Corporation Law Case Digests 1

CORPORATION LAW CASE DIGESTS | 1 1
BUSINESS ORGANIZATIONS IN GENERAL to act in general or (2) acquiescence in his acts of a

particular nature, with actual or constructive knowledge
1. Yao Ka Sin Trading vs Court of Appeals thereof, whether within or without the scope of his
209 SCRA 763 – Business Organization – Corporation ordinary powers. These are not present in this case.
Law – Liability of Officers – Apparent Authority
Also, the subsequent letter by Prime White to Yao Ka
FACTS: In 1973, Constancio Maglana, president of Prime Sin is binding because Yao Ka Sin’s failure to respond
White Cement Corporation, sent an offer letter to Yao constitutes an acceptance, per stated in the letter itself
Ka Sin Trading. The offer states that Prime White is – which was not contested by Henry Yao during trial.
willing to sell 45,000 bags of cement at P24.30 per bag.
The offer letter was received by Yao Ka Sin’s manager, 2. GR No. 75875, December 15, 1989
Henry Yao. Yao accepted the letter and pursuant to the Aurbach v Sanitary Wares
letter, he sent a check in the amount of P243,000.00
equivalent to the value of 10,000 bags of cement. FACTS: In 1961, Sanitary Wares Manufacturing
However, the Board of Directors of Prime White Corporation (Saniwares) was incorporated for the
rejected the offer letter sent by Maglana but it primary purpose of manufacturing and marketing
considered Yao’s acceptance letter as a new contract sanitary wares.
offer hence the Board sent a letter to Yao telling him
that Prime White is instead willing to sell only 10,000 On 15 August 1962, American Standard Inc (ASI), a
bags to Yao Ka Sin and that he has ten days to reply; foreign corporation, entered into an agreement with
that if no reply is made by Yao then they will consider it Saniwarse and some Filipino investors to participate in
as an acceptance and that thereafter Prime White shall the ownership of an enterprise which will engage in the
deposit the P243k check in its account and then deliver manufacturing in the Philippines and sales here and
the cements to Yao Ka Sin. Henry Yao never replied. abroad of china and sanitary wares. The Philippine
operations of this enterprise were carried by the
Later, Yao Ka Sin sued Prime White to compel the latter incorporation under the name Sanitary Wares
to comply with what Yao Ka Sin considered as the true Manufacturing Corporation.
contract, i.e., 45,000 bags at P24.30 per bag. Prime
White in its defense averred that although Maglana is One of the contents of the agreement was that ASI will
empowered to sign contracts in behalf of Prime White, own 30% of the outstanding stocks and in turn, it shall
such contracts are still subject to approval by Prime have the power to designate three out of the nine
White’s Board, and then it still requires further approval directors of the company.
by the National Investment and Development
Corporation (NIDC), a government owned and Later, ASI's stake expanded to 40%.
controlled corporation because Prime White is a
subsidiary of NIDC. The parties reached a disagreement because of the
desire to expand the company's export operations
Henry Yao asserts that the letter from Maglana is a which ASI objected to since they have joint ventures in
binding contract because it was made under the countries where the expansion was contemplated.
apparent authority of Maglana. The trial court ruled in
favor of Yao Ka Sin. The Court of Appeals reversed the On 8 March 1983, the annual stockholders' meeting was
trial court. held. Duting the meeting, the chairman, Baldwin Young
ruled against the nomination of two more persons since
ISSUE: Whether or not the president of a corporation is the nine directors as allowed by the agreement were
clothed with apparent authority to enter into binding already picked. Some members conducted a different
contracts with third persons without the authority of election where ASI nominated four members to the
the Board. board.
RULING: No. The Board may enter into contracts This trigerred the filing of petiton for preliminary
through the president. The president may only enter injunction by the Filipino group (Lagdameo Group) and
into contracts upon authority of the Board. Hence, any a petiton for quo warranto and application for
agreement signed by the president is subject to receivership by the ASI group (Aurbach).
approval by the Board. Unlike a general manager (like
the case of Francisco vs GSIS), the president has no The Securities and Exchange Commission upheld the
apparent authority to enter into binding contracts with election of the Lagdameo group and denied the quo
third persons. Further, if indeed the by-laws of Prime warranto. The IAC remanded the case to SEC upon
White did provide Maglana with apparent authority, appeal.
this was not proven by Yao Ka Sin.
ISSUE: Whether or not Section 24 of the Corporation
As a rule, apparent authority may result from (1) the Code which gives stockholders the right to accumulate
general manner, by which the corporation holds out an their votes in electing directors is applicable to
officer or agent as having power to act or, in other Saniwares, a joint venture.
words, the apparent authority with which it clothes him
RULING: No, Saniwares ASI stockholders may not avail

of Sec 24 of the Corporation Code. HELD: No. The Court reject for lack of merit petitioner's
The history and arrangements governing the policy claim that the inclusion of the phrase "doing business
making of Saniware are consistent with a joint venture under the name and style of Mendez Medical Group"
and not an ordinary corporation. after his preliminary investigation and arraignment
deprives him of the right to question the existence of
"Joint venture is hardly distinguishable from partnership this "entity."
since their elements are similar. The main distinction The petitioner however has not drawn our attention to
cited by most opinions in common law jurisdictions is any of his related operations that actually possesses its
that the partnership contemplates a general business own juridical personality. In the original information,
with some degree of continuity, while the joint venture petitioner is described as "sole proprietor of Weigh Less
is formed for the execution of a single transaction, and Center." A sole proprietorship is a form of business
is thus of a temporary nature. This observation is not organization conducted for profit by a single individual,
entirely accurate in this jurisdiction, since under the and requires the proprietor or owner thereof, like the
Civil Code, a partnership may be particular or universal, petitioner-accused, to secure licenses and permits,
and a particular partnership may have for its object a register the business name, and pay taxes to the
specific undertaking. (Art. 1783, Civil Code). It would national government without acquiring juridical or legal
seem therefore that under Philippine law, a joint personality of its own.
venture is a form of partnership and should thus be
governed by the law of partnerships. The Supreme B. CLASSES OF CORPORATIONS
Court has however recognized a distinction between
these two business forms, and has held that although a 1. GR 147402, 14 January 2004
corporation cannot enter into a partnership contract, it Feliciano vs. Commission on Audit
may however engage in a joint venture with others. "
FACTS: A Special Audit Team from Commission on Audit
Moreover the right of each group to cumulative voting (COA) Regional Office No. VIII audited the accounts of
shall be primarily governed by their Agreement which the Leyte Metropolitan Water District (LMWD).
denies ASI the right to do so. SEC decision affirmed. Subsequently, LMWD received a letter from COA dated
19 July 1999 requesting payment of auditing fees. As
3. MENDEZ vs PEOPLE General Manager of LMWD, Engr. Ranulfo C. Feliciano
G.R. No. 179962 June 11, 2014DR. JOEL C. MENDEZ, sent a reply dated 12 October 1999 informing COA’s
Petitioner, vs. PEOPLE OF THE PHILIPPINES, Regional Director that the water district could not pay
Respondents. the auditing fees. Feliciano cited as basis for his action
Sections 6 and 20 of PD 198, as well as Section 18 of RA
FACTS: The BIR alleged that petitioner failed to file his 6758. The Regional Director referred Feliciano’s reply to
income tax returns for taxable years 2001 to 2003 and, the COA Chairman on 18 October 1999. On 19 October
consequently evaded his obligation to pay the correct 1999, Feliciano wrote COA through the Regional
amount of taxes due the government. Director asking for refund of all auditing fees LMWD
previously paid to COA. On 16 March 2000, Feliciano
In his defense, the petitioner admitted that he has been received COA Chairman Celso D. Gangan’s Resolution
operating as a single proprietor under these trade dated 3 January 2000 denying Feliciano’s request for
names in Quezon City, Makati, Dagupan and San COA to cease all audit services, and to stop charging
Fernando. However, he countered that he did not file auditing fees, to LMWD. The COA also denied Feliciano’s
his income tax returns in these places because his request for COA to refund all auditing fees previously
business establishments were registered only in 2003 at paid by LMWD. Feliciano filed a motion for
the earliest; thus, these business establishments were reconsideration on 31 March 2000, which COA denied
not yet in existence at the time of his alleged failure to on 30 January 2001. On 13 March 2001, Felicaino filed
file his income tax return. the petition for certiorari.
The accused was arraigned and pleaded not guilty. After ISSUE: Whether a Local Water District (“LWD”) is a
arraignment, prosecution filed a "Motion to Amend government-owned or controlled corporation.
Information with Leave of Court. Among the changes
was the change in the name of his business to include HELD: The Constitution recognizes two classes of
the phrase "Mendez Medical Group". corporations. The first refers to private corporations
created under a general law. The second refers to
The petitioner adds that the change of name to government-owned or controlled corporations created
"Mendez Medical Group" deprived him of the right, by special charters. The Constitution emphatically
during the preliminary investigation, to present prohibits the creation of private corporations except by
evidence against the alleged operation and or existence a general law applicable to all citizens. The purpose of
of this entity. this constitutional provision is to ban private
corporations created by special charters, which
ISSUE: Whether or not Mendez Medical Group has a historically gave certain individuals, families or groups
distinct entity. special privileges denied to other citizens. In short,
Congress cannot enact a law creating a private behind Narra, Tesoro and McArthur, Redmont argued
corporation with a special charter. Such legislation that they should not be qualified to engage in mining
would be unconstitutional. Private corporations may activities, which is a partly nationalized activity.
exist only under a general law. If the corporation is
private, it must necessarily exist under a general law. Narra, Tesoro and McArthur argued that, applying the
Stated differently, only corporations created under a control test, they should be considered Philippine
general law can qualify as private corporations. Under corporations since on paper, it clearly appears that at
existing laws, that general law is the Corporation Code, least 60% of their capital is owned by Filipinos.
except that the Cooperative Code governs the
incorporation of cooperatives. The Constitution But Redmont argued that given the circumstances, it is
authorizes Congress to create government-owned or the grandfather rule which should be applied.
controlled corporations through special charters. Since
private corporations cannot have special charters, it ISSUE: Whether or not Narra Nickel Mining and Devt
follows that Congress can create corporations with Corp is a foreign corporation.
special charters only if such corporations are
government-owned or controlled. Obviously, LWDs are HELD: YES. In finally applying the grandfather rule and
not private corporations because they are not created declaring that the corporations are indeed not qualified
under the Corporation Code. LWDs are not registered to engage in mining activities in the Philippines, the
with the Securities and Exchange Commission. Supreme Court found that the corporation crafted a
“web of corporate layering,” whereby at face value, it
Section 14 of the Corporation Code states that “[A]ll appears that the corporations satisfy the Filipino equity
corporations organized under this code shall file with requirement, but in truth the ultimate controlling
the Securities and Exchange Commission articles of shareholders are foreigners.
incorporation x x x.” LWDs have no articles of
incorporation, no incorporators and no stockholders or Though the Supreme Court recognized that corporate
members. There are no stockholders or members to layering is allowed by law, it drew the line in cases when
elect the board directors of LWDs as in the case of all it is used to skirt around the Constitution and pertinent
corporations registered with the Securities and laws.
Exchange Commission. The local mayor or the provincial
governor appoints the directors of LWDs for a fixed Thus, the Supreme Court did away with the control test
term of office. LWDs exist by virtue of PD 198, which and applied the grandfather rule because it found the
constitutes their special charter. Since under the nationalities of the corporations to be “in doubt,” as
Constitution only government-owned or controlled shown by the following indicia:
corporations may have special charters, LWDs can
validly exist only if they are government-owned or • The corporations have a common major investor,
controlled. To claim that LWDs are private corporations MBMI, a 100% foreign corporation;
with a special charter is to admit that their existence is
constitutionally infirm. Unlike private corporations, • Their corporate structures and nominal shareholders
which derive their legal existence and power from the are the same;
Corporation Code, LWDs derive their legal existence and
power from PD 198. • During the pendency of the cases, the corporations
moved to convert their MPSA applications to financial
C. NATIONALITY OF CORPORATIONS or technical assistance agreements instead;
1. NARRA NICKEL MINING AND DEVELOPMENT CORP. • The corporate documents of MBMI show that its
vs. REDMONT CONSOLIDATED MINES CORP. operations are only through its local counterparts;
722 SCRA 382
• In the course of the proceedings, MBMI suddenly
FACTS: Redmont, a domestic corporation organized and divested its interest to another company and
existing under Philippine laws, took interest in mining subsequently claimed that the cases are now moot. The
and exploring certain areas of the province of Palawan. Supreme Court agreed with the ruling of the Court of
However, the areas it sought to explore were already Appeals who found these actions highly suspicious.
covered by the Mineral Production Sharing Agreement
(MPSA) applications of Narra, Tesoro and McArthur These clearly show the pitfall of the control test -- it is
companies. as easy and more convenient to circumvent as it is easy
and more convenient to use and apply in determining
Redmont opposed their applications on the ground that the nationality of a corporation.
at least 60% of the capital stock of McArthur, Tesoro
and Narra are owned and controlled by a common Through the application of the grandfather rule, the SC
shareholder, MBMI Resources Inc., a 100% Canadian held that the petitioners Narra Nickel, Tesoro, and
corporation. MacArthur Mining are not considered Philippine
nationals since MBMI, a 100% Canadian corporation,
Since MBMI was alleged to be the ultimate driving force owns 60% or more of their equity shares interests.
nevertheless necessary and related to Petron's business

Hence, as non-Philippine nationals, they are disqualified operations. If not for these tasks, Petron's products will
to participate in the exploration, utilization and not reach the consumers in their proper state. Indeed,
development of the Philippine natural resources. petitioners' roles were vital inasmuch as they involve
the preparation of the products that Petron will
2. ALILIN vs. PETRON CORPORATION distribute to its consumers.
725 SCRA 342
In sum, the Court finds that RDG is a labor-only
FACTS: Petron is a domestic corporation engaged in the contractor. As such, it is considered merely as an agent
oil business. In 1968, Romualdo D. Gindang Contractor, of Petron. Consequently, the employer-employee
owned and operated by Romualdo D. Gindang, started relationship which the Court finds to exist in this case is
recruiting laborers for fielding to Petron’s Mandaue between petitioners as employees and Petron as their
Bulk Plant. When Romualdo died in 1989, his son employer. Petron therefore, being the principal
Romeo, through Romeo D. Gindang Services (RDG), took employer and RDG, being the labor-only contractor, are
over and continued to provide manpower services to solidarily liable for petitioners' illegal dismissal and
Petron. Petron and RDG entered into a Contract for monetary claims.
Services from June 1, 2000 to May 31, 2002, to provide
Petron with janitorial, maintenance, tanker receiving, In sum, the Court finds that RDG is a labor-only
packaging and other utility services. This was extended contractor. As such, it is considered merely as an agent
until Sept 30, 2002. Upon expiration, no renewal was of Petron. Consequently, the employer-employee
done and workers were dismissed. Petitioners filed an relationship which the Court finds to exist in this case is
illegal dismissal complaint against Petron alleging that between petitioners as employees and Petron as their
they were barred from continuing their services on Oct employer. Petron therefore, being the principal
16, 2002. Petitioners claim that although it was RDG employer and RDG, being the labor-only contractor, are
who hired them and paid their salaries, RDG is a labor- solidarily liable for petitioners' illegal dismissal and
only contractor, acting as an agent of Petron, their true monetary claims.
employer. Claiming to be regular employees, petitioners
asserted that their dismissal allegedly in view of the 3. G.R. No. L-3869, January 31, 1952
expiration of the service contract between Petron and S. David Winship vs Philippine Trust Company
RDG is illegal. RDG denied liability over petitioners’
claim of illegal dismissal while also corroborating FACTS: Prior to December 1941, the Eastern Isles Import
petitioners’ claim that they are regular employees of Corporation, which is mainly owned by American
Petron. Petron, on the other hand, maintained that RDG citizens, had a current account deposit with the Phil
is an independent contractor and the real employer of Trust Company. Then later, the Japanese administration
the petitioners. It was RDG, which hired and selected issued an order requiring all deposit accounts of the
petitioners, paid their salaries and wages, and directly hostile people to be transferred to the bank of Taiwan.
supervised their work. In compliance, Phil. Trust transferred and paid the
credit balances of the current account deposits of the
Both Labor Arbiter and NLRC ruled that petitioners are corporation to the bank of Taiwan.
Petron’s regular employees. CA however ruled
otherwise stating that there is no employer-employee The pre-war current deposit accounts of the Eastern
relationship, and that RDG is in fact an independent Isles Import Corporation and of the Eastern Isles, Inc.
labor contractor with sufficient capitalization and were subsequently transferred to S. Davis Winship who,
investment. The Motion for Reconsideration by on August 12, 1947, presented to the Philippine Trust
Petitioners was dismissed, hence this petition. Company checks Nos. A-79212 and H-579401 covering
the aforesaid deposits. The Philippine Trust Company,
ISSUE: Whether or not Petron is liable for petitioners’ however, refused to pay said checks, whereupon, on
dismissal. September 6, 1947, S. Davis Winship instituted the
present action against the Philippine Trust Company in
HELD: YES. Petitioners were hired by Romeo or his the Court of First Instance of Manila, to recover upon
father and that their salaries were paid by them do not the first cause of action the sum of P51,410.91 and
detract from the conclusion that there exists an under the second cause of action the sum of
employer-employee relationship between the parties P34,827.74.
due to Petron's power of control over the petitioners.
In its answer, the defendant Philippine trust Company
Petitioners were given various work assignments such invoked the order of the Japanese Military
as tanker receiving, barge loading, sounding, gauging, Administration by virtue of which it transferred the
warehousing, mixing, painting, carpentry, driving, gasul current deposit accounts in question to the Bank of
filling and other utility works. Petron refers to these Taiwan as the depository of the Bureau of Enemy
work assignments as menial works which could be Property Custody of the Japanese Military
performed by any able-bodied individual. The Court Administration.
finds, however, that while the jobs performed by
petitioners may be menial and mechanical, they are
After trial, the Court of First Instance of Manila

rendered a decision upholding the contention of the ISSUE: Whether or not the respondent corporation is a
defendant and accordingly dismissing the complaint. corporation of public enemy.
ISSUE: Whether or not Eastern Isles Import Corporation RULING: Since the majority of stockholders of the
and Eastern Isles, Inc. are foreign corporations. respondent corporation were German subjects, the
respondent became an enemy of the state upon the
RULING: YES. The SC affirm the appealed judgment. As outbreak of the war between US and Germany. The
it has been stipulated by the parties that the defendant English and American cases relied upon by the Court of
transferred the deposits in question to the Bank of Appeals lost in force upon the latest decision of the
Taiwan in compliance with the order of the Japanese Supreme Court of US in which the control test has
Military Administration, the defendant was released adopted.
from any obligation to the depositors or their
transferee. Appellant's contention that there is no Since World War I, the determination of enemy
positive showing that the transfer was made by the nationality of corporations has been discussed in many
Philippine Trust Company in compliance with the order countries, belligerent and neutral. A corporation was
of the Japanese Military Administration, and its logical subject to enemy legislation when it was controlled by
effect is to make such act binding on said company. At enemies, namely managed under the influence of
any rate, the defendant corporation has not impugned individuals or corporations themselves considered as
its validity. enemies…
In the case of Filipinas Compañia de Seguros vs. The Philippine Insurance Law (Act No 2427, as
Christern Henefeld and Co., Inc., Phil., 54, we held that amended), in Section 8, provides that “anyone except a
the nationality of a private corporation is determined by public enemy may be insured”. It stands to reason that
the character or citizenship of its controlling an insurance policy ceases to be allowable as soon as an
stockholders; and this pronouncement is of course insured becomes a public enemy.
decisive as to the hostile character of the Eastern Isles,
Inc., as far as the Japanese Military Administration was The respondent having an enemy corporation on
concerned, it being conceded that the controlling December 10, 1941, the insurance policy issued in its
stockholders of said corporations were American favor on October 1, 1941, by the petitioner had ceased
citizens. to be valid and enforceable, and since the insured good
were burned during the war, the respondent was not
Wherefore, the appealed judgment is affirmed, with entitled to any indemnity under said policy from the
costs against the appellant. petitioner. However, elementary rule of justice (in the
absence of specific provisions in the Insurance Law)
4. FILIPINAS COMPANIA DE SEGUROS vs. CHRISTERN require that the premium paid by the respondent for
HUENEFELD and CO., INC. 89 Phil 54 the period covered by its policy from December 11,
DECEMBER 21, 2016 1941, should be returned by the petitioner.
FACTS: On October 1, 1941, the respondent D. CORPORATE JURIDICAL PERSONALITY

corporation, Christern Huenefeld and Co., Inc., after
payment of corresponding premium, obtained from the 1. G.R. Nos. 194964-65. January 11, 2016
petitioner, Filipinas Cia de Seguros fire policy covering UNIVERSITY OF MINDANAO, INC.,
merchandise contained in a building located at Binondo, petitioner, vs. BANGKO SENTRAL NG PILIPINAS, ET
Manila. On February 27, 1942 or during the Japanese AL., respondents.
military occupation, the building and insured
merchandise were burned. In due time, the respondent Acts of an officer that are not authorized by the board
submitted to the petitioner its claim under the policy. of directors/trustees do not bind the corporation
The petitioner refused to pay the claim on the ground unless the corporation ratifies the acts or holds the
that the policy in favor of the respondent that ceased to officer out as a person with authority to transact on its
be a force on the date the United States declared war behalf.
against Germany, the respondent corporation (through
organized under and by virtue of the laws of Philippines) Facts: University of Mindanao is an educational
being controlled by German subjects and the petitioner institution. For the year 1982, its Board of Trustees was
being a company under American jurisdiction when said chaired by Guillermo B. Torres. His wife, Dolores P.
policy was issued on October 1, 1941. The theory of the Torres, sat as University of Mindanao's Assistant
petitioner is that the insured merchandise was burned Treasurer.
after the policy issued in 1941 had ceased to be
effective because the outbreak of the war between Before 1982, Guillermo B. Torres and Dolores
United States and Germany on December 10, 1941, and P. Torres incorporated and operated two (2) thrift
that the payment made by the petitioner to the banks: (1) First Iligan Savings & Loan Association, Inc.
respondent corporation during the Japanese military (FISLAI); and (2) Davao Savings and Loan Association,
occupation was under pressure. Inc. (DSLAI). Guillermo B. Torres chaired both thrift
banks. He acted as FISLAI's President, while his wife, properties to secure FISLAI's debts. That it never
Dolores P. Torres, acted as DSLAI's President and ratified the execution of the mortgage contracts.
FISLAI's Treasurer. 6 Moreover, as an educational institution, it cannot
mortgage its properties to secure another person's
Upon Guillermo B. Torres' request, Bangko debts. 28
Sentral ng Pilipinas issued a P1.9 million standby RTC CDO- in favor of UM
emergency credit to FISLAI. The release of standby RTC Iligan- in favor of UM
emergency credit was evidenced by three (3) CA- in favor of BSP
promissory notes which were all signed by Guillermo
B. Torres, and were co-signed by either his wife, Issue:
Dolores P. Torres, or FISLAI's Special Assistant to the WON University of Mindanao is bound by the real
President, Edmundo G. Ramos, Jr. 7 estate mortgage contracts executed by Saturnino
Petalcorin?
On May 25, 1982, University of Mindanao's
Vice President for Finance, Saturnino Petalcorin, Ruling: NO.
executed a deed of real estate mortgage over The mortgage contracts executed in favor of
University of Mindanao's property in CDO in favor of respondent do not bind petitioner. They were
BSP. TE executed without authority from petitioner.
As proof of his authority thereof, Petalcorin Petitioner must exercise its powers and
showed a Secretary's Certificate signed by University conduct its business through its Board of Trustees.
of Mindanao's Corporate Secretary, Aurora de Leon. Section 23 of the Corporation Code provides:
SEC. 23. The board of directors or trustees. —
An additional loan of P620,700.00 was Unless otherwise provided in this Code, the
granted by BSP to FISLAI. corporate powers of all corporations formed
under this Code shall be exercised, all
Saturnino Petalcorin executed another deed business conducted and all property of such
of real estate mortgage, allegedly on behalf of corporations controlled and held by the
University of Mindanao, over its two properties in board of directors or trustees to be elected
Iligan City as additional security for FISLAI's loans. from among the holders of stocks, or where
there is no stock, from among the members
On January 11, 1985, FISLAI, DSLAI, and Land of the corporation, who shall hold office for
Bank of the Philippines entered into a Memorandum one (1) year and until their successors are
of Agreement intended to rehabilitate the thrift elected and qualified.
banks. Among the terms of the agreement was the
merger of FISLAI and DSLAI, with DSLAI as the Being a juridical person, petitioner cannot
surviving corporation. DSLAI later became known as conduct its business, make decisions, or act in any
Mindanao Savings and Loan Association, Inc. manner without action from its Board of Trustees.
(MSLAI). 21 The Board of Trustees must act as a body in order to
exercise corporate powers. Individual trustees are
MSLAI failed to recover from its losses and not clothed with corporate powers just by being a
was liquidated. 23 trustee. Hence, the individual trustee cannot bind
the corporation by himself or herself.
On June 18, 1999, Bangko Sentral ng Pilipinas
sent a letter to University of Mindanao, informing it The corporation may, however, delegate
that the bank would foreclose its properties if through a board resolution its corporate powers or
MSLAI's total outstanding obligation of functions to a representative, subject to limitations
P12,534,907.73 remained unpaid. 24 under the law and the corporation's articles of
incorporation. 112
In its reply, University of Mindanao, through
its Vice President for Accounting, Gloria E. Detoya, The relationship between a corporation and
denied that University of Mindanao's properties its representatives is governed by the general
were mortgaged. It also denied having received any principles of agency. 113 Article 1317 of the Civil
loan proceeds from Bangko Sentral ng Code provides that there must be authority from the
Pilipinas. 25 DETACa principal before anyone can act in his or her name:
ART. 1317. No one may contract in the name
On July 16, 1999, UM filed two Complaints of another without being authorized by the
for nullification and cancellation of mortgage. latter, or unless he has by law a right to
represent him.
University of Mindanao also alleged that
Aurora de Leon's certification was anomalous. That, Hence, without delegation by the board of
it never authorized Saturnino Petalcorin to execute directors or trustees, acts of a person — including
real estate mortgage contracts involving its those of the corporation's directors, trustees,
shareholders, or officers — executed on behalf of the unpaid rentals 11 and (2) vacate the premises within
corporation are generally not binding on the five (5) days from receipt of the notice. 12 CAIHTE
corporation. 114
In the meantime, Proton sent NCLPI an
Contracts entered into in another's name undated request to use the premises as a temporary
without authority or valid legal representation are display center for "Audi" brand cars for a period of
generally unenforceable. ten (10) days. In the same letter, Proton undertook
"not to disturb [NCLPI and LMI's] lease agreement
The unenforceable status of contracts and ensure that [NCLPI] will not breach the same [by]
entered into by an unauthorized person on behalf of lending the premises . . . without any
another is based on the basic principle that contracts consideration." 13 NCLPI acceded to this request. 14
must be consented to by both parties. 115 There is
no contract without meeting of the minds as to the On October 11, 1996, NCLPI entered into a
subject matter and cause of the obligations created Memorandum of Agreement with Proton whereby
under the contract.116 the former agreed to allow Proton "to immediately
commence renovation work even prior to the
Consent of a person cannot be presumed execution of the Contract of Sublease . . . ." 15 In
from representations of another, especially if consideration, Proton agreed to transmit to NCLPI a
obligations will be incurred as a result. Thus, check representing three (3) months of rental
authority is required to make actions made on his or payments, to be deposited only upon the due
her behalf binding on a person. Contracts entered execution of their Contract of Sublease. 16
into by persons without authority from the
corporation shall generally be considered ultra LMI, on November 8, 1996, entered into a
vires and unenforceable 117 against the corporation. Contract of Lease with Proton over the subject
premises. 18
However, personal liabilities may be incurred
by directors who assented to such unauthorized On November 12, 1996, LMI filed a
act 121 and by the person who contracted in excess Complaint 19 for sum of money with damages
of the limits of his or her authority without the seeking to recover from NCLPI the amount of
corporation's knowledge. 122 P2,696,639.97.
2. NISSAN CAR LEASE PHILS., INC., petitioner, vs. LICA NCLPI demanded Proton to vacate the leased
MANAGEMENT, INC. and PROTON PILIPINAS, premises. 21 However, Proton replied that it was
INC., respondents. [G.R. No. 176986. January 13, 2016.] occupying the property based on a lease contract
with LMI. 22
Facts: LMI is the absolute owner of a property
located at 2326 Pasong Tamo Extension, Makati City NCLPI filed its Answer 25 and Third-Party
with a total area of approximately 2,860 square Complaint 26 against Proton.
meters. 5 On June 24, 1994, it entered into a contract
with NCLPI for the latter to lease the property for a The trial court admitted 29 the third-party
term of ten (10) years (or from July 1, 1994 to June 30, complaint over LMI's opposition.
2004) with a monthly rental of P308,000.00 and an
annual escalation rate of ten percent (10%). Eventually, the case reached the SC in a
Petition for Review on Certiorari.
Subsequently, NCLPI became delinquent in
paying the monthly rent, such that its total rental Issue:
arrearages 8 amounted to P1,741,520.85. 9 In May WON Banson, the person who caused the preparation
1996, Nissan and Lica verbally agreed to convert the of the petition was authorized to do so?
arrearages into a debt to be covered by a promissory
note and twelve (12) postdated checks, each Ruling: YES.
amounting to P162,541.95 as monthly payments According to LMI, NCLPI's petition must be
starting June 1996 until May 1997. 10 denied outright on the ground that Luis Manuel T.
Banson (Banson), who caused the preparation of the
While NCLPI was able to deliver the petition and signed the Verification and Certification
postdated checks per its verbal agreement with LMI, against Forum Shopping, was not duly authorized to
it failed to sign the promissory note and pay the do so. His apparent authority was based, not by
checks for June to October 1996. Thus, in a letter virtue of any NCLPI Board Resolution, but on a
dated October 16, 1996, which was sent on October Special Power of Attorney (SPA) signed only by
18, 1996 by registered mail, LMI informed NCLPI that NCLPI's Corporate Secretary Robel C. Lomibao. 53
it was terminating their Contract of Lease due to
arrears in the payment of rentals. It also demanded As a rule, a corporation has a separate and
that NCLPI (1) pay the amount of P2,651,570.39 for distinct personality from its directors and officers
and can only exercise its corporate powers through
its board of directors. Following this rule, a monthly salary as the new store manager would be
verification and certification signed by an individual Fifteen Thousand Pesos (P15,000.00) with service
corporate officer is defective if done without charge, free meal and side tip. She then
authority from the corporation's board of subsequently submitted a resignation letter 7 dated
directors. 54 October 15, 2008, as advised by Teves. On October
17, 2008, she started working as the store manager
The requirement of verification being a of Mexicali in Alabang Town Center although, again,
condition affecting only the form of the no employment contract and ID were issued to her.
pleading, 55 this Court has, in a number of cases, However, in December 2008, she was compelled by
held that: Teves to sign an end-of-contract letter by reason of a
[T]he Following officials or employees of the criminal complaint for sexual harassment she filed on
company can sign the verification and December 3, 2008 against Mexicali's operations
certification without need of a board manager, John Pontero (Pontero), for the sexual
resolution: (1) the Chairperson of the Board advances made against her during Pontero's visits at
of Directors, (2) the President of a Alabang branch. 8 When she refused to sign the end-
corporation, (3) the General Manager or of-contract letter, Mexicali's administrative officer,
Acting General Manager, (4) Personnel Ding Luna (Luna), on December 15, 2008, personally
Officer, and (5) an Employment Specialist in a went to the branch and caused the signing of the
labor case. aDSIHc same. Upon her vehement refusal to sign, she was
. . . [T]he determination of the sufficiency of informed by Luna that it was her last day of work.
the authority was done on a case to case
basis. The rationale applied in the foregoing Respondents, however, denied responsibility
cases is to justify the authority of corporate over petitioner's alleged dismissal. They averred that
officers or representatives of the petitioner has resigned from Mexicali in October
corporation to sign . . ., being "in a position 2008 and hence, was no longer Mexicali's employee
to verify the truthfulness and correctness of at the time of her dismissal but rather an employee
the allegations in the of Calexico, a franchisee of Mexicali located in
petition." 56 (Emphasis and underscoring Alabang Town Center which is a separate and distinct
supplied) corporation. CAIHTE
In this case, Banson was President of NCLPI In her reply, petitioner admitted having
at the time of the filing of the petition. 57 Thus, and resigned from Mexicali but averred that her
applying the foregoing ruling, he can sign the resignation was a condition for her promotion as
verification and certification against forum shopping store manager at Mexicali's Alabang Town Center
in the petition without the need of a board branch. She asserted that despite her resignation,
resolution. she remained to be an employee of Mexicali because
Mexicali was the one who engaged her, dismissed
3. EMERITA G. MALIXI, petitioner, vs. MEXICALI her and controlled the performance of her work as
PHILIPPINES and/or FRANCESCA store manager in the newly opened branch.
MABANTA, respondents. [G.R. No. 205061. June 8,
2016.] Labor Arbiter- declared petitioner to have been
illegally dismissed by respondents. By piercing the
Facts: veil of corporate fiction, the Labor Arbiter ruled that
This case arose from an Amended Mexicali and Calexico are one and the same with
Complaint 6 for illegal dismissal and non-payment of interlocking board of directors. The Labor Arbiter
service charges, moral and exemplary damages and sustained petitioner's claim that she is an employee
attorney's fees filed by petitioner against of Mexicali as she was hired at Calexico by Mexicali's
respondents Mexicali and its General Manager, corporate officers and also dismissed by them and
Francesca Mabanta, on February 4, 2009 before the hence, held Mexicali responsible for petitioner's
Labor Arbiter. dismissal.
Petitioner alleged that on August 12, 2008, National Labor Relations Commission-
she was hired by respondents as a team leader Mexicali and Calexico are separate and
assigned at the delivery service, receiving a daily distinct entities, Calexico being the true employer of
wage of Three Hundred Eighty Two Pesos (P382.00) petitioner at the time of her dismissal. Contrary to
sans employment contract and identification card the findings of the Labor Arbiter, petitioner
(ID). In October 2008, Mexicali's training officer, Jay voluntarily resigned from Mexicali to transfer to
Teves (Teves), informed her of the management's Calexico in consideration of a higher pay and upon
intention to transfer and appoint her as store doing so severed her employment ties with Mexicali.
manager at a newly opened branch in Alabang Town The NLRC, nevertheless, ordered Mexicali, being the
Center, which is a joint venture between Mexicali employer of Teves and Luna who caused petitioner's
and Calexico Food Corporation (Calexico), due to her termination from her employment with Calexico, to
satisfactory performance. She was apprised that her
reinstate petitioner to her job at Calexico but Calexico and likewise, together with Luna, initiated
without paying her any backwages. her dismissal, suffice it to state that bare allegations,
unsubstantiated by evidence, are not equivalent to
Court of Appeals- affirmed NLRC proof. 38Nevertheless, Teves merely informed
petitioner of the management's intention to transfer
Issue: her and thereafter advised her to execute a
WON Mexicali and Calexico are separate and distinct resignation letter, to which she complied. Nowhere
entities? was there any allegation or proof that Teves was the
one who directly hired her as store manager of
Ruling: YES. Calexico. Also, Teves and Luna merely initiated
The Labor Arbiter's finding that the two petitioner's dismissal. The end-of-contract
corporations are one and the same with interlocking purportedly signed by Luna to effectuate her
board of directors has no factual basis. It is basic that termination was not presented. Again, mere
"a corporation is an artificial being invested with a allegation is not synonymous with proof. No
personality separate and distinct from those of the substantial evidence was adduced to show that
stockholders and from other corporations to which it respondents had the power to wield petitioner's
may be connected or related." 32 Clear and termination from employment. Anent the element of
convincing evidence is needed to warrant the control, petitioner failed to cite a single instance to
application of the doctrine of piercing the veil of prove that she was subject to the control of
corporate fiction. 33 In our view, the Labor Arbiter respondents insofar as the manner in which she
failed to provide a clear justification for the should perform her work as store manager. The bare
application of the doctrine. The Articles of assertion that she was required to work from Friday
Incorporation and By-Laws of both corporations through Wednesday is not enough indication that
show that they have distinct business locations and the performance of her job was subject to the
distinct business purposes. It can also be gleaned control of respondents. On the other hand, the
therein that they have a different set of payslips 39 presented by petitioner reveal that she
incorporators or directors since only two out of the received her salary from Calexico and no longer from
five directors of Mexicali are also directors of Mexicali starting the month of October 2008. TIADCc
Calexico. At any rate, the Court has ruled that the
existence of interlocking directors, corporate officers 4. [G.R. No. 168134. October 5, 2016.] FERRO
and shareholders is not enough justification to CHEMICALS, INC., petitioner, vs. ANTONIO M.
disregard the separate corporate personalities. 34 To GARCIA, ROLANDO NAVARRO, JAIME Y. GONZALES
pierce the veil of corporate fiction, there should be and CHEMICAL INDUSTRIES OF THE PHILIPPINES,
clear and convincing proof that fraud, illegality or INC., respondents.
inequity has been committed against third [G.R. No. 168183. October 5, 2016.] JAIME Y.
persons. 35 For while respondents' act of not issuing GONZALES, petitioner, vs. HON. COURT OF APPEALS
employment contract and ID may be an indication of and FERRO CHEMICALS, INC., respondents.
the proof required, however, this, by itself, is not
sufficient evidence to pierce the corporate veil [G.R. No. 168196. October 5, 2016.] ANTONIO M.
between Mexicali and Calexico. GARCIA, petitioner, vs. FERRO CHEMICALS,
INC., respondent.
Side issue on er-ee rel.
WON there was er-ee rel? NO. Facts:
There was no existing employer-employee Ferro Chemicals Incorporated (Ferro
relationship between petitioner and Mexicali. To Chemicals), is a domestic corporation represented in
prove petitioner's claim of an employer-employee this action by its President, Ramon M. Garcia.
relationship, the following should be established by
competent evidence: "(1) the selection and Chemical Industries of the Philippines, Inc.
engagement of the employee; (2) the payment of (Chemical Industries), on the other hand, is also a
wages; (3) the power of dismissal; and (4) the power domestic corporation. Antonio Garcia is the
of control over the employee's Chairman of the Board of Directors (BOD) of
conduct." 36 "Although no particular form of Chemical Industries and a brother of Ferro
evidence is required to prove the existence of the Chemical's President, Ramon Garcia. Rolando
relationship, and any competent and relevant Navarro is the Corporate Secretary of Chemical
evidence to prove the relationship may be admitted, Industries while Jaime Gonzales is a close financial
a finding that the relationship exists must advisor of Antonio Garcia. CAIHTE
nonetheless rest on substantial evidence, which is
that amount of relevant evidence that a reasonable The Deed of Absolute Sale and Purchase of Shares of
mind might accept as adequate to justify a Stock
conclusion." 37 We find that petitioner failed to On 15 July 1988, Antonio Garcia and Ferro
establish her claim based on the aforementioned Chemicals entered into a Deed of Absolute Sale and
criteria. As to petitioner's allegation that it was Teves Purchase of Shares of Stock 5 over 1,717,678 shares
who selected and hired her as store manager of of capital stock of Chemical Industries registered
under the name of Antonio Garcia which included Garcia and Ferro Chemicals entered into a Deed of
371,697 shares of stocks in Vision Insurance Right to Repurchase. Under the contract, Ferro
Consultants, Inc., (VIC) and his proprietary Chemicals stipulated to sell back the subject shares
membership in Alabang Country Club and Manila to Antonio Garcia within 180 days from its execution
Polo Club. or until 30 August 1989.
Pursuant thereto, Ferro Chemicals remitted Ferro Chemicals however refused to sell back
the amount of P35,462,869.92 to Security Bank and the shares to him for insufficient consideration.
Trust Co. (SBTC) in the form of a check drawn against Instead, Ferro Chemicals opted to cede its rights over
its account with Bank of America. However, since the the subject shares to Chemphil Export and Import
amount was insufficient, the same was not accepted Corporation (Chemphil Export).
by Security Bank. Hence, the obligor consigned it
with the court which adjudicated his liability with First and Second Repurchase Cases
finality.(Security Bank Case) On 21 August 1989, Antonio Garcia initiated
an action for Specific Performance before the RTC
The Compromise Agreement Makati however RTC dismissed the same.
On 17 January 1989, Antonio Garcia entered
into a Compromise Agreement 6 with Philippine Undeterred, Antonio Garcia filed a Second
Investments System Organization (PISO), Bank of the Repurchase Case before the SEC.
Philippine Islands (BPI), Philippine Commercial
International Bank (PCIB), Rizal Commercial Banking Enforcement of the First Consortium Case
Corporation (RCBC) and Land Bank of the Philippines With Antonio Garcia and Dynetics' failure to
(LBP) (collectively known as Consortium Banks) in comply with the compromise agreement, the
connection with the Surety Agreements previously Consortium Banks filed a Motion for Execution. The
contracted by Antonio Garcia and Dynetics sheriff levied the 1,717,678 shares of capital stocks in
Corporation with the Consortium Banks. Chemical Industries that were previously attached.
The Consortium Banks were declared as the highest
The First Consortium Case bidders. 13
The said Compromise Agreement sprang
from Civil Case No. 8527, filed by Antonio Garcia and The RTC thereafter directed the Corporate
Dynetics, Inc. before the RTC of Makati City, seeking Secretary of Chemical Industries to enter the sheriff's
to enjoin the Consortium Banks from collecting the certificate of sale in the company's stock and transfer
amount of P117,800,000.00. books. In effect, the corporate secretary was
enjoined to cancel the certificates of shares of stocks
The RTC issued a Notice of Garnishment over under the name of Antonio Garcia and all those
the 1,717,678 shares of stocks of Antonio Garcia in claiming rights under him and issue new ones in
Chemical Industries to secure any contingent claims favor of the Consortium Banks.
that may be awarded in favor of the banks. On the
ground that only absolute transfers of shares are The Second Consortium Case
required to be on the corporation's stock and Before the corporate secretary could carry
transfer books, the Corporate Secretary did not out the foregoing directive, Chemphil Export filed an
annotate the banks' claims on Chemical Industries' Urgent Motion 15 opposing the 4 September 1989
books. RTC Order.
Subsequently, the RTC issued Orders RTC allowed the intervention.

dismissing Civil Case No. 8527.
In a Decision, the Court ruled in favor of the
The Consortium Banks assailed the Consortium Banks and declared that the attachment
dismissal before the appellate court. During the lien they previously acquired is valid and effective
pendency of the same, the parties agreed to even though it was not annotated in the
amicably settle the case, and thus, the creditors corporation's stock and transfer books.
accepted the offer of the debtors to immediately pay
the obligation in exchange for the waiver of The Ferro Chemicals Case
interests, penalties and attorney's fees. The Ferro Chemicals initiated several civil and
compromise agreement, which required Antonio criminal cases against Chemical Industries, Antonio
Garcia and Dynetics to pay the Consortium Banks the Garcia, Rolando Navarro, Jaime Gonzales and a
amount of P145,000,000.00, was consequently certain Atty. Virgilio Gesmundo before different
approved by the CA in a Judgment dated 22 May courts and judicial bodies.
1989. HEITAD
On 3 December 1996, Ferro Chemicals filed
The Deed of Right to Repurchase an action for damages before the RTC of Makati,
After the parties in the First Consortium seeking for the recovery of the amount of the shares
Case forged a Compromise Agreement, Antonio
that was lost by Chemphil Export to the Consortium

Banks in the Second Consortium Case. Even if Antonio Garcia was selling his shares
of stocks in the Chemical Industries, the corporation
RTC- in favor of Ferro Chemicals and found Chemical was neither made a party to the contract nor did the
Industries, Antonio Garcia, Jaime Gonzales and sale redound to its benefit. As a matter of fact, the
Rolando Navarro solidarily liable for the total amount subject of the purchase agreement was not limited
of P269,355,537.41. RTC also made the corporation to Antonio Garcia's shares in Chemical Industries, but
accountable for the acts of its Corporate Secretary, likewise included his shares in Vision Insurance
Rolando Navarro, which were carried out to the Consultants, Inc., Alabang Country Club, Inc. and
damage and prejudice of Ferro Chemicals. Manila Polo Club, Inc. 64 His shares of capital stocks
with Chemical Industries became the subject of
CA- affirmed with modifications; being a corporation controversy because of the allegation that he
with a personality separate and distinct from its intentionally withheld the information from Ferro
officers and members, Chemical Industries could not Chemicals that these shares were subject of the
be held liable for the acts of the latter. Consortium Banks' claim. Notably, the purported
misrepresentation was not alleged to have been
Issue: authorized or abetted by the corporation. It was a
WON the corporation can be held liable for the fraud purely personal act of the seller desirous to dispose
and breach of contract perpetrated by Garcia? conveniently his shares in the corporation. It bears
underscoring that a corporation has a personality
Ruling: NO. separate and distinct from that of each stockholder.
A corporation, upon coming to existence, is It has the right of continuity or perpetual
invested by law with a personality separate and succession, 65 that is, its existence is not
distinct from those of the persons composing it. extinguished by the transfer of ownership of its
Ownership by a single or a small group of shares of capital stock from one shareholder to
stockholders of nearly all of the capital stock of the another. ISHCcT
corporation is not, without more, sufficient to
disregard the fiction of separate corporate Needless to say, the imputation of liability
personality. Thus, obligations incurred by corporate Chemical Industries for the acts of its corporate
officers, acting as corporate agents, are not theirs, officer and the consequent shedding of corporate
but direct accountabilities of the corporation they shroud cannot rest on flimsy grounds. The
represent. Solidary liability on the part of corporate application of the doctrine of piercing the veil of
officers may at times attach, but only under corporate fiction is frowned upon. 66 It can only be
exceptional circumstances, such as when they act done if it has been clearly established that the
with malice or in bad faith. Also, in appropriate separate and distinct personality of the corporation
cases, the veil of corporate fiction shall be is used to justify a wrong, protect fraud, or
disregarded when the separate juridical personality perpetrate a deception. 67 As explained by the Court
of a corporation is abused or used to commit fraud inPhilippine National Bank v. Andrada Electric &
and perpetrate a social injustice, or used as a vehicle Engineering Company: 68
to evade obligations. 62 "Hence, any application of the
doctrine of piercing the corporate veil should
It must be stressed at the onset that the sale be done with caution. A court should be
contract was entered by Antonio Garcia in his mindful of the milieu where it is to be
personal capacity and not as the President of applied. It must be certain that the corporate
Chemical Industries. As aptly found by the CA: fiction was misused to such an extent that
". . . . As can be gleaned from the injustice, fraud, or crime was committed
Deed of Sale, [Antonio Garcia] sold the against another, in disregard of its rights. The
disputed shares in his private capacity as wrongdoing must be clearly and convincingly
owner thereof and not as responsible officer established; it cannot be presumed.
or representative of [Chemical Industries]. Otherwise, an injustice that was never
Moreover, the disputed shares constitute unintended may result from an erroneous
merely 20% of [Chemical Industries'] application."
outstanding capital stocks. As such, the
corporation's consent in the disposition is In the case at bar, Ferro Chemicals failed to
not required. Neither does its conveyance adduce satisfactory evidence to prove that Chemical
require any action on the part of the Industries' separate corporate personality was being
corporation, except the ministerial duty of used by Antonio Garcia to protect fraud or
recording the same in its stock and transfer perpetrate deception warranting the shedding of its
book. veil and the consequent imposition of solidary
Considering the nature of the liability upon it.
transaction involved, whatever obligation
[Antonio Garcia] incurred, it was incurred in 5. EDWARD C. DE CASTRO AND MA. GIRLIE F.
his personal capacity. . . ." 63 PLATON, Petitioners, v. COURT OF APPEALS,
NATIONAL LABOR RELATIONS COMMISSION, Thereafter, the Sales and Marketing Agreement
SILVERICON, INC., AND/OR NUVOLAND PHILS., INC., (SMA), dated February 26, 2008, was purportedly
AND/OR RAUL MARTINEZ, RAMON BIENVENIDA, AND executed by Nuvoland and Silvericon, stipulating that
THE BOARD OF DIRECTORS OF all payments made for the condominium projects of
NUVOLAND, Respondents. Nuvoland were to be given directly to it. Clients
G.R.No. 204261, October 05, 2016 secured by the sales and marketing personnel would
issue checks payable to Nuvoland while the cash
FACTS: payments, as the case may be, were deposited to
Nuvoland, a corporation formed primarily "to own, Nuvoland's account. Meanwhile, the corresponding
use, improve, develop, subdivide, sell, exchange, lease sales commission of the sales personnel were issued to
and hold for investment or otherwise, real estate of all them by Nuvoland, with Martinez signing on behalf of
kinds, including buildings, houses, apartments and the said company.
other structures," was registered with the Securities
and Exchange Commission (SEC) on August 9, In a Letter, dated December 12, 2008 and signed by
2006. Respondent Ramon Bienvenida (Bienvenida) was Bienvenida, Nuvoland terminated the SMA on the
the principal stockholder and member of the Board of ground that Silvericon personnel committed an
Directors while Raul Martinez (Martinez) was its unauthorized walkout and abandonment of the Nuvo
President. City Showroom for two (2) days. In the same letter,
Nuvoland demanded that Silvericon make a full
Silvericon, on the other hand, was registered with the accounting of all its uses of the marketing advances
SEC on December 19, 2006. Its Articles: of from Nuvoland. It, however, assured that all sales
Incorporation described it as a "corporation organized commissions earned by Silvericon personnel would be
'to own, use, improve, develop, subdivide, sell, released as per existing policy.
exchange, lease and hold for investment or otherwise,
real estate of all kinds, including buildings, houses, After the issuance of the said termination letter, De
apartments and other structures.” Castro and all the sales and marketing personnel of
Sometime in 2007, Martinez recruited petitioner Silvericon were barred from entering the office
Edward de Castro (De Castro), a sales and marketing premises. Nuvoland, eventually, was able to secure the
professional in the field of real estate, to handle its settlement of all sales and marketing personnel's
sales and marketing operations, including the hiring commissions and wages with the exception of those of
and supervision of the sales and marketing personnel. De Castro and Platon.
De Castro was made to sign a Memorandum of
Agreement (MOA), denominated as Shareholders Aggrieved, De Castro and Platon filed a complaint for
Agreement, wherein Martinez proposed to create a illegal dismissal before the LA, demanding the payment
new corporation, through which the latter's of their unpaid wages, commissions and other benefits
compensation, benefits and commissions, including with prayer for the payment of moral and exemplary
those of other sales personnel, would be coursed. It damages and attorney's fees against Silvericon,
was stipulated in the said MOA that the new Nuvoland, Martinez, Bienvenida, and the Board of
corporation would have an authorized capital stock of Directors of Nuvoland.
P4,000,000.00, of which P1,000,000.00 was subscribed
and paid equally by the Martinez Group and the De Nuvoland and its directors and officers denied a direct
Castro Group. contractual relationship with De Castro and Platon, and
contended that if there was any dispute at all, it was
As it turned out, the supposedly new corporation merely between the complainants and Silvericon.
contemplated was Silvericon. De Castro was appointed
the President and majority stockholder of Silvericon Silvericon admitted that it had employed De Castro as
while Bienvenida and Martinez were named as President and COO. It, however, asserted the
stockholders and incorporators thereof, each owning application of Presidential Decree (P.D.) No. 902-A to
one (1) share of subscribed capital stock. the case, arguing that the claims come within the
purview of corporate affairs and management, thus,
Martinez was designated as Chairman of the new falling within the jurisdiction of the regular courts.
corporation to whom De Castro, as President and Chief
Operating Officer, would directly report. De Castro was Ruling of the Labor Arbiter
tasked to manage the day to day operations of the new The LA handed down his decision in favor of De Castro
corporation based on policies, procedures and and Platon. He concluded that Silvericon was a mere
strategies set by Martinez. labor-only contractor and, therefore, a mere agent of
Nuvoland.
During De Castro's tenure as Chief Operating Officer of
the newly created Silvericon, he recruited forty (40) Nuvoland was adjudged as the direct employer of De
sales and marketing personnel. One of them was Castro and Platon and, thus, liable to pay their money
petitioner Ma. Girlie F. Platon (Platon) who occupied claims as a consequence of their illegal dismissal.
the position of Executive Property Consultant. According to the LA, the ground relied upon for the
termination of the employment of De Castro and
Platon - abandonment of the Nuvo City Showroom - since it is a mere alter ego or business conduit of a
was not at all proven. Mere suspicion that De Castro person, or where the corporation is so organized and
instigated the walkout did not discharge the burden of controlled and its affairs are so conducted as to make it
proof which heavily rested on the employer. Without merely an instrumentality, agency, conduit or adjunct
an unequivocal showing that an employee deliberately of another corporation.
and unjustifiably refused his employment sans any
intention to return to work, abandonment as a cause As ruled in Prince Transport, Inc. v. Garcia, it is the act
for dismissal could not stand. Worse, procedural due of hiding behind the separate and distinct personalities
process could not be said to have been observed of juridical entities to perpetuate fraud, commit illegal
through the expediency of a letter in contravention to acts and evade one's obligations, that the equitable
Article 277, paragraph 2 of the Labor Code. piercing doctrine was formulated to address and
prevent: Thus:
Nuvoland, Bienvenida and Martinez interposed an x x x A settled formulation of the doctrine of piercing
appeal before the NLRC, arguing that the LA gravely the corporate veil is that when two business
abused his discretion. enterprises are owned, conducted and controlled by
the same parties, both law and equity will, when
Ruling of the NLRC necessary to protect the rights of third parties,
The NLRC reversed the LA decision, finding that disregard the legal fiction that these two entities are
Silvericon was an independent contractor, thus, the distinct and treat them as identical or as one and the
direct employer of De Castro and Platon. This being same, xxx However, petitioners' attempt to isolate
the case, the NLRC ruled that no employer-employee themselves from and hide behind the supposed
relationship existed between Nuvoland, on one hand, separate and distinct personality of Lubas so as to
and De Castro and Platon, on the other. There was no evade their liabilities is precisely what the classical
evidence showing that Nuvoland hired, paid wages, doctrine of piercing the veil of corporate entity seeks
dismissed or controlled De Castro and Platon, or to prevent and remedy.
anyone of Silvericon's employees. Resultantly,
Martinez and Bienvenida could not be held liable for Consequently, the piercing of the corporate veil
they merely acted as officers of Nuvoland. disregards the seemingly separate and distinct
De Castro and Platon assailed the decision of the NLRC personalities of Nuvoland and Silvericon with the aim
via a petition for certiorari under Rule 65 with the CA. of preventing the anomalous situation abhorred by
prevailing labor laws. That Silvericon was independent
Ruling of the CA from Nuvoland's personality could not be given legal
The CA affirmed the findings of the NLRC, pointing out imprimatur as the same would pave the way for
that what was terminated was the SMA. As such, the Nuvoland's complete exoneration from liability after a
employment of the forty (40) personnel hired by circumvention of the law. Besides, a contrary
Silvericon, as well as the petitioners' employment, was proposition would leave the petitioners without any
not affected. Considering that there was no employer- recourse notwithstanding the unquestioned fact that
employee relationship between the petitioners and Nuvoland eventually assented to the settlement of all
Nuvoland, the CA deemed that the latter could not be the sales and marketing personnel's commissions and
held liable for the claim of illegal dismissal. wages before the LA, except the petitioners. The
respondents in their comment were strikingly silent on
The petitioners filed the petition. this point.
Issue: Whether or not Silvericon was engaged in In the interest of justice and equity, that veil of
independent contracting. corporate fiction must be pierced, and Nuvoland and
Silvericon be regarded as one and the same entity to
Held: No. The Court is hounded by nagging doubts in prevent a denial of what the petitioners are entitled to.
its review of the assailed decision. Several factors In a situation like this, an employer-employee
showing that Silvericon was not an independent relationship between the principal and the dismissed
contractor. employees arises by operation of law. Silvericon being
merely an agent, its employees were in fact those of
The conclusion that Silvericon was a mere labor-only Nuvoland. Stated differently, Nuvoland was the
contractor and a business conduit of Nuvoland principal employer of the petitioners.
warrants the piercing of its corporate veil. At this point,
it is apt to restate the Court's ruling in Sarona v. 6. JOSE EMMANUEL GUILLERMO, P. PETITIONER, VS.
National Labor Relations Commission: CRISANTO P. USON,RESPONDENT.
The doctrine of piercing the corporate veil applies only [ G.R. No. 198967, March 07, 2016 ]
in three (3) basic areas, namely: 1) defeat of public
convenience as when the corporate fiction is used as a Facts:
vehicle for the evasion of an existing obligation; 2) Respondent Uson was an accounting supervisor in
fraud cases or when the corporate entity is used to Royal Class Venture Phils., Inc. (RCVPI) until Dec. 20,
justify a wrong, protect fraud, or defend a crime; or 3) 2000 when he was allegedly dismissed by petitioner
alter ego cases, where a corporation merely a farce Guillermo, the company’s president/general manager,
for having exposed the latter’s practice of dictating and corporate veil and the assignment of personal liability
undervaluing the shares of stocks of the corporation. to directors, trustees and officers in labor cases. The
Thereafter he filed a complaint for illegal dismissal subsequent cases of McLeod v. NLRC, Spouses Santos v.
against the corporation, RCVPI. NLRC and Carag v. NLRC, have all established, save for
certain exceptions, the primacy of Section 31 of the
The Labor Arbiter rendered a decision in favor of Uson, Corporation Code in the matter of assigning such
ordering respondent to reinstate him to his former liability for a corporation's debts, including judgment
position and pay his backwages, 13th month pay as obligations in labor cases. According to these cases, a
well as moral damages, exemplary damages and corporation is still an artificial being invested by law
attorney’s fees. RCVPI did not file an appeal but with a personality separate and distinct from that of its
repeated issuances of Writs of Execution against the stockholders and from that of other corporations to
same remained unsatisfied. which it may be connected. It is not in every instance
of inability to collect from a corporation that the veil of
Uson filed another Motion for Alias Writ of Execution corporate fiction is pierced, and the responsible
and to Hold Directors and Officers of Respondent officials are made liable. Personal liability attaches only
Liable for the Decision and quoted from the sheriff’s when, as enumerated by the said Section 31 of the
return: a) that at RCVPI’s address (to which the writs Corporation Code, there is a wilfull and knowing assent
are being served) there is a new establishment named to patently unlawful acts of the corporation, there is
“ Joel and Sons Corporation” which was a family gross negligence or bad faith in directing the affairs of
corporation owned by the Guillermos, in which Jose the corporation, or there is a conflict of interest
Emmanuel Guillermo, the President and General resulting in damages to the corporation. Further, in
Manager of RCVPI, is one of the stockholders; b) that another labor case, Pantranco Employees Association
Jose received the writ using the nickname “Joey” (PEA-PTGWO), et al. v. NLRC, et al., the doctrine of
concealing his real identity and pretended to be the piercing the corporate veil is held to apply only in three
brother of Jose; c) that RCVPI has already been (3) basic areas, namely: ( 1) defeat of public
dissolved. convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; (2)
Labor Arbiter granted the motion filed by respondent fraud cases or when the corporate entity is used to
and held herein petitioner Jose Emmanuel Guillermo, justify a wrong, protect fraud, or defend a crime; or
in his personal capacity jointly and severally liable with (3) alter ego cases, where a corporation is merely a
the corporation stating that the officers of the farce since it is a mere alter ego or business conduit of
corporation are jointly and severally liable for the a person, or where the corporation is so organized and
obligations of the corporation (“piercing the veil of controlled and its affairs are so conducted as to make it
corporate fiction”) to the employees even if the said merely an instrumentality, agency, conduit or adjunct
officers were not parties to the case. of another corporation. In the absence of malice, bad
faith, or a specific provision of law making a corporate
Guillermo filed a Motion for Reconsideration/To Set officer liable, such corporate officer cannot be made
Aside the Order of the labor arbiter. His contentions personally liable for corporate liabilities. Indeed,
were a) officers cannot be included as judgement in Reahs Corporation v. NLRC, the conferment of
obligor in a labor case for the first time only after the liability on officers for a corporation's obligations to
decision of the Labor Arbiter had become final and labor is held to be an exception to the general doctrine
executory b) in piercing the veil of RCVPI, he was of separate personality of a corporation.
allegedly discriminated against when he alone was
belatedly impleaded despite the existence of other It also bears emphasis that in cases where
officers of RCVPI; c)that the labor arbiter has no personal liability attaches, not even all officers are
jurisdiction because the case is one of an intra- made accountable. Rather, only the "responsible
corporate controversy, with the complainant Uson also officer," i.e., the person directly responsible for and
claiming to be a stockholder and director of the who "acted in bad faith" in committing the illegal
corporation. dismissal or any act violative of the Labor Code, is held
solidarily liable, in cases wherein the corporate veil is
Issues: pierced. In other instances, such as cases of so-called
corporate tort of a close corporation, it is the person
Whether the twin doctrines of “piercing the veil of "actively engaged" in the management of the
corporate fiction” and personal liability of company corporation who is held liable. In the absence of a
officers in a labor cases apply. clearly identifiable officer(s) directly responsible for the
legal infraction, the Court considers the president of
Ruling: the corporation as such officer.
The Petition is denied. 7. Republic Of The Philippines, Petitioner, V. Mega

Pacific Esolutions, Inc., Willy U. Yu, Bonnie S. Yu,
The rulings of this Court in A.C. Ransom, Enrique T. Tansipek, Rosita Y. Tansipek, Pedro O. Tan,
Naguiat, and Reynoso, however, have since been Johnson W. Fong, Bernard I. Fong, And *Lauriano A.
tempered, at least in the aspects of the lifting of the Barrios, Respondents.
June 27, 2016 G.R. No. 184666 the support services delivered on one hand,
and on the other, the payment previously
FACTS: made by the COMELEC.
• Republic Act No. 8436 authorized the • By way of a counterclaim, petitioner
COMELEC to use an automated election system demanded from respondents the return of the
for the May 1998 elections. However, the payments made pursuant to the automation
automated system failed to materialize and contract.26 It argued that individual
votes were canvassed manually during the respondents, being the incorporators of MPEI,
1998 and the 2001 elections. likewise ought to be impleaded and held
• For the 2004 elections, the COMELEC again accountable for MPEI's liabilities. The creation
attempted to implement the automated of MPC was, after all, merely an ingenious
election system. For this purpose, it invited scheme to feign eligibility to bid.
bidders to apply for the procurement of • Pursuant to Section 1(d) of Rule 57 of the Rules
supplies, equipment, and services. of Court, petitioner prayed for the issuance of
• Respondent MPEI, as lead company, a writ of preliminary attachment against the
purportedly formed a joint venture - known as properties of MPEI and individual respondents.
the Mega Pacific Consortium (MPC) - together The application was grounded upon the
with We Solv, SK C & C, ePLDT, Election.com fraudulent misrepresentation of respondents
and Oracle. Subsequently, MPEI, on behalf of as to their eligibility to participate in the
MPC, submitted its bid proposal to COMELEC. bidding for the COMELEC automation project
• After due assessment, the Bids and Awards and the failure of the ACMs to comply with
Committee (BAC) recommended that the mandatory technical requirements.
project be awarded to MPC. The COMELEC • The trial court denied the prayer for the
favorably acted on the recommendation and issuance of a writ of preliminary attachment,29
issued Resolution No. 6074, which awarded ruling that there was an absence of factual
the automation project to MPC. allegations as to how the fraud was actually
• Despite the award to MPC, the COMELEC and committed.
MPEI executed on 2 June 2003 the Automated • The trial court further ruled that the
Counting and Canvassing Project Contract allegations of fraud on the part of MPEI were
(automation contract)5 for the aggregate not supported by the COMELEC, the office in
amount of P1,248,949,088. charge of conducting the bidding for the
• MPEI agreed to supply and deliver 1,991 units election automation contract. It was likewise
of ACMs and such other equipment and held that there was no evidence that
materials necessary for the computerized respondents harbored a preconceived plan not
electoral system in the 2004 elections. to comply with the obligation; neither was
Pursuant to the automation contract, MPEI there any evidence that MPEI's corporate
delivered 1,991 ACMs to the COMELEC. The fiction was used to perpetrate fraud. Thus, it
latter, for its part, made partial payments to found no sufficient basis to pierce the veil of
MPEI in the aggregate amount of P1.05 billion. corporate fiction or to cause the attachment of
• This Court in its 2004 Decision declared the the properties owned by individual
contract null and void.6 We held that the respondents.
COMELEC committed a clear violation of law • Petitioner moved to set aside the trial court's
and jurisprudence, as well as a reckless Order denying the writ of attachment,30 but
disregard of its own bidding rules and its motion was denied.
procedure. • Aggrieved, petitioner filed an appeal with the
• All in all, Comelec subverted the essence of CA.
public bidding: to give the public an • The CA in its First Decision32 reversed and set
opportunity for fair competition and a clear aside the trial court's Orders and ruled that
basis for a precise comparison of bids. there was sufficient basis for the issuance of a
• Complaint for Damages filed by respondents writ of attachment in favor of petitioner.
with the RTC Makati and petitioner's Answer • The appellate court explained that the
with Counterclaim, with an application for a averments of petitioner in support of the
writ of preliminary attachment, from which the latter's application actually reflected pertinent
instant case arose conclusions reached by this Court in its 2004
• Upon the finality of the declaration of nullity of Decision. It held that the trial court erred in
the automation contract, respondent MPEI disregarding the following findings of fact,
filed a Complaint for Damages before the RTC which remained unaltered and unreversed: (1)
Makati, arguing that, notwithstanding the COMELEC bidding rules provided that the
nullification of the automation contract, the eligibility and capacity of a bidder may be
COMELEC was still bound to pay the amount of proved through financial documents including,
P200,165,681.89. This amount represented the among others, audited financial statements for
difference between the value of the ACMs and the last three years; (2) MPEI was incorporated
only on 27 February 2003, or 11 days prior to
the bidding itself; (3) in an attempt to disguise indicate that MPEI was a sham corporation
its ineligibility, MPEI participated in the bidding formed merely for the purpose of perpetrating a
as lead company of MPC, a putative fraudulent scheme.
consortium, and submitted the incorporation
papers and financial statements of the The red flags are as follows: (1) overly narrow
members of the consortium; and (4) no proof specifications; (2) unjustified recommendations and
of the joint venture agreement, consortium unjustified winning bidders; (3) failure to meet the
agreement, memorandum of agreement, or terms of the contract; and (4) shell or fictitious
business plan executed among the members of company.
the purported consortium was ever submitted
to the COMELEC. Overly Narrow Specifications
• According to the CA, the foregoing were Scheme: Rigged specifications. In a competitive
glaring indicia or badges of fraud, which market for goods and services, any specifications that
entitled petitioner to the issuance of the writ. seem to be drafted in a way that favors a particular
Respondents moved for reconsideration36 of company deserve closer scrutiny. For
the First Decision of the CA. example, specifications that are too narrow can be
The CA reconsidered its First Decision37 and used to exclude other qualified bidders or justify
directed the remand of the case to the RTC improper sole source awards. Unduly vague or broad
Makati for the reception of evidence of specifications can allow an unqualified bidder to
allegations of fraud and to determine whether compete or justify fraudulent change orders after the
attachment should necessarily issue. The CA contract is awarded. Sometimes, project officials will
explained in its Amended Decision that go so far as to allow the favored bidder to draft the
respondents could not be considered to have specifications.
fostered a fraudulent intent to dishonor their
obligation, since they had delivered 1,991 units Unjustified Recommendations and Unjustified
of ACMs. Winning Bidders
Questionable evaluation and unusual bid patterns
Petitioner filed the instant Rule 45 Petition,45 arguing may emerge in the BER. After the completion of the
that the CA erred in ordering the remand of the case to evaluation process, the Bid Evaluation Committee
the trial court for the reception of evidence to should present to the implementing agency its BER,
determine the presence of fraud. which describes the results and the process by which
the BEC has evaluated the bids received. The BER may
ISSUE: include a number of indicators of bid rigging, e.g.,
WON the application of the piercing doctrine justifies questionable disqualifications, and unusual bid
the issuance of a writ of preliminary attachment over patterns.
the properties of the individual respondents.
Failure to Meet Contract Terms
HELD: Yes. They cannot argue violation of due process, Scheme: Failure to meet contract terms. Firms may
as respondent MPEI, of which they are deliberately fail to comply with contract requirements.
incorporators/stockholders, remains vulnerable to the The contractor will attempt to conceal such actions
piercing of its corporate veil. often by falsifying or forging supporting documentation
and bill for the work as if it were done in accordance
There are red flags indicating that MPEI was used to with specifications. In many cases, the contractors
perpetrate the fraud against petitioner, thus allowing must bribe inspection or project personnel to accept
the piercing of its corporate veil. the substandard goods or works, or supervision agents
are coerced to approve substandard work.
Petitioner seeks the issuance of a writ of preliminary
attachment over the personal assets of the individual Shell or fictitious company
respondents, notwithstanding the doctrine of separate Fictitious companies are by definition fraudulent and
juridical personality. It invokes the use of the doctrine may also serve as fronts for government officials. The
of piercing the corporate veil, to which the canon of typical scheme involves corrupt government officials
separate juridical personality is vulnerable, as a way to creating a fictitious company that will serve as a
reach the personal properties of the individual "vehicle" to secure contract awards. Often, the
respondents. Petitioner paints a picture of a sham fictitious—or ghost— company will subcontract work
corporation set up by all the individual respondents for to lower cost and sometimes unqualified firms. The
the purpose of securing the automation contract. fictitious company may also utilize designated losers as
subcontractors to deliver the work, thus indicating
Veil-piercing in fraud cases requires that the legal collusion.
fiction of separate juridical personality is used for
fraudulent or wrongful ends. For reasons discussed Shell companies have no significant assets, staff or
below, We see red flags of fraudulent schemes in operational capacity. They pose a serious red flag as a
public procurement, all of which were established in bidder on public contracts, because they often hide the
the 2004 Decision, the totality of which strongly interests of project or government officials, concealing
a conflict of interest and opportunities for money According to the NLRC, respondent's claim that she
laundering. Also, by definition, they have no had the authority to enter the contract with Pepsi was
experience. supported by evidence, which included the Sworn
Statement of the Sales Manager of-Pepsi, and a
8. LEO'S RESTAURANT AND BAR CAF&EACUTE; Certification from concerned Pepsi Managers that
MOUNTAIN SUITE BUSINESS APARTELLE,LEO Y. LUA Pepsi donated only 10 cases of softdrinks and
AND AMELIA LUA, Petitioners, v. LAARNE1 C. additional 20 cases of Pepsi 12 oz. to the Restobar.
BENSING, Respondent. Petitioners and Kimwa moved for a reconsideration of
G.R. No. 208535, October 19, 2016 the November 28, 2008 NLRC Resolution.
Facts: On January 2, 2002, Kimwa Construction & On June 4,2009, the NLRC granted the Motion for
Development Corporation (Kimwa) employed Reconsideration. In reversing itself, the NLRC held that
7
respondent as liaison officer. Allegedly, Kimwa also respondent's functions did not include any authority to
operated Leo's Restaurant and Bar Cafe (Restobar), sign or execute contracts for and in behalf of the
and the Mountain Suite Business Apartelle (Apartelle). Restobar. It added that even assuming that Leo
Thereafter, Leo Y. Lua (Leo), the Manager of the verbally authorized her to sign the Pepsi agreement,
Restobar and the Apartelle, issued upon respondent a respondent signed the same in her name, as if she was
Memorandum requesting her to temporarily report at the Restobar's owner. Hence, appeal.
Kimwa's Main Office starting December 30, 2005. On
the same date, Leo required respondent through Ruling of the Court of Appeals
another memorandum to explain the signing of On November 27, 2012s the CA, reinstated the
contract without the former’s authority and the November 28, 2008 NLRC Resolution.
benefits arising from the contract. In her
11
Explanation, respondent stated that on October 24, According to the CA, respondent even acted in good
2005, in the presence of Jovenal12 Ablanque faith when she signed the contract with Pepsi on the
(Ablanque), Sales Manager of Pepsi, Leo verbally impression that sit was part of her duties and
authorized her to sign the contract with Pepsi on responsibilities. It also quoted with approval the
behalf of the Restobar. November 28, 2003 NLRC Resolution declaring that
there was no evidence that respondent abused her
Later, in a Memorandum15 dated January 3, 2006, representation privilege. Respondent, on her end,
respondent was required to answer these charges: 1) counters that although she held a position of trust and
she committed dishonesty when she charged to the confidence, there is no showing that she committed
Restobar's account 50% of the food she ordered willful breach of trust against her employer. She
therefrom without approval of its Owner or Manager; argued that she acted in good faith when she signed
2) she violated her duties when she did not inform Leo the exclusivity contract with Pepsi such that there is no
of the signing of the Pepsi contract; and, 3) she failed reason to hold that she committed any dishonest
to account for 47 soft drinks cases that Pepsi gave the conduct that would warrant her employer's loss of
Restobar. In her Explanation,16 respondent asserted trust in her.
that the charges of dishonesty was not related to the
Pepsi Qonteact such that she opted not to answer said Issue: Whether or not respondent was validly
accusation. With regard to the alleged missing Pepsi dismissed on the ground of loss of trust and
drinks, she affirmed that Pepsi clarified the matter confidence.
already, particularly to where these soft drinks were
placed or given. Held: The Court denies the Petition.
An employer has the right to dismiss an employee for
However, on January 12, 2006, on the ground of loss of just causes, which include willful breach of trust and
trust and confidence, Leo terminated respondent confidence reposed on him or her by the employer. To
effective January 15, 2006. Respondent thus filed an temper such right to dismiss, and to reconcile it with
Amended Complaint for illegal dismissal. the employee's security of tenure, it is the employer
who has the burden to show that the dismissal of the
Ruling of the Executive Labor Arbiter employee is for a just cause. Such determination of just
The LA decreed that petitioners and Kimwa validly cause must also be made with fairness, in good faith,
dismissed respondent on the ground of loss of trust and only after observance of due process of law.
and confidence. He pointed out that employers cannot
be compelled to retain the services of their employees Moreover, to dismiss an employee on the ground of
who were guilty of acts inimical to the interests of the loss of trust and confidence, two requisites must
employer; and, the dismissal of an erring employee concur: (a) the concerned employee must be holding a
was a measure of self-protection. Respondent position of trust; and, (b) the loss of trust must be
appealed the LA Decision. based on willful breach of trust based on clearly
established facts.
Ruling of the National Labor Relations Commission
On November 28, 2008, the NLRC issued its Loss of trust and confidence as a ground for dismissal is
Resolution23 finding respondent's dismissal illegal. never intended for abuse by reason of its subjective
nature. It must be pursuant to a breach done willfully, Super Lamination, Express Lamination, and Express
knowingly and purposely without any valid excuse. It Coat, all represented by one counsel, separately
must rest on substantial grounds and not on mere claimed in their Comments and Motions to Dismiss that
suspicion, whims, or caprices of the employer. the petitions must be dismissed on the same ground -
lack of employer-employee relationship between these
In fine, "loss of confidence should not be simulated. It establishments and the bargaining units that Unions A,
should not be used as a subterfuge for causes which B, and C seek to represent as well as these unions'
are improper, illegal, or unjustified. Loss of confidence respective members.
may not be arbitrarily asserted in the face of
overwhelming evidence to the contrary. It must be All three Petitions for Certification Election of the
genuine, not a mere afterthought to justify earlier Unions were denied.
action taken in bad faith."
On 21 May 2008, an Order was issued by DOLE National
Indeed, there was no malice or any fraudulent intent Capital Region (NCR) Med-Arbiter Michael Angelo
on the part of respondent when she sighed the Pepsi Parado denying the respective petitions of Unions B and
contract. There is likewise no evidence that she C on the ground that there was no existing employer-
personally benefited therefrom. In fact, the Restobar employee relationship between the members of the
itself received the items donated by Pepsi, and the unions and the companies concerned. On 23 May 2008,
Restobar did not suffer any damage arising from the DOLE NCR Med-Arbiter Alma Magdaraog-Alba also
Pepsi contract. denied the petition of respondent Union A on the same
ground.
Loss of trust and confidence must stem from
dishonest, deceitful or fraudulent acts. In the absence The three unions filed their respective appeals before
of such malicious intent or fraud on the part of the Office of the DOLE Secretary, which consolidated
respondent, she committed no willful breach of trust the appeal. The unions argued that their petitions
against her employer. should have been allowed considering that the
companies involved were unorganized, and that the
employers had no concomitant right to oppose the
9. Lee vs. Samahang manggagawa ng Super Laminatins petitions. They also claimed that while the questioned
employees might have been assigned to perform work
G.R. No. 193816 at the other companies, they were all under one
management's direct control and supervision.
ERSON ANG LEE DOING BUSINESS as "SUPER
LAMINATION SERVICES," Petitioner DOLE, through Undersecretary Romeo C. Lagman,
vs. SAMAHANG MANGGAGAWA NG SUPER rendered the assailed Decision. DOLE found that Super
LAMINATION (SMSLS-NAFLU-KMU), Respondent Lamination, Express Lamination, and Express Coat
were sister companies that had a common human
FACTS: resource department responsible for hiring and
disciplining the employees of the three companies. The
Petitioner Erson Ang Lee (petitioner), through Super same department was found to have also given them
Lamination, is a duly registered entity principally daily instructions on how to go about their work and
engaged in the business of providing lamination services where to report for work. It also found that the three
to the general public. companies involved constantly rotated their workers,
and that the latter's identification cards had only one
Respondent Samahan ng mga Manggagawa ng Super signatory.
Lamination Services (Union A) is a legitimate labor
organization, which is also a local chapter affiliate of the To DOLE, these circumstances showed that the
National Federation of Labor Unions - Kilusang Mayo companies were engaged in a work-pooling scheme, in
Uno. It appears that Super Lamination is a sole light of which they might be considered as one and the
proprietorship under petitioner's name,5 while Express same entity for the purpose of determining the
Lamination and Express Coat are duly incorporated appropriate bargaining unit in a certification election.
entities separately registered with the Securities and
Exchange Commission (SEC). On 7 March 2008, Union A ISSUE: Whether the application of the doctrine of
filed a Petition for Certification Election to represent all piercing the corporate veil is warranted.
the rank-and-file employees of Super Lamination.
Notably, on the same date, Express Lamination RULING:
Workers' Union (Union B) also filed a Petition for
Certification Election to represent all the rank-and-file An application of the doctrine of piercing the corporate
employees of Express Lamination. Also on the same veil is warranted.
date, the Samahan ng mga Manggagawa ng Express
Coat Enterprises, Inc. (Union C) filed a Petition for Petitioner argues that separate corporations cannot be
Certification Election to represent the rank-and-file treated as a single bargaining unit even if their
employees of Express Coat. businesses are related,23 as these companies are
indubitably distinct entities with separate juridical 2. The three establishments operated and hired
personalities.24 Hence, the employees of one employees through a common human resource
corporation cannot be allowed to vote in the department as found by DOLE in a clarificatory
certification election of another corporation, lest the hearing.
abovementioned rule be violated.25
3. The workers of all three companies were
Petitioner's argument, while correct, is a general rule. constantly rotated and periodically assigned to
This Court has time and again disregarded separate Super Lamination or Express Lamination or
juridical personalities under the doctrine of piercing the Express Coat to perform the same or similar
corporate veil. It has done so in cases where a separate tasks.
legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, among other 4. DOLE found and the CA affirmed that the
grounds.26 In any of these situations, the law will regard common human resource department imposed
it as an association of persons or, in case of two disciplinary sanctions and directed the daily
corporations, merge them into one. performance of all the members of Unions A,
B, and C.
A settled formulation of the doctrine of piercing the
corporate veil is that when two business enterprises are 5. Super Lamination included in its payroll and
owned, conducted, and controlled by the same parties, SSS registration not just its own employees,
both law and equity will, when necessary to protect the but also the supposed employees of Express
rights of third parties, disregard the legal fiction that Lamination and Express Coat.
these two entities are distinct and treat them as
identical or as one and the same. 6. Petitioner admitted that Super Lamination
had issued and signed the identification cards of
This formulation has been applied by this Court to cases employees who were actually working for
in which the laborer has been put in a disadvantageous Express Lamination and Express Coat.
position as a result of the separate juridical
personalities of the employers involved. Pursuant to 7. Super Lamination, Express Lamination, and
veil-piercing, we have held two corporations jointly Express Coat were represented by the same
and severally liable for an employee's back wages. We counsel who interposed the same arguments
also considered a corporation and its separately- in their motions before the Med-Arbiters and
incorporated branches as one and the same for DOLE.
purposes of finding the corporation guilty of illegal
dismissal. These rulings were made pursuant to the Further, we discern from the synchronized movements
fundamental doctrine that the corporate fiction should of petitioner and the two other companies an attempt
not be used as a subterfuge to commit injustice and to frustrate or defeat the workers' right to collectively
circumvent labor laws.32 bargain through the shield of the corporations' separate
juridical personalities. We make this finding on the basis
Here, a certification election was ordered to be held for of the motions to dismiss filed by the three companies.
all the rank-and- file employees of Super Lamination, While similarly alleging the absence of an employer-
Express Lamination, and Express Coat.1âwphi1 The employee relationship, they alternately referred to one
three companies were supposedly distinct entities another as the employer of the members of the
based on the fact that Super Lamination is a sole bargaining units sought to be represented respectively
proprietorship while Express Lamination and Express by the unions. This fact was affirmed by the Med-
Coat were separately registered with the SEC.33 The Arbiters' Orders finding that indeed, the supposed
directive was therefore, in effect, a piercing of the employees of each establishment were found to be
separate juridical personalities of the corporations alternately the employees of either of the two other
involved. We find the piercing to be proper and in companies as well. This was precisely the reason why
accordance with the law as will be discussed below. DOLE consolidated the appeals filed by Unions A, B, and
C.
The following established facts show that Super
Lamination, Express Lamination, and Express Coat are We hold that if we allow petitioner and the two other
under the control and management of the same party - companies to continue obstructing the holding of the
petitioner Ang Lee. In effect, the employees of these election in this manner, their employees and their
three companies have petitioner as their common respective unions will never have a chance to choose
employer, as shown by the following facts: their bargaining representative. We take note that all
three establishments were unorganized. That is, no
1. Super Lamination, Express Lamination, and union therein was ever duly recognized or certified as a
Express Coat were engaged in the same bargaining representative.46
business of providing lamination services to the
public as admitted by petitioner in his petition.34 Therefore, it is only proper that, in order to safeguard
the right of the workers and Unions A, B, and C to
engage in collective bargaining, the corporate veil of
Express Lamination and Express Coat must be pierced. 4) lock up the Primrose Hotel in order to
The separate existence of Super Lamination, Express preserve the property until final disposition by the
Lamination, and Express Coat must be disregarded. In court.
effect, we affirm the lower tribunals in ruling that these
companies must be treated as one and the same unit On July 8, 2008, Remedios and Manuela filed their
for purposes of holding a certification election. Comment/Opposition10 to the urgent manifestation
averring that Marty was not an adopted child of the
10. Mayor vs. Tiu Villasins based on a certification issued by the Office of
the Clerk of Court of Tacloban City, attesting that no
G.R. No. 203770 record of any adoption proceedings involving Marty
existed in their records.
MANUELA AZUCENA MAYOR, Petitioner
vs. EDWIN TIU and DAMIANA CHARITO MARTY, In her Reply,11 dated July 15, 2008, Marty cited an order
Respondents of the Court of First Instance of Leyte (CF! Leyte) in SP
No. 1239,12 claiming that as early as March 3, 1981, the
FACTS: veil of corporate entity of Primrose was pierced on the
ground that it was a closed family corporation
On May 25, 2008, Rosario Guy- controlled by Rosario after Primo's death. Thus, Marty
JucoVillasinCasilan (Rosario), the widow of the late alleged that "piercing" was proper in the case of
Primo Villasin (Primo), passed away and left a Rosario's estate because the incorporation of Primrose
holographic Last Will and Testament, wherein she was founded on a fraudulent consideration, having
named her sister, Remedios Tiu (Remedios), and her been done in contemplation of Primo's death.
niece, Manuela Azucena Mayor (Manuela), as
executors. Immediately thereafter, Remedios and In its January 14, 2009 Order,15 the RTC-Br. 9 granted
Manuela filed a petition for the probate of Rosario's the motion of Marty and appointed the OIC Clerk of
holographic will with prayer for the issuance of letters Court as special administrator of the Estate. The
testamentary (probate proceedings). Probate Court also ordered Mercury Drug and Chowking
to deposit the rental income to the court and
On May 29, 2008, respondent Damiana Charito Metrobank to freeze the bank accounts mentioned in
Marty (Marty) claiming to be the adopted daughter of the motion of Marty. The doctrine of piercing the
Rosario, filed a petition for letters of administration corporate veil was applied in the case considering that
before the RTC, but it was not given due course because Rosario had no other properties that comprised her
of the probate proceedings. estate other than Primrose.
On June 12, 2008, in its Order,8 the RTC-Br. 9 found the On January 22, 2009, Remedios and Manuela filed their
petition for probate of will filed by Remedios and Motion for Inhibition16 on the ground of their loss of
Manuela as sufficient in form and substance and set the trust and confidence in RTC-Br. 9 Presiding Judge
case for hearing. Rogelio C. Sescon (Judge Sescon) to dispense justice.
Later, they also filed their Motion for
17
Consequently, Marty filed her Verified Urgent Reconsideration Ad Cautelam, dated February 3, 2009,
Manifestation and Motion. Marty averred that until the arguing that Rosario's estate consisted only of shares
alleged will of the decedent could be probated and of stock in Primrose and not the corporation itself.
admitted, Remedios and her ten (10) children had no Thus, the probate court could not order the lessees of
standing to either possess or control the properties the corporation to remit the rentals to the Estate's
comprising the estate of the Villasins. She prayed for administrator.
the probate court to:
In its October 16, 2009 Decision,20 the CA reversed the
1) order an immediate inventory of all the assailed orders of the RTC Br. 9, except as to the
properties subject of the proceedings; appointment of a special administrator insofar as this
relates to properties specifically belonging to the
2) direct the tenants of the estate, namely, "Estate." It held that Primrose had a personality
Mercury Drug and Chowking, located at separate and distinct from the estate of the decedent
Primrose Hotel, to deposit their rentals with the and that the probate court had no jurisdiction to apply
court; the doctrine of piercing the corporate veil.
3) direct Metro bank, P. Burgos Branch, to ISSUE: Whether the doctrine of piercing the corporate
freeze the accounts in the name of Rosario, veil applies in the case at bar.
Primrose Development
Corporation (Primrose) or Remedios; and RULING:
The doctrine of piercing the corporate veil has no

relevant application in this case.
Under this doctrine, the court looks at the corporation 11. Reyno C. Dimson vs. Gerry T. Chua
as a mere collection of individuals or an aggregation of
persons undertaking business as a group, disregarding G.R. No. 192318
the separate juridical personality of the corporation December 5, 2016
unifying the group. Another formulation of this doctrine
is that when two business enterprises are owned, FACTS:
conducted and controlled by the same parties, both law The instant case filed by the petitioner, representing the
and equity will, when necessary to protect the rights of other 14 complainants, against the respondent, is an
third parties, disregard the legal fiction that two offshoot of the labor case entitled "Reyno Dimson, et al.
corporations are distinct entities and treat them as v. SEASUMCO, MAC, United Coconut Planters Bank
identical or as one and the same.47 The purpose behind (UPCB), and Cotabato Sugar Central Co., Inc.
piercing a corporation's identity is to remove the (COSUCECO)."
barrier between the corporation and the persons
comprising it to thwart the fraudulent and illegal On September 22, 2003, the said labor case for illegal
schemes of those who use the corporate personality as dismissal with monetary claims was decided in favor of
a shield for undertaking certain proscribed activities. the complainants. Hence, South East Asia Sugar Mill
Corporation (SEASUMCO) and Mindanao Azucarera
Here, instead of holding the decedent's interest in the Corporation (MAC), as well as the members of their
corporation separately as a stockholder, the situation board of directors, were ordered to pay jointly and
was reversed. Instead, the probate court ordered the severally the sum of Three Million Eight Hundred
lessees of the corporation to remit rentals to the Twenty-Seven Thousand Four Hundred Seventy Pesos
estate's administrator without taking note of the fact and Fifty-One Centavos (P3,827,470.51).
that the decedent was not the absolute owner of
Primrose but only an owner of shares thereof. Mere The LA's decision became final and executory but the
ownership by a single stockholder or by another judgment remained unsatisfied. Consequently, the
corporation of all or nearly all of the capital stocks of a petitioner filed an Ex-parte Motion for the issuance of
corporation is not of itself a sufficient reason for an amended alias writ of execution asking for the
disregarding the fiction of separate corporate inclusion of the board of directors arid corporate
personalities. Moreover, to disregard the separate officers of SEASUMCO and MAC to hold them liable for
juridical personality of a corporation, the wrongdoing satisfaction of the said decision. In an Order dated
cannot be presumed, but must be clearly and August 16, 2007, the LA granted the motion; hence, an
convincingly established. amended alias writ of execution was issued which now
included the respondent. Aggrieved, the respondent
Moreover, the probate court in this case has not elevated the matter to the NLRC by filing a
acquired jurisdiction over Primrose and its properties. Memorandum of Appeal arguing that he was denied
Piercing the veil of corporate entity applies to due process.
determination of liability not of jurisdiction; it is
basically applied only to determine established liability. In a Resolution dated January 11, 2008, the NLRC
It is not available to confer on the court a jurisdiction it dismissed the appeal for lack of merit and sustained the
has not acquired, in the first place, over a party not findings of the LA.
impleaded in a case.59 This is so because the doctrine of
piercing the veil of corporate fiction comes to play only ISSUE:
during the trial of the case after the court has already Whether the respondent can be held solidarily liable
acquired jurisdiction over the corporation. Hence, with the corporation, of which he was an officer and a
before this doctrine can be even applied, based on the stockholder, when he was not served with summons
evidence presented, it is imperative that the court must and was never impleaded as a party to the case.
first have jurisdiction over the corporation.60
RULING:
Hence, a corporation not impleaded in a suit cannot be No, respondent, as one of SEASUMCO's corporate
subject to the court's process of piercing the veil of its officer and stockholder, should not be held solidarily
corporate fiction. Resultantly, any proceedings taken liable with the corporation for its monetary liabilities
against the corporation and its properties would with the petitioner.
infringe on its right to due process.
Here, the LA pierced the veil of corporate fiction of
In the case at bench, the probate court applied the SEASUMCO and held the respondent, in his personal
doctrine of piercing the corporate veil ratiocinating that capacity, jointly and severally liable with the
Rosario had no other properties that comprise her corporation for the enforcement of the monetary
estate other than her shares in Primrose. Although the awards to the petitioner. Even assuming that the labor
probate court's intention to protect the decedent's tribunals had jurisdiction over the respondent, it was
shares of stock in Primrose from dissipation is laudable, still improper to hold him liable for SEASUMCO's
it is still an error to order the corporation's tenants to obligations to its employees.
remit their rental payments to the estate of Rosario.
"A corporation is a juridical entity with a legal Telephone Company (PLDT) pursuant to a security
personality separate and distinct from those acting for services agreement between PSI and PLDT.
and in its behalf and, in general, from the people
comprising it. Thus, as a general rule, an officer may not On October 1, 2001, however, PSI's security services
be held liable for the corporation's labor obligations agreement with PLDT was terminated and, accordingly,
unless he acted with evident malice and/or bad faith in PSI recalled its security guards assigned to PLDT
dismissing an employee." Section 31 of the Corporation including the respondents.
Code is the governing law on personal liability of
officers for the debts of the corporation. To hold a On October 8, 2001, the respondents, together with
director or officer personally liable for corporate several other security guards employed by PSI, filed a
obligations, two requisites must concur: complaint for illegal dismissal with the National Labor
Relations Commission (NLRC) against PLDT and PSI,
( 1) it must be alleged in the complaint that the director claiming that they are PLDT employees.
or officer assented to patently unlawful acts of the
corporation or that the officer was guilty of gross Thereafter, PSI assigned the respondents to the facilities
negligence or bad faith; and of its other clients such as the warehouse of a certain
(2) there must be proof that the officer acted in bad Marivic Yulo in Sta. Ana, Manila and Trinity College's
faith. Elementary Department in Quezon City.
Based on the records, the petitioner and the private Meanwhile, on January 13, 2003, the respondents were
respondents in the NLRC case failed to specifically allege relieved from their respective assignments pursuant to
either in their complaint or position paper that the Special Order No. 200310108 dated January 10, 2003
respondent, as an officer of SEASUMCO, willfully and issued by Col. Leonardo L. Aquino, the Operations
knowingly assented to the corporations' patently Manager of PSI. Accordingly, Flores and Tapiru, on
unlawful act of closing the corporation, or that the September 6 and 27, 2005, respectively, filed with the
respondent had been guilty of gross negligence or bad Regional Arbitration Branch of the NLRC in Quezon City
faith in directing the affairs of the corporation. In fact, a complaint for illegal dismissal and non-payment of
there was no evidence at all to show the respondent's service incentive leave pay and cash bond, with prayer
participation in the petitioner's illegal dismissal. Clearly, for separation pay, against PSI and its President Nestor
the twin requisites of allegation and proof of bad faith, Racho (Racho) (collectively, the petitioners).
necessary to hold the respondent personally liable for
the monetary awards to the petitioner, are lacking. In their position paper, the respondents claimed that,
after they were relieved from their assignment in the
The respondent is merely one of the officers of warehouse in Sta. Ana, Manila on January 13, 2003,
SEASUMCO and to single him out and require him to they repeatedly reported to PSI's office for possible
personally answer for the liabilities of SEASUMCO are assignment, but the latter refused to give them any
without basis. In the absence of a finding that he acted assignment. On the other hand, the petitioners, in their
with malice or bad faith, it was error for the labor position paper, claimed that the respondents were
tribunals to hold him responsible. merely relieved from their assignment in the warehouse
in Sta. Ana, Manila and that the same was on account of
The Court had repeatedly emphasized that the piercing their performance evaluation, which indicated that they
of the veil of corporate fiction is frowned upon and can were ill-suited for the said assignment.
only be done if it has been clearly established that the
separate and distinct personality of the corporation is On January 30, 2009, the LA rendered a Decision finding
used to justify a wrong, protect fraud, or perpetrate a that the respondents were illegally from their
deception. To disregard the separate juridical employment and, thus, directing the petitioners jointly
personality of a corporation, the wrongdoing must be and severally liable to pay the former separation pay
established clearly and convincingly. It cannot be and backwages.
presumed.
ISSUE: Whether Racho is jointly and solidarily liable
with PSI for the payment of the monetary awards to the
12. People's Security, Inc. and Nestor Racho vs. Julius respondents.
S. Flores and Esteban S. Tapiru
RULING:
G.R. No. 211312.
December 5, 2016 No. A corporation has a personality separate and
distinct from its directors, officers, or owners.
FACTS: Nevertheless, in exceptional cases, courts find it proper
Julius S. Flores and Esteban S. Tapiru (respondents) to breach this corporate personality in order to make
were security guards previously employed by People's directors, officers, or owners solidarily liable for the
Security, Inc. (PSI). The respondents were assigned at companies' acts. Thus, under Section 31 of the
the various facilities of Philippine Long Distance Corporation Code of the Philippines, "[d]irectors or
trustees who willfully and knowingly vote for or assent
to patently unlawful acts of the corporation or who are SBMA 19.99% or 20%
guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or OCWD 9.99% or 10%
pecuniary interest in conflict with their duty as such
directors, or trustees, shall be liable jointly and severally Biwater 29.99% or 30%
for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other DMCI 39.99% or 40%17
persons."
On November 24, 1996, Subic Water was granted the
The doctrine of piercing the corporate veil applies only franchise to operate and to carry on the business of
when the corporate fiction is used to defeat public providing water and sewerage services in the Subic
convenience, justify wrong, protect fraud, or defend BayFree Port Zone, as well as in Olongapo City. Hence,
crime. In the absence of malice, bad faith, or a specific Subic Water took over OCWD’s water operations in
provision of law making a corporate officer liable, such Olongapo City.19
corporate officer cannot be made personally liable for
corporate liabilities. To finally settle their money claims against each other,
The respondents failed to adduce any evidence to prove petitioner and OCWD entered into a compromise
that Racho, as President and General Manager of PSI, is agreement on June 4, 1997. In this agreement,
hiding behind the veil of corporate fiction to defeat petitioner and OCWD offset their respective claims and
public convenience, justify wrong, protect fraud, or counterclaims. The compromise agreement also
defend crime. Thus, it is only PSI who is responsible for contained a provision regarding the parties’ request
the respondents' illegal dismissal. that Subic Water, Philippines, which took over the
operations of the defendant Olongapo City Water
13. Olonggapo City vs. Subic Water and Sewerage Co., District be made the co-maker for OCWD’s obligations.
Inc.
On December 15,1998, OCWD was judicially dissolved.
G.R. No. 171626, August 6, 2014
Almost four years later, on May 30, 2003, the
OLONGAPO CITY, Petitioner, vs. petitioner, through its new counsel, filed a notice of
SUBIC WATER AND SEWERAGE CO., INC., Respondent. appearance with urgent motion/manifestation and
prayed again for the issuance of a writ of execution
against OCWD. A certain Atty. Segundo Mangohig,
claiming to be OCWD’s former counsel, filed a
FACTS: Pursuant to PD 198, petitioner Olongapo City manifestation alleging that OCWD had already been
(petitioner) passed Resolution No. 161, which dissolved and that Subic Water is now the former
transferred all its existing water facilities and assets OCWD.
under the Olongapo City Public Utilities Department
Waterworks Division, to the jurisdiction and ownership Because of this assertion, Subic Water also filed a
of the Olongapo City Water District (OCWD). manifestation informing the trial court that as borne out
by the articles of incorporation and general information
PD 198, as amended, allows local water districts sheet of Subic Water x x x defendant OCWD is not Subic
(LWDs)which have acquired an existing water system of Water. The manifestation also indicated that OCWD was
a local government unit (LGU) to enter into a contract only a ten percent (10%) shareholder of Subic Water;
to pay the concerned LGU. In lieu of the LGU’s share in and that its 10% share was already in the process of
the acquired water utility plant, it shall be paid by the being transferred to petitioner pursuant to the Deed of
LWD an amount not exceeding three percent (3%) of Assignment dated November 24, 1997.
the LWD’s gross receipts from water sales in any year.12
ISSUE: Whether Subic Water should be held liable for
On October 24, 1990, petitioner filed a complaint for OCWD’s corporate obligations.
sum of money and damages against OCWD. Among
others, petitioner alleged that OCWD failed to pay its RULING:
electricity bills to petitioner and remit its payment
under the contract to pay, pursuant to OCWD’s NO. Subic Water is a corporation. A corporation, as a
acquisition of petitioner’s water system. In its juridical entity, primarily acts through its board of
complaint, petitioner prayed for the following reliefs: directors, which exercises its corporate powers. In this
capacity, the general rule is that, in the absence of
In the interim, OCWD entered into a Joint Venture authority from the board of directors, no person, not
Agreement16 (JVA) with Subic Bay Metropolitan even its officers, can validly bind a corporation. Section
Authority (SBMA), Biwater International Limited 23 of the Corporation Code provides:
(Biwater), and D.M. Consunji, Inc. (DMCI) on November
24, 1996. Pursuant to this agreement, Subic Water– a The board of directors or trustees.– Unless otherwise
new corporate entity – was incorporated, withthe provided in this Code, the corporate powers of all
following equity participation from its shareholders:
corporations formed under this Code shall be exercised, OCWD and Subic Water are two separate and different
all business conducted and all property of such entities.
corporations controlled and held by Section 23. the
board of directors or trustees to be elected from Petitioner practically suggests that since Subic Water
among the holders of stocks, or where there is no took over OCWD’s water operations in Olongapo City, it
stock, from among the members of the corporation, also acquired OCWD’s juridical personality, making the
who shall hold office for one (1) year until their two entities one and the same.
successors are elected and qualified. (28a)
This is an interpretation that we cannot make or adopt
In People’s Aircargo and Warehousing Co., Inc. v. Court under the facts and the evidence of this case. Subic
of Appeals, we held that under Section 23 of the Water clearly demonstrated that it was a separate
Corporation Code, the power and responsibility to corporate entity from OCWD. OCWD is just a ten
decide whether a corporation can enter into a binding percent (10%) shareholder of Subic Water. As a mere
contract is lodged with the board of directors, subject to shareholder, OCWD’s juridical personality cannot be
the articles of incorporation, by-laws, or relevant equated nor confused with that ofSubic Water. It is
provisions of law. As we have clearly explained in basic in corporation law that a corporation is a juridical
another case: entity vested with a legal personality separate and
distinct from those acting for and in its behalf and, in
A corporate officer or agent may represent and general, from the people comprising it.65 Under this
bind the corporation in transactions with third corporate reality, Subic Water cannot be held liable for
persons to the extent that [the] authority to do OCWD’s corporate obligations in the same manner that
so has been conferred upon him, and this OCWD cannot be held liable for the obligations incurred
includes powers which have been intentionally by Subic Water as a separate entity. The corporate veil
conferred, and also such powers as, in the usual should not and cannot be pierced unless it is clearly
course of the particular business, are incidental established that the separate and distinct personality of
to, or may be implied from, the powers the corporation was used to justify a wrong, protect
intentionally conferred, powers added fraud, or perpetrate a deception.
bycustom and usage, as usually pertaining to
the particular officer or agent,and such In Concept Builders, Inc. v. NLRC,67 the Court
apparent powers as the corporation has caused enumerated the possible probative factors of identity
persons dealing with the officer oragent to which could justify the application of the doctrine of
believe that ithas conferred. piercing the corporate veil. These are:
Mr. Noli Aldip signed the compromise agreement (1) Stock ownership by one or common
purely in his own capacity. Moreover, the compromise ownership of both corporations;
agreement did not expressly provide that Subic Water
consented to become OCWD’s co-maker. As worded, (2) Identity of directors and officers;
the compromise agreement merely provided that both
parties [also]requestSubic Water, Philippines, which (3) The manner of keeping corporate books and
took over the operations of Olongapo City Water records; and
District be made asco-maker [for the obligations above-
cited].This request was never forwarded to Subic (4) Methods of conducting the business.68
Water’s board of directors. Even if due notification had
been made (which does not appearin the records), The burden of proving the presence of any of these
Subic Water’s board does not appear to have given any probative factors lies with the one alleging it.
approval tosuch request. Nodocument such as the Unfortunately, petitioner simply claimed that Subic
minutes of Subic Water’s board of directors’ meeting or Water took over OCWD's water operations in Olongapo
a secretary’s certificate, purporting to be an City. Apart from this allegation, petitioner failed to
authorization to Mr. Aldip to conform to the demonstrate any link to justify the construction that
compromise agreement, was everpresented. In effect, Subic Water and OCWD are one and the same.
Mr. Aldip’s act of signing the compromise agreement
was outside of his authority to undertake.
14. Livesey vs. Binswanger Philippines, Inc.
Since Mr. Aldip was never authorized and there was no
showing that Subic Water’s articles of incorporation or G.R. No. 177493, ERIC GODFREY STANLEY
by-laws granted him such authority, then the LIVESEY, Petitioner, vs. BINSWANGER PHILIPPINES, INC.
compromise agreement he signed cannot bind Subic and KEITH ELLIOT, Respondent.
Water. Subic Water cannot likewise be made a surety or
even a guarantor for OCWD’s obligations. OCWD’s debts FACTS: In December 2001, petitioner Eric Godfrey
under the compromise agreement are its own corporate Stanley Livesey filed a complaint for illegal dismissal
obligations to petitioner. with money claims4against CBB Philippines Strategic
Property Services, Inc. (CBB) and Paul Dwyer. CBB was a
domestic corporation engaged in real estate brokerage former President, and now Binswanger’s President and
and Dwyer was its President. Chief Executive Officer (CEO).
Livesey alleged that on April 12, 2001, CBB hired him as ISSUE: Whether CBB and Binswanger Philippines, Inc.
Director and Head of Business Space Development, with (Binswanger) are one and the same corporation.
a monthly salary of US$5,000.00; shareholdings in CBB’s
offshore parent company; and other benefits. In August RULING: YES, there is an indubitable link between CBB’s
2001, he was appointed as Managing Director and his closure and Binswanger’s incorporation. CBB ceased to
salary was increased to US$16,000.00 a month. exist only in name
Allegedly, despite the several deals for CBB he drew up,
CBB failed to pay him a significant portion of his salary. It has long been settled that the law vests a corporation
For this reason, he was compelled to resign on with a personality distinct and separate from its
December 18, 2001. He claimed CBB owed him stockholders or members. In the same vein, a
US$23,000.00 in unpaid salaries. corporation, by legal fiction and convenience, is an
entity shielded by a protective mantle and imbued by
CBB denied liability. It alleged that it engaged Livesey as law with a character alien to the persons comprising
a corporate officer in April 2001: he was elected Vice- it.43 Nonetheless, the shield is not at all times
President (with a salary of P75,000.00/month), and impenetrable and cannot be extended to a point
thereafter, he became President (at beyond its reason and policy. Circumstances might deny
P1,200,000.00/year). It claimed that Livesey was later a claim for corporate personality, under the "doctrine
designated as Managing Director when it became an of piercing the veil of corporate fiction."
extension office of its principal in Hongkong.
Piercing the veil of corporate fiction is an equitable
In his decision dated September 20, 2002, LA Jaime M. doctrine developed to address situations where the
Reyno found that Livesey had been illegally dismissed. separate corporate personality of a corporation is
LA Reyno ordered CBB to reinstate Livesey to his former abused or used for wrongful purposes. Under the
position as Managing Director . doctrine, the corporate existence may be disregarded
where the entity is formed or used for non-legitimate
Thereafter, the parties entered into a compromise purposes, such as to evade a just and due obligation, or
agreement7 which LA Reyno approved in an order dated to justify a wrong, to shield or perpetrate fraud or to
November 6, 2002.8 Under the agreement, Livesey was carry out similar or inequitable considerations, other
to receive US$31,000.00 in full satisfaction of LA unjustifiable aims or intentions,45 in which case, the
Reyno’s decision, broken down into US$13,000.00 to be fiction will be disregarded and the individuals
paid by CBB to Livesey or his authorized representative composing it and the two corporations will be treated
upon the signing of the agreement; US$9,000.00 on or as identical46
before June 30, 2003; and US$9,000.00 on or before
September 30, 2003. Further, the agreement provided In the present case, we see an indubitable link between
that unless and until the agreement is fully satisfied, CBB’s closure and Binswanger’s incorporation. CBB
CBB shall not: (1) sell, alienate, or otherwise dispose of ceased to exist only in name; it re-emerged in the
all or substantially all of its assets or business; (2) person of Binswanger for an urgent purpose
suspend, discontinue, or cease its entire, or a
substantial portion of its business operations; (3) — to avoid payment by CBB of the last two
substantially change the nature of its business; and (4) installments of its monetary obligation to
declare bankruptcy or insolvency. Livesey, as well as its other financial liabilities.
Freed of CBB’s liabilities, especially that owing
CBB paid Livesey the initial amount of US$13,000.00, to Livesey, Binswanger can continue, as it did
but not the next two installments as the company continue, CBB’s real estate brokerage business.
ceased operations. In reaction, Livesey moved for the
issuance of a writ of execution. LA Eduardo G. Magno Livesey’s evidence, whose existence the respondents
granted the writ,9 but it was not enforced. Livesey then never denied, converged to show this continuity of
filed a motion for the issuance of an alias writ of business operations from CBB to Binswanger. It was not
execution,10 alleging that in the process of serving just coincidence that Binswanger is engaged in the same
respondents the writ, he learned "that respondents, in line of business CBB embarked on:
a clear and willful attempt to avoid their liabilities to
complainant x x x have organized another corporation, (1) it even holds office in the very same building
[Binswanger] Philippines, Inc."11 He claimed that there and on the very same floor where CBB once stood;
was evidence showing that CBB and Binswanger
Philippines, Inc. (Binswanger) are one and the same (2) CBB’s key officers, Elliot, no less, and Catral
corporation, pointing out that CBB stands for moved over to Binswanger, performing the
Chesterton Blumenauer Binswanger. Invoking the tasks they were doing at CBB;
doctrine of piercing the veil of corporate fiction,
Livesey prayed that an alias writ of execution be issued
against respondents Binswanger and Keith Elliot, CBB’s
(3) notwithstanding CBB’s closure, Binswanger’s On the other hand, petitioners are directed to
Web Editor (Young), in an e-mail reimburse the defendant the amount of
correspondence, supplied the information that [P]10,942,200.00, representing the buy back price of the
Binswanger is "now known" as either CBB
60,790,000 KPP shares of stocks at [P]0.18 per share.
(Chesterton Blumenauer Binswanger or as
Chesterton Petty, Ltd., in the Philippines; The Resolution was ultimately affirmed by the Supreme
Court and attained finality.
(4) the use of Binswanger of CBB’s
paraphernalia (receiving stamp) in connection When the Writ of Execution was returned unsatisfied,
with a labor case where Binswanger was petitioners moved for the issuance of an alias writ of
summoned by the authorities, although Elliot execution to hold Export and Industry Bank, Inc. liable
claimed that he bought the item with his own for the judgment obligation as E–Securities is “a wholly–
money; and owned controlled and dominated subsidiary of Export
and Industry Bank, Inc., and is[,] thus[,] a mere alter ego
(5) Binswanger’s takeover of CBB’s project with
and business conduit of the latter. E–Securities opposed
the PNB.
the motion[,] arguing that it has a corporate personality
While the ostensible reason for Binswanger’s that is separate and distinct from the respondent.
establishment is to continue CBB’s business operations
in the Philippines, which by itself is not illegal, the close The RTC eventually concluded that E–Securities is a
proximity between CBB’s disestablishment and mere business conduit or alter ego of petitioner, the
Binswanger’s coming into existence points to an dominant parent corporation, which justifies piercing of
unstated but urgent consideration which, as we earlier the veil of corporate fiction, and issued an alias writ of
noted, was to evade CBB’s unfulfilled financial summons directing defendant EIB Securities, Inc.,
obligation to Livesey under the compromise agreement. and/or Export and Industry Bank, Inc., to fully comply
therewith. It ratiocinated that being one and the same
15. Pacific Rehouse Corporation vs. CA
entity in the eyes of the law, the service of summons
G.R. No. 199687 upon EIB Securities, Inc. (E–Securities) has bestowed
jurisdiction over both the parent and wholly–owned
PACIFIC REHOUSE CORPORATION, Petitioners, subsidiary.
vs.
COURT OF APPEALS and EXPORT AND INDUSTRY Export and Industry Bank, Inc. (Export Bank) filed before
BANK, INC., Respondents. the Court of Appeals a petition for certiorari with prayer
for the issuance of a temporary restraining order
x-----------------------x (TRO) seeking the nullification of the RTC Order.
G.R. No. 201537 The Court of Appeals reversed the RTC Order and
explained that the alter ego theory cannot be sustained
PACIFIC REHOUSE CORPORATION, PACIFIC CONCORDE because ownership of a subsidiary by the parent
CORPORATION, MIZPAH HOLDINGS, INC., FORUM
company is not enough justification to pierce the veil of
HOLDINGS CORPORATION and EAST ASIA OIL
COMPANY, INC., Petitioners, corporate fiction. There must be proof, apart from mere
vs. ownership, that Export Bank exploited or misused the
EXPORT AND INDUSTRY BANK, INC., Respondent. corporate fiction of E–Securities. The existence of
interlocking incorporators, directors and officers
FACTS: between the two corporations is not a conclusive
indication that they are one and the same. The records
A complaint was instituted with the Makati City
also do not show that Export Bank has complete control
Regional Trial Court (RTC), Branch 66, against EIB
over the business policies, affairs and/or transactions of
Securities Inc. (E–Securities) for unauthorized sale of
E–Securities. It was solely E–Securities that contracted
32,180,000 DMCI shares of Pacific Rehouse Corporation,
the obligation in furtherance of its legitimate corporate
Pacific Concorde Corporation, Mizpah Holdings, Inc.,
purpose; thus, any fall out must be confined within its
Forum Holdings Corporation, and East Asia Oil
limited liability.
Company, Inc.
In its October 18, 2005 Resolution, the RTC rendered

judgment on the pleadings, directing the E–Securities to ISSUE: Whether E–Securities is a mere business conduit
return to the petitioners 32,180,000 DMCI shares, as of or alter ego of petitioner, the dominant parent
judicial demand. corporation, which justifies piercing of the veil of
corporate fiction.
RULING: Ownership by Export Bank of a great majority or all of

stocks of E-Securities and the existence of interlocking
NO. The Alter Ego Doctrine is not applicable. directorates may serve as badges of control, but
ownership of another corporation, per se, without proof
An alter ego exists where one corporation is so of actuality of the other conditions are insufficient to
organized and controlled and its affairs are conducted establish an alter ego relationship or connection
so that it is, in fact, a mere instrumentality or adjunct of between the two corporations, which will justify the
the other. The control necessary to invoke the alter ego setting aside of the cover of corporate fiction. The Court
doctrine is not majority or even complete stock control has declared that "mere ownership by a single
but such domination of finances, policies and practices stockholder or by another corporation of all or nearly
that the controlled corporation has, so to speak, no all of the capital stock of a corporation is not of itself
separate mind, will or existence of its own, and is but a sufficient ground for disregarding the separate
conduit for its principal. corporate personality." The Court has likewise ruled
The Court has laid down a three–pronged control test that the "existence of interlocking directors, corporate
to establish when the alter ego doctrine should be officers and shareholders is not enough justification to
operative: pierce the veil of corporate fiction in the absence of
fraud or other public policy considerations."
• Control, not mere majority or complete stock
control, but complete domination, not only of While the courts have been granted the colossal
finances but of policy and business practice in authority to wield the sword which pierces through the
respect to the transaction attacked so that the veil of corporate fiction, concomitant to the exercise of
this power, is the responsibility to uphold the doctrine
corporate entity as to this transaction had at
of separate entity, when rightly so; as it has for so long
the time no separate mind, will or existence of encouraged businessmen to enter into economic
its own; endeavors fraught with risks and where only a few
dared to venture.
• Such control must have been used by the
defendant to commit fraud or wrong, to Hence, any application of the doctrine of piercing the
perpetuate the violation of a statutory or other corporate veil should be done with caution. A court
positive legal duty, or dishonest and unjust act should be mindful of the milieu where it is to be
in contravention of plaintiff’s legal right; and applied. It must be certain that the corporate fiction
was misused to such an extent that injustice, fraud, or
• The aforesaid control and breach of duty must crime was committed against another, in disregard of its
[have] proximately caused the injury or unjust rights. The wrongdoing must be clearly and convincingly
established; it cannot be presumed. Otherwise, an
loss complained of.
injustice that was never unintended may result from an
The absence of any one of these elements prevents erroneous application.
‘piercing the corporate veil’ in applying the
ISSUE: May the RTC enforce the alias writ of execution
‘instrumentality’ or ‘alter ego’ doctrine, the courts are against Export Bank?
concerned with reality and not form, with how the
corporation operated and the individual defendant’s RULING:
relationship to that operation. Hence, all three elements
should concur for the alter ego doctrine to be The question posed before us is not novel.
applicable.
The Court already ruled in Kukan International
In this case, the alleged control exercised by Export Corporation v. Reyes that compliance with the
Bank upon its subsidiary E–Securities, by itself, does not recognized modes of acquisition of jurisdiction cannot
be dispensed with even in piercing the veil of corporate
mean that the controlled corporation is a mere
fiction, to wit:
instrumentality or a business conduit of the mother
company. Even control over the financial and The principle of piercing the veil of corporate fiction,
operational concerns of a subsidiary company does not and the resulting treatment of two related corporations
by itself call for disregarding its corporate fiction. There as one and the same juridical person with respect to a
must be a perpetuation of fraud behind the control or given transaction, is basically applied only to determine
at least a fraudulent or illegal purpose behind the established liability; it is not available to confer on the
court a jurisdiction it has not acquired, in the first place,
control in order to justify piercing the veil of corporate
over a party not impleaded in a case. Elsewise put, a
fiction. Such fraudulent intent is lacking in this case. corporation not impleaded in a suit cannot be subject
to the court’s process of piercing the veil of its
corporate fiction. In that situation, the court has not As part of her tasks, the respondent looked for a
acquired jurisdiction over the corporation and, hence, contractor who would renovate the two existing
any proceedings taken against that corporation and its Quickbite outlets in Divisoria, Manila and Lepanto St.,
property would infringe on its right to due process. University Belt, Manila.
Aguedo Agbayani, a recognized authority on
Commercial Law, stated as much: Pursuant to the agreement, the respondent engaged
the services of CLN Engineering Services (CLN) to
"23. Piercing the veil of corporate entity applies to renovate Quickbite-Divisoria at the cost of ₱432,876.02.
determination of liability not of jurisdiction. x x x
On June 13, 1990, Quickbite-Divisoria’s renovation was
This is so because the doctrine of piercing the veil of finally completed, and its possession was delivered to
corporate fiction comes to play only during the trial of the respondent. However, out of the ₱432,876.02
the case after the court has already acquired renovation cost, only the amount of ₱320,000.00 was
jurisdiction over the corporation. Hence, before this paid to CLN, leaving a balance of ₱112,876.02.
doctrine can be applied, based on the evidence
presented, it is imperative that the court must first have Complaint for Sum of Money (Civil Case No. Q-90-
jurisdiction over the corporation. x x x"50 (Citations 7013)
omitted)
CLN filed a complaint for sum of money and damages
From the preceding, it is therefore correct to say that before the RTC against the respondent and Manlapaz,
the court must first and foremost acquire jurisdiction which was docketed as Civil Case No. Q-90-7013. CLN
over the parties; and only then would the parties be later amended the complaint to exclude Manlapaz as
allowed to present evidence for and/or against piercing defendant. The respondent was declared in default for
the veil of corporate fiction. If the court has no her failure to file a responsive pleading.
jurisdiction over the corporation, it follows that the
court has no business in piercing its veil of corporate The RTC, in its January 28, 1991 decision, found the
fiction because such action offends the corporation’s respondent liable to pay CLN actual damages inthe
right to due process. amount of ₱112,876.02 with 12% interest per annum
from June 18,1990 (the date of first demand) and 20%
"Jurisdiction over the defendant is acquired either upon of the amount recoverable as attorney’s fees.
a valid service of summons or the defendant’s voluntary
appearance in court. When the defendant does not Complaint for Damages (Civil Case No. Q-92-13446)
voluntarily submit to the court’s jurisdiction or when
there is no valid service of summons, ‘any judgment of Thereafter, the respondent instituted a complaint for
the court which has no jurisdiction over the person of damages against the petitioners, WPM and Manlapaz.
the defendant is null and void.’"51 "The defendant must The respondent alleged that in Civil Case No. Q-90-
be properly apprised of a pending action against him 7013, she was adjudged liable for a contract that she
and assured of the opportunity to present his defenses entered into for and in behalf of the petitioners, to
to the suit. Proper service of summons is used to which she should be entitled to reimbursement; that
protect one’s right to due process." her participation in the management agreement was
limited only to introducing Manlapaz to Engineer
16. WPM International Trading, Inc. vs. Labayen Carmelo Neri (Neri), CLN’s general manager; that it was
actually Manlapaz and Neri who agreed on the terms
G.R. No. 182770 September 17, 2014 and conditions of the agreement; that when the
complaint for damages was filed against her, she was
WPM INTERNATIONAL TRADING, INC. and WARLITO P. abroad; and that she did not know of the case until she
MANLAPAZ, Petitioners, vs. FE CORAZON returned to the Philippines and received a copy of the
LABAYEN, Respondent. decision of the RTC.
FACTS: The respondent, Fe Corazon Labayen, is the RTC held that the respondent is entitled to indemnity
owner of H.B.O. Systems Consultants, a management from Manlapaz. The RTC found that based on the
and consultant firm. records, there is a clear indication that WPM is a mere
instrumentality or business conduit of Manlapaz and as
The petitioner, WPM International Trading, Inc. (WPM), such, WPM and Manlapaz are considered one and the
is a domestic corporation engaged in the restaurant same. The RTC also found that Manlapaz had complete
business, while Warlito P. Manlapaz (Manlapaz) is its control over WPM considering that he is its chairman,
president. president and treasurer at the same time.
WPM entered into a management agreement with the The CA applied the principle of piercing the veil of
respondent, by virtue of which the respondent was corporate fiction and agreed with the RTC that
authorized to operate, manage and rehabilitate Manlapaz cannot evade his liability by simply invoking
Quickbite, a restaurant owned and operated by WPM. WPM’s separate and distinct personality.
ISSUES: (1) Control, not mere majority or complete

stock control, but complete domination, not
(1) Whether WPM is a mere instrumentality, alter-ego, only of finances but of policy and business
and business conduit of Manlapaz; (attendant practice in respect to the transaction attacked
circumstances do not establish that WPM is a mere so that the corporate entity as to this
alter ego of Manlapaz ) and transaction had at the time no separate mind,
will or existence of its own;
(2) Whether Manlapaz is jointly and severally liable with
WPM to the respondent for reimbursement, damages (2) Such control must have beenused by the
and interest. (only WPM is liable to indemnify the defendant to commit fraud or wrong, to
respondent.) perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act
RULING: in contravention of plaintiff’s legal right; and
We note, at the outset, that the question of whether a (3) The aforesaid control and breach of duty
corporation is a mere instrumentality or alter-ego of must have proximately caused the injury or
another is purely one of fact.5 This is also true with unjust loss complained of.
respect to the question of whether the totality of the
evidence adduced by the respondent warrants the The absence of any ofthese elements prevents piercing
application of the piercing the veil of corporate fiction the corporate veil.
doctrine.6
In the present case, the attendant circumstances do not
The application of the principle of piercing the veil of establish that WPM is a mere alter ego of Manlapaz.
corporate fiction is unwarranted in the present case.
Aside from the fact that Manlapaz was the principal
The rule is settled that a corporation has a personality stockholder of WPM, records do not show that WPM
separate and distinct from the persons acting for and in was organized and controlled, and its affairs conducted
its behalf and, in general, from the people comprising in a manner that made it merely an instrumentality,
it.9 Following this principle, the obligations incurred by agency, conduit or adjunct ofManlapaz. As held in
the corporate officers, or other persons acting as Martinez v. Court of Appeals, the mere ownership by a
corporate agents, are the direct accountabilities ofthe singlestockholder of even all or nearly all of the capital
corporation they represent, and not theirs. Thus, a stocks ofa corporation is not by itself a sufficient ground
director, officer or employee of a corporation is to disregard the separate corporate personality. To
generally not held personally liable for obligations disregard the separate juridical personality of a
incurred by the corporation;10 it is only in exceptional corporation, the wrongdoing must be clearly and
circumstances that solidary liability will attach to them. convincingly established.
Incidentally, the doctrine of piercing the corporate veil Likewise, the records of the case do not support the
applies only in three (3) basic instances, namely: lower courts’ finding that Manlapaz had control or
domination over WPM or its finances. That Manlapaz
a) when the separate and distinct corporate concurrently held the positions of president, chairman
personality defeats public convenience, as when and treasurer, or that the Manlapaz’s residence is the
the corporate fiction is used as a vehicle for the registered principal office of WPM, are insufficient
evasion of an existing obligation; considerations to prove that he had exercised
absolutecontrol over WPM.
b) in fraud cases, or when the corporate entity
is used to justify a wrong, protect a fraud, or defend a In this connection, we stress that the control necessary
crime; or to invoke the instrumentality or alter ego rule is not
majority or even complete stock control but such
c) is used in alter ego cases, i.e., where a domination of finances, policies and practices that the
corporation is essentially a farce, since it is a controlled corporation has, so to speak, no separate
mere alter ego or business conduit of a person, mind, will or existence of its own, and is but a conduit
or where the corporation is so organized and for its principal. The control must be shown to have
controlled and its affairs so conducted as to been exercised at the time the acts complained of took
make it merely aninstrumentality, agency, place. Moreover, the control and breach of duty must
conduit or adjunct of another corporation. proximately cause the injury or unjust loss for which the
complaint is made.
Piercing the corporate veil based on the alter ego
theory requires the concurrence of three elements, Here, the respondent failed to prove that Manlapaz,
namely: acting as president, had absolute control over
WPM. Even granting that he exercised a certain degree
of control over the finances, policies and practices of
WPM, in view of his position as president, chairman and
treasurer of the corporation, such control does not Correspondence. Respondent was duly notified that he
necessarily warrant piercing the veil of corporate fiction was scheduled to be tested after lunch on that day. His
since there was not a single proof that WPM was receipt of the notice was evidenced by his signature on
formed to defraud CLN or the respondent, or that
the correspondence. Respondent avers that at around
Manlapaz was guilty of bad faith or fraud.
11:30 a.m. of the same day, he received a phone call
On the contrary, the evidence establishes that CLN and from his wife's colleague who informed him that a
the respondent knew and acted on the knowledge that bombing incident occurred near his wife's work station
they were dealing with WPM for the renovation of the in Tel Aviv, Israel where his wife was then working as a
latter’s restaurant, and not with Manlapaz. That WPM caregiver. Respondent attached to his Position Paper a
later reneged on its monetary obligation to CLN, Press Release of the Department of Foreign Affairs
resulting to the filing of a civil case for sum of money
(DFA) in Manila to prove the occurrence of the bombing
against the respondent, does not automatically indicate
fraud, in the absence of any proof to support it. incident and a letter from the colleague of his wife who
allegedly gave him a phone call from Tel Aviv.
This Court also observed that the CA failed to
demonstrate how the separate and distinct personality Respondent claims that after the said phone call, he
of WPM was used by Manlapaz to defeat the proceeded to the Israeli Embassy to confirm the news
respondent’s right for reimbursement. Neither was on the alleged bombing incident. Respondent further
there any showing that WPM attempted to avoid
claims that before he left the office on the day of the
liability or had no property against which to proceed.
random drug test, he first informed the secretary of his
Since no harm could be said to have been proximately Department, Irene Torres (Torres), at around 12:30 p.m.
caused by Manlapaz for which the latter could be held that he will give preferential attention to the emergency
solidarily liable with WPM, and considering that there phone call that he just received. He also told Torres that
was no proof that WPM had insufficient funds, there he would be back at the office as soon as he has
was no sufficient justification for the RTC and the CA to resolved his predicament. Respondent recounts that he
have ruled that Manlapaz should be held jointly and
tried to contact his wife by phone but he could not
severally liable to the respondent for the amount she
paid to CLN. Hence, only WPM is liable to indemnify the reach her. He then had to go to the Israeli Embassy to
respondent. confirm the bombing incident. However, he was told by
Eveth Salvador (Salvador), a lobby attendant at the
Finally, we emphasize that the piercing of the veil of Israeli Embassy, that he could not be allowed entry due
corporate fiction is frowned upon and thus, must be to security reasons.
done with caution. It can only be done if it has been
clearly established that the separate and distinct On that same day, at around 6:15 p.m., respondent
personality of the corporation is used to justify a wrong, returned to petitioner corporation's office. When he
protect fraud, or perpetrate a deception. The court was finally able to charge his cellphone at the office, he
must be certain that the corporate fiction was misused
received a text message from Tina Cecilia (Cecilia), a
to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights; it member of the Drug Watch Committee that conducted
cannot be presumed. the drug test, informing him to participate in the said
drug test. He immediately called up Cecilia to explain
17. MIRANT (PHILIPPINES) CORPORATION VS. CARO, the reasons for his failure to submit himself to the
723 SCRA 465 random drug test that day. He also proposed that he
would submit to a drug test the following day at his own
FACTS: Respondent filed a complaint for illegal dismissal
expense. Respondent never heard from Cecilia again.
and money claims for 13 and 14 month pay, bonuses
On November 8, 2004, respondent received a Show
and other benefits, as well as the payment of moral and
Cause Notice from petitioner corporation through Jaime
exemplary damages and attorney's fees. On January 3,
Dulot (Dulot), his immediate supervisor, requiring him
1994, respondent was hired by petitioner corporation
to explain in writing why he should not be charged with
as its Logistics Officer and was assigned at petitioner
"unjustified refusal to submit to random drug
corporation's corporate office in Pasay City. At the time
testing." Respondent submitted his written explanation
of the filing of the complaint, respondent was already a
on November 11, 2004.
Supervisor at the Logistics and Purchasing Department
with a monthly salary of P39,815.00. On January 13, 2005, petitioner corporation's
Investigating Panel issued an Investigating Report
On November 3, 2004, petitioner corporation finding respondent guilty of "unjustified refusal to
conducted a random drug test where respondent was submit to random drug testing" and recommended a
randomly chosen among its employees who would be penalty of four working weeks suspension without pay,
tested for illegal drug use through an Intracompany
instead of termination, due to the presence of fell short of being reasonable as company policies and
mitigating circumstances. In the same Report, the regulations are generally valid and binding between
Investigating Panel also recommended that petitioner the employer and the employee unless shown to be
grossly oppressive or contrary to law as in the case at
corporation should review its policy on random drug
bar.
testing, especially of the ambiguities cast by the term
"unjustified refusal." On January 19, 2005, petitioner As to the other issue relentlessly being raised by
corporation's Asst. Vice President for Material petitioner corporation that respondent’s petition for
Management Department, George K. Lamela, Jr. certiorari before the CA should have been considered
(Lamela), recommended that respondent be moot as respondent had already previously executed a
terminated from employment instead of merely being quitclaim discharging petitioner corporation from all his
monetary claims is not meritorious. Quitclaims executed
suspended. Lamela argued that even if respondent did
by laborers are ineffective to bar claims for the full
not outrightly refuse to take the random drug test, he measure of their legal rights, especially in this case
avoided the same. Lamela averred that "avoidance" was where the evidence on record shows that the amount
synonymous with "refusal." stated in the quitclaim exactly corresponds to the
amount claimed as unpaid wages by respondent under
ISSUE: Is Bautista (president of the corporation) also Annex A of his Reply filed with the Labor Arbiter. Prima
held personally liable along with the petitioner facie, this creates a false impression that respondent’s
(corporation) as duly alleged by the respondent? claims have already been settled by petitioner
corporation – discharging the latter from all of
RULING: No. A corporation has a personality separate respondent’s monetary claims. In truth and in fact,
and distinct from its officers and board of directors who however, the amount paid under the subject quitclaim
may only be held personally liable for damages if it is represented the salaries of respondent that remained
unpaid at the time of his termination – not the amounts
proven that they acted with malice or bad faith in the
being claimed in the case at bar.
dismissal of an employee. Absent any evidence on
record that petitioner Bautista acted maliciously or in
bad faith in effecting the termination of respondent, 18. COMMISSIONER OF CUSTOMS VS. OILING
plus the apparent lack of allegation in the pleadings of INTERNATIONAL CORPORATION, 728 SCRA 469
respondent that petitioner Bautista acted in such
On September 15, 1966, Union Refinery Corporation
manner, the doctrine of corporate fiction dictates that
(URC) was established under the Corporation Code of
only petitioner corporation should be held liable for the
the Philippines. In the course of its business
illegal dismissal of respondent.
undertakings, particularly in the period from 1991 to
RE: Drug test issue 1994, URC imported oil products into the country.
On January 11, 1996, Oilink was incorporated for the
There was illegal dismissal in the case at bar. While the primary purpose of manufacturing, importing,
adoption and enforcement by petitioner corporation of exporting, buying, selling or dealing in oil and gas, and
its Anti-Drugs Policy is recognized as a valid exercise of their refinements and by-products at wholesale and
its management prerogative as an employer, such retail of petroleum. URC and Oilink had interlocking
exercise is not absolute and unbridled. Managerial directors when Oilink started its business. In applying
prerogatives are subject to limitations provided by law, for and in expediting the transfer of the operator's
collective bargaining agreements, and the general name for the Customs Bonded Warehouse then
principles of fair play and justice. In the exercise of its operated by URC, Esther Magleo, the Vice-President and
management prerogative, an employer must therefore General Manager of URC, sent a letter dated January 15,
ensure that the policies, rules and regulations on work- 1996 to manifest that URC and Oilink had the same
related activities of the employees must always be fair Board of Directors and that Oilink was 100% owned by
and reasonable and the corresponding penalties, when URC.
prescribed, commensurate to the offense involved and
to the degree of the infraction. The Anti-Drugs Policy of On March 4, 1998, Oscar Brillo, the District Collector of
Mirant fell short of these requirements. the Port of Manila, formally demanded that URC pay
the taxes and duties on its oil imports that had arrived
The policy of random drug testing was not clear on between January 6, 1991 and November 7, 1995 at the
what constitutes “unjustified refusal” when the
Port of Lucanin in Mariveles, Bataan. On April 16, 1998,
subject drug policy prescribed that an employee’s
“unjustified refusal” to submit to a random drug test Brillo made another demand letter to URC for the
shall be punishable by the penalty of termination for payment of the reduced sum of P289,287,486.60 for the
the first offense. Lastly, the penalty of termination Value-Added Taxes (VAT), special duties and excise
imposed by petitioner corporation upon respondent taxes for the years 1991-1995. On April 23, 1998, URC,
through its counsel, responded to the demands by the nullification of the assessment for having been
seeking the landed computations of the assessments, issued without authority and with grave abuse of
and challenged the inconsistencies of the demands. discretion tantamount to lack of jurisdiction because
the Government was thereby shifting the imposition
On November 25, 1998, then Customs Commissioner from URC to Oilink.
Pedro C. Mendoza formally directed that URC pay the
amount of P119,223,541.71 representing URC's special ISSUE: WHETHER OR NOT THERE WAS A VALID GROUND
duties, VAT, and Excise Taxes that it had failed to pay at OF PIERCING THE VEIL OF CORPORATE FICTION.
the time of the release of its 17 oil shipments that had
arrived in the Sub-port of Mariveles from January 1, RULING: NO. A corporation, upon coming into
1991 to September 7, 1995. On December 21, 1998, existence, is invested by law with a personality separate
Commissioner Mendoza wrote again to require URC to and distinct from those of the persons composing it as
pay deficiency taxes but in the reduced sum of well as from any other legal entity to which it may be
related. For this reason, a stockholder is generally not
P99,216,580.10. On December 23, 1998, upon his
made to answer for the acts or liabilities of the
assumption of office, Customs Commissioner Nelson
Tan transmitted another demand letter to URC corporation, and vice versa. The separate and distinct
affirming the assessment of P99,216,580.10 by personality of the corporation is, however, a mere
Commissioner Mendoza. fiction established by law for convenience and to
promote the ends of justice. It may not be used or
On January 18, 1999, Magleo, in behalf of URC, replied invoked for ends that subvert the policy and purpose
by letter to Commissioner Tan's affirmance by denying behind its establishment, or intended by law to which
liability, insisting instead that only P28,933,079.20 the corporation owes its being. This is true particularly
should be paid by way of compromise. On March 26, when the fiction is used to defeat public convenience,
1999, Commissioner Tan responded by rejecting to justify wrong, to protect fraud, to defend crime, to
Magleo's proposal, and directed URC to pay confuse legitimate legal or judicial issues, to perpetrate
P99,216,580.10. On May 24, 1999, Manuel Co, URC's deception or otherwise to circumvent the law. This is
President, conveyed to Commissioner Tan URC's likewise true where the corporate entity is being used
willingness to pay only P94,216,580.10, of which the as an alter ego, adjunct, or business conduit for the sole
initial amount of P28,264,974.00 would be taken from benefit of the stockholders or of another corporate
entity. In such instances, the veil of corporate entity will
the collectibles of Oilink from the National Power
Corporation, and the balance to be paid in monthly be pierced or disregarded with reference to the
installments over a period of three years to be secured particular transaction involved.
with corresponding post-dated checks and its future
available tax credits. On July 2, 1999, Commissioner Tan In Philippine National Bank v. Ritratto Group, Inc., the
made a final demand for the total liability of Court has outlined the following circumstances that are
P138,060,200.49 upon URC and Oilink. useful in the determination of whether a subsidiary is a
mere instrumentality of the parent-corporation, viz:
On July 8, 1999, Co requested from Commissioner Tan a 1. Control, not mere majority or complete
complete finding of the facts and law in support of the control, but complete domination, not only of
assessment made in the latter's July 2, 1999 final finances but of policy and business practice in
demand. Also on July 8, 1999, Oilink formally protested respect to the transaction attacked so that the
the assessment on the ground that it was not the party corporate entity as to this transaction had at the
time no separate mind, will or existence of its
liable for the assessed deficiency taxes.
own;
On July 12, 1999, after receiving the July 8, 1999 letter 2. Such control must have been used by the
from Co, Commissioner Tan communicated in writing defendant to commit fraud or wrong, to
the detailed computation of the tax liability, stressing perpetrate the violation of a statutory or other
that the Bureau of Customs (BoC) would not issue any positive legal duty, or dishonest and, unjust act
clearance to Oilink unless the amount of in contravention of plaintiff's legal rights; and
P138,060,200.49 demanded as Oilink's tax liability be
3. The aforesaid control and breach of duty
first paid, and a performance bond be posted by must proximately cause the injury or unjust loss
URC/Oilink to secure the payment of any adjustments complained of.
that would result from the BIR's review of the liabilities
for VAT, excise tax, special duties, penalties, etc. Thus,
on July 30, 1999, Oilink appealed to the CTA, seeking In applying the "instrumentality" or "alter ego" doctrine,
the courts are concerned with reality, not form, and so a Share Purchase Agreement (SPA) was entered into.
with how the corporation operated and the individual Aboitiz Equity Ventures (AEV) agreed to purchase the
defendant's relationship to the shares of the Chiongbian and Gothong groups. The SPA
operation. Consequently, the absence of any one of the provided for arbitration in Cebu Sity as the mode of
foregoing elements disauthorizes the piercing of the settling disputes arising from the SPA pursuant to the
corporate veil. Arbitration Law. The SPA also provided that the
Agreement shall be deemed terminated except Annex
Indeed, the doctrine of piercing the corporate veil has SL-V. The parties also entered into an Escrow
no application here because the Commissioner of Agreement as part of the SPA where ING Bank was to
Customs did not establish that Oilink had been set up to take custody of the shares subject of the SPA and that
avoid the payment of taxes or duties, or for purposes disputes arising from it would be settled through
that would defeat public convenience, justify wrong, arbitration. AEV became stockholder of WG&A, which
protect fraud, defend crime, confuse legitimate legal or was renamed Aboitiz Transport Shipping Corp. CAGLI
judicial issues, perpetrate deception or otherwise made demands to ATSC (the corporation) for the return
circumvent the law. It is also noteworthy that from the or payment of the excess inventories. AEV alleged that
outset the Commissioner of Customs sought to collect inventories worth P120.04M were returned evidenced
the deficiency taxes and duties from URC, and that it by delivery receipts. CAGLI continued demanding and
was only on July 2, 1999 when the Commissioner of eventually addressed its demand letters directly to AEV
Customs sent the demand letter to both URC and Oilink.
(the stockholder). AEV rebuffed the demands alleging
That was revealing, because the failure of the that CAGLI already received the excess inventories, it
Commissioner of Customs to pursue the remedies was not a party to CAGLI’s claim because it had a
against Oilink from the outset manifested that its personality distinct from WLI/WG&A/ATSC and CAGLI’s
belated pursuit of Oilink was only an afterthought. claim was barred by prescription. In a reply-letter, CAGLI
19. ABOITIZ EQUITY VENTURES VS. CHIONGBIAN, 729 claimed that it was unaware of the return of the excess
SCRA 580 inventories and asked for copies of the delivery
receipts.
FACTS:
In letters written for AEV by its counsels, it was noted
ASC, CAGLI, and WLI entered into an Agreement. a. ASC that the excess inventories were delivered to GT Ferry
and CAGLI would transfer their shipping assets to WLI in Warehouse. Attached were delivery receipts of the
exchange for WLI’s shares of capital stock. WLI would return, the supposed unreturned inventories were only
run their merged shipping businesses, to be known as P119.89M but P120.04M was returned so CAGLI was
WG&A, Inc. It was stipulated that that all disputes in actually the one liable to return the difference. Not
connection with the Agreement be settled by satisfied, CAGLI filed two applications for arbitration
arbitration pursuant to the Arbitration Law (RA 876). An before RTC-Cebu.
arbitration tribunal shall be formed composed of four
arbitrators. Each party shall appoint one arbitrator. The ISSUE: WHETHER OR NOT AEV as ATSC’s stockholder
three appointees shall appoint the fourth arbitrator and subject to the obligation of the latter.
the latter shall act as Chairman. The award of the RULING: NO. The Aboitiz group (via ASC) and the
tribunal shall be binding on the parties and shall be Gothong group (via CAGLI) became stockholders of
enforced by Cebu or Metro Manila courts. Attached to WLI/WG&A, along with the Chiongbian group (which
the Agreement was Annex SL-V, a letter from WLI initially controlled WLI). This continued until, pursuant
President to CAGLI. Confirmed WLI’s commitment to to the SPA, the Gothong group and the Chiongbian
acquire certain spare parts and material inventories of group transferred their shares to AEV. With the SPA,
CAGLI, totaling an amount of P400M at most, pursuant AEV became a stockholder of WLI/WG&A, which was
to the Agreement. Pursuant to Annex SL-V, inventories subsequently renamed ATSC. Nonetheless, AEV's status
were transferred from CAGLI to WLI, now WG&A. as ATSC's stockholder does not subject it to ATSC's
Assessed to have value of P514M, later adjusted to obligations.
P558.89M, CAGLI was paid the amount of P400M and
WG&A shares worth P38.5M were also transferred to It is basic that a corporation has a personality separate
CAGLI. There was still a balance so CAGLI sent WG&A and distinct from that of its individual stockholders.
demand letters for the payment or return of excess Thus, a stockholder does not automatically assume the
liabilities of the corporation of which he is a
inventories.
stockholder.
The Chiongbians and the Gothongs decided to
leave WG&A and sell their interest to the Aboitiz family
AEV's status as ATSC's stockholder is, in and of itself, 16,237,339 Benguet Corporation shares of stock,
insufficient to make AEV liable for ATSC's obligations. registered in the name of the Palm Companies. The
Moreover, the SPA does not contain any stipulation PCGG had relied on a letter from the Palm Companies’
which makes AEV assume ATSC's obligations. It is true Attorney-in-Fact, Jose S. Sandejas, specifically
that Section 6.8 of the SPA stipulates that the rights and identifying Benjamin “Kokoy” Romualdez, a known
obligations arising from Annex SL-V are not terminated. crony of former President Ferdinand E. Marcos, as the
But all that Section 6.8 does is recognize that the beneficial owner of the Benguet Corporation shares in
obligations under Annex SL-V subsist despite the the Palm Companies’ name.
termination of the January 8, 1996 Agreement. At no
point does the text of Section 6.8 support the position The Republic, represented by the PCGG, filed a
that AEV steps into the shoes of the obligor under complaint with the Sandiganbayan but did not initially
Annex SL-V and assumes its obligations. implead the Palm Companies as defendants. However,
the Sandiganbayan issued a Resolution dated June 16,
Neither does Section 6.5 of the SPA suffice to compel 1989 where it ordered said companies to be impleaded.
AEV to submit itself to arbitration. While it is true that The Court subsequently affirmed this order to implead
Section 6.5 mandates arbitration as the mode for in G.R. No. 906675 on November 5, 1991. On
settling disputes between the parties to the SPA, September 22, 2006, the Palm Companies filed a
Section 6.5 does not indiscriminately cover any and all Motion to Release Sequestered Funds with the
disputes which may arise between the parties to the Sandiganbayan. In a Resolution dated January 18, 2007,
SPA. Rather, Section 6.5 is limited to "dispute[s] arising the Sandiganbayan granted said motion and ordered
between the parties relating to this Agreement [i.e., the the release of the sequestered funds for the purchase of
SPA]." To belabor the point, the obligation which is additional shares in Benguet Corporation, and
subject of the present dispute pertains to Annex SL-V, appointed a comptroller for this purpose.
not to the SPA. That the SPA, in Section 6.8, recognizes
the subsistence of Annex SL-V is merely a factual ISSUE: Whether or not writ of sequestration issued by
recognition. It does not create new obligations and does the government against the assets and properties of
not alter or modify the obligations spelled out in Annex Palm Avenue Holding Co., Inc. and Palm Avenue Realty
SL-V. and Development Corporation valid.
AEV was drawn into the present controversy on account RULING: The aforesaid provision mandates the Republic
of its having entered into the SPA. This SPA made AEV a to file the corresponding judicial action or proceedings
stockholder of WLI/WG&A/ATSC. Even then, AEV within a six-month period (from its ratification on
retained a personality separate and distinct from February 2, 1987) in order to maintain sequestration,
WLI/WG&A/ATSC. The SPA did not render AEV non-compliance with which would result in the
personally liable for the obligations of the corporation automatic lifting of the sequestration order. The
whose stocks it held. Court's ruling in Presidential Commission on Good
Government v. Sandiganbayan, which remains good
The obligation animating CAGLI's desire to arbitrate is law, reiterates the necessity of the Republic to actually
rooted in Annex SL-V. Annex SL-V is a contract entirely implead corporations as defendants in the complaint,
different from the SPA. It created distinct obligations for out of recognition for their distinct and separate
distinct parties. AEV was never a party to Annex SL-V. personalities, failure to do so would necessarily be
Rather than pertaining to AEV, Annex SL-V pertained to denying such entities their right to due process.
a different entity: WLI (renamed WG&A then renamed
ATSC). AEV is, thus, not bound by Annex SL-V. Here, the writ of sequestration issued against the assets
of the Palm Companies is not valid because the suit in
On one hand, Annex SL-V does not stipulate that Civil Case No. 0035 against Benjamin Romualdez as
disputes arising from it are to be settled via arbitration. shareholder in the Palm Companies is not a suit against
On the other hand, the SPA requires arbitration as the the latter. The Court has held, contrary to the assailed
mode for settling disputes relating to it and recognizes Sandiganbayan Resolution in G.R. No. 173082, that
the subsistence of the obligations under Annex SL-V. failure to implead these corporations as defendants and
But as a separate contract, the mere mention of Annex merely annexing a list of such corporations to the
SL-V in the SPA does not suffice to place Annex SL-V complaints is a violation of their right to due process for
under the ambit of the SPA or to render it subject to the it would be, in effect, disregarding their distinct and
SPA's terms, such as the requirement to arbitrate. separate personality without a hearing. Here, the Palm
Companies were merely mentioned as Item Nos. 47 and
20. PALM AVENUE HOLDING VS SANDIGANBAYAN 5TH 48, Annex A of the Complaint, as among the
DIVISION, 732 SCRA 156 corporations where defendant Romualdez owns shares
of stocks. Furthermore, while the writ of sequestration
FACTS: Through a writ of sequestration dated October was issued on October 27, 1986, the Palm Companies
27, 1986, the Presidential Commission on Good were impleaded in the case only in 1997, or already a
Government (PCGG) sequestered all the assets, decade from the ratification of the Constitution in 1987,
properties, records, and documents of the Palm way beyond the prescribed period.
Companies. Said sequestered assets included
The Republic in the case at bar failed to file a proper bill ISSUE: Whether or not PNCC is immune from suit?
of particulars which would completely clarify and
amplify the charges against the Palm Companies. For RULING: NO. An unincorporated government agency
said failure to comply with the graft court's order to file without any separate juridical personality of its own
the required bill of particulars that would completely enjoys immunity from suit because it is invested with an
and fully inform the Palm Companies of the charges inherent power of sovereignty. Accordingly, a claim for
against them, the amended complaint impleading said damages against the agency cannot prosper; otherwise,
companies necessarily failed to state a cause of action, the doctrine of sovereign immunity is violated.
warranting the dismissal of the case as to them. By the However, the need to distinguish between an
dismissal of the case as against the Palm Companies, unincorporated government agency performing
there is ipso facto no more writ of sequestration to governmental function and one performing proprietary
speak of. functions has arisen. The immunity has been upheld in
favor of the former because its function is governmental
The Republic cannot simply rely on the presumption or incidental to such function; it has not been upheld in
that the PCGG has acted pursuant to law and based favor of the latter whose function was not in pursuit of
on prima facie evidence, for the same will undermine a necessary function of government but was essentially
the basic constitutional principle that public officers and a business. However, the doctrine of sovereign
employees must at all times be accountable to the immunity had no application to the PNCC. The
people. Indeed, sequestration is an extraordinary and petitioner properly argued that the PNCC, being a
harsh remedy. As such, it should be confined to its private business entity, was not immune from suit. The
lawful parameters and exercised with due regard to the PNCC was incorporated in 1966 under its original name
requirements of fairness, due process, and justice. of Construction Development Corporation of the
While the Court acknowledges the Government's Philippines (CDCP) for a term of fifty years pursuant to
admirable efforts to recover ill-gotten wealth allegedly the Corporation Code. In 1983, the CDCP changed its
taken by the corporations, it cannot, however, choose corporate name to the PNCC to reflect the extent of the
to turn a blind eye to the demands of the law, justice, Government's equity investment in the company, a
and fairness. situation that came about after the government
Section 26, Article XVIII of the 1987 Constitution financial institutions converted their loans into equity
provides: x x x x A sequestration or freeze order shall be following the CDCP's inability to pay the loans. Hence,
issued only upon showing of a prima facie case. The the Government owned 90.3% of the equity of the
order and the list of the sequestered or frozen properties PNCC, and only 9.70% of the PNCC's voting equity
shall forthwith be registered with the proper court. For remained under private ownership. Although the
orders issued before the ratification of this majority or controlling shares of the PNCC belonged to
Constitution, the corresponding judicial action or the Government, the PNCC was essentially a private
proceeding shall be filed within six months from its corporation due to its having been created in
ratification.For those issued after such ratification, the accordance with the Corporation Code, the general
judicial action or proceeding shall be commenced within corporation statute. More specifically, the PNCC was an
six months from the issuance thereof. acquired asset corporation under Administrative Order
No. 59, and was subject to the regulation and
The sequestration or freeze order is deemed jurisdiction of the Securities and Exchange Commission.
automatically lifted if no judicial action or proceeding is
commenced as herein provided. RE: On the issue of whether the petitioner has the right
to demand access to the North Luzon Expressway
21. WPM INTERNATIONAL TRADING, INC. VS LABAYEN, (NLEX) by way of an easement of right of way; and as to
735 SCRA 297 the limited access imposed on the petitioner’s property
may be considered as a compensable taking due to the
See. Case #16 of D. Corporate Juridical Personality exercise of the power of eminent domain.
22. HERMANO OIL MANUFACTURING & SUGAR The putting up of the access fence on the petitioner’s
CORPORATION VS. TOLL REGULATORY BOARD, 743 property was in the valid exercise of police power,
SCRA 395 assailable only upon proof that such putting up unduly
violated constitutional limitations like due process and
FACTS: The petitioner owned a parcel of land located at equal protection of the law. In Mirasol v. Department of
the right side of the Sta. Rita Exit of the NLEX. The Public Works and Highways, the Court has further noted
parcel of land was bounded by an access fence along that: A toll way is not an ordinary road. As a facility
the NLEX. In its letter, the petitioner requested that designed to promote the fastest access to certain
respondent Toll Regulatory Board (TRB) grant an destinations, its use, operation, and maintenance
easement of right of way, contending that it had been require close regulation. Public interest and safety
totally deprived of the enjoyment and possession of its require the imposition of certain restrictions on toll
property by the access fence that had barred its entry ways that do not apply to ordinary roads. As a special
into and exit from the NLEX. However, the TRB denied kind of road, it is but reasonable that not all forms of
the petitioner’s request. transport could use it.
Clearly, therefore, the access fence was a reasonable Pursuant to the said Proclamation, on February 27,
restriction on the petitioner’s property given the 1987, DBP and PNB executed their respective deeds of
location thereof at the right side of Sta. Rita Exit of the transfer in favor of the National Government assigning,
NLEX. Although some adjacent properties were transferring and conveying certain assets and liabilities,
accorded unrestricted access to the expressway, there including their respective stakes in NMIC. In turn and on
was a valid and reasonable classification for doing so even date, the National Government transferred the
because their owners provided ancillary services to said assets and liabilities to the APT as trustee under a
motorists using the NLEX, like gasoline service stations Trust Agreement.
and food stores. A classification based on practical
convenience and common knowledge is not ISSUE: Whether or not there is sufficient ground to
unconstitutional simply because it may lack purely pierce the veil of corporate fiction of NMIC and held
theoretical or scientific uniformity. DBP and PNB solidarily liable with NMIC?
The limited access imposed on the petitioner’s property RULING: NO. From all indications, it appears that NMIC
did not partake of a compensable taking due to the is a mere adjunct, business conduit or alter ego of both
exercise of the power of eminent domain. There is no DBP and PNB. Thus, the DBP and PNB are jointly and
question that the property was not taken and devoted severally liable with NMIC for the latter’s unpaid
for public use. Instead, the property was subjected to a obligations to plaintiff. Then concluded that, "in keeping
certain restraint, i.e. the access fence, in order to secure with the concept of justice and fair play," the corporate
the general safety and welfare of the motorists using veil of NMIC should be pierced. For to treat NMIC as a
the NLEX. There being a clear and valid exercise of separate legal entity from DBP and PNB for the purpose
police power, the petitioner was certainly not entitled of securing beneficial contracts, and then using such
to any just compensation. separate entity to evade the payment of a just debt,
would be the height of injustice and iniquity. Surely that
23 & 24. PHILIPPINE NATIONAL BANK vs. HYDRO could not have been the intendment of the law with
RESOURCES CONTRACTORS CORPORATION, 693 SCRA respect to corporations.
294
The doctrine of piercing the corporate veil applies only
FACTS: Around the year 1984, petitioners DBP and PNB in three (3) basic areas, namely: 1) defeat of public
foreclosed on certain mortgages made on the convenience as when the corporate fiction is used as a
properties of Marinduque Mining and Industrial vehicle for the evasion of an existing obligation; 2) fraud
Corporation (MMIC). As a result of the foreclosure, DBP cases or when the corporate entity is used to justify a
and PNB acquired substantially all the assets of MMIC wrong, protect fraud, or defend a crime; or 3) alter ego
and resumed the business operations of the defunct cases, where a corporation is merely a farce since it is a
MMIC by organizing NMIC.7 DBP and PNB owned 57% mere alter ego or business conduit of a person, or
and 43% of the shares of NMIC, respectively, except for where the corporation is so organized and controlled
five qualifying shares. As of September 1984, the and its affairs are so conducted as to make it merely an
members of the Board of Directors of NMIC, namely, instrumentality, agency, conduit or adjunct of another
Jose Tengco, Jr., Rolando Zosa, Ruben Ancheta, Geraldo corporation.
Agulto, and Faustino Agbada, were either from DBP or
PNB. To disregard the separate juridical personality of a
corporation, the wrongdoing or unjust act in
Subsequently, NMIC engaged the services of Hercon, contravention of a plaintiff's legal rights must be clearly
Inc., for NMIC’s Mine Stripping and Road Construction and convincingly established; it cannot be
Program in 1985 for a total contract price of presumed. Without a demonstration that any of the
P35,770,120. After computing the payments already evils sought to be prevented by the doctrine is present,
made by NMIC under the program and crediting the it does not apply.
NMIC’s receivables from Hercon, Inc., the latter found
that NMIC still has an unpaid balance of Nothing in the records shows that the corporate
P8,370,934.74.10. Hercon, Inc. made several demands finances, policies and practices of NMIC were
on NMIC, including a letter of final demand dated dominated by DBP and PNB in such a way that NMIC
August 12, 1986, and when these were not heeded, a could be considered to have no separate mind, will or
complaint for sum of money was filed in the RTC of existence of its own but a mere conduit for DBP and
Makati, Branch 136 seeking to hold petitioners NMIC, PNB. On the contrary, the evidence establishes that
DBP, and PNB solidarily liable for the amount owing HRCC knew and acted on the knowledge that it was
Hercon, Inc. dealing with NMIC, not with NMIC's stockholders. The
letter proposal of Hercon, Inc., HRCC's predecessor-in-
Subsequent to the filing of the complaint, Hercon, Inc. interest, regarding the contract for NMIC's mine
was acquired by HRCC in a merger. Thereafter, on stripping and road construction program was addressed
December 8, 1986, then President Corazon C. Aquino to and accepted by NMIC.[71] The various billing
issued Proclamation No. 50 creating the APT for the reports, progress reports, statements of accounts and
expeditious disposition and privatization of certain communications of Hercon, Inc./HRCC regarding NMIC's
government corporations and/or the assets thereof. mine stripping and road construction program in 1985
concerned NMIC and NMIC's officers, without any and improper use of the corporate form and, thereby,
indication of or reference to the control exercised by suffer damages.
DBP and/or PNB over NMIC's affairs, policies and
practices. To summarize, piercing the corporate veil based on
the alter ego theory requires the concurrence of three
RE: Piercing the veil of corporate fiction elements: control of the corporation by the stockholder
or parent corporation, fraud or fundamental unfairness
A three-pronged test to determine the application of imposed on the plaintiff, and harm or damage caused to
the alter ego theory, which is also known as the the plaintiff by the fraudulent or unfair act of the
instrumentality theory, namely: corporation. The absence of any of these elements
prevents piercing the corporate veil.
(1) Control, not mere majority or complete stock
control, but complete domination, not only of finances The Court finds that none of the tests has been
but of policy and business practice in respect to the satisfactorily met in this case.
transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will The complaint against Development Bank of the
or existence of its own; Philippines, the Philippine National Bank, and the Asset
Privatization Trust, now the Privatization and
(2) Such control must have been used by the Management Office, is DISMISSED.
defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty, 25. G.R. No. 194578, February 13, 2013
or dishonest and unjust act in contravention of FORTUN vs. QUINSAYAS
plaintiff's legal right; and
FACTS: Before the Court is a petition for Contempt filed
(3) The aforesaid control and breach of duty must by Atty. Philip Sigfrid A. Fortun (petitioner) against Atty.
have proximately caused the injury or unjust loss Prima Jesusa B. Quinsayas (Atty. Quinsayas) et al.
complained of.
At the height of the gruesome killings known as the
The first prong is the "instrumentality" or "control" Maguindanao Massacre, Atty. Quinsayas, et al. filed a
test. This test requires that the subsidiary be disbarment complaint against petitioner Atty. Fortun.
completely under the control and domination of the
parent. It examines the parent corporation's Petitioner alleged that GMA News TV internet website
relationship with the subsidiary. It inquires whether a posted an article, written by Dedace, and Inquirer.net,
subsidiary corporation is so organized and controlled the website of PDI, published articles stating the details
and its affairs are so conducted as to make it a mere of the disbarment case.
instrumentality or agent of the parent corporation such
that its separate existence as a distinct corporate entity Petitioner further alleged that PhilStar published an
will be ignored. It seeks to establish whether the article which also gave details of the disbarment
subsidiary corporation has no autonomy and the parent allegations, and that Channel 23 aired national
corporation, though acting through the subsidiary in television a program where Drilon, the program’s host,
form and appearance, "is operating the business asked questions and allowed Atty. Quinsayas to discuss
directly for itself." the disbarment case against petitioner, including its
principal points.
The second prong is the "fraud" test. This test requires
that the parent corporation's conduct in using the Petitioner alleged that Atty. Quinsayas, et al. actively
subsidiary corporation be unjust, fraudulent or disseminated the details of the disbarment complaint
wrongful. It examines the relationship of the plaintiff to against him in violation of Rule 139-B of the Rules of
the corporation. It recognizes that piercing is Court on the confidential nature of disbarment
appropriate only if the parent corporation uses the proceedings. He alleged that the purpose of
subsidiary in a way that harms the plaintiff creditor. As respondents in publishing the disbarment complaint
such, it requires a showing of "an element of injustice or was to malign his personal and professional reputation.
fundamental unfairness."
In its Comment, GMA Network alleged that it has no
The third prong is the "harm" test. This test requires newspaper or any publication where it could have
the plaintiff to show that the defendant's control, printed the article. It alleged that it did not broadcast
exerted in a fraudulent, illegal or otherwise unfair the disbarment complaint on its television station. GMA
manner toward it, caused the harm suffered. A causal Network alleged that the publication had already been
connection between the fraudulent conduct committed done and completed when Atty. Quinsayas distributed
through the instrumentality of the subsidiary and the copies of the disbarment complaint and thus, did not
injury suffered or the damage incurred by the plaintiff violate the confidentiality rule.
should be established. The plaintiff must prove that,
unless the corporate veil is pierced, it will have been In her Comment, Dedace clarified that she is a field
treated unjustly by the defendant's exercise of control news reporter of GMA Network and not a writer of the
GMA News TV website. Her beat includes the Supreme that it was done on GMA Network’s online news
Court, the Court of Appeals, and the Department of website.
Justice. She alleged that she acted in good faith and
without malice in forwarding her news story to the Philippine Daily Inquirer, Inc.
news desk and that she had no intention to, and could PDI averred that it only shares its contents with
not, influence or interfere in the proceedings of the Inquirer.net through a syndication. PDI attached a
disbarment case. photocopy of the syndication page stating that "due to
syndication agreements between PDI and Inquirer.net,
PDI alleged in its Comment that it shares content with some articles published in PDI may not appear in
the Inquirer.net website through a syndication but the Inquirer.net."
latter has its own editors and publish materials that are
not found on the broadsheet. It alleged that Philippine A visit to the website describes Inquirer.net as "the
Daily Inquirer, Inc. and Inquirer Interactive, Inc. are two official news website of the Philippine Daily Inquirer,
different corporations, with separate legal personalities, the Philippines’ most widely circulated broadsheet, and
and one may not be held responsible for the acts of the a member of the Inquirer Group of Companies." PDI
other. was not able to fully establish that it has a separate
personality from Inquirer.net.
In her Comment, Ressa alleged that she was the former
head of ABS-CBN’s News and Current Affairs Group and ABS-CBN Corporation
the former Managing Director of ANC. However, she ABS-CBN alleged that SNN is its subsidiary and although
was on terminal leave. Ressa alleged that she had no they have interlocking directors, SNN has its own
participation in the production and showing of the juridical personality separate from its parent company.
broadcast. ABS-CBN alleged that SNN controls the line-up of shows
of ANC.
ABS-CBN and Drilon filed a joint Comment. ABS-CBN
alleged that ABS-CBN News Channel, commonly known We agree with ABS-CBN on this issue. We have ruled
as ANC, is maintained and operated by Sarimanok that a subsidiary has an independent and separate
Network News (SNN) and not by ABS-CBN. SNN, which juridical personality distinct from that of its parent
produced the program "ANC Presents: Crying for company and that any suit against the the latter does
Justice: the Maguindanao Massacre," is a subsidiary of not bind the former and vice-versa. A corporation is an
ABS-CBN but it has its own juridical personality although artificial being invested by law with a personality
SNN and ABS-CBN have interlocking directors. ABS-CBN separate and distinct from that of other corporations to
and Drilon alleged that the presentation and hosting of which it may be connected. Hence, SNN, not ABS-CBN,
the program were not malicious as there was no should have been made respondent in this case.
criminal intent to violate the confidentiality rule in
disbarment proceedings. They alleged that the program Maria Ressa
was a commemoration of the Maguindanao Massacre Respondent Ressa alleged that she was on terminal
and was not a report solely on the disbarment leave when the program about the Maguindanao
complaint against petitioner. Massacre was aired on ANC and that she had no hand in
its production. Ressa’s defense was supported by a
ISSUES: certification from the Human Resource Account Head of
1. Whether or not Philippine Daily Inquirer, Inc. and ABS-CBN, stating that Ressa went on terminal leave
Inquirer Interactive, Inc. are two different beginning 30 October 2010. This was not disputed by
corporations with separate legal personalities – No petitioner.
2. Whether or not SNN, a subsidiary, has an
independent and separate juridical personality 26. G.R. No. 154366, November 17, 2010
distinct from its parent company ABS-CBN. - Yes CEBU BIONIC BUILDERS SUPPLY, INC vs. DBP
RULING: FACTS: Spouses Robles entered into a mortgage

GMA Network, Inc. contract with DBP in order to secure a loan from the
GMA Network’s defense is that it has no newspaper or said bank in the amount of ₱500,000.00. The properties
any publication where the article could be printed; it did mortgaged were a parcel of land situated in Cebu. Upon
not broadcast the disbarment complaint in its television completion, the commercial building was named the
station; and that the publication was already completed State Theatre Building.
when Atty. Quinsayas distributed copies of the
disbarment complaint to the media. Rudy Robles executed a contract of lease in favor of
petitioner Cebu Bionic Builders Supply, Inc. (Cebu
GMA Network did not deny that it posted the details of Bionic), a domestic corporation engaged in the
the disbarment complaint on its website. It merely said construction business, as well as the sale of hardware
that it has no publication where the article could be materials.
printed and that the news was not televised. Online
posting, however, is already publication considering Thereafter a Certificate of Time Deposit for ₱11,395.64
was issued in the name of Bonifacio Sia (from Cebu
Bionic) and the same was allegedly remitted to DBP as with a prayer for the issuance of a writ of preliminary
advance rental deposit. injunction.
For reasons unclear, however, no written contract of Respondents argue that the instant petition should be
lease was executed between DBP and Cebu Bionic. dismissed outright as the verification and certification of
non-forum shopping was executed only by petitioner
In the meantime, subsequent to the acquisition of the Lydia Sia in her personal capacity, without the
subject properties, DBP offered the same for sale along participation of Cebu Bionic.
with its other assets. Pursuant thereto, DBP published a
series of invitations to bid on such properties. ISSUES: Whether or not the verification (and
certification of non-forum shopping) in the instant
On the last day for the acceptance of negotiated offers, petition was proper and valid despite its being signed by
petitioners submitted through their representative, only one of the two petitioners.
Judy Garces, a letter-offer form, offering to purchase
the subject properties for ₱1,840,000.00. Attached to RULING: Yes. Except for the powers which are expressly
the letter-offer was a copy of the Negotiated Sale Rules conferred on it by the Corporation Code and those that
and Procedures issued by DBP and a manager’s check are implied by or are incidental to its existence, a
for the amount of ₱184,000.00, representing 10% of the corporation has no powers. It exercises its powers
offered purchase price. This offer of petitioners was not through its board of directors and/or its duly authorized
accepted by DBP, however, as the corresponding officers and agents.
deposit therefor was allegedly insufficient.
Thus, its power to sue and be sued in any court is
After the lapse of the above-mentioned 15-day lodged with the board of directors that exercises its
acceptance period, petitioners did not submit any other corporate powers. Physical acts, like the signing of
offer/proposal to purchase the subject properties. documents, can be performed only by natural persons
duly authorized for the purpose by corporate by-laws or
On December 17, 1990, respondents To Chip, Yap and by a specific act of the board of directors.
Balila presented their letter-offer to purchase the
subject properties on a cash basis for ₱1,838,100.00. In this case, respondents To Chip, Yap and Balila
Said offer was accompanied by a downpayment of 10% obviously overlooked the Secretary’s Certificate
of the offered purchase price, amounting to attached to the instant petition, which was executed by
₱183,810.00. On even date, DBP acknowledged the the Corporate Secretary of Cebu Bionic. Unequivocally
receipt of and accepted their offer. On December 28, stated therein was the fact that the Board of Directors
1990, respondents To Chip, Yap and Balila paid the of Cebu Bionic held a special meeting and they thereby
balance of the purchase price and DBP issued a Deed of approved a Resolution authorizing Lydia Sia to elevate
Sale over the subject properties in their favor. the present case to this Court in behalf of Cebu Bionic.
On January 11, 1991, the counsel of respondents To 27. G.R. No. 178352, June 17, 2008
Chip, Yap and Balila sent a letter addressed to the DELIMA vs. SUSAN MERCAIDA GOIS
proprietor of Cebu Bionic, informing the latter of the
transfer of ownership of the subject properties. Cebu FACTS: A case for illegal dismissal was filed by petitioner
Bionic was ordered to vacate the premises within thirty Virgilio S. Delima against Golden Union Aquamarine
(30) days from receipt of the letter and directed to pay Corporation (Golden), Prospero Gois and herein
the rentals from January 1, 1991 until the end of the respondent Susan Mercaida Gois before the NLRC.
said 30-day period.
Labor Arbiter Philip B. Montaces rendered a decision
Shortly thereafter, the counsel of respondents To Chip, finding illegality in the dismissal of complainant Virgilio
Yap and Balila sent its final demand letter to Cebu Delima from his employment and rdering
Bionic, warning the latter to vacate the subject respondent Golden Union Aquamarine Corporation to
properties within seven (7) days from receipt of the pay complainant backwages and other pays.
letter, otherwise, a case for ejectment with damages
will be filed against it. Golden failed to appeal the aforesaid decision; hence, it
became final and executory. A writ of execution was
Despite the foregoing notice, Cebu Bionic still paid to issued and an Isuzu Jeep was attached.
DBP, on March 22, 1991, the amount of ₱5,000.00 as
monthly rentals on the unit of the State Theatre Thereafter, respondent Gois filed an Affidavit of Third
Building it was occupying for period of November 1990 Party Claim claiming that the attachment of the vehicle
to March 1991. was irregular because said vehicle was registered in her
name and not Golden’s; and that she was not a party to
Petitioners filed against respondents DBP, To Chip, Yap the illegal dismissal case filed by Delima against Golden.
and Balila a complaint for specific performance,
cancellation of deed of sale with damages, injunction The Labor Arbiter denied respondent’s third-party claim
on grounds that respondent was named in the
complaint as one of the respondents, and that BOOC vs. BANTUAS

respondent is one of the incorporators/officers of the
corporation. FACTS: Complainant (Salvador Booc) is the President of
five Star Marketing Corporation. Herein respondent
Gois filed an appeal before the NLRC. At the same time, Sheriff Bantuas, pursuant to a Writ of Execution in a civil
she filed a motion before the Labor Arbiter to release case, filed a Notice of Levy with the Register of Deeds,
the motor vehicle after substituting the same with a Iligan City over a parcel of land and owned by Five Star
cash bond. Marketing Corporation. Complainant alleged that
respondent sheriff proceeded to file the Notice of Levy
Meanwhile, the NLRC issued a Resolution which despite respondent sheriff’s knowledge that the
dismissed respondent’s appeal for lack of merit. Gois property is owned by the corporation which was not a
filed a petition for certiorari before the CA. party to the civil case.
Gois alleged that by denying her third-party claim, she The corporation through the complainant reiterated to
was in effect condemned to pay a judgment debt issued respondent sheriff that it was the owner of the property
against a corporation of which she is neither a president and Rufino Booc had no share or interest in the
nor a majority owner but merely a stockholder. She corporation. Hence, the corporation demanded that
further argued that her personality is separate and respondent sheriff cancel the notice of levy, otherwise
distinct from that of Golden; thus, the judgment the corporation would take the appropriate legal steps
ordering the corporation to pay the petitioner could not to protect its interest.
be satisfied out of her personal assets.
Respondent sheriff, however, did not heed the
The appellate court rendered a Decision in favor of corporations demand and scheduled the public auction.
respondent, hence, the present petition. Consequently, the corporation was compelled to file an
action for Quieting of Title with the RTC.
ISSUE: Whether or not Gois’ personality is separate and
distinct from that of Golden, thus, the vehicle principally Respondent sheriff, in his answer, said that he filed a
used in the business operations of the corporation, Notice of Levy with the Register of Deeds of Iligan City
which was registered under the name of private on the share, rights, interest and participation of Rufino
respondent who was also the corporation president, Booc in the parcel of land owned by Five Star Marketing
cannot be subject of garnishment. Corporation. Respondent sheriff claimed that Rufino
Booc is the owner of around 200 shares of stock in said
RULING: Yes. A corporation has a personality distinct corporation according to a document issued by the
and separate from its individual stockholders or Securities and Exchange Commission.
members and from that of its officers who manage and
run its affairs. The rule is that obligations incurred by Respondent sheriff stressed that the levy was made on
the corporation, acting through its directors, officers the share, rights and/or interest and participation which
and employees, are its sole liabilities. Thus, property Rufino Booc, as president and stockholder, may have in
belonging to a corporation cannot be attached to satisfy the parcel of land owned by Five Star Marketing
the debt of a stockholder and vice versa, the latter Corporation.
having only an indirect interest in the assets and
business of the former. Finally, respondent sheriff averred that the corporation
is merely a dummy of Rufino Booc and his brother
Since the Decision of the Labor Arbiter directed only Sheikding Booc. Respondent sheriff submitted as an
Golden to pay the petitioner the sum of P115,561.05 exhibit an affidavit executed by Sheikding Booc wherein
and the same was not joint and solidary obligation with the latter admitted that when Judge Felipe Javier won in
Gois, then the latter could not be held personally liable the civil case against Rufino Booc, the latter simulated a
since Golden has a separate and distinct personality of transfer of his shares of stock in Five Star Marketing
its own. Corporation so that the property may not be levied
upon.
It remains undisputed that the subject vehicle was
owned by Gois, hence it should not be attached to ISSUE: Whether or not the company has a distinct and
answer for the liabilities of the corporation. Unless they separate personality from that of Rufino Booc as
have exceeded their authority, corporate officers are, as stockholder of the corporation, and that the respondent
a general rule, not personally liable for their official acts, erred by levying on the property of the corporation.
because a corporation, by legal fiction, has a personality
separate and distinct from its officers, stockholders and RULING: Yes. A careful scrutiny of the records shows
members. No evidence was presented to show that the that respondent sheriff, in filing a notice of levy on the
termination of the petitioner was done with malice or in subject property as well as in the certificate of sale, did
bad faith for it to hold the corporate officers, such as not fail to mention that what was being levied upon and
Gois, solidarily liable with the corporation. sold was whatever shares, rights, interests and
participation Rufino Booc, as president and stockholder
28. A.M. No. P-01-1464, March 13, 2001
in Five Star Marketing Corporation may have on subject corporation, is personally and civilly liable to the private
property. respondent for the value of the two checks.
Respondent sheriff, however, overstepped his authority Petitioner asserts that BP Blg. 22 merely pertains to the
when he disregarded the distinct and separate criminal liability of the accused and that the
personality of the corporation from that of Rufino Booc corporation, which has a separate personality from its
as stockholder of the corporation by levying on the officers, is solely liable for the value of the two checks.
property of the corporation. Respondent sheriff should
not have made the levy based on mere conjecture that Private respondent counters that petitioner should be
since Rufino Booc is a stockholder and officer of the held personally liable for both checks. Private
corporation, then he might have an interest or share in respondent alleged that petitioner issued two
the subject property. postdated checks: a personal check in his name for the
amount of P151,200 and a corporation check under the
It is settled that a corporation is clothed with a account of Cruiser Bus Lines and Transport Corporation
personality separate and distinct from that of its for the amount of P97,500.
stockholders. It may not be held liable for the personal
indebtedness of its stockholders. According to private respondent, petitioner, by issuing
his check to cover the obligation of the corporation,
In the case of Del Rosario vs. Bascar, Jr., we imposed the became an accommodation party. Under Section 29 of
fine of P5,000.00 on respondent sheriff Bascar for the Negotiable Instruments Law, an accommodation
allocating unto himself the power of the court to pierce party is liable on the instrument to a holder for value.
the veil of corporate entity and improvidently assuming Private respondent adds that petitioner should also be
that since complainant Esperanza del Rosario is the liable for the value of the corporation check because
treasurer of Miradel Development Corporation, they are instituting another civil action against the corporation
one and the same. In the said case we reiterated the would result in multiplicity of suits and delay.
principle that the mere fact that one is a president of
the corporation does not render the property he owns ISSUE: Whether or not Bautista, in his capacity as
or possesses the property of the corporation since the President and Presiding Officer of Cruiser Bus Lines, may
president, as an individual, and the corporation are be held liable for the checks.
separate entities.
RULING: No. A perusal of the two check return slips in
Based on the foregoing, respondent Sheriff Bantuas has conjunction with the Current Account Statements
clearly acted beyond his authority when he levied the would show that the check for P151,200 was drawn
property of Five Star Marketing Corporation. The fact, against the current account of Claude Bautista while the
however, that respondent sheriff, in levying said check for P97,500 was drawn against the current
property, had stated in the notice of levy as well as in account of Cruiser Bus Lines and Transport Corporation.
the certificate of sale that what was being levied upon
and sold was whatever rights, shares interest and/or Nonetheless, we find the appellate court in error for
participation Rufino Booc, as stockholder and president affirming the decision of the RTC holding petitioner
in the corporation, may have on the subject property, liable for the value of the checks considering that
shows that respondent sheriffs conduct was impelled petitioner was acquitted of the crime charged and that
partly by ignorance of Corporation Law and partly by the debts are clearly corporate debts for which only
mere overzealousness to comply with his duties and not Cruiser Bus Lines and Transport Corporation should be
by bad faith or blatant disregard of the trial courts held liable.
order. Hence, we deem that the penalty of a fine of Five
Thousand Pesos (P5,000.00) to be imposed on Juridical entities have personalities separate and
respondent sheriff would suffice. distinct from its officers and the persons composing it.
Generally, the stockholders and officers are not
29. G.R. No. 166405, August 6, 2008 personally liable for the obligations of the corporation
BAUTISTA vs. AUTO PLUS TRADERS, INC. except only when the veil of corporate fiction is being
used as a cloak or cover for fraud or illegality, or to work
FACTS: Petitioner Claude P. Bautista, in his capacity as injustice.
President and Presiding Officer of Cruiser Bus Lines and
Transport Corporation, purchased various spare parts These situations, however, do not exist in this case. The
from private respondent Auto Plus Traders, Inc. and evidence shows that it is Cruiser Bus Lines and
issued two postdated checks to cover his purchases. The Transport Corporation that has obligations to Auto Plus
checks were subsequently dishonoured, thus, private Traders, Inc. for tires. There is no agreement that
respondent filed two cases for violation of BP Blg. 22. petitioner shall be held liable for the corporation's
obligations in his personal capacity. Hence, he cannot
Petitioner now comes before us, raising the sole issue of be held liable for the value of the two checks issued in
whether the Court of Appeals erred in upholding the payment for the corporation's obligation in the total
RTC's ruling that petitioner, as an officer of the amount of P248,700.
Moreover, there is no showing of when petitioner ISSUE: Whether or not petitioner’s occupancy should be
issued the check and in what capacity. In the absence of respected as they own an aliquot part of the
concrete evidence it cannot just be assumed that corporation.
petitioner intended to lend his name to the corporation.
Hence, petitioner cannot be considered as an RULING: No. Originally, the questioned properties
accommodation party. Cruiser Bus Lines and Transport belonged to Eugenia V. Roxas. After her death, the heirs
Corporation, however, remains liable for the checks of Eugenia V. Roxas, among them the petitioners herein,
especially since there is no evidence that the debts decided to form a corporation — Heirs of Eugenia V.
covered by the subject checks have been paid. Roxas, Incorporated (private respondent herein) with
the inherited properties as capital of the corporation.
30. G.R. No. 100866, July 14, 1992
REBECCA BOYER-ROXAS and GUILLERMO ROXAS vs. The respondent is a bona fide corporation. As such, it
CA has a juridical personality of its own separate from the
members composing it. There is no dispute that title
FACTS: In two (2) separate complaints for recovery of over the questioned land where the Hidden Valley
possession filed with the RTC against petitioners Springs Resort is located is registered in the name of the
Rebecca Boyer-Roxas and Guillermo Roxas respectively, corporation. The records also show that the staff house
respondent corporation (Heirs of Eugenia V. Roxas, Inc.) being occupied by petitioner Rebecca Boyer-Roxas and
prayed for the ejectment of the petitioners from the recreation hall which was later on converted into a
buildings inside the Hidden Valley Springs Resort residential house occupied by petitioner Guillermo
located at Laguna allegedly owned by the respondent Roxas are owned by the respondent corporation.
corporation.
Regarding properties owned by a corporation, we
In the civil case against Rebecca, the respondent stated in the case of Stockholders of F. Guanzon and
corporation alleged that Rebecca is in possession of two Sons, Inc. v. Register of Deeds of Manila:
(2) houses, one of which is still under construction, built Properties registered in the name of the
at the expense of the respondent corporation; and that corporation are owned by it as an entity
her occupancy on the two (2) houses was only upon the separate and distinct from its members. While
tolerance of the respondent corporation. shares of stock constitute personal property,
they do not represent property of the
In the civil case against petitioner Guillermo Roxas, the corporation. The corporation has property of its
respondent corporation alleged that Guillermo occupies own which consists chiefly of real estate. A
a house which was built at the expense of the former share of stock only typifies an aliquot part of
during the time when Guillermo's father, Eriberto the corporation's property, or the right to share
Roxas, was still living and was the general manager of in its proceeds to that extent when distributed
the respondent corporation; that the house was according to law and equity, but its holder is not
originally intended as a recreation hall but was the owner of any part of the capital of the
converted for the residential use of Guillermo; and that corporation. Nor is he entitled to the possession
Guillermo's possession over the house and lot was only of any definite portion of its property or assets.
upon the tolerance of the respondent corporation. The stockholder is not a co-owner or tenant in
common of the corporate property.
In both cases, the respondent corporation alleged that
the petitioners never paid rentals for the use of the The petitioners point out that their occupancy of the
buildings and the lots and that they ignored the demand staff house which was later used as the residence of
letters for them to vacate the buildings. Eriberto Roxas, husband of petitioner Rebecca Boyer-
Roxas and the recreation hall which was converted into
In their separate answers, the petitioners alleged they a residential house were with the blessings of Eufrocino
are heirs of Eugenia V. Roxas and therefore, co-owners Roxas, the deceased husband of Eugenia V. Roxas, who
of the Hidden Valley Springs Resort; and as co-owners was the majority and controlling stockholder of the
of the property, they have the right to stay within its corporation.
premises.
In his lifetime, Eufrocino Roxas together with Eriberto
Petitioners maintain that their possession of the Roxas, the husband of petitioner Rebecca Boyer-Roxas,
questioned properties must be respected in view of and the father of petitioner Guillermo Roxas managed
their ownership of an aliquot portion of all the the corporation. The Board of Directors did not object
properties of the respondent corporation being to such an arrangement.
stockholders thereof. They propose that the veil of
corporate fiction be pierced, considering the The petitioners argue that the authority thus given by
circumstances under which the respondent corporation Eufrocino Roxas for the conversion of the recreation hall
was formed. into a residential house can no longer be questioned by
the stockholders of the private respondent and/or its
board of directors for they impliedly but no leas
explicitly delegated such authority to said Eufrocino 1. The loan transactions between Saw Chiao Lian
Roxas. and Equitable Banking Corp. were not approved
by the stockholders representing at least 2/3 of
Again, we must emphasize that the respondent corporate capital;
corporation has a distinct personality separate from its 2. Saw Chiao Lian had no authority to contract
members. The corporation transacts its business only such loans; and
through its officers or agents. (Western Agro Industrial 3. There was collusion between the officials of
Corporation v. Court of Appeals, supra). Whatever Freeman, Inc. and Equitable Banking Corp. in
authority these officers or agents may have is derived securing the loans. The motion to intervene was
from the board of directors or other governing body denied, and the petitioners appealed to the
unless conferred by the charter of the corporation. Court of Appeals.
An officer's power as an agent of the corporation must Meanwhile, Equitable and Saw Chiao Lian entered into a
be sought from the statute, charter, the by-laws or in a compromise agreement which they submitted to and
delegation of authority to such officer, from the acts of was approved by the lower court. But because it was
the board of directors, formally expressed or implied not complied with, Equitable secured a writ of
from a habit or custom of doing business. execution, and two lots owned by Freeman, Inc. were
levied upon and sold at public auction to Freeman
In the present case, the record shows that Eufrocino V. Management and Development Corp.
Roxas who then controlled the management of the
corporation, being the majority stockholder, consented The CA sustained the denial of the petitioners' motion
to the petitioners' stay within the questioned for intervention, holding that "the compromise
properties. Specifically, Eufrocino Roxas gave his agreement between Freeman, Inc., through its
consent to the conversion of the recreation hall to a President, and Equitable Banking Corp. will not
residential house, now occupied by petitioner Guillermo necessarily prejudice petitioners whose rights to
Roxas. The Board of Directors did not object to the corporate assets are at most inchoate, prior to the
actions of Eufrocino Roxas. The petitioners were dissolution of Freeman, Inc. . . . And intervention under
allowed to stay within the questioned properties until Sec. 2, Rule 12 of the Revised Rules of Court is proper
August 27, 1983, when the Board of Directors approved only when one's right is actual, material, direct and
a Resolution ejecting the petitioners. immediate and not simply contingent or expectant."
We find nothing irregular in the adoption of the The petitioners are now before this Court, contending
Resolution by the Board of Directors. The petitioners' that the CA erred in holding that the petitioners cannot
stay within the questioned properties was merely by intervene in Civil Case because their rights as
tolerance of the respondent corporation in deference to stockholders of Freeman are merely inchoate and not
the wishes of Eufrocino Roxas, who during his lifetime, actual, material, direct and immediate prior to the
controlled and managed the corporation. Eufrocino dissolution of the corporation
Roxas' actions could not have bound the corporation
forever. We rule that in the absence of any existing The petitioners base their right to intervene for the
contract between the petitioners and the respondent protection of their interests as stockholders on Everett
corporation, the corporation may elect to eject the v. Asia Banking Corp. where it was held:
petitioners at any time it wishes for the benefit and The well-known rule that shareholders cannot
interest of the respondent corporation. ordinarily sue in equity to redress wrongs done
to the corporation, but that the action must be
The petitioners' suggestion that the veil of the brought by the Board of Directors, . . . has its
corporate fiction should be pierced is untenable. The exceptions. (If the corporation [were] under the
separate personality of the corporation may be complete control of the principal defendants, ..
disregarded only when the corporation is used "as a it is obvious that a demand upon the Board of
cloak or cover for fraud or illegality, or to work injustice, Directors to institute action and prosecute the
or where necessary to achieve equity or when same effectively would have been useless, and
necessary for the protection of the creditors." The the law does not require litigants to perform
circumstances in the present cases do not fall under any useless acts.
of the enumerated categories.
Equitable contended that the collection suit against
31. G.R. No. 90580, April 8, 1991 Freeman, Inc, and Saw Chiao Lian is essentially in
SAW vs. CA personam and, as an action against defendants in their
personal capacities, will not prejudice the petitioners as
FACTS: A collection suit with preliminary attachment stockholders of the corporation. The Everett case is not
was filed by Equitable Banking Corporation against applicable because it involved an action filed by the
Freeman, Inc. and Saw Chiao Lian, its President and minority stockholders where the board of directors
General Manager. refused to bring an action in behalf of the corporation.
In the case at bar, it was Freeman, Inc. that was being
The petitioners moved to intervene, alleging that: sued by the creditor bank.
of corporate property, which is owned by the

Equitable also argues that the subject matter of the corporation as a distinct legal person.
intervention falls properly within the original and
exclusive jurisdiction of the Securities and Exchange 32. G.R. No. 150197, July 28, 2005
Commission under P.D. No. 902-A. PRUDENTIAL BANK vs. DON A. ALVIAR and GEORGIA B.
ALVIAR
ISSUE: Whether or not petitioners as stockholders may
intervene in the civil case. FACTS: Respondents, spouses Don A. Alviar and Georgia
B. Alviar, are the registered owners of a parcel of land in
RULING: No. The Court finds that the respondent court San Juan, Metro Manila. They executed a deed of real
committed no reversible error in sustaining the denial estate mortgage in favor of petitioner Prudential Bank
by the trial court of the petitioners' motion for to secure the payment of a loan worth ₱250,000.00.
intervention.
Respondents executed a promissory note PN BD#75/C-
In the case of Magsaysay-Labrador v. Court of 252 covering the said loan.
Appeals, we ruled as follows:
Viewed in the light of Section 2, Rule 12 of the Don Alviar executed another promissory note, PN
Revised Rules of Court, this Court affirms the BD#76/C-345 for ₱2,640,000.00, secured by D/A SFDX
respondent court's holding that petitioners #129, signifying that the loan was secured by a "hold-
herein have no legal interest in the subject out" on the mortgagor’s foreign currency savings
matter in litigation so as to entitle them to account with the bank under Account No. 129, and that
intervene in the proceedings below. As clearly the mortgagor’s passbook is to be surrendered to the
stated in Section 2 of Rule 12 of the Rules of bank until the amount secured by the "hold-out" is
Court, to be permitted to intervene in a pending settled.
action, the party must have a legal interest in
the matter in litigation, or in the success of Subsequently, respondent spouses executed for
either of the parties or an interest against both, Donalco Trading, Inc., of which the husband and wife
or he must be so situated as to be adversely were President and Chairman of the Board and Vice
affected by a distribution or other disposition of President, respectively, PN BD#76/C-430 covering
the property in the custody of the court or an ₱545,000.000. As provided in the note, the loan is
officer thereof." secured by "Clean-Phase out TOD CA 3923," which
means that the temporary overdraft incurred by
The interest which entitles a person to Donalco Trading, Inc. with petitioner is to be converted
intervene in a suit between other parties must into an ordinary loan in compliance with a Central Bank
be in the matter in litigation and of such direct circular directing the discontinuance of overdrafts.
and immediate character that the intervenor
will either gain or lose by the direct legal On 16 March 1977, petitioner wrote Donalco Trading,
operation and effect of the judgment. Inc., informing the latter of its approval of a straight
Otherwise, if persons not parties of the action loan of ₱545,000.00, the proceeds of which shall be
could be allowed to intervene, proceedings will used to liquidate the outstanding loan of ₱545,000.00
become unnecessarily complicated, expensive TOD. The letter likewise mentioned that the securities
and interminable. And this is not the policy of for the loan were the deed of assignment on two
the law. promissory notes executed by Bancom Realty
Corporation with Deed of Guarantee in favor of A.U.
Here, the interest, if it exists at all, of Valencia and Co. and the chattel mortgage on various
petitioners-movants is indirect, contingent, heavy and transportation equipment.
remote, conjectural, consequential and
collateral. At the very least, their interest is On 06 March 1979, respondents paid petitioner
purely inchoate, or in sheer expectancy of a ₱2,000,000.00, to be applied to the obligations of G.B.
right in the management of the corporation and Alviar Realty and Development, Inc. and for the release
to share in the profits thereof and in the of the real estate mortgage for the ₱450,000.00 loan
properties and assets thereof on dissolution, covering the two (2) lots located at Vam Buren and
after payment of the corporate debts and Madison Streets, North Greenhills, San Juan, Metro
obligations. Manila. The payment was acknowledged by petitioner
who accordingly released the mortgage over the two
While a share of stock represents a properties.
proportionate or aliquot interest in the property
of the corporation, it does not vest the owner On 15 January 1980, petitioner moved for the
thereof with any legal right or title to any of the extrajudicial foreclosure of the mortgage on the
property, his interest in the corporate property property covered by TCT No. 438157. Per petitioner’s
being equitable or beneficial in nature. computation, respondents had the total obligation of
Shareholders are in no legal sense the owners ₱1,608,256.68, covering the three (3) promissory notes,
to wit: PN BD#75/C-252 for ₱250,000.00, PN BD#76/C-
345 for ₱382,680.83, and PN BD#76/C-340 for members may be disregarded if it is used as a means to
₱545,000.00, plus assessed past due interests and perpetuate fraud or an illegal act or as a vehicle for the
penalty charges. The public auction sale of the evasion of an existing obligation, the circumvention of
mortgaged property was set on 15 January 1980. statutes, or to confuse legitimate issues.
Respondents filed a complaint for damages with a PN BD#76/C-430, being an obligation of Donalco
prayer for the issuance of a writ of preliminary Trading, Inc., and not of the respondents, is not within
injunction with the RTC of Pasig, claiming that they have the contemplation of the "blanket mortgage clause."
paid their principal loan secured by the mortgaged Moreover, petitioner is unable to show that
property, and thus the mortgage should not be respondents are hiding behind the corporate structure
foreclosed. For its part, petitioner averred that the to evade payment of their obligations. Save for the
payment of ₱2,000,000.00 made on 6 March 1979 was notation in the promissory note that the loan was for
not a payment made by respondents, but by G.B. Alviar house construction and personal consumption, there is
Realty and Development Inc., which has a separate loan no proof showing that the loan was indeed for
with the bank secured by a separate mortgage. respondents’ personal consumption. Besides, petitioner
agreed to the terms of the promissory note.
The RTC dismissed the petition. The Court of Appeals,
however, found that respondents have not yet paid the If respondents were indeed the real parties to the loan,
₱250,000.00 since the payment of ₱2,000,000.00 petitioner, a big, well-established institution of long
adverted to by respondents was issued for the standing that it is, should have insisted that the note be
obligations of G.B. Alviar Realty and Development, Inc. made in the name of respondents themselves, and not
to Donalco Trading Inc., and that they sign the note in
Aggrieved, petitioner filed the instant petition, their personal capacity and not as officers of the
reiterating the assignment of errors raised in the Court corporation.
of Appeals as grounds herein.
33. Lanuza Jr. vs BF Corporation
Petitioner insists that respondents attempt to evade G.R. No. 174938 October 1, 2014
foreclosure by the expediency of stating that the
promissory notes were executed by them not in their Doctrine: Corporate representatives may be compelled
personal capacity but as corporate officers. It claims to submit to arbitration proceedings pursuant to a
that PN BD#76/C-430 was in fact for home construction contract entered into by the corporation they represent
and personal consumption of respondents. Thus, it if there are allegations of bad faith or malice in their
states that there is a need to pierce the veil of corporate acts representing the corporation.
fiction.
FACTS:
ISSUE: Whether or not the respondent spouses, of
President and Vice President of Donalco Trading, Inc.,
In 1993, BF Corporation filed a collection complaint with
are liable for the promissory note.
the Regional Trial Court against Shangri-La and the
members of its board of directors: Alfredo C. Ramos,
RULING: No. At this point, it is important to note that
Rufo B.Colayco, Antonio O. Olbes, Gerardo Lanuza, Jr.,
one of the loans sought to be included in the "blanket
Maximo G. Licauco III, and Benjamin C. Ramos.
mortgage clause" was obtained by respondents for
Donalco Trading, Inc. Indeed, PN BD#76/C-430 was
BF Corporation alleged in its complaint that on
executed by respondents on behalf of Donalco Trading,
December 11, 1989 and May 30, 1991, it entered into
Inc. and not in their personal capacity.
agreements with Shangri-La wherein it undertook to
construct for Shangri-La a mall and a multilevel parking
Petitioner asks the Court to pierce the veil of corporate
structure along EDSA.
fiction and hold respondents liable even for obligations
they incurred for the corporation. The mortgage
Shangri-La had been consistent in paying BF Corporation
contract states that the mortgage covers "as well as
in accordance with its progress billing statements.
those that the Mortgagee may extend to the Mortgagor
However, by October 1991, Shangri-La started
and/or DEBTOR, including interest and expenses or any
defaulting in payment.
other obligation owing to the Mortgagee, whether
direct or indirect, principal or secondary."
BF Corporation alleged that Shangri-La induced BF
Corporation to continue with the construction of the
Well-settled is the rule that a corporation has a
buildings using its own funds and credit despite Shangri-
personality separate and distinct from that of its officers
La’s default. According to BF Corporation, Shangri-La
and stockholders. Officers of a corporation are not
misrepresented that it had funds to pay for its
personally liable for their acts as such officers unless it is
obligations with BF Corporation, and the delay in
shown that they have exceeded their authority.
payment was simply a matter of delayed processing of
BF Corporation’s progress billing statements.
However, the legal fiction that a corporation has a
personality separate and distinct from stockholders and
BF Corporation eventually completed the construction 3. That our arbitration laws were enacted to promote
of the buildings. Shangri-La allegedly took possession of the autonomy of parties in resolving their disputes.
the buildings while still owing BF Corporation an Compelling them to submit to arbitration is against this
outstanding balance. BF Corporation alleged that purpose and may be tantamount to stipulating for the
despite repeated demands, Shangri-La refused to pay parties.
the balance owed to it.
4. That Since the contract was executed only by BF
It also alleged that the Shangri-La’s directors were in Corporation and Shangri-La, only they should be
bad faith in directing Shangri-La’s affairs. Therefore, affected by the contract's stipulation.
they should be held jointly and severally liable with
Shangri-La for its obligations as well as for the damages In Contrast, BF Corporation argued that while
that BF Corporation incurred as a result of Shangri-La’s petitioners were not parties to the agreement, they
default. were still impleaded under Section 31 of the
Corporation Code. Section 31 makes directors’
On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo solidarity liable for fraud, gross negligence, and bad
B. Colayco, Maximo G. Licauco III, and Benjamin C. faith and that Petitioners are not really third parties to
Ramos filed a motion to suspend the proceedings in the agreement because they are being sued as Shangri-
view of BF Corporation’s failure to submit its dispute to La's representatives, under Section 31 of the
arbitration, in accordance with the arbitration clause Corporation Code.
provided in its contract.
ISSUE:
35. Arbitration
Whether or not a corporation’s representatives should
(1) Provided always that in case any dispute or be made parties to the arbitration proceedings,
difference shall arise between the Owner or the Project pursuant to the arbitration clause provided in the
Manager on his behalf and the Contractor, either during contract between BF Corporation and Shangri-La.
the progress or after the completion or abandonment of
the Works as to the construction of this Contractor as to RULING: YES
any matter or thing of whatsoever nature arising
thereunder or in connection therewith xxx. A corporation's representatives are generally not bound
by the terms of the contract executed by the
the owner and the Contractor hereby agree to exert all corporation. They are not personally liable for
efforts to settle their differences or dispute amicably. obligations and liabilities incurred on or in behalf of the
Failing these efforts then such dispute or difference corporation.
shall be referred to arbitration in accordance with the
rules and procedures of the Philippine Arbitration Law. Petitioners are also correct that arbitration promotes
the parties' autonomy in resolving their disputes. This
xxx xxx xxx court recognized in Heirs of Augusto Salas, Jr. v. Laperal
Realty Corporation that an arbitration clause shall not
(6) The award of such Arbitrators shall be final and apply to persons who were neither parties to the
binding on the parties. The decision of the Arbitrators contract nor assignees of previous parties, thus:
shall be a condition precedent to any right of legal
action that either party may have against the other. . A submission to arbitration is a contract. As such, the
Agreement, containing the stipulation on arbitration,
On December 8, 1993, petitioners Lanuza and Olbes binds the parties thereto, as well as their assigns and
filed an answer to BF Corporation's complaint, with heirs. But only they. (Citations omitted)
compulsory counterclaim against BF Corporation and
cross-claim against Shangri-La. They alleged that they As a general rule, therefore, a corporation's
had resigned as members of Shangri-La's board of representative who did not personally bind himself or
directors as of July 15, 1991 and praying that they be herself to an arbitration agreement cannot be forced to
excluded from the arbitration proceedings for being participate in arbitration proceedings made pursuant to
non-parties to Shangri-La's and BF Corporation's an agreement entered into by the corporation. He or
agreement. she is generally not considered a party to that
agreement.
Petitioner further reiterated that they cannot be parties
to Arbitration proceedings alleging that: However, there are instances when the distinction
between personalities of directors, officers, and
1. The corporation is a separate being, representatives, and of the corporation, are
disregarded. We call this piercing the veil of corporate
2. Based on our arbitration laws, parties who are fiction.
strangers to an agreement cannot be compelled to
arbitrate.
Piercing the corporate veil is warranted when "[the CEBU FILVENEER CORPORATION and/or CARLO
separate personality of a corporation] is used as a CORDARO vs. NATIONAL LABOR RELATIONS
means to perpetrate fraud or an illegal act, or as a COMMISSION (Fourth Division) and JESSIELYN
vehicle for the evasion of an existing obligation, the VILLAFLOR
circumvention of statutes, or to confuse legitimate
issues." It is also warranted in alter ego cases "where a ***LABOR CASE***
corporation is merely a farce since it is a mere alter ego
Doctrine: Doctrine of Separate Juridical Personality –
or business conduit of a person, or where the
that a corporation has a juridical personality separate
corporation is so organized and controlled and its affairs
and distinct from the stockholders or members who
are so conducted as to make it merely an
compose it or other corporations to which it is
instrumentality, agency, conduit or adjunct of another
associated”
corporation."
FACTS:
Hence, when the directors, as in this case, are
impleaded in a case against a corporation, alleging Jessielyn Villaflor was hired as chief accountant of
malice or bad faith on their part in directing the affairs petitioner Cebu Filveneer Corporation. Ms. Rhodora M.
of the corporation, complainants are effectively alleging Guillermo served as her accounting clerk. The top
that the directors and the corporation are not acting as executives of petitioner corporation were Italians: Mr.
separate entities. They are alleging that contracts Carlo Cordaro, President; Mr. John Chapman Kun,
executed by the corporation are contracts executed by General Manager; and, Mr. Renato Marinoni,
the directors. Complainants effectively pray that the Production Manager. Mr. Kun informed Mr. Cordaro of
corporate veil be pierced because the cause of action his desire to resign as general manager effective March
between the corporation and the directors is the same. 1, 1992. He requested for the liquidation of his
investment in the company in the sum of P125,000.00.
In that case, complainants have no choice but to
institute only one proceeding against the parties. Under Mr. Kun secured one blank check and blank check
the Rules of Court, filing of multiple suits for a single voucher from Ms. Guillermo. Ms. Guillermo failed to
cause of action is prohibited. It is because the immediately inform the private respondent of the blank
personalities of petitioners and the corporation may check and voucher taken by Mr. Kun. Private
later be found to be indistinct that we rule that respondent, however, noticed the missing check
petitioners may be compelled to submit to arbitration. voucher. She asked Ms. Guillermo about the check
voucher and was told that it was with Mr. Kun. Mr. Kun
However, in ruling that petitioners may be compelled to was able to prepare the check in the amount of
submit to the arbitration proceedings, we are not P125,000.00, had it signed by Mr. Marinoni and
overturning Heirs of Angus to Salas wherein this court encashed.
affirmed the basic arbitration principle that only parties Private respondent learned of Mr. Kun's act and
to an arbitration agreement may be compelled to forthwith informed Mr. Cordaro who was then in Italy.
submit to arbitration. Mr. Cordaro suspended Mr. Kun and designated Mr.
Marinoni and the private complainant as responsible
In that case, this court recognized that persons other persons for the company funds. He also directed the
than the main party may be compelled to submit to private complainant to assist the company lawyer in
arbitration, e.g., assignees and heirs. Assignees and filing a criminal case against Mr. Kun. On her part, the
heirs may be considered parties to an arbitration private complainant wrote to the PNB MEPZ Branch
agreement entered into by their assignor because the demanding the return of the encashed check.
assignor's rights and obligations are transferred to them
upon assignment. In other words, the assignor's rights Mr. Marinoni confronted the private respondent and
and obligations become their own rights and charged her with complicity in Mr. Kun's irregular
obligations. In the same way, the corporation's disbursement of company funds. On February 17, 1992,
obligations are treated as the representative's the private respondent reported for work late and was
obligations when the corporate veil is pierced. prevented entry by the security guards. A Restriction
Order has been issued against her by Mr. Marinoni
In this case, the Arbitral Tribunal rendered a decision, upon authority of Mr. Cordaro. Mr. Marinoni also
finding that BF Corporation failed to prove the existence caused the forcible opening of private respondent's
of circumstances that render petitioners and the other table and the vault inside her office.
directors solidarity liable. It ruled that petitioners and
Shangri-La's other directors were not liable for the Private respondent complained to the MEPZ Labor
contractual obligations of Shangri-La to BF Relations Officer. The next day, Mr. Marinoni issued a
Corporation. The Arbitral Tribunal's decision was made memorandum suspending the private respondent for
with the participation of petitioners, albeit with their thirty (30) days without pay effective February 17, 1992
continuing objection. In view of our discussion above, for failure to report to office for half a day. On February
we rule that petitioners are bound by such decision. 19, 1992, the private respondent filed a case against the
petitioners for illegal dismissal. On February 20, 1992,
34. G.R. No. 126601. February 24, 1998 Mr. Marinoni issued another memorandum
preventively suspending her for thirty (30) days withheld from him up to the time of his actual
effective the next day pending investigation on her reinstatement.
involvement in the unauthorized encashment by Mr.
Kun of company funds. Backwages to be awarded to an illegally dismissed
employee, should not, as a general rule, be diminished
ISSUES: or reduced by the earnings derived by him elsewhere
during the period of his illegal dismissal. The underlying
Whether private respondent Villaflor was illegally reason for this ruling is that the employee, while
dismissed? Whether the amount earned of an litigating the legality (illegality) of his dismissal, must
employee during the termination should be deducted still earn a living to support himself and family, while full
from the amount awarded to the employee? Whether backwages have to be paid by the employer as part of
the award for moral damages is warranted to the the price or penalty he has to pay for illegally dismissing
employee? his employee.
RELEVANT ISSUE: Whether the President, Mr. Cordaro, We hold that public respondent should not have
should be solidarily liable with the corporation for the awarded moral damages and attorney's fees in favor of
payment to the employee? the private respondent. To be sure, the private
respondent was negligent when she did not
RULING:
immediately inform her superior about the blank check
In labor-management relations, there can be no higher and voucher taken by Mr. Kun, although, as
penalty than dismissal from employment. Dismissal aforediscussed, it is not the specie of negligence that
severs employment ties and could well be the economic will justify dismissal. Thus, petitioners should not and
death sentence of an employee. Dismissal prejudices cannot be made to pay moral damages and attorney's
the socio-economic wellbeing of the employee's family fees for their dismissal of the private respondent was
and threatens the industrial peace. Due to its far not motivated by bad faith or malice.
reaching implications, our Labor Code decrees that an
Finally, we hold that Mr. Cordaro cannot be made
employee cannot be dismissed, except for the most
solidarily liable with petitioner corporation for the
serious causes. The overly concern of our laws for the
illegal dismissal of the private respondent. In
welfare of employees is in accord with the social justice
dismissing the private respondent, he acted as
philosophy of our Constitution.
President of petitioner corporation and he did so in
Prescinding from these premises, petitioners' insistence good faith. His act as an officer of the corporation
that they legally dismissed the private respondent for cannot result in his private liability. This is too
loss of trust stands on quicksand. At the very most, fundamental. A rule to deserve further discussion.
petitioners were only able to prove that private
34 – A. G.R. No. L-57767 January 31, 1984
respondent failed to inform immediately her superiors
of the act of Mr. Kun in getting a blank check and blank ALBERTO S. SUNIO and ILOCOS COMMERCIAL
voucher from Ms. Guillermo. The omission of the CORPORATION, petitioners, vs. NATIONAL LABOR
private respondent can hardly be described as "willful" RELATIONS COMMISSION, NEMESIO VALENTON,
to justify her dismissal. For one, the omission did not SANTOS DEL ROSARIO, VICENTE TAPUCOL, ANDRES
last for long. For another, the subsequent actions of the SOLIS, CRESCENCIO SOLLER, CECILIO LABUNI, SOTERO
private respondent upon learning of the encashment of L. TUMANG, in his capacity as Asst. Regional Director
the unauthorized check by Mr. Kun negate any for Arbitration, Regional Office No. 1, Ministry of Labor
implication that she willfully or intentionally defaulted & Employment, and AMBROSIO B. SISON, in his
in reporting to prejudice petitioners. Indeed, she capacity as Acting Regional Sheriff, Regional Office No.
reported the matter to petitioner Cordaro and wrote to 1, Ministry of Labor & Employment, respondents.
the PNB MEPZ Branch to retrieve the encashed check. A
breach is willful if it is done intentionally, knowingly and ***LABOR CASE***
purposely. Petitioners merely proved the omission of
the private respondent but there is no evidence Doctrine: A corporation is invested by law with a
whatsoever that it was done intentionally. personality separate and distinct from those of the
persons composing it as well as from that of any other
Petitioners' demand that the backwages should he legal entity to which it may be related. Mere ownership
reduced in view of the time she spent in the United by a single stockholder or by anotehr coporation of all
States deserves scant attention. On 21 March 1989, or nearly all of the capital stock of a corporation is not
Republic Act No. 6715 took effect, amending the Labor tiself sufficient ground for disregarding the separate
Code. Article 279 thereof states in part: corporate personality.
Art. 279. Security of Tenure. — An employee who is FACTS:

unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and other EM Ramos & Co., Inc (EMRACO) and Cabugao Ice Plant,
privileges and to his full backwages, inclusive of Inc. (CIPI), sister corporations, sold an ice plant to Rizal
allowances, and to his other benefits or their monetary Development and Finance, Corp. (RDFC). To secure
equivalent computed from the time his compensation is RDFC’s payment of the purchase price, the ice plant was
mortgaged to EMRACO-CIPI. Because of the sale, Continental Cement Corporation (Corporation) and
EMRACO-CIPI terminated all of theire employees, Gregory T. Lim obtained, from Consolidated Bank and
including private respondents. Trust Corporation, Letter of Credit No. DOM-23277 in
the amount of P 1,068,150.00. The letter of credit was
Later, RDFC sold the ice plant, subject to the mortgage used to purchase around five hundred thousand liters of
in favor of EMRACO-CIPI, to petitioner Ilocos bunker fuel oil from Petrophil Corporation, which the
Commercial Corp. (ICC). latter delivered directly to respondent Corporation in its
Bulacan plant. In relation to the same transaction, a
When RDFC and ICC defaulted on the payment of the
trust receipt for the amount of P 1,001,520.93 was
balance of the purchase price, EMRACO-CIPI
executed by respondent Corporation, with respondent
extrajudicially foreclosed the ice plant. It then sold it to
Lim as signatory.
Nilo Villanueva, subject to RDFC’s right of redemption.
Nilo Villanueva rehired private respondents. Claiming that respondents failed to turn over the goods
covered by the trust receipt or the proceeds thereof,
When RDFC redeemend the ice plant, private
petitioner filed a complaint for sum of money with
respondents were again dismissed. Thus, the latter filed
application for preliminary attachment. In answer to the
complaints against the petitioner corporation, and its
complaint, respondents averred that the transaction
President and General manager, Alberto Sunio, for
between them was a simple loan and not a trust receipt
illegal dismissal.
transaction, and that the amount claimed by petitioner
The Assistance Regional Director of the Ministry of did not take into account payments already made by
Labor and Employment ordered petitioners to reinstate them. Respondent Lim also denied any personal liability
private respondents. NLRC affirmed. Petitioner Sunio, in the subject transactions.
who owned ½ of ICC, was made jointly and severally
The trial court dismissed the Complaint. Both parties
liable with ICC and CIPI for the payment of backwages.
appealed to the Court of Appeals, which partially
ISSUE: modified the Decision by deleting the award of
attorney's fees in favor of respondents and, instead,
Whether or not Sunio is personally liable, made jointly ordering respondent Corporation to pay petitioner
and severally responsible with petitioner company and P37,469.22 as and for attorney's fees and litigation
CIPI for the payment of the backwages of private expenses.
respondents
ISSUE: WON the transaction was a trust receipt
RULING: transaction?
This is reversible error. The Assistant Regional Director's RULING: NO.

Decision failed to disclose the reason why he was made
personally liable. Respondents, however, alleged as The Supreme Court held that petitioner failed to
grounds thereof, his being the owner of one-half (1/2) convince them that the transaction is really a trust
interest of said corporation, and his alleged arbitrary receipt transaction instead of merely a simple loan, as
dismissal of private respondents. Petitioner Sunio was found by the lower court and the CA.
impleaded in the Complaint his capacity as General
Inasmuch as the debtor received the goods subject of
Manager of petitioner corporation. Where appears to
the trust receipt before the trust receipt itself was
be no evidence on record that he acted maliciously or in
entered into, the transaction in question was a simple
bad faith in terminating the services of private
loan and not a trust receipt agreement. Prior to the date
respondents. His act, therefore, was within the scope of
of execution of the trust receipt, ownership over the
his authority and was a corporate act.
goods was already transferred to the debtor. This
It is basic that a corporation is invested by law with a situation is inconsistent with what normally obtains in a
personality separate and distinct from those of the pure trust receipt transaction, wherein the goods
persons composing it as well as from that of any other belong in ownership to the bank and are only released
legal entity to which it may be related. Mere ownership to the importer in trust after the loan is granted.
by a single stockholder or by another corporation of all
The delivery to respondent Corporation of the goods
or nearly all of the capital stock of a corporation is not
subject of the trust receipt occurred long before the
of itself sufficient ground for disregarding the separate
trust receipt itself was executed. More specifically,
corporate personality. Sunio, therefore, should not have
delivery of the bunker fuel oil to respondent
been made personally answerable for the payment of
Corporation's Bulacan plant commenced on July 7, 1982
private respondents' back salaries.
and was completed by July 19, 1982.13 Further, the oil
35. Consolidated Bank and Trust Corporation vs CA 356 was used up by respondent Corporation in its normal
SCRA 67 operations by August, 1982.14 On the other hand, the
subject trust receipt was only executed nearly two
Doctrine: Corporate personality is a shield against months after full delivery of the oil was made to
personal liability of its officers. respondent Corporation, or on September 2, 1982.
FACTS:
Trust Receipts Law does not seek to enforce payment of is used to defeat public convenience, justify wrong,
the loan, rather it punishes the dishonesty and abuse of protect fraud, or defend crime, the law will regard the
confidence in the handling of money or goods to the corporation as an association of persons. Also, the
prejudice of another regardless of whether the latter is corporate entity may be disregarded in the interest of
the owner. The practice of banks of making borrowers justice in such cases as fraud that may work inequities
sign trust receipts to facilitate collection of loans and among members of the corporation internally, involving
place them under the threats of criminal prosecution no rights of the public or third persons. In both
should they be unable to pay it may be unjust and instances, there must have been fraud and proof of it
inequitable, if not reprehensible. Such agreements are
contracts of adhesion which borrowers have no option FACTS:
but to sign lest their loan be disapproved. The resort to
Francisco, an 18 year old 3rd year physical therapy
this scheme leaves poor and hapless borrowers at the
student was riding a motorcycle. A sand and gravel
mercy of banks, and is prone to misinterpretation.
truck was traveling behind the motorcycle, which in
Similarly, respondent Corporation cannot be said to turn was being tailed by the Isuzu truck driven by
have been dishonest in its dealings with petitioner. Secosa. The Isuzu cargo truck was owned by Dassad
Neither has it been shown that it has evaded payment Warehousing and Port Services, Inc. The three vehicles
of its obligations, as shown by the various receipts were traversing the southbound lane at a fairly high
issued by petitioner acknowledging payment on the speed. When Secosa overtook the sand and gravel
loan. Certainly, the payment of the sum of truck, he bumped the motorcycle causing Francisco to
P1,832,158.38 on a loan with a principal amount of only fall. The rear wheels of the Isuzu truck then ran over
P681,075.93 negates any badge of dishonesty , abuse of Francisco, which resulted in his instantaneous death.
confidence or mishandling of funds on the part of Secosa left his truck and fled the scene of the collision.
respondent Corporation, which are the gravamen of a
The parents of Francisco, respondents herein, filed an
trust receipt violation.
action for damages against Secosa, Dassad Warehousing
RELEVANT ISSUE: WHETHER OR NOT THE RESPONDENT and Port Services, Inc. and Dassad’s president, El
APPELLATE COURT GRIEVOUSLY ERRED IN NOT Buenasucenso Sy.
HOLDING PRIVATE RESPONDENT SPOUSES LIABLE
The court a quo rendered a decision in favor of herein
UNDER THE TRUST RECEIPT TRANSACTION.
respondents; thus petitioners appealed the decision to
RULING: the Court of Appeals, which unfortunately affirmed the
appealed decision in toto. Hence, the present petition.
The Supreme Court is not convinced that respondent
Gregory T. Lim and his spouse should be personally ISSUE:
liable under the subject trust receipt.
Whether or not Dassad’s president, El Buenasucenso
Petitioners argument that respondent Corporation and Sy, can be held solidary liable with co-petitioners.
respondent Lim and his spouse are one and the same
RULING:
cannot be sustained.
No. Sy cannot be held solidarily liable with his co-
The transactions sued upon were clearly entered into by
petitioners. While it may be true that Sy is the president
respondent Lim in his capacity as Executive Vice
of Dassad Warehousing and Port Services, Inc., such fact
President of respondent Corporation.
is not by itself sufficient to hold him solidarily liable for
The Supreme Court stress the hornbook law that the liabilities adjudged against his co-petitioners.
corporate personality is a shield against personal
A corporation has a personality separate from that of its
liability of its officers. Thus, the court agrees that
stockholders or members. The doctrine of ‘veil of
respondents Gregory T. Lim and his spouse cannot be
corporation’ treats as separate and distinct the affairs of
made personally liable since respondent Lim entered
a corporation and its officers and stockholders. As a
into and signed the contract clearly in his official
rule, a corporation will be looked upon as a legal entity,
capacity as Executive Vice President. The personality of
unless and until sufficient reason to the contrary
the corporation is separate and distinct from the
appears. When the notion of legal entity is used to
persons composing it.
defeat public convenience, justify wrong, protect fraud,
36. Secosa vs Heirs of Erwin Suarez Francisco, 433 or defend crime, the law will regard the corporation as
SCRA 263 an association of persons. Also, the corporate entity
may be disregarded in the interest of justice in such
Doctrine: A corporation has a personality separate cases as fraud that may work inequities among
from that of its stockholders or members. The doctrine members of the corporation internally, involving no
of ‘veil of corporation’ treats as separate and distinct rights of the public or third persons. In both instances,
the affairs of a corporation and its officers and there must have been fraud and proof of it.
stockholders. As a rule, a corporation will be looked
upon as a legal entity, unless and until sufficient reason The records of the case does not point toward the
to the contrary appears. When the notion of legal entity presence of any grounds enumerated above that will
justify the piercing of the veil of corporate entity such as 2001. Powton and Chien filed the petition for review on
to hold Sy, the president of Dassad Warehousing and certiorari.
Port Services, Inc., solidarily liable with it.
ISSUE: Whether Chien, as president, can be made
Furthermore, the Isuzu cargo truck which ran over solidarily liable with Powton
Francisco was registered in the name of Dassad and not
in the name of Sy. Secosa is an employee of Dassad and RULING: NO
not of Sy. These facts showed Sy’s exclusion from
The settled rule is that, a corporation is invested by law
liability for damages arising from the death of Francisco.
with a personality separate and distinct from those of
37. Powton Conglomerate Inc. vs Agcolicol 400 SCAR the persons composing it, such that, save for certain
523 exceptions, corporate officers who entered into
contracts in behalf of the corporation cannot be held
FACTS: personally liable for the liabilities of the latter.
Sometime in November 1990, Johnny Agcolicol, Personal liability of a corporate director, trustee or
proprietor of Japerson Engineering, entered into an officer along (although not necessarily) with the
"Electrical Installation Contract" with Powton corporation may so validly attach, as a rule, only when
Conglomerate, Inc. (Powton), thru its President and (1) he assents to a patently unlawful act of the
Chairman of the Board, Philip C. Chien. For a contract corporation, or when he is guilty of bad faith or gross
price of P5,300,000.00, Agcolicol undertook to provide negligence in directing its affairs, or when there is a
electrical works as well as the necessary labor and conflict of interest resulting in damages to the
materials for the installation of electrical facilities at the corporation, its stockholders or other persons; (2) he
Ciano Plaza Building owned by Powton, located along consents to the issuance of watered down stocks or
M. Reyes Street, corner G. Mascardo Street, Bangkal, who, having knowledge thereof, does not forthwith file
Makati, Metro Manila. with the corporate secretary his written objection
thereto; (3) he agrees to hold himself personally and
In August 1992, the City Engineer's Office of Makati solidarily liable with the corporation; or (4) he is made
inspected the electrical installations at the Ciano Plaza by a specific provision of law personally answerable for
Building and certified that the same were in good his corporate action.
condition. Hence, it issued the corresponding certificate
of electrical inspection. Considering that none of the foregoing exceptions was
established in the present case, Chien, who entered into
On 16 December 1994, Agcolicol filed with the Regional a contract with Agcolicol in his capacity as President and
Trial Court of Pasay City, Branch 115, the complaint for Chairman of the Board of Powton, cannot be held
sum of money against Powton and Chien. He alleged solidarily liable with the latter.
that despite the completion of the electrical works at
Ciano Plaza Building, the latter only paid the amount of 38. Luxuria Homes, Inc. vs. CA 302 SCRA 315
P5,031,860.40, which is equivalent to more than 95% of
the total contract price, thereby leaving a balance of Doctrine: PIERCING THE VEIL OF CORPORATE
P268,139.80. Agcolicol likewise claimed the amount of ENTITY; WHEN ALLOWED. To disregard the separate
P722,730.38 as additional electrical works which were juridical personality of a corporation, the wrongdoing
necessitated by the alleged revisions in the structural must be clearly and convincingly established. It cannot
design of the building. be presumed. This is elementary. Thus in Bayer-Roxas
v. Court of Appeals, we said that the separate
In their answer, petitioners contended that they cannot personality of the corporation may be disregarded only
be obliged to pay the balance of the contract price when the corporation is used as a cloak or cover for
because the electrical installations were defective and fraud or illegality, or to work injustice, or where
were completed beyond the agreed period. necessary for the protection of the creditors.
During the trial, Chien testified that they should not be Obviously in the instant case, private respondents failed
held liable for the additional electrical works allegedly to show proof that petitioner Posadas acted in bad
performed by Powton because they never authorized faith. Consequently, since private respondents failed to
the same. At the pre-trial conference, the parties show that petitioner Luxuria Homes, Inc., was a party to
stipulated, inter alia, that the unpaid balance claimed by any of the supposed transactions, not even to the
the respondent is P268,139.60 and the cost of agreement to negotiate with and relocate the squatters,
additional work is P722,730.38. On 16 August 1999, a it cannot be held liable, nay jointly and in solidum, to
decision was rendered awarding Agcolicol the total pay private respondents. In this case since it was
award of P990,867.38 representing the unpaid balance petitioner Aida M. Posadas who contracted respondent
and the costs of additional works. Bravo to render the subject services, only she is liable to
pay the amounts adjudged herein.
Aggrieved, Powton and Chien appealed to the Court of
Appeals which, on 3 September 2001 however, affirmed FACTS:
the decision of the trial court. The motion for
reconsideration was likewise denied on 5 December
Aida M. Posadas and her two (2) minor children co- anguish. It also reduced the award of exemplary
owned a 1.6 hectare property in Sucat, Muntinlupa, damages. Luxuria Homes' and Posadas' motion for
which was occupied by squatters. Posadas entered into reconsideration, prompting them to file the petition for
negotiations with Jaime T. Bravo regarding the review before the Supreme Court.
development of the said property into a residential
subdivision. ISSUE: Whether Luxuria Homes, Inc., was a party to the
transactions entered into by Posadas with Bravo and
On 3 May 1989, she authorized Bravo to negotiate with James Builder Construction and thus could be held
the squatters to leave the said property. With a written jointly and severally with Posadas.
authorization, Bravo buckled down to work and started
negotiations with the squatters. RULING:
Meanwhile, some 7 months later, on 11 December It cannot be said then that the incorporation of Luxuria
1989, Posadas and her children, through a Deed of Homes and the eventual transfer of the subject
Assignment, assigned the said property to Luxuria property to it were in fraud of Bravo and James Builder
Homes, Inc., purportedly for organizational and tax Construction as such were done with the full knowledge
avoidance purposes. Bravo signed as one of the of Bravo himself, as evidenced by the Deed of
witnesses to the execution of the Deed of Assignment Assignment dated 11 December 1989 and the Articles of
and the Articles of Incorporation of Luxuria Homes, Inc. Incorporation of Luxuria Homes, Inc., issued 26 January
1990 were both signed by Bravo himself as witness.
Then sometime in 1992, the harmonious and congenial
relationship of Posadas and Bravo turned sour when the Further, Posadas is not the majority stockholder of
former supposedly could not accept the management Luxuria Homes, Inc. The Articles of Incorporation of
contracts to develop the 1.6 hectare property into a Luxuria Homes, Inc., clearly show that Posadas owns
residential subdivision, the latter was proposing. approximately 33% only of the capital stock. Hence,
Posadas cannot be considered as an alter ego of Luxuria
In retaliation, Bravo demanded payment for services Homes, Inc.
rendered in connection with the development of the
land. In his statement of account dated 21 August 1991, To disregard the separate juridical personality of a
Bravo demanded the payment of P1,708,489.00 for corporation, the wrongdoing must be clearly and
various services rendered, i.e., relocation of squatters, convincingly established. It cannot be presumed. Bravo,
preparation of the architectural design and site et. al. failed to show proof that Posadas acted in bad
development plan, survey and fencing. Posadas refused faith, and consequently that Luxuria Homes, Inc., was a
to pay the amount demanded. party to any of the supposed transactions, not even to
the agreement to negotiate with and relocate the
Thus, in September 1992, James Builder Construction squatters, it cannot be held liable, nay jointly and in
and Jaime T. Bravo instituted a complaint for specific solidum, to pay Bravo, et. al. Hence, since it was
performance before the trial court against Posadas and Posadas who contracted Bravo to render the subject
Luxuria Homes, Inc. services, only she is liable to pay the amounts adjudged
by the Court.
On 27 September 1993, the trial court declared Posadas
in default and allowed James Builder Construction and 39. Vicmar Development Corporation vs Elacosa, 777
Bravo to present their evidence ex-parte. SCRA 239 (December 2015)
On 8 March 1994, it ordered Posadas, jointly and in ***LABOR CASE***

solidum with Luxuria Homes, Inc., to pay Bravo, et. al.
the balance of the payment for the various services FACTS:
performed by them in the total amount of
This case stemmed from a Complaint for illegal dismissal
P1,708,489.00; actual damages incurred for the
and money claims filed by Ruben Panes, Ruel Cabanday
construction of the warehouse/bunks, and for the
and Jonard Abugho (respondents) against Vicmar
material used in the total sum of P1,500.000.00; moral
Development Corporation (Vicmar) and/or Robert Kua
and exemplary damages of P500.000.00; Attorney's fee
(Kua), its owner and Juanito Pagcaliwagan
of P50,000.00; and cost of this proceedings. The court
(Pagcaliwagan), its manager, and consolidated
also directed Posadas as the Representative of the
Complaints for illegal dismissal and money claims filed
Corporation Luxuria Homes, Incorporated, to execute
by Camilo Elarcosa, et al.
the management contract she committed to do, also in
consideration of the various undertakings that Bravo
rendered for her. Respondents alleged that Vicmar, a domestic
corporation engaged in manufacturing of plywood for
Luxuria Homes and Posadas appealed to the Court of
export and for local sale, employed them in various
Appeals. The appellate court affirmed with modification
capacities - as boiler tenders, block board receivers,
the decision of the trial court. The appellate court
waste feeders, plywood checkers, plywood sander,
deleted the award of moral damages on the ground that
conveyor operator, ripsaw operator, lumber grader,
James Builder Construction is a corporation and hence
pallet repair, glue mixer, boiler fireman, steel strap
could not experience physical suffering and mental
repair, debarker operator, plywood repair and They insisted that hiring said contractors was a cost-
reprocessor, civil workers and plant maintenance. They saving measure, which was part of Vicmar's
averred that Vicmar has two branches, Top Forest management prerogative.
Developers, Incorporated (TFDI) and Greenwood
International Industries, Incorporated (GUI) located in
the same compound where Vicmar operated. Ruling of the Executive Labor Arbiters
Respondents declared that Vicmar paid them minimum

On May 25, 2006, ELA Pelaez dismissed the complaints.
wage and a small amount for overtime but it did not
On May 29, 2006, ELA Magbanua dismissed the
give them benefits as required by law, such as
complaint.
Philhealth, Social Security System, 13th month pay,
holiday pay, rest day and night shift differential.They Both ELAs Pelaez and Magbanua held that respondents
added that Vicmar employed more than 200 regular were seasonal employees of Vicmar, whose work was
employees and more than 400 "extra" workers. "co-terminus or dependent upon the extraordinary
demands for plywood products and also on the
Sometime in 2004, Vicmar allegedly informed availability of logs or timber to be processed into
respondents that they would be handled by contractors. plywood."45 They noted that Vicmar could adopt cost-
Respondents stated that these contractors were former saving measures as part of its management prerogative,
employees of Vicmar and had no equipment and including engagement of legitimate independent
facilities of their own. Respondents averred that as a contractors.46
result thereof, the wages of a number of them who
were reduced. Respondents protested said wage Ruling of the National Labor Relations Commission
decrease but to no avail. Thus, they filed a Complaint
with the DOLE for violations of labor standards for On February 2, 2007, the NLRC affirmed the Decisions of
which appropriate compliance orders were issued ELAs Pelaez and Magbanua.49 On April 30, 2007, it
against Vicmar. denied respondents' motion for reconsideration.50
Ruling of the Court of Appeals

Respondents claimed that they were illegally dismissed
after Vicmar learned that they instituted the subject The CA held that a number of respondents were
Complaint through the simple expedience of not being assigned to the boiler section where plywood was dried
scheduled for work. Even those persons associated with and cooked to perfection; and while the other
them were dismissed. They also asserted that Vicmar respondents were said to have been assigned at the
did not comply with the twin notice requirement in general service section, they were "cleaners on an
dismissing employees.29 industrial level handling industrial refuse."
Furthermore, respondents contended that while As such, according to the CA, respondents performed
Vicmar, TFDI and Gin were separately registered with activities necessary and desirable in the usual business
the SEC, they were involved in the same business, of Vicmar, as they were assigned to departments vital to
located in the same compound, owned by one person, its operations. It also noted that the repeated hiring of
had one resident manager, and one and the same respondents proved the importance of their work to
administrative department, personnel and finance Vicmar's business. It maintained that the contractors
sections. They claimed that the employees of these were engaged by Vicmar only for the convenience of
companies were identified as employees of Vicmar Vicmar.
even if they were assigned in TFDI or GIII.
In sum, the CA declared that respondents were illegally
On the other hand, petitioners stated that respondents dismissed since there was no showing of just cause for
Allan Baguio, Romel Patoy, Rexy Dofeliz, Marlon Banda, their termination and of compliance by Vicmar to due
Gulben Rhyan Ramos, Julieto Simon and Agapito Canas, process of law.
Jr. were "extra" workers of TFDI, not Vicmar. They
ISSUE:
likewise alleged that a number of respondents were
engaged to assist regular employees in the company, Whether or not the employees were illegally
and the others were hired to repair used steel straps dismissed. YES.
and retrieve useable veneer materials, or to perform
janitorial services. Respondents provided hiring dates, sections hired to,
and dates of termination to establish that they were
Petitioners further asseverated that sometime in August regular employees, while Vicmar did not submit any
2004, they decided to engage the services of legitimate corresponding documents to refute those of the
independent contractors, namely, E.A. Rosales respondents, giving rise to the presumption that their
Contracting Services and Candole Contracting Services, presentation would be prejudicial to Vicmar's cause.
to provide additional workforce. Petitioners claimed
that they were unaware that respondents were Respondents were also able to show that their activities
dissatisfied with this decision leading to the DOLE case. were necessary to the usual business of Vicmar, which
made them fall under “regular employees” as defined in services were partially paid by PASUMIL, leaving several
the Labor Code. unpaid accounts.
RELEVANT ISSUE: Whether or not the doctrine of On August 1975, PNB, a semi-government corporation,
piercing the veil of corporate fiction is applicable in acquired the assets of PASUMIL—assets that were
making Vicmar liable for illegal dismissal, despite some earlier foreclosed by the DBP.
of the employees being under TFDI. YES.
On September 1975, PNB organized NASUDECO
RULING: (National Sugar Development Corporation), under LOI
No. 311 to take ownership and possession of the assets
The Court also gives merit to the finding of the CA that and ultimately, to nationalize and consolidate its
Vicmar is the employer of respondents despite the interest in other PNB controlled sugar mills. NASUDECO
allegations that a number of them were assigned to the is a semi-government corporation and the sugar arm of
branches of Vicmar. Petitioners failed to refute the the PNB.
contention that Vicmar and its branches have the same
owner and management - which included one resident Andrada Electric alleges that PNB and NASUDECO
manager, one administrative department, one and the should be liable for PASUMIL’s unpaid obligation
same personnel and finance sections. Notably, all amounting to 500K php, damages, and attorney’s fees,
respondents were employed by the same plant having owned and possessed the assets of PASUMIL.
manager, who signed their identification cards some of
whom were under Vicmar, and the others under TFDI. ISSUE:
Whether PNB and NASUDECO may be held liable for

Where it appears that business enterprises are owned,
PASUMIL’s liability to Andrada Electric and Engineering
conducted and controlled by the same parties, law and
Company.
equity will disregard the legal fiction that these
corporations are distinct entities and shall treat them as RULING:
one. This is in order to protect the rights of third
persons, as in this case, to safeguard the rights of NO.
respondents.78
Basic is the rule that a corporation has a legal
Considering that respondents were regular employees personality distinct and separate from the persons and
and their termination without valid cause amounts to entities owning it. The corporate veil may be lifted only
illegal dismissal, then for its contrary ruling unsupported if it has been used to shield fraud, defend crime, justify
by substantial evidence, the NLRC gravely abused its a wrong, defeat public convenience, insulate bad faith
discretion in dismissing the complaints for illegal or perpetuate injustice.
dismissal. Therefore, the CA Decision setting aside that
Thus, the mere fact that the Philippine National Bank
of the NLRC is in order and must be sustained.
(PNB) acquired ownership or management of some
assets of the Pampanga Sugar Mill (PASUMIL), which
40. G.R. No. 142936. April 17, 2002
had earlier been foreclosed and purchased at the
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR resulting public auction by the Development Bank of the
DEVELOPMENT CORPORATION, petitioners, vs. Philippines (DBP), will not make PNB liable for the
ANDRADA ELECTRIC & ENGINEERING PASUMIL's contractual debts to Andrada Electric &
COMPANY, respondent. Engineering Company (AEEC).
Doctrine: Basic is the rule that a corporation has a legal Piercing the veil of corporate fiction may be allowed
personality distinct and separate from the persons and only if the following elements concur: (1) control not
entities owning it. The corporate veil may be lifted only mere stock control, but complete domination² not only
if it has been used to shield fraud, defend crime, justify of finances, but of policy and business practice in
a wrong, defeat public convenience, insulate bad faith respect to the transaction attacked, must have been
or perpetuate injustice. Thus, the mere fact that the such that the corporate entity as to this transaction had
Philippine National Bank (PNB) acquired ownership or at the time no separate mind, will or existence of its
management of some assets of the Pampanga Sugar own; (2) such control must have been used by the
Mill (PASUMIL), which had earlier been foreclosed and defendant to commit a fraud or a wrong to perpetuate
purchased at the resulting public auction by the the violation of a statutory or other positive legal duty,
Development Bank of the Philippines (DBP), will not or a dishonest and an unjust act in contravention
make PNB liable for the PASUMIL’s contractual debts to of plaintiff's legal right; and (3) the said control and
respondent. breach of duty must have proximately caused the injury
or unjust loss complained of.
FACTS:
The absence of the foregoing elements in the present
PASUMIL (Pampanga Sugar Mills) engaged the services case precludes the piercing of the corporate veil.
of Andrada Electric for electrical rewinding, repair, the
construction of a power house building, installation of First, other than the fact that PNB and NASUDECO
turbines, transformers, among others. Most of the acquired the assets of PASUMIL, there is no showing
that their control over it warrants the disregard of Neither did petitioner expressly or impliedly agree to
corporate personalities. Second, there is no evidence assume the debt of PASUMIL to respondent. LOI No. 11
that their juridical personality was used to commit a explicitly provides that PNB shall study and submit
fraud or to do a wrong; or that the separate corporate recommendations on the claims of PASUMIL’s creditors.
entity was farcically used as a mere alter ego, business Clearly, the corporate separateness between PASUMIL
conduit or instrumentality of another entityor person. and PNB remains, despite respondent’s insistence to
Third, AEEC was not defrauded or injured when PNB the contrary.
and NASUDECO acquired the assets of PASUMIL. Hence,
although the assets of NASUDECO can be easily traced 41. G.R. No. 153535. July 28, 2005
to PASUMIL, the transfer of the latter's assets to PNB SOLIDBANK CORPORATION, Petitioners, vs.
and NASUDECO was not fraudulently entered into in MINDANAO FERROALLOY CORPORATION, Spouses
order to escape liability for its debt to AEEC. JONG-WON HONG and SOO-OK KIM HONG,*TERESITA
CU, and RICARDO P. GUEVARA and
There was NO merger or consolidation with respect to Spouse,** respondents.
PASUMIL and PNB.
Respondent further claims that petitioners should be

held liable for the unpaid obligations of PASUMIL by FACTS:
virtue of LOI Nos. 189-A and 311, which expressly
"The Maria Cristina Chemical Industries (MCCI) and
authorized PASUMIL and PNB to merge or consolidate
three (3) Korean corporations, namely, the Ssangyong
(allegedly).
Corporation, the Pohang Iron and Steel Company and
On the other hand, petitioners contend that their the Dongil Industries Company, Ltd., decided to forge a
takeover of the operations of PASUMIL did not involve joint venture and establish a corporation, under the
any corporate merger or consolidation, because the name of the Mindanao Ferroalloy Corporation
latter had never lost its separate identity as a (Corporation for brevity) with principal offices in Iligan
corporation. City. Ricardo P. Guevara was the President and
Chairman of the Board of Directors of the Corporation.
A consolidation is the union of two or more existing On November 26, 1990, the Board of Directors of the
entities to form a new entity called the consolidated Corporation approved a ‘Resolution’ authorizing its
corporation. A merger, on the other hand, is a union President and Chairman of the Board of Directors or
whereby one or more existing corporations are Teresita R. Cu, acting together with Jong-Won Hong, to
absorbed by another corporation that survives and secure an omnibus line in the aggregate amount of
continues the combined business. ₱30,000,000.00 from the Solidbank. "In the meantime,
the Corporation started its operations sometime in
The merger, however, does not become effective upon April, 1991. Its indebtedness ballooned to
the mere agreement of the constituent corporations. ₱200,453,686.69 compared to its assets of only
Since a merger or consolidation involves fundamental ₱65,476,000.00. On May 21, 1991, the Corporation
changes in the corporation, as well as in the rights of secured an ordinary time loan from the Solidbank in the
stockholders and creditors, there must be an express amount of ₱3,200,000.00. Another ordinary time loan
provision of law authorizing them. was granted by the Bank to the Corporation on May 28,
For a valid merger or consolidation, the approval by the 1991, in the amount of ₱1,800,000.00 or in the total
SEC of the articles of merger or consolidation is amount of ₱5,000,000.00, due on July 15 and 26, 1991,
required. These articles must likewise be duly approved respectively. The Corporation executed ‘Promissory
by a majority of the respective stockholders of the Note No. 96-91-00865-6’ in favor of the Bank evidencing
constituent corporations. its loan in the amount of ₱5,160,000.00, payable on
September 20, 1991. Teresita Cu and Jong-Won Hong
In the case at bar, there is no merger or consolidation affixed their signatures on the note. To secure the
with respect to PASUMIL and PNB. The procedure payment of the said loan, the Corporation, through
prescribed under Title IX of the Corporation Code was Jong-Won Hong and Teresita Cu, executed a ‘Deed of
not followed. Assignment’ in favor of the Bank covering its rights, title
and interest. The Corporation likewise executed a
In fact, PASUMIL’s corporate existence, as correctly ‘Quedan’, by way of additional security, under which
found by the CA, had not been legally extinguished or the Corporation bound and obliged to keep and hold, in
terminated. Further, prior to PNB’s acquisition of the trust for the Bank or its Order, ‘Ferrosilicon for
foreclosed assets, PASUMIL had previously made partial US$197,679.00’. Jong-Won Hong and Teresita Cu affixed
payments to respondent for the former’s obligation in their signatures thereon for the Corporation. The
the amount of P777,263.80. As of June 27, 1973, Corporation, also, through Jong-Won Hong and Teresita
PASUMIL had paid P250,000 to respondent and, from Cu, executed a ‘Trust Receipt Agreement’, by way of
January 5, 1974 to May 23, 1974, another P14,000. additional security for said loan, the Corporation
undertaking to hold in trust, for the Bank, as its
property. "However, shortly after the execution of the
said deeds, the Corporation stopped its operations. The
Corporation failed to pay its loan availments from the
Bank inclusive of accrued interest. On February 11, On the other hand, Respondents Cu and Hong signed
1992, the Bank sent a letter to the Corporation the Promissory Note without the word "by" preceding
demanding payment of its loan availments inclusive of their signatures, atop the designation
interests due. The Corporation failed to comply with the "Maker/Borrower" and the printed name of the
demand of the Bank. corporation, as follows:
On December 10, 1999, the Court rendered a Decision __(Sgd) Cu/Hong__
dismissing the complaint for lack of cause of action of (Maker/Borrower)
[petitioner] against the Spouses Jong-Won Hong,
MINDANAO FERROALLOY
Teresita Cu and the Spouses Ricardo Guevara.
While their signatures appear without qualification, the
inference that they signed in their individual capacities
ISSUE: is negated by the following facts: 1) the name and the
Whether or not there is ample evidence on record to address of the corporation appeared on the space
support the joint and solidary liability of individual provided for "Maker/Borrower"; 2) Respondents Cu and
respondents with Mindanao Ferroalloy Corporation. Hong had only one set of signatures on the instrument,
when there should have been two, if indeed they had
intended to be bound solidarily -- the first as
RULING:
representatives of the corporation, and the second as
NO. No Personal Liability for Corporate Deeds themselves in their individual capacities; 3) they did not
Basic is the principle that a corporation is vested by law sign under the spaces provided for "Co-maker," and
with a personality separate and distinct from that of neither were their addresses reflected there; and 4) at
each person composing9 or representing it.10 Equally the back of the Promissory Note, they signed above the
fundamental is the general rule that corporate officers words "Authorized Representative."
cannot be held personally liable for the consequences Solidary Liability Not Lightly Inferred
of their acts, for as long as these are for and on behalf
Moreover, it is axiomatic that solidary liability cannot be
of the corporation, within the scope of their authority
lightly inferred.14 Under Article 1207 of the Civil Code,
and in good faith.11 The separate corporate personality
"there is a solidary liability only when the obligation
is a shield against the personal liability of corporate
expressly so states, or when the law or the nature of the
officers, whose acts are properly attributed to the
obligation requires solidarity." Since solidary liability is
corporation.12
not clearly expressed in the Promissory Note and is not
Tramat Mercantile v. Court of Appeals13 held thus: required by law or the nature of the obligation in this
"Personal liability of a corporate director, trustee or case, no conclusion of solidary liability can be made.
officer along (although not necessarily) with the No Reason to Pierce the Corporate Veil
corporation may so validly attach, as a rule, only when
Under certain circumstances, courts may treat a
—
corporation as a mere aggroupment of persons, to
‘1. He assents (a) to a patently unlawful act of the whom liability will directly attach. The distinct and
corporation, or (b) for bad faith or gross negligence in separate corporate personality may be
directing its affairs, or (c) for conflict of interest, disregarded, inter alia, when the corporate identity is
resulting in damages to the corporation, its stockholders used to defeat public convenience, justify a wrong,
or other persons; protect a fraud, or defend a crime. Likewise, the
‘2. He consents to the issuance of watered stocks or corporate veil may be pierced when the corporation
who, having knowledge thereof, does not forthwith file acts as a mere alter ego or business conduit of a person,
with the corporate secretary his written objection or when it is so organized and controlled and its affairs
thereto; so conducted as to make it merely an instrumentality,
‘3. He agrees to hold himself personally and solidarily agency, conduit or adjunct of another corporation.20 But
liable with the corporation; or to disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and
‘4. He is made, by a specific provision of law, to convincingly established; it cannot be presumed.21
personally answer for his corporate action.’"
Unfortunately, petitioner was unable to establish clearly
Consistent with the foregoing principles, we sustain the and precisely how the alleged fraud was committed. It
CA’s ruling that Respondent Guevara was not personally failed to establish that it was deceived into granting the
liable for the contracts. First, it is beyond cavil that he loans because of respondents’ misrepresentations
was duly authorized to act on behalf of the corporation; and/or insidious actions. Quite the contrary,
and that in negotiating the loans with petitioner, he did circumstances indicate the weakness of its submission.
so in his official capacity. Second, no sufficient and
specific evidence was presented to show that he had First, petitioner does not deny that the ₱5 million loan
acted in bad faith or gross negligence in that represented the consolidation of two loans,31 granted
negotiation. Third, he did not hold himself personally long before the bank required the individual
and solidarily liable with the corporation. Neither is respondents to execute the Promissory Note, Trust
there any specific provision of law making him Receipt Agreement, Quedan or Deed of Assignment.
personally answerable for the subject corporate acts. Hence, no words, acts or machinations arising from any
of those instruments could have been used by them
prior to or simultaneous with the execution of the a special stockholders’ meeting of Ellice was held on
contract, or even as some accident or particular of the August 24, 1990 to elect a new board of directors. In the
obligation. ensuing organizational meeting later that day, a new set
Second, petitioner bank was in a position to verify for of corporate officers was elected. Likewise, Raul Gala
itself the solvency and trustworthiness of respondent was elected as chairman, president and general
corporation. In fact, ordinary business prudence manager. On March 27, 1990, respondents filed against
required it to do so before granting the multimillion petitioners with the Securities and Exchange
loans. It is of common knowledge that, as a matter of Commission (SEC) a petition for the appointment of a
practice, banks conduct exhaustive investigations of the management committee or receiver, accounting and
financial standing of an applicant debtor, as well as restitution by the directors and officers, and the
appraisals of collaterals offered as securities for loans to dissolution of Ellice Agro-Industrial Corporation for
ensure their prompt and satisfactory payment. To alleged mismanagement, diversion of funds, financial
uphold petitioner’s cry of fraud when it failed to verify losses and the dissipation of assets, docketed as SEC
the existence of the goods covered by the Trust Receipt Case No. 3747.
Agreement and the Quedan is to condone its SEC rendered a Joint Decision in SEC Cases Nos. 3747
negligence. and 4027, the dispositive portion of which states:
1. Dismissing the petition in SEC Case No. 3747,
42. G.R. No. 156819 December 11, 2003 Accordingly, appellees Alicia Gala and Guia G. Domingo
ALICIA E. GALA, GUIA G. DOMINGO and RITA G. are ordered as follows:
BENSON, petitioners, (1) jointly and solidarily pay ELLICE and/or MARGO the
vs. amount of P700,000.00 representing the consideration
ELLICE AGRO-INDUSTRIAL CORPORATION, MARGO for the unauthorized sale of a parcel of land to Lucky
MANAGEMENT AND DEVELOPMENT CORPORATION, Homes and Development Corporation (Exhs. "N" and
RAUL E. GALA, VITALIANO N. AGUIRRE II, ADNAN V. "CCC");
ALONTO, ELIAS N. CRESENCIO, MOISES S. MANIEGO, (2) jointly and severally pay ELLICE and MARGO the
RODOLFO proceeds of sales of agricultural products averaging
P120,000.00 per month from February 17, 1988;
FACTS: (3) jointly and severally indemnify the appellants
On March 28, 1979, the spouses Manuel and Alicia Gala, P90,000.00 as attorney’s fees;
their children Guia Domingo, Ofelia Gala, Raul Gala, and (4) jointly and solidarily pay the costs of suit;
Rita Benson, and their encargados Virgilio Galeon and
Julian Jader formed and organized the Ellice Agro-
ISSUE:
Industrial Corporation. Subsequently, on September 16,
1982, Guia Domingo, Ofelia Gala, Raul Gala, Virgilio WHETHER OR NOT THE LOWER COURT ERRED IN NOT
Galeon and Julian Jader incorporated the Margo PIERCING THE VEILS OF CORPORATE FICTION OF
Management and Development Corporation RESPONDENTS CORPORATIONS ELLICE AND MARGO
8
(Margo). The total subscribed capital stock of Margo.
On November 10, 1982, Manuel Gala sold 13,314 of his RULING:
shares in Ellice to Margo. 10
NO. The petitioners’ first contention in support of this
Alicia Gala transferred 1,000 of her shares in Ellice to a theory is that the purposes for which Ellice and Margo
certain Victor de Villa on March 2, 1983. That same day, were organized should be declared as illegal and
de Villa transferred said shares to Margo. 11 A few contrary to public policy. They claim that the
months later, on August 28, 1983, Alicia Gala respondents never pursued exemption from land
transferred 854.3 of her shares to Ofelia Gala, 500 to reform coverage in good faith and instead merely used
Guia Domingo and 500 to Raul Gala. Years later, on the corporations as tools to circumvent land reform
February 8, 1988, Manuel Gala transferred all of his laws and to avoid estate taxes. Specifically, they point
remaining holdings in Ellice, amounting to 2,164 shares, out that respondents have not shown that the transfers
to Raul Gala. 13 of the land in favor of Ellice were executed in
On July 20, 1988, Alicia Gala transferred 10,000 of her compliance with the requirements of Section 13 of R.A.
shares to Margo. On June 23, 1990, a special 3844.26 Furthermore, they alleged that respondent
stockholders’ meeting of Margo was held, where a new corporations were run without any of the conventional
board of directors was elected. 15 That same day, the corporate formalities. 27
newly-elected board elected a new set of officers. Raul At the outset, the Court holds that petitioners’
Gala was elected as chairman, president and general contentions impugning the legality of the purposes for
manager. During the meeting, the board approved which Ellice and Margo were organized, amount to
several actions, including the commencement of collateral attacks which are prohibited in this
proceedings to annul certain dispositions of Margo’s jurisdiction. 28
property made by Alicia Gala. The board also resolved
to change the name of the corporation to MRG The best proof of the purpose of a corporation is its
Management and Development Corporation. Similarly, articles of incorporation and by-laws. The articles of
incorporation must state the primary and secondary
purposes of the corporation, while the by-laws outline for organizational and tax avoidance purposes.
the administrative organization of the corporation, Respondent Bravo signed as one of the witnesses to the
which, in turn, is supposed to insure or facilitate the execution of the Deed of Assignment and the Articles of
accomplishment of said purpose. 29 Incorporation of petitioner Luxuria Homes, Inc.
In the case at bar, a perusal of the Articles of Then sometime in 1992, the harmonious and congenial
Incorporation of Ellice and Margo shows no sign of the relationship of petitioner Posadas and respondent
allegedly illegal purposes that petitioners are Bravo turned sour when the former supposedly could
complaining of. It is well to note that, if a corporation’s not accept the management contracts to develop the
purpose, as stated in the Articles of Incorporation, is 1.6 hectare property into a residential subdivision, the
lawful, then the SEC has no authority to inquire whether latter was proposing. In retaliation, respondent Bravo
the corporation has purposes other than those stated, demanded payment for services rendered in connection
and mandamus will lie to compel it to issue the with the development of the land.
certificate of incorporation. The trial court declared petitioner Posadas in default
Thus, even if Ellice and Margo were organized for the and allowed the private respondents to present their
purpose of exempting the properties of the Gala evidence ex-parte. On March 8, 1994, it ordered
spouses from the coverage of land reform legislation petitioner Posadas, jointly and in solidum with
and avoiding estate taxes, we cannot disregard their petitioner Luxuria Homes, Inc.
separate juridical personalities.
Finally, the petitioners pray that the veil of corporate ISSUE:
fiction that shroud both Ellice and Margo be pierced, Can petitioner Luxuria Homes, Inc., be held liable to
consistent with their earlier allegation that both private respondents for the transactions supposedly
corporations were formed for purposes contrary to law entered into between petitioner Posadas and private
and public policy. In sum, they submit that the respondents?
respondent corporations are mere business conduits of
the deceased Manuel Gala and thus may be disregarded
to prevent injustice, the distortion or hiding of the truth RULING:
or the "letting in" of a just defense. 46 NO. The Court hold that respondent Court of Appeals
However, to warrant resort to the extraordinary remedy committed a reversible error when it upheld the factual
of piercing the veil of corporate fiction, there must be finding of the trial court that petitioners' liability was
proof that the corporation is being used as a cloak or aggravated by the fact that Luxuria Homes, Inc., was
cover for fraud or illegality, or to work injustice, 47 and formed by petitioner Posadas after demand for
the petitioners have failed to prove that Ellice and payment had been made, evidently for her to evade
Margo were being used thus. They have not presented payment of her obligation, thereby showing that the
any evidence to show how the separate juridical entities transfer of her property to Luxuria Homes, Inc., was in
of Ellice and Margo were used by the respondents to fraud of creditors.
commit fraudulent, illegal or unjust acts. Hence, this We easily glean from the record that private
contention, too, must fail. respondents sent demand letters on 21 August 1991
and 14 September 1991, or more than a year and a half
after the execution of the Deed of Assignment on 11
43. G.R. No. 125986 January 28, 1999
December 1989, and the issuance of the Articles of
LUXURIA HOMES, INC., and/or AIDA M. Incorporation of petitioner Luxuria Homes on 26
POSADAS, petitioners, vs. January 1990. And, the transfer was made at the time
HONORABLE COURT OF APPEALS, JAMES BUILDER the relationship between petitioner Posadas and private
CONSTRUCTION and/or JAIME T. BRAVO, respondents. respondents was supposedly very pleasant. In fact the
Deed of Assignment dated 11 December 1989 and the
FACTS: Articles of Incorporation of Luxuria Homes, Inc., issued
26 January 1990 were both signed by respondent Bravo
Petitioner Aida M. Posadas and her two (2) minor
himself as witness. It cannot be said then that the
children co-owned a 1.6 hectare property in Sucat,
incorporation of petitioner Luxuria Homes and the
Muntinlupa, which was occupied by squatters.
eventual transfer of the subject property to it were in
Petitioner Posadas entered into negotiations with
fraud of private respondents as such were done with
private respondent Jaime T. Bravo regarding the
the full knowledge of respondent Bravo himself.
development of the said property into a residential
subdivision. On May 3, 1989, she authorized private Besides petitioner Posadas is not the majority
respondent to negotiate with the squatters to leave the stockholder of petitioner Luxuria Homes, Inc., as
said property. With a written authorization, respondent erroneously stated by the lower court. The Articles of
Bravo buckled down to work and started negotiations Incorporation of petitioner Luxuria Homes, Inc., clearly
with the squatters. show that petitioner Posadas owns approximately 33%
only of the capital stock. Hence petitioner Posadas
Meanwhile, some seven (7) months later, on December
cannot be considered as an alter ego of petitioner
11, 1989, petitioner Posadas and her two (2) children,
Luxuria Homes, Inc.
through a Deed of Assignment, assigned the said
property to petitioner Luxuria Homes, Inc., purportedly
To disregard the separate juridical personality of a their dismissal. (See attached Annex "A" of
corporation, the wrongdoing must be clearly and complainants' position paper.)
convincingly established. It cannot be presumed. This is
elementary. Thus in Bayer-Roxas v. Court of
ISSUE:
Appeals,17 we said that the separate personality of the
corporation may be disregarded only when the Whether arbiter and the nlrc committed a grave abuse
corporation is used as a cloak or cover for fraud or of discretion in adjudging petitioners herein as jointly
illegality, or to work injustice, or where necessary for and severally liable with Philippine inter-fashion, Inc. to
the protection of the creditors. Accordingly in Del pay the judgment debt.
Roscrrio v. NLRC,18 where the Philsa International
Placement and Services Corp. was organized and RULING:
registered with the POEA in 1981, several years before
the complainant was filed a case in 1985, we held that YES. The settled rule is that the corporation is vested by
this cannot imply fraud. law with a personality separate and distinct from the
persons composing it, including its officers as well as
Obviously in the instant case, private respondents failed from that of any other legal entity to which it may be
to show proof that petitioner Posadas acted in bad related. Thus, a company manager acting in good faith
faith. Consequently since private respondents failed to within the scope of his authority in terminating the
show that petitioner Luxuria Homes, Inc., was a party to services of certain employees cannot be held personally
any of the supposed transactions, not even to the liable for damages. 2 Mere ownership by a single
agreement to negotiate with and relocate the squatters, stockholder or by another corporation of all or nearly all
it cannot be held liable, nay jointly and in solidum, to capital stocks of the corporation is not by itself
pay private respondents. In this case since it was sufficient ground for disregarding the separate
petitioner Aida M. Posadas who contracted respondent corporate personality. 3
Bravo to render the subject services, only she is liable to
pay the amounts adjudged herein. As a general rule, officers of a corporation are not
personally liable for their official acts unless it is shown
that they have exceeded their authority. 4 However, the
44. G.R. No. 89879 April 20, 1990 legal fiction that a corporation has a personality
JAIME PABALAN AND EDUARDO separate and distinct from stockholders and members.
LAGDAMEO, petitioners, vs. In this particular case complainants did not allege or
NATIONAL LABOR RELATIONS COMMISSION, LABOR show that petitioners, as officers of the corporation
ARBITER AMBROSIO B. SISON, ELIZABETH RODEROS, deliberately and maliciously designed to evade the
ET AL., and THE SHERIFF OF THE NATIONAL LABOR financial obligation of the corporation to its employees,
RELATIONS COMMISSION, respondents. or used the transfer of the employees as a means to
perpetrate an illegal act or as a vehicle for the evasion
of existing obligations, the circumvention of statutes, or
FACTS: to confuse the legitimate issues.
other benefits under existing laws and/or separation In this particular case complainants did not allege or
pay. show that petitioners, as officers of the corporation
On October 21, 1987, PIF, through its General Manager, deliberately and maliciously designed to evade the
was notified about the complaint and summons for the financial obligation of the corporation to its employees,
hearing set for November 6, 1987. The hearing was re- or used the transfer of the employees as a means to
set for November 27, 1987 for failure of respondents to perpetrate an illegal act or as a vehicle for the evasion
appear. On November 30, 1987 respondents of existing obligations, the circumvention of statutes, or
(petitioners herein) moved for the cancellation of the to confuse the legitimate issues.
hearing scheduled on November 6, 1987 so that they
could engage a counsel to properly represent them
45. G.R. No. 117963 February 11, 1999
preferably on November 17, 1987.
AZCOR MANUFACTURING INC., FILIPINAS PASO and/or
Decision was rendered by the labor arbiter the
ARTURO ZULUAGA/Owner, petitioners,
dispositive part of which reads as follows:
vs.
IN VIEW OF THE FOREGOING CONSIDERATION, NATIONAL LABOR RELATIONS COMMISSION (NLRC)
respondent Philippine Inter-Fashion and its AND CANDIDO CAPULSO, respondents.
officers Mr. Jaime Pabalan and Mr. Eduardo
Lagdameo are hereby ordered to:
FACTS:
1. reinstate the sixty two (62) complainants to
their former or equivalent position without loss Candido Capuslo file with the Labor Arbiter a complaint
of seniority rights and privileges; for constructive illegal dismissal and illegal deduction of
P50.00 per day for the period April to September 1989.
2. to pay, jointly and severally, their backwages
Petitioners Azcor Manufacturing, Inc. (AZCOR) and
and other benefits from the time they were
Arturo Zuluaga who were respondents before the Labor
dismissed up to the time they are actually
Arbiter (Filipinas Paso was not yet a party then in that
reinstated, the computation to be based from
case) moved to dismiss the complaint on the ground
the latest minimum wage law at the time of
that there was no employer-employee relationship and Sixth, the employment contract was signed by an
between AZCOR and herein respondent Capulso; .that AZCOR personnel officer, which showed that Capulso
the latter became an employee of Filipinas Paso was being hired from 1 March 1990 to 31 August 1990
effective 1 March 1996 but voluntarily resigned there by AZCOR to do jobs for Filipinas Paso. The employment
from a year after, Capulso later amended his complaint contract provided in part:
by impleading Filipinas Paso as additional respondent The contract is for a specific job contract only and
before the Labor Arbiter. shall be effective for the period covered, unless
On 29 December 1992 the Labor Arbiter rendered a sooner terminated when the job contract is
decision dismissing the complaint for illegal dismissal for completed earlier or withdrawn by client, or when
lack of merit, but ordered AZCOR and/or Arturo Zuluaga the employee is dismissed for just and lawful causes
to refund to Capulso the sum of P200.00 representing provided by law and the company's rules and
the amount illegally deducted from his salary. regulations, in which case the employment contract
On appeal by Capulso, docketed as NLRC CA No. will automatically terminate.
004476-93 (NLRC NCR 00-09-05271-91), "Capulso v. As correctly observed by the NLRC, the contract was
Azcor Manufacturing Inc., Filipinas Paso and/or Arturo only for six (6) months, which could pass either as a
Zuluaga/owner," the NLRC modified the Labor Arbiter's probationary period or a job contracting, the
decision by: (a) declaring the dismissal of Capulso as completion of which automatically terminated the
illegal for lack of just and valid cause; (b) ordering employment. Observe further, however, that
petitioners to reinstate Capulso to his former or respondent continued working even after the lapse of
equivalent position without loss of Seniority rights and the period in the contract - for whom it was not clear. It
without diminution of benefits, and, (c) ordering may be asked: Was the six (6)-month period
petitioners to jointly and solidarily pay Capulso his probationary in nature, in which case, after the lapse of
backwages computed from the time of his dismissal up the period he became a regular employee of Filipinas
to the date of his actual reinstatement. Paso? Or was the period job-contracting in character, in
which case, after the period he was deemed to have
come back to AZCOR?
ISSUE:
Interestingly, petitioners likewise argue that it was
Whether the NLRC committed grave abuse of discretion
grave abuse of discretion for the NLRC to hold them
in holding that petitioners jointly and solidarily liable to
solidarily, liable to Capulso when the latter himself
Capulso for back wages.
testified that he was not even an employee of Filipinas
Paso. 22 After causing much confusion, petitioners have
RULING: the temerity to use as evidence the ignorance of
NO. The doctrine that a corporation is a legal entity or a Capulso in identifying his true employer. It is evident
person in law distinct from the persons composing it is from the foregoing discussion that Capulso was led into
merely a legal fiction for purposes of convenience and believing that while he was working with Filipinas Paso,
to subserve the ends of justice. This fiction cannot be his real employer was AZCOR. Petitioners never dealt
extended to a point beyond its reason and with him openly and in good faith, nor was he informed
policy. 20 Where, as in this case, the corporate fiction of the developments within the company, i.e., his
was used as a means to perpetrate a social injustice or alleged transfer to Filipinas Paso and the closure of
as a vehicle to evade obligations or confuse the AZCOR's manufacturing operations beginning 1 March
legitimate issues, it would be discarded and the two (2) 1990. 23 Understandably, he sued AZCOR alone and was
corporations would be merged as one, the first being constrained to implead Filipinas Paso as additional
merely considered as the instrumentality, agency, respondent only when it became apparent that the
conduit or adjunct of the other. 21 latter also appeared to be his employer.
In this particular case, there was much confusion as to
the identity of Capulso's employer - whether it was 46. G.R. No. 167291 January 12, 2011
AZCOR or Filipinas Paso; but, for sure, it was petitioners' PRINCE TRANSPORT, Inc. and Mr. RENATO
own making, as shown by the following: First, Capulso CLAROS, Petitioners,
had no knowledge that he was already working under vs.
petitioner Filipinas Paso since he contained to retain his DIOSDADO GARCIA, et al.
AZCOR Identification card; Second, his payslips
contained the name of AZCOR giving the impression
that AZCOR was paying his salary; Third, he was paid the FACTS:
same salary and he performed the same kind of job, in The present petition arose from various complaints filed
the same work area, in the same location, using the by herein respondents charging petitioners with illegal
same tools and under the same supervisor; Fourth, dismissal, unfair labor practice and illegal deductions
there was no gap in his employment as he continued to and praying for the award of premium pay for holiday
work from the time he was hired up to the last day of and rest day, holiday pay, service leave pay, 13th month
his work; Fifth, the casting department of AZCOR where pay, moral and exemplary damages and attorney's fees.
Capulso was working was abolished when he, together Respondents alleged in their respective position papers
with six (6) others, transferred to Filipinas Paso; and other related pleadings that they were employees
of Prince Transport, Inc. (PTI), a company engaged in As correctly pointed out by petitioners, if Lubas were
the business of transporting passengers by land; truly a separate entity, how come that it was Prince
respondents were hired either as drivers, conductors, Transport who made the decision to transfer its
mechanics or inspectors, except for respondent employees to the former? Besides, Prince Transport
Diosdado Garcia (Garcia), who was assigned as never regarded Lubas Transport as a separate entity. In
Operations Manager; in addition to their regular the aforesaid letter, it referred to said entity as "Lubas
monthly income, respondents also received operations." Moreover, in said letter, it did not transfer
commissions equivalent to 8 to 10% of their wages; the employees; it "assigned" them. Lastly, the existing
sometime in October 1997, the said commissions were funds and 201 file of the employees were turned over
reduced to 7 to 9%; this led respondents and other not to a new company but a "new management."27
employees of PTI to hold a series of meetings to discuss The Court also agrees with respondents that if Lubas is
the protection of their interests as employees. PTI indeed an entity separate and independent from PTI
caused the transfer of all union members and why is it that the latter decides which employees shall
sympathizers to one of its sub-companies, Lubas work in the former?
Transport (Lubas); despite such transfer, the schedule of
What is telling is the fact that in a memorandum issued
drivers and conductors, as well as their company
by PTI, dated January 22, 1998, Petitioner Company
identification cards, were issued by PTI; the daily time
admitted that Lubas is one of its sub-companies.28 In
records, tickets and reports of the respondents were
addition, PTI, in its letters to its employees who were
also filed at the PTI office; and, all claims for salaries
transferred to Lubas, referred to the latter as its "New
were transacted at the same office; later, the business
City Operations Bus."29
of Lubas deteriorated because of the refusal of PTI to
maintain and repair the units being used therein, which Moreover, petitioners failed to refute the contention of
resulted in the virtual stoppage of its operations and respondents that despite the latter’s transfer to Lubas
respondents' loss of employment. of their daily time records, reports, daily income
remittances of conductors, schedule of drivers and
The Labor Arbiter ruled that petitioners are not guilty of
conductors were all made, performed, filed and kept at
unfair labor practice in the absence of evidence to show
the office of PTI. In fact, respondents’ identification
that they violated respondents’ right to self-
cards bear the name of PTI.
organization. The Labor Arbiter also held that Lubas is
the respondents’ employer and that it (Lubas) is an It may not be amiss to point out at this juncture that in
entity which is separate, distinct and independent from two separate illegal dismissal cases involving different
PTI. Nonetheless, the Labor Arbiter found that Lubas is groups of employees transferred by PTI to other
guilty of illegally dismissing respondents from their companies, the Labor Arbiter handling the cases found
employment that these companies and PTI are one and the same
entity; thus, making them solidarily liable for the
payment of backwages and other money claims
ISSUE: awarded to the complainants therein.
Whether the court of appeals seriously erred in
declaring that petitioners prince transport, Inc. and Mr.
47. G.R. No. 177493
Renato Claros and Lubas transport are one and the
same corporation and thus, liable in solidum to ERIC GODFREY STANLEY LIVESEY, Petitioner, vs.
respondents. BINSWANGER PHILIPPINES, INC. and KEITH
ELLIOT, Respondent.
RULING:
FACTS:
NO. The Court agrees with the CA that Lubas is a mere
agent, conduit or adjunct of PTI. A settled formulation In December 2001, petitioner Eric Godfrey Stanley
of the doctrine of piercing the corporate veil is that Livesey filed a complaint for illegal dismissal with money
when two business enterprises are owned, conducted claims4against CBB Philippines Strategic Property
and controlled by the same parties, both law and equity Services, Inc. (CBB) and Paul Dwyer. CBB was a domestic
will, when necessary to protect the rights of third corporation engaged in real estate brokerage and
parties, disregard the legal fiction that these two Dwyer was its President.
entities are distinct and treat them as identical or as Livesey alleged that on April 12, 2001, CBB hired him as
one and the same.26 In the present case, it may be true Director and Head of Business Space Development, with
that Lubas is a single proprietorship and not a a monthly salary of US$5,000.00; shareholdings in CBB’s
corporation. However, petitioners’ attempt to isolate offshore parent company; and other benefits. In August
themselves from and hide behind the supposed 2001, he was appointed as Managing Director and his
separate and distinct personality of Lubas so as to evade salary was increased to US$16,000.00 a month.
their liabilities is precisely what the classical doctrine of Allegedly, despite the several deals for CBB he drew up,
piercing the veil of corporate entity seeks to prevent CBB failed to pay him a significant portion of his salary.
and remedy. For this reason, he was compelled to resign on
Thus, the Court agrees with the observations of the CA, December 18, 2001. He claimed CBB owed him
to wit: US$23,000.00 in unpaid salaries.
Thereafter, the parties entered into a compromise separate corporate personality of a corporation is
agreement7 which LA Reyno approved in an order dated abused or used for wrongful purposes.44 Under the
November 6, 2002.8 Under the agreement, Livesey was doctrine, the corporate existence may be disregarded
to receive US$31,000.00 in full satisfaction of LA where the entity is formed or used for non-legitimate
Reyno’s decision, broken down into US$13,000.00 to be purposes, such as to evade a just and due obligation, or
paid by CBB to Livesey or his authorized representative to justify a wrong, to shield or perpetrate fraud or to
upon the signing of the agreement; US$9,000.00 on or carry out similar or inequitable considerations, other
before June 30, 2003; and US$9,000.00 on or before unjustifiable aims or intentions,45 in which case, the
September 30, 2003. Further, the agreement provided fiction will be disregarded and the individuals
that unless and until the agreement is fully satisfied, composing it and the two corporations will be treated
CBB shall not: (1) sell, alienate, or otherwise dispose of as identical.46
all or substantially all of its assets or business; (2) In the present case, we see an indubitable link between
suspend, discontinue, or cease its entire, or a CBB’s closure and Binswanger’s incorporation. CBB
substantial portion of its business operations; (3) ceased to exist only in name; it re-emerged in the
substantially change the nature of its business; and (4) person of Binswanger for an urgent purpose
declare bankruptcy or insolvency. Livesey then filed a
— to avoid payment by CBB of the last two installments
motion for the issuance of an alias writ of
of its monetary obligation to Livesey, as well as its other
execution,10 alleging that in the process of serving
financial liabilities. Freed of CBB’s liabilities, especially
respondents the writ, he learned "that respondents, in a
that owing to Livesey, Binswanger can continue, as it did
clear and willful attempt to avoid their liabilities to
continue, CBB’s real estate brokerage business.
complainant x x x have organized another corporation,
[Binswanger] Philippines, Inc."11 He claimed that there Livesey’s evidence, whose existence the respondents
was evidence showing that CBB and Binswanger never denied, converged to show this continuity of
Philippines, Inc. (Binswanger) are one and the same business operations from CBB to Binswanger.1âwphi1 It
corporation, pointing out that CBB stands for was not just coincidence that Binswanger is engaged in
Chesterton Blumenauer Binswanger.12 Invoking the the same line of business CBB embarked on: (1) it even
doctrine of piercing the veil of corporate fiction, Livesey holds office in the very same building and on the very
prayed that an alias writ of execution be issued against same floor where CBB once stood; (2) CBB’s key
respondents Binswanger and Keith Elliot, CBB’s former officers, Elliot, no less, and Catral moved over to
President, and now Binswanger’s President and Chief Binswanger, performing the tasks they were doing at
Executive Officer (CEO). CBB; (3) notwithstanding CBB’s closure, Binswanger’s
Web Editor (Young), in an e-mail correspondence,
Livesey filed an appeal which the National Labor
supplied the information that Binswanger is "now
Relations Commission (NLRC) granted in its
known" as either CBB (Chesterton Blumenauer
decision14 dated September 7, 2005. It reversed LA
Binswanger or as Chesterton Petty, Ltd., in the
Laderas’ March 22, 2004 order and declared the
Philippines; (4) the use of Binswanger of CBB’s
respondents jointly and severally liable with CBB for LA
paraphernalia (receiving stamp) in connection with a
Reyno’s decision15 of September 20, 2002 in favor of
labor case where Binswanger was summoned by the
Livesey.
authorities, although Elliot claimed that he bought the
CA disagreed with the NLRC finding that the item with his own money; and (5) Binswanger’s
respondents are jointly and severally liable with CBB in takeover of CBB’s project with the PNB.
the case.
While the ostensible reason for Binswanger’s
establishment is to continue CBB’s business operations
ISSUE: in the Philippines, which by itself is not illegal, the close
Whether the CA erred in not applying the doctrine of proximity between CBB’s disestablishment and
piercing the veil of corporate fiction to the case. Binswanger’s coming into existence points to an
unstated but urgent consideration which, as we earlier
noted, was to evade CBB’s unfulfilled financial
RULING: obligation to Livesey under the compromise
YES. It has long been settled that the law vests a agreement.47
corporation with a personality distinct and separate This underhanded objective, it must be stressed, can
from its stockholders or members. In the same vein, a only be attributed to Elliot as it was apparent that
corporation, by legal fiction and convenience, is an Binswanger’s stockholders had nothing to do with
entity shielded by a protective mantle and imbued by Binswanger’s operations as noted by the NLRC and
law with a character alien to the persons comprising which the respondents did not deny.48 Elliot was well
it.43 Nonetheless, the shield is not at all times aware of the compromise agreement between Livesey
impenetrable and cannot be extended to a point and CBB, as he "agreed and accepted" the terms of the
beyond its reason and policy. Circumstances might deny agreement49 for CBB. He was also well aware that the
a claim for corporate personality, under the "doctrine of last two installments of CBB’s obligation to Livesey were
piercing the veil of corporate fiction." due on June 30, 2003 and September 30, 2003. These
Piercing the veil of corporate fiction is an equitable installments were not met and the reason is that after
doctrine developed to address situations where the the alleged sale of the majority of CBB’s shares of stock,
it closed down.
her husband, Alfredo, were the owners of BET14 and

48. G.R. No. 142435 April 30, 2003 were two of the incorporators and majority
stockholders of BEC.15 It is also undisputed that Estelita
ESTELITA BURGOS LIPAT and ALFREDO
Lipat executed a special power of attorney in favor of
LIPAT, petitioners,
her daughter, Teresita, to obtain loans and credit lines
vs.
from Pacific Bank on her behalf.16 Incidentally, Teresita
PACIFIC BANKING CORPORATION, REGISTER OF DEEDS,
was designated as executive-vice president and general
RTC EX-OFFICIO SHERIFF OF QUEZON CITY and the
manager of both BET and BEC, respectively.17 We note
Heirs of EUGENIO D. TRINIDAD, respondents.
further that: (1) Estelita and Alfredo Lipat are the
owners and majority shareholders of BET and BEC,
FACTS: respectively;18 (2) both firms were managed by their
Petitioners, the spouses Alfredo Lipat and Estelita daughter, Teresita;19 (3) both firms were engaged in the
Burgos Lipat, owned "Bela's Export Trading" (BET), a garment business, supplying products to "Mystical
single proprietorship with principal office at No. 814 Fashion," a U.S. firm established by Estelita Lipat; (4)
Aurora Boulevard, Cubao, Quezon City. BET was both firms held office in the same building owned by
engaged in the manufacture of garments for domestic the Lipats;20 (5) BEC is a family corporation with the
and foreign consumption. The Lipats also owned the Lipats as its majority stockholders; (6) the business
"Mystical Fashions" in the United States, which sells operations of the BEC were so merged with those of
goods imported from the Philippines through BET. Mrs. Mrs. Lipat such that they were practically
Lipat designated her daughter, Teresita B. Lipat, to indistinguishable; (7) the corporate funds were held by
manage BET in the Philippines while she was managing Estelita Lipat and the corporation itself had no visible
"Mystical Fashions" in the United States. assets; (8) the board of directors of BEC was composed
of the Burgos and Lipat family members;21 (9) Estelita
In order to facilitate the convenient operation of BET, had full control over the activities of and decided
Estelita Lipat executed on December 14, 1978, a special business matters of the corporation;22 and that (10)
power of attorney appointing Teresita Lipat as her Estelita Lipat had benefited from the loans secured from
attorney-in-fact to obtain loans and other credit Pacific Bank to finance her business abroad23 and from
accommodations from respondent Pacific Banking the export bills secured by BEC for the account of
Corporation (Pacific Bank). She likewise authorized "Mystical Fashion."24 It could not have been
Teresita to execute mortgage contracts on properties coincidental that BET and BEC are so intertwined with
owned or co-owned by her as security for the each other in terms of ownership, business purpose,
obligations to be extended by Pacific Bank including any and management. Apparently, BET and BEC are one and
extension or renewal thereof. the same and the latter is a conduit of and merely
On September 5, 1979, BET was incorporated into a succeeded the former. Petitioners' attempt to isolate
family corporation named Bela's Export Corporation themselves from and hide behind the corporate
(BEC) in order to facilitate the management of the personality of BEC so as to evade their liabilities to
business. BEC was engaged in the business of Pacific Bank is precisely what the classical doctrine of
manufacturing and exportation of all kinds of garments piercing the veil of corporate entity seeks to prevent
of whatever kind and description5 and utilized the same and remedy. In our view, BEC is a mere continuation
machineries and equipment previously used by BET. Its and successor of BET, and petitioners cannot evade
incorporators and directors included the Lipat spouses their obligations in the mortgage contract secured
who owned a combined 300 shares out of the 420 under the name of BEC on the pretext that it was signed
shares subscribed, Teresita Lipat who owned 20 shares, for the benefit and under the name of BET. We are thus
and other close relatives and friends of the constrained to rule that the Court of Appeals did not err
Lipats.6 Estelita Lipat was named president of BEC, while when it applied the instrumentality doctrine in piercing
Teresita became the vice-president and general the corporate veil of BEC.
manager. On the second issue, petitioners contend that their
The promissory notes, export bills, and trust receipt mortgaged property should not be made liable for the
eventually became due and demandable. subsequent credit lines and loans incurred by BEC
Unfortunately, BEC defaulted in its payments. because, first, it was not covered by the mortgage
contract of BET which only covered the loan of
P583,854.00 and which allegedly had already been paid;
ISSUE:
and, second, it was secured by Teresita Lipat without
Whether the lower court erred in holding that the any authorization or board resolution of BEC.
doctrine of piercing the veil of corporate fiction applies
in this case.
49. R&E Transport, Inc. & Honorio Enriquez vs. Avelina
Latag, G.R. No. 155214, February 13, 2004
RULING:
NO. The Court finds that the evidence on record Facts: Pedro Latag was a regular employee of La
demolishes, rather than buttresses, petitioners' Mallorca Taxi since March 1, 1961. When La Mallorca
contention that BET and BEC are separate business ceased from business operations, Latag transferred to R
entities. Note that Estelita Lipat admitted that she and
& E Transport, Inc. He was receiving an average daily
salary of five hundred pesos (P500.00) as a taxi driver. was misused to such an extent that injustice, fraud, or
Latag got sick in January 1995 and was forced to apply crime was committed against another, in disregard of its
for partial disability with the SSS, which was granted. rights. The wrongdoing must be clearly and convincingly
When he recovered, he reported for work in September established; it cannot be presumed. Otherwise, an
1998 but was no longer allowed to continue working on injustice that was never unintended may result from an
account of his old age. Latag thus asked Felix Fabros, erroneous application.
the administrative officer of [petitioners], for his
retirement pay pursuant to Republic Act 7641 but he xxxxxxxxx
was ignored. The question of whether a corporation is a mere alter
Thus, on December 21, 1998, Latag filed a case for ego is one of fact. Piercing the veil of corporate fiction
payment of his retirement pay before the NLRC. Latag may be allowed only if the following elements concur:
however died on April 30, 1999. Subsequently, his wife, (1) control -- not mere stock control, but complete
domination -- not only of finances, but of policy and
Avelina Latag, substituted him. On January 10, 2000, the
business practice in respect to the transaction attacked,
Labor Arbiter rendered a decision in favor of Latag.
must have been such that the corporate entity as to this
Petitioners do not dispute the fact that the late Pedro transaction had at the time no separate mind, will or
M. Latag is entitled to retirement benefits. Rather, the existence of its own; (2) such control must have been
bone of contention is the number of years that he used by the defendant to commit a fraud or a wrong to
should be credited with in computing those benefits. On perpetuate the violation of a statutory or other positive
the one hand, we have the findings of the labor legal duty, or a dishonest and an unjust act in
arbiter, which the CA affirmed. According to those contravention of plaintiffs legal right; and (3) the said
findings, the 23 years of employment of Pedro with La control and breach of duty must have proximately
Mallorca Taxi must be added to his 14 years with R & E caused the injury or unjust loss complained of.
Transport, Inc., for a total of 37 years.
Respondent has not shown by competent evidence that
On the other, we also have the findings of the NLRC that one taxi company had stock control and complete
Pedro must be credited only with his service to R & E domination over the other or vice versa. In fact, no
Transport, Inc., because the evidence shows that the evidence was presented to show the alleged renaming
aforementioned companies are two different entities. of La Mallorca Taxi to R & E Transport, Inc. The seven-
year gap between the time the former closed shop and
Issue: Whether Pedro must be credited only with his the date when the latter came into being also casts
service to R & E Transport, Inc. doubt on any alleged intention of petitioners to commit
Ruling: Yes. After a careful and painstaking review of a wrong or to violate a statutory duty. This lacuna in the
the evidence on record, we support the NLRCs findings. evidence compels us to reverse the Decision of the CA
The labor arbiters conclusion -- that Mallorca Taxi and R affirming the labor arbiters finding of fact that the basis
& E Transport, Inc., are one and the same entity -- is for computing Pedros retirement pay should be 37
negated by the documentary evidence presented by years, instead of only 14 years.
petitioners. Their evidence sufficiently shows the 50. Heirs of Durano Sr. vs Spouses Uy
following facts: 1) R & E Transport, Inc., was established 344 SCRA 238 [GR No. 136456 October 24, 2000]
only in 1978; 2) Honorio Enriquez, its president, was not
a stockholder of La Mallorca Taxi; and 3) none of the Facts: As far back as August 1970, a 128 hectare of land
stockholders of the latter company hold stocks in the located in the barrios of Dunga and Cahumayhumayan,
former. Danao City. On December 27, 1973, the late
Congressman Ramon Durano Sr. together with his son
Furthermore, basic is the rule that the corporate veil Ramon Durano III, and the latter’s wide Elizabeth
may be pierced only if it becomes a shield for fraud, Hotchkins-Durano, instituted an action for damages
illegality or inequity committed against a third against spouses Angeles Sepulveda Uy et al. before
person.We have thus cautioned against the inordinate branch XVII of the then Court of First Instance of Cebu,
application of this doctrine. In Philippine National Bank
Danao City.. Herein respondents are the possessors of
v. Andrada Electric & Engineering Company,[25] we said: the subject parcel of land which they are cultivating, it
x x x [A]ny application of the doctrine of piercing the was used to be owned by CEPCO who later sold the
corporate veil should be done with caution. A court same to Durano & Co. On September 15, 1990, Durano
should be mindful of the milieu where it is to be & Co sold the disputed property to petitioner Ramon
applied. It must be certain that the corporate fiction Durano III, who procured the registration of these lands
in his name under TCT no. T-103 and T-104. The
different parts of the entire land was bulldozed by the instrumentality to appropriate the disputed property for
petitioner’s company resulting to the destruction of themselves.
plants and other products that were placed by the
respondents. Hence, a claim for damages was lodged 51. Pamplona Plantation vs Tinghil
against herein petitioner. The respondents presented G.R. No. 159121. February 3, 2005
tax declaration covering the different areas of the
parcel of land that is titled in each of them as proof that Employer-Employee Relation
they are entitled for the said damages.
Prefatory Statement:
Issue: Whether or not the doctrine of piercing the veil
To protect the rights of labor, two corporations with
of corporate entity can be applied in order to make
identical directors, management, office and payroll
Durano & Co liable for damages.
should be treated as one entity only. A suit by the
Held: Yes. The court of appeals applied the well- employees against one corporation should be deemed
recognized principle of piercing the corporate veil, i.e. as a suit against the other. Also, the rights and claims of
the law will regard the act of the corporation as the act workers should not be prejudiced by the acts of the
of its individual stockholders, when it is shown that the employer that tend to confuse them about its corporate
corporation was used merely as an alter ego by those identity. The corporate fiction must yield to truth and
persons in the commission of fraud or other illegal acts. justice.
That the test in determining the applicability of the Facts:

doctrine of piercing the veil of corporate fiction is as
Sometime in 1993, [Petitioner] Pamplona Plantations
follows:
Company, Inc. (company for brevity) was organized for
1. Control, not mere majority or complete stock the purpose of taking over the operations of the
control, but complete domination, not only of coconut and sugar plantation of Hacienda Pamplona
finances but of policy and business practice in located in Pamplona, Negros Oriental. It appears that
respect to the transaction attacked so that the Hacienda Pamplona was formerly owned by a certain
corporate entity as to this transaction had at Mr. Bower who had in his employ several agricultural
the time no separate mind, will or existence of workers.
its own.
When the company took over the operation of
2. Such control must, have been used by the Hacienda Pamplona in 1993, it did not absorb all the
defendant to commit fraud or wrong, to workers of Hacienda Pamplona. Some, however, were
perpetrate the violation of statutory or other hired by the company during harvest season as coconut
positive legal duty, on dishonest and unjust acts hookers or sakador, coconut filers, coconut haulers,
in contravention of plaintiff’s legal right; and coconut scoopers or lugiteros, and charcoal makers.
3. The aforesaid control and breach of duty must Sometime in 1995, Pamplona Plantation Leisure
proximately cause the injury or unjust loss Corporation was established for the purpose of
complained of. engaging in the business of operating tourist resorts,
hotels, and inns, with complementary facilities, such as
The absence of any one of these elements prevents the restaurants, bars, boutiques, service shops,
piercing the corporate veil. In applying the entertainment, golf courses, tennis courts, and other
instrumentality or alter ego doctrine, the courts are land and aquatic sports and leisure facilities.
concerned with reality not form, with how the
corporation operated and the individual defendants On 15 December 1996, the Pamplona Plantation Labor
relationship to that operation. Independent Union (PAPLIU) conducted an
organizational meeting wherein several [respondents]
The question of whether a corporation is a mere alter who are either union members or officers participated
ego is purely one of fact. The Court sees no reason to in said meeting.
reverse the finding of the Court of Appeals. In this case,
the facts show that shortly after the purported sale by Upon learning that some of the [respondents] attended
Cepco to Durano & Co., the latter sold the property to the said meeting, [Petitioner] Jose Luis Bondoc,
petitioner Ramon Durano III, who immediately procured manager of the company, did not allow [respondents]
the registration of the property in his name. Obviously, to work anymore in the plantation.
Durano & Co. was used by petitioners merely as an
Thereafter, on various dates, [respondents] filed their that distinguishes one corporation from a seemingly
respective complaints with the NLRC, Sub-Regional separate one.[23] The corporate mask may be removed
Arbitration Branch No. VII, Dumaguete City against and the corporate veil pierced when a corporation is the
[petitioners] for unfair labor practice, illegal dismissal, mere alter ego of another.[24] Where badges of fraud
underpayment, overtime pay, premium pay for rest day exist, where public convenience is defeated, where a
and holidays, service incentive leave pay, damages, wrong is sought to be justified thereby, or where a
attorneys fees and 13th month pay. separate corporate identity is used to evade financial
obligations to employees or to third parties,[25] the
On 09 October 1997, [respondent] Carlito Tinghil notion of separate legal entity should be set
amended his complaint to implead Pamplona Plantation aside[26] and the factual truth upheld. When that
Leisure Corporation. happens, the corporate character is not necessarily
Petitioners contend that the CA should have dismissed abrogated.[27] It continues for other legitimate
the case for the failure of respondents (except Carlito objectives. However, it may be pierced in any of the
Tinghil) to implead the Pamplona Plantation Leisure instances cited in order to promote substantial justice.
Corporation, an indispensable party, for being the true In the present case, the corporations have basically the
and real employer. Allegedly, respondents admitted in same incorporators and directors and are headed by the
their Affidavits dated February 3, 1998,[19] that they had same official. Both use only one office and one payroll
been employed by the leisure corporation and/or and are under one management. In their individual
engaged to perform activities that pertained to its Affidavits, respondents allege that they worked under
business. the supervision and control of Petitioner Bondoc -- the
Further, as the NLRC allegedly noted in their individual common managing director of both the petitioner-
Complaints, respondents specifically averred that they company and the leisure corporation. Some of the
had worked in the golf course and performed related laborers of the plantation also work in the golf
jobs in the recreational facilities of the leisure course.[28] Thus, the attempt to make the two
corporation. Hence, petitioners claim that, as a sugar corporations appear as two separate entities, insofar as
and coconut plantation company separate and distinct the workers are concerned, should be viewed as a
from the Pamplona Plantation Leisure Corporation, the devious but obvious means to defeat the ends of the
petitioner-company is not the real party in interest. law. Such a ploy should not be permitted to cloud the
truth and perpetrate an injustice.
ISSUE: there is only one management which the
laborers deal with regarding their work. We note that this defense of separate corporate
identity was not raised during the proceedings before
Ruling: YES. An examination of the facts reveals that, for the labor arbiter. The main argument therein raised by
both the coconut plantation and the golf course, there petitioners was their alleged lack of employer-employee
is only one management which the laborers deal with relationship with, and power of control over, the means
regarding their work.[20] A portion of the plantation (also and methods of work of respondents because of the
called Hacienda Pamplona) had actually been converted seasonal nature of the latters work.[29]
into a golf course and other recreational facilities. The
weekly payrolls issued by petitioner-company bore the Neither was the issue of non-joinder of indispensable
name Pamplona Plantation Co., Inc.[21] It is also a fact parties raised in petitioners appeal before the
that respondents all received their pay from the same NLRC.[30] Nevertheless, in its Decision[31] dated July 19,
person, Petitioner Bondoc -- the managing director of 2000, the Commission concluded that the plantation
the company. Since the workers were working for a firm company and the leisure corporation were two separate
known as Pamplona Plantation Co., Inc., the reason they and distinct corporations, and that the latter was an
sued their employer through that name was natural and indispensable party that should have been impleaded.
understandable. Indeed, it was only after this NLRC Decision was issued
True, the Petitioner Pamplona Plantation Co., Inc., and that the petitioners harped on the separate personality
the Pamplona Plantation Leisure Corporation appear to of the Pamplona Plantation Co., Inc., vis--vis the
be separate corporate entities. But it is settled that this Pamplona Plantation Leisure Corporation.
fiction of law cannot be invoked to further an end The NLRC dismissed the Complaints because of the
subversive of justice.[22] alleged admission of respondents in their Affidavits that
The principle requiring the piercing of the corporate veil they had been working at the golf course. However, it
mandates courts to see through the protective shroud failed to appreciate the rest of their averments. Just
because they worked at the golf course did not
necessarily mean that they were not employed to do contention that BET and BEC are separate business
other tasks, especially since the golf course was merely entities. Note that Estelita Lipat admitted that she and
a portion of the coconut plantation. Even petitioners her husband, Alfredo, were the owners of BET and were
admitted that respondents had been hired as coconut two of the incorporators and majority stockholders of
filers, coconut scoopers or charcoal makers. BEC. It is also undisputed that Estelita Lipat executed a
Consequently, NLRCs conclusion derived from the special power of attorney in favor of her daughter,
Affidavits of respondents stating that they were Teresita, to obtain loans and credit lines from Pacific
employees of the Pamplona Plantation Leisure Bank on her behalf. Incidentally, Teresita was
Corporation alone was the result of an improper designated as executive-vice president and general
selective appreciation of the entire evidence. manager of both BET and BEC, respectively.
Furthermore, we note that, contrary to the NLRCs It could not have been coincidental that BET and BEC
findings, some respondents indicated that their are so intertwined with each other in terms of
employer was the Pamplona Plantation Leisure ownership, business purpose, and management.
Corporation, while others said that it was the Pamplona Apparently, BET and BEC are one and the same and the
Plantation Co., Inc. But in all these Affidavits, both the latter is a conduit of and merely succeeded the former.
leisure corporation and petitioner-company were Petitioners’ attempt to isolate themselves from and
identified or described as entities engaged in the hide behind the corporate personality of BEC so as to
development and operation of sugar and coconut evade their liabilities to Pacific Bank is precisely what
plantations, as well as recreational facilities such as a the classical doctrine of piercing the veil of corporate
golf course. These allegations reveal that petitioner entity seeks to prevent and remedy.
successfully confused the workers as to who their true
and real employer was. All things considered, their The court ruled that BEC is a mere continuation and
faulty belief that the plantation company and the successor of BET and petitioners cannot evade their
leisure corporation were one and the same can be obligations in the mortgage contract secured under the
attributed solely to petitioners. It would certainly be name of BEC on the pretext that it was signed for the
unjust to prejudice the claims of the workers because of benefit and under the name of BET. We are thus
the misleading actions of their employer. constrained to rule that the Court of Appeals did not err
when it applied the instrumentality doctrine in piercing
52. SPS. LIPAT V. PACIFIC BANKING CORPORATION the corporate veil of BEC.
(G.R. NO. 142435)
53. De Leon v NLRC, 358 SCRA 275
Facts: Petitioner spouses Lipat owned Bela’s Export
Trading (BET) a single proprietorship engaged in the Facts: On August 23, 1980, Fortune Tobacco
Corporation (FTC) and Fortune Integrated Services, Inc.
manufacture of garments for domestic and foreign
(FISI) entered into a contract for security services where
consumption. The spouses by virtue of an SPA the latter undertook to provide security guards for the
appointed and authorized their daughter to obtain loan protection and security of the former. The petitioners
from respondent Pacific Bank. A loan was secured and were among those engaged as security guards pursuant
as security therefore a REM was executed over the to the contract.
property of the spouses. Sometime after, BET was On February 1, 1991, the incorporators and
incorporated into a family corporation named Bela’s stockholders of FISI sold out lock, stock and barrel to a
Export Corporation (BEC) and the loan was restructured group of new stockholders by executing for the purpose
in its name. Subsequent loans were obtained in behalf a "Deed of Sale of Shares of Stock". On the same date,
of BEC all secured by the previous REM. BEC defaulted the Articles of Incorporation of FISI was amended
changing its corporate name to Magnum Integrated
in its payments which led to the foreclosure and sale of
Services, Inc. (MISI). A new by-laws was likewise
the mortgaged property. The spouses moved to annul adopted and approved by the Securities and Exchange
the sale alleging that BEC is a distinct and separate Commission on June 4, 1993.
personality from them and that the REM was executed
On October 15, 1991, FTC terminated the contract for
only to secure BET’s loan. Both trial court and CA ruled
security services which resulted in the displacement of
to pierce the corporate veil to hold petitioner spouses some five hundred eighty two (582) security guards
liable for BEC’s obligations. assigned by FISI/MISI to FTC, including the petitioners in
this case. FTC engaged the services of two (2) other
Issue: Whether or not the doctrine of piercing the veil security agencies, Asian Security Agency and Ligalig
of corporate fiction is applicable in this case. Security Services, whose security guards were posted on
October 15, 1991 to replace FISI's security guards.
Ruling: YES. We find that the evidence on record
demolishes, rather than buttresses, petitioners’
Sometime in October 1991, the Fortune Tobacco intended to bust their union.Consequently, the Labor
Labor Union, an affiliate of the National Federation of Arbiter ordered respondents to pay petitioners their
Labor Unions (NAFLU), and claiming to be the backwages and separation pay, to refund their cash
bargaining agent of the security guards, sent a Notice of bond deposit, and to pay attorney's fees.
Strike to FISI/MISI. On November 14, 1991, the
On appeal, the NLRC reversed and set aside the
members of the union which include petitioners
decision of the Labor Arbiter. First, it held that the Labor
picketed the premises of FTC. The Regional Trial Court
Arbiter erred in applying the "single employer" principle
of Pasig, however, issued a writ of injunction to enjoin
and concluding that there was an employer-employee
the picket.
relationship between FTC and FISI on one hand, and
On November 29, 1991, Simeon de Leon, together with petitioners on the other hand. It found that at the time
sixteen (16) other complainants instituted the instant of the termination of the contract of security services
case before the Arbitration Branch of the NLRC. The on October 15, 1991, FISI which, at that time, had been
complaint was later amended to allow the inclusion of renamed Magnum Integrated Services, Inc. had a
other complainants. different set of stockholders and officers from that of
FTC. They also had separate offices. The NLRC held that
Petitioners alleged that they were regular employees of
the principle of "single employer" and the doctrine of
FTC which was also using the corporate names Fortune
piercing the corporate veil could not apply under the
Integrated Services, Inc. and Magnum Integrated
circumstances. It further ruled that the proximate cause
Services, Inc. They were assigned to work as security
for the displacement of petitioners was the termination
guards at the company's main factory plant, its tobacco
of the contract for security services by FTC on October
redrying plant and warehouse. They averred that they
15, 1991.
performed their duties under the control and
supervision of FTC's security supervisors. Their services, ISSUE: Whether the Labor Arbiter correctly applied the
however, were severed in October 1991 without valid doctrine of piercing the corporate veil
cause and without due process. Petitioners claimed that
their dismissal was part of respondents' design to bust Ruling: Yes. The Supreme Court is not persuaded by the
their newly-organized union which sought to enforce argument of respondent FTC denying the presence of an
their rights under the Labor Standards law.[1] employer-employee relationship. It ruled that the Labor
Respondent FTC, on the other hand, maintained Arbiter correctly applied the doctrine of piercing the
that there was no employer-employee relationship corporate veil to hold all respondents liable for unfair
between FTC and petitioners. It said that at the time of labor practice and illegal termination of petitioners'
the termination of their services, petitioners were the employment. It is a fundamental principle in
employees of MISI which was a separate and distinct
corporation law that a corporation is an entity separate
corporation from FTC.Hence, petitioners had no cause
of action against FTC.[2] and distinct from its stockholders and from other
corporations to which it is connected. However, when
Respondent FISI, meanwhile, denied the charge of
the concept of separate legal entity is used to defeat
illegal dismissal and unfair labor practice. It argued that
petitioners were not dismissed from service but were public convenience, justify wrong, protect fraud or
merely placed on floating status pending re-assignment defend crime, the law will regard the corporation as an
to other posts. It alleged that the temporary association of persons, or in case of two corporations,
displacement of petitioners was not due to its fault but merge them into one. The separate juridical personality
was the result of the pretermination by FTC of the of a corporation may also be disregarded when such
contract for security services. corporation is a mere alter ego or business conduit of
The Labor Arbiter found respondents liable for the another person.[12] In the case at bar, it was shown that
charges. Rejecting FTC's argument that there was no FISI was a mere adjunct of FTC. FISI, by virtue of a
employer-employee relationship between FTC and contract for security services, provided FTC with
petitioners, he ruled that FISI and FTC should be
security guards to safeguard its premises. However,
considered as a single employer. He observed that the
two corporations have common stockholders and they records show that FISI and FTC have the same owners
share the same business address. In addition, FISI had and business address, and FISI provided security
no client other than FTC and other corporations services only to FTC and other companies belonging to
belonging to the group of companies owned by Lucio the Lucio Tan group of companies. The purported sale
Tan. The Labor Arbiter thus found respondents guilty of of the shares of the former stockholders to a new set of
union busting and illegal dismissal. He observed that not stockholders who changed the name of the corporation
long after the stockholders of FISI sold all their stocks to
to Magnum Integrated Services, Inc. appears to be part
a new set of stockholders, FTC terminated the contract
of security services and engaged the services of two of a scheme to terminate the services of FISI's security
other security agencies. FTC did not give any reason for guards posted at the premises of FTC and bust their
the termination of the contract. The Labor Arbiter gave newly-organized union which was then beginning to
credence to petitioners' theory that respondents' become active in demanding the company's compliance
precipitate termination of their employment was with Labor Standards laws. Under these circumstances,
the Court cannot allow FTC to use its separate corporate and Emmanuel Ocampo filed a complaint with the SEC
personality to shield itself from liability for illegal acts against Roberto Roxas, TTTDC President, and Eduardo
committed against its employees. Santos, Rovels President allegeing that there was no
meeting of the TTTDCs Board of Directors on December
Thus, we find that the termination of petitioners' 29, 1975; that they did not authorize the transfer of
services was without basis and therefore illegal. Under TTTDCs shares of stock to Rovels; that they never signed
Article 279 of the Labor Code, an employee who is the alleged minutes of the meeting; and that the
unjustly dismissed from work is entitled to signatures of the other two (2) Directors, Victoriano
reinstatement without loss of seniority rights and other Leviste and Bienvenido Cruz, Jr., as well as that of
privileges, and to his full backwages, inclusive of TTTDCs Secretary Francisco Carreon, Jr., were obtained
allowances, and to his other benefits or their monetary through fraud and misrepresentation. They also alleged
equivalent computed from the time his compensation that the TTTDC Board Resolution dated December 29,
was witheld from him up to the time of his actual 1975 was repealed by the March 1, 1976 Resolution.
reinstatement. However, if reinstatement is no longer They thus prayed that the transfer of TTTDCs shares of
possible, the employer has the alternative of paying the stock to Rovels pursuant to Resolution dated December
employee his separation pay in lieu of reinstatement.[13] 29, 1975 be annulled.
54. ROVELS ENTERPRISE, Inc. vs OCAMPO 391 SCRA Commission finds and so holds that the purported
176, October 17,2002 board resolution of December 29, 1975, not having
FACTS: Rovels is a domestic corporation engaged in been properly passed upon at a duly constituted board
construction work wherein Tagaytay Taal Tourist meeting, cannot be recognized as valid and hence,
Development Corporation (TTTDC) was among its client. without legal force and effect. Consequently, the
issuance of shares of stock to corporate creditors of the
In payment for the services rendered by Rovels, the Tagaytay Taal Tourist Development Corporation is null
Board of Directors of TTTDC passed a Resolution on and void.
December 29, 1975 providing as follows:
Subsequently, TTTDC, Jose Silva, Emmanuel Ocampo,
RESOLVED, as it is hereby resolved that payment for et. al., and another stockholder of TTTDC, (the SILVA
professional fees and services rendered by x x x Rovels GROUP, now respondents), filed with the SEC a petition
Enterprises x x x be made in cash if funds are available, against the SANTOS GROUP who were nominees of
or its equivalent number of shares of stock of the Rovels by virtue of the shares of stock issued pursuant
corporation at par value, and should said creditors elect to the December 29, 1975 Resolution, proceeded to act
the latter mode of payment, it is further resolved that as directors and officers of TTTDC. In their petition, the
the President and/or his Secretary be authorized as they SILVA GROUP prayed that they be declared the true and
are hereby authorized, to issue the corresponding lawful stockholders and incumbent directors and
unissued shares of stock of the corporation. officers of TTTDC.
Resolution was signed by three of TTTDCs directors, but SEC Hearing Officer rendered a Decision in favor of the
the signatures of the other two (2) TTTDC directors Jose SILVA GROUP and the decision became final and
Silva, Jr. and Emmanuel Ocampo do not appear in the executory as no appeal was interposed by either the
subject Resolution despite their presence in the SILVA GROUP or the SANTOS GROUP.
December 29, 1975 Board meeting.
However, Rovels, to whom the TTTDC shares of stock
On March 1, 1976, the TTTDC Board of Directors passed (worth P108,000.00) were transferred, claimed that it
another Resolution repealing its Resolution of be declared the majority stockholder of TTTDC as
December 29, 1975, thus: against SILVA GROUP.
RESOLVED, as it is hereby resolved, that the Resolution ISSUE: Whether or not ROVELS (corporation) can be
of December 29, 1975 authorizing the payment of bound by the decision of SEC and the court represented
creditors with unissued shares of the corporation be as it by its corporate officers?
is hereby repealed: Resolved further that the matter as
well as the amount of the creditors claims be given RULING: YES. The petition shows that Rovels prayer to
adequate study and consideration by the Board. be declared the majority stockholder of TTTDC is
anchored on the December 29, 1975 TTTDC Board
In view of the December 29, 1975 TTTDC Board Resolution transferring its shares of stock to Rovels as
Resolution transferring to Rovels the said shares of construction fee. This Resolution could have vested in
stock as construction fee, TTTDC Directors Jose Silva, Jr. Rovels a right to be declared a stockholder of TTTDC.
However, the same petition concedes that the corporate fiction may be disregarded when necessary in
December 29, 1975 Resolution was repealed by the the interest of justice.
March 1, 1976 Resolution. The petition likewise alleges
that there were prior interrelated cases filed with the 55. Mendoza v. Banco Real Development Bank, 470
SEC between the SILVA and SANTOS GROUPS, namely: SCRA 86 September 16, 2005
(1) SEC Case No. 1322 (wherein the SEC en banc in its Facts: The petition alleges that on August 7, 1985, the
Decision dated September 2, 1982 nullified the TTTDC Board of Directors of Technical Video, Inc. (TVI) passed a
Board Resolution dated December 29, 1975, which Resolution authorizing its President, Eduardo A. Yotoko,
Decision was affirmed with finality by this Court in G.R. petitioner, or its General Manager-Secretary-Treasurer,
No. 61863) and (2) SEC Case No. 3806 (wherein the SEC Manuel M. Mendoza, also a petitioner, to apply for and
declared the SILVA GROUP as the legitimate secure a loan from the Pasay City Banco Real
Development Bank (now LBC Development Bank),
stockholders of TTTDC, not Rovels nominees [the
herein respondent.
SANTOS GROUP]).
On September 11, 1985, respondent bank extended a
Clearly, on the face of its petition, Rovels cannot claim loan of P500,000.00 to TVI. In his capacity as General
to be the majority stockholder of TTTDC. Manager, petitioner Mendoza executed a promissory
note and chattel mortgage over 195 units of Beta video
Relative to the second assigned error, Rovels contends machines and their equipment and accessories
that it is not bound by the SEC Decision in SEC Case Nos. belonging to TVI in favor of respondent bank.
1322 and 3806 and in G.R. No. 61863 as it was never a On October 3, 1986, TVI and two other video firms, Fox
party in any of these cases. Video and Galactica Video, organized a new corporation
named FGT Video Network Inc. (FGT). It was registered
Contrary to its claim, Rovels is bound by the previous with the Securities and Exchange
[3]
SEC Decisions. It must be noted that Eduardo Santos, Commission. Petitioner Mendoza was the concurrent
President of Rovels, was one of the respondents in both President of FGT and Operating General Manager of
SEC Case Nos. 1322 and 3806. Clearly, Rovels and TVI. Thus, the office of TVI had to be transferred to the
building of FGT for easier monitoring of the distribution
Eduardo Santos, being its President, share an identity of
and marketing aspects of the business.
interests sufficient to make them privies-in-law, as
correctly found by the Court of Appeals in its assailed For TVIs failure to pay its loan upon maturity,
respondent bank, on January 26, 1987, filed with the
Decision.
Office of the Clerk of Court of the Regional Trial Court
In the case at bench, there can be no question that the (RTC), Pasay City, a petition for Extra Judicial
Foreclosure and Sale of Chattel Mortgage.
rights claimed by petitioner and its
stockholders/directors/officers who were parties in However, the Sheriffs Report/Return[4] dated January
SEC Case Nos. 1322 and 3806 are identical in that they 27, 1987 shows that TVI is no longer doing business at
are both based on the December 29, 1975 Resolution. its given address; that its General Manager, Mr. Manuel
M. Mendoza, is presently employed at FGT Video
Stated differently, they shared an identity of interest
Network with offices at the Philcemcor Bldg., No. 4 Edsa
from which flowed an identity of relief sought, namely, cor. Connecticut St., Greenhills, San Juan, Metro Manila;
to be declared owners of the stocks of TTTDC, that when asked about the whereabouts of the video
premised on the same December 29, 1975 Resolution. machines, in the presence of the representative of
respondent bank and its counsel, Mr. Mendoza denied
This identity of interest is sufficient to make them any knowledge of their whereabouts; and that action on
privies-in-law, one to the other, and meets the requisite respondents petition is indefinitely postponed until
of substantial identity of parties. further notice from the bank.
Respondent then wrote TVI demanding the surrender of
Rovels cannot take refuge in the argument that, as a
the video machines. In his letter dated February 19,
corporation, it is imbued with personality separate and 1987, petitioner Mendoza requested the bank to give
distinct from that of the respondents in SEC Case Nos. him additional time to enable us to pay our total
1322 and 3806. The legal fiction of separate corporate obligations and proposed a repayment scheme to start
existence is not at all times invincible and the same may not later than March 10, 1987.[5] Still, no payment was
be pierced when employed as a means to perpetrate a received by the bank. TVI simply refused and ignored
the demand and kept silent as to the whereabouts of
fraud, confuse legitimate issues, or used as a vehicle to
the video machines.
promote unfair objectives or to shield an otherwise
blatant violation of the prohibition against forum- Meanwhile, in a case entitled Republic of the
shopping. While it is settled that the piercing of the Philippines, plaintiff vs. FGT Video Network Inc., Manuel
Mendoza, Alfredo C. Ongyangco, Eric Apolonio, Susan
corporate veil has to be done with caution, this
Yang ang Eduardo A. Yotoko, defendants, the RTC,
Branch 167, Pasig City issued a search warrant. The
agents of the National Bureau of Investigation (NBI) The courts below also found that TVI is petitioners mere
confiscated at the offices of FGT 638 machines and alter ego or business conduit. They control the affairs of
equipment including the 195 Beta machines mortgaged TVI. Among its stockholders or directors, they were the
with respondent bank. only ones who became incorporators of FGT. They
transferred the assets of TVI to FGT.
On May 29, 1987, upon motion of FGT and herein
petitioners, the same court issued another Order The general rule is that obligations incurred by a
directing the NBI to release and return the said corporation, acting through its directors, officers or
machines to them. employees, are its sole liabilities. However, the veil with
which the law covers and isolates the corporation from
However, Columbia Pictures Inc., Orion Pictures Corp.,
its directors, officers or employees will be lifted when
Paramount Pictures Corp., Universal City Studios Inc.,
the corporation is used by any of them as a cloak or
The Walt Disney Company and Warner Bros. filed with
cover for fraud or illegality or injustice.[9] Here, the fraud
this Court a petition for certiorari[6] assailing the Order
was committed by petitioners to the prejudice of
of the lower court.
respondent bank. It bears emphasis that as reported by
On June 18, 1987, this Court issued a temporary the sheriff, TVI is no longer doing business at its given
restraining order enjoining the RTC from enforcing its address and its whereabouts cannot be established as
assailed order. The machines and equipment were left yet.
in the custody of the NBI until the petition
Both the trial court and the Court of Appeals thus
for certiorari shall have been resolved with finality.
concluded that petitioners succeeded to hide the
On July 13, 1990, respondent bank filed with the chattels, preventing the sheriff to foreclose the
RTC, Branch 110, Pasig City,[7] a complaint for collection mortgage. Obviously, they acted in bad faith to defraud
of a sum of money[8] against TVI, FGT and petitioners. respondent bank.
Only petitioners filed their joint answer to the
The SC held that the Appellate Court, in affirming the
complaint.
Decision of the trial court, correctly ruled that
In their joint answer, petitioners specifically denied the petitioners, not TVI, are the ones personally liable to
allegations in the complaint, raising the defense that the respondent bank for the payment of the loan.
loan is purely a corporate indebtedness of TVI. The Trial
Court finds that TVI was the mere alter ego or business 56. Reynoso vs Court of Appeals
conduit of Yotoko and Mendoza, and additionally 345 SCRA 335 [GR No. 116124-25 November 23, 2000]
considering 1) that Mendoza disclaimed knowledge of
the whereabouts of the TVI mortgaged property at the Facts: Sometime in early 1960s, the Commercial Credit
time plaintiffs petition for extrajudicial foreclosure was Corporation (CCC), a financing company and investment
being effected, and 2) that Mendoza and Yotoko firm, decided to organize franchise companies
transferred the mortgaged property to FGT without first indifferent parts of the country, wherein it shall hold
securing plaintiffs consent despite their awareness that 30% equity. Employees of the CCC were designated as
under the chattel mortgage, such consent was resident managers of the franchise companies.
necessary, the doctrine of corporate entity must be Petitioner Bibiano O. Reynoso IV was designated as the
pierced and the two must be held personally liable for resident manager of the franchise in Quezon City,
TVIs obligation to plaintiff for said doctrine cannot be known as the Commercial Credit Corporation of Quezon
used to defeat public convenience, justify wrong, City. CCC-QC entered into an exclusive agreement
protect fraud or avoid a legal obligation. management contract with CCC whereby the latter was
granted the management and full control of the
The same was affirmed in toto bby the CA.
business activities of the former. Under the contract,
Issue: Whether herein petitioners are personally liable CCC-QC shall sell, discount and/or assign its receivables
for TVIs indebtedness of P500,000.00 with respondent to CCC. Subsequently, however, this discounting
bank. arrangement was discontinued pursuant to the so called
DOSRI rule, prohibiting the lending of funds by
Ruling: Yes. Both the trial court and the Appellate Court corporations to its directors, officers, stockholders and
found that the petitioners transferred the Beta video other persons with related interest therein. On account
machines from TVI to FGT without the consent of of the new restrictions imposed by the Central Bank
respondent bank. Also, upon inquiry of the sheriff,
policy by virtue of the DOSRI rule, CCC decided to form
petitioner Mendoza declined knowledge of the CCC Equity Corporation, a wholly-owned subsidiary, to
whereabouts of the mortgaged video machines. which CCC transferred its 30% equity in CCC-QC,
Moreover, the fact that the NBI seized the video together with 2 seats in the latter’s Board of Directors.
machines from FGT glaringly shows that petitioners A complaint for sum of money with preliminary
transferred the same from TVI. More importantly, a attachment was filed by CCC-equity against petitioner
comparison of the list of video machines in the Chattel and the latter was also dismissed from employment to
Mortgage Contract and the list of video machines seized which the lower court’s decision was rendered in favor
by the NBI from FGT shows that they have the same of the petitioner and the same has become final and
serial numbers. executory. CCC changed its name to General Credit
Corporation (GCC).
Issue: Whether or not the judgement in favor of the due to a prohibition (DOSRI rule) issued by the Central
petitioner may be executed against respondent GCC. Bank where corporations are prohibited from lending
funds to persons with related interests, among others.
Held: Yes. A corporation is an artificial being created by To circumvent this, CCC incorporated CCC Equity, a
operation of law, having the right of succession and the wholly owned subsidiary to manage the franchise
powers, attributes, and properties expressly authorized branches. CCC later changed its name to General Credit
by law or incident to its existence. It is an artificial being Corporation (GCC).
invested by law with a personality separate and distinct
from those of the persons composing it as well as from In 1981, Ramoso et al alleged that they discovered
that of any other legal entity to which it may be related. several bad business practices being conducted by GCC;
It was evolved to make possible the aggregation and that such questionable practices divested GCC of its
assembling of huge amounts of capital upon which big assets thereby placing the franchise branches at a
business depends. It also has the advantage of non- disadvantage; that GCC, through CCC Equity
dependence on the lives of those who compose it even mismanaged the franchise branches thereby causing
as it enjoys certain rights and conducts activities of imminent losses to the investors.
natural persons.
Ramoso et al then sued GCC before the Securities and
Any piercing of the corporate veil has to be done with Exchange Commission. The hearing officer ruled in favor
caution. However, the court will not hesitate to use its of Ramoso et al. He pierced the veil of corporate fiction
supervisory and adjudicative powers where the and he declared that the franchise branches, GCC, and
corporate fiction is used as an unfair device to achieve CCC equity are one and the same corporation; that as
an inequitable result defraud creditors, evade contracts such, the franchise branches, in whom Ramoso et al
and obligations, or to shield it from the effects of a invested, are not liable to the obligations incurred by
court decision. The corporate fiction has to be GCC. The SEC en banc however reversed the ruling of
disregarded when necessary in the interest of justice. the hearing officer. The Court of Appeals affirmed the
SEC en banc.
The defense of separateness will be disregarded when
the business affairs of a subsidiary corporation are so ISSUE: Whether or not the veil of corporate fiction
controlled by the mother corporation to the extent that should be pierced? - NO
it becomes an instrument or agent of its parent. But
even when there is dominance over the affairs of the HELD: No. Ramoso et al did not properly plead their
subsidiary, the doctrine of piercing the veil of corporate cause. They merely alleged that CCC Equity is a conduit
fiction applies only when such fiction is used to defeat of GCC. As found by the SEC en banc, Ramoso et al
public convenience, justify wrong, protect fraud or were not able to prove that CCC Equity was
defend crime. incorporated in order to perpetrate fraud against them.
Whether the existence of the corporation should be
The organization of subsidiary corporations as what was pierced depends on questions of facts, appropriately
done here is usually resorted to for aggrupation of pleaded. Mere allegation that a corporation is the alter
capital the ability to cover more territory and ego of the individual stockholders is insufficient. The
population, the decentralization of activities best presumption is that the stockholders or officers and the
decentralized, and the securing of other legitimate corporation are distinct entities. The burden of proving
advantages. But when the mother corporation and its otherwise is on the party seeking to have the court
subsidiary cease to act in good faith and honest pierce the veil of the corporate entity. It was not shown
business judgement, when the corporate device is used that the debts incurred by GCC were actually incurred in
by the parent to avoid its liability for legitimate bad faith. Further, there is a pending case relating to the
obligations of the subsidiary, and when the corporate liability of Ramoso et al as guarantors – that will be the
fiction is used to perpetrate fraud or promote injustice, proper forum to raise their respective liability as regards
the law steps in to remedy the problem. When that said debts.
happens, the corporate character is not necessarily
abrogated. It continuous for legitimate objectives. 58. Secosa vs. Heirs of Erwin Suarez Francisco
However, it is pursued in order to remedy injustice,
such as that inflicted in this case. FACTS: Erwin Suarez Francisco was riding a motorcycle
along the City of Manila and traveling behind him was a
57. Ramoso vs CA sand and gravel truck, which in turn was being tailed by
an Isuzu truck driven by Raymundo Secosa. When
Facts: Avelina Ramoso and several others are investors Secosa overtook the sand and gravel truck, he bumped
and majority stock holders of the franchise branches of the motorcycle being driven by Francisco, causing the
Commercial Credit Corporation (CCC). latter to fall and get run over by real wheels of the Isuzu
truck which resulted to his instantaneous death.
CCC is a lending and investment firm. CCC contracted
with its franchise branches for the latter to assign its The parents of Erwin Francisco filed an action for
receivables to CCC. But this practice was discontinued damages against Secosa, Dassad Warehousing and Port
Services (The company which employed Secosa), and El
Buenasucenso Sy (the president of Dassad). The trial Petitioners are its former employees who worked as
court ruled in favor of the parents and ordered the machine operators, drivers, helpers, lead and boiler
defendants to pay the plaintiffs jointly and severally. man.
The RTC decision was affirmed by the CA.
New ANJH Enterprises ceased its operations due to
Hence this petition, wherein the petitioners contended dwindling capital and sold its assets to a corporation.
that the CA erred in affirming the decision of the RTC in
Before the cessation, the company also gave notices to
holding Sy solidarily liable with Dassad and Secosa in
violation of the Corporation Code and related its employees, including the petitioners herein,
jurisprudence. informing them of its plan to cease operations as well as
offering them their respective separation pays.
ISSUE: Whether or not the doctrine of piercing the veil
of the corporate fiction shall be applied? – NO The sale was consummated and the employees received
their separation pay thereafter the petitioners filed a
HELD: Petitioner El Buenasenso Sy cannot be held complaint for illegal dismissal because according to
solidarily liable with his co-petitioners. While it may be them New ANJH Enterprises resumed its operations as
true that Sy is the president of petitioner Dassad NH Oil using the same machineries and with the same
Warehousing and Port Services, Inc., such fact is not by
owners and management. Petitioners claim that the
itself sufficient to hold him solidarily liable for the
liabilities adjudged against his co-petitioners. sale of the assets of New ANJH to NH Oil was a
circumvention of their security of tenure.
It is a settled precept in this jurisdiction that a
corporation is invested by law with a personality The Executive Labor Arbiter Santos ruled that the
separate from that of its stockholders or members. It petitioners were illegally dismissed and ordered their
has a personality separate and distinct from those of reinstatement and payment of backwages. In ruling for
the persons composing it as well as from that of any the petitioners, ELA Santos ratiocinated that the buyer
other entity to which it may be related. Mere ownership is practically the same as the seller hence it was
by a single stockholder or by another corporation of all extremely difficult to conclude that the sale was
or nearly all of the capital stock of a corporation is not
genuine and can validly justify the termination of the
in itself sufficient ground for disregarding the separate
corporate personality. A corporations authority to act petitioners. The NLRC reversed the decision and ruled
and its liability for its actions are separate and apart that the sale of the assets to NH Oil Mill was in the
from the individuals who own it. exercise of sound management prerogative and there
was no proof that it was made to defeat petitioner’s
The so-called veil of corporation fiction treats as security of tenure. The CA affirmed the NLRC. Hence
separate and distinct the affairs of a corporation and its this petition.
officers and stockholders. As a general rule, a
corporation will be looked upon as a legal entity, unless ISSUE: Whether applying the doctrine of piercing the
and until sufficient reason to the contrary appears.
veil of corporate existence is justified in the present
When the notion of legal entity is used to defeat public
case? – YES
convenience, justify wrong, protect fraud, or defend
crime, the law will regard the corporation as an
HELD: The Court held that the application of the
association of persons. Also, the corporate entity may
be disregarded in the interest of justice in such cases as doctrine of piercing the veil of corporate fiction is
fraud that may work inequities among members of the frowned upon. However, it will not hesitate to disregard
corporation internally, involving no rights of the public the corporate fiction if it is used to such an extent that
or third persons. In both instances, there must have injustice, fraud, or crime is committed against another
been fraud and proof of it. For the separate juridical in disregard of his rights.
personality of a corporation to be disregarded, the
wrongdoing must be clearly and convincingly In this case, petitioners advance the application of the
established. It cannot be presumed. doctrine because they were terminated from
employment on the pretext that there will be an
The records of this case are bereft of any evidence
impending permanent closure of the business as a
tending to show the presence of any grounds
enumerated above that will justify the piercing of the result of an intended sale of its assets to an undisclosed
veil of corporate fiction such as to hold the president of corporation, and that there will be a change in the
Dassad Warehousing and Port Services, Inc. solidarily management.
liable with it.
Subsequent events, however, revealed that the buyer of
59. Rosales vs New A.N.J.H. Enterprise the assets of their employer was a corporation owned
by the same employer and members of his family.
FACTS: Respondent New ANJH Enterprises is a sole
proprietorship owned by respondent Noel Awayan.
Furthermore, the business re-opened in less than a sparingly, the disregard of its independent being and
month under the same management. the piercing of the corporate veil. Thus, the veil of
separate corporate personality may be lifted when such
Admittedly, mere ownership by a single stockholder of personality is used to defeat public convenience, justify
all or nearly all of the capital stock of the corporation wrong, protect fraud or defend crime; or used as a
does not by itself justify piercing the corporate veil. shield to confuse the legitimate issues; or when the
corporation is merely an adjunct, a business conduit or
Nonetheless, in this case, other circumstances show
an alter ego of another corporation or where the
that the buyer of the assets of petitioners' employer is corporation is so organized and controlled and its affairs
none other than his alter ego. Clearly, the milieu of the are so conducted as to make it merely an
present case compels this Court to remove NH Oil's instrumentality, agency, conduit or adjunct of another
corporate mask as it had become, and was used as, a corporation; or when the corporation is used as a cloak
shield for fraud, illegality and inequity against the or cover for fraud or illegality, or to work injustice, or
petitioners. where necessary to achieve equity or for the protection
of the creditors. In such cases where valid grounds exist
for piercing the veil of corporate entity, the corporation
will be considered as a mere association of persons. The
60. Martinez vs CA liability will directly attach to them.
FACTS: Cintas Largas, Ltd. (CLL) is a foreign corporation However, mere ownership by a single stockholder or by
doing business with Mar Tierra Corporation mainly for another corporation of all or nearly all of the capital
the importation of molasses. CLL and Mar Tierra are stocks of a corporation is not by itself a sufficient
ground to disregard the separate corporate personality.
both run by Martinez and Gonzales who are the
The substantial identity of the incorporators of two or
President and Vice President of the latter respectively. more corporations does not warrantly imply that there
BPI International Finance granted CLL a letter of credit was fraud so as to justify the piercing of the writ of
and by virtue of the said letter of credit the former corporate fiction. To disregard the said separate
deposited an amount of USD 340,000 to the account of juridical personality of a corporation, the wrongdoing
Mar Tierra Corp. The debt of CLL remained unpaid thus must be proven clearly and convincingly.
BPI initiated an action for collection of the principal
The test in determining the application of the
amount with a writ of preliminary attachment against
instrumentality or alter ego doctrine is as follows:
CLL, as well as the officers of Mar Tierra Corp alleging
that CLL is a paper company which is being used as a 1. Control, not mere majority or complete stock control,
mere alter ego or a business conduit for the foregoing but complete domination, not only of finances but of
defendants, it has no corporate personality distinct and policy and business practice in respect to the
separate from that of its beneficial shareholders and, transaction attacked so that the corporate entity as to
likewise, has no substantial assets in its own name. this transaction had at the time no separate mind, will
or existence of its own;
Hence, any and all obligations of defendant CINTAS are
the obligations of its beneficial shareholders since the 2. Such control must have been used by the defendant
former is being used by the latter as an alter ego or to commit fraud or wrong, to perpetuate the violation
business conduit for their sole benefit and/or to defeat of a statutory or other positive legal duty, or dishonest
public convenience. and unjust act in contravention of plaintiffs legal rights;
and
ISSUE: Whether the application of the doctrine of
piercing the corporate veil is proper in this case? - NO 3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained
HELD: The general rule is that a corporation is clothed of.
with a personality separate and distinct from the
persons composing it. Such corporation may not be held The absence of any one of these elements prevents
liable for the obligation of the persons composing it; piercing the corporate veil. In applying the
instrumentality or alter ego doctrine, the courts are
and neither can its stockholders be held liable for such
concerned with reality and not form, with how the
obligation. A corporation has a separate personality corporation operated and the individual defendants
distinct from its stockholders and from other relationship to that operation.
corporation to which it may be connected. This separate
and distinct personality of a corporation is a fiction In this case, the respondent failed to adduce the
created by law for convenience and to prevent injustice. quantum of evidence necessary to prove any valid
ground for the piercing of the veil of corporate entity of
Nevertheless, being a mere fiction of law, peculiar Mar Tierra Corporation, or of RJL for that matter, and
render the petitioner liable for the respondents claim,
situations or valid grounds can exist to warrant, albeit
jointly and severally, with Wilfrido Martinez and Lacson.
The mere fact that the majority stockholder of Mar and is not affected by the personal rights, obligations
Tierra Corporation is the RJL, and that the petitioner, and transactions of its stockholders or members.
along with Jose and Luis Martinez, owned about 42% of Without valid reason to hold its president liable, only
the capital stock of RJL, do not constitute sufficient
the corporation will shoulder the damages. A
evidence that the latter corporation, and/or the
petitioner and his brothers, had complete domination corporation is invested by law with a personality
of Mar Tierra Corporation. It does not automatically separate and distinct from those of the persons
follow that the said corporation was used by the composing it as well as from that of any other entity to
petitioner for the purpose of committing fraud or which it may be related. Mere ownership by a single
wrong, or to perpetrate an injustice on the respondent. stockholder or by another corporation of all or nearly all
There is no evidence on record that the petitioner had of the capital stock of a corporation is not of itself
any involvement in the purchases of molasses by
sufficient ground for disregarding the separate
Wilfrido Martinez, Gonzales and Lacson, and the
subsequent sale thereof to the CLL, through Mar Tierra corporate personality. The general manager of a
Corporation. On the contrary, the evidence on record corporation therefore should not be made personally
shows that the CLL purchased molasses from Mar Tierra answerable for the payment of the employee's
Corporation and paid for the same through the credit backwages unless he had acted maliciously or in bad
facility granted by the respondent to the CLL. The CLL, faith in terminating the services of the employee.
thereafter, made remittances to Mar Tierra Corporation
from its deposit account and MMP Nos. 063 and 084
The exception noted is where the official "had acted
with the respondent. The close business relationship of
maliciously or in bad faith," in which event he may be
the two corporations does not warrant a finding that
made personally liable for his own act. That exception is
Mar Tierra Corporation was but a conduit of the CLL.
not applicable in the case at bar, because it has not
been proved that De Guzman acted maliciously or in
Likewise, the respondent failed to adduce preponderant bad faith when, as President of EPG, he sought to
evidence to prove that the Mar Tierra Corporation and protect its interests and resisted UP's claims. Whatever
the RJL were so organized and controlled, its affairs so damage was caused to UP as a result of his acts is the
conducted as to make the latter corporation merely an sole responsibility of EPG even though De Guzman was
instrumentality, agency, conduit or adjunct of the its principal officer and controlling stockholder.
former or of Wilfrido Martinez, Gonzales, and Lacson
for that matter, or that such corporations were
62. Jardine Davies vs JRB Realty
organized to defraud their creditors, including the
respondent. The mere fact, therefore, that the FACTS: In 1979-1980, respondent JRB Realty, Inc. built a
businesses of two or more corporations are interrelated
nine-storey building, named Blanco Center, on its parcel
is not a justification for disregarding their separate
personalities, absent sufficient showing that the of land located Makati City. An air conditioning system
corporate entity was purposely used as a shield to was needed for the Blanco Law Firm housed at the
defraud creditors and third persons of their rights. second floor of the building.
61. EPG Construction Co. vs CA On March 13, 1980, the respondent s Executive Vice-
President, Jose R. Blanco, accepted the contract
FACTS: EPG contracted with UP for the construction of quotation of Mr. A.G. Morrison, President of Aircon and
the UP Law Library. EPG did the work with a guarantee Refrigeration Industries,Inc. (Aircon), for two (2) sets of
that it will be liable for all the defects of the Fedders Adaptomatic air conditioning equipment.
Thereafter, two (2) brand new packaged air
construction within 1 year after turning it over to UP.
conditioners were installed by Aircon but they could not
After the turnover to UP, various defects were reported deliver the desired cooling temperature. With this, the
to EPG regarding the cooling system. EPG repaired it at parties agreed to replace the units.
first, but refused when asked to do so again. UP went to
another contractor to have the defects fixed and sued In a Letter, Aircon stated that it would be replacing the
EPGs and its President De Guzman for damages. The units currently installed with new ones using rotary
compressors, at the earliest possible time. Regrettably,
RTC and CA ruled for UP, holding that EPG and its
however, it could not specify a date when delivery could
President are solidarily liable for the damages. be effected. TempControl Systems, Inc. (a subsidiary of
Aircon until1987) undertook the maintenance of the
ISSUE: WON the President of EPG is solidarily liable with
units, inclusive of parts and services.
EPG. –NO
In October 1987, the respondent learned, through
HELD: The SC held that there is no reason to hold the
newspaper ads, that Maxim Industrial and
President of EPG solidarily liable with EPG. It is an Merchandising Corporation (Maxim, for short) was the
established doctrine that a corporation is a distinct legal new and exclusive licensee of Fedders Air Conditioning
entity to be considered as separate and apart from the USA in the Philippines for the manufacture, distribution,
individual stockholders or members who compose it,
sale, installation and maintenance of Fedders air statutory or other positive legal duty, or dishonest acts
conditioners. in contravention of plaintiff's legal rights; and (3) the
aforesaid control and breach of duty must proximately
The respondent requested that Maxim honor the
cause the injury or unjust loss complained of.
obligation of Aircon, but the latter refused. Hence, the
respondent then instituted an action for specific
performance with damages against Aircon, Fedders Air The records bear out that Aircon is a subsidiary of the
Conditioning USA, Inc., Maxim and petitioner Jardine petitioner only because the latter acquired Aircon's
Davies, Inc. Petitioner Jardine Davies, Inc. was majority of capital stock. It, however, does not exercise
impleaded as defendant, considering that Aircon was a complete control over Aircon; nowhere can it be
subsidiary of the petitioner. gathered that the petitioner manages the business
affairs of Aircon. Indeed, no management agreement
Petitioner contends that was not a party to the contract
between JRB Realty, Inc.and Aircon, and that it had exists between the petitioner and Aircon, and the latter
a personality separate and distinct fromthat of Aircon. is an entirely different entity from the petitioner.
RTC ordered defendants Jardine Davies, Inc., Fedders The existence of interlocking directors, corporate
Air Conditioning USA, Inc. and Maxim Industrial and officers and shareholders, which the respondent court
Merchandising Corporation, jointly and severally liable considered, is not enough justification to pierce the veil
which was affirmed by the CA. of corporate fiction, in the absence of fraud or other
public policy considerations. But even when there is
dominance over the affairs of the subsidiary, the
ISSUE: Whether Jardine may be held solidarily liable
doctrine of piercing the veil of corporate fiction applies
because Aircon was formely Jardine’s Instrumentality or
only when such fiction is used to defeat public
Alter Ego? – NO
convenience, justify wrong, protect fraud or defend
HELD: It is an elementary and fundamental principle of crime. To warrant resort to this extraordinary remedy,
corporation law that a corporation is an artificial being there must be proof that the corporation is being used
invested by law with a personality separate and distinct as a cloak or cover for fraud or illegality, or to work
from its stockholders and from other corporations to injustice. Any piercing of the corporate veil has to be
which it may be connected. While a corporation is done with caution. The wrongdoing must be clearly and
allowed to exist solely for a lawful purpose, the law will convincingly established. It cannot just be presumed.
regard it as an association of persons or in case of two
In the instant case, there is no evidence that Aircon was
corporations, merge them into one, when this
formed or utilized with the intention of defrauding its
corporate legal entity is used as a cloak for fraud or
creditors or evading its contracts and obligations. There
illegality. This is the doctrine of piercing the veil of
was nothing fraudulent in the acts of Aircon in this case.
corporate fiction which applies only when such
corporate fiction is used to defeat public convenience, 63.
justify wrong, protect fraud or defend crime. The
rationale behind piercing a corporation's identity is to 64. PNB vs Ritratto
remove the barrier between the corporation from the
FACTS: PNB-IFL, a subsidiary company of PNB extended
persons comprising it to thwart the fraudulent and
credit to Ritratto and secured by the real estate
illegal schemes of those who use the corporate
mortgages on four parcels of land. Since there was
personality as a shield for undertaking certain
default, PNB-IFL thru PNB, foreclosed the property and
proscribed activities.
were subject to public auction. Ritratto Group filed a
While it is true that Aircon is a subsidiary of the complaint for injunction. PNB filed a motion to dismiss
petitioner, it does not necessarily follow that Aircon's on the grounds of failure to state a cause of action and
corporate legal existence can just be disregarded. In the absence of any privity between respondents and
Velarde v. Lopez, Inc., the Court categorically held that a petitioner.
subsidiary has an independent and separate juridical
ISSUE: Whether PNB privy to the loan contracts entered
personality, distinct from that of its parent company;
into by respondent & PNB-IFL being that PNB-IFL is
hence, any claim or suit against the latter does not bind
owned by PNB? – NO
the former, and vice versa. In applying the doctrine, the
following requisites must be established: (1) control,
HELD: No. The contract questioned is one entered into
not merely majority or complete stock control; (2) such between Ritratto and PNB-IFL. PNB was admittedly an
control must have been used by the defendant to agent of the latter who acted as an agent with limited
commit fraud or wrong, to perpetuate the violation of a
authority and specific duties under a special power of One of the projects handled by respondent Lirag, the
attorney incorporated in the real estate mortgage. Bureau of Post project, amounting to P100,000,000.00
was awarded to the "Marubeni-Sanritsu tandem."
The mere fact that a corporation owns all of the stocks
of another corporation, taken alone is not sufficient to Despite respondent's repeated formal verbal demands
justify their being treated as one entity. If used to for payment of the agreed consultancy fee petitioners
perform legitimate functions, a subsidiary’s separate
did not pay. In response to the first demand letter,
existence may be respected, and the liability of the
parent corporation as well as the subsidiary will be petitioners promised to reply within fifteen (15) days,
confined to those arising in their respective business. but they did not do so.
The courts may, in the exercise of judicial discretion,
step in to prevent the abuses of separate entity Pursuant to the consultancy agreement, respondent
privilege and pierce the veil of corporate entity. claimed a commission of six percent (6%) of the total
contract price, or a total of P6,000,000.00, or in the
65. MARUBENI CORPORATION v. FELIX LIRAG, GR No. alternative, that he be paid the same amount by way of
130998, 2001-08-10 damages or as the reasonable value of the services he
rendered to petitioners, and further claimed twenty
Facts:
percent (20%) of the amount recoverable as attorney's
Petitioner Marubeni is a foreign corporation organized fees and the costs of suit. Petitioners denied the
and existing under the laws of Japan. It was doing consultancy agreement.
business in the Philippines through its duly licensed,
Petitioner Ryohei Kimura did not have the authority to
wholly owned subsidiary, Marubeni Philippines
enter into such agreement in behalf of Marubeni. Only
Corporation. Petitioners Ryoichi Tanaka, Ryohei Kimura
Mr. Morihiko Maruyama, the general manager, upon
and Shoichi One were officers of Marubeni assigned to
issuance of a special power of attorney by the
its Philippine branch.
principal... office in Tokyo, Japan, could enter into any
On January 27, 1989, respondent Lirag filed with the contract in behalf of the corporation. Mr. Maruyama did
Regional Trial Court a complaint for specific not discuss with respondent Lirag any of the matters
performance and damages claiming that petitioners alleged in the complaint, nor agreed to the payment of
owed him the sum of P6,000,000.00 representing commission.
commission pursuant to an oral consultancy...
Thus, petitioners moved for the dismissal of the
agreement with Marubeni.
complaint.
Lirag claimed that on February 2, 1987, petitioner
During the pre-trial conferences held on September 18
Ryohei Kimura hired his consultancy group for the
and October 16, 1989 and on January 24, March 15 and
purpose of obtaining government contracts of various
May 17, 1990, no amicable settlement was reached.
projects.
Trial on the merits ensued.
Petitioners promised to pay him six percent (6%)
On April 29, 1993, the trial court promulgated a decision
consultancy fee based on the total costs of the projects
and ruled that respondent is entitled to a commission.
obtained.
Respondent was led to believe that there existed an oral
The consultancy agreement was not reduced into consultancy agreement. Hence, he performed his part
writing because of the mutual trust between Marubeni of the agreement and helped petitioners get the
and the Lirag family. project.
Their close business and personal relationship dates On May 26, 1993, petitioners interposed an appeal from
back to 1960, when respondent's family was engaged in the decision to the Court of Appeals.
the textile fabric manufacturing business, in which
After due proceedings, on October 9, 1997, the Court of
Marubeni supplied the needed machinery, equipment,
Appeals promulgated a decision affirming the decision
spare parts and raw materials.
of the trial court. The Court of Appeals ruled that
In compliance with the agreement, respondent Lirag preponderance of evidence favored the existence of a
made representations with various government consultancy agreement between the parties. It upheld
officials, arranged for meetings and conferences, the factual... findings of the trial court
relayed pertinent information as well as submitted
Issues: WON respondent is entitled to receive a
feasibility studies and project proposals, including
commission if there was, in fact, a consultancy...
pertinent documents required by petitioners.
agreement
Ruling: We find the appeal meritorious. and Banco De Oro (BDO), they have adopted the
corporate name Banco De Oro.
An assiduous scrutiny of the testimonial and
documentary evidence extant leads us to the conclusion Petitioners were client-depositors of EPCIB for more
that the evidence could not support a solid conclusion than 12 years. Petitioners alleged that sometime in mid-
that a consultancy agreement, oral or written, was 1999, the branch manager of EPCIB offered a loan to
agreed between petitioners and respondent. the petitioners under its Own-a-Home Loan
Program. Petitioners applied for a loan of P4,000,000.00
In civil cases, he who alleges a fact has the burden of and were informed of the approval of the same.
proving it; a mere allegation is not evidence.
To secure the payment of the loan, petitioners
He must establish his cause by a preponderance of executed an REM over their land
evidence which respondent failed to establish in the in Quezon City. Petitioners asserted that even if the loan
instant case. documents were signed in blank, it was understood that
Assuming for the sake of argument that an oral they executed the REM in favor of EPCIB.
consultancy agreement has been perfected between Respondent Bank then released a total amount
the parties, respondent Lirag could not still claim fees of P3,600,000.00 in four installments, while the balance
on the project that has not been awarded to Marubeni. of P400,000.00 was not drawn by petitioners. On the
Respondent tried to justify his commission of roughly other hand, petitioners started to pay their monthly
about P6,000,000.00 in the guise that Marubeni and amortizations.
Sanritsu are sister corporations, thereby implying the Petitioners made repeated requests to EPCIB to furnish
need to pierce the veil of corporate fiction. Respondent them their copies of the loan documents which were
claimed that Marubeni as the supplier and real made verbally and also evidenced by letters from the
contractor of the project hired and sub-contracted the petitioner requesting their copies of the loan
project to Sanritsu.
documents. They further claimed that they purposely
To disregard the separate juridical personality of a did not draw the remaining balance of the loan in the
corporation, the wrongdoing must be clearly and amount of P400,000.00 and stopped paying their loan
convincingly established. It cannot be presumed. The amortizations to protest EPCIBs continued failure to
separate personality of the corporation may be provide them copies of the loan documents and its
disregarded only when the corporation is used as a imposition of an interest rate higher than that agreed
cloak or cover for fraud or illegality, or to work injustice, upon.
or where necessary for the protection of creditors. In reply to the petitioners letter, the VP of EPCIB, Gary
Any agreement entered into because of the actual or Vargas explained that as a matter of practice, their
supposed influence which the party has, engaging him clients were given original copies of the loan documents
to influence executive officials in the discharge of their only upon full release of the amount loaned. EPCIB
duties, which contemplates the use of personal clarified that since petitioners loan had not been fully
influence and solicitation rather than an appeal to the released, the original documents were not yet sent to
judgment of... the official on the merits of the object them.
sought is contrary to public policy. In the meantime, respondent, through counsel, also
Consequently, the agreement, assuming that the parties sent a letter to the petitioners demanding payment for
agreed to the consultancy, is null and void as against their obligation amounting to P4,097,261.04, inclusive
public policy. of interest and other charges.
Therefore, it is unenforceable before a court of justice. Finally, petitioners received copies of the loan
documents which they had earlier signed in
66. BORROMEO VS CA blank. According to petitioners, they were surprised to
find out that the Loan Agreement and REM designated
FACTS: Respondent Equitable Savings Bank is a
respondent ESB as lender and mortgagor, instead of
domestic savings bank corporation with principal office
EPCIB with whom they allegedly entered into the
and place of business at EPCIB Tower in Makati City. At
agreement.
the time the dispute began, it was a subsidiary of
Equitable PCI Bank (EPCIB), a domestic universal When the petitioners failed to pay for the loan in full
banking corporation with principal office by 30 September 2003, respondent sought to extra-
in Makati City. After the merger of EPCIB judicially foreclose the REM. However, petitioners filed
with the RTC a Complaint for Injunction, Annulment of also show that petitioners repeatedly dealt with EPCIB.
Mortgage with Damages and with Prayer for Temporary When the petitioners complained of not receiving the
Restraining Order and Preliminary and Mandatory loan documents and the allegedly excessive interest
Injunction against EPCIB and respondent. The charges, they addressed their letter dated 3 August
petitioners alleged that the loan documents failed to 2003 to the president of EPCIB.[41] The response, which
reflect the true agreement between the parties. Firstly, explained the loan transactions in detail in a letter
the agreement was between the petitioners and EPCIB dated 27 August 2003, was written by Gary Vargas,
and, consequently, respondent had no interest in the EPCIB Vice President.[42] Of almost three years
REM. amortizations, the checks were issued by petitioners in
the name of EPCIB, except only for five checks which
ISSUE: WHETHER OR NOT THE PRIVATE RESPONDENT were issued in respondents name.[43]
SAVINGS BANK IS THE REAL PARTY-IN-INTEREST.
Respondent, although a wholly-owned subsidiary of
RULING: The petition is meritorious.
EPCIB, has an independent and separate juridical
In this case, petitioners rights to their property is personality from its parent company. The fact that a
restricted by the REM they executed over it. Upon their corporation owns all of the stocks of another
default on the mortgage debt, the right to foreclose the corporation, taken alone, is not sufficient to justify
property would be vested upon the creditor- their being treated as one entity. If used to perform
mortgagee. Nevertheless, the right of foreclosure legitimate functions, a subsidiarys separate existence
cannot be exercised against the petitioners by any shall be respected, and the liability of the parent
person other than the creditor-mortgagee or its corporation, as well as the subsidiary, shall be
assigns. According to the pertinent provisions of the confined to those arising from their respective
Civil Code: businesses. A corporation has a separate personality
distinct from its stockholders and other corporations
Art. 1311. Contracts take effect only between the to which it may be conducted.[44] Any claim or suit of
parties, their assigns and heirs, except in case where the the parent corporation cannot be pursued by the
rights and obligations arising from the contract are not subsidiary based solely on the reason that the former
transmissible by their nature, or by stipulation or by owns the majority or even the entire stock of the
provision of law. The heir is not liable beyond the value latter.
of the property he received from the decedent.
From a perusal of the records, petitioners did not enter
If a contract should contain some stipulation in favor of into a Loan Agreement and REM with
a third person, he may demand its fulfillment provided respondent. Respondent, therefore, has no right to
he communicated his acceptance to the obligor before foreclose the subject property even after default, since
its revocation. A mere incidental benefit or interest of a this right can only be claimed by the creditor-
person is not sufficient. The contracting parties must mortgagor, EPCIB; and, consequently, the extrajudicial
have clearly and deliberately conferred a favor upon a foreclosure of the REM by respondent would be in
third person. (Emphasis ours.) violation of petitioners property rights.
An extrajudicial foreclosure instituted by a third party to DOCTRINE OF SEPARATE JURIDICAL PERSONALITY

the Loan Agreement and the REM would, therefore, be
a violation of petitioners rights over their property. II. RECOVERY OF MORAL DAMAGES
In the instant case, petitioners assert that their creditor- 1. MAMBULAO LUMBER COMPANY V. PNB (G.R. NO. L-
mortgagee is EPCIB and not respondent. While ESB 22973)
claims that petitioners have had transactions with it, Facts: Petitioner Mambulao Lumber applied for an
particularly the five check payments made in the name industrial loan with herein respondent PNB and was
of ESB, it fails to categorically state that ESB and not approved with its real estate, machinery and
EPCIB is the real creditor-mortgagor in this loan and equipments as collateral. PNB released the approved
mortgage transaction. This Court finds the position loan but petitioner failed to pay and was later
taken by the petitioners to be more credible. The four discovered to have already stopped in its operation.
Promissory Notes designate EPCIB as the lender.[39] In a PNB then moved for the foreclosure and sale of the
letter dated 19 December 2002, addressed to Home mortgaged properties. The properties were sold and
Guaranty Corporation, EPCIB Vice President Gary Vargas petitioner sent a bank draft to PNB to settle the balance
even specified petitioners loan as one of its housing of the obligation. PNB however alleges that a remaining
loans for which it sought insurance coverage.[40] Records balance stands and a foreclosure sale would still be held
unless petitioner remits said amount. The foreclosure On 6 July 2005, SMART filed with the labor arbiter a
sale proceeded and petitioner’s properties were taken complaint for unfair labor practice against Ren
out of its compound. Petitioner filed actions before the Transport.
court and claims among others, moral damages.
LA RULING: Ren Transport is guilty of acts of unfair
Issue: Whether or not petitioner corporation, who has labor practice.
already ceased its operation, may claim for moral NLRC RULING: affirmed the labor arbiter's finding of
damages. unfair labor practice on the part of Ren Transport.
Union dues were ordered remitted to SMART.
Ruling: NO.
The NLRC also awarded moral damages to SMART,
Herein appellant’s claim for moral damages, however, saying that Ren transport's refusal to bargain was
seems to have no legal or factual basis. Obviously, an inspired by malice or bad faith. The precipitate
artificial person like herein appellant corporation cannot recognition of RTEA evidenced such bad faith,
experience physical sufferings, mental anguish, fright, considering that it was done despite the pendency of
the disaffiliation dispute at the DOLE-NCR.
serious anxiety, wounded feelings, moral shock or social
humiliation which are basis of moral damages. A CA RULING: deleted the award of moral damages to
corporation may have a good reputation which, if SMART, but affirmed the NLRC decision on all other
besmirched, may also be a ground for the award of matters. The CA ruled that SMART, as a corporation,
moral damages. The same cannot be considered under was not entitled to moral damages.
the facts of this case, however, not only because it is ISSUE: WON SMART is entitled to moral damages.
admitted that herein appellant had already ceased in its
business operation at the time of the foreclosure sale of RULING: SMART is not entitled to an award of moral
damages.
the chattels, but also for the reason that whatever
adverse effects of the foreclosure sale of the chattels Indeed, a corporation is not, as a general rule, entitled
could have upon its reputation or business standing to moral damages. Being a mere artificial being, it is
would undoubtedly be the same whether the sale was incapable of experiencing physical suffering or
conducted at Jose Panganiban, Camarines Norte, or in sentiments like wounded feelings, serious anxiety,
Manila which is the place agreed upon by the parties in mental anguish or moral shock.
the mortgage contract. Although this Court has allowed the grant of moral
damages to corporations in certain situations, it must
2. REN TRANSPORT CORP vs. NLRC
be remembered that the grant is not automatic. The
FACTS: Samahan ng Manggagawa sa Ren Transport claimant must still prove the factual basis of the damage
(SMART) is a registered union, which had a five-year and the causal relation to the defendant's acts.[37] In this
collective bargaining agreement (CBA) with Ren case, while there is a showing of bad faith on the part of
Transport Corp. (Ren Transport). The 60-day freedom the employer in the commission of acts of unfair labor
period of the CBA passed without a challenge to practice, there is no evidence establishing the factual
SMART'S majority status as bargaining agent. SMART basis of the damage on the part of SMART.
thereafter conveyed its willingness to bargain with Ren
Transport, to which it sent bargaining proposals. Ren 3. Bache & Co Inc vs. Ruiz GR L-32409, 27 February
Transport, however, failed to reply to the demand. 1971
Subsequently, two members of SMART wrote to the Facts: On 24 February 1970, Misael P. Vera,
Department of Labor and Employment - National Commissioner of Internal Revenue, wrote a letter
Capital Region (DOLE-NCR). The office was informed addressed to Judge Vivencio M. Ruiz requesting the
that a majority of the members of SMART had decided issuance of a search warrant against Bache & Co. (Phil.),
to disaffiliate from their mother federation to form Inc. and Frederick E. Seggerman for violation of Section
another union, Ren Transport Employees Association 46(a) of the National Internal Revenue Code (NIRC), in
(RTEA). SMART contested the alleged disaffiliation relation to all other pertinent provisions thereof,
through a letter dated 4 April 2005. particularly Sections 53, 72, 73, 208 and 209, and
authorizing Revenue Examiner Rodolfo de Leon to make
During the pendency of the disaffiliation dispute at the and file the application for search warrant which was
DOLE-NCR, Ren Transport stopped the remittance to attached to the letter.
SMART of the union dues that had been checked off
from the salaries of union workers as provided under In the afternoon of the following day, De Leon and his
the CBA. Further, on 19 April 2005, Ren Transport witness, Arturo Logronio, went to the Court of First
voluntarily recognized RTEA as the sole and exclusive Instance (CFI) of Rizal. They brought with them the
bargaining agent of the rank-and-file employees of their following papers: Vera’s letter-request; an application
company. for search warrant already filled up but still unsigned by
De Leon; an affidavit of Logronio subscribed before De
Leon; a deposition in printed form of Logronio already shares of stock or the interest of each of them in said
accomplished and signed by him but not yet subscribed; corporations, whatever, the offices they hold therein
and a search warrant already accomplished but still may be; and that the corporate officers therefore may
unsigned by Judge. At that time the Judge was hearing a not validly object to the use in evidence against them of
certain case; so, by means of a note, he instructed his the documents, papers and things seized from the
Deputy Clerk of Court to take the depositions of De offices and premises of the corporations, since the right
Leon and Logronio. to object to the admission of said papers in evidence
belongs exclusively to the corporations, to whom the
After the session had adjourned, the Judge was seized effects belong, and may not be invoked by the
informed that the depositions had already been taken. corporate officers in proceedings against them in their
The stenographer, upon request of the Judge, read to individual capacity.
him her stenographic notes; and thereafter, the Judge
asked Logronio to take the oath and warned him that if The distinction between the Stonehill case and the
his deposition was found to be false and without legal present case is that: in the former case, only the officers
basis, he could be charged for perjury. of the various corporations in whose offices documents,
papers and effects were searched and seized were the
The Judge signed de Leon’s application for search petitioners; while in the latter, the corporation to whom
warrant and Logronio’s deposition. Search Warrant 2- the seized documents belong, and whose rights have
M-70 was then signed by Judge and accordingly issued. thereby been impaired, is itself a petitioner.
3 days later (a Saturday), the BIR agents served the
search warrant to the corporation and Seggerman at On that score, the corporation herein stands on a
the offices of the corporation on Ayala Avenue, Makati, different footing from the corporations in Stonehill.
Rizal. Moreover, herein, the search warrant was void
inasmuch as First, there was no personal examination
The corporation’s lawyers protested the search on the conducted by the Judge of the complainant (De Leon)
ground that no formal complaint or transcript of and his witness (Logronio).
testimony was attached to the warrant. The agents
nevertheless proceeded with their search which yielded The Judge did not ask either of the two any question the
6 boxes of documents. answer to which could possibly be the basis for
determining whether or not there was probable cause
On 3 March 1970, the corporation and Seggerman filed against Bache & Co. and Seggerman. The participation
a petition with the Court of First Instance (CFI) of Rizal of the Judge in the proceedings which led to the
praying that the search warrant be quashed, dissolved issuance of Search Warrant 2-M-70 was thus limited to
or recalled, that preliminary prohibitory and mandatory listening to the stenographer’s readings of her notes, to
writs of injunction be issued, that the search warrant be a few words of warning against the commission of
declared null and void, and that Vera, Logronio, de perjury, and to administering the oath to the
Leon, et. al., be ordered to pay the corporation and complainant and his witness. This cannot be consider a
Seggerman, jointly and severally, damages and personal examination.
attorney’s fees.
Second, the search warrant was issued for more than
After hearing and on 29 July 1970, the court issued an one specific offense. The search warrant was issued for
order dismissing the petition for dissolution of the at least 4 distinct offenses under the Tax Code. The first
search warrant. In the meantime, or on 16 April 1970, is the violation of Section 46(a), Section 72 and Section
the Bureau of Internal Revenue made tax assessments 73 (the filing of income tax returns), which are
on the corporation in the total sum of P2,594,729.97, interrelated. The second is the violation of Section 53
partly, if not entirely, based on the documents thus (withholding of income taxes at source).
seized.
The third is the violation of Section 208 (unlawful
The corporation and Seggerman filed an action for pursuit of business or occupation); and the fourth is the
certiorari, prohibition, and mandamus. violation of Section 209 (failure to make a return of
receipts, sales, business or gross value of output
Issue: Whether the corporation has the right to contest
actually removed or to pay the tax due thereon). Even in
the legality of the seizure of documents from its office.
their classification the 6 provisions are embraced in 2
Held: The legality of a seizure can be contested only by different titles: Sections 46(a), 53, 72 and 73 are under
the party whose rights have been impaired thereby, and Title II (Income Tax); while Sections 208 and 209 are
that the objection to an unlawful search and seizure is under Title V (Privilege Tax on Business and
purely personal and cannot be availed of by third Occupation).
parties. In Stonehill, et al. vs. Diokno, et al. (GR L-19550,
Lastly, the search warrant does not particularly describe
19 June 1967; 20 SCRA 383) the Supreme Court
the things to be seized. Search Warrant No. 2-M-70
impliedly recognized the right of a corporation to object
tends to defeat the major objective of the Bill of Rights,
against unreasonable searches and seizures; holding
i.e., the elimination of general warrants, for the
that the corporations have their respective
language used therein is so all-embracing as to include
personalities, separate and distinct from the personality
all conceivable records of the corporation, which, if
of the corporate officers, regardless of the amount of
seized, could possibly render its business inoperative. until such time that the Office of the President through
Thus, Search Warrant 2-M-70 is null and void. the Commission on Good Government should decide
otherwise.
4. Bataan Shipyard VS. PCGG
3. To report to the Commission on Good Government
GR NO. 75885, MAY 27, 1987 periodically.
Facts: BASECO describes itself in its petition as "a ship Further, you are authorized to request for
repair and ship building company incorporated as a Military/Security Support from the
domestic private corporation on Aug. 30, 1972 by a
consortium of Filipino ship owners and shipping Military/Police authorities, and such other acts essential
executives. Its main office is at Engineer Island, Port to the achievement of this sequestration order.
Area, Manila, where its Engineer Island Shipyard is
housed, and its main shipyard is located at Mariveles Thereafter, the corporation was ordered by the PCGG to
Bataan." produce certain documents such as:
Its Articles of Incorporation disclose that its authorized 1. Stock Transfer Book
capital stock is Php60,000,000.00 divided into 60,000
2. Legal documents, such as:
shares, of which 12,000 shares with a value of
Php12,000,000.00 have been subscribed, and on said 2.1. Articles of Incorporation
subscription, the aggregate sum of Php3,035,000.00 has
been paid by the incorporators. 2.2. By-Laws
The same articles identify the incorporators, numbering 2.3. Minutes of the Annual Stockholders Meeting from
fifteen. By 1986, however, of these fifteen 1973 to 1986
incorporators, six had ceased to be stockholders. As of
1986, there were twenty stockholders listed in 2.4. Minutes of the Regular and Special Meetings of the
BASECO's Stock and Transfer Book. Board of Directors from
When EO 1 & 2 was promulgated by Pres. 1973 to 1986

Corazon Aquino and respectively the sequestration,
2.5. Minutes of the Executive Committee Meetings from
takeover and other orders in relation to the EO done by
1973 to 1986
the PCGG to the alleged Marcos controlled corporation
which is BASECO. The problem arose when the 2.6. Existing contracts with
sequestration order was initiated. The sequestration suppliers/contractors/others.
order was directed to 3 commissioners of the PCGG
directing them to sequester the following: 3. Yearly list of stockholders with their corresponding
share/stockholdings from 1973 to 1986 duly certified by
1. Bataan Shipyard and Engineering Co., Inc. the Corporate Secretary.
(Engineering Island Shipyard and
4. Audited Financial Statements such as Balance Sheet,
Mariveles Shipyard) Profit & Loss and others from 1973 to December 31,
1985.
2. Baseco Quarry
5. Monthly Financial Statements for the current year up
3. Philippine Jai-Alai Corporation
to March 31, 1986.
4. Fidelity Management Co., Inc.
6. Consolidated Cash Position Reports from January to
5. Romson Realty, Inc. April 15, 1986.
6. Trident Management Co. 7. Inventory listings of assets up dated up to March 31,

1986.
7. New Trident Management
8. Updated schedule of Accounts Receivable and
8. Bay Transport Accounts Payable.
9. And all affiliate companies of Alfredo "Bejo" 9. Complete list of depository banks for all funds with
Romualdez the authorized signatories for withdrawals thereof.
And were ordered to do the following: 10. Schedule of company investments and placements.
1. To implement this sequestration order with a Petitioner now prays to the Court to:
minimum disruption of these companies' business
activities. 1) declare unconstitutional and void Executive Orders
Numbered 1 and 2;
2. To ensure the continuity of these companies as going
concerns, the care and maintenance of these assets
2) annul the sequestration order dated April- 14, 1986, While therefore it is understandable that a corporation,
and all other orders subsequently issued and acts done that has no heart, feels pain, and has no soul that can
on the basis thereof, inclusive of the takeover order of be damned, cannot be expected to be entitled to the
July 14, 1986 and the termination of the services of the constitutional right against self-incrimination, it is quite
BASECO executives. different in the case of the partnership, since its person
is merely an extension of the group of partners, who
3) the production of certain document infringed the having come together in business, and acting still for
right against self-incrimination such business enterprise, could not be presumed to
have waived their individual rights against self-
4) and that PCGG unduly interfered with its
incrimination.
management and affairs and right of dominion.
5. PNB vs CA
Argument of BASECO: First, no notice and hearing was
accorded to it before its properties and business were Facts: Rita Tapnio owes PNB an amount of P2,000.00.
taken over; Second, the PCGG is not a court, but a The amount is secured by her sugar crops about to be
purely investigative agency and therefore not harvested including her export quota allocation worth
competent to act as prosecutor and judge in the same 1,000 piculs. The said export quota was later dealt by
cause; Third, there is nothing in the issuances which Tapnio to a certain Jacobo Tuazon at P2.50 per picul or
envisions any proceeding, process or remedy by which a total of P2,500. Since the subject of the deal is
petitioner may expeditiously challenge the validity of mortgaged with PNB, the latter has to approve it. The
the takeover after the same has been effected; and branch manager of PNB recommended that the price
Fourthly, being directed against specified persons, and should be at P2.80 per picul which was the prevailing
in disregard of the constitutional presumption of minimum amount allowable. Tapnio and Tuazon agreed
innocence and general rules and procedures, they to the said amount. And so the bank manager
constitute a Bill of Attainder." recommended the agreement to the vice president of
PNB. The vice president in turn recommended it to the
Issues:
board of directors of PNB.
1. Whether or not the order of production of
However, the Board of Directors wanted to raise the
documents would be self-incriminating to BASECO
price to P3.00 per picul. This Tuazon does not want
2. Whether or not a corporation can avail the right hence he backed out from the agreement. This resulted
against self-incrimination to Tapnio not being able to realize profit and at the
same time rendered her unable to pay her P2,000.00
Held: ISSUES 1 & 2: crop loan which would have been covered by her
agreement with Tuazon.
The Court held that the right against self-incrimination
has no application to corporations. Every corporation is Eventually, Tapnio was sued by her other creditors and
a direct creature of the law and receives an individual Tapnio filed a third party complaint against PNB where
franchise from the State. But a partnership, although is she alleged that her failure to pay her debts was
deemed to be a juridical person by grant of the State, because of PNB’s negligence and unreasonableness.
becomes a juridical person through a private contract of
partnership between and among the partners, without ISSUE: Whether or not Tapnio is correct.
needing to register its existence with the State or any of
HELD: Yes. In this type of transaction, time is of the
its organs. More importantly, the partnership “person”
essence considering that Tapnio’s sugar quota for said
is a fiction of law given more for the convenience of the
year needs to be utilized ASAP otherwise her allotment
partners, and thus can be dissolved by the will of the
may be assigned to someone else, and if she can’t use
partners or by the happening of an event that would
it, she won’t be able to export her crops. It is
constitute the termination of the contractual
unreasonable for PNB’s board of directors to disallow
relationship, whereas, no corporation can be dissolved
the agreement between Tapnio and Tuazon because of
without the consent of the State, and only after due
the mere difference of 0.20 in the agreed price rate.
notice and hearing. Likewise, the other features of the
What makes it more unreasonable is the fact that the
partnership, mainly mutual agency, delectus personae
P2.80 was recommended both by the bank manager
and unlimited liability on the part of the partners, that
and PNB’s VP yet it was disapproved by the board.
places a close identity between the persons of the
Further, the P2.80 per picul rate is the minimum
partners and that of the partnership. This is unlike in
allowable rate pursuant to prevailing market trends that
corporate setting, where the stockholders do not own
time. This unreasonable stand reflects PNB’s lack of the
corporate properties, have no participation in
reasonable degree of care and vigilance in attending to
management of corporate affairs, and enjoy personal
the matter. PNB is therefore negligent.
immunity from the debts and liabilities of the
corporation, and where basically the corporation “is its In failing to observe the reasonable degree of care and
own person,” and acts through a professional group of vigilance which the surrounding circumstances
managers and agents called the Board of Directors. reasonably impose, petitioner is consequently liable for
the damages caused on private respondents. Under
Article 21 of the New Civil Code, “any person who
wilfully causes loss or injury to another in a manner that 2. WON Republic Act 4363 is applicable to action against
is contrary to morals, good customs or public policy a foreign corporation or non-resident defendant – NO
shall compensate the latter for the damage.” The afore-
cited provisions on human relations were intended to Ruling: GRANTED.
expand the concept of torts in this jurisdiction by
Ratio:
granting adequate legal remedy for the untold number
of moral wrongs which is impossible for human 1. Art 360, RA 4363 reads in part: The criminal and civil
foresight to specifically provide in the statutes. action for damages in cases of written defamations as
provided for in this chapter, shall be filed
A corporation is civilly liable in the same manner as
simultaneously or separately with the court of first
natural persons for torts, because “generally speaking,
instance of the province or city where the libelous
the rules governing the liability of a principal or master
article is printed and first published or where any of the
for a tort committed by an agent or servant are the
offended parties actually resides at the time of the
same whether the principal or master be a natural
commission of the offense;
person or a corporation, and whether the servant or
agent be a natural or artificial person. All of the Provided, however, That where one of the offended
authorities agree that a principal or master is liable for parties is a public officer whose office is in the City of
every tort which it expressly directs or authorizes, and Manila at the time of the commission of the offense,
this is just as true of a corporation as of a natural the action shall be filed in the Court of First Instance of
person, a corporation is liable, therefore, whenever a the City of Manila or of the city or province where the
tortious act is committed by an officer or agent under libelous article is printed and first published, and in case
express direction or authority from the stockholders or such public officer does not hold office in the City of
members acting as a body, or, generally, from the Manila, the action shall be filed in the Court of First
directors as the governing body.” Instance of the province or city where he held office at
the time of the commission of the offense or where the
6. Time Inc. vs. Judge Reyes
libelous article is printed and first published and in case
Facts: In Time’s Asian Edition Magazine, Manila Mayor one of the offended parties is a private individual, the
Antonio Villegas was accused of having coffers action shall be filed in the Court of First Instance of the
containing “far more pesos than seemed reasonable in province or city where he actually resides at the time of
the light of his income.” Juan Ponce Enrile was dragged the commission of the offense or where the libelous
onto the article because he allegedly lent Villegas matter is printed and first published;
30,000 pesos as he was his compadre and at that time,
Provided,further, That the civil action shall be filed in
Enrile was the Secretary of Finance.
the same court where the criminal action is filed and
Villegas and Enrile sought to recover damages from vice versa;
Time Magazine, an American Corporation, so they filed
Provided, furthermore, That the court where the
a complaint in the CFI of Rizal.
criminal action or civil action for damages is first filed,
Petitioner received the summons and a copy of the shall acquire jurisdiction to the exclusion of other
complaint at its offices in New York on 13 December courts; And provided finally, That this amendment shall
1967 and, on 27 December 1967, it filed a motion to not apply to cases of written defamations, the civil
dismiss the complaint for lack of jurisdiction and and/or criminal actions which have been filed in court at
improper venue, relying upon the provisions of Republic the time of the effectivity of the law…
Act 4363.
2. The complaint lodged in the court of Rizal by
The judge deferred the proceedings for the reason that respondents does not allege that the libelous article
"the rule laid down under Republic Act. No. 4363, was printed and first published in the province of Rizal
amending Article 360 of the Revised Penal Code, is not and, since the respondents-plaintiffs are public officers
applicable to actions against non-resident defendants, with offices in Manila at the time of the commission of
and because questions involving harassment and the alleged offense, it is clear that the only place left for
inconvenience, as well as disruption of public service do them wherein to file their action, is the Court of First
not appear indubitable. Instance of Manila.
Issue/s: 1. WON under the provisions of Republic Act 3. The intent, of the law is clear: a libeled public official
No. 4363 the respondent Court of First Instance of Rizal might sue in the court of the locality where he holds
has jurisdiction to take cognizance of the civil suit for office, in order that the prosecution of the action should
damages arising from an allegedly libelous publication, interfere as little as possible with the discharge of his
considering that the action was instituted by public official duties and labors. The only alternative allowed
officers whose offices were in the City of Manila at the him by law is to prosecute those responsible for the
time of the publication; if it has no jurisdiction, whether libel in the place where the offending article was
or not its erroneous assumption of jurisdiction may be printed and first published. Here, the law tolerates the
challenged by a foreign corporation by writ of certiorari interference with the libeled officer's duties only for the
or prohibition. – NO and YES sake of avoiding unnecessary harassment of the
accused. Since the offending publication was not
printed in the Philippines, the alternative venue was not ruling of the court in which the suit was brought, on a
open to respondent Mayor Villegas of Manila and motion to quash service of summons, that it has
Undersecretary of Finance Enrile, who were the jurisdiction.
offended parties.
8. It is also advanced that the present petition is
4. That respondents-plaintiffs could not file a criminal premature, since respondent court has not definitely
case for libel against a non-resident defendant does not ruled on the motion to dismiss, nor held that it has
make Republic Act No. 4363 incongruous of absurd, for jurisdiction, but only argument is untenable. The motion
such inability to file a criminal case against a non- to dismiss was predicated on the respondent court's
resident natural person equally exists in crimes other lack of jurisdiction to entertain the action; and the
than libel. It is a fundamental rule of international rulings of this Court are that writs of certiorari or
jurisdiction that no state can by its laws, and no court prohibition, or both, may issue in case of a denial or
which is only a creature of the state, can by its deferment of action on such a motion to dismiss for lack
judgments or decrees, directly bind or affect property or of jurisdiction.
persons beyond the limits of the state. Not only this, but
if the accused is a corporation, no criminal action can lie E. INCORPORATION AND ORGANIZATION
against it, whether such corporation or resident or non-
resident. At any rate, the case filed by respondents- 1. SAMAHAN NG OPTOMETRISTS VS. ACEBEDO
plaintiffs is case for damages. INTERNATIONAL CORPORATION
G.R. NO. 117097
5. 50 Am. Jur. 2d 659 differentiates the "multiple FACTS:
publication" and "single publication" rules (invoked by
private respondents) to be as follows: The common law On February 22, 1991, Acebedo filed an application with
rule as to causes of action for tort arising out of a single the Office of the Mayor of Candon, Ilocos Sur, for the
publication was to the effect that each communication issuance of a permit for the opening and operation of a
of written or printed matter was a distinct and separate branch of the Acebedo Optical in that municipality.
publication of a libel contained therein, giving rise to a
separate cause of action. This rule ('multiple The application was opposed by the Samahan ng
publication' rule) is still followed in several American Optometrists sa Pilipinas (SOP) which contended that
jurisdictions, and seems to be favored by the American Acebedo is a juridical entity not qualified to practice
Law Institute. Other jurisdictions have adopted the optometry.
'single publication' rule which originated in New York,
under which any single integrated publication, such as On March 6, 1991, Acebedo filed its answer, arguing it is
one edition of a newspaper, book, or magazine, or one not the corporation, but the optometrists employed by
broadcast, is treated as a unit, giving rise to only one it, who would be practicing optometry.
cause of action, regardless of the number of times it is
exposed to different people. On April 17, 1991, the Mayor of Candon created a
committee, composed of "public respondents Eduardo
6. These rules are not pertinent in the present scheme
Ma. Guirnalda, Dante G. Pacquing and Octavio de
because the number of causes of action that may be
Peralta, to pass on Acebedo’s application.
available to the respondents-plaintiffs is not here in
issue. The court is confronted by a specific venue
statute, conferring jurisdiction in cases of libel against On September 26, 1991 the committee rendered a
Public officials to specified courts, and no other. The decision denying Acebedo application for a mayor's
rule is that where a statute creates a right and provides permit to operate a branch in Candon and ordering
a remedy for its enforcement, the remedy is exclusive; Acebedo to close its establishment within fifteen (15)
and where it confers jurisdiction upon a particular days from receipt of the decision. Acebedo moved for
court, that jurisdiction is likewise exclusive, unless reconsideration but its motion was denied on
otherwise provided. Hence, the venue provisions of November 14, 1991. Acebedo was ordered to close its
Republic Act No. 4363 should be deemed mandatory for establishment within ten (10) days from receipt of the
the party bringing the action, unless the question of order.
venue should be waived by the defendant, which was
not the case here. Only thus can the policy of the Act be On December 9, 1991, Acebedo filed with the Court of
upheld and maintained. Nor is there any reason why the Appeals a petition for certiorari (CA G.R SP No. 26782),
inapplicability of one alternative venue should result in questioning the decision of respondent committee. Its
rendering the other alternative, also inapplicable. petition, however, was referred to the court a quo,
which on December 16, 1992, dismissed Acebedo's
7. Petitioner's failure to aver its legal capacity to petition. Hence, the appeal.
institute the present petition is not fatal, for A foreign ISSUES:
corporation may, by writ of prohibition, seek relief
against the wrongful assumption of jurisdiction. And a WON Acebedo as a Corporation is qualified to practice
foreign corporation seeking a writ of prohibition against optometry.
further maintenance of a suit, on the ground of want of
jurisdiction in which jurisdiction is not bound by the HELD:
No. Private respondent does not deny that it 1) INDIAN CHAMBER OF COMMERCE PHILS., INC.
employs optometrists whose role in the operations of v. FILIPINO INDIAN CHAMBER OF COMMERCE IN THE
its optical shops is to administer the proper eye PHILIPPINES, INC.
examination in order to determine the correct type and
grade of lenses to prescribe to persons purchasing the FACTS:
same from private respondent's optical shops.
Petitioners vehemently insist that in so employing said Filipino-Indian Chamber of Commerce of the
optometrists, private respondent is in effect itself Philippines, Inc. (defunct FICCPI) was originally
practicing optometry. Such practice, petitioners registered with the SEC as Indian Chamber of
conclude, is in violation of RA. No. 1998, which, it must
Commerce of Manila, Inc. on November 24, 1951, with
be noted at this juncture, has been repealed and
superseded by RA. 8050. SEC Registration Number 6465 On October 7, 1959, it
amended its corporate name into Indian Chamber of
Petitioners' contentions are, however, untenable.
Commerce of the Philippines, Inc., and further amended
The fact that private respondent hires optometrists who
practice their profession in the course of their it into Filipino-Indian Chamber of Commerce of the
employment in private respondent's optical shops, does Philippines, Inc. on
not translate into a practice of optometry by private
respondent itself. Private respondent is a corporation March 4, 1977,. Pursuant to its Articles of Incorporation,
created and organized for the purpose of conducting and without applying for an extension of its corporate
the business of selling optical lenses or eyeglasses, term, the defunct FICCPI's term of existence expired on
among others. The clientele of private respondent
November 24, 2001.
understably, would largely be composed of persons
with defective vision and thus need the proper lenses to SEC Case No. 05-008
correct the same and enable them to gain normal
vision. The determination of the proper lenses to sell to On January 20, 2005, Mr. Naresh Mansukhani
private respondent's clientele entails the employment
(Mansukhani) reserved
of optometrists who have been precisely trained for
that purpose. Private respondent's business is not the the corporate name "Filipino Indian Chamber of
determination itself of the proper lenses needed by Commerce in the Philippines, Inc." (FICCPI), for the
persons with defective vision. Private respondent's period from January 20, 2005 to April 20, 2005, with the
business, rather, is the buying and importing of Company Registration and Monitoring Department
eyeglasses and lenses and other similar or allied (CRMD) of the SEC.8In an opposition letter dated April 1,
instruments from suppliers thereof and selling the same 2005, Ram Sitaldas (Sitaldas), claiming to be a
to consumers.
representative of the defunct FICCPI, alleged that the
For petitioners' argument to hold water, there corporate name has been used by the defunct FICCPI
need be clear showing that RA. No. 1998 prohibits a since 1951, and that the reservation by another person
corporation from hiring optometrists, for only then who is not its member or representative is illegal.
would it be undeniably evident that the intention of the
legislature is to preclude the formation of the so-called
optometry corporations because such is tantamount to The CRMD called the parties for a conference and
the practice of the profession of optometry which is required them to submit their position papers.
legally exercisable only by natural persons and Subsequently, on May 27, 2005, the CRMD rendered a
professional partnerships. We have carefully reviewed decision granting Mansukhani's reservation, holding
RA. No. 1998 however, and we find nothing therein that that he possesses the better right over the corporate
supports petitioner's insistent claims.
name. The CRMD ruled that the defunct FICCPI has no
All told, there is no law that prohibits the hiring by legal personality to oppose the reservation of the
corporations of optometrists or considers the hiring by corporate name by Mansukhani. After the expiration of
corporations of optometrists as a practice by the the defunct FICCPFs corporate existence, without any
corporation itself of the profession of optometry.
act on its part to extend its term, its right over the name
Wherefore, the instant petition is hereby ended. Thus, the name "Filipino Indian Chamber of
dismissed. Costs against the petitioners. Commerce in the Philippines, Inc." is free for
appropriation by any party.
3. Corporate name; LIMITATION ON USE OF On September 27, 2006, the CA affirmed the decision of
CORPORATION NAME the SEC En Banc. It ruled that Mansukhani, reserving the
name 'Filipino Indian Chamber of Commerce in the
Philippines, Inc.," has the of the better right over the
corporate name. It ruled that with the expiration
corporate life of the defunct FICCPI, without an
extension having been filed and granted, it lost its legal
personality as a corporation. Thus, the CA affirmed the HELD:

SEC En Banc ruling that after the expiration of its term,
1. In this case, FICCPI was incorporated on March 14,
the defunct FICCPI's rights over the name also
ended. The CA also cited SEC Memorandum Circular No. 2006. On the other hand, ICCPI was incorporated only
14-200018 which gives protection to corporate names on April 5, 2006, or a month after FICCPI registered its
for a period of three years after the approval of the corporate name. Thus, applying the principle in
dissolution of the corporation. It noted that the the Refractories case (priority of adoption rule), we
reservation for the use of the corporate name "Filipino hold that FICCPI, which was incorporated earlier,
Indian Chamber of Commerce in the Philippines, Inc.," acquired a prior right over the use of the corporate
and the opposition were filed only in January 2005, way name.
beyond this three-year period.
ICCPI cannot argue that it first incorporated and held
SEC Case No. 06-014 the "Filipino Indian Chamber of Commerce," in 1977;
and that it established the name's goodwill until it failed
On December 8, 2005, Mr. Pracash Dayacanl, who
to renew its name due to oversight.49 It is settled that a
allegedly represented the defunct FICCPI, filed an corporation is ipso facto dissolved as soon as its term of
application with the CRMD for the reservation of the existence expires.50 SEC Memorandum Circular No. 14-
corporate name "Indian Chamber of Commerce Phils., 2000 likewise provides for the use of corporate names
Inc." (ICCPI). Upon knowledge, Mansukhani, in a letter of dissolved corporations:
dated February 14, 2006, formally opposed the
application. Mansukhani cited the SEC En Banc decision
in SEC Case No. 05-008 recognizing him as the one 14. The name of a dissolved firm shall not be allowed to
possessing the better right over the corporate name be used by other firms within three (3) years after the
"Filipino Chamber of Commerce in the Philippines, Inc. approval of the dissolution of the corporation by the
Commission, unless allowed by the last stockholders
In a letter dated April 5, 2006 the CRMD denied representing at least majority of the outstanding capital
Mansukhani's opposition. It stated that the name stock of the dissolved firm.
"Indian Chamber of Commerce Phils., Inc." is not
When the term of existence of the defunct FICCPI
deceptively or confusingly similar to "Filipino Indian
expired on November 24, 2001, its corporate name
Chamber of Commerce in the Philippines, Inc." On the
cannot be used by other corporations within three years
same date, the CRMD approved and issued the
from that date, until November 24, 2004. FICCPI
Certificate of Incorporation of petitioner ICCPI.
reserved the name "Filipino Indian Chamber of
the SEC En Bane granted the appeal filed by FICCPI, and Commerce in the Philippines, Inc." on January 20, 2005,
reversed the CRMD's decision. Citing Section 18 of the or beyond the three-year period. Thus, the SEC was
Corporation Code,the SEC En Bane made a finding that correct when it allowed FICCPI to use the reserved
"both from the standpoint of their [ICCPI and FICCPI] corporate name.
corporate names and the purposes for which they were
2. ICCPFs arguments are without merit. These words do
established, there exist[s] a similarity that could
not effectively distinguish the corporate names. On the
inevitably lead to confusion." It also ruled that
one hand, the word "Filipino" is merely a description,
"oppositor [FICCPI] has the prior right to use its
referring to a Filipino citizen or one living in the
corporate name to the exclusion of the others. It was
Philippines, to describe the corporation's members. On
registered with the Commission on March 14, 2006
the other, the words "in the Philippines" and "Phils.,
while respondent [ICCPI] was registered on April 05,
Inc." are simply geographical locations of the
2006. By virtue of oppositor's [FICCPI] prior
corporations which, even if appended to both the
appropriation and use of its name, it is entitled to
corporate names, will not make one distinct from the
protection against the use of identical or similar name
other. Under the facts of this case, these words cannot
of another corporation.
be separated from each other such that each word can
ISSUE: be considered to add distinction to the corporate
names. Taken together, the words in the phrase "in the
1. WoN FICCPI acquired a prior right over Philippines" and in the phrase "Phils. Inc." are
the use of the corporate name. synonymous—they both mean the location of the
corporation.
2. WoN ICCPI's name is identical and
deceptively or confusingly similar to Petitioner cannot argue that the combination of words
that of FICCPI. in respondent's corporate name is merely descriptive
and generic, and consequently cannot be appropriated

as a corporate name to the exclusion of the For the prohibition to apply, 2 requisites must be
others.57 Save for the words "Filipino," "in the," and present:
"Inc.," the corporate names of petitioner and (1) the complainant corporation must have acquired a
respondent are identical in all other respects. prior right over the use of such corporate name and
On the second point, ICCPI's corporate name is (2) the proposed name is either identical or deceptively
deceptively or confusingly similar to that of FICCPI. It is or confusingly similar to that of any existing corporation
settled that to determire the existence of confusing or to any other name already protected by law or
similarity in corporate names, the test is whether the patently deceptive, confusing or contrary to existing
similarity is such as to mislead a person, using ordinary law.
care and discrimination. In so doing, the court must
examine the record as well as the names
With regard to the 1st requisite, PEBV adopted the
themselves.59 Proof of actual confusion need not be
name “Philips” part of its name 26 years before
shown. It suffices that confusion is probably or likely to
occur.60chanrobleslaw Standard Philips. As regards the 2nd, the test for the
existence of confusing similarity is whether the
In this case, the overriding consideration in determining similarity is such as to mislead a person using ordinary
wheiher a person, using ordinary care and care and discrimination. Standard Philips only contains
discrimination, might be misled is the circumstance that one word, “Standard”, different from that of PEBV. The
both ICCPI and FICCPI have a common primary purpose, 2 companies’ products are also the same, or cover the
that is, the promotion of Filipino-Indian business in the same line of products. Although PEBV primarily deals
Philippines. with electrical products, it has also shipped to its
subsidiaries machines and parts which fall under the
classification of “chains, rollers, belts, bearings and
cutting saw”, the goods which Standard Philips also
2) Philips Export B.V. vs. CA produce. Also, among Standard Philips’ primary
FACTS: purposes are to buy, sell trade x x x electrical wiring
devices, electrical component, electrical supplies. Given
Philips Export B.V. (PEBV) filed with the SEC for the these, there is nothing to prevent Standard Philips from
cancellation of the word “Philips” the corporate name dealing in the same line of business of electrical devices.
of Standard Philips Corporation in view of its prior The use of “Philips” by Standard Philips tends to show
registration with the Bureau of Patents and the SEC. its intention to ride on the popularity and established
However, Standard Philips refused to amend its Articles goodwill of PEBV.
of Incorporation so PEBV filed with the SEC a petition
for the issuance of a Writ of Preliminary Injunction,
however this was denied ruling that it can only be done 3) Universal Mills Corporation vs Universal Textile
when the corporate names are identical and they have Mills, Inc.
at least 2 words different. This was affirmed by the SEC
en banc and the Court of Appeals thus the case at bar. FACTS:
ISSUE: In 1953, Universal Textile Mills, Inc. (UTMI) was

organized. In 1954, Universal Hosiery Mills Corporation
Whether or not Standard Philips can be enjoined from (UHMC) was also organized. Both are actually distinct
using Philips in its corporate name. corporations but they engage in the same business
(fabrics). In 1963, UHMC petitioned to change its name
RULING: YES to Universal Mills Corporation (UMC). The Securities
and Exchange Commission (SEC) granted the petition.
A corporation’s right to use its corporate and trade
Subsequently, a warehouse owned by UMC was gutted
name is a property right, a right in rem, which it may
by fire. News about the fire spread and investors of
assert and protect against the whole world. According UTMI thought that it was UTMI’s warehouse that was
to Sec. 18 of the Corporation Code, no corporate name destroyed. UTMI had to make clarifications that it was
may be allowed if the proposed name is identical or UMC’s warehouse that got burned. Eventually, UTMI
deceptively confusingly similar to that of any existing petitioned that UMC should be enjoined from using its
corporation or to any other name already protected by name because of the confusion it brought. The SEC
granted UTMI’s petition. UMC however assailed the
law or is patently deceptive, confusing or contrary to
order of the SEC as it averred that their tradename is
existing law.
not deceptive; that UTMI’s tradename is qualified by ISSUE: 1.) Whether or not there is a need for petitioner
the word “Textile”, hence, there can be no confusion. Industrial Refractories to change its corporate name on
ISSUE: Whether or not the decision of the SEC is correct. the ground of confusing similarity with that of the
respondent’s. –YES
HELD: Yes. There is definitely confusion as it was
evident from the facts where the investors of UTMI
2.) Whether SEC has jurisdiction over the case. -YES
mistakenly believed that it was UTMI’s warehouse that
was destroyed. Although the corporate names are not RULING: 1.) Petitioner must change its corporate name.
really identical, they are indisputably so similar that it
can cause, as it already did, confusion. The SEC did not Confusing and deceptive similarity of corporate names
act in abuse of its discretion when it order UMC to drop is prohibited under Section 18 of the Corporation Code.
its name because there was a factual evidence
The policy behind the prohibition is to avoid fraud upon
presented as to the confusion. Further, when UMC filed
its petition for change of corporate name, it made an the public that will have the occasion to deal with the
undertaking that it shall change its name in the event entity concerned, the evasion of legal obligations
that there is another person, firm or entity who has and duties, and the reduction of difficulties of
obtained a prior right to the use of such name or one administration and supervision over the corporation.
similar to it. That promise is still binding upon the
corporation and its responsible officers. Pursuant to the said law, the Revised Guidelines in
the Approval of Corporate and Partnership Names
specifically requires that: (1) corporate name shall not
4.) INDUSTRIAL REFRACTORIES CORPORATION OF THE be identical, misleading or confusingly similar to one
PHILIPPINES, petitioner, v. COURT OF APPEALS, already registered by another corporation with the
SECURITIES AND EXCHANGE COMMISSION and Commission, and (2) if the proposed name is similar to
REFRACTORIES CORPORATION OF THE PHILIPPINES, the name of a registered firm, the proposed name must
respondents , G.R. 122174 (2002) contain at least one distinctive word different from the
name of the company already registered.
FACTS: Respondent Refractories Corporation of the
Philippines (Refractories Corp) is a corporation duly Further, as held in Philips Export B.V. v. Court of
organized on 1976 engaged in the business of Appeals, to fall within the prohibition of the law, two
manufacturing, producing, selling, exporting and requisites must be proven, to wit: (1) that the
otherwise dealing in any and all refractory bricks, its by- complainant corporation acquired a prior right over the
products and derivatives. use of such corporate name, and (2) the proposed name
is either identical, deceptively or confusingly similar to
Petitioner Industrial Refractories Corporation (Industrial
that of any existing corporation or to any other name
Refractories) on the other hand, was incorporated in
protected by law, or patently deceptive, confusing or
1979 originally under the name Synclaire Manufacturing
contrary to existing law.
Corporation. Its amended Articles of Incorporation
changed its corporate name. It is engaged in the Moreover, as to the first requisite or the Priority of
business of manufacture of all kinds of ceramics and Adoption rule, the Court says that the right to the
other products. exclusive use of a corporate name with the freedom
from infringement by similarity is determined by priority
Both companies are local suppliers of monolithic
of adoption. In this case, respondent Refractories Corp
gunning mix.
was incorporated in 1976 while petitioner Industrial
When respondent Refractories Corp discovered that Refractories, incorporated in 1979, only started using its
petitioner was using such corporate name, they filed name when it amended its Articles of Incorporation
before the Securities and Exchange Commission a in1985. Hence, being the prior registrant, Refractories
petition to compel petitioner to change its corporate Corp has acquired the right to use ‘Refractories’ as part
name on the ground that it is confusingly similar with of its corporate name.
that of petitioners such that the public may be confused
Lastly, with respect to the second requisite, in
or deceived into believing that they are one and the
determining the existence of confusing similarity in
same corporation.
corporate names, the test is whether the similarity is
On appeal, petitioner Industrial Refractories such as to mislead a person using ordinary care and
contended that there is no confusing similarity discrimination and the Court must look to the record as
between their corporate names, hence, the said well as the names themselves. The Court stressed the
complaint must be denied. fact that petitioner’s corporate name is “Industrial
Refractories Corporation of the Philippines”, while
respondent is “Refractories Corporation of the Corporation Code, one of which is Section 18, which
Philippines”. Obviously, both names contain the words: provides:
‘refractories’, ‘corporation’ and ‘Philippines’. The only
word that distinguishes the former from the latter is the SEC. 18. Corporate name. -- No corporate name may be
word ‘Industrial’, which merely identifies a allowed by the Securities and Exchange Commission if
corporation’s general field of activities or operation. We the proposed name is identical or deceptively or
need not linger on these two corporate names to confusingly similar to that of any existing corporation or
conclude that they are patently similar that even with to any other name already protected by law or is
reasonable care and observation, confusion might patently deceptive, confusing or contrary to existing
arise. It must be noted that both cater to the same laws. When a change in the corporate name is
clientele, i.e. the steel industry. In fact, the SEC found approved, the Commission shall issue an amended
that there were instances when different steel certificate of incorporation under the amended name.
companies were actually confused between the two, It is the SECs duty to prevent confusion in the use of
especially since they also have similar product corporate names not only for the protection of the
packaging. Such findings are accorded not only great corporations involved but more so for the protection of
respect but even finality, and are binding upon this the public, and it has authority to de-register at all times
Court, unless it is shown that it had arbitrarily and under all circumstances corporate names which in
disregarded or misapprehended evidence before it to its estimation are likely to generate confusion. Clearly
such an extent as to compel a contrary conclusion had therefore, the present case falls within the ambit of the
such evidence been properly appreciated. And even SECs regulatory powers.
without such proof of actual confusion between the two
corporate names, it suffices that confusion is probable
or likely to occur. 5) GSIS FAMILY BANK - THRIFT BANK [Formerly Inc.],
vs.
Refractory materials are described as follows:
Refractories are structural materials used at high BPI FAMILY BANK,
temperatures to [sic] industrial furnaces. They are
supplied mainly in the form of brick of standard sizes FACTS:
and of special shapes. Refractories also include
Petitioner was originally organized as Royal Savings
refractory cements, bonding mortars, plastic firebrick,
Bank and started operations in 1971. Beginning 1983
castables, ramming mixtures, and other bulk materials
and 1984, petitioner encountered liquidity problems.
such as dead-burned grain magneside, chrome or
On July 9, 1984, it was placed under receivership and
ground ganister and special clay.
later temporarily closed by the Central Bank of the
While the word refractories is a generic term, its usage Philippines. Two (2) months after its closure, petitioner
is not widespread and is limited merely to the reopened and was renamed Comsavings Bank, Inc.
industry/trade in which it is used, and its continuous use under the management of the Commercial Bank of
by respondent RCP for a considerable period has made Manila.
the term so closely identified with it. Moreover, as held
In 1987, the Government Service Insurance System
in the case of Ang Kaanib sa Iglesia ng Dios kay Kristo
(GSIS) acquired petitioner from the Commercial Bank of
Hesus, H.S.K. sa Bansang Pilipinas, Inc. vs. Iglesia ng
Manila. Petitioner's management and control was thus
Dios kay Cristo Jesus, Haligi at Suhay ng
transferred to GSIS. To improve its marketability to the
Katotohanan, petitioners appropriation of respondent's
public, especially to the members of the GSIS, petitioner
corporate name cannot find justification under the
sought SEC's approval to change its corporate name to
generic word rule. A contrary ruling would encourage
"GSIS Family Bank, a Thrift Bank."
other corporations to adopt verbatim and register an
existing and protected corporate name, to the Petitioner likewise applied with the Department of
detriment of the public. Trade and Industry (DTI) and Bangko Sentral ng Pilpinas
(BSP) for authority to use "GSIS Family Bank, a Thrift
2.) The jurisdiction of the SEC is not merely confined to
Bank" as its business name. The DTI and the BSP
the adjudicative functions provided in Section 5 of P.D.
approved the applications. Thus, petitioner operates
902-A, as amended. By express mandate, it has absolute
under the corporate name "GSIS Family Bank – a Thrift
jurisdiction, supervision and control over all
Bank," pursuant to the DTI Certificate of Registration
corporations. It also exercises regulatory and
No. 741375 and the Monetary Board Circular approval.
administrative powers to implement and enforce the
Respondent BPI Family Bank was a product of the The SEC CRMD declared that upon the merger of FBTC
merger between the Family Bank and Trust Company with the BPI in 1985, the latter acquired the right to the
(FBTC) and the Bank of the Philippine Islands (BPI). On use of the name of the absorbed corporation. Thus, BPI
June 27, 1969, the Gotianum family registered with the Family Bank has a prior right to the use of the name
SEC the corporate name "Family First Savings Bank," Family Bank in the banking industry, arising from its
which was amended to "Family Savings Bank," and then long and extensive nationwide use, coupled with its
later to "Family Bank and Trust Company." Since its registration with the Intellectual Property Office (IPO) of
incorporation, the bank has been commonly known as the name "Family Bank" as its trade name. Applying the
"Family Bank." In 1985, Family Bank merged with BPI, rule of "priority in registration" based on the legal
and the latter acquired all the rights, privileges, maxim first in time, first in right, the SEC CRMD
properties, and interests of Family Bank, including the concluded that BPI has the preferential right to the use
right to use names, such as "Family First Savings Bank," of the name "Family Bank." More, GSIS and Comsavings
Bank were then fully aware of the existence and use of
"Family Bank," and "Family Bank and Trust Company." the name "Family Bank" by FBTC prior to the latter's
BPI Family Savings Bank was registered with the SEC as merger with BPI.
a wholly-owned subsidiary of BPI. BPI Family Savings
Bank then registered with the Bureau of Domestic Trade The SEC CRMD also held that there exists a confusing
the trade or business name "BPI Family Bank," and similarity between the corporate names BPI Family Bank
acquired a reputation and goodwill under the name. and GSIS Family Bank. It explained that although not
identical, the corporate names are indisputably similar,
Proceedings before the SEC as to cause confusion in the public mind, even with the
Eventually, it reached respondent’s attention that exercise of reasonable care and observation, especially
petitioner is using or attempting to use the name so since both corporations are engaged in the banking
"Family Bank." Thus, on March 8, 2002, respondent business.
petitioned the SEC Company Registration and In a decision, the SEC CRMD said, PREMISES
Monitoring Department (SEC CRMD) to disallow or CONSIDERED respondent GSIS FAMILY BANK is hereby
prevent the registration of the name "GSIS Family Bank" directed to refrain from using the word "Family" as part
or any other corporate name with the words "Family of its name and make good its commitment to change
Bank" in it. its name by deleting or dropping the subject word from
Respondent claimed exclusive ownership to the name its corporate name within [thirty (30) days] from the
"Family Bank," having acquired the name since its date of actual receipt hereof.
purchase and merger with Family Bank and Trust Petitioner appealed the decision to the SEC En Banc,
Company way back 1985. Respondent also alleged that which denied the appeal, and upheld the SEC CRMD in
through the years, it has been known as "BPI Family the SEC En Banc Decision. Petitioner elevated the SEC
Bank" or simply "Family Bank" both locally and En Banc Decision to the Court of Appeals.
internationally. As such, it has acquired a reputation
and goodwill under the name, not only with clients here Court of Appeals:
and abroad, but also with correspondent and
competitor banks, and the public in general. The Court of Appeals ruled that the approvals by the
BSP and by the DTI of petitioner’s application to use the
Respondent prayed the SEC CRMD to disallow or name "GSIS Family Bank" do not constitute authority for
prevent the registration of the name "GSIS Family Bank" its lawful and valid use. It said that the SEC has absolute
or any other corporate name with the words "Family jurisdiction, supervision and control over all
Bank" should the same be presented for registration. corporations.
Respondent likewise prayed the SEC CRMD to issue an
order directing petitioner or any other corporation to Further, te Court of Appeals held that respondent was
change its corporate name if the names have already entitled to the exclusive use of the corporate name
been registered with the SEC. because of its prior adoption of the name "Family Bank"
since 1969. There is confusing similarity in the corporate
The SEC CRMD was thus confronted with the issue of names because "[c]onfusion as to the possible
whether the names BPI Family Bank and GSIS Family association with GSIS might arise if we were to allow
Bank are confusingly similar as to require the Comsavings Bank to add its parent company’s acronym,
amendment of the name of the latter corporation. ‘GSIS’ to ‘Family Bank.’ This is true especially
considering both companies belong to the banking
industry. Proof of actual confusion need not be shown. These two requisites are present in this case. On the
It suffices that confusion is probably or likely to occur." first requisite of a prior right, Industrial Refractories
Corporation of the Philippines v. Court of Appeals (IRCP
After its Motion for Reconsideration was denied, case) is instructive. In that case, Refractories
petitioner brought the decision to this Court via a Corporation of the Philippines (RCP) filed before the SEC
Petition for Review on Certiorari. a petition to compel Industrial Refractories Corporation
ISSUES: of the Philippines (IRCP) to change its corporate name
on the ground that its corporate name is confusingly
1. Whether or not the Court of Appeals gravely similar with that of RCP’s such that the public may be
erred in affirming the SEC Resolution finding the confused into believing that they are one and the same
word "Family" not generic despite its corporation. The SEC and the Court of Appeals found for
unregistered status with the IPO of the Bureau petitioner, and ordered IRCP to delete or drop from its
of Patents and the use by GSIS-Family Bank in corporate name the word "Refractories." Upon appeal
its corporate name of the words "[F]amily of IRCP, this Court upheld the decision of the CA.
[B]ank" as deceptive and [confusingly similar] to
the name BPI Family Bank. Applying the priority of adoption rule to determine prior
right, this Court said that RCP has acquired the right to
2. Whether or Not Court of Appeals gravely erred use the word "Refractories" as part of its corporate
when it completely disregarded the opinion of name, being its prior registrant. In arriving at this
the Banko Sentral ng Pilipinas that the use by conclusion, the Court considered that RCP was
the herein petitioner of the trade name GSIS incorporated on October 13, 1976 and since then
Family Bank – Thrift Bank is not similar or does continuously used the corporate name "Refractories
not deceive or likely cause any deception to the Corp. of the Philippines." Meanwhile, IRCP only started
public. using its corporate name "Industrial Refractories Corp.
of the Philippines" when it amended its Articles of
RULING:
Incorporation on August 23, 1985.
We uphold the decision of the Court of Appeals.
In this case, respondent was incorporated in 1969 as
Section 18 of the Corporation Code provides, Family Savings Bank and in 1985 as BPI Family Bank.
Petitioner, on the other hand, was incorporated as GSIS
Section 18. Corporate name. – No corporate name may Family – Thrift Bank only in 2002, or at least seventeen
be allowed by the Securities and Exchange Commission (17) years after respondent started using its name.
if the proposed name is identical or deceptively or Following the precedent in the IRCP case, we rule that
confusingly similar to that of any existing corporation or respondent has the prior right over the use of the
to any other name already protected by law or is corporate name.
patently deceptive, confusing or contrary to existing
laws. When a change in the corporate name is The second requisite in the Philips Export case likewise
approved, the Commission shall issue an amended obtains on two points: the proposed name is (a)
certificate of incorporation under the amended name. identical or (b) deceptive or confusingly similar to that
of any existing corporation or to any other name
In Philips Export B.V. v. Court of Appeals, this Court already protected by law.
ruled that to fall within the prohibition of the law on the
right to the exclusive use of a corporate name, two On the first point (a), the words "Family Bank" present
requisites must be proven, namely: in both petitioner and respondent's corporate name
satisfy the requirement that there be identical names in
(1) that the complainant corporation acquired a prior the existing corporate name and the proposed one.
right over the use of such corporate name; and
Respondent cannot justify its claim under Section 3 of
(2) the proposed name is either the Revised Guidelines in the Approval of Corporate and
Partnership Names, to wit:
(a) identical or
3. The name shall not be identical, misleading or
(b) deceptive or confusingly similar to that of any
confusingly similar to one already registered by another
existing corporation or to any other name already
corporation or partnership with the Commission or a
protected by law; or
sole proprietorship registered with the Department of
(c) patently deceptive, confusing or contrary to existing Trade and Industry.
law.
If the proposed name is similar to the name of a the SEC. In determining the existence of confusing
registered firm, the proposed name must contain at similarity in corporate names, the test is whether the
least one distinctive word different from the name of similarity is such as to mislead a person using ordinary
the company already registered. care and discrimination. And even without such proof of
actual confusion between the two corporate names, it
Section 3 states that if there be identical, misleading or suffices that confusion is probable or likely to occur.
confusingly similar name to one already registered by
another corporation or partnership with the SEC, the Petitioner's corporate name is "GSIS Family Bank—A
proposed name must contain at least one distinctive Thrift Bank" and respondent's corporate name is "BPI
word different from the name of the company already Family Bank." The only words that distinguish the two
registered. To show contrast with respondent's are "BPI," "GSIS," and "Thrift." The first two words are
corporate name, petitioner used the words "GSIS" and merely the acronyms of the proper names by which the
"thrift." But these are not sufficiently distinct words that two corporations identify themselves; and the third
differentiate petitioner's corporate name from word simply describes the classification of the bank. The
respondent's. While "GSIS" is merely an acronym of the overriding consideration in determining whether a
proper name by which petitioner is identified, the word person, using ordinary care and discrimination, might be
"thrift" is simply a classification of the type of bank that misled is the circumstance that both petitioner and
petitioner is. Even if the classification of the bank as respondent are engaged in the same business of
"thrift" is appended to petitioner's proposed corporate banking. "The likelihood of confusion is accentuated in
name, it will not make the said corporate name distinct cases where the goods or business of one corporation
from respondent's because the latter is likewise are the same or substantially the same to that of
engaged in the banking business. another corporation."
This Court used the same analysis in Ang mga Kaanib sa Findings of fact of quasi-judicial agencies, like the SEC,
Iglesia ng Dios Kay Kristo Hesus, H.S.K. sa Bansang are generally accorded respect and even finality by this
Pilipinas, Inc. v. Iglesia ng Dios Kay Cristo Jesus, Haligi at Court, if supported by substantial evidence, in
Suhay ng Katotohanan. In that case, Iglesia ng Dios Kay recognition of their expertise on the specific matters
Cristo Jesus filed a case before the SEC to compel Ang under their consideration, more so if the same has been
mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus to upheld by the appellate court, as in this case.
change its corporate name, and to prevent it from using
the same or similar name on the ground that the same Petitioner cannot argue that the word "family" is a
causes confusion among their members as well as the generic or descriptive name, which cannot be
public. Ang mga Kaanib sa Iglesia ng Dios Kay Kristo appropriated exclusively by respondent. "Family," as
Hesus claimed that it complied with SEC Memorandum used in respondent's corporate name, is not generic.
Circular No. 14-2000 by adding not only two, but eight Generic marks are commonly used as the name or
words to their registered name, to wit: "Ang Mga description of a kind of goods, such as "Lite" for beer or
Kaanib" and "Sa Bansang Pilipinas, Inc.," which "Chocolate Fudge" for chocolate soda drink. Descriptive
effectively distinguished it from Iglesia ng Dios Kay marks, on the other hand, convey the characteristics,
Cristo Jesus. This Court rejected the argument, thus: function, qualities or ingredients of a product to one
who has never seen it or does not know it exists, such as
The additional words "Ang Mga Kaanib" and "Sa "Arthriticare" for arthritis medication.
Bansang Pilipinas, Inc." in petitioner's name are, as
correctly observed by the SEC, merely descriptive of and Under the facts of this case, the word "family" cannot
also referring to the members, or kaanib, of respondent be separated from the word "bank." In asserting their
who are likewise residing in the Philippines. These claims before the SEC up to the Court of Appeals, both
words can hardly serve as an effective differentiating petitioner and respondent refer to the phrase "Family
medium necessary to avoid confusion or difficulty in Bank" in their submissions. This coined phrase, neither
distinguishing petitioner from respondent. This is being generic nor descriptive, is merely suggestive and
especially so, since both petitioner and respondent may properly be regarded as arbitrary. Arbitrary marks
corporations are using the same acronym – H.S.K.; not are "words or phrases used as a mark that appear to be
to mention the fact that both are espousing religious random in the context of its use. They are generally
beliefs and operating in the same place. Xxx considered to be easily remembered because of their
arbitrariness. They are original and unexpected in
On the second point (b), there is a deceptive and relation to the products they endorse, thus, becoming
confusing similarity between petitioner's proposed themselves distinctive." Suggestive marks, on the other
name and respondent's corporate name, as found by hand, "are marks which merely suggest some quality or
ingredient of goods. xxx The strength of the suggestive respondent’s bank is where family savings should be
marks lies on how the public perceives the word in deposited. More, as in the Ang case, the phrase "family
relation to the product or service." bank" cannot be used to define an object.
In Ang v. Teodoro, this Court ruled that the words "Ang Petitioner’s argument that the opinion of the BSP and
Tibay" is not a descriptive term within the meaning of the certificate of registration granted to it by the DTI
the Trademark Law but rather a fanciful or coined constitute authority for it to use "GSIS Family Bank" as
phrase. In so ruling, this Court considered the corporate name is also untenable.
etymology and meaning of the Tagalog words, "Ang
Tibay" to determine whether they relate to the quality The enforcement of the protection accorded by Section
or description of the merchandise to which respondent 18 of the Corporation Code to corporate names is
therein applied them as trademark, thus: lodged exclusively in the SEC. The jurisdiction of the SEC
is not merely confined to the adjudicative functions
We find it necessary to go into the etymology and provided in Section 5 of the SEC Reorganization Act, as
meaning of the Tagalog words "Ang Tibay" to determine amended. By express mandate, the SEC has absolute
whether they are a descriptive term, i.e., whether they jurisdiction, supervision and control over all
relate to the quality or description of the merchandise corporations. It is the SEC’s duty to prevent confusion in
to which respondent has applied them as a trade-mark. the use of corporate names not only for the protection
The word "ang" is a definite article meaning "the" in of the corporations involved, but more so for the
English. It is also used as an adverb, a contraction of the protection of the public. It has authority to de-register
word "anong" (what or how). For instance, instead of at all times, and under all circumstances corporate
saying, "Anong ganda!" ("How beautiful!"), we names which in its estimation are likely to generate
ordinarily say, "Ang ganda!" Tibay is a root word from confusion.
which are derived the verb magpatibay (to strengthen);
the nouns pagkamatibay (strength, durability), The SEC correctly applied Section 18 of the Corporation
katibayan (proof, support, strength), katibaytibayan Code, and Section 15 of SEC Memorandum Circular No.
(superior strength); and the adjectives matibay (strong, 14-2000, pertinent portions of which provide:
durable, lasting), napakatibay (very strong), kasintibay In implementing Section 18 of the Corporation Code of
or magkasintibay (as strong as, or of equal strength). the Philippines (BP 69), the following revised guidelines
The phrase "Ang Tibay" is an exclamation denoting in the approval of corporate and partnership names are
admiration of strength or durability. For instance, one hereby adopted for the information and guidance of all
who tries hard but fails to break an object exclaims, concerned:
"Ang tibay!" ("How strong!") It may also be used in a
sentence thus, "Ang tibay ng sapatos mo!" ("How 15. Registrant corporations or partnership shall submit a
durable your shoes are!") The phrase "ang tibay" is letter undertaking to change their corporate or
never used adjectively to define or describe an object. partnership name in case another person or firm has
One does not say, "ang tibay sapatos" or "sapatos ang acquired a prior right to the use of the said firm name
tibay" to mean "durable shoes," but "matibay na or the same is deceptively or confusingly similar to one
sapatos" or "sapatos na matibay." already registered unless this undertaking is already
included as one of the provisions of the articles of
From all of this we deduce that "Ang Tibay" is not a incorporation or partnership of the registrant.
descriptive term within the meaning of the Trade-Mark
Law but rather a fanciful or coined phrase which may The SEC, after finding merit in respondent's claims, can
properly and legally be appropriated as a trade-mark or compel petitioner to abide by its commitment "to
trade-name. Xxx (Underscoring supplied). change its corporate name in the event that another
person, firm or entity has acquired a prior right to use of
The word "family" is defined as "a group consisting of said name or one similar to it."
parents and children living together in a household" or
"a group of people related to one another by blood or Clearly, the only determination relevant to this case is
marriage." Bank, on the other hand, is defined as "a that one made by the SEC in the exercise of its express
financial establishment that invests money deposited by mandate under the law. The BSP opinion invoked by
customers, pays it out when requested, makes loans at petitioner even acknowledges that "the issue on
interest, and exchanges currency." whether a proposed name is identical or deceptively
similar to that of any of existing corporation is matter
By definition, there can be no expected relation within the official jurisdiction and competence of the
between the word "family" and the banking business of SEC."
respondent. Rather, the words suggest that
Judicial notice may also be taken of the action of the Petitioner's original complaint before the SEC had
IPO in approving respondent’s registration of the included three (3) other entities:
trademark "BPI Family Bank" and its logo on October
17, 2008. The certificate of registration of a mark shall 1. The Lyceum of Malacanay;
be prima facie evidence of the validity of the 2. The Lyceum of Marbel; and
registration, the registrant’s ownership of the mark, and
of the registrant’s exclusive right to use the same in 3. The Lyceum of Araullo
connection with the goods or services and those that
The complaint was later withdrawn insofar as
are related thereto specified in the certificate.
concerned the Lyceum of Malacanay and the Lyceum of
Marbel, for failure to serve summons upon these two
(2) entities. The case against the Liceum of Araullo was
6) LYCEUM OF THE PHILIPPINES vs dismissed when that school motu proprio change its
LYCEUM OF APARRI ET AL. corporate name to "Pamantasan ng Araullo."
FACTS: Petitioner had sometime before commenced in the SEC

a proceeding (SEC-Case No. 1241) against the Lyceum of
Petitioner is an educational institution duly registered Baguio, Inc. to require it to change its corporate name
with the Securities and Exchange Commission ("SEC"). and to adopt another name not "similar [to] or
When it first registered with the SEC on 21 September identical" with that of petitioner. In an Order dated 20
1950, it used the corporate name Lyceum of the April 1977, Associate Commissioner Julio Sulit held that
Philippines, Inc. and has used that name ever since. the corporate name of petitioner and that of the
Lyceum of Baguio, Inc. were substantially identical
On 24 February 1984, petitioner instituted proceedings because of the presence of a "dominant" word, i.e.,
before the SEC to compel the private respondents "Lyceum," the name of the geographical location of the
(educational institutions) to delete the word "Lyceum" campus being the only word which distinguished one
from their corporate names and permanently to enjoin from the other corporate name. The SEC also noted that
them from using "Lyceum" as part of their respective
petitioner had registered as a corporation ahead of the
names. Lyceum of Baguio, Inc. in point of time, 1 and ordered
Some of the private respondents actively participated in the latter to change its name to another name "not
the proceedings before the SEC. These are the similar or identical [with]" the names of previously
following, the dates of their original SEC registration registered entities.
being set out below opposite their respective names: The Lyceum of Baguio, Inc. assailed the Order of the SEC
Western Pangasinan Lyceum — 27 October 1950 before the Supreme Court. In a Minute Resolution
dated 14 September 1977, the Court denied the Petition
Lyceum of Cabagan — 31 October 1962 for Review for lack of merit. Entry of judgment in that
case was made on 21 October 1977.
Lyceum of Lallo, Inc. — 26 March 1972
Petitioner then wrote all the educational institutions it
Lyceum of Aparri — 28 March 1972
could find using the word "Lyceum" as part of their
Lyceum of Tuao, Inc. — 28 March 1972 corporate name, and advised them to discontinue such
use of "Lyceum." When, with the passage of time, it
Lyceum of Camalaniugan — 28 March 1972 became clear that this recourse had failed, petitioner
instituted before the SEC SEC-Case No. 2579 to enforce
The following private respondents were declared in
what petitioner claims as its proprietary right to the
default for failure to file an answer despite service of
word "Lyceum." The SEC hearing officer rendered a
summons:
decision sustaining petitioner's claim to an exclusive
Buhi Lyceum; right to use the word "Lyceum." The hearing officer
relied upon the SEC ruling in the Lyceum of Baguio, Inc.
Central Lyceum of Catanduanes; case (SEC-Case No. 1241) and held that the word
"Lyceum" was capable of appropriation and that
Lyceum of Eastern Mindanao, Inc.; and
petitioner had acquired an enforceable exclusive right
Lyceum of Southern Philippines to the use of that word.
On appeal, the decision of the hearing officer was

reversed and set aside. The SEC En Banc did not
consider the word "Lyceum" to have become so and the reduction of difficulties of administration and
identified with petitioner as to render use thereof by supervision over corporations.
other institutions as productive of confusion about the
identity of the schools concerned in the mind of the We do not consider that the corporate names of private
general public. Unlike its hearing officer, the SEC En respondent institutions are "identical with, or
Banc held that the attaching of geographical names to deceptively or confusingly similar" to that of the
the word "Lyceum" served sufficiently to distinguish the petitioner institution. True enough, the corporate
schools from one another, especially in view of the fact names of private respondent entities all carry the word
that the campuses of petitioner and those of the private "Lyceum" but confusion and deception are effectively
respondents were physically quite remote from each precluded by the appending of geographic names to the
other. word "Lyceum." Thus, we do not believe that the
"Lyceum of Aparri" can be mistaken by the general
Petitioner then went on appeal to the Court of Appeals. public for the Lyceum of the Philippines, or that the
However, the Court of Appeals affirmed the questioned "Lyceum of Camalaniugan" would be confused with the
Orders of the SEC En Banc. Petitioner filed a motion for Lyceum of the Philippines.
reconsideration, without success.
Etymologically, the word "Lyceum" is the Latin word for
ISSUES: the Greek lykeion which in turn referred to a locality on
the river Ilissius in ancient Athens "comprising an
1. WON the Court of Appeals erred in holding that enclosure dedicated to Apollo and adorned with
respondent Western Pangasinan Lyceum, Inc. was fountains and buildings erected by Pisistratus, Pericles
incorporated earlier than petitioner. and Lycurgus frequented by the youth for exercise and
2. WON he Court of Appeals erred in holding that the by the philosopher Aristotle and his followers for
word Lyceum has not acquired a secondary meaning in teaching." In time, the word "Lyceum" became
favor of petitioner. associated with schools and other institutions providing
public lectures and concerts and public discussions.
3. WON the Court of Appeals erred in holding that Thus today, the word "Lyceum" generally refers to a
Lyceum as a generic word cannot be appropriated by school or an institution of learning. While the Latin
the petitioner to the exclusion of others. word "lyceum" has been incorporated into the English
language, the word is also found in Spanish (liceo) and
RULING:
in French (lycee).
The Articles of Incorporation of a corporation must,
As the Court of Appeals noted in its Decision, Roman
among other things, set out the name of the
Catholic schools frequently use the term; e.g., "Liceo de
corporation. Section 18 of the Corporation Code
Manila," "Liceo de Baleno" (in Baleno, Masbate), "Liceo
establishes a restrictive rule insofar as corporate names
de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as
are concerned:
generic in character as the word "university." In the
"SECTION 18. Corporate name. — No corporate name name of the petitioner, "Lyceum" appears to be a
may be allowed by the Securities an Exchange substitute for "university;" in other places, however,
Commission if the proposed name is identical or "Lyceum," or "Liceo" or "Lycee" frequently denotes a
deceptively or confusingly similar to that of any existing secondary school or a college. It may be (though this is a
corporation or to any other name already protected by question of fact which we need not resolve) that the
law or is patently deceptive, confusing or contrary to use of the word "Lyceum" may not yet be as widespread
existing laws. When a change in the corporate name is as the use of "university," but it is clear that a not
approved, the Commission shall issue an amended inconsiderable number of educational institutions have
certificate of incorporation under the amended name." adopted "Lyceum" or "Liceo" as part of their corporate
(Emphasis supplied) names. Since "Lyceum" or "Liceo" denotes a school or
institution of learning, it is not unnatural to use this
The policy underlying the prohibition in Section 18 word to designate an entity which is organized and
against the registration of a corporate name which is operating as an educational institution.
"identical or deceptively or confusingly similar" to that
of any existing corporation or which is "patently It is claimed, however, by petitioner that the word
deceptive" or "patently confusing" or "contrary to "Lyceum" has acquired a secondary meaning in relation
existing laws," is the avoidance of fraud upon the public to petitioner with the result that that word, although
which would have occasion to deal with the entity originally a generic, has become appropriable by
concerned, the evasion of legal obligations and duties,
petitioner to the exclusion of other institutions like convey that the cross-claimant was already using the
private respondents herein. word 'Lyceum' seventeen (17) years prior to the date
the appellant started using the same word in its
The doctrine of secondary meaning originated in the corporate name. Furthermore, educational institutions
field of trademark law. Its application has, however, of the Roman Catholic Church had been using the same
been extended to corporate names sine the right to use or similar word like 'Liceo de Manila,' 'Liceo de Baleno'
a corporate name to the exclusion of others is based (in Baleno, Masbate), 'Liceo de Masbate,' 'Liceo de
upon the same principle which underlies the right to use Albay' long before appellant started using the word
a particular trademark or tradename. In Philippine Nut 'Lyceum'. The appellant also failed to prove that the
Industry, Inc. v. Standard Brands, Inc., the doctrine of word 'Lyceum' has become so identified with its
secondary meaning was elaborated in the following educational institution that confusion will surely arise in
terms: the minds of the public if the same word were to be
" . . . a word or phrase originally incapable of exclusive used by other educational institutions.
appropriation with reference to an article on the
In other words, while the appellant may have proved
market, because geographically or otherwise that it had been using the word 'Lyceum' for a long
descriptive, might nevertheless have been used so long period of time, this fact alone did not amount to mean
and so exclusively by one producer with reference to his that the said word had acquired secondary meaning in
article that, in that trade and to that branch of the its favor because the appellant failed to prove that it
purchasing public, the word or phrase has come to had been using the same word all by itself to the
mean that the article was his product." exclusion of others. More so, there was no evidence
"Under the doctrine of secondary meaning, a word or presented to prove that confusion will surely arise if the
phrase originally incapable of exclusive appropriation same word were to be used by other educational
with reference to an article in the market, because institutions. Consequently, the allegations of the
geographical or otherwise descriptive might appellant in its first two assigned errors must
nevertheless have been used so long and so exclusively necessarily fail." 13 (Underscoring partly in the original
by one producer with reference to this article that, in and partly supplied)
that trade and to that group of the purchasing public, We agree with the Court of Appeals. The number alone
the word or phrase has come to mean that the article of the private respondents in the case at bar suggests
was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. strongly that petitioner's use of the word "Lyceum" has
56). This circumstance has been referred to as the not been attended with the exclusivity essential for
distinctiveness into which the name or phrase has applicability of the doctrine of secondary meaning. It
evolved through the substantial and exclusive use of the may be noted also that at least one of the private
same for a considerable period of time. Consequently, respondents, i.e., the Western Pangasinan Lyceum, Inc.,
the same doctrine or principle cannot be made to apply used the term "Lyceum" seventeen (17) years before
where the evidence did not prove that the business (of the petitioner registered its own corporate name with
the plaintiff) has continued for so long a time that it has the SEC and began using the word "Lyceum." It follows
become of consequence and acquired a good will of that if any institution had acquired an exclusive right to
considerable value such that its articles and produce the word "Lyceum," that institution would have been
have acquired a well-known reputation, and confusion the Western Pangasinan Lyceum, Inc. rather than the
will result by the use of the disputed name (by the petitioner institution.
defendant) (Ang Si Heng vs. Wellington Department
Store, Inc., 92 Phil. 448). In this connection, petitioner argues that because the
Western Pangasinan Lyceum, Inc. failed to reconstruct
With the foregoing as a yardstick, [we] believe the its records before the SEC in accordance with the
appellant failed to satisfy the aforementioned provisions of R.A. No. 62, which records had been
requisites. No evidence was ever presented in the destroyed during World War II, Western Pangasinan
hearing before the Commission which sufficiently Lyceum should be deemed to have lost all rights it may
proved that the word 'Lyceum' has indeed acquired have acquired by virtue of its past registration. It might
secondary meaning in favor of the appellant. If there be noted that the Western Pangasinan Lyceum, Inc.
was any of this kind, the same tend to prove only that registered with the SEC soon after petitioner had filed
the appellant had been using the disputed word for a its own registration on 21 September 1950. Whether or
long period of time. Nevertheless, its (appellant) not Western Pangasinan Lyceum, Inc. must be deemed
exclusive use of the word (Lyceum) was never to have lost its rights under its original 1933
established or proven as in fact the evidence tend to
registration, appears to us to be quite secondary in
importance; we refer to this earlier registration simply It appears that during the pendency of the case,
to underscore the fact that petitioner's use of the word Soriano, et al., caused the registration on April 25, 1980
"Lyceum" was neither the first use of that term in the of petitioner corporation, Ang Mga Kaanib sa Iglesia ng
Philippines nor an exclusive use thereof. Petitioner's use Dios Kay Kristo Hesus, H.S.K., sa Bansang Pilipinas. The
of the word "Lyceum" was not exclusive but was in truth acronym H.S.K. stands for Haligi at Saligan ng
shared with the Western Pangasinan Lyceum and a little Katotohanan.
later with other private respondent institutions which
registered with the SEC using "Lyceum" as part of their On March 2, 1994, respondent corporation filed before
corporation names. There may well be other schools the SEC a petition(SEC Case No. 03-94-4704), praying
using Lyceum or Liceo in their names, but not registered that petitioner be compelled to change its corporate
with the SEC because they have not adopted the name and be barred from using the same or similar
corporate form of organization. name on the ground that the same causes confusion
among their members as well as the public.
We conclude and so hold that petitioner institution is
Petitioner filed a motion to dismiss on the ground of
not entitled to a legally enforceable exclusive right to
use the word "Lyceum" in its corporate name and that lack of cause of action. The motion to dismiss was
other institutions may use "Lyceum" as part of their denied. Petitioner failed to file an answer was declared
corporate names. To determine whether a given in default and respondent was allowed to present its
corporate name is "identical" or "confusingly or evidence ex parte.
deceptively similar" with another entity's corporate On November 20, 1995, the SEC rendered a decision
name, it is not enough to ascertain the presence of stating that Respondent Mga Kaanib sa Iglesia ng Dios
"Lyceum" or "Liceo" in both names. One must evaluate Kay Kristo Jesus (sic), H.S.K. sa Bansang Pilipinas
corporate names in their entirety and when the name of (petitioner herein) is hereby MANDATED to change its
petitioner is juxtaposed with the names of private corporate name to another not deceptively similar or
respondents, they are not reasonably regarded as identical to the same already used by the Petitioner,
"identical" or "confusingly or deceptively similar" with any corporation, association, and/or partnership
each other. presently registered with the Commission.
7) ANG MGA KAANIB SA IGLESIA NG DIOS vs Petitioner appealed to the SEC En Banc, where its
IGLESIA NG DIOS appeal was docketed as SEC-AC No. 539. In a decision
dated March 4, 1996, the SEC En Banc affirmed the
FACTS: above decision, upon a finding that petitioner's
corporate name was identical or confusingly or
Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at deceptively similar to that of respondents corporate
Suhay ng Katotohanan (Church of God in Christ Jesus, name.
the Pillar and Ground of Truth), is a non-stock religious
society or corporation registered in 1936. Sometime in Petitioner filed a petition for review with the Court of
1976, one Eliseo Soriano and several other members of Appeals. The Court of Appeals rendered the assailed
respondent corporation disassociated themselves from decision affirming the decision of the SEC En Banc.
the latter and succeeded in registering on March 30, Petitioners motion for reconsideration was denied by
1977 a new non-stock religious society or corporation, the Court of Appeals. Hence, the instant petition for
named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan review.
ng Katotohanan.
ISSUE:
On July 16, 1979, respondent corporation filed with the
SEC a petition to compel the Iglesia ng Dios Kay Kristo WHETHER OR NOT THE HONORABLE COURT OF
Hesus, Haligi at Saligan ng Katotohanan to change its APPEALS FAILED TO CONSIDER AND PROPERLY APPLY
corporate name. On May 4, 1988, the SEC rendered THE EXCEPTIONS ESTABLISHED BY JURISPRUDENCE IN
judgment in favor of respondent, ordering the Iglesia ng THE APPLICATION OF SECTION 18 OF THE
Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan CORPORATION CODE TO THE INSTANT CASE
to change its corporate name to another name that is RULING:
not similar or identical to any name already used by a
corporation, partnership or association registered with Section 18 of the Corporation Code provides:
the Commission. No appeal was taken from said
Corporate Name. --- No corporate name may be allowed
decision.
by the Securities and Exchange Commission if the
proposed name is identical or deceptively or confusingly Significantly, the only difference between the corporate
similar to that of any existing corporation or to any names of petitioner and respondent are the words
other name already protected by law or is patently SALIGAN and SUHAY. These words are synonymous ---
deceptive, confusing or is contrary to existing laws. both mean ground, foundation or support. Hence, this
When a change in the corporate name is approved, the case is on all fours with Universal Mills Corporation v.
Commission shall issue an amended certificate of Universal Textile Mills, Inc., where the Court ruled that
incorporation under the amended name. the corporate names Universal Mills Corporation and
Universal Textile Mills, Inc., are undisputably so similar
Corollary thereto, the pertinent portion of the SEC that even under the test of reasonable care and
Guidelines on Corporate Names states: observation confusion may arise.
(d) If the proposed name contains a word similar to a Furthermore, the wholesale appropriation by petitioner
word already used as part of the firm name or style of a of respondent's corporate name cannot find
registered company, the proposed name must contain
justification under the generic word rule. We agree with
two other words different from the name of the
the Court of Appeals conclusion that a contrary ruling
company already registered; would encourage other corporations to adopt verbatim
Parties organizing a corporation must choose a name at and register an existing and protected corporate name,
their peril; and the use of a name similar to one to the detriment of the public.
adopted by another corporation, whether a business or The fact that there are other non-stock religious
a nonprofit organization, if misleading or likely to injure societies or corporations using the names Church of the
in the exercise of its corporate functions, regardless of Living God, Inc., Church of God Jesus Christ the Son of
intent, may be prevented by the corporation having a God the Head, Church of God in Christ & By the Holy
prior right, by a suit for injunction against the new Spirit, and other similar names, is of no consequence. It
corporation to prevent the use of the name. does not authorize the use by petitioner of the essential
Petitioner claims that it complied with the aforecited and distinguishing feature of respondent's registered
SEC guideline by adding not only two but eight words to and protected corporate name.
their registered name, to wit: Ang Mga Kaanib" and "Sa (Religios Freedom Issue) Certainly, ordering petitioner
Bansang Pilipinas, Inc., which, petitioner argues, to change its corporate name is not a violation of its
effectively distinguished it from respondent constitutionally guaranteed right to religious freedom.
corporation. In so doing, the SEC merely compelled petitioner to
The additional words Ang Mga Kaanib and Sa Bansang abide by one of the SEC guidelines in the approval of
Pilipinas, Inc. in petitioners name are, as correctly partnership and corporate names, namely its
observed by the SEC, merely descriptive of and also undertaking to manifest its willingness to change its
referring to the members, or kaanib, of respondent who corporate name in the event another person, firm, or
are likewise residing in the Philippines. These words can entity has acquired a prior right to the use of the said
hardly serve as an effective differentiating medium firm name or one deceptively or confusingly similar to
necessary to avoid confusion or difficulty in it.
distinguishing petitioner from respondent. This is
especially so, since both petitioner and respondent
corporations are using the same acronym --- H.S.K.; not
to mention the fact that both are espousing religious
beliefs and operating in the same place. Parenthetically,
it is well to mention that the acronym H.S.K. used by
petitioner stands for Haligi at Saligan ng Katotohanan.
Then, too, the records reveal that in holding out their

corporate name to the public, petitioner highlights the
dominant words IGLESIA NG DIOS KAY KRISTO HESUS,
HALIGI AT SALIGAN NG KATOTOHANAN, which is
strikingly similar to respondent's corporate name, thus
making it even more evident that the additional words
Ang Mga Kaanib and Sa Bansang Pilipinas, Inc., are
merely descriptive of and pertaining to the members of
respondent corporation.
8.) REPUBLIC PLANTERS BANK vs COURT OF APPEALS Manufacturing, Inc., the same were in blank, the
typewritten entries not appearing therein prior to the
time he affixed his signature.
FACTS
The Court of Appeals agreed with him. The CA also ruled
Defendant Shozo Yamaguchi and private respondent that the change of name of WGM to PMC extinguished
Fermin Canlas were President/Chief Operating Officer the personality of WGM and hence so is its liability.
and Treasurer respectively, of Worldwide Garment
Manufacturing, Inc.. By virtue of Board Resolution No.1 ISSUE:
dated August 1, 1979, defendant Shozo Yamaguchi and Whether or not the Court of Appeals is correct. NO
private respondent Fermin Canlas were authorized to
RULING:
apply for credit facilities with the petitioner Republic
Planters Bank in the forms of export advances and The respondent Court made a grave error in holding
letters of credit/trust receipts accommodations. that an amendment in a corporation's Articles of
Petitioner bank issued nine promissory notes, marked as Incorporation effecting a change of corporate name, in
Exhibits A to I inclusive, each of which were uniformly this case from Worldwide Garment manufacturing Inc to
worded in the following manner: Pinch Manufacturing Corporation extinguished the
personality of the original corporation.
___________, after date, for value received, I/we,
jointly and severaIly promise to pay to the ORDER of The corporation, upon such change in its name, is in no
the REPUBLIC PLANTERS BANK, at its office in sense a new corporation, nor the successor of the
Manila, Philippines, the sum of ___________ original corporation. It is the same corporation with a
PESOS(....) Philippine Currency... different name, and its character is in no respect
changed.
On the right bottom margin of the promissory notes
appeared the signatures of Shozo Yamaguchi and A change in the corporate name does not make a new
Fermin Canlas above their printed names with the corporation, and whether effected by special act or
phrase "and (in) his personal capacity" typewritten under a general law, has no affect on the identity of the
below. At the bottom of the promissory notes corporation, or on its property, rights, or liabilities.
appeared: "Please credit proceeds of this note to:
The corporation continues, as before, responsible in its
________ Savings Account ______XX Current new name for all debts or other liabilities which it had
Account previously contracted or incurred.
No. 1372-00257-6 As a general rule, officers or directors under the old
corporate name bear no personal liability for acts done
of WORLDWIDE GARMENT MFG. CORP.
or contracts entered into by officers of the corporation,
if duly authorized. Inasmuch as such officers acted in
In the promissory notes marked as Exhibits C, D and F, their capacity as agent of the old corporation and the
the name Worldwide Garment Manufacturing, Inc. was change of name meant only the continuation of the old
apparently rubber stamped above the signatures of juridical entity, the corporation bearing the same name
defendant and private respondent. is still bound by the acts of its agents if authorized by
the Board. Under the Negotiable Instruments Law, the
On December 20, 1982, Worldwide Garment liability of a person signing as an agent is specifically
Manufacturing, Inc. noted to change its corporate name provided for as follows:
to Pinch Manufacturing Corporation.
Sec. 20. Liability of a person signing as
On February 5, 1982, petitioner bank filed a complaint agent and so forth. Where the
for the recovery of sums of money covered among instrument contains or a person adds to
others, by the nine promissory notes with interest his signature words indicating that he
thereon, plus attorney's fees and penalty charges. The signs for or on behalf of a principal , or
complainant was originally brought against Worldwide in a representative capacity, he is not
Garment Manufacturing, Inc. inter alia, but it was later liable on the instrument if he was duly
amended to drop Worldwide Manufacturing, Inc. as authorized; but the mere addition of
defendant and substitute Pinch Manufacturing words describing him as an agent, or as
Corporation it its place. filling a representative character,
Defendants Pinch Manufacturing Corporation and Shozo without disclosing his principal, does not
Yamaguchi did not file an Amended Answer and failed exempt him from personal liability.
to appear at the scheduled pre-trial conference despite Where the agent signs his name but nowhere in the
due notice. Only private respondent Fermin Canlas filed instrument has he disclosed the fact that he is acting in
an Amended Answer wherein he, denied having issued a representative capacity or the name of the third party
the promissory notes in question since according to him, for whom he might have acted as agent, the agent is
he was not an officer of Pinch Manufacturing personally liable to take holder of the instrument and
Corporation, but instead of Worldwide Garment cannot be permitted to prove that he was merely acting
Manufacturing, Inc., and that when he issued said as agent of another and parol or extrinsic evidence is
promissory notes in behalf of Worldwide Garment not admissible to avoid the agent's personal liability.
executed two (2) separate indemnity agreements in

favor of Pioneer. The indemnity agreements stipulated
REGISTRATION AND ISSUANCE OF CERTIFICATE OF
that the indemnitors principally agree and bind
INCORPORATION
themselves jointly and severally to indemnify and hold
and save harmless Pioneer from and against any/all
DE FACTO CORPORATION: It is one which has not
damages, losses, costs, damages, taxes, penalties,
complied with all the requirements necessary to be a de charges and expenses of whatever kind and nature
jure corporation but has complied sufficiently to be which Pioneer may incur in consequence of having
accorded corporate status as against third parties become surety upon the bond/note and to pay,
although not against the State. reimburse and make good to Pioneer, its successors and
assigns, all sums and amounts of money which it or its
DE JURE CORPORATION: one created in strict or representatives should or may pay or cause to be paid
substantial conformity with the mandatory statutory or become liable to pay on them of whatever kind and
requirements for incorporation and the right of which nature. Moreover, Lim doing business under the name
and style of SAL executed in favor of Pioneer as deed of
to exist as a corporation cannot be successfully attacked
chattel mortgage as security for the latter's suretyship
or questioned by any party even in a direct proceeding
in favor of the former. It was stipulated therein that Lim
for that purpose by the State. transfer and convey to the surety the two aircrafts.
Lim defaulted on his subsequent installment payments

prompting JDA to request payments from the surety.
7. REGISTRATION AND ISSUANCE OF CERTIFICATE OF
Pioneer paid a total sum of P298,626.12.
INCORPORATION
Pioneer filed an action for judicial foreclosure with an
I. DE FACTO CORPORATION
application for a writ of preliminary attachment against
Lim and respondents, the Cervanteses, Bormaheco and
1.) G.R. No. 84197 July 28, 1989 Maglana.
PIONEER INSURANCE & SURETY Maglana, Bormaheco and the Cervanteses filed cross-
CORPORATION, petitioner, vs. THE HON. COURT OF claims against Lim alleging that they were not privies to
APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, the contracts signed by Lim and, by way of
INC., (BORMAHECO), CONSTANCIO M. MAGLANA and counterclaim, sought for damages for being exposed to
JACOB S. LIM, respondents. litigation and for recovery of the sums of money they
advanced to Lim for the purchase of the aircrafts in
G.R. No. 84157 July 28, 1989 question.
JACOB S. LIM, petitioner, vs. COURT OF APPEALS, The RTC rendered a decision holding Lim liable to pay
PIONEER INSURANCE AND SURETY CORPORATION, Pioneer’s complaint but dismissed the latter’s complaint
BORDER MACHINERY and HEAVY EQUIPMENT CO., against all other defendants.
INC,, FRANCISCO and MODESTO CERVANTES and
CONSTANCIO MAGLANA, respondents. The CA modified the RTC’s decision in that all the claim
of Pioneer against all the defendant was dismissed.
FACTS: Jacob S. Lim was engaged in the airline business Hence this petition.
as owner-operator of Southern Air Lines (SAL) a single
proprietorship. Japan Domestic Airlines (JDA) and Lim In G.R. No. 84197 Pioneer Insurance and Surety
entered into and executed a sales contract for the sale Corporation averred that respondent Court of Appeals
and purchase of two (2) DC-3A Type aircrafts and one grievously erred when it dismissed the appeal of
(1) set of necessary spare parts for the total agreed petitioner on the sole ground that petitioner had
price of US $109,000.00 to be paid in installments. already collected the proceeds of the reinsurance on its
bond in favor of the JDA and that it cannot represent a
Pioneer Insurance and Surety Corporation as surety reinsurer to recover the amount from herein private
executed and issued its Surety Bond No. 6639 in favor of respondents.
JDA, in behalf of its principal, Lim, for the balance price
of the aircrafts and spare parts. On the other hand, in G.R. No. 84157 petitioner Jacob S.
Lim averred that the appellate court erred in its findings
It appears that Border Machinery and Heavy Equipment ordering him to reimburse certain amounts given by the
Company, Inc. (Bormaheco), Francisco and Modesto respondents to the petitioner as their contributions to
Cervantes (Cervanteses) and Constancio Maglana the intended corporation since according to him as a
(respondents in both petitions) contributed some funds result of their failure to incorporate, a de
amounting to Pl51,000.00 used in the purchase of the facto partnership among them was created, and that as
above aircrafts and spare parts. The funds were a consequence of such relationship all must share in the
supposed to be their contributions to a new corporation losses and/or gains of the venture in proportion to their
proposed by Lim to expand his airline business. They contribution.
ISSUE: 1. Whether Pioneer has a cause of action against and not in behalf of his other would-be incorporators in
respondents. NONE transacting the sale of the airplanes and spare parts.
2. Whether the failure of respondents and Lim 2.) Pioneer Insurance vs CA ( same as case# 1)
to incorporate automatically resulted to de facto
partnership. NO CORPORATION BY ESTOPPEL: one which in reality is not
a corporation, either de jure or de facto, because it is so
RULING: 1.The real party in interest was the reinsurance defectively formed, but is considered a corporation in
company who paid Pioneer the amount of P295,000.00 relation to those only who, by reason of their acts or
representing the obligation of respondents to Pioneer. admissions, are precluded from asserting that it is not a
There was no indication in the complaint that Pioneer is corporation.
suing as attorney-in-fact of the reinsurers for any
amount. It is clear from the records that Pioneer sued in II. CORPORATION BY ESTOPPEL
its own name and not as an attorney-in-fact of the
reinsurer. Petitioner was not the real party in interest in 1.) G.R. No. 117010 April 18, 1997
the complaint, and, therefore, has no cause of action
against the respondents. Pioneer has no right to PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs.
institute and maintain in its own name an action for the ENGR. CARLOS GARCIA y PINEDA, PATRICIO BOTERO y
benefit of the reinsurers. It is well-settled that an action VALES, LUISA MIRAPLES (at large), accused, PATRICIO
brought by an attorney-in-fact in his own name instead BOTERO y VALES, accused-appellant.
of that of the principal will not prosper.
FACTS: In an Information dated July 21, 1992, accused-
2. It is ordinarily held that persons who attempt, but appellant Patricio Botero together with Carlos P. Garcia
fail, to form a corporation and who carry on business and Luisa Miraples were charged with the crime of
under the corporate name occupy the position of illegal recruitment in large scale.
partners inter se. Where persons associate themselves
together under articles to purchase property to carry on Six (6) out of the sixteen (16) complainants testified as
a business, and their organization is so defective as to prosecution witnesses. These complainants testified
come short of creating a corporation within the statute, that on various dates in March 1992, they went to
they become in legal effect partners inter se, and their Ricorn Philippine International Shipping Lines, Inc.
rights as members of the company to the property (Ricorn), an entity which recruits workers for overseas
acquired by the company will be recognized. employment. They applied as seamen, cook, waiter,
chambermaid or laundrywoman overseas. All the other
However, the abocementioned doctrine is not complainants coursed their application to accused
applicable in this case since there was really no Garcia who represented himself as president of
intention to form a corporation. Ricorn. Complainants were required to submit their NBI
and police clearance, birth certificate, passport,
It must be noted in the answer of Lim that he denied seaman's book and Survival of Life at Sea (SOLAS). As
having received any amount from respondents they did not have the last three (3) documents, they
Bormaheco, the Cervanteses and Maglana. The trial were asked to pay five thousand pesos (P5,000.00) as
court and the appellate court, however, found through processing fee. They paid to Ricorn's treasurer, Luisa
Exhibit 58, that the petitioner received the amount of Miraples. They were issued receipts signed by Miraples.
P151,000.00 representing the participation of The receipts were under Ricorn's heading.
Bormaheco and Atty. Constancio B. Maglana in the
ownership of the subject airplanes and spare parts. The Complainants went back to Ricorn to check on their
record shows that defendant Maglana gave P75,000.00 applications. They discovered that Ricorn had
to petitioner Jacob Lim thru the Cervanteses. abandoned its office for non-payment of rentals. They
went back to the building several times to recover their
It is therefore clear that the petitioner never had the money. Their persistence was to no avail for Garcia and
intention to form a corporation with the respondents Botero were nowhere to be found. They then went to
despite his representations to them. This gives credence the Mandaluyong Police Station and filed their
to the cross-claims of the respondents to the effect that complaints. They also checked with the Securities and
they were induced and lured by the petitioner to make Exchange Commission (SEC) and discovered that Ricorn
contributions to a proposed corporation which was was not yet incorporated. They also found that Ricorn
never formed because the petitioner reneged on their was not licensed by the Department of Labor and
agreement. Employment (DOLE) to engage in recruitment activities.
Applying therefore the principles of law earlier cited to The RTC convicted Garcia and Botero for the crime of
the facts of the case, necessarily, no de facto illegal recruitment but the case against Miraples was
partnership was created among the parties which would archived by the court since she has remained at large.
entitle the petitioner to a reimbursement of the
supposed losses of the proposed corporation. The
record shows that the petitioner was acting on his own
Only accused Botero, thru counsel, filed a Notice of not consummated. Even then, appellant cannot avoid
Appeal. his liabilities to the public as an incorporator of Ricorn.
He and his co-accused Garcia held themselves out to
ISSUE: 1.) Whether respondents are liable for illegal the public as officers of Ricorn. They received money
recruitment in large scale. - YES from applicants who availed of their services. They are
thus estopped from claiming that they are not liable as
2.) Whether respondents are liable as corporate officials corporate officials of Ricorn. Section 25 of the
considering that Ricorn's incorporation was not Corporation Code provides that "(a)ll persons who
consummated. -YES assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for
RULING: all the debts, liabilities and damages incurred or arising
as a result thereof: Provided, however, That when any
1.) Beyond any reasonable doubt, appellant Botero such ostensible corporation is sued on any transaction
engaged in recruitment and placement activities in that entered by it as a corporation or on any tort committed
he, through Ricorn, promised the complainants by it as such, it shall not be allowed to use as a defense
employment abroad. Under the Labor Code, its lack of corporate personality."
recruitment and placement refers to "any act of
canvassing, enlisting, contracting, transporting, utilizing, Appellant Botero is guilty of the crime of illegal
hiring or procuring workers, and includes referrals, recruitment in a large scale considering it was proven
contract services, promising or advertising for that he, together with his cohorts, were able to defraud
employment, locally or abroad whether for profit or the six complainant-witnesses in this case. Under Article
not: Provided, That any person or entity which in any 38 (b) of the Labor Code, illegal recruitment in large
manner, offers or promises for a fee employment to scale is perpetrated if committed against three (3) or
two or more persons shall be deemed engaged in more persons individually or as a group. And under
recruitment, and placement." Article 39 (a) of the same Code, accused-appellant's
crime is punishable by life imprisonment and a fine of
All the essential elements of the crime of illegal one hundred thousand pesos (P100,000.00).
recruitment in large scale are present in this case, to
wit: Finally, it is fruitless for appellant to deny he conspired
with his co-accused to commit the crime at bar. The fact
(1) the accused engages in the recruitment and that all the accused were co-conspirators in defrauding
placement of workers, as defined under Article 13 (b) or the complainants could be inferred from their acts. They
in any prohibited activities under Article 34 of the Labor played different roles in defrauding complainants:
Code; accused Garcia was the president, appellant Botero was
the vice-president and accused-at-large Miraples was
(2) accused has not complied with the guidelines issued the treasurer of Ricorn. Each one played a part in the
by the Secretary of Labor and Employment, particularly recruitment of complainants. They were indispensable
with respect to the securing of a license or an authority to each other.
to recruit and deploy workers, either locally or overseas;
and 2.) G.R. No. L-84502 June 30, 1989
(3) accused commits the same against three (3) or more CHRISTIAN CHILDREN'S FUND, petitioner, vs.
persons, individually or as a group. NATIONAL LABOR RELATIONS COMMISSION, LABOR
ARBITER RlCARDO OLAIREZ, ELIZABETH SALAO, FELISA
It is a fact that Ricorn had no license to recruit from MAMARIL, FELIPA PITOK, JOY GONSODEN and ELENA
DOLE. In the office of Ricorn, a notice was posted ECLARINO, respondents.
informing job applicants that its recruitment license is
still being processed. Yet, Ricorn already entertained CASE LAW/ DOCTRINE: When a third person has
applicants and collected fees for processing their travel entered into a contract with an association which
documents. represented itself to be a corporation, the association
will be estopped from denying its corporate capacity in
2.) For engaging in recruitment of workers without a suit against it by such third person.
obtaining the necessary license from the POEA, Boteros
should suffer the consequences of Ricorn's illegal act for FACTS: Private Respondents Salao, Mamaril, et al
"(i)f the offender is a corporation, partnership, worked for the Cristo Regis Center, a charitable
association or entity, the penalty shall be imposed upon organization. Cristo Regis was in turn supported by
the officer or officers of the corporation, partnership, Petitioner Christian Children’s Fund.
association or entity responsible for violation; . . . "
Petitioner Christian Children’s Fund was sued by private
The evidence shows that appellant Botero was one of
Respondents for illegal dismissal when the Cristo Regis
the incorporators of Ricorn. For reasons that cannot be
Center closed down.
discerned from the records, Ricorn's incorporation was
The NLRC ruled against the Petitioners. withdrew from said project of the Cristo Regis Center in
1984. Thus, the petitioner had no alternative but to
The petitioner alleged that it is not the employer of the engage another organization aside from the Cristo Regis
private respondents, they being employees of the Center, to pursue the program. Obviously, the
separate entity Cristo Regis Center; that the Cristo Regis petitioner is not the employer of the private
Center is not an agent of the petitioner; and that the respondents. The funds of petitioner are different and
private respondents were never illegally dismissed by distinct from the Cristo Regis Center. Each entity has its
the petitioner, so it cannot be liable for their money own separate organizational set-up. They operate
claims. independently of each other. The private respondents
were under the supervision and control of the Cristo
The contract between Christian Children’s Fund and the Regis Center, not the petitioner.
Cristo Regis Center state the following:
The closure of the project was not due to the
“Christian Children's Fund, Inc. (hereafter called petitioner's fault. Indeed, it was because of many
CCF and Cristo Regis Center, FMP (hereafter called complaints received about anomalies in the project.
the Project), desire to enter into an agreement
under which CCF will offer support to the project Since the petitioner is not the employer of private
as long as it is programmatically and financially respondents, it logically follows that the Cristo Regis
capable and as described and limited in this Center, the entity that hired them, must be their
Agreement. There is no formal legal relationship employer.
between CCF and the Protect except the
agreement. The project is not an agent of CCF. Private respondents were not illegally dismissed. The
CCF and the Project are independent of one closure of the Cristo Regis Center was inevitable. It is a
another. The Project has no authority to, and can cogent basis for retrenchment or termination of its
not and will not enter into any agreement on employees.
behalf of. CCF or bind CCF not pledge credit in any
way.” 2.) Cristo Regis Center, as an organization, was created
for a specific charitable objective. As an organization
The respondents argued that the Cristo Regis Center, lawfully created, the doctrine of corporation by
not being a duly organized corporation listed in the SEC, estoppel will apply. When a third person has entered
cannot be liable for contracts entered into by it. into a contract with an association which represented
itself to be a corporation, the association will be
ISSUE(S): 1.) Whether or not the petitioner Christian estopped from denying its corporate capacity in a suit
Children's Fund is the real employer of the private against it by such third person. It cannot allege lack of
respondents, and not the Cristo Regis Center, an capacity to be sued to evade responsibility on a
organization that is not incorporated. NO contract it had entered into and by virtue of which it
received advantages and benefits.
2.) Can the Cristo Regis Center be held liable as a
corporation for contracts entered by it? YES III. CORPORATION BY PRESCRIPTION
RULING: 1.) A close scrutiny of this contract shows that CORPORATION BY PRESCRIPTION: or one which has
the petitioner financially supports the charitable exercised corporate powers for an indefinite period
program undertaken by the Cristo Regis Center; there is without interference on the part of the sovereign power
no formal legal relationship between petitioner and the and which by fiction of law is given the status of a
Cristo Regis Center (Project); the Cristo Regis Center is
corporation.
not an agent of the petitioner; the petitioner and the
Cristo Regis Center (Project) are independent of one
NOTE: Naulit na ang cases. Pero wala gyud namention
another; and the Cristo Regis Center (Project) has no
authority to, and cannot and will not enter into any sa cases ang Corporation by Prescription.   
agreement on behalf of the petitioner or bind it or
1.) PIONEER INSURANCE VS CA (Refer to DE FACTO
pledge credit in any way.
CORPORATION TOPIC)
These are eloquent indicators that the Cristo Regis
2.) CHRISTIAN CHILDREN’S FUND VS NLRC (Refer to
Center is not an agent of the petitioner. The contract
was good for five (5) years, and it was renewed three Corporation by Estoppel case# 2)
times, before the Cristo Regis Center ceased to operate.
3.) PIONEER INSURANCE VS CA (Refer to DE FACTO
The contract is subject to termination when either the
petitioner or the Cristo Regis Center violates any of its CORPORATION TOPIC)
conditions.
ADOPTION OF BY-LAWS
The management of the Cristo Regis Center was
entrusted to the Benedictine Sisters. The Benedictine 1. [G.R. No. 121466. August 15, 1997]
Sisters eventually ceased management operations and
PMI COLLEGES, petitioner, vs. THE NATIONAL LABOR A decision was subsequently rendered by the
RELATIONS COMMISSION and ALEJANDRO GALVAN, Labor Arbiter on December 7, 1994 finding for the
respondents. private respondent. On appeal, the NLRC affirmed the
same in toto in its decision of August 4, 1995.
FACTS
ISSUE
On July 7, 1991, petitioner, an educational
institution offering courses on basic seamans training Whether or not Galvan’s employment contract
and other marine-related courses, hired private is void.
respondent as contractual instructor with an agreement
that the latter shall be paid at an hourly rate of P30.00 RULING
to P50.00, depending on the description of load subjects
and on the schedule for teaching the same. Pursuant to NO.
this engagement, private respondent then organized
classes in marine engineering. Neither can we concede that such contract
would be invalid just because the signatory thereon was
Initially, private respondent and other not the Chairman of the Board which allegedly violated
instructors were compensated for services rendered petitioner’s by-laws. Since by-laws operate merely as
during the first three periods of the abovementioned internal rules among the stockholders, they cannot
contract. However, for reasons unknown to private
affect or prejudice third persons who deal with the
respondent, he stopped receiving payment for the
succeeding rendition of services. Repeated demands corporation, unless they have knowledge of the same.
having likewise failed, private respondent was soon No proof appears on record that private respondent
constrained to file a complaint before the National ever knew anything about the provisions of said by-
Capital Region Arbitration Branch on September 14, laws. In fact, petitioner itself merely asserts the same
1993 seeking payment for salaries earned from the without even bothering to attach a copy or excerpt
following: (1) basic seaman course Classes 41 and 42 for
thereof to show that there is such a provision.
the period covering October 1991 to September 1992;
(2) shipyard and plant visits and on-the-job training of
Classes 41 and 42 for the period covering October 1991
to September 1992 on board M/V Sweet Glory vessel; F. CORPORATE GENERAL POWERS
and (3) as Acting Director of Seaman Training Course for
3-1/2 months. 1. GENERAL POWERS: THEORY OF GENERAL CAPACITY
Private respondents claims, as expected, were

resisted by petitioner. It alleged that classes in the 1. GR No. 194964, January 11, 2016
courses offered which complainant claimed to have University of Mindanao (Petitioner) v Bangko Sentral
ng Pilipinas et al. (Respondents)
remained unpaid were not held or conducted in the
Second Division
school premises of PMI Colleges. Furthermore, the Ponente: Leonen, J.
claims, according to petitioner, were all exaggerated
and that, at any rate, private respondent abandoned his Nature of Action: An action for the nullification and
work at the time he should have commenced the same. cancellation of mortgage on the ground that the person
who entered into contract has no authority to execute
PMI manifested that Mr. Tomas G. Cloma, Jr., a
such contract.
member of the petitioners Board of Trustees wrote a
letter to the Chairman of the Board on May 23, 1994, FACTS:
clarifying the case of private respondent and stating
therein, inter alia, that under PMI’s by-laws only the Guillermo B. Torres and Dolores P. Torres
Chairman is authorized to sign any contract and that incorporated and operated two (2) thrift banks: (1) First
private respondent, in any event, failed to submit Iligan Savings & Loan Association, Inc. (FISLAI); and (2)
documents on the alleged shipyard and plant visits in Davao Savings and Loan Association, Inc. (DSLAI).
Cavite Naval Base. PMI reiterated, among others, that Guillermo B. Torres chaired both thrift banks. He acted
the employment of Galvan is void because it did not as FISLAI's President, while his wife, Dolores P. Torres,
comply with its by-laws. Apparently, the by-laws acted as DSLAI's President and FISLAI's Treasurer. Upon
require that an employment contract must be signed Guillermo B. Torres' request, Bangko Sentral ng Pilipinas
by the Chairman of the Board of PMI. PMI asserts that issued a P1.9 million standby emergency credit to
Galvan’s employment contract was not signed by the FISLAI.
Chairman of the Board.
On May 25, 1982, University of Mindanao's Vice
President for Finance, Saturnino Petalcorin, executed a
deed of real estate mortgage over University of No. Acts of an officer that are not authorized by
Mindanao's property in Cagayan de Oro City in favor of the board of directors/trustees do not bind the
BangkoSentral ng Pilipinas. "The mortgage served as corporation unless the corporation ratifies the acts or
security for FISLAI's PI.9 Million loan" It was allegedly holds the officer out as a person with authority to
executed on University of Mindanao's behalf. As proof transact on its behalf.
of his authority to execute a real estate mortgage for
University of Mindanao, Saturnino Petalcorin showed a Petitioner argues that it did not authorize
Secretary's Certificate signed by University of SaturninoPetalcorin to mortgage its properties on its
Mindanao's Corporate Secretary, Aurora de Leon. The behalf. There was no board resolution to that effect.
Secretary’s certificate states among others the Thus, the mortgages executed by SaturninoPetalcorin
authorizing of the chairman to appoint Satunino were unenforceable. The mortgage contracts executed
Pactolerin to represent the University of Mindanao to in favor of respondent do not bind petitioner. They
transact, transfer, convey, lease, mortgage, or were executed without authority from petitioner. Being
otherwise hypothecate the subject properties. a juridical person, petitioner cannot conduct its
Saturnino Petalcorin executed another deed of real business, make decisions, or act in any manner without
estate mortgage, allegedly on behalf of University of action from its Board of Trustees. The Board of Trustees
Mindanao, over its two properties in Iligan City. This must act as a body in order to exercise corporate
mortgage served as additional security for FISLAI's powers. Individual trustees are not clothed with
corporate powers just by being a trustee. Hence, the
loans. FISLAI and DSLAI eventually merged with DSLAI as
the surviving corporation in an effort to rehabilitate the individual trustee cannot bind the corporation by
thrift banks due to the heavy withdrawals of depositors. himself or herself. The corporation may, however,
DSLAI later became known as Mindanao Savings and delegate through a board resolution its corporate
Loan Association, Inc. (MSLAI). MSLAI failed to recover powers or functions to a representative, subject to
from its losses. Bangko Sentral ng Pilipinas later on limitations under the law and the corporation's articles
foreclosed the mortgaged properties. University of of incorporation. The relationship between a
Mindanao filed two Complaints for nullification and corporation and its representatives is governed by the
cancellation of mortgage. One Complaint was filed general principles of agency. Article 1317 of the Civil
before the Regional Trial Court of Cagayan de Oro City, Code provides that there must be authority from the
and the other Complaint was filed before the Regional principal before anyone can act in his or her name:
Trial Court of Iligan City. University of Mindanao alleged ART. 1317. No one may contract in the name of
that it did not obtain any loan from Bangko Sentral ng another without being authorized by the latter,
Pilipinas and that Aurora De Leon’s certification was or unless he has by law a right to represent him.
anomalous. That it never authorized Saturnino
Petalcorin to execute real estate mortgage contracts Hence, without delegation by the board of
involving its properties to secure FISLAI's debts and it directors or trustees, acts of a person - including those
never ratified the execution of the mortgage contracts. of the corporation's directors, trustees, shareholders, or
The Regional Trial Courts ruled in favor of University of officers—executed on behalf of the corporation are
Mindanao. The Court of Appeals however ruled that generally not binding on the corporation. The
"although BSP failed to prove that the UM Board of unenforceable status of contracts entered into by an
Trustees actually passed a Board Resolution authorizing unauthorized person on behalf of another is based on
Petalcorin to mortgage the subject real the basic principle that contracts must be consented to
properties, Aurora de Leon's Secretary's Certificate" by both parties. There is no contract without meeting of
clothed Petalcorin with apparent and ostensible the minds as to the subject matter and cause of the
authority to execute the mortgage deed on its obligations created under the contract. Consent of a
behalf. Bangko Sentral ng Pilipinas merely relied in good person cannot be presumed from representations of
faith on the Secretary's Certificate. University of another, especially if obligations will be incurred as a
Mindanao is estopped from denying Saturnino result. Thus, authority is required to make actions made
Petalcorin's authority. on his or her behalf binding on a person. Contracts
entered into by persons without authority from the
ISSUE: corporation shall generally be considered ultra vires and
Whether petitionerUniversity of Mindanao is unenforceable against the corporation.
bound by the real estate mortgage contracts executed
by SaturninoPetalcorin.
2. MAGALLANES WATERCRAFT ASSOCIATION, INC., AS
RULING: REPRESENTED BY ITS BOARD OF TRUSTEES, NAMELY:
EDILBERTO M. BAJAO, GERARDO O. PLAZA, ISABELITA The CA explained that the suspension of their
MULIG, EDNA ABEJAY, MARCELO DONAN, NENITA O. berthing privileges resulted in the failure of the
VARQUEZ, MERLYN ALVAREZ, EDNA EXCLAMADOR, respondents to operate their bancas—contrary to the
AND CESAR MONSON, Petitioner, v. MARGARITO C. express reminder of the MARINA. Hence, the CA
AUGUIS AND DIOSCORO C. BASNIG, Respondents. concluded that MWAI acted beyond the scope of its
powers when it suspended the rights of Auguis and
G.R. No. 211485, May 30, 2016 Basnig as members of MWAI to berth on the seaport of
FACTS Magallanes and operate their bancas.
Magallanes Watercraft Association, Inc. (MWAI) The CA concluded that the suspension by
is a local association of motorized banca owners and MWAI of respondents' rights as members for their
operators ferrying cargoes and passengers from failure to settle membership dues was an ultra
Magallanes, Agusan del Norte, to Butuan City and back. vires act as MWAFs articles of incorporation and by-
Respondents Margarito C. Auguis (Auguis) and Dioscoro laws were bereft of any provision that expressly and
C. Basnig (Basnig) were members and officers of MWAI impliedly vested power or authority upon its Board to
- vice-president and secretary, respectively. recommend the imposition of disciplinary actions on
its delinquent officers and/or members.
On December 5, 2003, the Board of Trustees Hence, this petition.
(Board) of MWAI passed Resolution No. 1, Series of
2003, and thereafter issued Memorandum No. 001 ISSUE
suspending the rights and privileges of Auguis and
Basnig as members of the association for thirty (30) WON the suspension by MWAI of respondents' rights as
days for their refusal to pay their membership dues and members for their failure to settle membership dues
berthing fees because of their pending oral complaint was an ultra vires act
and demand for financial audit of the association funds. RULING
Auguis had an accumulated unpaid obligation of
P4,059.00 while Basnig had P7,552.00. NO.
Under Section 3(a) and Section 3(c) Article V of

In spite of the suspension of their privileges as
MWAI's By-Laws, its members are bound "[t]o obey and
members, Auguis and Basnig still failed to settle their
comply with the by-laws, rules and regulations that may
obligations with MWAI. For said reason, the latter
be promulgated by the association from time to time"
issued Memorandum No. 002, Series of 2004, dated
and "[t]o pay membership dues and other assessments
January 8, 2004, suspending their rights and privileges
of the association." Thus, the respondents were
for another thirty (30) days.
obligated to pay the membership dues of which they
were delinquent. MWAI could not be faulted in
On February 6, 2004 respondents filed an action
suspending the rights and privileges of its delinquent
for damages and attorney's fees with a prayer for the
members.
issuance of a writ of preliminary injunction before the
RTC. In its January 11, 2007 decision, the trial court MWAI can properly impose sanctions on Auguis
ordered Auguis and Basnig to pay their unpaid and Basnig for being delinquent members considering
accounts. It, nonetheless, required MWAI to pay them that the payment of membership dues enables MWAI
actual damages and attorney's fees. to discharge its duties and functions enumerated under
its charter. Moreover, respondents were obligated by
Aggrieved, MWAI appealed before the CA. the by-laws of the association to pay said dues. The
suspension of their rights and privileges is not an ultra
The CA Ruling
vires act as it is reasonably necessary or proper in
The CA affirmed with modification the RTC order to further the interest and welfare of MWAI.
decision. According to the appellate court, the RTC Also, the imposition of the temporary ban on the use of
correctly held that MWAI was guilty of an ultra MWAI's berthing facilities until Auguis and Basnig have
vires act. The CA noted that neither MWAI's Articles of paid their outstanding obligations was a reasonable
Incorporation nor its By-Laws contained any provision measure that the former could undertake to ensure the
that expressly and/or impliedly vested power or prompt payment of its membership dues.1
authority upon its Board to recommend the imposition
of disciplinary sanctions on its delinquent officers
and/or members.
3. AGDAO LANDLESS RESIDENTS INC. VS MARAMION Thus, respondents prayed for: (1) the restoration of
their membership to ALRAI; (2) petitioners to stop
FACTS
selling the donated lands and to annul the titles
Dakudao & Sons, Inc. (Dakudao) executed six Deeds of transferred to Javonillo, Armentano, Dela Cruz,
Donation in favor of ALRAI covering 46 titled lots Alcantara and Loy; (3) the production of the accounting
(donated lots). One Deed of Donation prohibits ALRAI, books of ALRAI and receipts of payments from ALRAI's
as donee, from partitioning or distributing individual members; (4) the accounting of the fees paid by ALRAI's
certificates of title of the donated lots to its members, members; and (5) damages.
within a period of five years from execution, unless a The Ruling of the RTC
written authority is secured from Dakudao. A violation
of the prohibition will render the donation void, and The RTC ruled in favor of the respondents. It
title to and possession of the donated lot will revert to found respondents to be bona fidemembers of
Dakudao. The other five Deeds of Donation do not ALRAI. Being bona fide members, they are entitled to
provide for the five-year restriction. notices of meetings held for the purpose of suspending
or expelling them from ALRAI. The court a quo however
In the board of directors and stockholders meetings found that respondents were expelled without due
held on January 5, 2000 and January 9, 2000, process. It also annulled all transfers of the donated lots
respectively, members of ALRAI resolved to directly because these violated the five-year prohibition under
transfer 10 of the donated lots to individual members the Deeds of Donation. It also found Loy a purchaser in
and non members of ALRAI. Transfer Certificate of Title bad faith.
(TCT) Nos. T-62124 (now T-322968), T-297811 (now TCT
No. T-322966), T-297813 (now TCT No. T-322967) and T- The Ruling of the Court of Appeals :
62126 (now TCT No. T-322969) were transferred to AFFIRMED with MODIFICATION.
Romeo Dela Cruz (Dela Cruz). TCT Nos. T-41374 (now
TCT No. T-322963) and T-41361 (now TCT No. T-322962) The following Transfer Certificates of Title are
were transferred to petitioner Javonillo, the president declared VALID:
of ALRAI. TCT Nos. T-41365 (now TCT No. T-322964) and
1. TCT Nos. T-322966, T-322967, T-322968 and T-
T-41370 (now TCT No. T-322964) were transferred to
322969 in the name of petitioner Romeo C.
petitioner Armentano, the secretary of ALRAI. TCT Nos.
DelaCruz; and
T-41367 (now TCT No. T-322971) and T-41366 were
transferred to petitioner Alcantara, the widow of the 2. TCT No. T-338403 in the name of petitioner Lily
former legal counsel of ALRAI. The donated lot covered Loy.
by TCT No. T-41366 (replaced by TCT No. T-322970) was
The following Transfer Certificates of Title are declared
sold to Lily Loy (Loy) and now covered by TCT No. T-
VOID:
338403.
Respondents filed a Complaint against petitioners. 1. TCT Nos. T-322963 and T-322962 in the name of
Respondents alleged that petitioners expelled them as Petitioner Armando Javonillo;
members of ALRAI, and that petitioners are abusing 2. TCT Nos. T-322964 and T-322965 in the name of
their powers as officers. Respondents further alleged petitioner Ma. Acelita Armentano; and
that petitioners were engaged in the following 3. TCT No. T-322971 in the name of petitioner
anomalous and illegal acts: (1) requiring ALRAI's Asuncion A. Alcantara.
members to pay exorbitant arrear fees when ALRAI's
By-Laws only set membership dues at P1.00 per ISSUE
month; (2) partially distributing the lands donated by
Whether OR NOT the transfers of the donated lots are
Dakudao to some officers of ALRAI and to some non-
valid.
members in violation of the Deeds of Donation; (3)
illegally expelling them as members of ALRAI without RULING
due process; and (4) being unable to show the books of
accounts of ALRAI. They also alleged that Loy (who irtualLawlibraryThe following Transfer Certificates of
bought one of the donated lots from Alcantara) was a Title are VOID:ChanRoblesVirtualawlibrary
buyer in bad faith, having been aware of the status of
(1) TCT Nos. T-322962 and T-322963 in
the land when she bought it.
the name of Armando Javonillo;
(2) TCT Nos. T-322964 and T-322965 in
the name of Ma. Acelita Armentano; bereft of any legitimate corporate purpose, nor were
(3) TCT Nos. T-322966, T-322967, T- they shown to be reasonably necessary to further
322968, and T-322969 in the name of ALRAI's purposes. This is principally because, as
Romeo Dela Cruz; respondents argue, petitioners "personally benefitted
(4) TCT No. T-338403 in the name of Lily themselves by allocating among themselves vast track
Loy; and of lands at the dire expense of the landless general
(5) TCT No. T-322971 in the name of membership of the Association."
Asuncion Alcantara.
4. BANK OF COMMERCEvs.RADIO PHILIPPINES

One of the primary purposes of ALRAI is the NETWORK, INC., INTERCONTINENTAL BROADCASTING
giving of assistance in uplifting and promoting better CORPORATION, and BANAHA W BROADCASTING
living conditions to all members in particular and the CORPORATION, THRU BOARD OF ADMINISTRATOR,
public in general. One of its objectives includes "to uplift and SHERIFF BIENVENIDO S. REYES, JR., Sheriff,
and promote better living condition, education, health Regional Trial Court of Quezon City, Branch 98
and general welfare of all members in particular and the [G.R. No. 195615April 21, 2014]
public in general by providing its members humble
shelter and decent housing."Respondents maintain that
it is pursuant to this purpose and objective that the
FACTS:
properties subject of this case were donated to ALRAI.
Section 36, paragraphs 7 and 11 of the In late 2001 the Traders Royal Bank (TRB)
proposed to sell to petitioner Bank of Commerce for
Corporation Code provide:
₱10.4 billion its banking business consisting of specified
assets and liabilities. Bank of Commerce agreed subject
to prior BSP's approval of their Purchase and
Sec. 36. Corporate powers and capacity. - Every
Assumption (P & A) Agreement. On November 8, 2001
corporation incorporated under this Code has the the BSP approved that agreement subject to the
power and capacity: condition that Bank of Commerce and TRB would set up
an escrow fund of PSO million with another bank to
xxx cover TRB liabilities for contingent claims that may
subsequently be adjudged against it, which liabilities
7. To purchase, receive, take or grant, were excluded from the purchase.
hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, To comply with the BSP mandate, on December
including securities and bonds of other corporations, as 6, 2001 TRB placed ₱50 million in escrow with
the transaction of the lawful business of the Metrobank to answer for those claims and liabilities
corporation may reasonably and necessarily that were excluded from the P & A Agreement and
remained with TRB. Accordingly, the BSP finally
require, subject to the limitations prescribed by law and
approved such agreement on July 3, 2002.
the Constitution.
On October 10, 2002, acting in G.R. 138510, TRB
xxx v. RPN Inc., this Court ordered TRB to pay RPN actual
damages of ₱10 million plus 12% legal interest and
11. To exercise such other powers as may be
some amounts. Rather than pursue a levy in execution
essential or necessary to carry out its purpose or of the corresponding amounts on escrow with
purposes as stated in the articles of incorporation. Metrobank, RPN filed a Supplemental Motion for
Execution where they described TRB as "now Bank of
The Corporation Code therefore tells us that the Commerce" based on the assumption that TRB had been
power of a corporation to validly grant or convey any of merged into Bancommerce.
its real or personal properties is circumscribed by its
primary purpose. It is therefore important to determine Bancommerce filed its Special Appearance with
whether the grant or conveyance is pursuant to a Opposition to the same questioning the jurisdiction of
the RTC over Bancommerce and denying that there was
legitimate corporate purpose, or is at least reasonable
a merger between TRB and Bancommerce. The RTC
and necessary to further its purpose.
issued an Order granting and issuing the writ of
execution to cover any and all assets of TRB, including
Based on the records of this case, the SC find
those subject of the merger/consolidation in the guise of
that the transfers of the corporate properties to a Purchase and Sale Agreement with Bank of
Javonillo, Armentano, Dela Cruz, Alcantara and Loy are Commerce, and/or against the Escrow Fund established
by TRB and Bank of Commerce with the Metrobank. absent. A merger does not become effective upon
the mere agreement of the constituent
Bancommerce filed a petition for certiorari with corporations. All the requirements specified in the
the CA assailing the RTC’s Order, but was denied. The law must be complied with in order for merger to
CA pointed out that the Decision of the RTC was clear in take effect. Section 79 of the Corporation Code
that Bancommerce was not being made to answer for further provides that the merger shall be effective
the liabilities of TRB, but rather the assets or properties only upon the issuance by the SEC of a certificate of
of TRB under its possession and custody. In the same merger.
Decision, the CA modified the Decision of the RTC by
deleting the phrase that the P & A Agreement is a farce ▪ Here, Bancommerce and TRB remained separate
or "a mere tool to effectuate a merger and/or corporations with distinct corporate personalities.
consolidation between TRB and BANCOM.” What happened is that TRB sold and Bancommerce
purchased identified recorded assets of TRB in
RPN then filed with the RTC a motion to cause consideration of Bancommerce’s assumption of
the issuance of an alias writ of execution against identified recorded liabilities of TRB including
Bancommerce based on the CA Decision. The RTC booked contingent accounts. There is no law that
granted the motion on February 19, 2010 on the prohibits this kind of transaction especially when it
premise that the CA Decision allowed it to execute on is done openly and with appropriate government
the assets that Bancommerce acquired from TRB under approval. No merger or consolidation took place as
their P & A Agreement. the records do not show any plan or articles of
merger or consolidation. More importantly, the SEC
Bancommerce sought reconsideration of the did not issue any certificate of merger or
RTC Order considering that the December 2009 CA consolidation.
Decision actually declared that no merger existed
between TRB and Bancommerce. But, since the RTC had ▪ In his book, Dean Cesar Villanueva explained that
already issued the alias writ, Bancommerce filed a under the Corporation Code, "a de facto merger can
motion to quash the same, followed by supplemental be pursued by one corporation acquiring all or
Motion. substantially all of the properties of another
corporation in exchange of shares of stock of the
The RTC then issued the assailed Order denying acquiring corporation. The acquiring corporation
Bancommerce pleas and, among others, directing the would end up with the business enterprise of the
release to the Sheriff of Bancommerce’s "garnished target corporation; whereas, the target corporation
would end up with basically its only remaining
monies and shares of stock or their monetary
assets being the shares of stock of the acquiring
equivalent.” Aggrieved, Bancommerce appealed to the corporation."
CA. However, the CA dismissed the petition outright for
the supposed failure of Bancommerce to file a motion ▪ No de facto merger took place in the present case
for reconsideration of the assailed order. simply because the TRB owners did not get in
exchange for the bank’s assets and liabilities an
ISSUE: equivalent value in Bancommerce shares of stock.
Bancommerce and TRB agreed with BSP approval to
W/N TRB and Bancommerce were validly merged. exclude from the sale the TRB’s contingent judicial
liabilities, including those owing to RPN.
RULING: NO
(1)
▪ Merger is a re-organization of two or more 5. LIGAYA ESGUERRA, ET. AL. v. HOLCIM PHILIPPINES,
corporations that results in their consolidating into INC.
a single corporation, which is one of the constituent
corporations, one disappearing or dissolving and G.R. No. 182571, September 2, 2013, REYES, J.
the other surviving. To put it another way, merger is
the absorption of one or more corporations by FACTS:
another existing corporation, which retains its
identity and takes over the rights, privileges, Respondent Esguerra filed on December 12,
franchises, properties, claims, liabilities and 1989 with the RTC, Malolos, Bulacan, an action to annul
obligations of the absorbed corporation(s). The the Free Patent in the name of de Guzman. Esguerra
absorbing corporation continues its existence while claimed that he was the owner of the subject land with
the life or lives of the other corporation(s) is or are an approximate area of 47,000 square meters. Esguerra
terminated. learned that the said parcel of land was being offered
for sale by de Guzman to Hi-Cement Corporation (now
▪ Indubitably, it is clear that no merger took place HOLCIM Philippines, Inc.). He later amended his
between Bancommerce and TRB as the complaint to impleaded Hi-Cement as a co-defendant
requirements and procedures for a merger were since the latter was hauling marble from the subject
land. The RTC dismissed Esguerra’s complaint but on HOLCIM attached all the necessary documents for the
appeal, the CA reversed. The Supreme Court in its filing of a petition for certiorari before the CA. Indeed,
Decision dated December 27, 2002 affirmed the CA’s there was no complete failure to attach a Certificate of
decision. After attaining finality, the case was Non-Forum Shopping. In fact, there was such a
remanded to the RTC for execution. certificate. While the board resolution may not have
Now, herein petitioners (heirs of Esguerra), filed been attached, HOLCIM complied just the same when it
an Omnibus Motion with the RTC, manifesting that the attached the Secretary’s Certificate dated July 17, 2006,
Court’s December 27, 2002 decision has yet to be thus proving that O’Callaghan had the authority from
executed. HOLCIM filed a motion for reconsideration the board of directors to appoint the counsel to
alleging that it did not owe any amount of royalty to the represent them. The Court recognizes the compliance
petitioners for the extracted limestone from the subject made by HOLCIM in good faith since after the
land. It also filed a Manifestation and Motion for Ocular petitioners pointed out the said defect, HOLCIM
Inspection to prove that it did not extract limestone submitted the Secretary’s Certificate dated July 17,
from the subject land. Despite all of this, an alias writ of 2006, confirming the earlier Secretary’s Certificate
execution and notices of garnishment on several banks dated June 9, 2006.
against HOLCIM have been issued by the RTC to cover
the payment of royalties to petitioner for the former's 6. G.R. No. 181277, July 03, 2013
extraction of limestone, etc. HOLCIM filed a Petition for
Certiorari with Urgent Applications for Temporary SWEDISH MATCH PHILIPPINES, INC., Petitioner, v. THE
Restraining Order and/or Writ of Preliminary Injunction TREASURER OF THE CITY OF MANILA,Respondent.
with the CA. The CA granted the motion.
ISSUE: THE
On 20 October 2001, Swedish Match Phils. Inc. paid business taxe
Whether or not the CA gravely erred in not
dismissing HOLCIM's petition for certiorari on the The assessed amount was based on Sections 14 and 21 of Ord
ground of lack of Board Resolution authorizing the filing Manila Revenue Code, as amended by Ordinance Nos. 7988 an
of petition.
corresponded to the payment
HELD:
Assenting that it was not liable to pay taxes under Section 21, pe
The general rule is that a corporation can only 2003 to herein respondent claiming a refund of business taxes
exercise its powers and transact its business through its provision. Petitioner argued that payment under Section 21
board of directors and through its officers and agents payment under
when authorized by a board resolution or its bylaws.
The power of a corporation to sue and be sued is
On 17 October 2003, for the alleged failure of respondent to ac
exercised by the board of directors. The physical acts of
the corporation, like the signing of documents, can be Petition for Refund of Taxes with the RTC of Manila in accordanc
performed only by natural persons duly authorized for Code of 1991. The Petition was docketed
the purpose by corporate bylaws or by a specific act of
the board. Absent the said board resolution, a petition On 14 June 2004, the Regional Trial Court (RTC), Branch 21 of M
may not be given due course. 03-108163 dismissing the Petition for the failure of petitioner t
In the case at bar, HOLCIM attached to its
state the authority of Tiarra T. Batilaran-Beleno (the company’s F
Petition for Certiorari before the CA a Secretary’s
Verification and Certification of
Certificate authorizing Mr. Paul M. O’Callaghan
(O’Callaghan), its Chief Operating Officer, to nominate,
designate and appoint the corporation’s authorized In denying petitioner’s Motion for Reconsideration, the RTC
representative in court hearings and conferences and pertained to taxes of a different nature and, thus, the elements o
the signing of court pleadings. It also attached the
Special Power of Attorney dated June 9, 2006, signed by On appeal, the CTA Second Division affirmed the RTC’s dismissa
O’Callaghan, appointing Sycip Salazar Hernandez &
ground that petitioner had failed to state the authority of Ms. Be
Gatmaitan and/or any of its lawyers to represent
HOLCIM; and consequently, the Verification and
Certification of Non Forum Shopping signed by the
authorized representative. To be sure, HOLCIM, in its ISSUE
Reply filed in the CA, attached another Secretary’s
Certificate, designating and confirming O’Callaghan’s Whether Ms. Beleno was authorized to file the Petition
power to authorize Sycip Salazar Hernandez & for Refund of Taxes with the RTC
Gatmaitan and/or any of its lawyers to file for and on
behalf of HOLCIM, the pertinent civil and/or criminal
actions pending before the RTC. RULING
The foregoing convinces the Court that the CA
did not err in admitting HOLCIM’s petition before it. YES.
expired on January 15, 1962. On that date, it ceased

The power of a corporation to sue and be sued is lodged transacting business, entered into a state of liquidation.
in the board of directors, which exercises its corporate
powers. It necessarily follows that “an individual Thereafter, a new corporation. — Alhambra Industries,
corporate officer cannot solely exercise any corporate Inc. — was formed to carry on the business of
power pertaining to the corporation without authority Alhambra.
from the board of directors.” Thus, physical acts of the
corporation, like the signing of documents, can be On May 1, 1962, Alhambra's stockholders, by resolution
performed only by natural persons duly authorized for named Angel S. Gamboa trustee to take charge of its
the purpose by corporate by-laws or by a specific act of liquidation.
the board of directors.
On June 20, 1963 — within Alhambra's three-year
Consequently, a verification signed without an authority statutory period for liquidation - Republic Act 3531 was
from the board of directors is defective. However, the enacted into law. It amended Section 18 of the
requirement of verification is simply a condition Corporation Law; it empowered domestic private
affecting the form of the pleading and non-compliance corporations to extend their corporate life beyond the
does not necessarily render the period fixed by the articles of incorporation for a term
pleading fatally defective. The court may in fact order not to exceed fifty years in any one instance. Previous
the correction of the pleading if verification is lacking or, to Republic Act 3531, the maximum non-extendible
it may act on the pleading although it may not have term of such corporations was fifty years.
been verified, where it is made evident that strict
compliance with the rules may be dispensed with so On July 15, 1963, at a special meeting, Alhambra's
that the ends of justice may be served. board of directors resolved to amend paragraph
"Fourth" of its articles of incorporation to extend its
corporate life for an additional fifty years, or a total of
In this case, it is undisputed that the Petition filed with 100 years from its incorporation.
the RTC was accompanied by a Verification and
Certification of Non-Forum Shopping signed by Ms. On October 28, 1963, Alhambra's articles of
Beleno, although without proof of authority from the incorporation as so amended certified correct by its
board. However, this Court finds that the belated president and secretary and a majority of its board of
directors, were filed with respondent Securities and
submission of the Secretary’s Certificate constitutes
Exchange Commission (SEC).
substantial compliance with Sections 4 and 5, Rule 7 of
the 1997 Revised Rules on Civil Procedure. On November 18, 1963, SEC, however, returned said
amended articles of incorporation to Alhambra's
A perusal of the Secretary’s Certificate signed by counsel with the ruling that Republic Act 3531 "which
petitioner’s Corporate Secretary Rafael Khan and took effect only on June 20, 1963, cannot be availed of
submitted to the RTC shows that not only did the by the said corporation, for the reason that its term of
existence had already expired when the said law took
corporation authorize Ms. Beleno to execute the
effect in short, said law has no retroactive effect."
required Verifications and/or Certifications of Non-
Forum Shopping, but it likewise ratified her act of filing On December 3, 1963, Alhambra's counsel sought
the Petition with the RTC. reconsideration of SEC's ruling aforesaid, refiled the
amended articles of incorporation.
On September 8, 1964, SEC, after a conference hearing,

2. SPECIFIC POWERS: THEORY OF SPECIFIC CAPACITY issued an order denying the reconsideration sought.
1. G.R. No. L-23606 July 29, 1968 ISSUE: Whether or not a corporation under liquidation
may still amend its articles of incorporation to extend its
ALHAMBRA CIGAR & CIGARETTE MANUFACTURING lifespan.
COMPANY, INC., petitioner,
vs. RULING
SECURITIES & EXCHANGE COMMISSION
No. Alhambra cannot avail of the new law because it
FACTS has already expired at the time of its passage.
Alhambra Cigar and Cigarette Manufacturing Company,

Inc. (hereinafter referred to simply as Alhambra) was For implicit in Section 77 heretofore quoted is that the
duly incorporated under Philippine laws on January 15, privilege given to prolong corporate life under the
1912. By its corporate articles it was to exist for fifty amendment must be exercised before the expiry of the
(50) years from incorporation. Its term of existence term fixed in the articles of incorporation.
As we look in retrospect at the facts, we find these:

From July 15 to October 28, 1963, when Alhambra
made its attempt to extend its corporate existence, its
original term of fifty years had already expired (January
15, 1962); it was in the midst of the three-year grace
period statutorily fixed in Section 77 of the Corporation
Law, thus: .
SEC. 77. Every corporation whose charter
expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate
existence for other purposes is terminated in
any other manner, shall nevertheless be
continued as a body corporate for three years
after the time when it would have been so
dissolved, for the purpose of prosecuting and
defending suits by or against it and of enabling
it gradually to settle and close its affairs, to
dispose of and convey its property and to divide
its capital stock, but not for the purpose of
continuing the business for which it was
established.
When a corporation is liquidating pursuant to

the statutory period of three years to liquidate, it is
only allowed to continue for the purpose of final
closure of its business and no other purposes. In fact,
within that period, the corporation is enjoined from
“continuing the business for which it was established”.
Hence, Alhambra’s board cannot validly amend its
articles of incorporation to extend its lifespan.
Alhambra’s stance does not induce assent. Expansive
construction is possible only when there is something to
expand. At the time of the passage of Republic Act
3531, Alhambra’s corporate life had already expired. It
had overstepped the limits of its limited existence. No
life there is to prolong.
Besides, a new corporation — Alhambra Industries, Inc.,

with but slight change in stockholdings15 — has already
been established. Its purpose is to carry on, and it
actually does carry on,16 the business of the dissolved
entity. The beneficial-effects argument is off the mark.
The way the whole case shapes up then, the only

possible drawbacks of Alhambra might be that, instead
of the new corporation (Alhambra Industries, Inc.) being
written off, the old one (Alhambra Cigar & Cigarette
Manufacturing Company, Inc.) has to be wound up; and
that the old corporate name cannot be retained fully in
its exact form.17 What is important though is that the
word Alhambra, the name that counts [it has goodwill],
remains.
FOR THE REASONS GIVEN, the ruling of the Securities

and Exchange Commission of November 18, 1963, and
its order of September 8, 1964, both here under review,
are hereby affirmed.

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CORPORATION LAW CASE DIGESTS | 1 1

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