' when a local sugar central was interested in the1 purchase of railway materials,

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machinery and supplies, it secured quotations from, and placed the corresponding orders with,
the plaintiff in substantially the same manner with the only difference that the purchase orders
which were agreed to by the central and the plaintiff are similar
The value of the sales carried out in the manner mentioned in this paragraph is
P133,964.98.
That sometime in February, 1929, Miguel J. Ossorio, of Manila, Philippines, placed an
option with Koppel Industrial Car and Equipment Company, through plaintiff, to purchase within
three months a pair of Atlas-Diesel Marine Engines. Koppel Industrial Car and Equipment
Company purchased said Diesel engines in Stockholm, Sweden, for $16,508.32. The
suppliers drew a draft for the amount of $16,508.32 on the Koppel Industrial Car and Equipment
Company, which paid the amount covered by the draft. Later, Miguel J. Ossorio definitely called
the deal off, and as Koppel Industrial Car and Equipment Company could not ship to or draw on
said Mr. Miguel J. Ossorio, it in turn drew another draft on plaintiff for the same amount at six
months sight, with the understanding that Koppel Industrial Car and Equipment Company would
reimburse plaintiff when said engines were disposed of.
Plaintiff honored the draft and debited the said sum of P16,508.32 to merchandise
account.
The engines were left stored at Stockholm, Sweden. On April 1, 1930, a new local buyer,
Mr. Cesar Barrios, of Iloilo, Philippines, was found and the same engines were sold to him for
$21,000 (P42,000) C. I. F. Hongkong.
The engines where 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
paid 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.
That plaintiff's share in the profits realized out of these transactions totaling
P3,772,403.82, amounts to P132.201.30; and that plaintiff within the time provided by law
returned the aforesaid 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
That defendant demanded of the plaintiff the sum of P64,122.51 as the merchants' sales
tax of 1½ per cent on the amount of P3,772,403.82, representing the total gross value of the sales
including the 25 per cent surcharge for the late payment of the said tax, which tax and surcharge
were determined after the amount of P5,288.05
The lower court found and held that Koppel (Philippines) Inc. is a mere dummy or branch
of Koppel Industrial Car and Equipment Company. The lower court did not deny legal
personality to Koppel (Philippines) Inc. for any and all purposes, but in effect its conclusion was
that, in the transactions involved herein, the public interest and convenience would be defeated

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and what would amount to a tax evasion perpetrated, unless resort is had to the doctrine of
"disregard, of the corporate fiction."

ISSUE:
Whether Koppel Philippines is a domestic corporation distinct and separate from and not
a mere branch of Koppel Industrial Car and Equipment Company
RULING:
From the facts we find that, in so far as the sales involved herein are concerned, 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 those
transactions, 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, unbridled
control of Koppel Industrial Car and Equipment Company. If, in their relations with each other,
Koppel (Philippines) Inc. was considered and intended to function as a bona fide separate
corporation, we cannot conceive how this arrangement could have been adopted, for it there was
any factor in its business as to which it would, in that case naturally have been opposed to being
thus controlled, it must have been precisely the amount of profit which it could endeavor and
hope to earn.
No group of businessmen could be expected to organize a mercantile corporation-the
ultimate end of which could only be profit-if the amount of that profit were to be subjected to
such a unilateral control of another corporation, unless indeed the former has previously been
designed by the incorporators to serve as a mere subsidiary, branch or agency of the latter.
Evidently, Koppel Industrial Car and Equipment Company made use of its ownership of the
overwhelming majority-99.5%-of the capital stock of the local corporation to control the
operations of the latter to such an extent that it had the final say even as to how much should be
allotted to said local entity in the so-called sharing in the profits.
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.

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TEST IN DETERMINING APPLICABILITY

TIMOTEO H. SARONA v. NATIONAL LABOR RELATIONS COMMISSION

G.R. No. 185280 January 18, 2012

FACTS:
On June 20, 2003, Timoteo Sareno was hired by Sceptre as a security guard. At around
April 1976, Sareno was asked by Karen Therese Tan (Karen), Sceptre’s Operation Manager, to
submit a resignation letter as the same was supposedly required for applying for a position at
Royale. The Sareno was also asked to fill out Royale’s employment application form, which was
handed to him by Royale’s General Manager, respondent Cesar Antonio Tan II.
After several weeks of being in floating status, Royale’s Security Officer, Martin Gono,
assigned the petitioner at Highlight Metal Craft, Inc. (Highlight Metal) from July 29, 2003 to
August 8, 2003. Thereafter, the petitioner was transferred and assigned to Wide Wide World
Express, Inc. (WWWE, Inc.).
On September 17, 2003, Sareno was informed that his assignment at WWWE, Inc. had
been withdrawn because Royale had allegedly been replaced by another security agency. The
petitioner, however, shortly discovered thereafter that Royale was never replaced as WWWE,
Inc.’s security agency. When he placed a call at WWWE, Inc., he learned that his fellow
security guard was not relieved from his post.
On September 21, 2003, the Sareno was once again assigned at Highlight Metal, albeit
for a short period from September 22, 2003 to September 30, 2003. Thereafter, when Sareno
reported at Royale’s office on October 01, 2003, Martin informed him that he would no longer
be given any assignment per the instructions of Aida Sabalones-Tan, general manager of
Sceptre. This prompted him to file a complaint for illegal dismissal on October 4, 2003.
ISSUE:
Should of the veil of the corporate fiction of Royale be pierced for the purpose of
compelling it to recognize the petitioner’s length of service with Sceptre and for holding it liable
for the benefits that have accrued to him arising from his employment with Sceptre?
RULING:
Yes The doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the
evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a

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wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a
farce since it is a mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.

As correctly pointed out by the petitioner, it was Sabalones-Tan who exercised control
and supervision over the affairs of both Sceptre and Royale. Further Sabalones-Tan was the one
who decided to stop giving any assignments to the petitioner and summarily dismiss him is an
eloquent testament of the power she wields insofar as Royale’s affairs are concerned. The
presence of actual common control coupled with the misuse of the corporate form to perpetrate
oppressive or manipulative conduct or evade performance of legal obligations is patent; Royale
cannot hide behind its corporate fiction.

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CHILD LEARNING CENTER VS. TIMOTHY TAGARIO

G.R NO. 150920 NOVEMBER 25, 2005

FACTS:

Timothy was a Grade IV student at Marymount School, an academic institution operated

and maintained by Child Learning Center, Inc. (CLC). In the afternoon of March 5, 1991,
between 1 and 2 p.m., Timothy entered the boys comfort room at the third floor of the
Marymount building to answer the call of nature. He, however, found himself locked inside and
unable to get out. Timothy started to panic and so he banged and kicked the door and yelled
several times for help. When no help arrived he decided to open the window to call for help. In
the process of opening the window, Timothy went right through and fell down three stories.
Timothy was hospitalized and given medical treatment for serious multiple physical injuries.
An action under Article 2176 of the Civil Code was filed by respondents against the CLC
CLC maintained that there was nothing defective about the locking mechanism of the
door and that the fall of Timothy was not due to its fault or negligence. CLC further maintained
that it had exercised the due care and diligence of a good father of a family to ensure the safety.
The trial court disregarded the corporate fiction of CLC and held the Spouses Limon
personally liable because they were the ones who actually managed the affairs of the CLC this
was affirmed by the Court of Appeals.
ISSUE:
Was the lower courts correct in disregarding the corporate fiction of CLC and making the
Spouses Limon liable?
RULING:
No. We, however, agree with petitioners that there was no basis to pierce CLCs separate
corporate personality. To disregard the corporate existence, the plaintiff must prove: (1) Control
by the individual owners, not mere majority or complete stock ownership, resulting in complete
domination not only of finances but of policy and business practice in respect to a transaction 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 a dishonest and unjust act in
contravention of the plaintiffs legal right; and (3) the control and breach of duty must
proximately cause the injury or unjust loss complained of. The absence of these elements
prevents piercing the corporate veil. The evidence on record fails to show that these elements are

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present, especially given the fact that plaintiffs complaint had pleaded that CLC is a corporation
duly organized and existing under the laws of the Philippines.
WHEREFORE, the petition is partly granted and the Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 50961 dated September 28, 2001 and November 23, 2001,
respectively, are MODIFIED in that petitioners Spouses Edgardo and Sylvia Limon are absolved
from personal liability.

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JARDINE DAVIES, INC. vs. JRB REALTY, INC.

G.R. No. 151438 July 15, 2005

FACTS:

In 1979-1980, respondent JRB Realty, Inc. built a nine-storey building, named Blanco
Center, on its parcel of land located at 119 Alfaro St., Salcedo Village, Makati City. An air
conditioning system was needed for the Blanco Law Firm housed at the second floor of the
building. On March 13, 1980, the respondents Executive Vice-President, Jose R. Blanco,
accepted the contract quotation of Mr. A.G. Morrison, President of Aircon and Refrigeration
Industries, Inc. (Aircon), for two sets of Fedders Adaptomatic 30,000 kcal (Code: 10-TR) air
conditioning equipment with a net total selling price of P99,586.00. Thereafter, two brand new
packaged air conditioners of 10 tons capacity each to deliver 30,000 kcal or 120,000 BTUH were
installed by Aircon. When the units with rotary compressors were installed, they could not
deliver the desired cooling 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. In a Letter dated March 26, 1981, Aircon stated that it would be replacing the units
currently installed with new ones using rotary compressors, at the earliest possible time.
Regrettably, however, it could not specify a date when delivery could be effected.

TempControl Systems, Inc. (a subsidiary of Aircon until 1987) undertook the

maintenance of the units, inclusive of parts and services. In October 1987, the respondent
learned, through newspaper ads, that Maxim Industrial and Merchandising Corporation (Maxim,
for short) 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, to expire on
March 13, 1990, the respondent then instituted, on January 29, 1990, 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 trial court decided in favor or JRB which is affirmed in toto by the appellate
court.

ISSUE:

Is the doctrine of piercing the veil of corporate fiction applicable in this case?

RULING:

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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.

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
intention of defrauding its creditors or evading its contracts and obligations. There was nothing
fraudulent in the acts of Aircon in this case.

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PAMPLONA PLANTATION COMPANY INC et. al v. TINGHIL et. al

G.R. No. L-27155 May 18, 1978

FACTS:
Pamplona Plantations Company, Inc. (company for brevity) 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. Pamplona Plantation Leisure Corporation was established for the purpose
of engaging in the business of operating tourist resorts, hotels, and inns, with complementary
facilities, such as restaurants, bars, boutiques, service shops, entertainment, golf courses, tennis
courts, and other land and aquatic sports and leisure facilities. Pamplona Plantation Labor
Independent Union (PAPLIU) conducted an organizational meeting wherein several
[respondents] who are either union members or officers participated in said meeting. Upon
learning that some of the respondents attended the said meeting, petitioner, Jose Luis Bondoc,
manager of the company, did not allow them to work anymore in the plantation.
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.
ISSUES:
Can the case be dismissed for failure to implead the indispensable party because it
appears to be that there are two separate entities?
RULING:
No. 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

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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.
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. In their individual Affidavits, respondents allege that they worked under the
supervision and control of Petitioner Bondoc -- the common managing director of both the
petitioner-company and the leisure corporation. Some of the laborers of the plantation also work
in the golf course. 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.

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ESTELITA BURGOS LIPAT and ALFREDO LIPAT v. PACIFIC BANKING CORPORATION,

REGISTER OF DEEDS, RTC EX-OFFICIO SHERIFF OF QUEZON CITY and the Heirs of
EUGENIO D. TRINIDAD
G.R. No. 142435 April 30, 2003

FACTS:

Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned Belas Export
Trading (BET), a single proprietorship with principal office at Quezon City. BET was engaged in
the manufacture of garments for domestic and foreign consumption. The Lipats also owned the
Mystical Fashions in the United States, which sells goods imported from the Philippines through
BET. Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage BET in the Philippines
while she was managing Mystical Fashions in the United States.

To facilitate the convenient operation of BET, Estelita Lipat executed a special power of
attorney (SPA) appointing Teresita Lipat as her attorney-in-fact to obtain loans and other credit
accommodations from respondent Pacific Banking Corporation (Pacific Bank). She likewise
authorized Teresita to execute mortgage contracts on properties owned or co-owned by her as
security for the obligations to be extended by Pacific Bank including any extension or renewal
thereof.

Teresita, by the SPA, was able to secure for and in behalf of her mother, Mrs. Lipat and
BET, a loan from Pacific Bank amounting to P583,854.00 to buy fabrics to be manufactured by
BET and exported to Mystical Fashions in the United States. As security therefor, the Lipat
spouses, as represented by Teresita, executed a Real Estate Mortgage over their property. Said
property was likewise made to secure other additional or new loans, discounting lines, overdrafts
and credit accommodations, of whatever amount, which the Mortgagor and/or Debtor may
subsequently obtain from the Mortgagee as well as any renewal or extension by the Mortgagor
and/or Debtor of the whole or part of said original, additional or new loans, discounting lines,
overdrafts and other credit accommodations, including interest and expenses or other obligations
of the Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or indirectly, principal
or secondary, as appears in the accounts, books and records of the Mortgagee.

BET was later incorporated into a family corporation named Belas Export Corporation
(BEC) to facilitate the management of the business. Its incorporators and directors included the
Lipat spouses who owned a combined 300 shares out of the 420 shares subscribed, Teresita Lipat
who owned 20 shares, and other close relatives and friends of the Lipats. Estelita Lipat was
named president of BEC, while Teresita became the vice-president and general manager.

Eventually, the loan was later restructured in the name of BEC and subsequent loans were
obtained by BEC all secured by the previous real estate mortgage.

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BEC defaulted in its payments which led to the foreclosure and sale of the mortgaged
property. The spouses moved to annul the sale alleging that BEC is a distinct and separate
personality from them and that the real estate mortgage was executed only to secure BET’s loan.
They also asserted that the promissory notes, trust receipt, and export bills were all ultra
vires acts of Teresita as they were executed without the requisite board resolution of the Board of
Directors of BEC. It was likewise pointed out that Teresita’s authority to secure a loan from
Pacific Bank was specifically limited to Mrs. Lipat’s sole use and benefit and that the real estate
mortgage was executed to secure the Lipats and BET’s loan only.

In their respective answers, Pacific Bank and Trinidad alleged in common that petitioners
Lipat cannot evade payments of the value of the promissory notes, trust receipt, and export bills
with their property because they and the BEC are one and the same, the latter being a family
corporation. Respondent Trinidad further claimed that he was a buyer in good faith and for value
and that petitioners are estopped from denying BECs existence after holding themselves out as a
corporation.

Both trial court and CA ruled to pierce the corporate veil to hold petitioner spouses liable for
BEC’s obligations.

ISSUE:

Is the doctrine of piercing the veil of corporate fiction applicable in this case?

RULING:

Yes, the doctrine of piercing the veil of corporate fiction could be validly applied in this
case.

Where one corporation is so organized and controlled and its affairs are conducted so that it
is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the
instrumentality may be disregarded. The control necessary to invoke the rule is not majority or
even complete stock control but such domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but
a conduit for its principal.

The Court finds that the evidence on record demolishes, rather than buttresses, petitioners’
contention that BET and BEC are separate business entities. Estelita Lipat admitted that she and
her husband, Alfredo, were the owners of BET and were two of the incorporators and majority
stockholders of BEC. It is also undisputed that Estelita Lipat executed a SPA in favor of her
daughter, Teresita, to obtain loans and credit lines from Pacific Bank on her behalf. Incidentally,
Teresita was designated as executive-vice president and general manager of both BET and BEC,
respectively.

The Court further noted that: (1) Estelita and Alfredo Lipat are the owners and majority
shareholders of BET and BEC, respectively; (2) both firms were managed by their daughter,
Teresita; (3) both firms were engaged in the garment business, supplying products to Mystical

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Fashion, a U.S. firm established by Estelita Lipat; (4) both firms held office in the same building
owned by the Lipats; (5) BEC is a family corporation with the Lipats as its majority
stockholders; (6) the business operations of the BEC were so merged with those of Mrs. Lipat
such that they were practically indistinguishable; (7) the corporate funds were held by Estelita
Lipat and the corporation itself had no visible assets; (8) the board of directors of BEC was
composed of the Burgos and Lipat family members; (9) Estelita had full control over the
activities of and decided business matters of the corporation; and that (10) Estelita Lipat had
benefited from the loans secured from Pacific Bank to finance her business abroad and from the
export bills secured by BEC for the account of Mystical Fashion.

It could not have been coincidental that BET and BEC are so intertwined with each other in
terms of ownership, business purpose, and management. BET and BEC are one and the same and
the latter is a conduit of and merely succeeded the former. Petitioners attempt to isolate
themselves from and hide behind the corporate personality of BEC to evade their liabilities to
Pacific Bank is precisely what the classical doctrine of piercing the veil of corporate entity seeks
to prevent and remedy.

BEC is a mere continuation and successor of BET, and petitioners cannot evade their
obligations in the mortgage contract secured under the name of BEC on the pretext that it was
signed for the benefit and under the name of BET. Therefore, the Court of Appeals did not err
when it applied the instrumentality doctrine in piercing the corporate veil of BEC.

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BANK OF AMERICA NT & SA, BANK OF AMERICA INTERNATIONAL, LTD., v. COURT OF

APPEALS, HON. MANUEL PADOLINA, EDUARDO LITONJUA, SR., and AURELIO K. LITONJUA,
JR
G.R. No. 120135 March 31, 2003

FACTS:

Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas, for brevity) filed a
Complaint before the RTC against the Bank of America NT& SA and Bank of America
International, Ltd. alleging that they were engaged in the shipping business and they owned two
vessels namely: Don Aurelio and El Champion through their wholly-owned corporations. The
Litonjua’s deposited their revenues from said business together with other funds with the
branches of said banks in the United Kingdom and Hongkong up to 1979. With their business
doing well, the defendant banks induced them to increase the number of their ships in operation,
offering them easy loans to acquire said vessels. Thereafter, the defendant banks acquired,
through Litonjuas' corporations as the borrowers, four vessels that were registered in the names
of their corporations. The operation and the funds derived therefrom were placed under the
complete and exclusive control and disposition of the petitioners and the possession the vessels
was also placed by defendant banks in the hands of persons selected and designated by defendant
banks. The Litonjuas claimed that defendant banks as trustees did not fully render an account of
all the income derived from the operation of the vessels as well as of the proceeds of the
subsequent foreclosure sale. Because of the breach of their fiduciary duties and/or negligence of
the petitioners and/or the persons designated by them in the operation of private respondents' six
vessels, the revenues derived from the operation of all the vessels declined drastically. The loans
acquired for the purchase of the four additional vessels then matured and remained unpaid,
prompting defendant banks to have all the six vessels, including the two vessels originally owned
by the private respondents, foreclosed and sold at public auction to answer for the obligations
incurred for and in behalf of the operation of the vessels. The Litonjuas lost sizeable amounts of
their own personal funds equivalent to 10% of the acquisition cost of the four vessels and were
left with the unpaid balance of their loans with defendant banks. The Litonjuas prayed for the
accounting of the revenues derived in the operation of the six vessels and of the proceeds of the
sale thereof at the foreclosure proceedings instituted by petitioners as well as damages for breach
of trust, exemplary damages, and attorney's fees.

ISSUE:

Do petitioner banks have any obligation to the private respondents who are mere
stockholders of the corporation?

RULING:

Yes. Petitioners insist that they do not have any obligation to the private respondents as
they are mere stockholders of the corporation; that the corporate entities have juridical

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personalities separate and distinct from those of the private respondents. Private respondents
maintain that the corporations are wholly owned by them and prior to the incorporation of such
entities, they were clients of petitioners which induced them to acquire loans from said
petitioners to invest on the additional ships. The court agrees with private respondents. As held
in the San Lorenzo case "assuming that the allegation of facts constituting plaintiffs' cause of
action is not as clear and categorical as would otherwise be desired, any uncertainty thereby
arising should be so resolved as to enable a full inquiry into the merits of the action." As this
Court has explained in the San Lorenzo case, such a course, would preclude multiplicity of suits
which the law abhors, and conduce to the definitive determination and termination of the dispute.
To do otherwise, that is, to abort the action on account of the alleged fatal flaws of the complaint
would obviously be indecisive and would not end the controversy, since the institution of another
action upon a revised complaint would not be foreclosed.

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PHILIPPINE NATIONAL BANK v. ANDRADA ELECTRIC AND ENGINEERING COMPANY

G.R. No. 142936 April 17, 2002

FACTS:
Andrada Electric and Engineering Company alleged in its complaint that it is engaged in
the business of general construction for the repairs and/ or construction of different kinds of
machineries and buildings; that on August 26, 1975, PNB acquired the assets of Pampanga Sugar
Mill (PASUMIL), that were earlier foreclosed by the Development Bank of the Philippines
(DBP); that the Philippine National Bank (PNB) organized the National Sugar Development
Corporation (NASUDECO) in September 1975, to take ownership and possession of the assets
and ultimately to nationalize and consolidate its interest in other PNB controlled sugar mills; that
prior to October 29, 1971, PASUMIL engaged the services of Andrada Electric and Engineering
Company for electrical rewinding and repair. Most of which were partially paid by PASUMIL,
having several unpaid accounts with the plaintiff.
PNB and NASUDECO filed a joint motion to dismiss the complaint chiefly on the
ground that the complaint failed to state sufficient allegations to establish a cause of action. The
motion to dismiss was denied by the court and rendered judgment in favor of Andrada Electric
and Engineering Company. The Court of Appeals upon appeal affirmed the decision of the trial
court.
ISSUE:
Is it necessary to pierce the corporate veil of the corporation?
RULING:
No, A corporation is an artificial being created by operation of law. It possesses the right
of succession and such powers, attribute, and properties expressly authorized by law or incident
to its existence. It has a personality separate and distinct from the persons composing it, as well
as from any other legal entity to which it may be related.
The corporate mask may be removed or the corporate veil pierced when the corporation
is just a later ego of a person or of another corporation. For reasons of public policy and in the
interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for
fraud, illegality or inequity committed against third persons.
Piercing the veil of corporate fiction may be allowed only if the following elements
concur: 1) control- not mere stock control, but complete domination; 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 a dishonest and an unjust act in contravention of a plaintiff’s legal
right; and 3) the said control and breach of duty must have proximately caused the injury or
unjust loss complained of.

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The absence of the foregoing elements in the present case precludes the piercing of the
corporate veil.

LUISITO PADILLA and PHOENIX-OMEGA DEVELOPMENT AND MANAGEMENT

CORPORATION vs. THE HONORABLE COURT OF APPEALS and SUSANA REALTY, INC.
G.R. No. 123893 November 22, 2001

FACTS:

On June 27, 1983, Susana Realty, Inc. (SRI), by a deed of absolute sale, sold to the Light
Rail Transit Authority (LRTA) several parcels of land. Under paragraph 7 of the deed of sale,
SRI reserved to itself the right of first refusal to develop and/or improve the property sold should
the LRTA decide to lease and/or assign to any person the right to develop and/or improve the
property.

On November 28, 1986, the LRTA and Phoenix Omega Development and Management
Corporation (Phoenix Omega) entered into a Commercial Stall Concession Contract authorizing
the latter to construct and develop commercial stalls on a 90 sq. m. portion of the property
bought from SRI. SRI opposed the agreement as having violated the deed of sale it entered with
LRTA. A tripartite agreement was later concluded by the parties, however, whereby SRI agreed
to honor the terms of the concession contract and to lease to Phoenix Omega its (SRIs) property
(remaining property) adjacent to the 90 sq. m. portion subject of the concession contract.

A contract was thus entered into on July 28, 1988 between Phoenix Omega and SRI with
LRTA whereby Phoenix Omega undertook to construct commercial stalls on the 90-sq. m.
property in accordance with plans and specifications prepared by the latter, the construction to
begin, however, only upon SRIs approval of such plans and specifications. Also on July 28,
1988, Phoenix Omega, by a deed of assignment, assigned its right and interests over the
remaining property unto its sister company, PKA Development and Management Corporation
(PKA). Signatories to the deed of assignment were Eduardo Gatchalian in his capacity as
President of Phoenix Omega, and Luisito B. Padilla (Padilla), one of the petitioners herein, in his
capacity as President and General Manager of PKA. The development of the remaining property
having been assigned to PKA, it entered into a contract of lease with SRI likewise on July 28,
1988.

In the meantime, SRI sold part of its remaining property to a third party. An amended
contract of lease was thus forged in January 1989 among SRI, PKA and Phoenix Omega,
whereby the parties agreed to substitute the already sold portion of SRIs remaining property with
2 parcels of land also belonging to SRI. In this amended contract of lease, PKA was again
represented by Padilla in his capacity as its President and General Manager. And Phoenix
Omega, which was not a party to the July 28, 1988 lease contract sought to be amended but
which was a party, to the amended contract, was also represented by Padilla as Chairman of the
Board of Directors of Phoenix Omega.PKAs building permit was later revoked due to certain
violations of the National Building Code (BP 344).

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On August 24, 1989, PKA was allowed by the (Department) of Public Works and
Highway(s) to resume construction on the leased premises subject to PKAs correction of the
defects in the construction to conform to BP 344.

As SRIs approval of PKAs amended plans in the construction was required, PKA
transmitted the same to SRI which withheld approval thereof pending PKAs correction of the
defects in the construction. Repeated requests for approval of its amended plans not having been
heeded by SRI, PKA filed at the court a quo the action at bar for rescission of contract of lease
against SRI, alleging that SRIs refusal to approve the plans without any justifiable reason
deprived it of the use of the commercial stalls, thereby incurring losses.

SRI, upon the other hand, claimed that it was PKA which violated the terms of their
contract, alleging that PKA failed to complete within six months the construction of the
commercial stalls during which period it was not paying any rentals and that PKA undertook the
construction without first having its plans approved

ISSUE:

Is the doctrine of piercing the veil of corporate fiction applicable

RULING:

No. The general rule is that a corporation is clothed with a personality separate and distinct
from the persons composing it. It may not be held liable for the obligations of the persons
composing it, and neither can its stockholders be held liable for its obligations.

This veil of corporate fiction may only be disregarded in cases where the corporate vehicle
is being used to defeat public convenience, justify wrong, protect fraud, or defend crime. PKA
and Phoenix-Omega are admittedly sister companies, and may be sharing personnel and
resources, but we find in the present case no allegation, much less positive proof, that their
separate corporate personalities are being used to defeat public convenience, justify wrong,
protect fraud, or defend crime. For the separate juridical personality of a corporation to be
disregarded, the wrongdoing must be clearly and convincingly established. It cannot be
presumed. The court find no reason to justify piercing the corporate veil in this instance.

Moreover, the court understand private respondents frustration at not being able to have the
monetary award in their favor satisfied. But given the circumstances of this case, public
respondent cannot order the seizure of petitioners properties without violating their
constitutionally enshrined right to due process, merely to compensate private respondent.

WHEREFORE, the instant petition is GRANTED.

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LAND BANK OF THE PHILIPPINES vs. THE COURT OF APPEALS, ECO MANAGEMENT
CORPORATION and EMMANUEL C. OÑATE
G.R. No. 127181 September 4, 2001

FACTS:

On various dates in September, October, and November, 1980, appellant Land Bank of
the Philippines extended a series of credit accommodations to appellee ECO, using the trust
funds of the Philippine Virginia Tobacco Administration (PVTA) in the aggregate amount of
P26, 109,000.00. The proceeds of the credit accommodations were received on behalf of ECO by
appellee Oñate.

On the respective maturity dates of the loans, ECO failed to pay the same. Oral and
written demands were made, but ECO was unable to pay. ECO claims that the company was in
financial difficulty for it was unable to collect its investments with companies which were
affected by the financial crisis brought about by the Dewey Dee scandal.

Thereafter, Landbank filed a complaint for Collection of Sum of Money against ECO and
Emmanuel C. Oñate before the RTC. After trial on the merits, a judgment was rendered in favor
of LBP; however, appellee Oñate was absolved from personal liability for insufficiency of
evidence.

Dissatisfied, both parties filed their respective Motions for Reconsideration. LBP claimed
that there was an error in computation in the amounts to be paid. LBP also questioned the
dismissal of the case with regard to Oñate. The RTC ruled in favor of LBP. On appeal, the RTC
decision was affirmed in toto. Hence, this appeal.

ISSUE:

Whether or not the corporate veil of ECO Management Corporation should be pierced in
order for Emmanuel C. Oñate to be held jointly and severally liable with ECO Management
Corporation for the loans incurred from Land Bank.

RULING:

The Supreme Court held that Onate could not be held personally liable for the incurred
loans.

A corporation, upon coming into existence, is invested by law with a personality separate
and distinct from those persons composing it as well as from any other legal entity to which it
may be related. By this attribute, a stockholder may not, generally, be made to answer for acts or

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liabilities of the said corporation, 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

The burden is on petitioner to prove that the corporation and its stockholders are, in fact,
using the personality of the corporation as a means to perpetrate fraud and/or escape a liability
and responsibility demanded by law. In order to disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly established. In the absence of any
malice or bad faith, a stockholder or an officer of a corporation cannot be made personally liable
for corporate liabilities.

The mere fact that Oñate owned the majority of the shares of ECO is not a ground to
conclude that Oñate and ECO is one and the same. Mere ownership by a single stockholder of all
or nearly all of the capital stock of a corporation is not by itself sufficient reason for disregarding
the fiction of separate corporate personalities. Neither is the fact that the name "ECO" represents
the first three letters of Oñate’s name sufficient reason to pierce the veil. Even if it did, it does
not mean that the said corporation is merely a dummy of Oñate. A corporation may assume any
name provided it is lawful. There is nothing illegal in a corporation acquiring the name or as in
this case, the initials of one of its shareholders.

In sum, we agree with the Court of Appeals’ conclusion that the evidence presented by
the petitioner does not suffice to hold respondent Oñate personally liable for the debt of co-
respondent ECO. No reversible error could be attributed to respondent court’s decision and
resolution which petitioner assails.

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DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS, REMINGTON

INDUSTRIAL SALES
GR No. 126200 16 August 2001

FACTS:

Between July 1981 and April 1984, Marinduque Mining entered into 3 mortgage
agreements with PNB and DBP involving its real properties located in Surigao del Norte, Negros
Occidental, and Rizal, as well as its equipments located therein. Marinduque failed to pay its
loans, causing the foreclosure of the said mortgages. PNB and DBP thereafter gained control of
the said properties.

In the meantime, between July 16, 1982 to October 4, 1983, Marinduque Mining
purchased and caused to be delivered construction materials and other merchandise from
Remington Industrial Sales Corporation. The purchases remained unpaid as of August 1, 1984
when Remington filed a complaint for a sum of money and damages against Marinduque Mining
for the value of the unpaid construction materials and other merchandise purchased by
Marinduque Mining, as well as interest, attorney’s fees and the costs of suit.

Remington’s original complaint was amended to include PNB, DBP, Maricalum Mining
Corporation and Island Cement Corporation as co-defendants. Remington asserted that
Marinduque Mining, PNB, DBP, Nonoc Mining, Maricalum Mining and Island Cement must be
treated in law as one and the same entity by disregarding the veil of corporate fiction since the
personnel, key officers and rank-and-file workers and employees of co-defendants NMIC,
Maricalum and Island Cement creations of co-defendants PNB and DBP were the personnel of
co-defendant MMIC such that practically there has only been a change of name for all legal
purpose and intents.

ISSUE:

Is the take-over of PNB and DBP over Marinduque Mining in bad faith.

RULING:

NO. Their actions are mandated under the law. Where the corporations have directors
and officers in common, there may be circumstances under which their interest as officers in one
company may disqualify them in equity from representing both corporations in transactions
between the two. Thus, where one corporation was ‘insolvent and indebted to another, it has
been held that the directors of the creditor corporation were disqualified, by reason of self-
interest, from acting as directors of the debtor corporation in the authorization of a mortgage or
deed of trust to the former to secure such indebtedness In the same manner that when the
corporation is insolvent, its directors who are its creditors cannot secure to themselves any

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advantage or preference over other creditors. They cannot thus take advantage of their fiduciary
relation and deal directly with themselves, to the injury of others in equal right.

Directors of Insolvent Corporation, who are creditors of the company, cannot secure to
themselves any preference or advantage over other creditors in the payment of their claims. It is
not good morals or good law. The governing body of officers thereof are charged with the duty
of conducting its affairs strictly in the interest of its existing creditors, and it would be a breach
of such trust for them to undertake to give any one of its members any advantage over any other
creditors in securing the payment of his debts in preference to all others. When validity of these
mortgages, to secure debts upon which the directors were endorsers, was questioned by other
creditors of the corporation, they should have been classed as instruments rendered void by the
legal principle which prevents directors of an insolvent corporation from giving themselves a
preference over outside creditors.

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ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION vs. RITA C. MEJIA,

as Executrix of Testate Estate of ANDREA CORDOVA VDA. DE GUTIERREZ
G.R. No. 141617 August 14, 2001

FACTS:

Adalia Francisco was the Treasurer of Cardale Financing and Realty Corporation
(Cardale). Cardale, through Francisco, contracted with Andrea Gutierrez for the latter to execute
a deed of sale over certain parcels of land in favor of Cardale. It was agreed that Gutierrez shall
hand over the titles to Cardale but Cardale shall only give a downpayment, and later on full
payment in instalments. As security, Gutierrez shall retain a lien over the properties by way of
mortgage. Nonetheless, Cardale defaulted in its payment. Gutierrez then filed a petition with the
trial court to have the Deed rescinded.

While the case was pending, Gutierrez died, and Rita Mejia, being the executrix of the
will of Gutierrez took over the affairs of the estate.

The case dragged on for 14 years because Francisco lost interest in presenting evidence.
And while the case was pending, Cardale failed to pay real estate taxes over the properties in
litigation hence, the local government subjected said properties to an auction sale to satisfy the
tax arrears. The highest bidder in the auction sale was Merryland Development Corporation
(Merryland).

Apparently, Merryland is a corporation in which Francisco was the President and majority
stockholder. Mejia then sought to nullify the auction sale on the ground that Francisco used the
two corporations as dummies to defraud the estate of Gutierrez especially so that these
circumstances are present:
1. Francisco did not inform the lower court that the properties were delinquent in taxes;
2. That there was notice for an auction sale and Francisco did not inform the Gutierrez
estate and as such, the estate was not able to perform appropriate acts to remedy the
same;
3. That without knowledge of the auction, the Gutierrez estate cannot exercise their right of
redemption;
4. That Francisco failed to inform the court that the highest bidder in the auction sale was
Merryland, her other company;
5. That thereafter, Cardale was dissolved and the subject properties were divided and sold to
other people.

ISSUE:
Whether or not petitioner Francisco acted in bad faith in her dealings.

HELD:

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YES. The Court, after an assiduous study of this case, is convinced that the totality of the
circumstances appertaining conduce to the inevitable conclusion that petitioner Francisco acted
in bad faith.

Not only did Francisco allow the auction sale to take place, but she used her other
corporation (Merryland )in participating in the auction sale and in acquiring the very properties
which her first corporation(Cardale) had mortgaged to Gutierrez. It is dicta in corporation law
that a corporation is a juridical person with a separate and distinct personality from that of the
stockholders or members who compose it. However, when the legal fiction of the separate
corporate personality is abused, such as when the same is used for fraudulent or wrongful ends,
the courts have not hesitated to pierce the corporate veil.

If any general rule can be laid down, in the present state of authority, it is that 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.

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.

It is exceedingly apparent to the Court that the totality of Francisco’s actions clearly
betrays an intention to conceal the tax delinquencies, levy and public auction of the subject
properties from the estate of Gutierrez and the trial court in Civil Case No. Q-12366 until after
the expiration of the redemption period when the remotest possibility for the recovery of the
properties would be extinguished. Consequently, Francisco deprived the estate of Gutierrez of
its rights as mortgagee over the three parcels of land which were sold to Cardale.

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FRANCISCO MOTORS CORPORATION, vs. COURT OF APPEALS and SPOUSES GREGORIO

and LIBRADA MANUEL
G.R. No. 100812 June 25, 1999
FACTS:

The petitioner filed a complaint against private respondents to recover P3,412.06,

representing the balance of the jeep body purchased by the Manuels from petitioner; an
additional sum of P20,454.80 representing the unpaid balance on the cost of repair of the vehicle;
and P6,000.00 for cost of suit and attorneys fees. In their answer, private respondents interposed
a counterclaim for unpaid legal services by Gregorio Manuel in the amount of P50,000 which
was not paid by the incorporators, directors and officers of the petitioner. Petitioner stressed that
the personality of the corporation, vis--vis the individual persons who hired the services of
private respondent, is separate and distinct, hence, the liability of said individuals did not become
an obligation chargeable against petitioner. The trial court decided the case in favor of petitioner
in regard to the petitioners claim for money, but also allowed the counter-claim of private
respondents. Both parties appealed. The Court of Appeals sustained the trial courts
decision. Petitioner submits that respondent court should not have resorted to piercing the veil of
corporate fiction because the transaction concerned only respondent Gregorio Manuel and the
heirs of the late Benita Trinidad.Hence, the present petition.

ISSUE:

Is the doctrine of piercing the veil of corporate entity applicable?

RULING:

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

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SAN MIGUEL CORPORATION EMPLOYEES UNION-PTGWO, represented by its President

RAYMUNDO HIPOLITO, JR. vs. HON. MA. NIEVES D. CONFESOR, Secretary of Labor, Dept.
of Labor & Employment, SAN MIGUEL CORPORATION, MAGNOLIA CORPORATION
(Formerly, Magnolia Plant) and SAN MIGUEL FOODS, INC. (Formerly, B-Meg Plant)
G.R. No. 111262. September 19, 1996

FACTS:

On June 28, 1990, petitioner-union San Miguel Corporation Employees Union - PTGWO
entered into a CBA with private respondent San Miguel Corporation (SMC) to take effect upon
the expiration of the previous CBA or on June 30, 1989.

In keeping with their vision and long term strategy for business expansion, SMC
management informed its employees in a letter that the company business would undergo a
restructuring.

Magnolia and Feeds and Livestock Division were spun-off and became 2 separate and
distinct corporations: Magnolia Corporation (Magnolia) and San Miguel Foods, Inc. (SMFI).
Notwithstanding this, the CBA remained in force and effect.

After June 30, 1992, the CBA was renegotiated in accordance with the terms of the CBA
and Article 253-A of the Labor Code. Negotiations started sometime in July, 1992 with the two
parties submitting their respective proposals and counterproposals.

During the negotiations, the petitioner-union insisted that the bargaining unit of SMC
should still include the employees of the spun-off corporations: Magnolia and SMFI; and that the
renegotiated terms of the CBA shall be effective only for the remaining period of 2 years or
until June 30, 1994.

SMC, on the other hand, contended that the members/employees who had moved to
Magnolia and SMFI, automatically ceased to be part of the bargaining unit at the SMC.

Unable to agree on these issues, petitioner-union declared a deadlock. No settlement was

arrived at despite several meetings held between the parties.

On November 3, 1992, a strike vote was conducted which resulted in a yes vote in favor
of a strike.

SMC, Magnolia and SMFI filed a petition with the Secretary of Labor praying that the
latter assume jurisdiction over the labor dispute in a vital industry.

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As prayed for, the Secretary of Labor assumed jurisdiction over the labor dispute
on November 10, 1992. Several conciliation meetings were held but still no
agreement/settlement was arrived at by both parties.

Secretary of Labor issued the assailed order directing, among others, that the renegotiated
terms of the CBA shall be effective for the period of 3 years from June 30, 1992; and that such
CBA shall cover only the employees of SMC and not of Magnolia and SMFI.

Dissatisfied, petitioner-union questioned the Order of the Secretary of Labor.

Meanwhile, an urgent motion for leave to intervene in the case was filed by the Samahan
ng Malayang Manggagawa-San Miguel Corporation-Federation of Free Workers (SMM-SMC-
FFW) through its authorized representiative, Elmer S. Armando, alleging that it is one of the
contending parties adversely effected by the temporary restraining order.

Efren Carreon, Acting President of the SMCEU-PTGWO, filed a petition for the
withdrawal/dismissal of the petition considering that the temporary restraining order jeopardized
the employees right to conclude a new CBA. At the same time, he challenged the legal
personality of Mr. Raymundo Hipolito, Jr. to represent the Union as its president when the latter
was already officially dismissed from the company on October 4, 1994.

ISSUE:
Whether the employees of Magnolia and SMFI should still be considered part of the
bargaining unit of SMC

RULING:

No. Magnolia and SMFI were spun-off to operate as distinct companies. Management
saw the need for these transformations in keeping with its vision and long term strategy as it
explained in its letter addressed to the employees.

Undeniably, the transformation of the companies was a management prerogative and

business judgment which the courts cannot look into unless it is contrary to law, public policy or
morals.
Neither can the court impute any bad faith on the part of SMC so as to justify the
application of the doctrine of piercing the corporate veil. Ever mindful of the employee’s
interests, management has assured the concerned employees that they will be absorbed by the
new corporations without loss of tenure and retaining their present pay and benefits according to
the existing CBAs.

They were advised that upon the expiration of the CBAs, new agreements will be
negotiated between the management of the new corporations and the bargaining representatives
of the employees concerned.

Therefore Magnolia and SMFI became distinct entities with separate juridical
personalities. Thus, they cannot belong to a single bargaining unit.

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Petitioner-unions attempt to include the employees of Magnolia and SMFI in the SMC
bargaining unit so as to have a bigger mass base of employees has, therefore, no more valid
ground.

WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES CHAMSAY

vs. SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO,
ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN,
BALDWIN YOUNG and AVELINO V. CRUZ
G.R. No. 75875 December 15, 1989

FACTS:
This consolidated petition assails the decision of the Court of Appeals ordering that the
case be remanded to the Securities and Exchange Commission with the directive that a new
stockholder’s meeting of Saniwares.
Saniwares, a domestic corporation in which one of the incorporators Mr. Baldwin Young
went abroad to look for foreign partners, European or American who could help in its expansion
plans. American Standard Inc (ASI) , a foreign corporation domiciled in Delaware, United States
entered into an Agreement with Saniwares and some Filipino investors whereby ASI and the
Filipino investors agreed to participate in the ownership of an enterprise which would engage
primarily in the business of manufacturing in the Philippines and selling here and abroad vitreous
china and sanitary wares.
The Agreement has the following provisions relevant to the issues in these cases on the
nomination and election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in
the form annexed hereto as Exhibit A and, insofar as permitted under Philippine law,
shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of
Directors, which shall consist of nine individuals. As long as American-Standard shall
own at least 30% of the outstanding stock of the Corporation, three of the nine directors
shall be designated by American-Standard, and the other six shall be designated by the
other stockholders of the Corporation.

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The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. There were two groups that were in dispute in this case which are the
Lagdameo group which composed of the Filipino investors and the American Standard Inc,
composed of the foreign investors.
On March 8, 1983, the annual stockholders' meeting was held. There were protests
against the action of the Chairman and heated arguments ensued. An appeal was made by the
ASI representative to the body of stockholders present that a vote be taken on the ruling of the
Chairman. The Chairman, Baldwin Young, declared the appeal out of order and no vote on the
ruling was taken.
According to the Filipino group, a basic disagreement was due to their desire to expand
the export operations of the company to which ASI objected as it apparently had other
subsidiaries of joint joint venture groups in the countries where Philippine exports were
contemplated.
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August 15, 1962
wherein it is clearly stated that the parties' intention was to form a corporation and not a joint
venture. According to them, the Lagdameo and Young Group never pleaded in their pleading
that the "Agreement" failed to express the true intent of the parties.
ISSUE:
Whether the nature of business established by the parties is one of a joint venture or a
corporation?
RULING:
The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual intention
which is determined in accordance with the rules governing the interpretation and construction of
contracts.
In the instant cases, our examination of important provisions of the Agreement as well as
the testimonial evidence presented by the Lagdameo and Young Group shows that the parties
agreed to establish a joint venture and not a corporation. The history of the organization of
Saniwares and the unusual arrangements which govern its policy making body are all consistent
with a joint venture and not with an ordinary corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the
Agreement with ASI in behalf of the Philippine nationals. He testified that ASI agreed to accept
the role of minority vis-a-vis the Philippine National group of investors, on the condition that the
Agreement should contain provisions to protect ASI as the minority.
An examination of the Agreement shows that certain provisions were included to protect
the interests of ASI as the minority. For example, the vote of 7 out of 9 directors is required in
certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually

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entitled to designate a member of the Executive Committee and the vote of this member is
required for certain transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority vote for the amendment of the articles
and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate
the president and plant manager [Sec. 5 (6)]. The Agreement further provides that the sales
policy of Saniwares shall be that which is normally followed by ASI [Sec. 13 (a)] and that
Saniwares should not export "Standard" products otherwise than through ASI's Export Marketing
Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to provide technology and know-how
to Saniwares and the latter paid royalties for the same
The legal concept of ajoint venture is of common law origin. It has no precise legal
definition but it has been generally understood to mean an organization formed for some
temporary purpose. The main distinction cited by most opinions in common law jurisdictions is
that the partnership contemplates a general business with some degree of continuity, while the
joint venture is formed for the execution of a single transaction, and is thus of a temporary
nature.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were
impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John Griffin,
David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan, Emesto V.
Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected directors of Saniwares
at the March 8,1983 annual stockholders' meeting.

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