Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
NLRC
(G.R. No. 110358, Nov. 9, 1994)
RULING
No. Petitioners contend that public respondent, NLRC, erred in setting aside the Labor Arbiter’s judgment on the ground
that BASEC is the same entity as BSPA the latter being owned and controlled by one and the same family, the Bacani
family. For this reason they urge that corporate fiction should be disregarded and BASEC should be held liable for the
obligations of the defunct BSPA. As correctly found by the NLRC, BASEC is an entity separate and distinct from that of
BSPA. BSPA is a single proprietorship owned and operated by Felipe Bacani. Hence, its debts and obligations were the
personal obligations of its owner. Petitioner’s claims, which are based on these debts and personal obligations, did not
survive the death of Felipe Bacani on Jan. 15, 1990 and should have been filed instead in the intestate proceedings
involving his estate.
Case outline: Republic of the Philippines v. Sandiganbayan, Major General Josephus Q. Ramas, Elizabeth Dimaano –
G.R. No. 104768
The Case
Republic of the Philippines v. Sandiganbayan, Major General Josephus Q. Ramas, Elizabeth Dimaano – G.R.
No. 104768
Before this Court is a petition for review on certiorari seeking to set aside the Resolutions of the
Sandiganbayan (First Division) dated 18 November 1991 and 25 March 1992 in Civil Case No. 0037.
The first Resolution dismissed petitioners (Republic of the Philippines) Amended Complaint and ordered the
return of the confiscated items to respondent Elizabeth Dimaano, while the second Resolution denied
petitioners (Republic of the Philippines) Motion for Reconsideration.
Petitioner prays for the grant of the reliefs sought in its Amended Complaint, or in the alternative, for
the remand of this case to the Sandiganbayan (First Division) for further proceedings allowing petitioner to
complete the presentation of its evidence.
Statement of Facts
Presidential Commission on Good Governance (PCGG)
President Corazon C. Aquino, immediately upon assuming Malacañang, enacts Executive Order 1 (EO No. 1) or
the Presidential Commission on Good Governance (PCGG). It is mandated to recover all ill-gotten wealth of
former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates.
(a) to conduct investigation as may be necessary in order to accomplish and carry out the purposes of this
order and the power
(h) to promulgate such rules and regulations as may be necessary to carry out the purpose of this order.
Accordingly, the PCGG, through its then Chairman Jovito R. Salonga, created an AFP Anti-Graft Board (AFP Board)
tasked to investigate reports of unexplained wealth and corrupt practices by AFP personnel, whether in the
active service or retired.
AFP Board
The AFP Board, in line with its mandate, investigates Major General Q. Josephus Ramas.
On July 1987, the AFP Board issues a resolution and findings on Ramas’ alleged ill gotten wealth. It submits the
following findings:
Evidence in the record showed that respondent is the owner of a house and lot located at 15-Yakan St., La
Vista, Quezon City. The aforementioned property in Quezon City may be estimated modestly at P700,000.00.
He is also the owner of a house and lot located in Cebu City. The lot has an area of 3,327 square meters.
Communication equipment and facilities are found in the premises of Elizabeth Dimaano, a Confidential
Agent of the Military Security Unit, and are confiscated by elements of the PC Command of Batangas.
These items could not have been in the possession of Elizabeth Dimaano if not given for her use by
respondent Commanding General of the Philippine Army.
Aside from the military equipment/items and communications equipment, the raiding team was also able to
confiscate money in the amount of P2,870,000.00 and $50,000 US Dollars in the house of Elizabeth Dimaano
on 3 March 1986.
Aside from the military equipment/items and communications equipment, the raiding team was also able to
confiscate money in the amount of P2,870,000.00 and $50,000 US Dollars in the house of Elizabeth Dimaano
on 3 March 1986.
Elizabeth Dimaano is allegedly Major General Q. Josephus Ramas’ mistress. She does not have any means to
acquire the communications equipment as well as the aforementioned money.
The AFP Board finds a prima facie case against Major General Josephus Ramas for ill gotten wealth and
unexplained wealth in the amount of P2,974,134.00 and $50,000 US Dollars.
Decision: It is recommended that Maj. Gen. Josephus Q. Ramas (ret.) be prosecuted and tried for violation of RA
3019, as amended, otherwise known as Anti-Graft and Corrupt Practices Act and RA 1379, as amended,
otherwise known as The Act for the Forfeiture of Unlawfully Acquired Property.
On 1 August 1987, the PCGG filed a petition for forfeiture under Republic Act No. 1379 (RA No. 1379) against
Ramas.
Amended Complaint: Amended Complaint further alleged that Ramas acquired funds, assets and properties
manifestly out of proportion to his salary as an army officer and his other income from legitimately acquired
property by taking undue advantage of his public office and/or using his power, authority and influence as such
officer of the Armed Forces of the Philippines and as a subordinate and close associate of the deposed President
Ferdinand Marcos.
The Amended Complaint also alleged that the AFP Board, after a previous inquiry, found reasonable ground to
believe that respondents have violated RA No. 1379. The Amended Complaint prayed for, among others, the
forfeiture of respondents properties, funds and equipment in favor of the State.
Ramas’ Answer:
Ramas contends that his property consisted only of a residential house at La Vista Subdivision, Quezon City,
valued at P700,000, which was not out of proportion to his salary and other legitimate income.
He denies ownership of any mansion in Cebu City and the cash, communications equipment and other items
confiscated from the house of Dimaano.
Dimaano filed her own Answer to the Amended Complaint. Admitting her employment as a clerk-typist in the
office of Ramas from January-November 1978 only, Dimaano claimed ownership of the monies, communications
equipment, jewelry and land titles taken from her house by the Philippine Constabulary raiding team.
The Sandiganbayan
On 13 April 1989, petitioner filed a motion for leave to amend the complaint in order to charge the delinquent
properties with being subject to forfeiture as having been unlawfully acquired by defendant Dimaano alone x x x.
Petitioner fails to present witnesses and delays the court for over a year.
on 18 May 1990, petitioner again expressed its inability to proceed to trial because it had no further evidence to
present. Again, in the interest of justice, the Sandiganbayan granted petitioner 60 days within which to file an
appropriate pleading. The Sandiganbayan, however, warned petitioner that failure to act would constrain the
court to take drastic action.
Private respondents then filed their motions to dismiss based on Republic v. Migrino.The Court held in Migrino
that the PCGG does not have jurisdiction to investigate and prosecute military officers by reason of mere position
held without a showing that they are subordinates of former President Marcos.
Dispositive: WHEREFORE, judgment is hereby rendered dismissing the Amended Complaint, without
pronouncement as to costs. The counterclaims are likewise dismissed for lack of merit, but the confiscated sum
of money, communications equipment, jewelry and land titles are ordered returned to Elizabeth Dimaano.
The records of this case are hereby remanded and referred to the Hon. Ombudsman, who has primary
jurisdiction over the forfeiture cases under R.A. No. 1379, for such appropriate action as the evidence warrants.
This case is also referred to the Commissioner of the Bureau of Internal Revenue for a determination of any tax
liability of respondent Elizabeth Dimaano in connection herewith.
(1.) The actions taken by the PCGG are not in accordance with the rulings of the Supreme Court in Cruz, Jr. v.
Sandiganbayan[10] and Republic v. Migrino[11] which involve the same issues.
(2.) No previous inquiry similar to preliminary investigations in criminal cases was conducted against Ramas
and Dimaano.
(3.) The evidence adduced against Ramas does not constitute a prima facie case against him.
(4.) There was an illegal search and seizure of the items confiscated.
Issues
1. PCGG’s Jurisdiction to Investigate Private Respondents
2. Propriety of Dismissal of Case Before Completion of Presentation of Evidence — Petitioner also contends
that the Sandiganbayan erred in dismissing the case before completion of the presentation of petitioners
evidence.
3. Third Issue: Legality of the Search and Seizure — Petitioner claims that the Sandiganbayan erred in declaring
the properties confiscated from Dimaanos house as illegally seized and therefore inadmissible in evidence.
This issue bears a significant effect on petitioners case since these properties comprise most of petitioners
evidence against private respondents. Petitioner will not have much evidence to support its case against
private respondents if these properties are inadmissible in evidence.Ruling
1. First issue:
The PCGG, through the AFP Board, can only investigate the unexplained wealth and corrupt practices of AFP
personnel who fall under either of the two categories mentioned in Section 2 of EO No. 1. These are: (1) AFP
personnel who have accumulated ill-gotten wealth during the administration of former President Marcos by
being the latters immediate family, relative, subordinate or close associate, taking undue advantage of their
public office or using their powers, influence x x x; or (2) AFP personnel involved in other cases of graft and
corruption provided the President assigns their cases to the PCGG.
Ramas case should fall under the first category of AFP personnel before the PCGG could exercise its jurisdiction
over him. Petitioner argues that Ramas was undoubtedly a subordinate of former President Marcos because of
his position as the Commanding General of the Philippine Army. Petitioner claims that Ramas position enabled
him to receive orders directly from his commander-in-chief, undeniably making him a subordinate of former
President Marcos.
We hold that Ramas was not a subordinate of former President Marcos in the sense contemplated under EO No.
1 and its amendments.
Mere position held by a military officer does not automatically make him a subordinate as this term is used in EO
Nos. 1, 2, 14 and 14-A absent a showing that he enjoyed close association with former President Marcos.
Second issue:
Based on the findings of the Sandiganbayan and the records of this case, we find that petitioner has only itself to
blame for non-completion of the presentation of its evidence. First, this case has been pending for four years
before the Sandiganbayan dismissed it.
Third issue:
On 3 March 1986, the Constabulary raiding team served at Dimaanos residence a search warrant captioned
Illegal Possession of Firearms and Ammunition. Dimaano was not present during the raid but Dimaanos cousins
witnessed the raid. The raiding team seized the items detailed in the seizure receipt together with other items
not included in the search warrant. The raiding team seized these items: one baby armalite rifle with two
magazines; 40 rounds of 5.56 ammunition; one pistol, caliber .45; communications equipment, cash consisting of
P2,870,000 and US$50,000, jewelry, and land titles.
Petitioner wants the Court to take judicial notice that the raiding team conducted the search and seizure on
March 3, 1986 or five days after the successful EDSA revolution. Petitioner argues that a revolutionary
government was operative at that time by virtue of Proclamation No. 1 announcing that President Aquino and
Vice President Laurel were taking power in the name and by the will of the Filipino people. Petitioner asserts
that the revolutionary government effectively withheld the operation of the 1973 Constitution which
guaranteed private respondents exclusionary right.
Moreover, petitioner argues that the exclusionary right arising from an illegal search applies only beginning 2
February 1987, the date of ratification of the 1987 Constitution. Petitioner contends that all rights under the Bill
of Rights had already reverted to its embryonic stage at the time of the search. Therefore, the government may
confiscate the monies and items taken from Dimaano and use the same in evidence against her since at the time
of their seizure, private respondents did not enjoy any constitutional right.
The correct issues are: (1) whether the revolutionary government was bound by the Bill of Rights of the 1973
Constitution during the interregnum, that is, after the actual and effective take-over of power by the
revolutionary government following the cessation of resistance by loyalist forces up to 24 March 1986
(immediately before the adoption of the Provisional Constitution); and (2) whether the protection accorded to
individuals under the International Covenant on Civil and Political Rights (Covenant) and the Universal
Declaration of Human Rights (Declaration) remained in effect during the interregnum.
We hold that the Bill of Rights under the 1973 Constitution was not operative during the interregnum. However,
we rule that the protection accorded to individuals under the Covenant and the Declaration remained in effect
during the interregnum.
During the interregnum, the directives and orders of the revolutionary government were the supreme law
because no constitution limited the extent and scope of such directives and orders. With the abrogation of the
1973 Constitution by the successful revolution, there was no municipal law higher than the directives and orders
of the revolutionary government. Thus, during the interregnum, a person could not invoke any exclusionary right
under a Bill of Rights because there was neither a constitution nor a Bill of Rights during the interregnum.
As the Court explained in Letter of Associate Justice Reynato S. Puno:A revolution has been defined as the
complete overthrow of the established government in any country or state by those who were previously subject
to it or as a sudden, radical and fundamental change in the government or political system, usually effected with
violence or at least some acts of violence. In Kelsen’s book, General Theory of Law and State, it is defined as that
which occurs whenever the legal order of a community is nullified and replaced by a new order . . . a way not
prescribed by the first order itself.
During the interregnum, the government in power was concededly a revolutionary government bound by no
constitution. No one could validly question the sequestration orders as violative of the Bill of Rights because
there was no Bill of Rights during the interregnum. However, upon the adoption of the Freedom Constitution,
the sequestered companies assailed the sequestration orders as contrary to the Bill of Rights of the Freedom
Constitution.
The revolutionary government did not repudiate the Covenant or the Declaration during the interregnum.
Whether the revolutionary government could have repudiated all its obligations under the Covenant or the
Declaration is another matter and is not the issue here. Suffice it to say that the Court considers the Declaration
as part of customary international law, and that Filipinos as human beings are proper subjects of the rules of
international law laid down in the Covenant. The fact is the revolutionary government did not repudiate the
Covenant or the Declaration in the same way it repudiated the 1973 Constitution. As the de jure government,
the revolutionary government could not escape responsibility for the States good faith compliance with its treaty
obligations under international law.
During the interregnum when no constitution or Bill of Rights existed, directives and orders issued by
government officers were valid so long as these officers did not exceed the authority granted them by the
revolutionary government. The directives and orders should not have also violated the Covenant or the
Declaration. In this case, the revolutionary government presumptively sanctioned the warrant since the
revolutionary government did not repudiate it. The warrant, issued by a judge upon proper application,
specified the items to be searched and seized. The warrant is thus valid with respect to the items specifically
described in the warrant.
It is obvious from the testimony of Captain Sebastian that the warrant did not include the monies,
communications equipment, jewelry and land titles that the raiding team confiscated. The search warrant did
not particularly describe these items and the raiding team confiscated them on its own authority. The raiding
team had no legal basis to seize these items without showing that these items could be the subject
of warrantless search and seizure. Clearly, the raiding team exceeded its authority when it seized these
items.The seizure of these items was therefore void, and unless these items are contraband per se, and they are
not, they must be returned to the person from whom the raiding seized them. However, we do not declare that
such person is the lawful owner of these items, merely that the search and seizure warrant could not be used as
basis to seize and withhold these items from the possessor. We thus hold that these items should be returned
immediately to Dimaano.
The Dispositive
WHEREFORE, the petition for certiorari is DISMISSED. The questioned Resolutions of the Sandiganbayan dated 18
November 1991 and 25 March 1992 in Civil Case No. 0037, remanding the records of this case to the Ombudsman for
such appropriate action as the evidence may warrant, and referring this case to the Commissioner of the Bureau of
Internal Revenue for a determination of any tax liability of respondent Elizabeth Dimaano, are AFFIRMED.
im vs Court of Appeals
323 SCRA 102 [GR No. 124715 January 24, 2000]
Facts: Petitioner Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim whose estate is the subject of probate
proceedings in special proceedings Q-95-23334 entitled, “In re: Intestate Estate Of Pastor Y. Lim Rufina Luy Lim,
represented by George Luy, petitioner.” Private respondents auto truck corporation, alliance marketing corporation,
speed distributing inc, active distributing inc, and action company are corporations formed, organized and existing under
Philippine laws and which owned real properties covered under the Torrens system. On June 11, 1994, Pastor Y. Lim died
intestate. Herein petitioner, as surviving spouse and duly represented by her nephew, George Luy filed on March 17,
1995, a joint petition for the administration of the estate of Pastor Y. Lim before the Regional Trial Court of Quezon City.
Private respondents corporations whose properties were included in the inventory of the estate of Pastor Y. Lim, then
filed a motion for the lifting of his pendens an motion for exclusion of certain properties fromthe estate of the decedent.
Issue: Whether or not the doctrine of piercing the veil of corporate entity is applicable to be able to include in the
probate proceedings the company formed by deceased Pastor Y. Lim.
Held: No. It is settled that a corporation is clothed with personality separate and distinct from that of the persons
composing it. It may not generally be held liable for that of the persons composing it. It may not be held liable for the
personal indebtedness of its stockholders or those of the entities connected with it.
Rudimentary is the rule that a corporation is invested by law with a personality distinct and separate from its
stockholders or members. In the same vein, a corporation by legal fiction and convenience is an entity shielded by
protective mantle and imbued with by law with a character alien to the persons comprising it.
Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its
stockholders from liabilities that ordinarily, they could subject to, or distinguishes one corporation from a seemingly
separate one, were it not for the existing corporate fiction.
The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a
person or of another corporation. Where badges of fraud exist, where public convenience is defeated; where a wrong is
sought to be justified thereby, the corporate fiction or the notion of the legal entity should come to naught.
Further, the test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1.)
Control, not merely the 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 so separate mind, will or existence of its own; 2.) Such control must have been used by the defendant to commit
fraud on wrong to perpetuate the violation of a statutory or other positive legal duty, on dishonest and unjust act in
contravention of plaintiffs legal right; and 3.) The aforesaid control and breach of duty must proximately cause the injury
or unjust loss complained of. The absence of any of these elements prevent “piercing the corporate veil.”
Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation
is not of itself a sufficient reason for disregarding the fiction of separate personalities.
Moreover, to disregard the separate juridical personality of a corporation, the wrong doing must be clearly and
convincingly established, it cannot be presumed.
In the evening of April 6, 1992, the machinery, equipment and materials being used for production at Complex were
pulled-out from the company premises and transferred to the premises of Ionics Circuit, Inc. at Cabuyao, Laguna. The
following day, a total closure of company operation was effected at Complex.
A complaint was, thereafter, filed with the Labor Arbitration Branch of the NLRC for unfair labor practice, illegal
closure/illegal lockout, money claims for vacation leave, sick leave, unpaid wages, 13th month pay, damages and
attorney's fees. Ionics was impleaded as a party defendant because the officers and management personnel of Complex
were also holding office at Ionics with Lawrence Qua as the President of both companies.
Ionics contended that it was an entity separate and distinct from Complex and had been in existence since July 5, 1984 or
eight (8) years before the labor dispute arose at Complex. Like Complex, it was also engaged in the semi-conductor
business where the machinery, equipment and materials were consigned to them by their customers. While admitting
that Lawrence Qua, the President of Complex was also the President of Ionics, the latter denied having Qua as their
owner since he had no recorded subscription of P1,200,000.00 in Ionics as claimed by the Union.
ISSUE
Whether there is a clear ground to pierce the veil of corporate fiction and whether Lawrence Qua should be held liable
for the alleged illegal transfer of machineries of Complex to Ionics.
RULING
It is settled that in the absence of malice or bad faith, a stockholder or an officer of a corporation cannot be made
personally liable for corporate liabilities. The fact that the pull-out of the machinery, equipment and materials was
effected during night-time is not per se an indicia of bad faith on the part of respondent Qua since he had no other
recourse, and the same was dictated by the prevailing mood of unrest as the laborers were already vandalizing the
equipment, bent on picketing the company premises and threats to lock out the company officers were being
made. Such acts of respondent qua were, in fact, made pursuant to the demands of Complex's customers who were
already alarmed by the pending labor dispute and imminent strike to be stage by the labourers, to have their equipment,
machinery and materials pull out of Complex. As such, these acts were merely done pursuant to his official functions
and were not, in any way, made with evident bad faith.
As to the juridical personality of the corporations, Ionics may be engaged in the same business as that of Complex, but
this fact alone is not enough reason to pierce the veil of corporate fiction of the corporation. Well-settled is the rule that
a corporation has a personality separate and distinct from that of its officers and stockholders. Likewise, mere ownership
by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality.
Facts:
General Bank and Trust Company was declared insolvent by the Central Bank and subjected it to liquidation. A
public bidding followed, which was bought by the highest bidder, Lucio Tan. Thereafter, the government, represented by
then Solicitor General, Estelito Mendoza, filed a petition with the trial court praying for the assistance and supervision of
the court in GENBANK’s liquidation docketed as Special Proceeding No. 107812.
After the end of the Marcos administration, and the election of Corazon Aquino as president, Presidential
Commision on Good Governance (PCGG) was formed to recover the alleged ill-gotten wealth of the Marcos family and
his cronies.
One of the first civil cases filed by the PCGG in the Sandiganbayan was a complaint for reversion, reconveyance,
restitution, accounting and damages against respondents Tan et al. and the then First Couple, Ferdinand and Imelda
Marcos together with several others.
By the time Civil Cases Nos. 0005 and 0096-0099 were filed, Estelito Mendoza has returned to his private life
together into the private practice of law. He was engaged as counsel for respondents Tan, et al. and thereafter filed
petitions for certiorari, prohibition and injunction to annul the writs of sequestration issued by the PCGG.
This led to the filing of several motions by the PCGG to disqualify Mendoza from the cases he was representing
for the respondents, alleging that as former Solicitor General, he actively intervened in the liquidation proceedings of
GENBANK (currently Allied Bank) that was acquired by the same group of Tan et al.
The allegation of the government in its motions stresses that as former Solicitor General, and acting as counsel
for Central Bank, he advised the Central Bank’s officials on how to go about with the procedure of the liquidation. In
doing so, PCGG says that he violated Rule 6.03 of the Code of Professional Responsibility, prohibiting former government
lawyers from accepting engagement or employment in connection with any matter in which he had intervened while in
said service.
The Sandinbayan, through a resolution, denied the motion to disqualify which led to the filing of a petition for
certiorari and prohibition before the Supreme Court.
Issues:
Whether or not the definitions of “matter” and “intervene” as interpreted by the PCGG are the same as the definitions
contemplated by the Code of Professional Responsibility
And,
Whether or not Estelito Mendoza violated Rule 6.03 of the Code of Professional Responsibility in his engagement with
the civil cases involving Tan, et al.
Held:
NPC vs. CA
GR 124378
Facts: By virtue of Memorandum Order No. 398 - "Prescribing Measures to Preserve the Lake Lanao Watershed, To
Enforce the Reservation of Areas Around the Lake Below Seven Hundred And Two Meters Elevation, and for Other
Purposes.", petitioner herein built and operated the Agus Regulation Dam at the mouth of Agus River in Lanao del Sur, at
a normal maximum water level of Lake Lanao at 702 meters elevation in 1978. In 1986, private respondents fishponds
and other improvements were washed away when the water level of the lake escalated and the subject lakeshore area
was flooded. NPC refused to compensate them so they filed an action for damages, alleging that the negligence and
inexperience of NPC’s employees assigned to operate the Agus Regulation Dam were the proximate causes of the
damage caused to their properties and livelihood. NPC denied the allegations and alleged that: 1) the water level of Lake
Lanao never went beyond 702 meters, 2) their employees were not negligent, 3) private respondents fishponds were
located below the 702-water level, which is prohibited.
Ruling: Yes. By virtue of MO 398, NPC had two duties: 1) maintain the normal maximum lake elevation at 702 meters,
and 2) build benchmarks to warn the inhabitants in the area that cultivation of land below said elevation is forbidden.
Now upon ocular inspection by the lower courts, it was established that in the subject areas, the benchmarks as pointed
out by the NPC representative, could not be seen nor reached because they were totally covered with water. Thus, an
application of the doctrine of res ipsa loquitur, the thing speaks for itself, is proper. The doctrine states that: Where the
thing which causes injury is shown to be under the management of the defendant, and the accident is such as in the
ordinary course of things does not happen if those who have the management use proper care, it affords reasonable
evidence, in the absence of an explanation by the defendant, that the accident arose from want of care. In the case at
bar, the fact that the benchmarks could not be seen nor reached, is by itself, constitute proof that the water level did rise
above the benchmarks and inundated the properties in the area. Thus, In the absence of any clear explanation on what
other factors could have explained the flooding in the neighboring properties of the dam, it is fair to reasonably infer that
the incident happened because of want of care on the part of NPC to maintain the water level of the dam within the
benchmarks at the maximum normal lake elevation of 702 meters.
FACTS:
Filriters through a Detached Agreement transferred ownership to Philfinance a Central Bank Certificate of
Indebtedness. It was only through one of its officers by which the CBCI was conveyed without authorization from the
company. Petitioner and Philfinance later entered into a Repurchase agreement, on which petitioner bought
the CBCI from Philfinance. The latter agreed to repurchase the CBCI but failed to do so. When the petitioner tried to
have it registered in its name in the CB, the latter didn't want to recognize the transfer.
HELD:
The CBCI is not a negotiable instrument. The instrument provides for a promise to pay the registered owner
Filriters. Very clearly, the instrument was only payable to Filriters. It lacked the words of negotiability which should
have served as an expression of the consent that the instrument may be transferred by negotiation.
The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to
circulate as a substitute for money. Hence, freedom of negotiability is the touchstone relating to the protection of
holders in due course, and the freedom of negotiability is the foundation for the protection, which the law throws
around a holder in due course. This freedom in negotiability is totally absent in a certificate of indebtedness as it
merely acknowledges to pay a sum of money to a specified person or entity for a period of time.
The transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the
negotiable instruments law. The pertinent question then is—was the transfer of the CBCI from Filriters to
Philfinance and subsequently from Philfinance to TRB, in accord with existing law, so as to entitle TRB to have the
CBCI registered in its name with the Central Bank? Clearly shown in the record is the fact that Philfinance’s title
over CBCI is defective since it acquired the instrument from Filriters fictitiously. Although the deed of assignment
stated that the transfer was for ‘value received‘, there was really no consideration involved. What happened was
Philfinance merely borrowed CBCI from Filriters, a sister corporation. Thus, for lack of any consideration, the
assignment made is a complete nullity. Furthermore, the transfer wasn't in conformity with the regulations set by
the CB. Giving more credence to rule that there was no valid transfer or assignment to petitioner.
Umali vs Court of Appeals
189 SCRA 529 [GR No. 89561 September 13, 1990]
Facts: Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Mur Vda. de Castillo. The Castillo family are the owners
of parcel of land located in Lucena City which was given as security for a loan from the development Bank of the
Philippines (DBP) for their failure to pay the amortization, foreclosure of the said property was about to be initiated. This
problem was made known to Santiago Rivera, who proposed to them the conversion into subdivision of the four parcels
of land adjacent to the mortgaged property to raise the necessary fund. The idea was accepted by the Castillo family and
to carry out the project, a memorandum of agreement was executed by and between Slobec Realty and Development
Inc. represented by its president Santiago Rivera and Castillo family. In this agreement, Santiago Rivera obliged himself to
pay the Castillo family the sum of P70,000 immediately after the execution of the agreement and to pay additional
amount of P40,000 after the property has been converted into a subdivision. Rivera, with agreement approached Mr.
Modesto Cervantes, president of defendant Bormaheco and proposed to purchase from Bormaheco two tractors model
D7 and D8 subsequently a sales agreement was executed on December 28, 1970. On January 3, 1971, Slobec, through
Rivera, executed in favor of Bormaheco a chattel mortgage over the said equipment as security for the payment of the
aforesaid balance of P180,000. As further security of the aforementioned unpaid balance, Slobec obtained from
insurance corporation of the Philippines a security bond, with Insurance Corporation of the Philippines (ICP) as surety
and Slobec as principal, in favor of Bormaheco, as borne out of by Exhibit 8. The aforesaid surety bond was in turn
secured by an agreement of counter-guaranty with real estate mortgage executed by Rivera as President of Slobec and
Mauricia Mur Vda. de Castillo, Buenaflor Castillo Umali, Bertilla Castillo-Rada, Victoria Castillo, Marietta Castillo and
Leovina Castillo Jalbuena as mortgagors and insurance corporation of the Philippines as mortgagee. In this agreement,
ICP guaranteed the obligation of Slobec with Bormaheco in the amount of P180,000. In giving the bond, ICP required that
the Castillos mortgage to them the properties in question, namely, four parcels of land covered by TCT in the name of the
aforementioned mortgagors, namely TCT no. 13114, 13115, 13116, and 13117 all of the Register of Deeds of Lucena City.
Meanwhile, for violation of the terms and conditions of the counter-guaranty agreement, the properties of the Castillos
were foreclosed by ICP as the highest bidder with a bid of P285,212, a certificate of sale was issued by the provincial
sheriff of Lucena City and TCT over the subject parcels of land were issued.
Issue: Whether or not the foreclosure is proper so as to apply the doctrine of piercing the veil of corporate entity.
Held: No. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exists, the legal fiction
that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be
disregarded. In such cases, the corporation will be considered as a mere association of persons. The members or
stockholders of the corporation will be considered as the corporation, that is, liability will attach directly to the officers
and stockholders. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, on when it is made as a shield to confuse the legitimate issues or where a corporation is
the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs
are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.
In the case at bar, petitioners seek to pierce the veil of corporate entity of Bormaheco, ICP and PM parts, alleging that
these corporations employed fraud in causing the foreclosure and subsequent sale of the real properties belonging to
petitioners while we do not discount the possibility of existence of fraud in the foreclosure proceeding, neither are we
inclined to apply the doctrine invoked by petitioners in granting the relief sought. It is our considered opinion that
piercing the veil of corporate entity is not the proper remedy in order that the foreclosure proceeding may be declared a
nullity under the circumstances obtaining in the legal case at bar.
The mere fact, therefore, that the business 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.
ISSUE
1. Whether petitioner’s contention were correct as regards the piercing of the corporate veil.
2. Whether petitioners were correct in their contention that they should be respected as regards their occupancy since
they own an aliquot part of the corporation.
RULING
1.Petitioner’s contention to pierce the veil of corporate fiction is untenable. As aptly held by the court: “..The separate
personality of a corporation may ONLY be disregarded when the corporation is used as a cloak or cover for fraud or
illegality, or to work injustice, or when necessary to achieve equity or when necessary for the protection of creditors.”
2. As regards petitioners contention that they should be respected on their occupancy by virtue of an aliquot part they
own on the corporation as stockholders, it also fails to hold water. The court held that “properties owned by a
corporation are owned by it as an entity separate and distinct from its members. While shares of stocks are personal
property, they do not represent property of the corporation. 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 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 holder is not a co-owner or a tenant in common of the corporate property.”
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, Ramoso et al alleged that they 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.
Ramoso et al then 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.
HELD: No. Ramoso et al did not properly plead their cause. They merely alleged that CCC Equity is a conduit of GCC. As
found by the SEC en banc, Ramoso et al 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.
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. It was not shown that the
debts incurred by GCC were actually incurred in bad faith. Further, there is a pending case relating to the liability of
Ramoso et al as guarantors – that will be the proper forum to raise their respective liability as regards said debts.
ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION, petitioners, vs. RITA C. MEJIA, as Executrix of
Testate Estate of ANDREA CORDOVA VDA. DE GUTERREZ, respondent. G.R. No. 141617, August 14, 2001
GONZAGA-REYES,J.:
FACTS: Andrea Cordova Vda. de Gutierrez (Gutierrez) was the registered owner of a parcel of land in Camarin, Caloocan
City. Gutierrez and Cardale Financing and Realty Corporation (Cardale) executed a Deed of Sale with Mortgage relating to
the lots for the consideration of P800,000.00.
Owing to Cardale's failure to settle its mortgage obligation, Gutierrez filed a complaint for rescission of the contract.
However, Cardale, which was represented by petitioner Adalia B. Francisco (Francisco) in her capacity as Vice-President
and Treasurer of Cardale, lost interest in proceeding with the presentation of its evidence and the case lapsed into
inactive status for a period of about fourteen years.
In the meantime, the mortgaged parcels of land became delinquent in the payment of real estate taxes which culminated
in their levy and auction sale in satisfaction of the tax arrears. The highest bidder for the three parcels of land was
petitioner Merryland Development Corporation (Merryland), whose President and majority stockholder is Francisco.
Thereafter, Francisco filed an undated Manifestation to the effect that the properties subject of the mortgage had been
levied upon and sold at a tax delinquency sale. Francisco further claimed that the delinquency sale had rendered the
issues in Civil Case moot and academic.
Mejia, in her capacity as executrix of the Estate of Gutierrez, filed with the RTC of Quezon City a complaint for damages
with prayer for preliminary attachment against Francisco, Merryland and the Register of Deeds of Caloocan City.
The RTC held that plaintiff Mejia, as executrix of Gutierrez's estate, failed to establish by clear and convincing evidence
her allegations that Francisco controlled Cardale and Merryland and that she had employed fraud by intentionally
causing Cardale to default in its payment of real property taxes on the mortgaged properties so that Merryland could
purchase the same by means of a tax delinquency sale.
There are times when the corporate fiction will be disregarded: (1) where all the members or stockholders commit illegal
act; (2) where the corporation is used as dummy to commit fraud or wrong; (3) where the corporation is an agency for a
parent corporation; and (4) where the stock of a corporation is owned by one person.
The RTC held that none of the foregoing reasons can be applied to the incidents in this case and the stock of either of the
two corporation is not owned by one person (defendant Francisco). Except for defendant Adalia B. Francisco, the
incorporators and stockholders of one corporation are different from the other.
The Court of Appeals, reversed the trial court, holding that the corporate veil of Cardale and Merryland must be pierced
in order to hold Francisco and Merryland solidarily liable since these two corporations were used as dummies by
Francisco.
ISSUE #1: Whether or not petitioner Francisco acted in bad faith in her dealings.
HELD: YES. The Court, after an assiduous study of this case, is convinced that the totality of the circumstances
appertaining conduce to the inevitable conclusion that petitioner Francisco acted in bad faith.
Not only did Francisco allow the auction sale to take place, but she used her other corporation (Merryland) in
participating in the auction sale and in acquiring the very properties which her first corporation (Cardale) had mortgaged
to Gutierrez.
It is dicta in corporation law that a corporation is a juridical person with a separate and distinct personality from that of
the stockholders or members who compose it. However, when the legal fiction of the separate corporate personality is
abused, such as when the same is used for fraudulent or wrongful ends, the courts have not hesitated to pierce the
corporate veil. If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked
upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the notion of legal
entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons.
Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction that a
corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be
disregarded. In such cases, the corporation will be considered as a mere association of persons. The members or
stockholders of the corporation will be considered as the corporation, that is, liability will attach directly to the officers
and stockholders. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is
the merealter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs
are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.
It is exceedingly apparent to the Court that the totality of Francisco's actions clearly betray an intention to conceal the
tax delinquencies, levy and public auction of the subject properties from the estate of Gutierrez and the trial court in
Civil Case No. Q-12366 until after the expiration of the redemption period when the remotest possibility for the recovery
of the properties would be extinguished. Consequently, Francisco had effectively deprived the estate of Gutierrez of its
rights as mortgagee over the three parcels of land which were sold to Cardale.
ISSUE #2: Whether or not Merryland may be held solidarily liable with Francisco.
HELD: NO. We cannot agree, however, with the Court of Appeals' decision to hold Merryland solidarily liable with
Francisco. The only act imputable to Merryland in relation to the mortgaged properties is that it purchased the same and
this by itself is not a fraudulent or wrongful act. No evidence has been adduced to establish that Merryland was a mere
alter ego or business conduit of Francisco.
Time and again it has been reiterated that mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personality. Neither has it been alleged or proven that Merryland is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of Cardale. Even assuming that the
businesses of Cardale and Merryland are interrelated, this alone is not justification for disregarding their separate
personalities, absent any showing that Merryland was purposely used as a shield to defraud creditors and third persons
of their rights.32 Thus, Merryland's separate juridical personality must be upheld.