DOCTRINE OF SEPARATE LEGAL PERSONALITY

1. Palay, Inc. v. Clave GR No. L- 56076 September 21, 1983 Melencio- Herrera, J.:

Facts:Onstott as the President of Palay Inc. executed in favour of Dumpit a Contract to Sell of a parcel of land in Antipolo. Paragraph six of the contract provided for automatic extrajudicial rescission upon default without need of notice and with forfeiture of all instalments paid.Dumpit made the last instalment sometime in September 1967, six years after, he wrote petitioner offering to update all his overdue accounts and seeking consent to transfer his right to Dizon. Palay replied that the contract had long been rescinded and that the lot had been resold.Dumpit questioned the validity of the rescission with the NHA which ruled in his favor, NHA ordered Palay Inc. and Onstott as president, jointly and severally, to refund to Dumpit what the latter had paid with interest. Onstott controverted that he should not have been made jointly and severally liable with Palay since a corporation has a personality distinct and separate from the persons composing it.

Issue:Whether the doctrine of piercing of veil of corporate fiction has application to the case at bar.

Held:NO. We find no badges of fraud on petitioner’s part. They had literally relied, albeit mistakenly, on paragraph 6 of the contract when it rescinded the same and sold it to a third person.In the case, petitioner Onstott was made liable because he was then the controlling stockholder of the corporation. However no sufficient proof exists on the record that said petitioner used the corporation to defraud private respondent. He cannot, therefore, be made personally liable just because he appears to be the controlling stockholder. Mere ownership of a single stockholder is not in itself a sufficient ground for disregarding the separate corporate personality.

Note:General rule: a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa.

Exception: The veil of corporate fiction may be pierced when it is used:1. as a shield to further an end subversive of justice; or 2. for purposes that could not have been intended by the law that

created it; or 3. to defeat public convenience, justify wrong, protect fraud or defend

crime; or 4. to perpetuate fraud or confuse legitimate issues; or5. to circumvent the law or perpetuate deception; or6. as an alter ego, adjunct or business conduit for the sole benefit of

the stockholders.

2. Cruz v. Dalisay AM NO. R- 181 July 31, 1987 Fernan, J.:

Facts:Sheriff Dalisay was charged with malfeasance in office, corrupt practices and serious irregularities. It was alleged that the sheriff attached and/ or levied the money belonging to complainant Cruz when he was not the judgment debtor in the final judgment of the NLRC sought to be enforced, but rather the company known as “Qualitrans Limousine Service, Inc.” a duly registered company.In his comment Sheriff Dalisay argued that he attached the money on the basis of an affidavit executed by Cruz stating that he is the owner/ president of said corporation.Prior to the termination of the proceedings, complainant executed an affidavit of desistance stating that he is no longer interested in prosecuting the case.

Issue:Whether or not the Sheriff erred in enforcing a judgment against Cruz who is not the judgment debtor in the case.

Held:

YES. The tenor of the NLRC judgment and the implementing writ are clear enough; it is directed against “Qualitrans Limousine Inc.” ordering it to reinstate the discharged employees and pay them full backwages. Respondent however chose to “pierce the veil of corporate entity” usurping a power belonging to the court and assumed improvidently that since the complainant is the owner/ president of the corporation, they are one and the same. It is well- settled doctrine both in law and in equity that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders and members. The mere fact that one is a president of a corporation does not render the property he owns or possesses the property of the corporation; since the president as individual and the corporation, are separate entities.

3. Indophil Textile Mill Workers Union v. Calica GR NO

4. EPG Construction Company, Inc. v. Court of Appeals GR NO. 103372 June 22, 1992 Cruz, J.

Facts:EPG and UP entered into a contract for the construction of the UP Law Library. In the contract, the parties stipulated that the Contractors guarantees the completion of the work, and that the contractor shall repair at his own cost for one year from the completion all the work covered by the contract.Upon completion on January 1983, the building was formally turned over to UP. Sometime in July 1983, UP complaint to the petitioner that 6 air conditioning units on the 3rd floor were not cooling properly. After inspection, EPG agreed to shoulder the expenses for its repair.The repair however was never undertaken; UP contracted another company for the repair of the air conditioning units and sought reimbursement from EPG which the latter refused. UP then sued EPG and its president De Guzman.The court ruled for UP which on appeal was sustained.

Issue:Whether or not De Guzman is liable

Held:NO. It is a doctrine well- established and obtains both in law and in equity that a corporation is a distinct legal entity separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or members.Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient ground for disregarding the separate corporate personality of the corporation.The general manager of a corporation therefore should not be made personally answerable for the payment of the employees back wages unless he had acted maliciously or in bad faith, in which event he may be made personally liable for his own act. That exception is not applicable to the case at bar because it had not been proved that De Guzman acted maliciously or in bad faith when as President of EPG, he sought to protect its interests and resisted UP’s claims. Whatever damage was caused to UP as a result of his acts is the sole responsibility of EPG even though De Guzman was its principal officer and controlling stockholder.

5. Boyer- Roxas v. Court of Appeals GR NO. 10086 July 14, 1992 Guttierez, Jr.J.:

Facts:The subject properties belonged to Eugenia Roxas. After her death her heirs, among them the petitioners formed a corporation, the Eugenia Roxas Inc. with the inherited properties as the capital of the corporation. Its primary purpose was to engage in agriculture, its AOI was subsequently amended to allow it to engage in the resort business.Accordingly, the corporation used the subject properties to put up a resort known as the Hidden Valley Springs Resort.The Eugenia Roxas Inc. filed an action for ejectment from the resort against Rebecca and Guillermo Roxas, alleging that the property is owned by the corporation.Petitioners on the other hand contend that they are the heirs of Eugenia Roxas and as such they are co- owners of the subject properties and that their stay in the resort was consented by Eufrocino who then controlled the management of the corporation.

Petitioners contended that the veil of corporate fiction should be pierced considering that petitioners are owners of the aliquot part of the properties of private respondent.

Issue:Whether the veil of corporate fiction should be pierced

Held:NO. Eugenia Roxas Inc. is a bona fide corporation. As such, it has a juridical personality of its own separate from the stockholders or members composing it.Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While share of stocks constitute personal property, they do not represent property of the corporation. The corporation has property of its own which consists chiefly of real estate. A share of stock only typifies an aliquot part of the corporation’s property, or the right to share in its proceeds to that extent when distributed according to law and equity but its holder is not the owner of the any part of the capital of the corporation, nor is he entitled to the possession of any definite portion of its property or assets.The corporation transacts it business only through its officers or agents whatever authority these officers of agents may have is derived from the board of directors or other governing body unless conferred by the charter of the corporation. An officer’s power as an agent of the corporation must be sought from the statute, charter, the by- laws or in a delegation of authority to such officer from the acts of the board of directors, formally expressed or implied from a habit or custom of doing business.The petitioners’ stay within the questioned properties was merely by tolerance of the respondent corporation in deference to the wishes of Eufricino Roxas, who during his lifetime controlled and managed the corporation. Eufrocino Roxas’ actions could not have bound the corporation forever.

Note:The separate personality of the corporation may be disregarded only when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary for the protection of the creditors.

6. Asionics Philippines, Inc. v. NLRC GR NO 124950 May 19, 1998 Vitug, J.:

Facts:Boaquina and Gayola were employers of API as control clerk and production operator. During the third quarter of 1992 API negotiated with FFW (Federation of Free Workers), the bargaining agent of its employees.The negotiations resulted into a deadlock which prompted FFW to file a notice of strike. As a result API was forced to suspend operations. Boaquina and Gayola were among those asked to take a leave from worked.A CBA was then concluded. Despite such, the business activity of API remained critical, it was forced to implement retrenchment which affected a number of employees including Boaquina and Gayola.The two, together with the others joined Lakas Union. The Union staged a strike which was declared illegal. Further the NLRC ruled that the respondents were validly terminated in accordance with the retrenchment policy of API and as such ordered the corporation to pay together with Frank Yih who was its president and at the same time the majority stockholder of the company.

Issue:Whether or not a stockholder/ director/ president of a corporation can be held liable for the obligation of the corporation absent any proof and finding of bad faith.

Held:NO. It is basic that a corporation is invested by law with a personality distinct and separate 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 the corporation is not of itself sufficient ground for disregarding the separate corporate personality.Nothing on record is shown to indicate that Frank Yih has acted in bad faith or with malice in carrying out the retrenchment program of the company. His having been held by the NLRC to be solidarilly and personally liable with API is thus legally unjustified.

7. Francisco Motors Corporation v. Court of Appeals

GR NO. 100812 June 25, 1999 Quisumbing, J.:

Facts:FMC filed a complaint against Spouses Manuel to recover the balance of the jeep body purchased by the latter from the former. The cost of the repair was added to the Spouses outstanding obligation.In their answer, the Spouses interposed a counterclaim for unpaid legal services by Gregorio Manuel in the amount of P50,000, which was not paid by the incorporators, directors and officers of FMC. The lower court ruled for the petitioner as regards the claim of money but also allowed the counterclaim. The CA sustained the ruling of the lower court.Manuel argues that he previously represented the members of Francisco family in the intestate proceedings of the late Trinidad and that his services were not paid; that said family members were also the incorporators, directors and officers of FMC.

Issue:Whether or not the corporation should be held liable for the fees owed by the incorporators, directors and officers of the corporation in their personal capacities

Held:NO. Given the facts and circumstance of the case, the doctrine of piercing the corporate veil has no relevant application. Respondent court erred in permitting the lower court’s resort to this doctrine.The rationale behind piercing a corporation’s identity in a given case is to remove the barrier between the corporation from the persons composing it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities. However in the case at bar, instead of holding certain individuals or persons liable for an alleged corporate act, the situation has been reversed, it is the petitioner as a corporation which is being ordered to answer for the personal liability of certain individual directors, officers, and incorporators concerned. Hence, it appears to the court that the doctrine has been turned upside down because of its erroneous invocation.Note that according to Manuel his services were solicited as counsel for the members of Francisco family in the estate proceedings. These proceedings did not involve any business of the petitioner corporation.

When directors and officers of a corporation are unable to compensate a party for personal obligation, it is far fetched to alleged that the corporation is perpetuating fraud or promoting injustice, and thereby held liable therefor by piercing its corporate veil.The claim for legal fees against the concerned individuals could not properly be directed against the corporation without violating basic principles governing corporations.

8. Complex Electronics Employees Association v. NLRCGR NO 12135; 122136 July 19, 1999Kapunan, J.:

Facts:Complex Electronics was engaged in the manufacture of electronic products, its customers were foreign based companies with different product lines.Lite- On Taiwan, one of its clients, required Complex to reduce its selling price, however Complex answered that it was not feasible as it was already incurring losses. After sometime, Complex was forced to close down the Lite- On line.The displaced workers of the line, through the CEEA pushed for retrenchment pay, Complex refused.The machineries and equipment were pulled out from the company premises and were transferred to Ionics Circuit Inc.CEEA filed a complaint with the NLRC, it impleaded Ionics as party defendant because the officers and management personnel of Complex and President Qua were its officers as well. Ionics contended that it was an entity separate and distinct from Complex. The LA rendered judgment against Complex, Ionics and President Qua.When the case reached the SC, CEEA presented documentary evidence which consisted of a newspaper clipping allegedly proving that both companies, Ionics and Complex are one and the same.CEEA claimed that business has not ceased at Complex but that it was merely transferred to Ionics, a runaway shop, thus justifying the reason for piercing the veil of corporate fiction.

Issues:1. Whether or not Ionics may be held liable together with Complex on

the ground that both companies have the set of board of Directors

2. Whether or not Lawrence Qua should be made personally liable to CEEA since he was the principal player in the closure of the company.

Held:NO TO BOTH ISSUES

1. A “runaway shop” is defined as an industrial plain moved by its owners from one location to another to escape union labor regulations or state laws, the term is also used to describe a plant removed to a new location in order to discriminate against employees at the old plant because of their union activities.At the time the labor dispute arose at Complex, Ionics was already existing as an independent company. It cannot therefore be said that the temporary closure in Complex and its subsequent transfer of business to Ionics was for anti- union purposes.Ionics may be engaged in the same business as that of Complex, but this fact alone is not enough reason to pierce the veil of corporate fiction. To disregard the separate juridical personality of the corporation, the wrongdoing must be clearly and convincingly established.

2. It is settled that in the absence of malice or bad faith, a stockholder or an officer of the corporation cannot be made personally liable for corporate liabilities. In the present case, while it may be true that the equipment, materials and machineries were transferred to Ionics during the night, but it was because the laborers were already vandalizing the equipments. Such pull out was made pursuant to the demand of Complex customers who were already alarmed by the labor dispute.

9. Lim v. Court of AppealsGR NO 124715 January 24, 2000Buena, J.:

Facts:Petitioner Rufina Lim is the surviving spouse of the late Pastor Lim whose estate is the subject of a probate proceedings.Private respondent corporations: Auto Truck Corporation, Alliance Marketing Corp., Speed Distributing Inc., Active Distributing Inc., and Action Company, whose properties were included in the inventory of the estate, filed a motion for exclusion from the estate which was granted by the RTC.

Lim filed a verified amended petition claiming that Pastor Lim personally owned during his lifetime the following business entities; that all their capital, assets and equity were personally owned by the late Lim. Hence, the alleged stockholder and officers appearing in the respective AOI of the above business entities were mere dummies and that they were listed only for purposes of registration with the SEC.The RTC ruled in favor of Lim, CA reversed.

Issue:1. May a corporation, in its universality, be the proper subject of and

be included in the inventory of the estate of a deceased person?2. Whether or not the corporations are the mere alter egos or

instrumentalities of Pastor Lim

Held:NO TO BOTH ISSUES

1. The real properties included in the inventory of the estate of the late Pastor Lim are in the possession of and are registered in the name of private respondent corporations, which under the law possess a personality separate and distinct from their stockholders, and in the absence of any cogency to shred the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of the corporations should stand undisturbed.

2. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities.

Note:The tests in determining the applicability of the doctrine of piercing the veil of corporate fiction are as follows:

1. Control, not mere majority or complete stock control, but complete domination not only of the finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal right; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any of these elements prevents “piercing the corporate veil.”

10. Land Bank of the Philippines v. Court of AppealsGR NO 127181 September 4, 2001Quisumbing, J.:

Facts:On various dates, Land Bank extended a series of credit accommodations to ECO using the trust funds of PVTA. The proceeds of the credit accommodations were received on behalf of ECO by appellate Ooate.ECO defaulted to pay its obligation; it proposed a Plan of Payment whereby the former would set up a financing company which would absorb the loan obligations.Land bank approved the same but averred that it will not participate in any manner whatsoever. ECO revised the plan, but the bank rejected the same.Land Bank sent a letter to PVTA to hear its comment; the letter stated that the failure of PVTA to answer would be tantamount to approval of the bank’s intention to file a suit against ECO. No response was made.A suit was filed and judgment was rendered against ECO, Ooate was absolved from any liability.

Issue:1. Whether or not the corporate veil of ECO Management Corporation

should be pierced2. Whether or not Emmanuel Ooate should be held jointly and

severally liable with ECO Management Corporation for the loans incurred from Land Bank

Held:NO TO BOTH ISSUES

1. The burden is on the 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 officer of a corporation cannot be made personally liable for any corporate liabilities

2. The mere fact that Ooate owned the majority of the shares of ECO is not a ground to conclude that Ooate and ECO are 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 a sufficient reason for disregarding the fiction of separate corporate personality.

11. PNB v. Ritratto Group Inc. GR NO. 142616 July 31, 2001 Kapunan, J.:

Facts:PNB- IFL, a subsidiary company of PNB extended a letter of credit in favor or Ritratto Group secured by real estate mortgages.Ritratto Group failed to pay the entire obligation; as a result, PNB-IFL through its attorney- in – fact PNB, notified the former of the foreclosure of all the real estate mortgages and that subject properties were to be sold at a public auction.Rittrato filed for injunction against PNB; further, it prayed that PNB be ordered to re- compute the rescheduling of the interest. PNB moved for dismissal on the ground of failure to state a cause of action and absence of any privity between the petitioner and respondent. The injunction was granted; the RTC ruled that a suit against PNB is a suit against PNB- IFL. CA affirmed.

Issue:Whether a corporate entity may be disregarded where a corporation is a mere alter ego or business conduit of a person or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation

Held:NO. The general rule is that as a legal entity, a corporation has a personality separate and distinct from its individual stockholders or members, and is not affected by the personal rights, obligations and transactions of the latter. The mere fact that a corporation owns all of the stocks of another

corporation, taken alone is not sufficient to justify their being treated as one entity.If used to perform a legitimate function, a subsidiary’s separate existence must be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business.When a borrower failed to pay credit accommodations granted by a subsidiary of a banking corporation, the suit against the parent company to direct it re- compute the rescheduling of the interest to be paid and enjoin the foreclosure initiated by the parent company as attorney- in- fact of the subsidiary will not prosper because the corporations are separate and distinct from each other. Aside from the fact that the lender is a wholly- owned subsidiary, there is no showing that it is a mere instrumentality of the parent company. The parent- subsidiary relationship between the two corporations is not the significant relationship involved in this case since the parent company was not sued because it is the parent company of the lender. Rather, it was sued because it acted as attorney- in- fact of the lender in initiating the foreclosure proceedings. A suit against the agent cannot without compelling reasons, be considered a suit against the principal.

12. China Banking Corporation v. Dyne Sem Electronics GR NO. 149237 June 11, 2006 Corona, J.:

Facts:Dynetics and Lim borrowed P9M from China Bank which was evidenced by 6 PNs.The borrowers failed to pay when the obligations became due, this prompted China Bank to file a complaint for sum of money. Summons were not served on Dynetics because it closed down. On the other hand, Lim denied that he promised to pay the obligation jointly and severally with Dynetics.An amended complaint was filed impleading Dyne Sem and its stockholder on the ground that it was allegedly formed to be Dynetics’s alter ego, the argument was bolstered by the acquisition of some of the machineries of Dynetics by Dyne Sem.The court held that Dyne Sem is not an alter ego of Dynetics thus it is not liable under the PNs.The CA sustained the RTC.

Issue:Whether or not the doctrine of piercing the veil of corporate fiction is applicable in the case

Held:NO. a corporation could not be made party defendant to a collection simply because summons could not be served on the debtor- corporation on the mere grounds that the businesses of the two corporation are interrelated and they have common directors absent sufficient showing that the corporate entity was purposely used as a shield to defraud creditors and third persons of their rights.Likewise, the acquisition of some of the machineries and equipment of the seller corporation was not proof that the buyer- corporation was formed to defraud creditor of the seller corporation. No merger took place between the seller and the buyer. What took place was a sale of the assets of the former to the latter. Merger is legally distinct from a sale of assets. Thus, were one corporation sells or otherwise transfers all of its assets to another corporation for value, the latter is not by that fact alone, liable for the debts and liabilities of the transferor.

13. Spouses Nisce v. Equitable PCI Bank GR NO. 167434 February 19, 2007 Callejo, Sr., J.:

Facts:Natividad Nisce requested that $20,000 of her deposit with PCI Bank be transferred to PCI Capital in Hong Kong. PCI Capital is the subsidiary of PCI Bank. PCI Capital issued a Certificate of Deposit as proof of receipt of the transfer. Sometime in June 1991, Natividad’s two sons were stranded in Hong Kong. She called the bank and requested for the partial release of her dollar deposit to her sons; however, she was informed that according to computer records, no such dollar account existed.In the meantime, in 1994, the Equitable Banking Corporation and the PCI Bank were merged under the corporate name Equitable PCI Bank.In 1996, the Spouses Nisce obtained a 20M and 13M loan secured by real estate mortgages with Equitable PCI Bank. Petitioners failed to comply with their obligations, which prompted the bank to extra judicially foreclose the mortgages.

Natividad offer to settle their loan account with Equitable by offsetting the peso equivalent of her dollar account with PCI Capital. In 2001, PCI Bank, now Equitable Bank, claimed that it merely acted as a conduit in facilitating the transfer of the funds. RTC issued the injunction. CA on the other hand ruled in favor of Equitable, that the bank had a clear right to seek the remedy of foreclosure; that legal compensation cannot take place because the parties are not mutual creditors and debtors of each other.

Issue:Whether or not the claim of an investor against a subsidiary of another corporation which subsequently became the acquired corporation in a merger be enforced against the surviving corporation.

Held:NO. PCI Capital is a subsidiary of PCI Bank now, Equitable PCI Bank. PCI Capital has an independent and separate juridical personality from that of Equitable, its parent company; hence, any claim against the subsidiary is not a claim against the parent company and vice versa.In the case at bar, PCI Bank, which had been merged with Equitable owned all of the stocks of PCI Capital, however that fact taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary’s separate existence shall be respected and the liability of the parent corporation, as well as the subsidiary shall be confined to those arising in their respective business.Petitioners failed to adduce evidence to justify the piercing of the veil of corporate entity and render respondent Bank liable for the $20,000 deposit of petitioner Natividad.

14. Yamamoto v. Nishino Leather Industries Inc. GR NO. 150283 April 16, 2008 Carpio- Morales, J.:

Facts:WAKO was organized by Yamamoto under Philippine Laws. Yamamoto and Nishino entered into a MOA under which they agreed to enter a joint venture wherein Nishino would acquire 70% of the authorized capital stock of WAKO.

Eventually, Nishino and his brother Yoshinobu acquired more than 70% of the authorized capital stock of WAKO, reducing Yamamoto’s investment therein to, according to his claim, 10%.The Corporate name of WAKO was later changed to NLII.In a letter made by the corporate lawyer, Yamamoto was allowed to take out the equipment which were part of his investment in the corporation but he was stopped by the respondents prompting him to file a complaint for replevin.In their answer, respondents claim that the equipment were corporate property. The RTC ruled in favor of Yamamoto, CA reversed.

Issue:Whether the advice in the letter allowing Yamamoto to retrieve the equipment which were part of his investment bound the corporation.

Held:NO. Where the lawyer of the controlling stockholder of the corporation advised another stockholder that he could obtain possession of certain corporate properties by way of return of his equity investment but the lawyer acted without board approval, the advice is not binding on the corporation even though it had the approval of the controlling stockholder. The doctrine of piercing the veil of corporate fiction can not be invoked on the sole ground that the presence of other stockholders in the corporation was only for the purpose of complying with the statutory minimum requirements on number of directors.

15. Delima v. Gois GR NO.

Facts: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 filed an Affidavit of Third Party claim, claiming that the attachment of the vehicle was irregular because said vehicle was registered in her name and not Golden’s although, she let the corporation use the same, she being a stockholder of the corporation; she further alleged that she was not a party to the illegal dismissal case filed by Delima. The LA denied her claimed on the ground that she was named as one of the

respondents and summons were validly served in her. On appeal, the NLRC affirmed. CA reversed.

Issue:Whether or not a stockholder’s property may answer for the debt of a corporation

Held: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. The rule is that obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. Thus, property belonging to a corporation cannot be attached to satisfy the debt of the a stockholder and vice versa, the latter having only an indirect interest in the assets and business of the former.

16. Excellent Quality Apparel Inc. v. Win Multi Rich Builders, Inc.GR NO.

Facts:

17. PEA- PTGWO v. NLRCGR NO.

Facts:The Gonzales family owned both the Pantranco North Express Inc. (PNEI) and Macris Realty Corporation. PNEI is engaged in public transportation services to the public, its terminal stood on four lands registered under Macris Realty Corporation.The family failed to pay its obligations, this allowed the creditors to take over both companies.Sometime in 1978, PNEI and Macris were transferred to Nat’l Investment Development Corporation (NIDC), a subsidiary of PNB. Macris’ name was changed to National Realty Development Corporation (NAREDECO) and was merged with the National Warehousing Corporation to form PNB- MADECOR, the new PNB subsidiary.

Mega Prime acquired the shares of PNB over PNB-MADECOR among those acquired by Mega Prime was PNEI.PNEI was sold to North Express Transport which was sequestered by the PCGG after the EDSA Revolution and was sold to the private sector through the Asset Privatization Trust (APT).Eventually, PNEI closed down and labour claims were filed against said company. On July 5, 2002, the Labour Arbiter issued a writ of execution to satisfy the claim of PNEI’s former employees. The sheriffs were instructed to proceed against PNB, PNB- MADECOR and Mega Prime. The sheriff levied the real property on which the terminal stood; said properties were subsequently sold to satisfy the claims of the labourers. PNB questioned the sale on the ground that it has a right over the subject properties since Mega Prime was indebted to it, and the sale of the said properties would unduly prejudice the bank in the event that Mega Prime fails to satisfy its obligations.

Issue:Whether said properties can be attached to satisfy the claims against PNEI

Held:NO. the labourers’ of the PNEI, a corporation which has ceased operations, can not enforce their claims against PNB just because it acquired PNEI at the time it was suffering financial reverses nor against PNB MADECOR just because it is the owner of PNEI properties and a subsidiary of PNB nor against Mega Prime just because the latter acquired the shares of PNB over PNB- MADECOR. PNB- MADECOR and Mega Prime are corporations with personalities separate and distinct from that of PNEI. The general rule is that a corporation has a personality separate and distinct from those of its stockholders and other corporations to which it may be connected. Moreover, these corporations are registered as separate entities and, absent any valid reason, their separate identities should be maintained and should not be treated as one. Neither can the legal personality of PNEI be merged with PNB simply because the latter acquired the former. Settled the rule that where one corporation sells or otherwise transfers all of its assets to another corporation for value, the latter is not by that fact alone, liable for the debts and liabilities of the transferor. The execution sale on the Pantranco properties to satisfy the labourers’ claims is null and void. However, only PNB- MADECOR or its successors or assigns has the right to annul the sale. PNB is not the real party in interest to question the sale just because Mega Prime is indebted to it. PNB’s right over the Pantranco

properties are only inchoate which could ripen into substantial interest only if Mega Prime does not pay its indebtedness to PNB.

CLAIM FOR MORAL DAMAGES

18. Filipinas Broadcasting Network v. Ago Medical CenterGR NO.

Facts:One of the broadcasters of Filipinas uttered libellous remarks over a radio broadcast against Ago Medical and Educational Center. the broadcaster said that Ago is the dumping ground of intellectual misfits; because of such remark Ago medical sued Filipinas.

Issue:Can a corporation be entitled to moral damages?

Held:IT DEPENDS, IN THIS CASE YES. A juridical personality is generally not entitled to moral damages because, unlike a natural person, it can not experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. Nevertheless, if a corporation’s claim for moral damages falls under Section 7 Article 2219 of the Civil Code which expressly authorizes recovery of moral damages in cases of libel, slander, or any other form of defamation, then moral damages may be awarded. This is because Article 2219 does not qualify whether the plaintiff is natural or juridical person. Therefore a juridical person such as a corporation can validly complain for libel or for any other form of defamation and claim for moral damages.

19. MERALCO v. TEAM Electronics GR NO.

DOCTRINE OF PIERCING THE CORPORATE VEIL

20. Villa Rey Transit, Inc. v. Eusebio FerrerGR NO.

Facts:Jose Villarama was the operator of Villa Rey Transit; he sold two certificates of public convenience to Pantranco with the condition among others that the seller (Villarama) “shall no for a period of 10 years from the date of sale, apply for any TPU service identical or competing with the buyer.”Barely three months after, another Villa Rey Tansit was organized with Natividad, Jose’s wife, and his brother in law, among the incorporators.Villa Rey bought five certificate of public convenience from Public Service Commission (PSC); it likewise bought equipment from Valentin Fernando. Before the PSC could approve the sail, the sheriff levied two of the five certificates pursuant to a writ of execution issued by the then CFI of Pangasinan, in another civil case in favor of Eusebio Ferrer against Valentin Fernando. Ferrer sold the certificates to Pantranco; Villa Rey filed an action to annul the sale. Pantranco filed a third party complaint against Villarama, it alleged that Villarama and Villa Rey are one and the same, and as such, Villa Rey was disqualified from operating the two certificates by virtue of the agreement between Villarama and Pantranco, which by nature prohibits Villarama from competing with Pantranco.

Issue:Whether Villa Rey and Villarama are one and the same

Held:YES. Villa Rey Transit is an alter ego of Jose Villarama, hence the restrictive clause in the contract entered into by the latter and Pantranco is likewise enforceable and binding against the said corporation. The rule is that a seller or promisor may not make use of a corporate entity as a means of evading the obligation of his covenant. Where the corporation is substantially the alter ego of the covenantor to the restrictive agreement, it can be enjoined from competing with the covenantee.

21. AC Ransom Labor Union- CCLU v. NLRCGR NO

Facts:AC Ransom Labor Union filed a case for unfair labor practice against AC Ransom Phil. Corporation.

During the pendency of the case, Rosario Industrial Corporation was established by the same officers and Stockholders of AC Ransom; further it was engaged in the same line of business as AC Ransom. It was alleged that the assets were legitimately sold to Rosario together with the machineries. NLRC found AC Ransom guilty and was ordered to pay employees unpaid wages. However, it was granted clearance by the SEC to cease operations, by virtue of which, AC Ransom did not pay the claims of the workers. Writ of execution against AC Ransom were issued but to no avail. The union, filed another writ of execution praying that the veil of corporate fiction be pierced.

Issue:Whether or not the veil of corporate fiction may be pierced

Held:YES. Sale of corporate assets to another corporation organized previously by the same officers of the vendor and engaged in the same line of business, using the machineries of the vendor in the same factory, is an instance where corporate veil should be pierced, vis a vis claim of the laborers for backwages.

22. Shoemart Inc. v. NLRCGR NO.

Facts:Majority of the employees of Moris Industries, Inc. were members of Moris Industries Workers Union (Union for brevity). The Union affiliated itself with PAFLU.The union through a letter invited Moris to enter into negotiations for a collective bargaining agreement. However, after two days, Moris suddenly closed shop and ceased operations, claiming that such closure was due to business reverses.As a result, the Union filed a complaint for unfair labor practice; Shoemart was impleaded together with its president Henry Sy, it was argued that since Shoemart is the exclusive buyer of all of Moris’ products and both are housed in one building, and more importantly that the incorporators and directors of Moris are the major stockholders of Shoemart, the two therefore should be treated as one and the same.Shoemart and Mr. Sy moved for the dismissal of the complaint on the ground of lack of jurisdiction, there being no employment relationship

between Shoemart and the Union members; that its corporate relationship was separate and distinct from that of Moris.

LA ruled that since Moris is owned by the Sy family, Shoemart is liable for the claims against Moris. NLRC affirmed.

Issue:Whether or not Shoemart is equally liable with Moris for unfair labor practice, illegal termination of employment and non payment of the benefits to the employees.

Held:YES, THE SEPARATE JURIDICAL PERSONALITIES MAY BE DISREGARDED. The Court took into account the close relationship between the parties. An examination of the Incorporation Papers of Shoe mart and Moris show that except for one all incorporators and directors of Moris are major stockholders of Shoe Mart. Both are housed in one building, and that the former is the exclusive buyer of the latter. In disregarding their separate juridical personalities, Shoe mart can not be compelled to open a manufacturing company to accommodate the displaced employees of Moris considering the obvious difference and diversity in skills, experience and orientation between the two corporations.

23. Reynoso v. Court of AppealsGR NO

Facts:Reynoso was assigned as the resident manager of the franchise company of Commercial Credit Corporation (CCC) in Quezon City (CCC-QC). CCC formed CCC-Equity Corporation (CCC- Equity), a wholly owned subsidiary, to which CCC transferred its 30% equity in CCC- QC, together with two seats in the latter’s Board of Directors.Under the new set up, employees including Reynoso from CCC-QC became the employees of CCC- Equity. While Reynoso continued to be the manager of CCC-QC, he drew his salaries and allowandes from CCC- Equity, furthermore, he together with the rest of the employees from CCC- Qc became qualified members of the CCC Employees Pension Plan.Reynoso was dismissed from CCC- Equity for alleged embezzlement. A Complaint for sum of money was filed by against him, it was alleged that

Reynoso embezzled the funds of CCC- QC and to use the same to purchase a house. Reynoso for his part, filed a counter claim for damages. The then CFI, dismissed the complaint and granted the counterclaim. The judgment however was unsatisfied; the court then issued an alias writ of execution against General Credit Corporation (GCC), the new name of CCC.The CA nullified the lower court’s finding.

Issue:Whether the subsidiary may be considered as separate and distinct from the mother corporation in the case at bar.

Held: YES, BY WAY OF EXCEPTION. The defense of separateness will be disregarded where the business affairs of the subsidiary corporation are so controlled by the mother corporation to the extent that it becomes an instrument or agent. A subsidiary is considered a mere instrumentality of the parent company; if the laters determines the personnel, administrative, finance policies, hires the employees and funds the operations of the former. The manager of subsidiary could therefor enforce his claim against the parent company even though his employment is with the subsidiary.

24. Lipat v. Pacific Banking CorporationGR NO

Facts:The Lipats owned “Bela’s Export Trading” (BET) a single proprietorship, managed by their daughter; apart from which the spouses also owned “Mystical Fashions” in the United States.Estelita Lipat executed SPA appointing Teresita, her daughter as the attorney- in- fact to obtain loans and execute mortgage on properties they co- own. Teresita obtained a loan secured by a real estate mortgage over the spouses’ property; said property also secured additional loans. Further, Teresita also issued promissory notes and entered into Trust Receipt agreement in behalf of BET.Later on, BET was incorporated into a family corporation names Bela’s Export Corporation (BEC) which was engaged in the same kind of business, utilized the same machineries and equipment.

The loans were restructured in the name of BEC. BEC defaulted in its obligations; the mortgaged was foreclosed and sold at public auction. A certificate of sale was issued to Trinidad as the highest bidder. The Lipats filed an action to annul the mortgage, on the ground that the promissory notes, trust receipts and export bills were all ultra vires acts of Teresita as they were executed without board resolution, and that assuming said acts were valid, the same were the corporation’s sole obligation, it having a personality distinct and separate from spouses Lipat.RTC ruled that since BEC was a family corporation, it was a mere alter extension of the spouses’ personality and business and a mere alter ego or business conduit of the Lipats established for their own benefit. CA affirmed and found that the corporation’s by laws even allowed Teresita to secure loans without a board resolution.

Issue:Whether the loan of a single proprietorship can be considered as loan of the corporation

Held:YES. When the corporation is the mere alter ego or business conduit of a person, the separate personality of the corporation may be disregarded. This is commonly referred to as the “instrumentality rule” or the “alter ego doctrine”, which the courts have applied in disregarding the separate juridical personality of corporations. Where the owner of the business operating as a single proprietorship authorized her daughter to constitute a mortgage on the proprietor’s property to secure a loan and the single proprietorship was eventually formed into a corporation, the loans incurred by the single proprietor should be considered obligations of the corporation where the proprietor and her husband are the majority shareholders of the corporation; both firms were managed by their daughter, engaged in the same business and held office in the same building owned by the spouses; and the corporation benefited from said loans, then the corporation should be treated as a conduit of and having merely succeeded in the single proprietorship. Thus, the obligations under the mortgage contract secured under the name of the corporation cannot be evaded on the pretext that it was signed for the benefit of the and under the name of the single proprietorship only.

25. Times Transportation Company, Inc. v. SoteloGR NO.

Facts:Times Employees Union (TEU) held a strike as a response to Times’ alleged attempt to forma rival union and its dismissal of the employees identified to be active union members. Times allegedly terminated the workers, and while the Secretary of Labor issued a return to work order, the employees were no longer admitted back to work. In the middle of the labor dispute, Mencorp Transport Systems Inc. acquired ownership over Times’ certificate of public convenience.Mencorp is controlled and operated by Mrs. Mendoza, daughter of Santiago Rondaris, the majority stockholder of Times.The Labor Arbiter ordered reinstatement and payment of backwages by Mencorp.

Issue:Whether the veil of corporate fiction may be pierced

Held:YES. Piercing the corporate veil is warranted of in the middle of a labor dispute, a corporation sold its franchise to a company controlled by the daughter of the controlling shareholder of the assignor corporation where daughter is also a director. It is evident that the transaction was made in order to remove the corporation’s remaining assets from the reach of any judgment that may be rendered in the unfair labor practice case filed against it.

26. Apex Mining Co., Inc. v. Southeast Mindanao Gold Mining Corp.GR NO

Facts:In 1983, Camilo Banad with the natives established the Balite Communal Portal Mining Corp.; in the same year, it entered into an operating agreement with Apex. Marcoper Mining Corp (MMC) was granted a permit, EP 133, which embraced the areas claimed by Apex. The terms of the permit prohibit the assignment thereof except in favor of an agent and the corporation, as holder of the mining claim. Marcoper likewise filed for the cancellation of the mining claims of Apex. The Bureau of Mines and Geo. Science (BMG), dismissed MMC’s petition.

When the case reached the DENR, it ruled that MMC’s EP 133 is valid. The MR was denied. The SC held that proper process should have been followed, that application for permit should have been filed with the Bureau of Forest Development (BFD) and not with the BMC.In 1991, DENR issued DAO 66, declaring a portion of the contested area open to all small scale mining purpose.In 1994 a certain Villaflor filed a petition for the cancellation of EP 133. In the same year and prior to the permit’s expiration, MMC assigned EP 133 to Southeast Mindanao Mining Corp (SEM)- a domestic corporation alleged to be a 100% owned subsidiary of MMC.The lower court ruled the EP 133 is valid.On appeal the CA invoked the doctrine of piercing the corporate veil to legitimize the prohibited transfer, it stressed that SEM is just a business conduit of MMC; hence the distinct legal personality should not be recognized.

Issue: Whether the veil of corporate fiction may be pierced

Held:NO. Where the terms of the mining claim prohibit the assignment thereof except in favor of an agent and the corporation, as holder of the mining claim, transferred its right to a wholly—owned subsidiary, the separate legal personality of the subsidiary can not be pierced so that the latter shall be considered a mere conduit or agent of the parent company to legitimize the prohibited transfer. The doctrine of piercing the corporate veil cannot be used as a vehicle to commit prohibited acts because these acts are the ones which the doctrine seeks to prevent. To allow the subsidiary to avail itself of this doctrine and to approve the validity of the assignment is tantamount to sanctioning illegal act which is what the doctrine precisely seeks to forestall.

27. GCC v. Alson Development and Investment CorporationGR NO.

Facts:General Credit Corporation (GCC) established CCC franchise companies in different parts of the country. GCC applied for and was granted licenses from the CB and SEC to enable it to engage in quasi- banking activities. Subsequently, CCC Equity Corporation

(EQUITY) was organized by GCC; to take over the operations and management of the various franchise companies. Alson Development and Investment Corporation (Alsons) and the Alcantara family owned shares in the GCC franchise companies which they eventually sold to EQUITY. EQUITY issued promissory notes as payment. Later on, the Alcantara family assigned its rights over the PNs to Alsons.EQUITY failed to pay the PNs upon maturity, this prompted Alsons to file a complaint for sum of money against EQUITY, GCC was impleaded as party- defendant on the ground that EQUITY was organized as a tool and mere conduit of GCC.RTC ruled in favour of Alsons, holding EQUITY and GCC solidarily liable. CA affirmed.

Issue:Whether Alsons could enforce payment of the PN of EQUITY against GCC

Held:YES. Commonality of directors, officers and stockholders and even sharing of office between GCC and EQUITY; certain financing and management arrangements between the two, allowing GCC to handle the funds of the latter; virtual domination if not control wielded by GCC over the finances, business policies and practices of EQUITY; and the establishment of EQUITY by GCC to circumvent CB rules are circumstances which justify the conclusion that EQUITY is just an instrumentality of GCC. Thus, Alsons could enforce payment of the PN even against GCC.

Note:Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved.There are three basic areas where piercing the veil of corporate fiction may be allowed; these are:

1. DEFEAT OF PUBLIC CONVENIENCE, as when the corporate fiction is used as vehicle for the evasion of an existing obligation;

2. FRAUD TEST, when the corporate entity is used to justify a wrong, protect fraud or defend a crime; or

3. ALTER EGO TEST, where a corporation is merely a farce since it is a mere alter ego or a 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 or conduit or adjunct of another corporation

28. Sta. Monica Industrial v. The DAR Regional DirectorGR NO.

Facts:Trinidad owned five parcels of land in Bulacan. De Guzman was the agricultural leasehold tenant of Trinidad. The two signed a leasehold contract, by virtue of which a Certificate of Land Transfer was issued in favour of De Guzman.De Guzman filed a petition for the issuance of patent in his name with the Regional Director which was granted.A year later, Sta. Monica filed a petition claiming that the said landholding was sold to the corporation. Sta. Monica was organized by Trinidad, the family owned and controlled the same.Sta. Monica’s petition was dismissed; MR was likewise denied.

Issue:Whether the doctrine of corporate fiction should be applied

Held:YES. The sale of agricultural land covered by the agrarian reform law by the owner to a corporation owned and controlled by the same owner and his family is null and void. The corporate vehicle can not be used to shield the owner from the agricultural claims of the tenant- beneficiary. The veil of corporate fiction should be pierced when it is used to subvert public policy.

29. Spouses Violago v. BA Finance GroupGR NO.

Facts: Avelino Violago, President of Violago Motor Sales Corporation (VMSC) sold a car to his cousin Pedro and his wife. The spouses and Avelino signed a PN under which they bound themselves to pay jointly and severally to the order of VMSC, the spouses likewise executed a chattel mortgage over the car as security.VMSC, though Avelino endorsed the PN to BA Finance without recourse. After receiving a certain amount VMSC assigned its rights over the PN and

CM in favour of BA Finance. Meanwhile, the spouses remitted the down payment to VMSC.The spouses were unaware that the same car had already been sold to another cousing of Avelino, Esmeraldo. Despite the spouses’ demand for the vehicle and Avelino’s repeated assurances, there was no delivery made, this prompted the spouses to not pay any monthly amortization to BA Finance.BA Finance for its part, filed a complaint against the spouses; the RTC ruled in its favour.In the meantime, Esmeraldo conveyed the vehicle to a certain Jose Olvido, the latter executed a CM over the vehicle in favour of Lopez as security for a loan, the PN of which was later endorsed to BA Finance.CA nullified the RTC decision.

Issue:Whether the veil of corporate fiction may be invoked and sustained despite the fraud and deception of Avelino

Held:NO. the facts of the case show that Avelino clearly defrauded the petitioners. His actions were the proximate cause of petitioners’ loss; he can not now hide behind the separate corporate personality of VMSC to escape from the liability for the amount adjudged by the trial court in favour of the petitioners.

NOTE:CONTROL TEST is one of the tests applied to determine the applicability of the doctrine of piercing the veil of corporate fiction; it is allowed when the following requisites are complied with:

1. CONTROL, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust acts in contravention of plaintiff’s legal rights; and

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

30. Siain Enterprises Inc. v. Cupertino Realty Inc. Co.GR NO 170782 June 22, 2009Nachura, J.:

Facts:Cua Le Leng was the president and majority stockholder of three affiliated companies Siain Enterprises Inc. (SIAIN), Yuyek Manufacturing Corporation and SIAIN Transport Inc. As President of SIAIN, Cua Le Leng obtained a loan from Cupertino Realty Corporation (CUPERTINO) which was secured by a PN. The proceeds of the loan were divided among the three affiliated companies despite the fact that it was obtained in the name of SIAIN.As additional security SIAIN executed a Real Estate Mortgage (REM). Contract of pledge was likewise executed over the properties registered in the name of the two affiliate companies in the event of non payment. Dispute arose between SIAIN and CUPERTINO as to whether the proceeds of the loan were released.In the meantime, CUPERTINO was already making arrangements with the Notary Public for the extrajudicial sale of the mortgaged properties.SIAIN filed a complaint with a prayer to restrain the Notary Public from proceeding with the public auction. Petitioner insisted that it never received the proceeds of the loan, CUPERTINO claimed otherwise

Issue:Whether or not ), Yuyek Manufacturing Corporation and SIAIN Transport Inc. may be held liable for the loan obligation incurred in the name of SIAIN Enterprise

Held:YES. It is clear from the records among others, that the three corporations are characterized by oneness of operations vested in the person of their common president, Cua Le Leng.The conjunction of identity of three companies has been indubitably shown:

1. SIAIAN and Yuyek have a common set of incorporators, stockholders and board of directors;

2. They have the same internal book keeper and accountant;3. They have the same office address;4. They have the same majority stockholders and President5. In relation to SIAIN Transport, Cua Le Leng ha the unlimited

authority without authority from the Board to use the funds of

SIAIN Transport to pay the obligation incurred by petitioner corporation.

When two corporations are characterized by oneness of operations vested in the person of their common president and unity in the keeping and maintenance of their corporate books and records through their common accountant and bookkeeper, loans obtained by these corporations together with their controlling shareholders shall be treated as one. Thus, even though the mortgage of record is only one of the corporations, their properties may be foreclosed to answer for all the loan obligations of the corporations, their controlling shareholding and all those who received certain amount of the loan for the account of the former.