01 RAMOSO v.
CA (AGAPITO) time no separate mind, will or existence of its own;
December 08, 2008 | QUISUMBING, J.. | Piercing the Veil of Corporate Fiction
PETITIONER: Avelina G. Ramoso, et al.
RESPONDENTS: Court of Appeals, General Credit Corp. (Formerly
Commercial Credit Corp.), CCC Equity Corp., Resource and Finance Corp.,
Generoso G. Villanueva and Leonardo B. Alejandrino, and Securities and
Exchange Commission
SUMMARY: Avelina Ramoso et al are investors and majority stock holders of
the franchise branches of Commercial Credit Corporation (CCC). CCC is a
lending and investment firm. CCC contracted with its franchise branches for the
latter to assign its receivables to CCC. But this practice was discontinued due to a
prohibition (DOSRI rule) issued by the Central Bank where corporations are
prohibited from lending funds to persons with related interests, among others. To
circumvent this, CCC incorporated CCC Equity, a wholly owned subsidiary to
manage the franchise branches. CCC later changed its name to General Credit
Corporation (GCC). In 1981, petitioners discovered several bad business practices
being conducted by GCC; that such questionable practices divested GCC of its
assets thereby placing the franchise branches at a disadvantage; that GCC, through
CCC Equity mismanaged the franchise branches thereby causing imminent losses
to the investors. Petitioners sued GCC before the Securities and Exchange
Commission. The hearing officer ruled in favor of Ramoso et al. He pierced the
veil of corporate fiction and he declared that the franchise branches, GCC, and
CCC equity are one and the same corporation; that as such, the franchise branches,
in whom Ramoso et al invested, are not liable to the obligations incurred by GCC.
The SEC en banc however reversed the ruling of the hearing officer. The Court of
Appeals affirmed the SEC en banc.
The SC affirmed the decision of the SEC stating that were not able to prove that
CCC Equity was incorporated in order to perpetrate fraud against them. Whether
the existence of the corporation should be pierced depends on questions of facts,
appropriately pleaded. Mere allegation that a corporation is the alter ego of the
individual stockholders is insufficient.
DOCTRINE: In any given case, except express agency, estoppel, or direct tort,
three elements must be proved:
1. Control, not mere majority or complete stock control, but complete domination,
not only of finances but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to this transaction had at the
2. Such control must have been used by the defendant to commit fraud or wrong,
to perpetrate the violation of the statutory or other positive legal duty, or dishonest
and unjust act in contravention of plaintiffs legal rights; and
3. the aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
The absence of any one of these elements prevents piercing the corporate veil.
FACTS:
1. On March 11, 1957, Commercial Credit Corporation(CCC) was
registered with SEC as a general financing and investment corporation.
CCC made proposals to several investors for the organization of franchise
companies in different localities.
2. Petitioners invested and bought majority shares of stocks, while CCC
retained minority holdings. Management contracts were executed between
each franchise company and CCC under the following terms and
conditions: (1) The franchise company shall be managed by CCCs resident
manager. (2) Management fee equivalent to 10% of net profit before taxes
shall be paid to CCC. (3) All expenses shall be borne by the franchise
company, except the salary of the resident manager and the cost of credit
investigation. (4) CCC shall set prime rates for discounting or rediscounting
of receivables. Apart from these, each investor was required to sign a
continuing guarantee for bad accounts that might be incurred by CCC due
to discounting activities.
3. In 1974, CCC attempted to obtain a quasi-banking license from Central
Bank of the Philippines. But there was a hindrance because Section 1326 of
CBs Manual of Regulations for Banks and Other Financial Intermediaries,
states:
Sec. 1326. General Policy. Dealings of a bank with any of its directors,
officers or stockholders and their related interests should be in the regular
course of business and upon terms not less favorable to the bank than those
offered to others. (Emphasis supplied)
4. The above DOSRI regulation and set guidelines are entitled to make
sure that lendings by banks or other financial institutions to its own
directors, officers, stockholders or related interests are above board.
 5. In view of said hindrance, what CCC did was divest itself of its
shareholdings in the franchise companies. It incorporated CCC Equity to
take over the administration of the franchise companies under new
management contracts. In the meantime, CCC continued providing a
discounting line for receivables of the franchise companies through CCC
Equity. Thereafter, CCC changed its name to General Credit Corporation
(GCC).
6. The companies operations were on course until 1981, when adverse
media reports unraveled anomalies in the business of GCC.
7. Upon investigation, petitioners allegedly discovered the dissipation of
the assets of their respective franchise companies. Among the alleged
fraudulent schemes by GCC involved transfer or assignment of its
uncollectible notes and accounts; utilization of spurious commercial papers
to generate paper revenues; and release of collateral in connivance with
unauthorized loans. Furthermore, GCC allegedly divested itself of its assets
through a questionable offset of receivables arrangement with one of its
creditors, Resource and Finance Corporation.
8. On February 24, 1984, petitioners filed a suit in the SEC against GCC,
CCC Equity and RFC praying for the piercing of the corporate fiction of
GCC, CCC Equity, RFC and the franchise companies.
9. On February 23, 1990, the hearing officer ordered piercing the
corporate veil of GCC, CCC Equity, and the franchise companies. He later
declared that GCC was not liable to individual petitioners for the losses,
since as investors they assumed the risk of their respective investments. The
franchise companies and the individual petitioners were held not liable to
GCC for the bad accounts incurred by the latter through the discounting
process.
10. In an en banc decision, dated October 6, 1992, the SEC reversed the
ruling of its hearing officer. Petitioners appealed to the Court of Appeals.
On October 8, 1993, the appellate court affirmed respondent SECs decision.
Petitioners moved for a reconsideration. Hence, the instant petition.
ISSUE/s:
1. WoN the veil of corporate fiction should be pierced. – NO
2. WoN only the SEC has jurisdiction over the issue of whether
individual petitioners may be held liable on the surety agreements for bad
accounts incurred by GCC through the discounting process. - NO
RULING: WHEREFORE, the instant petition is DENIED for lack of merit. The
assailed decision and resolution of the Court of Appeals dated October 8, 1993 and
September 22, 1994, respectively, are AFFIRMED.
RATIO:
(WoN the veil of corporate fiction should be pierced. – NO)
1. The SC agreed to the findings of the SEC which decided against the petitioners.
2. The SEC cited the elements of piercing the veil of corporate fiction:
“In any given case, except express agency, estoppel, or direct tort, three elements must be
proved:
1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetrate the violation of the statutory or other positive legal duty, or dishonest and unjust
act in contravention of plaintiffs legal rights; and
3. the aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.
The absence of any one of these elements prevents piercing the corporate veil.”
3. The SEC further stated that the second element required for the application of
the instrumentality rule is not present in this case. Upon close scrutiny of the
various testamentary and documentary evidence presented during trial, it may be
observed that petitioners claim of dissipation of assets and resources belonging to the
franchise companies has not been reasonably supported by said evidence at hand
with the Commission.
4. The SC agreed with the abovementioned findings of the SEC. The SC further
opined that there was no fraud nor mismanagement in the control exercised by GCC
and by CCC Equity, over the franchise companies. Whether the existence of the
corporation should be pierced depends on questions of facts, appropriately
pleaded. Mere allegation that a corporation is the alter ego of the individual
stockholders is insufficient. The presumption is that the stockholders or officers and
the corporation are distinct entities. The burden of proving otherwise is on the
party seeking to have the court pierce the veil of the corporate entity. In this,
petitioner failed.
(WoN only the SEC has jurisdiction - NO)
5. Petitioners contend that the issue of whether the investors may be held liable on
the surety agreements for bad accounts incurred by GCC through the discounting
process cannot be isolated from the fundamental issue of validly piercing GCCs
corporate veil. They argue that since these surety agreements are intra-corporate
matters, only the SEC has the specialized knowledge to evaluate whether fraud was
perpetrated.
6. The SC argued that petitioners signed the continuing guaranty of the franchise
companies’ bad debts in their own personal capacities. Consequently, they are
responsible for their individual acts. The liabilities of petitioners as investors arose
out of the regular financing venture of the franchise companies.
7. There is no evidence that these bad debts were fraudulently incurred. Any taint
of bad faith on the part of GCC in enticing investors may be resolved in ordinary
courts, inasmuch as this is in the nature of a contractual relationship. Changing
petitioners subsidiary liabilities by converting them to guarantors of bad debts cannot
be done by piercing the veil of corporate identity.
8. The matter of whether the petitioners must be held liable on their separate
suretyship is one that belongs to the regular courts. As the respondent SEC notes in
its comment, the franchised companies accounts discounted by GCC would arise
even if there is no intra-corporate relationship between the parties. In other words,
the controversy did not arise out of the parties relationships as stockholders.

02 Booc v. Bantuas (Aguirre)

March 13, 2001 | DE LEON, JR., J | Separate Personality
 b. The corporation claimed it was the owner of the property and
PETITIONER: SALVADOR O. BOOC (President of Five Star Marketing)
Rufino Booc had no share or interest in the corporation.
RESPONDENTS: MALAYO B. BANTUAS, SHERIFF IV, RTC, BRANCH 3,
c. The corporation then filed an action for Quieting of Title with the
ILIGAN CITY
RTC upon receipt of a Notice of Sale
3. In his answer, Sheriff Bantuas said that he filed a Notice of Levy on the
SUMMARY: Pursuant to a Writ of Execution issued in another civil case
share, rights, interest and participation of Rufino Booc in the parcel of land
involving Rufino Booc, Sheriff Bantuas filed a Notice of Levy over a parcel of
owned by Five Star Marketing Corporation.
land owned by Five Star Marketing Corporation. Salvador Booc, the President of
4. Bantuas claimed that:
the Corporation, filed a complaint against Bantuas before the OCA for proceeding
a. Rufino Booc is the owner of around 200 shares of stock in said
to file the Notice of Levy despite knowledge that the property is owned by the
corporation according to a document issued by the SEC.
corporation which was not party to the civil case. Bantuas contended that he filed
b. He was acting pursuant to his duties under the Rules of Court
a Notice of Levy on the share, rights, interest and participation of Rufino Booc in
c. The RTC where the case for Quieting of Title was pending ordered
the parcel of land owned by Five Star Marketing Corporation. The OCA found
the auction sale of the shares of stock of Rufino Booc and said
respondent sheriff liable for the charges filed against him, stating that respondent
RTC order was allegedly never questioned.
sheriff acted in bad faith. The case was then redocketed as an administrative
d. The corporation is merely a dummy of Rufino Booc and his
matter. The Supreme Court ruled that Sheriff Bantuas acted beyond his authority
brother Sheikding Booc.
when he levied the property of Five Star Marketing Corporation. He overstepped
e. An affidavit executed by Sheikding wherein the latter admitted that
his authority when he disregarded the distinct and separate personality of the
when Judge Felipe Javier won in the civil case against Rufino,
corporation from that of Rufino as stockholder of the corporation by levying on
Rufino simulated a transfer of his shares of stock in Five Star
the property of the corporation. Sheriff Bantuas should not have made the levy
Marketing Corporation so that the property may not be levied
based on mere conjecture that since Rufino is a stockholder and officer of the
upon.
corporation, then he might have an interest or share in the subject property.
5. The OCA found respondent sheriff liable for the charges filed against him,
stating that respondent sheriff acted in bad faith when he auctioned the
DOCTRINE: It is settled that a corporation is clothed with a personality separate
subject property inasmuch as he had already been warned that the public
and distinct from that of its stockholders. It may not be held liable for the personal
auction should pertain only to shares of stock owned by Rufino Booc and
indebtedness of its stockholders.
not the corporation’s property.
6. Respondent sheriff, however, in violation of the order issued by Judge
FACTS: Mangotara and in disregard of the manifestation filed by plaintiffs counsel
1. Sheriff Bantuas filed a Notice of Levy with the Register of Deeds over a that the sale should involve only the shares of stock, proceeded to auction
parcel of land owned by Five Star Marketing Corporation. the subject property.
a. This was pursuant to a Writ of Execution issued in Civil Case No. 7. This case was recommended to be redocketed as an administrative matter.
1718 entitled, (Judge) Javier Jr. v. Rufino Booc.
2. Salvador Booc, the President of Five Star Marketing Corporation, filed a ISSUE:
complaint (this case) before the Office of the Court Administrator charging WoN Sheriff Bantuas acted beyond his authority when he levied the property of
Sheriff Bantuas with Gross Ignorance of the Law and Grave Abuse of Five Star Marketing Corporation? Yes
Authority relative to Civil Case No. 1718. RULING: WHEREFORE, Malayo B. Bantuas, Sheriff IV of Iligan City RTC,
a. He alleged that Sheriff Bantuas proceeded to file the Notice of Branch 3, is FINED in the sum of P5,000.00 with the STERN WARNING that a
Levy despite knowledge that the property is owned by the repetition of the same or similar acts in the future will be dealt with more severely.
corporation which was not a party to the civil case.
RATIO:
1. In filing a notice of levy on the subject property as well as in the certificate
of sale, Bantuas did not fail to mention that what was being levied upon and
sold was whatever shares, rights, interests and participation Rufino, as
president and stockholder in Five Star Marketing Corporation may have on
subject property.
a. However, he overstepped his authority when he disregarded
the distinct and separate personality of the corporation from
that of Rufino as stockholder of the corporation by levying on
the property of the corporation.
2. Respondent sheriff should not have made the levy based on mere conjecture
that since Rufino is a stockholder and president of the corporation, then he
might have an interest or share in the subject property.
a. (Maybe Rufino was the former president? Since Salvador is also
president)
3. It is settled that a corporation is clothed with a personality separate
and distinct from that of its stockholders. It may not be held liable for
the personal indebtedness of its stockholders.
a. The mere fact that one is a president or an officer of the
corporation does not render the property he owns or possesses the
property of the corporation since the president, as an individual,
and the corporation are separate entities.
4. Sheriff Bantuas has clearly acted beyond his authority when he levied the
property of Five Star Marketing Corporation.
5. However, since respondent sheriff, in levying said property, had stated in
the notice of levy as well as in the certificate of sale that what was being
levied upon and sold was whatever rights, shares interest and/or
participation Rufino, as stockholder and president in the corporation, may
have on the subject property, shows that respondent sheriff's conduct was
impelled partly by ignorance of Corporation Law and partly by mere
overzealousness to comply with his duties and not by bad faith or blatant
disregard of the trial court's order—> fine + warning

03 D.R. CATV Services Inc. vs. Ramos (Jaana)

Dec. 9, 2005 | Garcia, J. | Corp personality distinct and separate
 PETITIONER: D.R. CATV SERVICES, INC
RESPONDENTS: JESUS R. RAMOS
SUMMARY:
Danilo Red was found civilly guilty of violating BP22 (worth 1.1M). Sheriff
Ramos was ordered to implement the writ of execution. Pursuant to the writ,
Ramos advised Danilo Red to pay the money judgment aforestated within five
(5) days from receipt thereof. However, complainant alleges Ramos levied on
the equipment owned by D.R. CATV and cut the cable wire connected to
lampposts, even before the expiration of the 5-day period. The levied
equipment valued at P2.6 million were also placed by respondent in the
possession of one Jose Antonio "Bong" Carreon in violation of Section 7, Rule
57 of the Rules of Court. Ramos, on the other hand stated that the writ was
executed in good faith and served upon his mother; that Red pleaded for time to
settle his obligation, He adds that upon being informed that Danilo Red owns
and operates D.R. CATV, levied upon the equipment found outside the office of
the cable company since the office was still closed. Levy on the other properties
of the company followed. OCA found that the 5-day period prescribed in the
Notice was not observed; the notice and the writ itself were served not on Red
himself but on his mother who refused to acknowledge receipt thereof; the
properties seized belong to a named corporation; and, the levied properties were
not duly deposited in accordance with the Rules of Court but in the house of the
judgment creditor. The Court agreed with the OCA. Ramos disregarded his own
deadline and, before the fifth day, levied on the equipment of D.R. CATV,
which, needless to stress, has a personality distinct and separate from its
stockholders, and is not affected by the personal obligations and
transactions of the latter. That Danilo Red is a stockholder is of little moment.
For, corporate assets belong to the corporation and stockholders have no
claim on them as owners, but have merely an inchoate right to the same
should any remain upon the dissolution of the corporation after all
corporate creditors have been paid. The Court also found Ramos in violation
of the RoC when he brought the levied equipment under the custody of Bong
Carreon.
DOCTRINE:
Corporations have a personality distinct and separate from its stockholders,
and is not affected by the personal obligations and transactions of the latter
FACTS:
1. A case for violation of BP22 was filed against Danilo Red, President of DR
CATV by a certain Armi dela Cruz-Carreon. MeTC of QC found him guilty
as charged, but the RTC set aside the judgement of conviction but
nonetheless held Red civily liable (worth P1.1M incase sir asks.)
2. Ramos, a sheriff of the WC MeTC, was ordered to implement the writ of
execution. Pursuant to the writ, Ramos advised Danilo Red to pay the
money judgment aforestated within five (5) days from receipt thereof.
3. DR CATV’s ALLEGATIONS:
- Ramos, even before the expiration of the five-day period, proceeded to
levy on the equipment owned by D.R. CATV and cut the cable wire
connected to lampposts, thus effectively paralyzing the operation of
D.R. CATVs cable TV services in the town of Buenavista, Marinduque.
- Red informed the respondent as to who really owned the equipment thus
seized, only to be told in an arrogant tone to file a third-party claim.
- That despite D.R. CATVs filing of a third-party claim, respondent still
refused to release the equipment.
- Levied equipment valued at P2.6 million were placed by respondent in
the possession of one Jose Antonio "Bong" Carreon (who later on was
found to be the relative of judgement creditor) in violation of Section 7,
Rule 57 of the Rules of Court.
4. OCA directed respond to submit his comment. Ramos stated that:
- He executed the writ in good faith, and served the writ in
question upon Danilo Red through his mother, Luciana Red.
- He alleges that Red called and pleaded for more time to settle
his obligation upon being apprised of the levy.
- He adds that upon being informed that Danilo Red owns and
operates D.R. CATV, as the letters "D.R." in fact refer to the
initials of Danilo Red, he initially levied upon the equipment
found outside the office of the cable company since the office
was still closed. Levy on the other properties of the company
followed.
5. Respondent admits, however, about being told by herein complainant, who
is no less the companys secretary, that the levied properties pertained in
ownership to the corporation, not to Danilo Red, and about the matter of the
filing of a third-party claim. He also acknowledged bringing the levied
equipment to the house of Mr. Bong Carreon, albeit explaining that he did
so only for safekeeping because there was no available bonded warehouse
 within the area.
6. The OCA finds respondent guilty of abuse of authority and recommends
that he be fined P5,000.00 with warning:
- OCA found that respondent strayed from the regular course
observed in execution of judgments pursuant to the Rules of
Court. Specifically, the 5-day period prescribed in the Notice
was not observed; the notice and the writ itself were served
not on Red himself but on his mother who refused to
acknowledge receipt thereof; the properties seized belong to a
named corporation; and, the levied properties were not duly
deposited in accordance with the Rules of Court but in the
house of the judgment creditor.
7. Particularly reprehensible was the levying on the properties of the
corporation, D.R. CATV, to satisfy a personal judgment against a
stockholder thereof on the very presumptuous excuse that he pierced the
veil of corporate fiction, a function which is purely judicial in nature and
beyond the scope of the ministerial duties of a Sheriff.
ISSUE/s:
1. WoN Ramos acted with grave abuse of authority arising from the
implementation of a writ of execution - YES
overstepped his authority when he attached the property of a corporation
which had not been adjudged as a debtor.
3. That Danilo Red is a stockholder and even the President of D.R. CATV
Services, Inc., is really of little moment. For, corporate assets belong to
the corporation and stockholders have no claim on them as owners, but
have merely an inchoate right to the same should any remain upon the
dissolution of the corporation after all corporate creditors have been
paid.[10] We stress the hornbook law that corporate personality is a shield
against the personal liability of its officers[11] or the personal indebtedness
of its stockholders.[12]
4. The Court also found that Ramos failed in his duty of safekeeping the
properties he levied. After he levied on the corporations equipment, he
brought them to the house of Bong Carreon, in violation of the rule
requiring him to safely keep them in his custody. The alleged lack of
facility, if that be the case, to store the attached properties is no justification.
Respondent should have deposited the same in a bonded warehouse or, if
this is not feasible, should have sought prior authorization from the writ-
issuing court[13] before depositing it in the house of Bong Carreon, who
appears to be related to the judgment creditor.

RULING: WHEREFORE, respondent Jesus R. Ramos, is adjudged GUILTY of

grave abuse of authority and ordered to pay a fine of Five Thousand Pesos
(P5,000.00), with a stern warning that a repetition of the same or similar act shall be
dealt with more severely.

RATIO:
1. Sure, respondent in this case, as the executing sheriff, gave Danilo Red a
grace period of five (5) days from receipt of the sheriffs notification [9]within
which to comply with his monetary obligation.

2. Ramos, however, disregarded his own deadline and, before the fifth day,
surprised Danilo Red by levying on the equipment of D.R. CATV, which,
needless to stress, has a personality distinct and separate from its
stockholders, and is not affected by the personal obligations and
transactions of the latter. There can be no quibbling that respondent
 04 LANDBANK OF THE PHILIPPINES v. CA (Patek) the scheme through the conversion of Php9,000,000.00 which was part of
September 4, 2001 | Quisimbing J. | Definition of a Corporation the total loan, into equity.

4. On May 5, 1982, ECO submitted to LBP a “Revised Plan of Payment”

PETITIONER: Land Bank of the Philippines
which deleted the participation of LBP in the proposed financing company.
RESPONDENTS: Court of Appeals, Eco Management Corporation, and
However, this plan was rejected.
Emmanuel C. Oñate
5. A letter was sent to PVTA which states that failure to reply to the letter
SUMMARY: LandBank extended credit accomodations to ECO Management
would mean that PVTA agrees to LBP’s intention to file suit against ECO
Corporation. However, due to financial difficulties attributing to its failure to
and its corporate officers. PVTA did not respond to the letter.
collect from its investors, ECO defaulted in its payment. Due to this failure,
LandBank filed a case for collection if sum of money against ECO and
6. On June 28, 1982, Landbank filed a complaint for Collection of Sum of
Emmanuel Oñate. Both the RTC and CA held that ECO was liable to pay, but
Money against ECO and Oñate before the Manila RTC.
not Oñate. This prompted the Land Bank to elevate the case before the Supreme
Court. The fundamental issue to be answered by the SC is whether the corporate
7. RTC’s judgement was rendered in favor of LBP; however, Oñate was
veil of ECO should be piereced and whether Oñate should be held jointly liable
absolved from personal liability for insufficiency of evidence.
with ECO. The Court answered in the negative. It reasoned that even though
Oñate was a majority stock holder, and despite his efforts to pay the amount
8. Both parties filed a Motion for Reconsideration. LBP claims that first, there
owed by the company, he is still not solidarily liable. ECO, as a corporation, has
was an error in the computation in the amounts to be paid. And second, it
a distinct personality. In the absence of any malice or bad faith, a stockholder or
questioned the dismissal of the case against Oñate.
an officer of a corporation cannot be made personally liable for corporate
liabilities. Thus, the SC affirmed the CA decision.
9. Meanwhile, ECO questioned its liability for the amount of the loan.
DOCTRINE: A corporation, upon coming into existence, is invested by law
10. On February 3, 1993, the Trial Court rendered an amended decision
with a personality separate and distinct from those persons composing it as well
ordering ECO to pay LBP. Also, the case against Oñate was dismissed.
as from any other legal entity to which it may be related. By this attribute, a
stockholder may not, generally, be made to answer for acts or liabilities of the
11. The Court of Appeals (CA) affirmed the decision in toto.
said corporation, and vice versa.
12. Petitioner submits the following arguments to support its stand:
a. Oñate owns the majority of the interest holdings in respondent
FACTS: corporation, especially during the time that the loans were
1. On various dates in September, October, and November of 1980, LandBank contracted.
of the Philippines (LBP) extended series of credit accommodations to Eco b. The acronym “ECO” stands for the initials of Emmanuel C. Oñate.
Management Corporation (ECO) in the aggregate amount of c. Oñate has always referred to himself as the debtor, not merely as
Php26,109,000.00. The proceeds of half the credit accomodations were an officer or representative of the corporation.
received on behalf of ECO by Emmanuel C. Oñate (Oñate). d. Oñate made a personal offering to pay his personal obligation.
e. Oñate personally paid Php1 Million taken from trust accounts in
2. On the respective maturity dates of the loands, ECO failed to pay, despite his name.
the oral and written demands. ECO argues that it is in a financial difficulty f. Oñate controlled the corporation by simultaneously holding two
because it was unable to collect its investments with companies who were corporate positions.
affected by the financial crisis brought about by the Dewey Dee scandal. g. ECO had not held any meeting of the stockholders or of the Board
of Directors.
3. On October 20, 1981, ECO proposed and submitted to LBP a “Plan of
Payment” whereby ECO would set up a financing company which would 13. Respondents contend that Oñate’s only participation in the transaction
absorb the loan obligations. It was proposed that LBP would participate in between petitioner and respondent ECO was his execution of the loan
 agreements and promissory notes as Chairman of the corporation’s Board of
Directors. Also, it is alleged that there was no fraud and/or bad faith in the
transactions between them and Land Bank.

ISSUE/s:

1. WoN the corporate veil of ECO should be pierced? – NO

2. WoN Oñate should be held jointly and severally liable with ECO Corp. for
the loans incurred from LBP? - NO

RULING: Petition is denied for lack of merit. The decision of the CA is affirmed.

RATIO:

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

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

3. Bad faith or fraud on the part of ECO and Oñate was not shown. The Court
agrees with the CA that the evidence presented does not suffice to hold
Oñate personally liable for the debt of ECO. 05 SOLIDBANK CORPORATION v. MINDANAO FERROALLOY
CORPORATION (MINFACO) (Barron)
July 28, 2005 | Panganiban, J. | Individual liability; Separate and distinct legal
personality
 PETITIONER: Solidbank Corporation
RESPONDENTS: Mindanao Ferroalloy Corporation (MINFACO), Spouses
Jong-Won Hong and Soo-ok Kim Hong, Teresita Cu, and Ricardo P. Guevarra
and spouse
SUMMARY: NIMFACO, through its officers (Guevarra, Hong and Cu),
obtained 2 ordinary time loans from Solidbank (worth ₱5,000,000). A
promissory note was executed to evidence the said loans. Additionally, several
documents were executed to secure the loans’ payment (see #4). However,
shortly thereafter NIMFACO seized its operations. Solidbank demanded
payment, but to no avail. It filed a complaint with the RTC impleading Hong and
his spouse, Guevarra and his spouse, and Cu as solidarily liable with NIMFACO.
The RTC dismissed the complaint for lack of cause of action. The CA affirmed
the RTC’s ruling and awarded the individual respondents with damages (see
#11). Hence, the petition. The main issue is whether the individual respondets
are liable, either jointly ot solidarily, with MINFACO. (NO) See Ruling #4 & 5.
DOCTRINE:
A corporation is vested by law with a personality separate and distinct from that
of each person composing or representing it. Equally fundamental is the general
rule that corporate officers cannot be held personally liable for the consequences
of their acts, for as long as these are for and on behalf of the corporation, within
the scope of their authority and in good faith. The separate corporate personality
is a shield against the personal liability of corporate officers, whose acts are
properly attributed to the corporation. (See exceptions)
FACTS:
1. Maria Cristina Chemical Industries and three (3) other Korean corporations
(i.e. Ssangyong Corporation, Pohang Iron and Steel Company and the
Dongil Industries company) entered into a joint venture and established a
corporation, under the name of Mindanao Ferroalloy Corporation
(MINFACO).
2. The following are MINFACO’s officers:
a. Ricardo P. Guevarra – Presdient and Chairman of the Board of
Directors (BOD)
b. Jong Won-Hong and Teresita Cu – Vice President for Finance,
Marketing and Administration
3. MINFACO’s BOD approved a resolution authorizing Guevarra, Cu, and
Won-Hong to secure an omnibus line in the aggregate amount of
₱30,000,000 from Solidbank.
4. On May 1991, MINFACO secured two (2) ordinary time loans from
Solidbank on separate occasions (₱3,200,000 and ₱1,800,000, respectively).
However, MINFACO and Solidbank agreed to consolidate and restructure
the two (2) loan availments. In line with this, NIMFACO executed the
following:
a. Promissory Note in favor of Solidbank (to evidence the loan) in
the amount of ₱5,160,000 [Cu and Jong-Won Hong affixed their
signatures on the note];
b. Deed of Assignment (to secure the payment of the loan) in favor
of Solidbank covering its rights, title and interest over entire
proceeds of drafts drawn under a certain Irrevocalbe Letter of
Credit up to the extent of $197,679;
c. Quedan (by way of additional security), where MINFACO bound
and obliged itself to keep and hold, in trust for Solidbank or its
order, Ferrosilicon for $197,679; and
d. Trust Receipt Agreement (also by way of additional security),
where NIMFACO obliged itself to hold in trust for Solidbank
Ferrosilicon for $197,679.
5. Shortly after the execution of said documents, NIMFACO seized its
operations. In response, Solidbank sent several letters demanding payment
of NIMFACO’s loan availments.
6. Upon NIMFACO’s failure to comply with Solidbank’s demands, the latter
filed a complaint against former with the RTC of Makati pleaing for the
issuance of a writ of attachment. Solidbank impleaded Guevarra and his
wife, Jong-Won Hong and his wife, and Cu as solidarily liable with
NIMFACO.
7. Likewise, Solidbank filed a criminal complaint for the violation of P.D. 115
(Trust Receipts Law) as the goods covered by the quedan were non-existent
[this was, however, dismissed for lack of probable cause].
8. In their Answers, Spouses Jong-Won Hong and Soo-ok Kim Hong alleged
that the loan was a corporate undertaking of NIMFACO. Guevarra, on the
other hand, alleged that he did not sign any of the documents. On her part,
Cu alleged that the documents were signed in blank and merely as
representative of NIMFACO, and therefore should not be held personally
liable.
9. In the interim, NIMFACO filed for voluntary insolvency with the RTC. The
RTC suspended the proceedings as against NIMFACO but ordered the
proceedings to continue as against the individual respondents.
10. The RTC dismissed the complaint against the individual respondents
for lack of cause of action. It held that Solidbank failed to adduce
sufficient evidence to prove personal liability of the respondents. Hence,
Solidbank appealed to the CA.
 11. The CA ffirmed the RTC’s ruling. It ruled that the individual respondents
are not solidarily liable with MINFACO, because they acted merely as
representatives (or officers) of the corporation. Likewise, they are not liable
for damages, because they did not receive the proceeds of the Letter of
Credit. Finally, the CA granted the award of moral and exemplary damages,
and attorney’s fees for Solidbanks’ reckless and wanton act of pressuring
individual respondents to settle (pursuant to Arts. 19-21 and 2229 of the
Civil Code).
12. Hence, the petition before the SC.
ISSUE:
1. Whether the individual respondets are liable, either jointly ot solidarily,
with MINFACO. (NO)
2. Whether the award of damages to the individual respondents is valid and
legal. (NO)
RULING: Wherefore, this Petition is PARTIALLY GRANTED. The assailed
decision is AFFIRMED, but the award of moral and exemplary damages as well as
attorney’s fees is DELETED.
RATIO:
First Issue (Liability of Individual Respondents)
1. Solidbank argues that the individual respondents were solidarilty liable with
NIMFACO, either because their participation in the loan documents made
them comakers; or because they committed fraud and deception, which ould
justify the piercing of corporate veil.
2. Basic is the principle that a corporation is vested by law with a
personality separate and distinct from that of each person composing
or representing it. Equally fundamental is the general rule that corporate
officers cannot be held personally liable for the consequences of their
acts, for as long as these are for and on behalf of the corporation,
within the scope of their authority and in good faith. The separate
corporate personality is a shield against the personal liability of corporate
officers, whose acts are properly attributed to the corporation.
3. Tramat Mercantile v. CA provides for the instances when personal liabilty
of a corporate director, trustee or officer may validly attach:
a. He assents (a) to a patently unlawful act of the corporation, or (b)
for bad faith or gross negligence in directing its affairs, or (c) for
conflict of interest, resulting in damages to the corporation, its
stockholders or other persons;
b. He consents to the issuance of watered stocks or who, having
knowledge thereof, does not forthwith file with the corporate
secretary his written objection thereto;
c. He agrees to hold himself personally and solidarily liable with the
corporation; or
d. He is made, by a specific provision of law, to personally answer
for his corporate action.
4. Consistent with the foregoing, the SC sustained that Guevarra was not
personally liable for the contracts, because:
a. He was duly authorized to act for and on behalf of NIMFACO
and that in negotiang the loans, he did so in his official capacity;
b. No suffficent evidence was presented to prove that he acted in
bad faith or with gross negligence;
c. Neither did he hold himself personally and solidarily liable
with NIMFACO nor is there any specific provision of law
making him personally answerable.
5. Likewise, Respondents Cu and Hong cannot be held personally liable.
Although Cu and Hong signed the note without the word “by” preceding
their signatures (and appear without qualification), the inference that they
signed in their individual capacities is negated by the following:
a. The name and address of NIMFACO appeared on the space
provided for “Maker/Borrower”;
b. Cu and Hong had only one set of signatures on the instrument
(when there should have been two IF they had intended to be
bound solidarily – first as representatives of NIMFACO, and the
second as themselves in their individual capacities);
c. They did not sign under the space for “Co-maker”;
d. At the back of the note, they signed above the words “Authorized
Representatives”.
6. Solidarity cannot be lightly assumed. Under Article 1207 of the Civil
Code, there is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires
solidarity. Since solidary liability is not clearly expressed in the Promissory
Note and is not required by law or the nature of the obligation in this case,
no conclusion of solidary liability can be made.
7. Nor can the individual respondents be jointly liable, because there is
only one debtor – NIMFACO. In a joint obligation, there must be at least
two debtors, each of whom is liable only for a proportionate part of the
debt; and the creditor is entitled only to a proportionate part of the credit.
 8. NIL: The Promissory Note in question is a negotiable instrument. Under Beyond that fact, however, respondents have not established that the suit
Section 19 of the Negotiable Instruments Law, agents or representatives was so patently malicious as to warrant the award of damages under
may sign for the principal. Furthermore, Section 20 of the law provides the Civil Codes Articles 19 to 21, which are grounded on malice or bad
that a person signing for and on behalf of a [disclosed] principal or in a
faith.
representative capacity x x x is not liable on the instrument if he was
duly authorized.

9. There is no reason to pierce the corporate veil. Under certain

circumstances, the Court may disregard a legal entity’s distinct and separate
corporate personality, when the corporate identity is used to defeat public
convenience, justify a wrong, protect a fraud, or defend a crime.
Likewise, the corporate veil may be pierced when the corporation acts as
a mere alter ego or business conduit of a person, or when it is so
organized and controlled and its affairs so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another
corporation.

10. But in order to successfully disregard the separate juridical personality of a

corporation, the wrongdoing must be clearly and convincingly
established; it cannot be presumed.

11. Unfortunately, Solidbank was unable to establish clearly and

convincingly how the individual respondents committed the alleged
fraud. It failed to establish that Solidbank was deceived into granting
the loans because of respondents’ misrepresentations.
a. The loan was granted long before the bank required the
respondents to execute the Promissory Note, Trust Receipt
Agreement, Quedan or Deed of Assignment. Hence, no words
from those documents could have been used to induce Solidbank.
b. Solidbank was in the position to verify the solvency and
06 PNB v. RITRATTO GROUP (Bautista)
trustworthiness of NIMFACO, which ordinary business prudence
July 31, 2001 | Kapunan, J. | Piercing the veil of corporate entity
requires.

PETITIONER: Philippine National Bank

Second Issue: Award of Damages
1. For damages to be properly awarded under Arts. 19-21 of the Civil Code, it
is necessary to demonstrate by clear and convincing evidence that the
action instituted by petitioner was clearly so unfounded and untenable
as to amount to gross and evident bad faith. To justify an award of
damages for malicious prosecution, one must prove two elements: malice or
sinister design to vex or humiliate and want of probable cause.
2. Petitioner was proven wrong in impleading Spouses Guevara and Hong.
RESPONDENTS: Ritratto Group, Inc., Riatto International, Inc., and Dadasan
General Merchandise
SUMMARY: PNB-IFL, a subsidiary company of PNB, extended a letter of
credit in favor of the respondents secured by real estate mortgages constituted
over 4 parcels of land in Makati City. Respondents made repayments of the loan
incurred by remitting those amounts to their loan account with PNB-IFL.
However, as of April 30, 1998, their outstanding obligations stood at
US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-IFL,
through its attorney-in-fact PNB, notified the respondents of the foreclosure of
all the real estate mortgages and that the properties subject thereof were to be
 sold at a public auction. Respondents filed a complain for injuction with prayer
for the issuance of a writ of preliminary injunction and/or temporary restraining
order. The TC judge issued an order for the issuance of a writ of preliminary
injuction. The motion to dismiss was denied by the TC judge for lack of merit.
Respondents argue that even assuming arguendo that petitioner and PNB-IFL are
two separate entities, petitioner is still a party-in-interest in the application for
preliminary injunction because it is tasked to commit acts of foreclosing
respondents’ properties.
The contract questioned is one enetered into between respondent and PNB-IFL,
not PNB. Petitioner is an agent with limited authority and specific duties under a
SPA. It is not privy to the loan contracts. Respondents fail to show any cogent
reason why the separate entities of the PNB and PNB-IFL should be disregarded.
(See doctrine for applicability of the doctrine of piercing the veil of corp. fiction)
DOCTRINE: The general rule is that as a legal entity, a corporation has a
personality distinct and separate from its individual stockholders or members.
The mere fact that a corporation owns all of the stocks of another corporation,
taken alone is not sufficient to justify their being treated as one entity.The
doctrine of piercing the corporate veil of corporate fiction is an equitable
doctrine developed to address situations where the separate corporate personality
of a corporation is abused or used for wrongful purposes.
Determining applicability of the doctrine of piercing the veil of corporate fiction:
a. Control, not mere majority or complete control, but complete domination,
not only of finances but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to this transaction had
at the time no separate mind, will or existence of its own.
b. Such control must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest and, unjust act in contravention of plaintiff’s legal
rights; and,
c. The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of.

 which is not a real party in interest being a mere attorney-in-fact authorized
d. The absence of any one of these elements prevents “piercing the corporate
veil.”
FACTS:
1. Parties:
a. Petioner Philippine National Bank - domestic corporation
organized and existing under Philippine law
b. Respodents Ritratto Group, Inc., Riatoo International, Inc. and
Dadasan General Merchandise - domestic corporation organized
and existing under Philippine law
2. On May 29, 1996, PNB Internation Finance Ltd. (PNB-IFL), a subsidiary
company of PNB, extended a letter of credit in favor of the respondents in
the amount of US$300,000 secured by real estate mortgages constituted
over 4 parcels of land in Makati City.
a. This credit facility was later increased successively to
US$1,140,000 in Sept 1996; to US$1,290,000 in Nov 1996; to
US$1,425,000 in Feb 1997; and decreased to US$1,421,316 in
April 1998.
3. Respondents made repayments of the loan incurred by remitting those
amounts to their loan account with PNB-IFL.
4. However, as of April 30, 1998, their outstanding obligations stood at
US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-
IFL, through its attorney-in-fact PNB, notified the respondents of the
foreclosure of all the real estate mortgages and that the properties subject
thereof were to be sold at a public auction.
5. Respondents filed a complain for injuction with prayer for the issuance of a
writ of preliminary injunction and/or temporary restraining order before the
RTC of Makati.
6. The Executive Judge of the RTC of Makati issued a 72-hour TRO.
7. Petitioner filed an opposition to the application for a writ of preliminary
injuction.
a. Petitioner filed amotion to dismiss on the grounds of failure to
state a cause of action and the absence of any privity between the
petitioner and respondents.
8. Trial Court judge issued an order for the issuance of a writ of preliminary
injuction. The motion to dismiss was denied by the TC judge for lack of
merit.
9. Petitioner assailed the issuance of the writ of preliminary injunction before
the CA. The CA dismissed the petition.
10. Petitioner thus seeks recourse.
ISSUE:
1. WoN the CA erred in not dismissing the complaint, considering that by the
allegations of the complaint, no cause of action exists against petitioner,
to enforce an ancillary contract. – YES
2. WoN the CA erred in allowing the TC to issue in excess or lack of
jurisdiction a writ of preliminary injunction over and beyond what was
prayed for in the complaint. – YES
RULING: IN VIEW OF THE FOREGOING, the petition is hereby GRANTED.
The assailed decision of the Court of Appeals is hereby REVERSED. The Orders
dated June 30, 1999 and October 4, 1999 of the Regional Trial Court of Makati,
Branch 147 in Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE and
the complaint in said case DISMISSED.
RATIO:
1. The petition is impressed with merit.
2. Respondents argue that even assuming arguendo that petitioner and PNB-
IFL are two separate entities, petitioner is still a party-in-interest in the
application for preliminary injunction because it is tasked to commit acts of
foreclosing respondents’ properties. Respondents maintain that the entire
credit facility is void as it contains stipulations in violation of the principle
of mutuality of contracts. In addition, respondents justified the act of the
court a quo in applying the doctrine of “Piercing the Veil of Corporate
Identy” by stating that petitioner is merely an alter ego or a business conduit
of PNB-IFL.
3. Respondents anchor their prayer for injuction on alleged invalid provisions
of the contracts:
a. The determination of the interest rates being left to the sole discretion
of the defendant PNB contravenes the principle of mutuality of
contracts.
b. There being a stipulation in the loan agreement that the rate if interest
agreed upon may be unilaterally modified by defendant, there was no
stipulation that the rate of interest shall be reduced in the event that the
applicable maximum rate of interest is reduced by law or by the
monetary board.
4. The contract questioned is one enetered into between respondent and PNB-
IFL, not PNB. Petitioner is an agent with limited authority and specific
duties under a SPA. It is not privy to the loan contracts. The issue of validity
of the loan contracts is a matter between PNB-IFL, the petitioner’s principal
and the party to the loan contracts, and the respondents.
5. Clearly, petitioner not being a party to the contract has no power to
recompute the interest rates set forth in the contract. Respondents, therefore,
fo not have any cause of action against petitioner.
6. The trial court ruled that since PNB-IFL is a wholly owned subsidiary of
defendants PNB, the suit against the defendant PNB is a suit against PNB-
IFL. The Court disagrees.
a. The general rule is that as alegal entity, a corporation has a
personality distinct and separate from its individual stockholders or
members.
b. The mere fact that a corporation owns all of the stocks of another
corporation, taken alone, is not sufficient to justify their being
treated as one entitity.
c. If used to perform legitimate functions, a subsidiary’s separate
existence may be respected and the liability of the parent
corporation as well as the subsidiary will be continued to those
arising in their respective business.
d. The courts may in the exercise of judicial discretion step in to
prevent the abuses of separate entity privilege and pierce the veil of
corporate identity.
7. Respondents fail to show any cogent reason why the separate entities of the
PNB and PNB-IFL should be disregarded.
8. While there exists no definite test of general application in determining
when a subsidiary may be treated as a mere instrumentality of the parent
corporation, some factors have been identified that will justify the
application of the treatment of the doctrine of the piercing of the corporate
veil.
9. The case of Garrett vs. Southern Railway Co. is enlightening.
a. As a general rule the stock ownership alone by one corporation of
the stock of another does not thereby render the dominant
corporation liable for the torts of the subsidiary unless the separate
corporate existence of the subsidiary is a mere sham, or unless the
control of the subsidiary is such that it is but an instrumentality or
adjunct of the dominant corporation.
b. The circumstances which may be useful in the determination of
whether the subsidiary isbut a mere instrumentality of the parent-
corporation:
i. The parent corporation owns all or most of the capital stock of
the subsidiary.
ii. The parent and subsidiary corporations have common
directors or officers.
iii. The parent corporation finances the subsidiary.
iv. The parent corporation subscribed to all the capitals stock of
the subsidiary or otherwise causes its incorporation.
v. The subsidiary has grossly inadequate capital.
vi. The parent corporation pays the salaries and other expenses or
losses of the subsidiary.
vii. The subsidiary has substantially no business except with the
parent corporation or no assets except those conveyed to or by
the parent corporation.
viii. In the papers of the parent corporation or in the statements of
its officers, the subsidiary is described as a department or
division fo the parent corporation, or its business or financial
responsibility is referred to as the parent corporation’s own.
ix. The parent corporation uses the property of the subsidiary as
its own.
x. The directors or executives of the subsidiary do not act
independently in the interest of the subsidiary but take their
orders from the parent corporation.
xi. The formal legal requirements of the subsidiary are not
abserved.
10. Similarly, in this jurisdiction, we have held that the doctrine of piercing the
corporate veil is an equitable doctrine developed to address situations where
the separate corporate personality of a corporation is abused or used for
wrongful purposes. The doctrine applies when the corporate fiction is used
to defeat public convenience, justify wrong, protect fraud or defend crime,
or when it is made as a shield to confuse the legitimate issues, or where a
 corporation is the mere alter ego or business conduit of a person, or where
the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation.
11. In Concept Builders, Inc. v. NLRC, we have laid the test in determining the
applicability of the doctrine of piercing the veil of corporate fiction, to wit:
a. Control, not mere majority or complete control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its
own.
b. Such control must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest and, unjust act in contravention of plaintiff’s legal
rights; and, 

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


d. The absence of any one of these elements prevents “piercing the
corporate veil.” 
 07 PNB v. HYDRO RESOURCES CONTRACTOR (BITOIN)
12. Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner
March 13, 2013 | J. Leonardo-De Castro | Alter Ego Theory
PNB, there is no showing of the indicative factors that the former
corporation is a mere instrumentality of the latter are present. Neither is
there a demonstration that any of the evils sought to be prevented by the PETITIONER: Philippine National Bank (GR No. 167530), Asset Privatization
doctrine of piercing the corporate veil exists.
Trust (GR No. 167561), Development Bank of the Philippines (G.R. No. 167603)
13. The doctrine of piercing the corporate veil based on the alter ego or
instrumentality doctrine finds no application in the case at bar. RESPONDENTS: Hydro Resources Contractors Corporation
14. In any case, the parent-subsidiary relationship between PNB and PNB-IFL
is not the significant legal relationship involved in this case since the SUMMARY: Petitioners DBP and PNB foreclosed on certain mortgages made on
petitioner was not sued because it is the parent company of PNB-IFL. the properties of Marinduque Mining and Industrial Corporation (MMIC). As
Rather, the petitioner was sued because it acted as an attorney-in-fact of a result of the foreclosure, DBP and PNB acquired substantially all the assets of
PNB-IFL in initiating the foreclosure proceedings. A suit against an agent MMIC and resumed the business operations of the defunct MMIC by organizing
cannot without compelling reasons be considered a suit against the
principal. Nonoc Mining and Industrial Corporation (NMIC). DBP and PNB owned 57%
a. In the case at bar, the injunction suit is directed only against the and 43% of the shares of NMIC, respectively, except for five qualifying shares. As
agent, not the principal. of September 1984, 5 members of the Board of Directors of NMIC were either
from DBP or PNB. NMIC engaged the services of Hercon, Inc., for NMIC’s
Mine Stripping and Road Construction Program. However, NMIC failed to pay an
amount of P8.3M. A complaint for sum of money was filed seeking to hold
petitioners NMIC, DBP, and PNB solidarily liable for such amount. Thereafter,
Hercon, Inc. was acquired by Hydro Resources Contractors Corporation
(HRCC). Then President Corazon C. Aquino issued Proclamation No. 50 creating
the Asset Privatization Trust (APT) and pursuant to this, DBP and PNB
executed their respective deeds of transfer in favor of the National Government
assigning, transferring and conveying certain assets and liabilities, including their
respective stakes in NMIC. Then the National Government transferred the said
assets and liabilities to the APT as trustee under a Trust Agreement.
PNB, DBP, and APT claimed that HRCC had no cause of action. They assert that
NMIC is a corporate entity with a juridical personality separate and distinct from
both PNB and DBP. On the other hand, HRCC has alleged from the inception of
this case that DBP and PNB (and the APT as assignee of DBP and PNB) should
be held solidarily liable for using NMIC as alter ego. Both the RTC and the CA
ruled in favor of HRCC and relied on the alter ego theory when they disregarded
the separate corporate personality of NMIC. They decided based on two factors:
the ownership by DBP and PNB of effectively all the stocks of NMIC, and the
alleged interlocking directorates of DBP, PNB and NMIC. However, the SC
reversed the said ruling. As regards the first element (control), while ownership
by one corporation of all or a great majority of stocks of another corporation and
their interlocking directorates may serve as indicia of control, by themselves and
without more, however, these circumstances are insufficient to establish an alter
ego relationship. Nothing in the records shows that the corporate finances, policies
and practices of NMIC were dominated by DBP and PNB in such a way that
NMIC could be considered to have no separate mind, will or existence of its own
but a mere conduit for DBP and PNB. On the contrary, the evidence establishes
that HRCC knew and acted on the knowledge that it was dealing with NMIC, not
with NMIC’s stockholders. The letter proposal of Hercon, Inc., HRCC’s
predecessor-in-interest, regarding the contract for NMIC’s mine stripping and road
construction program was addressed to and accepted by NMIC. The various billing
reports, progress reports, statements of accounts and communications of Hercon,
Inc./HRCC regarding NMIC’s mine stripping and road construction program in
1985 concerned NMIC and NMIC’s officers, without any indication of or
reference to the control exercised by DBP and/or PNB over NMIC’s affairs,
policies and practices. HRCC has presented nothing to show that DBP and PNB
had a hand in the act complained of, the alleged undue disregard by NMIC of the
demands of HRCC to satisfy the unpaid claims for services rendered by HRCC in
connection with NMIC’s mine stripping and road construction program in 1985.
On the contrary, the overall picture painted by the evidence offered by HRCC
FACTS:
is one where HRCC was dealing with NMIC as a distinct juridical person
acting through its own corporate officers. Moreover, the finding that the
respective boards of directors of NMIC, DBP, and PNB were interlocking has no
basis. The initial General Information Sheet submitted by NMIC to the SEC may
have proven that DBP and PNB owned the stocks of NMIC to the extent of 57%
and 43%, respectively. However, nothing in it supports a finding that NMIC, DBP,
and PNB had interlocking directors as it only indicates that, of the five members
of NMIC’s board of directors, four were nominees of either DBP or PNB and only
one was a nominee of both DBP and PNB. Only two members of the board of
directors of NMIC were established to be members of the board of governors of
DBP and none was proved to be a member of the board of directors of PNB. No
director of NMIC was shown to be also sitting simultaneously in the board of
governors/directors of both DBP and PNB. In relation to the second element
(fraud), the wrongdoing or unjust act in contravention of a plaintiff’s legal rights
must be clearly and convincingly established. However, there is no evidence that
the juridical personality of NMIC was used by DBP and PNB to commit a fraud or
to do a wrong against HRCC. As regards the third element (harm), in the absence
of both control by DBP and PNB of NMIC and fraud or fundamental unfairness
perpetuated by DBP and PNB through the corporate cover of NMIC, no harm
could be said to have been proximately caused by DBP and PNB on HRCC for
which HRCC could hold DBP and PNB solidarily liable with NMIC. Hence, none
of the elements has been met.
DOCTRINE:
The three-pronged test to determine the application of the alter ego theory, which
is also known as the instrumentality theory, namely:
1. Control test - not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;
2. Fraud test - Such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of
plaintiff’s legal right; and
3. Harm test - The aforesaid control and breach of duty must have
proximately caused the injury or unjust loss complained of.
1. In 1984, petitioners DBP and PNB foreclosed on certain mortgages made
on the properties of Marinduque Mining and Industrial Corporation
(MMIC). As a result of the foreclosure, DBP and PNB acquired
substantially all the assets of MMIC and resumed the business operations of
the defunct MMIC by organizing Nonoc Mining and Industrial
 Corporation (NMIC). DBP and PNB owned 57% and 43% of the shares of
NMIC, respectively, except for five qualifying shares. As of September
1984, the members of the Board of Directors of NMIC, namely, Jose
Tengco, Jr., Rolando Zosa, Ruben Ancheta, Geraldo Agulto, and Faustino
Agbada, were either from DBP or PNB.
2. Subsequently, NMIC engaged the services of Hercon, Inc., for
NMIC’s Mine Stripping and Road Construction Program in 1985 for a total
contract price of ₱35,770,120. After computing the payments already made
by NMIC under the program and crediting the NMIC’s receivables from
Hercon, Inc., the latter found that NMIC still has an unpaid balance of
₱8,370,934.74. Hercon, Inc. made several demands on NMIC but were not
heeded. A complaint for sum of money was filed in the RTC of Makati
seeking to hold petitioners NMIC, DBP, and PNB solidarily liable for the
amount owing Hercon, Inc.
3. Subsequent to the filing of the complaint, Hercon, Inc. was acquired by
Hydro Resources Contractors Corporation (HRCC) in a merger. This
prompted the amendment of the complaint to substitute HRCC for Hercon,
Inc.
4. On December 8, 1986, then President Corazon C. Aquino issued
Proclamation No. 50 creating the Asset Privatization Trust (APT) for the
expeditious disposition and privatization of certain government corporations
and/or the assets thereof. DBP and PNB executed their respective deeds of
transfer in favor of the National Government assigning, transferring and
conveying certain assets and liabilities, including their respective stakes in
NMIC. In turn and on even date, the National Government transferred the
said assets and liabilities to the APT as trustee under a Trust Agreement.
Thus, the complaint was amended for the second time to implead and
include the APT as a defendant.
5. PNB, DBP, and APT claimed that HRCC had no cause of action. They
assert that NMIC is a corporate entity with a juridical personality separate
and distinct from both PNB and DBP.
6. On the other hand, HRCC has alleged from the inception of this case
that DBP and PNB (and the APT as assignee of DBP and PNB) should be
held solidarily liable for using NMIC as alter ego. HRCC further argues that
a parent corporation may be held liable for the contracts or obligations of its
subsidiary corporation where the latter is a mere agency, instrumentality or
adjunct of the parent corporation. Moreover, HRCC asserts that the APT
was properly held solidarily liable with DBP, PNB, and NMIC because the
APT assumed the obligations of DBP and PNB as the successor-in-interest
of the said banks with respect to the assets and liabilities of NMIC.
7. Both the RTC and the CA ruled in favor of HRCC and relied on the
alter ego theory when they disregarded the separate corporate personality of
NMIC. It pierced the corporate veil of NMIC and held DBP and PNB
solidarily liable with NMIC. They decided based on two factors:
a. the ownership by DBP and PNB of effectively all the stocks of
NMIC,
b. the alleged interlocking directorates of DBP, PNB and NMIC.
ISSUE:
W/N the RTC and the CA were correct in piercing the corporate veil of NMIC and
holding the petitioners solidarily liable by virtue of the alter ego theory. (NO)
RULING:
WHEREFORE, the petitions are hereby GRANTED. The complaint as against DBP,
the PNB, and the APT, now the PMO, is DISMISSED for lack of merit. The PMO,
as trustee of NMIC, now the Philnico Processing Corporation, is DIRECTED to
ensure compliance by the latter, with this Decision.
RATIO:
1. The Court finds the petitions impressed with merit. A corporation is an
artificial entity created by operation of law. It possesses the right of
succession and such powers, attributes, and properties expressly authorized
by law or incident to its existence. It has a personality separate and distinct
from that of its stockholders and from that of other corporations to which it
may be connected. Equally well-settled is the principle that the corporate
mask may be removed or the corporate veil pierced when the corporation is
just an alter ego of a person or of another corporation. For reasons of public
policy and in the interest of justice, the corporate veil will justifiably be
impaled only when it becomes a shield for fraud, illegality or inequity
committed against third persons. However, the rule is that a court should be
careful in assessing the milieu where the doctrine of the corporate veil may
be applied. It must be certain that the corporate fiction was misused to such
an extent that injustice, fraud, or crime was committed against another, in
disregard of its rights. The wrongdoing must be clearly and convincingly
established; it cannot be presumed.
2. Sarona v. National Labor Relations Commission has defined the scope of
application of the doctrine of piercing the corporate veil. The doctrine of
piercing the corporate veil applies only in three (3) basic areas, namely:
a. defeat of public convenience as when the corporate fiction is used
as a vehicle for the evasion of an existing obligation;
b. fraud cases or when the corporate entity is used to justify a wrong,
protect fraud, or defend a crime;
c. alter ego cases, where a corporation is merely a farce since it is a
mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit
or adjunct of another corporation.
3. Here, HRCC has alleged from the inception of this case that DBP and PNB
(and the APT as assignee of DBP and PNB) should be held solidarily liable
for using NMIC as alter ego. In other words, both the trial and appellate
courts relied on the alter ego theory when they disregarded the separate
corporate personality of NMIC. In this connection, case law lays down a
three-pronged test to determine the application of the alter ego theory,
which is also known as the instrumentality theory, namely:
a. Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business
practice in respect to the transaction attacked so that the corporate
entity as to this transaction had at the time no separate mind, will
or existence of its own;
b. Such control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of
plaintiff’s legal right; and
c. The aforesaid control and breach of duty must have proximately
caused the injury or unjust loss complained of.
5. The first prong is the "instrumentality" or "control" test. This test
requires that the subsidiary be completely under the control and domination
of the parent. It examines the parent corporation’s relationship with the
subsidiary. It inquires whether a subsidiary corporation is so organized and
controlled and its affairs are so conducted as to make it a mere
instrumentality or agent of the parent corporation such that its separate
existence as a distinct corporate entity will be ignored. It seeks to establish
whether the subsidiary corporation has no autonomy and the parent
corporation, though acting through the subsidiary in form and appearance,
"is operating the business directly for itself."
6. The second prong is the "fraud" test. This test requires that the parent
corporation’s conduct in using the subsidiary corporation be unjust,
fraudulent or wrongful. It examines the relationship of the plaintiff to the
corporation. It recognizes that piercing is appropriate only if the parent
corporation uses the subsidiary in a way that harms the plaintiff creditor. As
such, it requires a showing of "an element of injustice or fundamental
unfairness."
7. The third prong is the "harm" test. This test requires the plaintiff to
show that the defendant’s control, exerted in a fraudulent, illegal or
otherwise unfair manner toward it, caused the harm suffered. A causal
connection between the fraudulent conduct committed through the
instrumentality of the subsidiary and the injury suffered or the damage
incurred by the plaintiff should be established. The plaintiff must prove that,
unless the corporate veil is pierced, it will have been treated unjustly by the
defendant’s exercise of control and improper use of the corporate form and,
thereby, suffer damages.
8. To summarize, piercing the corporate veil based on the alter ego theory
requires the concurrence of three elements. The absence of any of these
elements prevents piercing the corporate veil.
9. This Court finds that none of the tests has been satisfactorily met in
this case.
10. As regards the first element, the courts are concerned with reality and not
form, with how the corporation operated and the individual defendant’s
relationship to that operation. With respect to the control element, it refers
not to paper or formal control by majority or even complete stock control
but actual control which amounts to "such domination of finances, policies
and practices that the controlled corporation has, so to speak, no separate
mind, will or existence of its own, and is but a conduit for its principal." In
addition, the control must be shown to have been exercised at the time the
acts complained of took place.
11. Unfortunately, the conclusion of the trial and appellate courts involved a
quantum leap in logic and law exposing a gap in reason and fact. While
ownership by one corporation of all or a great majority of stocks of
another corporation and their interlocking directorates may serve as
indicia of control, by themselves and without more, however, these
circumstances are insufficient to establish an alter ego relationship.
12. In this case, nothing in the records shows that the corporate finances, declared that the court is not saying that PNB and DBP are guilty of fraud in
policies and practices of NMIC were dominated by DBP and PNB in such a forming NMIC, nor implying that NMIC was used to conceal fraud. Such a
way that NMIC could be considered to have no separate mind, will or declaration clearly negates the possibility that DBP and PNB exercised
existence of its own but a mere conduit for DBP and PNB. On the contrary, control over NMIC which DBP and PNB used "to commit fraud or wrong,
the evidence establishes that HRCC knew and acted on the knowledge that to perpetuate the violation of a statutory or other positive legal duty, or
it was dealing with NMIC, not with NMIC’s stockholders. The letter dishonest and unjust act in contravention of plaintiff’s legal rights." It is a
proposal of Hercon, Inc., HRCC’s predecessor-in-interest, regarding the recognition that, even assuming that DBP and PNB exercised control over
contract for NMIC’s mine stripping and road construction program was NMIC, there is no evidence that the juridical personality of NMIC was used
addressed to and accepted by NMIC. The various billing reports, progress by DBP and PNB to commit a fraud or to do a wrong against HRCC.
reports, statements of accounts and communications of Hercon, Inc./HRCC 17. As regards the third element, in the absence of both control by DBP and
regarding NMIC’s mine stripping and road construction program in 1985 PNB of NMIC and fraud or fundamental unfairness perpetuated by DBP
concerned NMIC and NMIC’s officers, without any indication of or and PNB through the corporate cover of NMIC, no harm could be said to
reference to the control exercised by DBP and/or PNB over NMIC’s have been proximately caused by DBP and PNB on HRCC for which
affairs, policies and practices. HRCC has presented nothing to show that HRCC could hold DBP and PNB solidarily liable with NMIC.
DBP and PNB had a hand in the act complained of, the alleged undue
disregard by NMIC of the demands of HRCC to satisfy the unpaid claims
for services rendered by HRCC in connection with NMIC’s mine stripping
and road construction program in 1985. On the contrary, the overall picture
painted by the evidence offered by HRCC is one where HRCC was
dealing with NMIC as a distinct juridical person acting through its own
corporate officers.
13. Moreover, the finding that the respective boards of directors of NMIC,
DBP, and PNB were interlocking has no basis. The initial General
Information Sheet submitted by NMIC to the Securities and Exchange
Commission, relied upon by the trial court and the Court of Appeals may
have proven that DBP and PNB owned the stocks of NMIC to the extent of
57% and 43%, respectively. However, nothing in it supports a finding that
NMIC, DBP, and PNB had interlocking directors as it only indicates that, of
the five members of NMIC’s board of directors, four were nominees of
either DBP or PNB and only one was a nominee of both DBP and PNB.
Only two members of the board of directors of NMIC, Jose Tengco, Jr. and
Rolando Zosa, were established to be members of the board of governors of
DBP and none was proved to be a member of the board of directors of PNB.
No director of NMIC was shown to be also sitting simultaneously in the
board of governors/directors of both DBP and PNB.
14. Also, DBP and PNB maintain an address different from that of NMIC.
15. In relation to the second element, the wrongdoing or unjust act in
contravention of a plaintiff’s legal rights must be clearly and convincingly
established; it cannot be presumed. In this case, the Court of Appeals
 08 ASIONICS PHILIPPINES v NLRC (CHAN)
May 19, 1998 | Vitug, J. | Separate and distinct personality
PETITIONER: Asionics Philippines, Inc. and/or Frank Yih
RESPONDENTS: National Labor Relations Commission, Yolanda Boaquina,
and Juana Gayola
SUMMARY: API is a corporation which was in negotiations with FFW for a
CBA. Unfortunately, there was a deadlock so the union went on strike. Due to
the strike, 2 customers of API to suspend operations and employees were made
to take a leave from work. After the CBA was resolved, API was forced to
implement a company-wide retrenchment policy. Both Boaquina and Gayola
were affected. Both respondents transferred to Lakas Union because they were
dissatisfied with FFW. The went on strike because of unfair labor practice. The
legality of the strike was brought before LA and LA Villarente held that it was
illegal. However, there was another petition brought to the LA and LA Canizares
also held that the petitioners were guilty of illegal dismissal. Both decisions were
appealed to the NLRC and they held that the strike was illegal and that the
respondents were validly terminated but they are still entitled to separation pay.
The petitioners appealed the decision of the NLRC giving the repondents
separation pay as well as making Frank Yih solidarily liable with API for the
payment thereof.
The court held that the respondents were entitled to separation pay because their
termination was due to the retrenchment policy and not because of their union
activities. The court also held Frank Yih not liable solidarily with API because a
corporation is a juridical entity with legal personality separate and distinct from
those acting for and in its behald and, ingeneral, from the people comprising it.
Absence any bad faith of Frank Yih, he should not be held solidarily liable.
DOCTRINE:
A corporation is a juridical entity with legal personality separate and distinct
from those acting for and, in its behalf, and, in general, from the people
comprising it. The rule is that obligations incurred by the corporation, acting
through its directors, officers and employees, are its sole liabilities. Nevertheless,
being a mere fiction of law, peculiar situations or valid grounds can exist to
warrant, albeit done sparingly, the disregard of its independent being and the
lifting of the corporate veil. As a rule, this situation might arise when a
corporation is used to evade a just and due obligation or to justify a wrong, to
shield or perpetrate fraud, to carry out similar unjustifiable aims or intentions, or
as a subterfuge to commit injustice and so circumvent the law.
FACTS:
1. Parties:
a. Asionics Philipppines, Inc. (API) - domestic corporation engaged
in the business of assembling semi-conductor chips
b. Frank Yih – president and majority stockholder of API
c. Yolanda Boaquina – employee of API
d. Juana Gayola – employee of API
2. This is a special cicil action of certiorari to annul and set aside the ruling of
the NLRC which has ordered petitioners that they grant separation pay to
Boaqina and Gayola. Also, being contested is the subsequent April 16, 1996
resolution of the NLRC denying petitioner’s motion for reconsideration
3. Boaquina and Gayola started working for API in 1979 and 1988,
respectively, as material control clerk and as production operator.
4. During the 3rd quarter of 1992, API commenced negotioations with the
bargaining agent of its employees, the Federation of Free Workers, for a
Collective Bargaining Agreement (CBA).
a. A deadlock ensued and the union decided to file a notice of
strike.
b. This prompted 2 customers of API, Indala and CP Clare Theta
J, to suspend operations pursusant to Art 286 of the Labor Code.
c. Boaquina and Gayola were among the employees asked to take a
leave from work
5. The deadlock was resolved and a CBA was concluded between API and
FFW.
6. Boaquina was recalled back to work because her job was the issuing of raw
materials that were being ordered by Indala which prompty resumed its
business with API.
a. Gayola could not be recalled because CP Clare/Theta J account
had yet to renew its production orders.
7. API was forced to implement a company-wide retrenchment.
a. The selection was based on productivity/performance standards
pursuant to the CBA.
b. Boaquina was one of those affected and she was notified through a
letter dated Decmber 29 1992 which stated that she would be
dispensed with effective Jan 31 1993
c. Gayola was not supposed to be affected because of her high-
performance rating, nevertheless, her services were considered to
have ended on Sep 4 1992 when she was told to take an indefinite
leave of absence. She had not since been recalled.
8. Dissatisfied with FFW, Boaquina and Gayola joined the Lakas ng
Manggagawa sa Pilipinas Labor Union (Lakas Union) where they
eventually became members of its Board of Directors.
9. Lakas Union filed a notice of strike on the ground of unfair labor
practice.
a. There was supposed to be a meeting to address the problem but it
never happened so they went on strike.
10. Claiming that the strike was illegal, API brought it before the NLRC
 National Capital Region Arbitration.
a. Labor Arbitrer Villarente, Jr. declared the strike to be illegal.
11. Meanwhile, Boaquina and Gayola, among others, filed a complaint for
illegal dismissal, violation of labor standards and separation pay as well as
for recovery of moral and exemplary damages against API and Yih before
the NLRC National Capital Region Arbitration.
a. LA Canizares, Jr. held that the petitioners were guilty of illegal
dismissal.
12. Both decisions of LA Villarente, Jr. and Canizares were both appealed to
the NLRC
a. The 3rd division of the NLRC held that the strike was illegal,
respondents were not illegally dismissed but were validly
terminated due to the retrenchment policy of API. Private
respondents were awarded separation pay. NLRC dismissed
claim of petitioners that respondents are not entitled to separation
pay because they joined the strike.
b. Petitioners moved for reconsideration but was denied by NLRC in
its resolution dated Apr 16 1996.
ISSUE:
1. WoN private respondents who are officers of the union are still entitled to
separation pay and indemnity despite having participated in a strike that has
been declared illegal? – YES
2. WoN a stockholder/director/officer if a corporation can be held liable for
the obligation of the corporation absent any proof and finding of bad faith?
– NO
RULING: WHEREFORE, the questioned decision of the NLRC is MODIFIED
insofar as it holds herein petitioner Frank Yih personally liable with Asionics
Philippines, Inc., which portion of the decision is SET ASIDE; in all other respects,
however, the questioned decision is AFFIRMED and remains unaffected. No costs.
RATIO:
1. The position advanced by petitioners on the first issue is bereft of merit. It is
quite evident that the termination of employment was due to the
retrenchment policy adopted by API and not because the former’s
union activities.
a. In a letter dated Dec 29 1992, Boaquina was advised that she was
one of those affected by the retrenchment.
i. Also, in the illegal dismissal case, petitioners strongly
averred tha the services of respondents were being
dispensed with not by reason of their union activities but
in view of the retrenchment policy
ii. Boaquina was duly notified of her retrenchment
b. Gayola on the other hand was separated from service because
production totally ceased by virtue of the blockade cause by the
strike and the pull-out of Asionics last customer.
i. The strike aggravated a bad situation by making it worse
and eventually, there was no more work whatsoever to do
and employees had to be terminated from work.
ii. Gayola was terminated because of this.
c. The decision of LA Villarente that employees lost their
employment because they participated in the strike is of no
significance to petitioners. It should suffice to say that the
retrenchment of private respondents has, in fact, preceded the
declaration of strike.
2. On the issue of joint and solidary liability of Frank Yih with API, the court
held that Frank Yih cannot be held solidarily liable.
a. A corporation is a juridical entity with legal personality
separate and distinct from those acting for and, in its behalf,
and, in general, from the people comprising it. The rule is that
obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities.
Nevertheless, being a mere fiction of law, peculiar situations or
valid grounds can exist to warrant, albeit done sparingly, the
disregard of its independent being and the lifting of the corporate
veil. As a rule, this situation might arise when a corporation is used
to evade a just and due obligation or to justify a wrong, to shield or
perpetrate fraud, to carry out similar unjustifiable aims or
intentions, or as a subterfuge to commit injustice and so
circumvent the law.
b. It is true that there were various cases when corporate officers
were themselves held liable for the payment of wages.
i. A.C. Ransom Labor Union-CCLU v. NLRC and Chua v.
NLRC were a couple of these exceptional cases. In A.C.
Ransom, the corporate entity was a family corporation
and execution against it could not be implemented
because of the disposition posthaste of its leviable assets
evidently in orde to evade its just and due obligations.
The doctrine of piercing the veil of corporate fiction was
appropriate.
ii. The chua case also involved a family corporation and
between 2 brothers. The were facts which pointed to bad
faith.
c. The basic rule is still that held in Sunio v. NLRC:
i. Sunio was impleaded in his capacity as General Manager.
There appears to be no evidence on record that he acted
maliciously or in bad faith in termination the services of
respondents. His act was within the scope of his authority
and was a corporate act.
ii. It is basic that a corporation is invested by law with a
 personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity
to which it may be related. Mere ownership by a single
stockholder or by another corporation of all or nearly all
of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate
personality. Petitioner Sunio, therefore, should not have
been made personally answerable for the payment of
private respondents back salaries.
iii. The court may have deviated in other rulings but the
court’s recent ruling in Mam Realty Development
Corporation and Manuel Centeno v NLRC made it clear
that the Sunio doctrine prevails.
iv. Nothing on record is shown to indicate that Yih has acted
in bad faith or with malice in carrying out the
retrenchment program of the company. His being held by
the NLRC to be solidarily and personally liable with API
is thus legally unjustified.
09 SULDAO V CIMECH SYSTEM CONSTRUCTION INC (CHUA, J)
October 30, 2006 | Ynares-Santiago, J | Veil of Corporate Fiction
PETITIONER: Ruperto Suldao
RESPONDENTS: Cimech Systems Construction
SUMMARY: Respondent Cimech Systems Construction, Inc. employed the
services of petitioner Ruperto Suldao on as a machinist. owing to a scarcity in
projects being handled by the respondent, Suldao was ordered to take a leave of
absence. Respondents allege that due to lack of available work in the machine
shop, the petitioner was temporarily transferred to its fabrication department
which the petitioner refused to accept and insisted to work as a machinist. On
January 13, 2003, petitioner demanded to get his one day salary deposit but was
told to secure a came and asked for his 13th month pay. On January 13, 2003,
petitioner demanded to get his one day salary deposit but was told to secure a
clearance which he failed to comply. Thereafter, petitioner filed the instant
complaint for illegal dismissal. Labor arbiter and NLRC concurred that he was
illegelly dismissed constructively. The SC upheld such findings. In the instant
case, there is constructive dismissal because the continued employment of
petitioner is rendered impossible so as to foreclose any choice on his part except
to resign from such employment. Although the liability of the corporation for the
constructive dismissal has been established, the main issue is whether or not the
General Manager and the President (Engr. Rodolfo S. Labucay) should also be
held liable. No he should not be held liable. The veil of corporate fiction treats as
separate and distinct the affairs of a corporation and its officers and stockholders.
In the instant case, no reason exists that will justify the piercing of the veil of
corporate fiction such as to hold Labucay, as the president and general manager
of the respondent corporation, solidarily liable with it. a corporation will be
looked upon as a legal entity, unless and until sufficient reason to the contrary
appears. When the notion of legal entity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, the law will regard the corporation
as an association of persons. Also, the corporate entity may be disregarded in the
interest of justice in such cases as fraud that may work inequities among
members of the corporation internally, involving no rights of the public or third
persons. In both instances, there must have been fraud and proof of it. For the
separate juridical personality of a corporation to be disregarded, the wrongdoing
must be clearly and convincingly established. It cannot be presumed. In the
instant case, no reason exists that will justify the piercing of the veil of corporate
fiction such as to hold Labucay, as the president and general manager of the
respondent corporation, solidarily liable with it.
DOCTRINE: The veil of corporate fiction treats as separate and distinct the
affairs of a corporation and its officers and stockholders. As a general rule, a
corporation will be looked upon as a legal entity, unless and until sufficient
reason to the contrary appears. For the separate juridical personality of a
corporation to be disregarded, the wrongdoing must be clearly and convincingly
established. It cannot be presumed.
FACTS:
1. Cimech Systems Construction, Inc employed the services of Suldao as a
machinist and continued to engage his services until he became a permanent
employee
2. Petitioner alleged that owing to a scarcity in projects being handled by the
respondent, he was ordered by Ms. Elsa Labocay to take a leave of absence
from November 1 to 6, 2002.
3. On November 15, 2002, he was purportedly ordered to make a letter-request
for field work transfer which he complied.
4. On November 17, 2002, he reported for work but was allegedly barred from
entering by the security guard on duty.
5. On November 21, 2002, he was again barred from entering the premises,
hence he filed the instant complaint for constructive dismissal
6. Respondents allege that due to lack of available work in the machine shop,
the petitioner was temporarily transferred to its fabrication department
which the petitioner refused to accept and insisted to work as a machinist.
Because of unruly behavior, he was led away by the guard
7. When petitioner returned for work, he purportedly demanded a salary
increase and wages for the days that he did not work. Respondent
considered the actuations of petitioner tantamount to insubordination,
hence, it suspended the petitioner for 6 days.
8. During the company's Christmas party on December 21, 2002, petitioner
came and asked for his 13th month pay. On January 13, 2003, petitioner
demanded to get his one day salary deposit but was told to secure a
clearance which he failed to comply. Thereafter, petitioner filed the instant
complaint for illegal dismissal.
9. On August 5, 2003, Labor Arbiter Melquiades Sol D. Del Rosario rendered
a decision, the dispositive portion of which reads: CONFORMABLY
WITH THE FOREGOING, judgment is hereby rendered finding
complainant to have been illegally dismissed constructively.
10. The NLRC concurred with the findings of the Labor Arbiter that petitioner
was constructively dismissed
ISSUE:
1. WoN the CA committed GADALEJ in reversing the decision of the labor
arbiter and the NLRC that the petitioner was constructively dismissed– YES
2. [MAIN] WoN the veil of corporate fiction should be pierced (AKA whether
the general manager and president of the company should also be held
liable)– NO
RULING: WHEREFORE, the petition is GRANTED. The June 23, 2005 Decision
of the Court of Appeals in CA-G.R. SP No. 83963 and its January 10, 2006
Resolution are REVERSED and SET ASIDE. The February 27, 2004 Resolution of convenience, justify wrong, protect fraud, or defend crime, the law
the National Labor Relations Commission in NLRC CA No. 036963-03 affirming will regard the corporation as an association of persons.
the decision of the Labor Arbiter finding that petitioner was constructively b. Corporate entity may be disregarded in the interest of justice in
dismissed, is REINSTATED with MODIFICATION that only the respondent such cases as fraud that may work inequities among members of
corporation, Cimech System Construction, Inc. is held liable. the corporation internally, involving no rights of the public or third
persons
4. In the instant case, no reason exists that will justify the piercing of the veil
RATIO: of corporate fiction such as to hold Labucay, as the president and general
manager of the respondent corporation, solidarily liable with it.
First Issue 5. Thus, the liability for the constructive dismissal of the petitioner solely
1. We uphold the findings of the Labor Arbiter and of the NLRC that devolves upon the respondent corporation. Consequently, the decision of
petitioner was constructively dismissed. the Labor Arbiter and of the NLRC should be modified in that only the
2. Constructive dismissal or a constructive discharge has been defined as respondent corporation should be held liable.
quitting because continued employment is rendered impossible,
unreasonable or unlikely, as an offer involving a demotion in rank and a
diminution in pay.
3. In the instant case, there is constructive dismissal because the continued
employment of petitioner is rendered impossible so as to foreclose any
choice on his part except to resign from such employment
4. In cases of constructive dismissal, the burden of proof is on the employer to
show that the employee was dismissed for a valid and a just cause. In the
instant case, respondent failed to discharge this burden
5. While claiming that complainant was placed on a six (6) days suspension
for an alleged infraction, they failed nonetheless to adduce evidence
showing that indeed complainant committed the offense and was placed as
such as disciplinary measure.
6. Complainant's claim that he was required to go on a leave of absence due to
a dearth of work is consistent with respondent's claim that there was
scarcity of work because of the economic crisis.

Second Issue:

1. A corporation is invested by law with a personality separate from that of

its stockholders or members. It has a personality separate and distinct
from those of the persons composing it as well as from that of any other
entity to which it may be related. Mere ownership by a single stockholder or
by another corporation of all or nearly all of the capital stock of a
corporation is not in itself suficient ground for disregarding the separate
corporate personality. 10 DELIMA v. GOIS (CHUA)
2. The veil of corporate fiction treats as separate and distinct the affairs of a June 17, 2008 | YNARES-SANTIAGO, J. | Doctrine of Separate Legal
corporation and its oficers and stockholders.
Personality
3. As a general rule, a corporation will be looked upon as a legal entity, unless
and until suficient reason to the contrary appears. (In both instances, there
must have been fraud and proof of it.)
a. When the notion of legal entity is used to defeat public
PETITIONER: VIRGILIO S. DELIMA
RESPONDENTS: SUSAN MERCAIDA GOIS
SUMMARY: Delima filed a case for illegal dismissal against Golden Union
Aquamarine Corporation, Prospero and Susan Gois. The Labor Arbiter
found Golden Union liable to pay backwages. A vehicle was attached by the
sheriff for the satisfaction of the claim. Gois claimed that the attachment of
the vehicle was irregular because said vehicle was registered in her name
and not Golden’s although, she let the corporation use the same, she being a
stockholder of the corporation. The issue in the case is whether or not a
stockholder’s property may answer for the debt of a corporation. NO. The
vehicle principally used in the business of the corporation but registered
under the name of the stockholder president can not be garnished to satisfy
the debt of the corporation. Obligations incurred by the corporation, acting
through its directors, officers and employees, are its sole liabilities.
Property belonging to a corporation cannot be attached to satisfy the debt
of the a stockholder and vice versa, the latter having only an indirect
interest in the assets and business of the former.
DOCTRINE: 2. Unless they have exceeded their authority, corporate
officers are, as a general rule, not personally liable for their official acts
because a corporation, by legal fiction, has a personality separate and
distinct from its officers, stockholders and members.
FACTS:
1. Petitioner Virgilio Delima filed a case for illegal dismissal against Golden
Union aquamarine Corp., Prospero Gois and herein respondent Susan Mercaida Gois
before the NLRC.
2. The Labor Arbiter favored the petitioner, and Golden failed to appeal, so the
decision became final and executory.
3. A writ of execution was issued and an Isuzu Jeep was attached, which vehicle
was registered in Susan Gois’ name.
4. Gois filed a third party claim claiming that the attachment was irregular, the
vehicle not belonging to Golden but was denied by the Labor arbiter.
5. Gois filed an appeal with NLRC and at the same time filed a motion to release
the motor vehicle after substituting the same with a cash bond before the NLRC.
6. L.A. ordered the release of the vehicle but NLRC denied appeal. MR was also
denied and an Entry of Judgment was issued.
7. She filed a petition for certiorari before CA invoking corporate fiction and was
granted.
8. Thus this petition.
ISSUE:
1. Whether or not a stockholder’s property may answer for the debt of a
corporation – NO
RULING: The Ruling of the Court of Appeals is hereby AFFIRMED with the
MODIFICATION that Golden Union Aquamarine Corporation is ordered to
REIMBURSE respondent Susan M. Gois the amount of P115,561.05.
RATIO:
First Issue
1. The rule is that obligations incurred by the corporation, acting through its
officers and employees are its sole liabilities.
2. Unless they have exceeded their authority, corporate officers are, as a general
rule, not personally liable for their official acts because a corporation, by legal
fiction, has a personality separate and distinct from its officers, stockholders and
members.
3. Thus, property belonging to a corporation cannot be attached to satisfy the
debt of a stockholder and vice versa, the latter having only an indirect interest in the
assets and business of the former.
4. Since the Decision of the Labor Arbiter dated April 29, 2005 directed only
Golden to pay the petitioner the sum of P115,561.05 and the same was not joint and
solidary obligation with Gois, then the latter could not be held personally liable since
Golden has a separate and distinct personality of its own.
5. It remains undisputed that the subject vehicle was owned by Gois, hence it
should not be attached to answer for the liabilities of the corporation.
6. No evidence was presented to show that the termination of the petitioner was
done with malice or in bad faith for it to hold the corporate officers, such as Gois,
solidarily liable with the corporation.
 11-DY-DUMALASA v. FERNANDEZ (DE CASTRO)
July 23, 2009 | Carpio Morales, J. | Piercing the Corporate Veil
PETITIONER: Carmen B. Dy-Dumalasa
RESPONDENTS: Domingo Sabado S. Fernandez et al.
SUMMARY: Respondents’ Fernandez et al, former employees of HELIOS Corp.,
filed a complaint against HELIOS for illegal dismissal and non-payment of
salaries. The complaint also impleaded HELIOS members of the Board of
Directors including petitioner Dy-Dumalasa. Since no amicable settlement were
viable, the Labor Arbiter (LA) required both parties to submit their respective
position papers, in which case on respondents complied with. The LA found
HELIOS, its members of the Board, and its stockholders, by, liable for illegal
dismissal and unfair labor practice, as the closure of the business was attended
with fraud and bad faith. Because of this, respondents filed for the issuance of a
writ of execution. However, petitioner moved to quash the Writ (Take note:
Petitioner is not assailing the LA decision) putting up the defense of corporate
fiction as well as lack of jurisdiction over her person. This was, however, denied
prompting petitioner to appeal to the NLRC. The NLRC modified LA’s Order
holding that petitioner is not jointly and severally liable with HELIOS for
respondents claims, there being no showing that she acted in bad faith nor that
HELIOS cannot pay its obligations. On appeal, the CA reversed and set aside the
NLRC Resolution, holding that what the NLRC, in effect, modified was not the
Order denying the Motion to Quash the Writ of Execution, but the Labor Arbiters
Decision itself -- an impermissible act, the Decision having become final and
executory, hence, it could no longer be reversed or modified. Petitioner, appealing
to the SC, argues that HELIOS has a personality separate and distinct from her and
the court has not acquired jurisdiction over her person.
The SC ruled that the Labor Arbiter acquired jurisdiction over her person
regardless of the fact that there was allegedly no valid service of summons. It
bears noting that, in quasi-judicial proceedings, procedural rules governing service
of summons are not strictly construed. Substantial compliance therewith is
sufficient. Petitioner was adequately represented in the proceedings conducted by
the Labor Arbiter by the lawyer retained by HELIOS. On the issue of liability of
petitioner, The Court ruled that the obligation is merely joint. It found the ruling of
the appellate court well-taken since the fallo in the appellate court’s decision did
not indicate with certainty the solidary nature of the obligation. absent a clear and
convincing showing of the bad faith in effecting the closure of HELIOS that can
be individually attributed to petitioner as an officer thereof, and without the
pronouncement in the Decision that she is being held solidarily liable, petitioner is
only jointly liable.
DOCTRINE: Stockholders and members of the BoD cannot hide under the cloak
of corporate fiction to avoid their obligation under our Labor Laws.
FACTS:
1. Domingo Sabado S. Fernandez, et al. (respondents) are former employees
of Helios Manufacturing Corporation (HELIOS), a closed domestic
corporation engaged in soap manufacturing located in Muntinlupa, of which
petitioner is a stockholder, a member of the Board of Directors, and Acting
Corporate Secretary.
2. Respondents Fernandez et al. filed a Complaint against HELIOS for illegal
dismissal or illegal closure of business, non-payment of salaries and other
money claims against HELIOS.
3. The complaint was later consolidated with another case filed by similarly
situated employees of HELIOS.
4. Both complaints also impleaded HELIOS members of the Board of
Directors (The Board) including herein petitioner Dy-Dumalasa.
5. Despite service of summons, of the remaining four members of the Board,
only Leonardo Dy-Dumalasa, HELIOS President and General Manager-
husband of petitioner, appeared with counsel.
6. As amicable settlement proved not to be viable and with the repeated non-
appearance of the members of the Board in the scheduled hearings, the
Labor Arbiter required the parties to submit their respective position papers.
Only respondents complied with this directive.
7. Despite the grant of a 10-day extension, HELIOS et al. failed to submit
theirs, hence, the cases were deemed submitted for decision.
8. HELIOS et al. moved to have their position paper admitted. There being no
proof of service of the motion upon respondents, hearings/conferences
between the parties were again scheduled, but HELIOS et al. failed to attend
the same despite due notice. Hence, Labor Arbiter Nieves V. de Castro
denied HELIOS et al. motion to admit their position paper and again
deemed the cases submitted for decision.
9. The Labor Arbiter found HELIOS, its members of the Board, and its
stockholders, by Decision, liable for illegal dismissal and unfair labor
practice, as the closure of the business was attended with fraud and bad
faith, having been largely motivated by their desire to interfere with
respondents. exercise of the right to self-organization and to evade payment
of their claims.
10. The Labor Arbiter found that the closure of the Muntinlupa office/plant was
a sham, as HELIOS simply relocated its operations to a new plant in
Carmona, Cavite under the new name of Pat & Suzara, in response to the
newly-established local union.
11. HELIOS et al. filed a Memorandum of Appeal, but the same was not
accompanied by a cash or surety bond, hence, by Resolution, the NLRC
dismissed the appeal.
12. The Labor Arbiter’s Decision attained finality as HELIOS et al’s motion for
reconsideration was denied for being filed out of time.
13. After respondents filed a motion for the issuance of a writ of execution, the
Labor Arbiter issued such which directs HELIOS to pay Php 16,715,028
representing complainants’ full backwages, separation pay, service
incentive leave pay, proportionate 13th month pay for 2001, moral and
exemplary damages and attorneys fees.
14. Pursuant to the above Writ, Sheriff Antonio Datu issued a Notice of Levy
on Real Property under which a house and lot in Ayala-Alabang in the name
of petitioner and her husband Leonardo Dy-Dumalasa were levied upon.
15. Petitioner moved to quash the Writ, putting up the defense of corporate
fiction as well as lack of jurisdiction over her person, but the same was
denied.
16. Petitioner appealed to the NLRC, hence, the execution of the Writ was held
in abeyance.
17. By Resolution, the NLRC modified the Labor Arbiters Order, holding that
petitioner is not jointly and severally liable with HELIOS for respondents
claims, there being no showing that she acted in bad faith nor that HELIOS
cannot pay its obligations.
18. Petitioner moved for reconsideration, but this was denied by Resolution,
hence she appealed to the CA.
19. CA:
a. reversed and set aside the NLRC Resolution, holding that what the
NLRC, in effect, modified was not the Order denying the Motion
to Quash the Writ of Execution, but the Labor Arbiters Decision
itself -- an impermissible act, the Decision having become final
and executory, hence, it could no longer be reversed or modified.
b. It further held that the NLRC gravely abused its discretion when it
took cognizance of the appeal from the Order denying petitioners
Motion to Quash the Writ of Execution, as no appeal lies
therefrom, especially since petitioner attempted to exculpate
herself from the judgment obligation by invoking corporate fiction,
a defense which could have been raised during the hearings before
the Labor Arbiter.
c. Respecting NLRCs pronouncement that petitioner was not jointly
and severally liable, the appellate court held that the same is a
superfluity, for there was no statement, either in the main case or in
the Writ, that the liability is solidary, hence, petitioner is merely
jointly liable for the judgment award.
20. Petitioner moved for reconsideration of the appellate courts Decision,
claiming that the labor tribunal never acquired jurisdiction over her person
due to lack of summons, and reiterating her defense that HELIOS has a
separate personality.
21. Petitioner moved for reconsideration of the appellate court’s Decision,
claiming that the labor tribunal never acquired jurisdiction over her person
due to lack of summons, and reiterating her defense that HELIOS has a
separate personality.
22. Petitioners motion was denied by the appellate court by Resolution.
23. Hence, the present petition.
a. Petitioner maintains that as she was never summoned by the Labor
Arbiter, jurisdiction over her person was not acquired; and that
although the Board and stockholders of HELIOS were impleaded
in the original complaint, it was by virtue of their official, not
personal capacities.
b. She reiterates that HELIOS has a personality separate and distinct
from her, and there is nothing in the questioned Writ which
directed the Sheriff to attach and levy the properties of the
members of the Board or stockholders which are personal to them;
and that for her and the other directors and stockholders to be held
personally liable for the judgment award, they must have been
found guilty of malice and bad faith -- a finding absent in the
Labor Arbiter’s Decision.
c. Finally, petitioner contends that assuming arguendo that she is
personally liable together with HELIOS, still, settlement of the
entire judgment obligation cannot be claimed from her alone,
under the doctrine of limited liability.
ISSUE/s:
1. WoN the Labor Arbiter acquired jurisdiction over her person – YES
2. WoN HELIOS is liable to respondents – YES
 8. A perusal of the Labor Arbiters Decision readily shows that,
notwithstanding the finding of bad faith on the part of the management, the
RULING: Petition is DENIED. The Decision and the Resolution of the CA are dispositive portion did not expressly mention the solidary liability of the
affirmed. officers and Board members, including petitioner.
9. Well-entrenched is the rule that solidary obligation cannot lightly be
RATIO: inferred. There is a solidary liability only when the obligation expressly so
1. ON THE ISSUE OF JURISDICTION: The Labor Arbiter acquired states, when the law so provides or when the nature of the obligation so
jurisdiction over her person regardless of the fact that there was allegedly requires
no valid service of summons. It bears noting that, in quasi-judicial 10. Ineluctably, absent a clear and convincing showing of the bad faith in
proceedings, procedural rules governing service of summons are not strictly effecting the closure of HELIOS that can be individually attributed to
construed. Substantial compliance therewith is sufficient. petitioner as an officer thereof, and without the pronouncement in the
2. In the cases at bar, petitioner, her husband and three other relatives, were Decision that she is being held solidarily liable, petitioner is only jointly
all individually impleaded in the complaint. The Labor Arbiter furnished liable.
her with notices of the scheduled hearings and other processes. It is 11. OTHER ISSUE: As for petitioners questioning the levy upon her house and
undisputed that HELIOS, of which she and her therein co-respondents in lot, she conveniently omits to mention that the same are actually conjugal
the subject cases were the stockholders and managers, was in fact heard, property belonging to her and her husband. Whether petitioner is jointly or
proof of which is the attendance of her husband, President-General Manager solidarily liable for the judgment obligation, the levied property is not fully
of HELIOS, together with counsel in one such scheduled hearing and the absolved from any lien except if it be shown that it is exempt from
Labor Arbiters consideration of their position paper in arriving at the execution.
Decision, albeit the same position paper was belatedly filed.
3. Petitioner was adequately represented in the proceedings conducted by the
Labor Arbiter by the lawyer retained by HELIOS.
4. Taking into account the peculiar circumstances of the cases, HELIOS
knowledge of the pendency thereof and its efforts to resist them are deemed
to be knowledge and action of petitioner.
5. That petitioner and her fellow members of the Board refused to heed the
summons and avail of the opportunity to defend themselves as they instead
opted to hide behind the corporate veil does not shield them from the
application of labor laws.
6. Petitioner can not now thus question the implementation of the Writ of
Execution on her on the pretext that jurisdiction was not validly acquired
over her person or that HELIOS has a separate and distinct personality as a
corporate entity. To apply the normal precepts on corporate fiction and the
technical rules on service of summons would be to overturn the bias of the
Constitution and the laws in favor of labor.
7. ON THE ISSUE OF LIABILITY OF PETITIONER: The Court ruled that
the obligation is merely joint. It found the ruling of the appellate court well-
taken since the fallo in the appellate court’s decision did not indicate with
certainty the solidary nature of the obligation.
 12- PADILLA VS. CA (GABITO)
November 22, 2001 | Quisumbing, J. | Separate Corporate Personality
PETITIONER: Luisito Padilla and Phoenix-Omega Development and
Management Corporation
RESPONDENTS: Court of Appeals and Susana Realty Inc.
SUMMARY: Susana Realty Inc. (SRI) entered into a deed of absolute sale with
Light Rail Transit Authority (LRTA) with regard to parcels of land located in Taft
Avenue Pasay. SRI reserved for itself the right to firs refusal to develop said
property. Later on, LRTA entered into a commercial stall concession contract with
Phoenix in order to develop commercial stalls on a 90 sq. m. portion of the
property. Since such LRTA-Phoenix contract was in violation of SRI’s right of
first refusal to develop the property – SRI, Phoenix, and LRTA entered into a
tripartite agreement where Phoenix can develop the land as long the construction
plans are approved by SRI and that Phoenix shall lease the adjacent property also
owned by SRI. Soon, Phoenix assigned its rights and interest on said adjacent
property to PKA and since PKA was assigned to develop said adjacent property –
PKA entered into a lease agreement with SRI. Because SRI sold said adjacent
property to a third party, SRI and PKA entered into an amended lease agreement
where new parcels of land were to be given by SRI as replacement. This lease
agreement was signed by Luisito Padilla both as President of PKA and as
Chairman of the Board of Directors od Phoenix. IMPORTANT NOTE: In the
original PKA-SRI lease agreement, Phoenix was not made a party to it. Phoenix
was only made a party to the amended lease agreement when Padilla also signed it
in his capacity as Chairman of its board of directors. However, since SRI kept
avoiding the approval of the PKA’s development plans, PKA filed for rescission.
The RTC ordered the rescission which ordered the surrendered of the premises to
SRI and that PKA pay rental payment to SRI of 1.75 M since they had the
property for them for 6 months without paying for rent. The surrender of premises
was done but the rental payment remained unsatisfied. Hence, the RTC ordered an
alias writ further allowing levy on Phoenix’s and Padilla’s properties in case
PKA’s properties were insufficient. The issue in this case then is WON the court
had jurisdiction over Phoenix and Padilla rendering them liable since they were
not made parties to the case (since it was really between PKA and SRI) and
whether or not the piercing of the corporate veil was proper. The SC held that no
Phoenix and Padilla cannot be held liable since the court did not have jurisdiction
over them. And no, the piercing of corporate veil was also not propery sine the
veil of corporate fiction may only be disregarded in cases where the corporate
vehicle is being used to defeat public convenience, justify wrong, protect fraud, or
defend crime. PKA and Phoenix-Omega are admittedly sister companies, and may
be sharing personnel and resources, but there was no allegation or proof that their
separate corporate personalities are being used to defeat public convenience,
justify wrong, protect fraud, or defend crime.
DOCTRINE: This veil of corporate fiction may only be disregarded in cases
where the corporate vehicle is being used to defeat public convenience, justify
wrong, protect fraud, or defend crime. For the separate juridical personality of a
corporation to be disregarded, the wrongdoing must be clearly and convincingly
established. It cannot be presumed.
FACTS:
1. In June 1983, Susana Realty Inc. (SRI) entered into a deed of absolute of
parcels of land in Taft Avenue Extension, Pasay City with Light Rail
Transit Authority (LRTA).
a. SRI reserved for itself a right to first refusal (RTFR) to develop or
improve the property in the event that LRTA might want to do so.
2. In November 1986, LRTA and Phoenix Omega Development and
Management Corporation (Phoenix) entered into a Commercial Stall
Concession Contract authorizing Phoenix to develop commercial stalls on a
90 sq. m. portion of the property.
a. Since this was in violation of the SRI’s RTFR, SRI opposed this.
b. Later on, a tripartite agreement was entered into by SRI, LRTA,
and Phoenix allowing Phoenix to develop the 90 sq. m. portion of
the property as long as they also lease the adjacent property to it
owned by SRI and that the development plans are approved by
SRI.
3. In July 1988, Phoenix assigned all of its right and interests on said
ADJACENT property to its sister company - PKA Development and
Management Corporation (PKA). The deed of assignment was signed by
Eduardo Gatchalian (President of Phoenix) and Luisito Padilla (President
and General Manager of PKA).
a. Because PKA was assigned to develop said property, they needed
to enter into a lease contract with SRI.
b. But soon, SRI sold said adjacent property to a third party. As a
compromise, PKA and SRI amended the lease agreement by
replacing said property with other parcels of land owned by SRI.
c. Note that in this lease agreement, Padilla signed both as president
of PKA and as Chairman of the Board of Directors of Phoenix.
 i. Note, that in the original lease agreement, Phoenix was
not a signatory or a party to BUT it became a party in the
amended lease contract.
4. In August 1989, PKA filed for rescission since SRI kept avoiding the
approval of their plans which caused them losses.
a. SRI countered that it was PKA who was in violation of their
contract since they did not finish the construction under 6 months
and in that period payment of rent was not asked from PKA.
5. RTC declared rescission. CA and SC confirmed it.
a. The decision ordered the surrender of premises and the satisfaction
of 1.75 M as rental payment of PKA to SRI.
b. The premises were surrendered but the rental payment remained
unsatisfied.
6. The RTC then ordered an alias writ ordering the payment for the rentals and
further stating that if PKA’s personal and real property cannot suffice – levy
on the properties of Phoenix and Padilla can be done.
a. Padilla’s motion to annul the alis writ and the cancellation of the
notice of levy was denied because the CA said PKA and Omega
are one and the same since Padilla was both president and general
manager of PKA and chairman of the board of directors and
controlling stockholder of Phoenix. PKA and Phoenix also shared
the same officers, laborers, and offices.
b. The CA also said that while Phoenix and Padilla were not parties
to the case (since it was really just between PKA and SRI), they
were represented by Padilla since he participated in the case –
making Padilla the one capable to make defenses and adduce
evidence.
7. Hence, this petition.
ISSUE/s:
1. WON Phoenix and Padilla can be made jointly and severally liable with
PKA given the fact that they were not parties to the case and was not able to
adduce evidence for themselves.
a. Or phrased differently: WON the court had jurisdiction over
Phoenix and Padilla rendering them liable
2. WON piercing of the veil of corporate fiction was proper
RULING: The petition is granted.
RATIO:
1. No, the court did not have jurisdiction over Phoenix and Padilla hence the
two cannot be bound by the decision (the alias writ). To rule otherwise
would be a deprivation of property without due process of law.
a. A court acquires jurisdiction over a person when there is a valid
service of summons or when the person voluntarily appears in
court.
b. Padilla participated in the proceedings as general manager of PKA
and NOT in any other capacity. That he was the chairman of the
board of directors in Phoenix at tat time cannot amount to
Phoenix’s participation to the case.
2. No, the piercing of the corporate veil is improper.
a. The general rule is that a corporation is clothed with a personality
separate and distinct from the persons composing it. It may not be
held liable for the obligations of the persons composing it, and
neither can its stockholders be held liable for its obligations.
b. This veil of corporate fiction may only be disregarded in cases
where the corporate vehicle is being used to defeat public
convenience, justify wrong, protect fraud, or defend crime.
i. PKA and Phoenix-Omega are admittedly sister
companies, and may be sharing personnel and resources,
but there was no allegation or proof that their separate
corporate personalities are being used to defeat public
convenience, justify wrong, protect fraud, or defend
crime.
ii. For the separate juridical personality of a corporation to
be disregarded, the wrongdoing must be clearly and
convincingly established. It cannot be presumed.
 13- JARDINE DAVIES, INC. v. JRB REALTY, INC. (PATGAL)
July 15, 2005 | Callejo, Sr., J. | Piercing of the veil of corporate fiction
PETITIONER: Jardine Davies, Inc.
RESPONDENTS: JRB Realty, Inc.
SUMMARY: JRB Realty, Inc. ordered two sets of air-conditioning equipment
from Aircon and Refrigeration Industries for its nine-story building. When the
units were installed, they could not deliver the desired cooling temperature.
Despite several adjustments and corrective measures, the respondent conceded
that Fedders Air Conditioning USA’s technology for big capacity conditioners
like those installed at the Blanco Center had not yet been perfected. The parties
thereby agreed to replace the units with compressors that will be maintained by
a subsidiary of Aircon. Respondent learned, through newspaper ads, that Maxim
Industrial and Merchandising Corporation (Maxim, for short) was the new and
exclusive licensee of Fedders Air Conditioning USA. The respondent requested
that Maxim honor the obligation of Aircon, but the latter refused. Respondent
instituted an action for specific performance, and Jardine Davies was impleaded
because Aircon was its subsidiary. Trial Court granted the petition and held
petitioners liable as Aircon was found to be its subsidiary. CA affirmed. The
issue is whether or not the Jardine is liable. The Court held that the corporate
legal existence of Aircon must be recognized. Aircon only became a subsidiary
because Jardine acquired majority of the capital stock, but it does not exercise
complete control over Aircon, nor does any management agreement exist
between the two. On whether or not the remedy of piercing the veil of corporate
fiction of Aircon must be resorted, the Court held that such remedy is not
proper. To warrant resort to the piercing of the veil of corporate fiction, there
must be proof that the corporation is being used as a cloak or cover for fraud or
illegality, or to work injustice. There is no evidence that Aircon was formed or
utilized with the intention of defrauding its creditors or evading its contracts and
obligations. Aircon, as a manufacturing firm of air conditioners, complied with
its obligation of providing two air conditioning units in good faith.
DOCTRINE: A corporation is an artificial being invested by law with a
personality separate and distinct from its stockholders and from other
corporations to which it may be connected. While a corporation is allowed to
exist solely for a lawful purpose, the law will regard it as an association of
persons or in case of two corporations, merge them into one, when this
corporate legal entity is used as a cloak for fraud or illegality. This is the
doctrine of piercing the veil of corporate fiction which applies only when such
corporate fiction is used to defeat public convenience, justify wrong, protect
fraud or defend crime.
In applying the doctrine, the following requisites must be established: (1)
control, not merely majority or complete stock control; (2) such control must
have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest acts in
contravention of plaintiffs legal rights; and (3) the aforesaid control and breach
of duty must proximately cause the injury or unjust loss complained of.
FACTS:
1. In 1979-1980, JRB Realty, Inc. built a nine-storey building, named Blanco
Center, on its parcel of land located at 119 Alfaro St., Salcedo Village,
Makati City. An air conditioning system was needed for the Blanco Law
Firm housed at the second floor of the building.
2. On March 13, 1980, the respondents Executive Vice-President, Jose R.
Blanco, accepted the contract quotation of Mr. A.G. Morrison, President of
Aircon and Refrigeration Industries, Inc. (Aircon), for two (2) sets of
Fedders Adaptomatic 30,000 kcal (Code: 10-TR) air conditioning
equipment with a net total selling price of P99,586.00.
3. When the units were installed, they could not deliver the desired cooling
temperature. Despite several adjustments and corrective measures, the
respondent conceded that Fedders Air Conditioning USA’s technology for
big capacity conditioners like those installed at the Blanco Center had not
yet been perfected.
4. The parties thereby agreed to replace the units with reciprocating/semi-
hermetic compressors instead at the earliest possible time, without
specifying when the delivery could be effected. TempControl Systems, Inc.
(a subsidiary of Aircon until 1987) undertook the maintenance of the units,
inclusive of parts and services.
5. In October 1987, the respondent learned, through newspaper ads, that
Maxim Industrial and Merchandising Corporation (Maxim, for short) was
the new and exclusive licensee of Fedders Air Conditioning USA in the
Philippines for the manufacture, distribution, sale, installation and
maintenance of Fedders air conditioners. The respondent requested that
Maxim honor the obligation of Aircon, but the latter refused.
6. The respondent instituted an action for specific performance with damages
against Aircon & Refrigeration Industries, Inc., Fedders Air Conditioning
USA, Inc., Maxim Industrial & Merchandising Corporation and petitioner
 Jardine Davies, Inc. The latter was impleaded as defendant, considering that
Aircon was a subsidiary of the petitioner.
7. Of the four defendants, only the petitioner filed its Answer. The court did
not acquire jurisdiction over Aircon because the latter ceased operations, as
its corporate life ended on December 31, 1986. Upon motion, defendants
Fedders Air Conditioning USA and Maxim were declared in default.
8. RTC granted the petition, and ruled that Aircon was a subsidiary of the
petitioner. The phrase A subsidiary of Jardine Davies, Inc. was printed on
Aircons letterhead of its March 13, 1980 contract as well as the Aircons
letterhead of Jardines Director and Senior Vice-President.
9. Records from the Securities and Exchange Commission (SEC) also reveal
that as per Jardines December 31, 1986 and 1985 Financial Statements that
The company acts as general manager of its subsidiaries. Jardines
Consolidated Balance Sheet as of December 31, 1979 filed with the SEC
listed Aircon as its subsidiary by owning 94.35% of Aircon. The court
thereby ordered the delivery, installment, and placement of 2 brand new
units or the payment for such.
10. The petitioner filed its notice of appeal with the CA, alleging that the trial
court erred in holding it liable because it was not a party to the contract
between JRB Realty, Inc. and Aircon, and that it had a personality separate
and distinct from that of Aircon. The CA however, affirmed the ruling of
the trial court.
ISSUE/s:
1. Whether or not Jardine is liable for the contractual breach of Aircon solely
because the latter was formerly Jardine’s subsidiary – NO
2. Whether or not the corporate fiction of Aircon must be pierced - NO
3. Whether or not the petitioner must pay actual and compensatory damages -
NO
RULING: SC affirmed the lower courts decision. Pwede rin wherefore.
RATIO:
1. A corporation is an artificial being invested by law with a personality
separate and distinct from its stockholders and from other corporations to
which it may be connected. While a corporation is allowed to exist solely
for a lawful purpose, the law will regard it as an association of persons or in
case of two corporations, merge them into one, when this corporate legal
entity is used as a cloak for fraud or illegality.
2. This is the doctrine of piercing the veil of corporate
fiction which applies only when such corporate fiction is used to defeat
public convenience, justify wrong, protect fraud or defend crime.
3. In applying the doctrine, the following requisites must be established: (1)
control, not merely majority or complete stock control; (2) such control
must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or
dishonest acts in contravention of plaintiffs legal rights; and (3) the
aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
4. While it is true that Aircon is a subsidiary of the petitioner, it does not
necessarily follow that Aircons corporate legal existence can just be
disregarded.
5. The records bear out that Aircon is a subsidiary of the petitioner only
because the latter acquired Aircons majority of capital stock. It, however,
does not exercise complete control over Aircon. No management agreement
exists between the petitioner and Aircon, and the latter is an entirely
different entity from the petitioner.
6. Jardine Davies, Inc., incorporated as early as June 28, 1946, is primarily a
financial and trading company. On the other hand, Aircon was
incorporated as a manufacturing firm. Its Articles of Incorporation states
that its purpose is mainly to carry on the business of manufacturers of
commercial and household appliances and accessories of any form,
particularly to manufacture, purchase, sell or deal in air conditioning and
refrigeration products.
SECOND ISSUE
7. To warrant resort to the piercing of the veil of corporate fiction, there must
be proof that the corporation is being used as a cloak or cover for fraud or
illegality, or to work injustice. Any piercing of the corporate veil has to be
done with caution, it cannot be just presumed.
8. In the instant case, there is no evidence that Aircon was formed or utilized
 with the intention of defrauding its creditors or evading its contracts and
obligations. Aircon, as a manufacturing firm of air conditioners, complied
with its obligation of providing two air conditioning units for the second
floor of the Blanco Center in good faith, pursuant to its contract with the
respondent.

9. In a Letter, the respondent even conceded that Fedders Air Conditioning

USA has not yet perhaps perfected its technology of rotary compressors,
and agreed to change the compressors with the semi-hermetic type.

10. Thus, Aircon substituted the units with serviceable ones which delivered the
cooling temperature needed for the law office. After enjoying ten (10) years
of its cooling power, respondent cannot now complain about the
performance of these units, nor can it demand a replacement thereof.

THIRD ISSUE

11. To justify a grant of actual or compensatory damages, it is necessary to

prove with a reasonable degree of certainty, premised upon competent proof
and on the best evidence obtainable by the injured party, the actual amount
of loss.

12. The respondent merely based its cause of action on Aircons alleged
representation that Fedders air conditioners with rotary compressors can
save as much as 30% on electricity compared to other brands.

13. Offered in evidence were newspaper advertisements. The respondent then

recorded its electricity consumption from October 21, 1981 up to April 3,
1995 and computed 30% thereof, which amounted to P556,551.55.

14. The Court rules that this amount is highly speculative and merely
hypothetical, and for which the petitioner can not be held accountable.
 14- CHINA BANKING CORPORATION v. DYNE-SEM ELECTRONICS
CORPORATION (LAXAMANA)
June 11, 2006 | Corona, J. | Piercing the veil of corporate fiction
PETITIONER: CHINA BANKING CORPORATION
RESPONDENTS: DYNE-SEM ELECTRONICS CORPORATION
SUMMARY: Dynetics and Lim borrowed from Chinabank as evidenced by PNs.
They failed to pay when the obligations became due. Chinabank sued for payment.
Summons was not served on Dynetics because it had already closed down. An
amended complaint was filed by Chinabank impleading respondent Dyne-Sem and
its stockholders alleging that Dyne-Sem was formed and organized to be Dynetics
alter ego. Trial court ruled that Dyne-sem is not an alter ego of Dynetics. Thus,
Dynesem is not liable under the promissory notes. CA dismissed the appeal.
Issue is WoN the CA erred in not applying the doctrine of piercing the veil of
corporate fiction. The SC affirmed the lower courts decision.
Chinabank failed to prove that Dyne-Sem was organized as an alter ego of
Dynetics. The mere fact that the businesses of two or more corporations are
interrelated is not a justification for disregarding their separate personalities.
Respondents acquisition of some of the machineries and equipment of Dynetics
was not proof that respondent was formed to defraud petitioner. Even the
overlapping of incorporators and stockholders of two or more corporations will
not necessarily lead to such inference and justify the piercing of the veil of
corporate fiction. Much more has to be proven. Premises considered, no factual
and legal basis exists to hold respondent Dyne-Sem liable for the obligations of
Dynetics to petitioner.
DOCTRINE:
The general rule is that a corporation has a personality separate and distinct from
that of its stockholders and other corporations to which it may be connected. This
is a fiction created by law for convenience and to prevent injustice. Being a mere
fiction of law, peculiar situations or valid grounds may exist to warrant the
disregard of its independent being and the piercing of the corporate veil. (see Ratio
7 for some grounds). To disregard the separate juridical personality of a
corporation, the wrongdoing must be proven clearly and convincingly.
FACTS:
1. Dynetics, Inc. (Dynetics) and Elpidio O. Lim borrowed about 9M from
China Banking Corporation as evidenced by six promissory notes.
a. Note: Dynetics is different from Dyne-Sem
2. They failed to pay when the obligations became due. Chinabank
consequently instituted a complaint for sum of money for payment.
3. Summons was not served on Dynetics, however, because it had already
closed down. Lim denied that he promised to pay jointly and severally to
Chinabank.
a. The case was scheduled for pre-trial with respect to Lim. The case
against Dynetics was archived.
4. An amended complaint was filed by Chinabank impleading respondent
Dyne-Sem and its stockholders Chuidian, Garcia and Ratinoff.
5. According to Chinabank, Dyne-Sem was formed and organized to be
Dynetics alter ego. It alleged that:
a. Dynetics, Inc. and Dyne-Sem are both engaged in the same line of
business of manufacturing, producing, assembling, processing,
importing, exporting, buying, distributing, marketing and testing
integrated circuits and semiconductor devices;
b. The principal office and factory site of Dynetics, Inc. in Taguig
were used by Dyne-Sem as its principal office and factory site;
c. Dyne-Sem acquired some of the machineries and equipment of
Dynetics, Inc. from banks which acquired the same through
foreclosure;
d. Dyne-Sem retained some of the officers of Dynetics, Inc.
6. Dyne-Sem alleged on the other hand that:
a. Their incorporators, stockholders and directors of Dyne-Sem are
totally different from those of Dynetics, Inc
b. Various facilities and machineries were validly acquired
i. Dyne-Sem acquired most of its present machineries and
equipment as second-hand items to keep costs down;
c. Other corporations also organized their factories inside the FTI
complex in Taguig. Hence, their choice of plant site is for practical
convenience.
d. d. Dyne-Sem operates its own bonded warehouse under authority
from the Bureau of Customs
7. Trial court ruled that Dyne-Sem is not an alter ego of Dynetics. Thus, Dyne-
Sem is not liable under the promissory notes.
8. CA dismissed the appeal. Affirmed trial court’s decision.
a. The two corporations had different articles of incorporation.
b. No merger or absorption took place between the two. What
transpired was a mere sale of the assets.
c. MR denied.
9. Hence, this petition for review.
ISSUE/s:
1. WoN the CA erred in not applying the doctrine of piercing the veil of
corporate fiction – No
 a. What quantum of evidence needed for trial court to determine if
the veil of corporate fiction should be pierced? – clear and
convincing
RULING: SC affirmed the lower courts decision.
RATIO:
1. The question of whether one corporation is merely an alter ego of another is
purely one of fact.
2. The Court is not a trier of facts. Findings of fact of the Court of Appeals,
affirming those of the trial court, are final and conclusive.
3. The jurisdiction of this Court in a petition for review on certiorari is limited
to reviewing only errors of law, not of fact.
4. Unless it is shown that:
a. the conclusion is grounded entirely on speculations
b. inference is manifestly mistaken, absurd and impossible;
c. grave abuse of discretion;
d. judgment is based on a misapplication of facts;
e. findings of fact of the trial court and the appellate court are
contradicted by the evidence on record
f. the Court of Appeals went beyond the issues of the case and its
findings are contrary to the admissions of both parties.
5. The general rule is that a corporation has a personality separate and
distinct from that of its stockholders and other corporations to which it
may be connected. This is a fiction created by law for convenience and
to prevent injustice.
6. Nevertheless, being a mere fiction of law, peculiar situations or valid
grounds may exist to warrant the disregard of its independent being and the
piercing of the corporate veil.
a. such personality is used to defeat public convenience, justify
wrong, protect fraud or defend crime;
b. used as a shield to confuse the legitimate issues;
c. when the corporation is merely an adjunct, a business conduit or an
alter ego of another corporation or where the corporation is so
organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of
another corporation;
d. when the corporation is used as a cloak or cover for fraud or
illegality, or to work injustice, or where necessary to achieve
equity or for the protection of the creditors.
7. In such cases, the corporation will be considered as a mere association of
persons. The liability will directly attach to the stockholders or to the other
corporation.
8. To disregard the separate juridical personality of a corporation, the
wrongdoing must be proven clearly and convincingly.
9. Chinabank failed to prove that Dyne-Sem was organized and controlled,
and its affairs conducted, in a manner that made it merely an
instrumentality, agency, conduit or adjunct of Dynetics, or that it was
established to defraud Dynetics creditors, including petitioner.
10. The similarity of business of the two corporations did not warrant a
conclusion that Dyne-Sem was but a conduit of Dynetics.
a. The mere fact that the businesses of two or more corporations are
interrelated is not a justification for disregarding their separate
personalities, absent sufficient showing that the corporate entity
was purposely used as a shield to defraud creditors and third
persons of their rights.
11. Respondents acquisition of some of the machineries and equipment of
Dynetics was not proof that respondent was formed to defraud petitioner.
a. Merger is legally distinct from a sale of assets. (just in case sir
asks)
i. Merger is a union whereby one or more existing
corporations are absorbed by another corporation which
survives and continues the combined business.
ii. Sale of assets the purchaser is only interested in the raw
assets of the selling corporation perhaps to be used to
establish his own business enterprise or as an addition to
his on-going business enterprise.
b. Respondent acquired the machineries and equipment not directly
from Dynetics but from the various corporations which
successfully bidded for them in an auction sale.
12. It may be true that respondent later hired Dynetics former Vice-President
Luvinia Maglaya and Assistant Corporate Counsel Virgilio Gesmundo.
a. From this, however, we cannot conclude that respondent was an
alter ego of Dynetics.
b. In fact, even the overlapping of incorporators and stockholders of
two or more corporations will not necessarily lead to such
 inference and justify the piercing of the veil of corporate fiction.
Much more has to be proven.
13. Premises considered, no factual and legal basis exists to hold respondent
Dyne-Sem liable for the obligations of Dynetics to petitioner.
 15 NASECO GUARDS ASSOCIATION v. NASECO (Lim)
Aug. 25, 2010 | Villarama, Jr. | Piercing the veil of Corporate Fiction
PETITIONER: NASECO GUARDS ASSOCIATION- PEMA (NAGA-PEMA)
RESPONDENTS: NATIONAL SERVICE CORPORATION (NASECO)
SUMMARY: A case is filed by the NASECO Guards Association (a CBR of
the regular rank and file security guards of NASECO) against NASECO and
PNB (since NASECO is a subsidiary of PNB), to execute a new CBA. The
relevant issue in this case is W/N PNB, being the principal of NASECO, can be
held liable to the monetary benefits granted to the NAGA-PEMA against
NASECO (NAGA-PEMA is asking the Court to pierce the corporate fiction of
NASECO and make PNB liable). The court ruled that it CANNOT, since each
corporation has a distinct and separate personality. Only when it a corporation is
used to defeat public convenience and protect fraud OR a corporation is merely
an adjunct, bisiness conduit (alter-ego doctrine) can the court allow the piercing
of the corporate veil. In this case, there is no showing that such no loss, no profit
scheme between respondent and PNB was implemented to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device
to defeat the labor laws, nor does the scheme show that respondent is a mere
business conduit or alter ego of PNB. Absent proof of these circumstances,
respondent’s corporate personality cannot be pierced.
DOCTRINE: A fundamental principle of corporation law is that a corporation
is an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. But, this separate and distinct
personality of a corporation is merely a fiction created by law for convenience
and to promote justice.
FACTS:
1. National Service Corporation (NASECO) is a wholly-owned subsidiary
of the Philippine National Bank (PNB) organized under the
Corporation Code in 1975. It supplies security and manpower services
to different clients. Petitioner NASECO Guards Association-PEMA
(NAGA-PEMA) is the collective bargaining representative of the
regular rank and file security guards of respondent.
2. Respondent entered into a memorandum of agreement (MOA PALANG
AH hindi pa yung mismo yung CBA) with petitioner which covered the
monetary claims of the petitioner such as salary adjustments,
conversion of salary scheme under Republic Act (R.A.) No. 6758 to
R.A. No. 6727, signing bonus, leaves and other benefits.
3. Petitioner and respondent agreed to sign a CBA on non-economic terms.
4. Petitioner filed a notice of strike because of respondent’s refusal to
bargain for economic benefits in the CBA. Following conciliation
hearings, the parties again commenced CBA negotiations but failed to
reach an agreement.
5. Petitioner filed a notice of strike before the National Conciliation and
Mediation Board (NCMB) against respondent and PNB (TAKE
NOTE: Filed against PNB also)due to a bargaining deadlock. Efforts
by the NCMB to conciliate failed and pursuant to Article 263(g) of the
Labor Code, as amended, then DOLE Secretary Cresenciano B.
Trajano assumed jurisdiction over the strike notices.
6. DOLE Secretary Bienvenido E. Laguesma issued a Resolution directing
petitioner and respondent to execute a new CBA incorporating therein
his dispositions.
7. Respondent promptly filed a petition for certiorari before the CA
questioning the DOLE Secretarys order and arguing that the ruling of
the DOLE Secretary in favor of the unions was inimical and deleterious
to its financial standing and will result in closure and cessation of
business for the company which the CA ruled that a recomputation and
reevaluation of the benefits awarded was in order.
8. In compliance with the CA directive, then DOLE Secretary Patricia A.
Sto. Tomas conducted several clarificatory hearings. Decreased the
total award from P531,446,666.67 to P322,725,000.
9. Respondent thus filed a petition for certiorari with the CA arguing that
the DOLE Secretary, in issuing the January 15, 2003 Order deprived
respondent of due process of law for there was no reevaluation (mere
recomputation) that took place in the DOLE. CA granted the petition.
10. A motion for reconsideration was filed by herein petitioner but the same
was denied by the CA.
11. Hence, this petition.
ISSUE:
1. (RELEVANT) WoN PNB, being the undisputed owner of and
exercising control over respondent, should be made liable to pay
the CBA benefits awarded to the petitioner. – NO.
2. WoN the respondent’s (NASECO) right to due process was violated –
YES/NO

RULING:WHEREFORE, the petition is PARTLY GRANTED. The Decision dated
May 27, 2004 and Resolution dated September 22, 2004 in CA-G.R. SP No. 76667
are hereby REVERSED and SET ASIDE as to the order to remand the case to the
Secretary of Labor for introduction of supporting evidence.Accordingly, the Orders
of the Secretary of Labor dated January 15, 2003 and March 11, 2003 are
REINSTATED and UPHELD.
RATIO:
First Issue
1. Verily, what the petitioner is asking this Court to do is to pierce the veil
of corporate fiction of respondent and hold PNB (being the mother
company) liable for the CBA benefits.
2. A fundamental principle of corporation law is that a corporation is an
entity separate and distinct from its stockholders and from other
corporations to which it may be connected. But, this separate and
distinct personality of a corporation is merely a fiction created by law
for convenience and to promote justice. So, when the notion of
separate juridical personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device
to defeat the labor laws, this separate personality of the
corporation may be disregarded or the veil of corporate fiction
pierced.This is true likewise when the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation.
3. Whether the separate personality of the corporation should be pierced
hinges on obtaining facts appropriately pleaded or proved. However,
any piercing of the corporate veil has to be done with caution, albeit the
Court will not hesitate to disregard the corporate veil when it is
misused or when necessary in the interest of justice. After all, the
concept of corporate entity was not meant to promote unfair objectives.
4. We find no reason to pierce the corporate veil of respondent and go
beyond its legal personality. Control, by itself, does not mean that
the controlled corporation is a mere instrumentality or a business
conduit of the mother company.Even control over the financial and
operational concerns of a subsidiary company does not by itself call for
disregarding its corporate fiction. There must be a perpetuation of fraud
behind the control or at least a fraudulent or illegal purpose behind the
control in order to justify piercing the veil of corporate fiction. Such
fraudulent intent is lacking in this case.
5. Petitioner argues that ultimately it is PNB, by virtue of the no loss, no
profit scheme, which shoulders and provides the funds for financial
liabilities of respondent including wages and benefits of employees.
a. There is no showing that such no loss, no profit scheme
between respondent and PNB was implemented to defeat
public convenience, justify wrong, protect fraud or defend
crime, or is used as a device to defeat the labor laws, nor
does the scheme show that respondent is a mere business
conduit or alter ego of PNB. Absent proof of these
circumstances, respondents corporate personality cannot
be pierced.
6. Moreover, the Court notes the pendency of a separate suit for absorption
or regularization of NASECO employees filed by petitioner and
NEMU-PEMA against PNB and respondent, docketed as NLRC NCR
Case No. 06-03944-96), which is still on appeal with the National
Labor Relations Commission (NLRC), as per manifestation by
respondent. In the said case, petitioner submitted for resolution by the
labor tribunal the issues of whether PNB is the employer of NASECOs
work force and whether NASECO is a labor-only contractor.
(Basically, the court says that the other case cannot affect this case
since not yet decided so does not ensure piercing the corporate veil
yet.)
Second Issue:
7. The constitutional guarantee of due process requires that a litigant be
given a day in court. It is the availability of the opportunity to be heard
that determines whether or not due process was violated. A litigant may
or may not avail of the opportunity to be heard but as long as such was
made available to him/her, there is no violation of the due process
clause.
8. The respondents right to due process in this case has not been denied.
The order in the first CA decision to recompute and reevaluate was
satisfied when the DOLE Secretary reexamined their initial findings
and adjusted the awarded benefits. A reevaluation, contrary to what the
respondent claims, is a process by which a person or office (in this case
the DOLE secretary) revisits its own initial pronouncement and makes
another assessment of its findings. In simple terms, to reevaluate is to
take another look at a previous matter in issue. A reevaluation does not
 necessitate the introduction of new materials for review nor does it
require a full hearing for new arguments.
9. Also, contrary to the claim of the respondent that it was barred by the
DOLE Secretary to introduce supporting documents during the
recomputation and reevaluation, the records show that an Order by then
Secretary of Labor Patricia A. Sto. Tomas dated July 11, 2002
specifically allowed both parties to submit their respective
computations as regards the awarded benefits.
 16- CHILD LEARNING CENTER, INC. v. TAGORIO (MALAYO)
November 25, 2005 | Azcuna, J. | Piercing the veil of corporate fiction
PETITIONER: Child Learning Center, Inc. and Spouses Edgardo L. Limon
and Sylvia S. Limon
RESPONDENTS: Timothy Tagario, assisted by his parents Basilio Tagorio
and Herminia Tagorio
. negligence on the part of the defendant; (3) and the cause and effect
SUMMARY: Respondent, a Grade IV student, was locked inside a CR at the
third floor. He used the window to ask for help but he fell right through the
window and down three stories. As such, he, assisted by his parents, filed a torts
case against the petitioner which manages the school and some of the individual
members of its Board. The RTC and CA held CLCI and spouses Limon
solidarily liable. The petitioner’s question the piercing of the veil of corporate
fiction and holding the spouses personally liable. The SC affirmed the lower
courts’ decision except on the piercing of the veil of corporate fiction.
DOCTRINE: See Main Issue’s ratio #1
FACTS:
1. Timothy Tagorio, at the time of the incident, was a Grade IV student at
Marymount School, an academic institution operated and maintained by
petitioner CLCI.
2. He went to the boy’s comfort room at 3rd floor of the school building to
answer the call of nature.
3. When he was about to get out, the door knob of the comfort room was
locked and could not be opened. He kicked the door in order to attract
attention and yelled several times for help but no one answered.
4. As such, he decided to open the window to call for help. But, in the process
of opening the window, he went right through and fell down three stories.
5. Timothy was hospitalized and was given medical treatment for serious
multiple physical injuries.
6. Timothy, assisted by his parents Herminia and Basilio Tagorio, filed a torts
case under Article 2176 of the Civil Code against the CLCI and several
members of the Board including herein petitioner Spouses Limon
7. The RTC of Makati ruled in favor of the Tagorios and ordered CLC and
Spouses Limon to jointly and severally pay for damages. The RTC
disregarded the corporate fiction of CLCI and held the Spouses Limon
personally liable because they were the ones who actually managed the
affairs of the CLCI.
8. On appeal, the CA affirmed the RTC decision. Hence, this appeal. The
appeal by herein petitioners is most grounded on questions of fact.
ISSUE: W/N THE LOWER COURTS ERRED IN HOLDING THE
PETITIONERS LIABLE – NO
1. The grounds of the petitioners for the appeal are based on questions of fact,
and not having shown that the case falls under the exceptions to the rule, the
SC has no jurisdiction to reverse the decision of the lower courts.
2. In every torts case, the plaintiff has to prove with preponderance of
evidence that (1) the plaintiff has suffered damages; (2) there’s fault or
between the fault or negligence of the defendant and the damage suffered by
the plaintiff.
3. In this case, the defective lock and the absence of grill on the windows
show negligence on the part of CLCI. While no direct evidence to prove
CLCI’s negligence, the mere fact that Timothy fell out through the window
shows that the door could not be opened from the inside. The Court used the
doctrine of res ipsa loquitor.
4. Since the window was approximately 1.5 meters away from the floor and
within reach of children, it is only logical for people to use such when the
regular exit is not functioning. The injury of Timothy was therefore due to
CLCI’s negligence.
MAIN ISSUE: W/N THE LOWER COURT ERRED IN PIERCING CLCI’S
VEIL OF CORPORATE FICTION – YES
1. To disregard the veil of corporate existence, the following elements must
concur:
a. Control by the individual owner, not mere majority or complete stock
ownership, resulting in complete domination not only of finances but of
policy and business practice in respect to a transaction so that the
corporate entity as to this transaction had at that time no separate mind,
will or existence of its own;
b. Such control must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive legal
duty, or a dishonest and unjust act in contravention of the plaintiff’s
legal right, and;
c. The control and breach of duty must proximately cause the injury or
unjust loss complained of.
2. In this case, the evidence failed to prove the existence of these elements,
especially given the fact that the plaintiffs pleaded in their complaint that
the CLCI is a corporation duly organized and existing under the laws of the
Philippines
DISPOSITION: WHEREFORE, the petition is partly granted and MODIFIED in
that petitioners Spouses Edgardo and Sylvia Limon are absolved from personal
liability.
 17- BAUTISTA v. AUTO PLUS TRADERS INC. (YVES) ordered Cruiser Bus Lines and Transport Corporation, through Bautista, to
August 6, 2008 | Quisimbing, J. | Sec 2. Of Corporation Code (B.P. 22) pay Auto pus the sum of P 248, 700 representing the value of the two
checks.
3. Bautista moved for partial reconsideration which was denied. Hence, both
PETITIONER: Claude P. Bautista (Cruiser Bus Lines and Transport
parties appealed before the RTC. However, RTC modified the ruling
Corporation)
wherein Bautista alone is ordered to pay the said amount earlier. The case
RESPONDENTS: Auto Plus Traders, Inc.
was raised before the CA but the appellate court upheld the ruling of the
RTC.
SUMMARY: Bautista, in his capacity as the President of the Cruiser Bus Lines,
4. Bautista then went to Supreme Court arguing that BP 22 pertains to the
purchased spare parts from Auto Plus Traders, Inc. Two checks were signed by
criminal liability of the accused and that the corporation, which has a
Bautista as payment but these checks bounced because of insufficient funds.
separate personality form its officers, is solely liable for the value of the two
Hence, two criminal cases of BP 22 were filed against Bautista in MTCC of
checks.
Davao. Bautista pleaded not guilty and moved for demurrer of evidence after
5. On the other hand, Auto Plus argues that Bautista should be liable for the
the trial ensued. The motion was granted because of reasonable doubt, however,
value because of the two checks, one was drawn against his account
the Corporation through Bautista is ordered to pay Autoplus the value of the
amounting to P 151, 200. The other check was signed by him as an
checks because these represent their obligation. Bautista move for partial
accommodation party and pursuant to Negotiable Instruments Law,
reconsideration which was denied. Hene, both parties appealed before the RTC
Bautista, as an accommodation party is liable for the value of the check.
which modified the ruling by making Bautista sole responsible. When appealed
before the CA, the ruling of RTC was upheld. Hence, Bautista filed this petition
ISSUE/s:
before the High Court. The Supreme Court sided with Bautista. According to
1. WoN an officer of a corporation who drew the bounced check is personally
the Court, since Bautista is acquitted to the crime charged and the civil
and civilly liable – No
obligation pertains to the liability of the Cruiser Bus lines, the latter shall be the
sole responsible is paying the value of the checks. Pursuant to corporation law,
RULING: SC REVERSED the lower courts’ decision. The petition is GRANTED.
the stockholders and officers are not personally liable for the obligations of the
Bautista won.
corporation except when piercing the veil of corporation fiction is justified.
RATIO:
There’s also a side issue on being an accommodation party, see ratio 4. As for
Justice Velasco, he dissented stating that BP 22 clearly says that the person
Drawer’s liability.
signing the check in behalf of the corporation is liable and the issue civil
1. The SC ruled that considering Bautista was acquitted to the crime charged
liability of that person has been resolved in previous cases already.
and the value of the checks represent corporate’s debt, it is only Cruiser Bus
Lines and Transport Corp must be held liable.
DOCTRINE: In corporation law, stockholders and officers are not personally
2. The Court further stated that applying the general rule that juridical entities
liable for the obligations of the corporation except only when the veil of
have personalities separate and distinct from its officers and the persons
corporate fiction is being used as a cloak or cover for fraud or illegality or to
composing it. In corporation law, stockholders and officers are not
work injustice
personally liable for the obligations of the corporation except only
when the veil of corporate fiction is being used as a cloak or cover for
fraud or illegality or to work injustice. These situations do not exist in
FACTS: this case.
1. Bautista is the President and Presiding Officer of Cruiser Bus Lines and 3. Cruiser Bus lines is the one who has an obligation to Auto Plus. There’s no
Transport Corporation. In his capacity as such, he purchased various spare agreement between them that Bautista shall be held liable for the
parts from Auto Plus Traders. For payment, he issued two post-dated checks corporation’s obligations in his personal capacity.
that were subsequently dishonored because of insufficient funds.
2. Two information were then filed against Bautista in violation of BP. 22 Accommodation Party Issue (Not corp, but since Ampil is our nego)
before the MTC of Davao. Bautista pleaded not guilty. After trial, Bautista 4. The SC said that MTCC and RTC had different appreciation of facts.
filed a demurrer to evidence which was granted by the MTCC due to According to the MTCC, two checks were Corporate Checks. On the other
reasonable doubt as to the guilt of the accused. However, the MTCC hand, RTC held that one check was a personal one and the other was a
 corporate. Upon review of the records, the SC sided with the RTC. (Check
fact #5)
5. Nonetheless, Bautista is not liable because he is not an accommodation
party. According to the Court, these elements must be present: 1) he must
be a party to the instrument, signing as maker, drawer, acceptor, or
indorser; 2) he must no receive value therefor; and 3) he must sign for
the purpose of lending his name or credit to some other person.
6. Here, the last element is missing. No evidence was presented to prove that
Bautista signed to lend his name or credit. Hence, Bautista cannot be
considered as an accommodation party.

J. Velasco Jr., dissenting

1. B.P.22 states “x x x Where the check is drawn by a corporation x x x the
person who actually signed the check in behalf of such drawer shall be
liable under this act.” According to him, one may argue that the law does
not clearly say if the liability is both civilly and criminally. However, the
issue of civil liability of the person who signed the check was resolved in
two cases1 already where the Court ordered the petitioner pay the amount
represented by the checks involved.
2. Second, the civil aspect is deemed instituted with the criminal case. To file
a separate case against the corporation would amount to multiplicity of suits
and would cause the aggrieved more since the latter shall be paying filing
fees.
3. Lastly, even assuming arguendo that Bautista is not liable for the obligation
of the corporation, he should be at least liable for the one check which was
drawn against his personal account. Pursuant to BP 22, responsibility is
personal to the accused who signed the bad check.

1
Llamado v. Court of Appeals and Lee v. Court of Appeals